Are Creditors Liable for the Acts of Recovery Agents?

Guest Editorial

Even today many creditors will argue that they are not responsible for the acts of the collateral recovery specialists they hire to recover their defaulted collateral. Their argument, which the courts disagree with, is that the collateral recovery specialist is an “independent contractor” and therefore must assume the liability associated with the self-help repossession process.

Historically, the courts have ruled that where “inherent risk” is found in any occupation, the principal cannot “delegate” away their “vicarious” liability. Further, the courts all across the country have ruled time after time that the act of self-help repossession is a process involving “inherent risks” and, therefore the creditor is liable for the acts of the recovery specialists they hire.

This decision by the courts is not new and it is interesting that many creditors still maintain that they have no liability in this process. For this article I have researched numerous court decisions in several states that have well established the liability of creditors who assign out self-help repossession assignments to collateral recovery specialists.

The following cases, all Appellate or State Supreme Decisions establishes case law and leaves no question as to the liability of the creditor.

McCall v. Owens

Court of Appeals of Tennessee, Eastern Section

May 9, 1991

Court’s Holding: States, in part, “the bank was still vicariously liable for the wrongful acts of the repossessor even though the repossessor was an independent contractor. The duty to not breach the peace is non-delegable”.

Hester v. Bandy

Supreme Court of Mississippi

December 2, 1993

Court’s Holding: States, in part, “when the work to be performed itself entails the anticipation of probable serious danger to person or property, the creditor may be held liable for the acts of an independent contractor. Thus in this case the creditor can be held liable for the actions of the repossessor”.

Nixon v. Halpin

District Court of Appeal of Florida, Fourth District

June 23, 1993

Court’s Holding: States, in part, “A creditor has the right to repossess collateral only if the repossession can be accomplished without a breach of the peace. Once there is a breach of the peace, any repossession must stop. If it does not stop, the creditor will be held responsible for whatever actions take place. The duty to avoid a breach of the peace cannot be delegated. Therefore, the creditor could not delegate its duty of peaceable repossession to an independent contractor and thereby avoid liability for injuries. The creditor faces liability when its independent contractor caused injury”.

Williamson v. Fowler Toyota

Supreme Court of Oklahoma

February 24, 1998

Court’s Holding: States, in part, “The court held that the duty to preserve the peace in non-delegable, so the creditor is liable for the torts of the repossessor even if the repossessor is an independent contractor. Fowler Toyota was liable for both the breach of the peace and the trespass. This includes punitive damages”.

Trash v. Credit Acceptance

Supreme Court of Alabama

March 25, 2002

The Alabama Supreme Court reinstated a personal injury suit against credit Acceptance Corp., whose independent repossession agent spread a slippery substance on a driveway to make it easier to tow away a car.

In a majority opinion by Justice Thomas Woodall, the Supreme Court said there is sufficient evidence that Credit Acceptance had the right to control how Gulf Coast (the repossession agency) repossessed its vehicles. For example, it noted that after the accident, Credit Acceptance instructed Gulf Coast to stop using lubricants during repossessions.

In a speech by nationally known attorney, William Mapother (now deceased) said, “the language of the code (Uniform Commercial Code) is very strong. It states, ‘courts should hold the secured party responsible for the actions of others taken on the secured party’s behalf, including independent contractors engaged by the secured party to take possession of collateral”

Denise Marquez and Donna Ortiz v. Ford Motor Credit Company

Case no. D1333-CV2002-0214

This case involved the death of debtor, John Marquez and was filed in 2002. It has since been settled. Although the record as to the amount of the settlement was sealed, estimates range from $15 million to $18 million from Ford Motor Credit. This case pointed out the imminent danger of creditors hiring collateral recovery specialists who are not sufficiently trained and certified in the field of asset and collateral recovery, especially where the recovery assignment was issued (by the creditor) on a “contingent” basis.

The “bottom line” is very clear. Creditors are liable for the acts of the collateral recovery specialists they hire. And those creditors (and insurance carriers) who read and understand court decisions regarding their liability within the self-help repossession process realize the need to require the recovery specialists they hire (or insure) to provide proof of their training and professional competency. Statistics clearly show that the professionally trained collateral recovery specialist substantially reduces the potential for liability and insurance claims. Just as importantly, in litigation a jury is more prone to be more lenient with a creditor who has based their hiring of recovery specialists on the professional certification and competency of that recovery specialist rather than price.