SAMUELS v. MIDLAND FUNDING, LLC Civil Action 12-0490-WS-C.
921 F.Supp.2d 1321 (2013)
Eric SAMUELS, Plaintiff, v. MIDLAND FUNDING, LLC, Defendant.
United States District Court, S.D. Alabama, Southern Division.
February 7, 2013.
John R. Cox, Daphne, AL, for Plaintiff
Jason Brent Tompkins, Eric Brandon Langley, Balch & Bingham, Birmingham, AL, for Defendant.
WILLIAM H. STEELE, Chief Judge.
This matter is before the Court on the defendant's motion for judgment on the pleadings. (Doc. 12). The parties have filed briefs in support of their respective positions, (Docs. 13, 17, 18, 22), and the motion is ripe for resolution. After careful consideration, the Court concludes that the motion is due to be denied.
According to the complaint, (Doc. 1), the defendant is a debt collector as defined by the Fair Debt Collection Practices Act ("the Act"). Its business model is to purchase small consumer debts in bulk, at deep discount from the nominal debt balances; to initiate informal collection efforts; and to initiate litigation in the state courts of Alabama if informal efforts fail. The information received by the defendant when it purchases in bulk is too limited to establish the validity of the debt, the defendant's ownership of the debt, or a calculation of the balance claimed; the information the defendant possesses, in short, is patently insufficient to support judgment in its favor. The defendant's uniform practice is to make no effort to obtain evidence that could sustain its burden of proof at trial, and the defendant has no intention of obtaining such evidence or of proving its claims at trial. Instead, the defendant files suit with the intention of either obtaining default judgment or settling with the consumer if he or she responds to the complaint. The defendant appears at trial only to take default judgment or to pressure unrepresented consumers into settlement, not to prove its case, as it has no evidence with which to do so. The defendant has adopted this model because it obtains default judgment or settlement in 90% of the lawsuits it files. In the other 10% of cases, the defendant will appear at trial through counsel but without witnesses or competent evidence, and the trial court will enter judgment in favor of the consumer.
According to the complaint, the defendant followed this pattern with respect to the plaintiff, who denies owing any debt to the defendant. The defendant filed suit after supposedly purchasing the debt as part of a bulk purchase, but without taking reasonable steps to ensure the validity of the debt and with no intention of obtaining
Count One of the complaint charges that the defendant's conduct violated several provisions of the Act. Counts Two through Six set forth state law causes of action for invasion of privacy; negligent/wanton/intentional hiring, supervision, etc.; negligence/wantonness/intentional conduct; malicious prosecution; and abuse of process. The defendant seeks dismissal of all claims.
"Judgment on the pleadings is proper when no issues of material fact exist, and the moving party is entitled to judgment as a matter of law based on the substance of the pleadings and any judicially noticed facts." Cunningham v. District Attorney's Office,
The basis of the defendant's motion is that the complaint fails to state a claim. (Doc. 12). The parties agree that "[a] motion for judgment on the pleadings under Rule 12(c) is subject to the same standard as a motion to dismiss under Rule 12(b)(6)." Doe v. MySpace, Inc.,
I. Fair Debt Collection Practices Act.
"It is the purpose of this subchapter to eliminate abusive debt collection practices...." 15 U.S.C. § 1692(e). This purpose is played out in subsequent provisions identifying particular abusive practices, several of which are invoked by the complaint.
"The threat to take any action that ... is not intended to be taken" is a violation of the Act. 15 U.S.C. § 1692e(5). Likewise, "[t]he use of any false representation or deceptive means to collect or attempt to collect any debt" is a violation of the Act. Id. § 1692e(10). The complaint alleges that the defendant violated these provisions by bringing and maintaining the collection suit, because the defendant thereby threatened and represented that it intended to prove the claims asserted in the lawsuit, even though it did not intend to do but intended instead to coerce payment or obtain default judgment. (Doc. 1 at 21-22).
"The false representation of ... the character, amount, or legal status of any debt" is a violation of the Act. 15 U.S.C. § 1692e(2)(A). The complaint alleges that the defendant violated this provision by filing and maintaining a complaint alleging the character, amount and legal status of the plaintiff's alleged debt despite the plaintiff's denial of the same and despite having neither knowledge of the same nor
"The collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law" is a violation of the Act. 15 U.S.C. § 1692f(1). The complaint alleges that the defendant violated this provision by maintaining its allegation of a written agreement to pay despite the plaintiff's denial of such an agreement and despite having neither knowledge of such an agreement nor any intention of taking any reasonable steps to prove the existence of such an agreement. (Doc. 1 at 22).
"A debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt." 15 U.S.C. § 1692f. The complaint alleges that the defendant violated this provision by filing suit with no intention to prove its case but only to use the suit to coerce payment or obtain default judgment. (Doc. 1 at 22).
Finally, but without citation to the Act, the complaint alleges that the defendant's conduct in filing suit to obtain default judgment or coerce payment "was an action taken by Defendant in bad faith, with reckless disregard of Plaintiff, and was an abuse of process." (Doc. 1 at 23).
The defendant asserts four arguments in opposition to the plaintiff's federal claim: (1) the plaintiff's theory is not legally recognized; (2) the factual basis for the claim is contradicted by the complaint's allegations; (3) the defendant's alleged misrepresentation was not material; and (4) the plaintiff's claim under the Act was a compulsory counterclaim in the state court litigation, which was lost by the plaintiff's failure to assert it therein. (Doc. 13 at 4).
A. Validity of the Plaintiff's Theory.
The defendant first argues that the Act does not govern conduct in connection with a state court collection action. (Doc. 13 at 6-8). The Supreme Court, however, has held that "[t]he Act does apply to lawyers engaged in [collection] litigation." Heintz v. Jenkins,
The defendant does not acknowledge these authorities, pointing instead to a sister court's statement that "[t]here is no indication whatsoever that Congress considered state law legal remedies to be `abusive'" for purposes of the Act. McKnight v. Benitez,
Before considering the defendant's cases, it is important to articulate the theory underlying the instant complaint, so that its theory may be compared with those involved in the defendant's cases. The plaintiff's theory, at its core, is that a defendant's filing and prosecution of a collection action, while knowing that it lacks evidence to prove its claim and knowing that it will not obtain or even try to obtain such evidence — such that it knows it cannot ever prove its claim and possesses no intention of doing so — violates the Act. Most of the defendant's proffered cases address different allegations and so do not answer the question presented.
In Harvey v. Great Seneca Financial Corp.,
In Beler v. Blatt, Hasenmiller, Leibsker & Moore, LLC,
The defendant's final authority is Bandy v. Midland Funding, LLC, 2013 WL 210730 (S.D.Ala.2013). That case, filed in this District the same day as this case, by the same attorney as in this case against the same defendant as in this case, involves essentially identical allegations. The Bandy Court reached the result the defendant favors, id. at *9, but its reasoning does not persuade this Court to follow it.
First, the Bandy Court found the plaintiff's claims "analogous to those alleged and rejected in Harvey." 2013 WL 210730 at *9. As discussed above, the Harvey plaintiff "alleged only that, at the time of filing, [the defendants] did not have the means of proving their debt-collection claim." 453 F.3d at 328. This case, unlike Harvey, is not centered on the defendant's inability to prove its claim on the day it filed suit, but on its fixed intention not to prove its claim and its knowledge that it would never be able to prove its claim, since it had no evidence and deliberately elected to seek none.
The Bandy Court also found the plaintiff's claim "analogous to those alleged and rejected in.... Deere." 2013 WL 210730 at *9. As noted previously, the Deere Court distilled the plaintiff's allegation as being "that more of a paper trail should have been in the lawyers' hands or attached to the complaint." 413 F.Supp.2d at 891.
In its brief opposing the defendants' motion to dismiss, the Deere plaintiff advanced a "`new theory' of liability," based on the defendant's practice of buying debt in bulk at deep discount, receiving minimal summary information on each account, filing suit with no additional information, and obtaining default judgment where possible while voluntarily dismissing cases in which the debtor appears and asks for documentation, based on the economics of pursuing challenged claims. 413 F.Supp.2d at 890. The plaintiff argued that filing suit "intend[ing] to dismiss if the defendant debtor requests verification of the original debt" should be actionable under Sections 1692e(10) and 1692f, but the Court responded (after noting this theory was not
The Court does not find this portion of Deere persuasive for at least the following reasons. First, it appears to be dicta, since it addresses a theory not advanced in the pleadings and since the Deere Court characterized the plaintiff's claim as limited to the Harvey paradigm. Second, the Deere plaintiff did not clearly allege that the defendants proceeded with knowledge they could not prove their case and with no intention of doing so. Third, there is no indication that the defendant herein attached to the state complaint an affidavit so as to provide evidence reflecting the existence and amount of debt, as the Deere Court deemed important. Fourth, it is unclear and unexplained why a debtor's eventual ability to ferret out the debt collector's lack of evidence would prevent the debt collector's antecedent filing and maintenance of a claim, which it at all times knows it can never prove, from violating the Act. Fifth, a debtor's ability to engage in discovery and dispositive motion practice (on which ability the Deere Court's opinion rests) appears to be rather restricted — at least in the district courts of Alabama, where the underlying collection action was filed.
Finally, the Bandy Court, 2013 WL 210730 at *9, found the plaintiff's claims analogous to those asserted in Donatelli v. Warmbrodt, 2011 WL 2580442 (W.D.Pa. 2011). The Bandy Court did not examine or explain Donatelli but only quoted from it, 2013 WL 210730 at *8-9, so the Court turns to that decision. In Donatelli, the plaintiff alleged that the defendant filed the collection action without supporting evidence and that its intention was not to prosecute the case but to procure a default judgment. Id. at *3.
The Bandy Court distinguished Kuria on the grounds that, in Kuria, the defendant allegedly was "incapable" of proving its claim, while the defendant in Bandy merely "chose" not to prove its claim. 2013 WL 210730 at *8 (emphasis in original). The significance of this distinction is unclear. A debt collector that chooses not to obtain evidence with which to prove its claim is just as "incapable" of proving the claim as is a debt collector that attempts to obtain such evidence but fails because no such evidence exists. And the conduct of the former would appear more culpable, since such a debt collector knows absolutely from the outset that it cannot prove its claim, while a debt collector looking for evidence may believe it will succeed. The Court does not find the Bandy Court's proffered distinction to be persuasive.
The defendant identifies a different distinction: in Kuria, the defendant voluntarily dismissed when the plaintiff requested discovery, 752 F.Supp.2d at 1296, while in this case the defendant appeared through counsel at trial. (Doc. 13 at 13). The defendant does not explain how proceeding to trial with full knowledge it would lose — essentially doubling down on its bid to coerce settlement — could preclude a claim that Kuria makes available when the defendant folds before trial once its bluff is called. Perhaps the defendant believes its conduct draws into question what its true intentions were, but that is a factual issue that cannot be resolved on a motion for judgment on the pleadings.
Although the parties devote much of their attention to what other cases have decided, the discussion above reflects that
To break this stalemate, the defendant argues that state law already provides remedies for abusive litigation, so that a federal cause of action under the Act would be superfluous. (Doc. 13 at 16). But many states provide direct protection from various debt collection practices, yet conduct violating these state laws may also violate the Act. E.g., LeBlanc, 601 F.3d at 1191-92 & 1191 n. 11 (failure to register in violation of state collection practices law could support a federal claim under Section 1692e(5)). The single appellate decision to which the defendant refers concluded only that the Act "was not meant to convert every violation of a state debt collection law into a federal violation." Carlson v. First Revenue Assurance,
Next, the defendant objects that the plaintiff is merely quibbling with its "litigation strategy: what evidence it considered sufficient, what evidence it intended to present, and whether it intended to call any particular witnesses." (Doc. 13 at 15). Allowing such a claim, it declares, would expose debt collectors to liability under the Act if "that evidence did not meet some subjective standard [the plaintiff] has yet to articulate." (Id. at 2). The argument misstates the plaintiff's claim. The plaintiff does not allege that the defendant possessed evidence that it believed, or could have believed, would establish every element of its cause of action; instead, the plaintiff asserts the defendant knew it had no evidence with which to establish its claim. And he does not allege the defendant brought evidence and witnesses to trial that the trial judge could have credited; instead, he alleges that the defendant appeared with "no witnesses and no competent or admissible evidence." (Doc. 1 at 20). The only "litigation strategy" the plaintiff has identified is that of pursuing litigation with no evidence and hoping the collection defendant is cowed into default or payment before its game is exposed.
Finally, the defendant argues that permitting the plaintiff's claim would place it and other debt collectors in an untenable position. If, upon discovering it cannot sustain its claim, a debt collector voluntarily dismisses, it will face suit under the Act but, if it continues to pursue the collection action, it will face suit under the Alabama Litigation Accountability Act and its various
This argument as well rests on a false premise. The plaintiff's claim is not that the defendant filed suit expecting in good faith to prove its claim and only later discovered it could not do so; rather, the plaintiff alleges that the defendant filed suit with full knowledge it would not (and therefore could not) prove its claim. Accepting the plaintiff's theory would not lead to liability in other situations, and the defendant's parade of horribles is but a phantasm.
The Court does not by this order definitively resolve whether the Act provides the plaintiff a cause of action. Instead, the Court rules only that the defendant has not demonstrated that no such cause of action exists. The Court has and expresses no opinion whether the defendant could have done so by presenting different or stronger arguments, though the defendant remains free to try on motion for summary judgment.
B. Internal Contradiction.
As noted, the complaint alleges that the defendant "represented to Plaintiff ... that it intended to prove its claims," but its "actual intention was not to prove its case." (Doc. 1 at 21). The defendant points out that the state court order recites that judgment was entered in favor of the plaintiff herein "[a]fter hearing of stipulate[d] facts." (Doc. 13, Exhibit A).
There are at least two fatal difficulties with the defendant's argument. First, the key allegation of the complaint is that the defendant did not intend to prove its case, not that it did not intend to try its case.
Second, the quoted language from the state court order does not of itself establish that the defendant attempted to prove or even try its case; for all that appears from this opaque language, the defendant merely "stipulated" that it could not prove its claim.
The defendant argues that an actionable misrepresentation must be material and that its implied representation that it intended to prove its claims was not material. (Doc. 13 at 18-20).
At least three appellate courts have agreed that materiality is an element of claims under the Act based on a false or misleading representation. Donohue v. Quick Collect, Inc.,
The defendant argues its alleged misrepresentation (that it intended to prove its claims) was not material because the plaintiff does not allege he would have done anything differently had he known the truth. Indeed, the defendant argues the plaintiff was affirmatively aided by the misrepresentation, in that it prompted him to retain counsel, which in turn led to his prevailing in the action. (Doc. 13 at 20; Doc. 18 at 6-7). That is, the defendant assumes that materiality is measured by the actual effect of the representation on the plaintiff rather than (as is generally the test) by its potential effect on a hypothetical person.
The relevant hypothetical person for materiality purposes under the Act would appear to be the "least sophisticated consumer." See Donohue, 592 F.3d at 1033 (court evaluates misrepresentation claims based on "whether the least sophisticated debtor would likely be misled by a communication"); Hahn, 557 F.3d at 758 (similar); Miller, 561 F.3d at 596-97 (statement was not material when "the least-sophisticated consumer" would understand the defendant's language). The Eleventh Circuit employs the "least sophisticated consumer" standard,
In its reply brief, the defendant argues that the filing of a collection action does not constitute an implied representation that the plaintiff intends to prove its case at trial. (Doc. 18 at 1-5). District courts, including this one, ordinarily do not consider arguments raised for the first time on reply.
D. Compulsory Counterclaim.
"[F]ailure to assert a compulsory counterclaim bars the assertion of that claim in another action." Alabama Insurance Guaranty Association v. Southern Alloy Corp.,
The defendant characterizes the plaintiff's claims under the Act as being for "abuse of process." (Doc. 13 at 21-22). It believes itself justified in doing so because the complaint alleges that the defendant's conduct, in addition to violating several express provisions of the Act, "was an abuse of process." (Doc. 1 at 23). The defendant does not explain how this isolated use of the term supports characterizing the entirety of the claim as sounding in abuse of process.
Nor does the defendant identify any Alabama case ruling an abuse of process claim to be a compulsory counterclaim. Instead, it cites a sister court's observation that "[t]he authorities have split on the question whether an abuse-of-process
Finally, "[i]mplicit within this requirement [of Rule 13(a)], however, is the knowledge that one has a claim against the opposing party. Certainly Rule 13(a) cannot be construed to require a party to file as a compulsory counterclaim a claim which it does not know it has." Sho-Me Motor Lodges, Inc. v. Jehle-Slauson Construction Co.,
The defendant does not cite Sho-Me or Downing, but it nevertheless recognizes that it must show the plaintiff was aware, during the collection action, of an abuse-of-process claim. The defendant maintains the plaintiff "cannot contend that he was unaware of his `claim' in state court: according to his theory, the violation occurred the moment Midland filed the collection lawsuit." (Doc. 13 at 22-23). This is a non sequitur. That the defendant may have violated the Act (by pursuing the suit with no intent to obtain evidence or prove its claims and thus with knowledge it could not do so) does not establish that the plaintiff, while the suit continued, was aware of the defendant's secret plan. The plaintiff denies any such awareness, (Doc. 17 at 29), and the defendant has not shown the contrary.
II. State Claims.
A. Invasion of Privacy. 22
Alabama recognizes four forms of invasion of privacy:
Butler v. Town of Argo,
Norris v. Moskin Stores, Inc., 272 Ala. 174,
In the context of a creditor's collection efforts, the right to be free from the invasion of one's privacy "has been characterized as ... the wrongful intrusion into one's private activities in such a manner as to outrage or cause mental suffering, shame or humiliation to a person of ordinary sensibilities...." Jacksonville State Bank v. Barnwell,
Changing tacks, the defendant argues that the complaint's allegations do not satisfy the requirements of Rule 8(a)(2) as expounded by Bell Atlantic Corp. v. Twombly, 550 U.S. 544,
To survive dismissal under Rule 12(b)(6), a complaint must first satisfy the pleading requirements of Rule 8(a)(2). Twombly, 550 U.S. at 555,
First, the complaint must address all the elements that must be shown in order to support recovery under one or more causes of action. "At a minimum, notice pleading requires that a complaint contain inferential allegations from which we can identify each of the material elements necessary to sustain a recovery under some viable legal theory." Wilchombe v. TeeVee Toons, Inc.,
Pleading elements is necessary, but it is not enough to satisfy Rule 8(a)(2). The rule "requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do" to satisfy that rule. Twombly, 550 U.S. at 555,
The defendant relies on Polk v. Law Office of Curtis O. Barnes, 2010 WL 1994093 (M.D.Ala.2010). The complaint in Polk alleged that the plaintiff received a call on his cell phone, which "was not the first" call he had received about the debt. Id. at *1. The complaint also alleged that the defendant had called the plaintiff's employer. Id. The Court noted that "absent from the Complaint are allegations from which the Court could ascertain the number, frequency or pattern of calls from Defendant's agents or the content of the calls which he contends were intended to harass or intimidate him." Id. at *2. The Court thus ruled that the claim for invasion of privacy did not comply with Rule 8. Id. The defendant does not explain how Polk supports its position, and the Court concludes it does not, given the differences in the pleadings.
First, the complaint in Polk identified as few as three telephone calls. The complaint herein does not quantify the number of calls and mailings to the plaintiff, but it does describe this conduct as "continua[l]," a factual allegation that necessarily denotes a high number of incidents.
Moreover, the Alabama Supreme Court has indicated that improper manipulation of the legal system to obtain payment may support a claim of invasion of privacy against a debt collector. See Barnwell, 481 So.2d at 865 (fraudulent alteration of a security instrument). Here, the plaintiff has alleged such manipulation, in the form of filing and pursuing litigation without evidence to prove the claim and without intention to obtain such evidence (and, thus, with knowledge the claim cannot be proved). The complaint alleges this conduct in detail, flush with factual allegations.
B. Malicious Prosecution.
The defendant's only argument is that its proceeding to trial "contradicts the essential state of mind element" of this claim, i.e., malice. According to the defendant, the complaint's acknowledgment that the case proceeded to trial disproves the defendant's malice. (Doc. 13 at 28-30).
The Court is unable to follow the defendant's reasoning. The defendant neither defines "malice" nor explains how the mere act of appearing at trial with no ability to prove its case — an inability it allegedly was aware of at all times — negates malice. Certainly it cites no authority for this proposition.
Moreover, "[i]t is well established that for purposes of a malicious-prosecution claim, the element of malice may be inferred from the lack of probable cause...." Ex parte Tuscaloosa County,
C. Abuse of Process.
The defendant's argument concerning this claim is similar. An element of abuse of process is an ulterior purpose, and the defendant argues that its appearance at trial negates the ulterior purpose of coercing settlement or default judgment. (Doc. 13 at 28-30). The defendant appears to believe that, because its alleged ulterior purpose was not realized, it could not have possessed such a purpose. The defendant cites no authority for this proposition, and the Court cannot accept it without a stronger basis than the defendant's ipse dixit.
D. Negligence/Wantonness/Intentional Conduct.
Count Four alleges that the defendant acted negligently, wantonly and/or intentionally in attempting to coerce payment from the plaintiff. (Doc. 1 at 27-28). The defendant's only argument is that "nothing in Count Four specifies Midland's actual `conduct,' other than the act of filing the underlying collection action." (Doc. 13 at 26). Count Four, however, incorporates the previous allegations of the complaint and therefore encompasses all allegations concerning the defendant's pre-lawsuit informal collection efforts as well as all allegations concerning the defendant's actions, inactions and intentions concerning the collection action. The defendant has identified nothing that requires dismissal of this claim.
E. Negligent/Wanton/Intentional Hiring/Supervision/Etc.
Count Three alleges that the defendant negligently, wantonly and/or intentionally hired, trained, retained and/or supervised its debt collection employees and its agents, who violated the law as described in the complaint. (Doc. 1 at 26-27).
"[A] party alleging negligent supervision and hiring must prove the underlying wrongful conduct of the defendant's agents." Flying J Fish Farm v. Peoples Bank,
The defendant next argues that the act of its collection law firm in filing the collection action could not constitute an underlying wrong, because "a claim of negligent prosecution of a civil action is not a cognizable tort claim in this state." Ex parte State Farm Mutual Automobile Insurance Co.,
Finally, the defendant argues that it cannot be held liable for the actions taken by its collection law firm, because that firm is an independent contractor. (Doc. 13 at 27-28). The complaint, however, alleges that the firm is the defendant's agent. The defendant does not acknowledge this allegation or explain how the Court can ignore it.
For the reasons set forth above, the defendant's motion for judgment on the pleadings is
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