McGown v. Silverman & Borenstein PLLC et al
Filing
31
REPORT AND RECOMMENDATIONS re 15 DENYING the MOTION for Monetary and Other Sanctions filed by ADP, Inc.. Please note that when filing Objections pursuant to Federal Rule of Civil Procedure 72(b)(2), briefing consists solely of the Objections ( no longer than ten (10) pages) and the Response to the Objections (no longer than ten (10) pages). No further briefing shall be permitted with respect to objections without leave of the Court. Objections to R&R due by 2/24/2014. Signed by Judge Mary Pat Thynge on 2/7/14. (kjk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
HOLLY McGOWN,
Plaintiff,
Case No.: 13-cv-748-RGA/MPT
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REPORT AND RECOMMENDATION
INTRODUCTION
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Defendants.
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Procedural Background
On April 29, 2013, plaintiff Holly McGown ("McGown") filed suit against
Silverman & Borenstein, PLLC, ("S&B") and ADP, Inc. ("ADP") alleging violations of the
Fair Debt Collection Practices Act ("FDCPA") and both Delaware and Colorado
common law. 1 McGown amended the complaint on May 20, 2013 to correct ADP's
name. 2 McGown again amended her complaint on July 23, 2013 to add New Jersey
common law claims against ADP, while withdrawing her Delaware common law claims. 3
Both S&B and ADP filed motions to dismiss pursuant to FED. R. CIV. P. 12(b)(6). 4 In
D.l. 1; id. at 1f 1; see also D.l. 3 (correcting defendant name from "Automatic
Data Processing, Inc." to "ADP, Inc.").
2
D.l. 3.
3
D.l. 8.
4
D.l. 13 (ADP's motion to dismiss dated September 27, 2013); D.l. 16 (S&B's
motion to dismiss dated October 1, 2013).
1
1
addition, ADP filed a motion for monetary and other sanctions. 5 This Report and
Recommendation only addresses ADP's motion for monetary and other sanctions.
B.
Factual Background
McGown is a Delaware resident. 6 S&B is a professional limited liability company
with its principal office in Colorado. 7 ADP is a payroll processor with its principal office
in New Jersey. 8 S&B performed collection work for Capital One Bank (USA) N.A.
("Capital One") and obtained a judgment for Capital One against Oscar P. Flores
("Flores") on May 17, 2007. 9 S&B subsequently obtained a writ of garnishment against
Flores which listed Flores by name, as well as a social security number that turned out
to be McGown's social security number. 10 The writ was then served upon Wai-Mart
who forwarded the writ to its payroll processor, ADP. 11 ADP matched the social security
number on the writ to McGown's social security number and processed the
garnishment, resulting in a $232.84 deduction from her paycheck. 12 On March 11,
2013, prior to the deduction, McGown notified ADP of the incorrect information
contained in the writ. 13 The garnishment, however, was still processed, and the money
was not returned to McGown by Wal-Mart until March 28, 2013. 14
C.
Legal Standard - Sanctions Under Rule 11
5
0.1. 15.
D .I 8 at 1f 7.
7
/d. at 1f 9.
8
/d. at 1f 11 .
9
/d. at 1f1f 21-22.
10
/d. at 1f1f 24-25, 27; D. I. 17 at 2.
11
0.1. 8 at 1f1f 25, 42.
12
/d. at 1f1f 42, 48 (alleging a garnishment of McGown's paycheck on March 14,
6
2013).
13
/d. at 1f 45; D. I. 20 at 1f 17.
14
See 0.1. 8 at 1f 52; 0.1. 13 at 1f 21; 0.1. 20 at 1f 21.
2
A court may impose sanctions on a party or counsel for violation of FED. R. C1v.
P. 11 (b ). 15 Under Rule 11 , when filing a complaint, a party or counsel certifies: ( 1) the
complaint is not presented for an improper purpose; (2) the claims are warranted by
existing law or an objectively reasonable argument for revision to existing law; and (3)
factual contentions are supported by evidence. 16 A complaint is brought for an
improper purpose if it is intended "to harass, cause unnecessary delay, or needlessly
increase the cost of litigation." 17 Objective reasonableness is assessed at the time of
filing and imposes a duty on the attorney to conduct a reasonable pre-filing factual
investigation. 18 However, Rule 11 sanctions should only be granted under exceptional
circumstances, such as where claims are patently frivolous or lack merit. 19
D.
Positions of the Parties
In its motion for sanctions, ADP contends: (1) the filing is intended to harass
and/or increase the litigation costs to encourage settlement; 20 (2) no basis exists for
applying New Jersey law to the conversion claim and, in fact, Delaware law applies; 21
and (3) it is not a debt collector within the purview of the FDCPA. 22 ADP argues, in
addition to the above, McGown and her attorneys failed to conduct a reasonable inquiry
prior to the filing and plaintiff's refusal to dismiss the suit after repeated requests
15
FED. R. CIV. P. 11 (c).
FED. R. C1v. P. 11(b); see also Loving v. Pirelli Cable Corp., 11 F. Supp. 2d
480, 486 (D. Del. 1998).
17
FED. R. CIV. P. 11(b).
18
Mary Ann Pensiero, Inc. v. Lingle, 847 F.2d 90, 94-95 (3d Cir. 1988).
19
Doering v. Union County Bd. of Chosen Freeholders, 857 F.2d 191, 194 (3d
Cir. 1988).
20
D.l. 15 at 1J 12.
21
/d. at 1J1J 13-15.
22
/d. at 1J1J 16-18.
16
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warrants the imposition of monetary and other sanctions. 23 Specifically, ADP requests
attorneys' fees, a monetary sanction for deterrence, reference of McGown's attorneys
to the appropriate disciplinary body, and revocation of pro hac vice orders in this case
and/or denial of any request for such an order in the future. 24
McGown counters the complaint was not brought for an improper purpose and
her attorneys forwarded a letter to ADP detailing the bases for her claims. 25 She further
indicates that investigation into ADP's operations forms the basis for the application of
New Jersey law to her conversion claim since it processed the garnishment in that
state. 26 In addition, she argues the location of the conduct-New Jersey-is an
appropriate factor in determining the applicable law. 27 McGown also contends ADP is
the quintessential debt collector under the broad purview of the FDCPA because it
regularly processes garnishments. 28
II.
ANALYSIS
Rule 11 sanctions are generally disfavored unless the misconduct by the party
and/or attorneys is extraordinary. In the present case, McGown sued both S&B and
ADP under the FDCPA and state common law. Although ADP points to McGown's
refusal to dismiss the action as an ground for sanctions, this argument is unavailing. A
plaintiff need not bow to pressure from a defendant, who desires to avoid litigation, for
23
24
/d. at 1J1J 19-20.
/d. at 8.
25
D. I. 18 at 1112. McGown also notes ADP's reference to a $14,000 settlement
demand refers to a settlement for both defendants, S&B and ADP, not solely ADP,
contrary to its statements. /d.
26
/d. at 1113.
27
/d. at 1J1J 14-15.
28
/d. at 1J1J 16-17. McGown also relies on cases holding attorneys to be debt
collectors under the FDCPA and likens ADP's conduct to such cases. /d. at 1118.
4
fear of sanctions from the court. Mere refusal to dismiss an action upon a defendant's
request does not necessarily indicate an intent to harass or increase litigation costs.
Instead, the appropriate analysis is whether McGown's and her attorneys' conduct was
objectively reasonable, and whether they complied with their affirmative duty to conduct
a reasonable investigation.
McGown twice amended her complaint, initially to correct a name error and later
to amend the state law basis for her complaint. Despite the fact McGown changed the
basis of her conversion claim against ADP from Delaware to New Jersey law, such
action is not unreasonable given her attorneys' assertion they investigated and found
the conduct complained of occurred in New Jersey. Although this represents a factual
dispute between ADP and McGown, a mere factual dispute is insufficient to support the
imposition of sanctions. Her counsel's letter to ADP describing the bases for her
allegations demonstrates a good faith effort to provide support for her claims and
resolve the dispute with ADP amicably. 29
Although dismissal of this matter with respect to ADP has been recommended,
such finding does not indicate McGown's claims are frivolous or without support. The
mere presence of legal and factual disputes does not warrant sanctions. 30
Ill.
CONCLUSION
ADP's motion for sanctions should be denied. ADP fails to prove McGown or her
29
D.l. 18, Ex. F. In contrast, ADP's reply brief engages in a tone that is
inappropriate, and borders on vexatious. See D. I. 26. Use of such derogatory
comments is not behavior the court encourages nor finds persuasive.
30
The Advisory Committee Notes to Rule 11 (1993) provide factual disputes
which may be resolved in discovery are generally insufficient to support the imposition
of sanctions.
5
attorneys initiated this matter for an improper purpose or on baseless claims. McGown
has demonstrated to the satisfaction of the court she possessed an adequate basis,
through reasonable investigation, to assert claims against ADP despite recommended
dismissal of her action.
IV.
ORDER & RECOMMENDED DISPOSITION
For the reasons contained herein, the court recommends defendants' motion for
monetary and other sanctions (D. I. 15) be DENIED.
This Report and Recommendation is filed pursuant to 28 U.S.C. § 636(b)(1 )(B),
FED. R. CIV. P. 72(a) and D. Del. LR 72.1. The parties may serve and file specific
written objections within fourteen (14) days after being served with a copy of this Report
and Recommendation. The objections and response to the objections are limited to
five (5) pages each.
The parties are directed to the Court's Standing Order in Non-Pro Se matters for
Objections Filed under FED. R. C1v. P. 72, dated October 9, 2013, a copy of which is
available on the Court's website, www.ded.uscourts.gov.
February 7, 2014
Is/ Mary Pat Thynge
UNITED STATES MAGISTRATE JUDGE
6
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