Phan v. Gartner Law Offices, Inc.

Filing 21

MEMORANDUM Opinion and Order. Signed by the Honorable Joan B. Gottschall on 9/10/2012. (lw, )

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

THONE PHAN,
Plaintiff,
v.
GARTNER LAW OFFICES, INC.,
Defendant.

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Case No. 12 C 1207
Judge Joan B. Gottschall

MEMORANDUM OPINION & ORDER
Thone Phan (“Ms. Phan”) alleges that Gartner Law Offices, Inc. (“Gartner”)
violated the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq (“FDCPA”),
when it threatened to garnish her wages. Gartner moves to dismiss, arguing that Ms.
Phan cannot state a claim under the FDCPA and that the court lacks subject matter
jurisdiction.
I. FACTUAL BACKGROUND1
Beginning in 2004, Ms. Phan borrowed money from a friend, Elster Ratliff.
When she was unable to repay Ratliff and other creditors, Ms. Phan sought bankruptcy
protection in 2008. Ms. Phan, however, did not identify Ratliff as a creditor in her
bankruptcy filings. Ratliff discovered the bankruptcy proceedings and filed an adversary
complaint, arguing that Ms. Phan’s debt to him was not dischargeable because it was
obtained by false pretenses, false representations, or actual fraud. The bankruptcy court
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In ruling on a motion to dismiss, a court typically relies on the well-pleaded allegations in the complaint.
Geinosky v. City of Chi., 675 F.3d 743, 745 n.1 (7th Cir. 2012). A court may, however, take judicial notice
of matters of public record, such as materials from another proceeding. Indep. Trust Corp. v. Stewart Info.
Servs. Corp., 665 F.3d 930, 942 (7th Cir. 2012). The court hereby takes judicial notice of the materials
from Ms. Phan’s bankruptcy proceeding, In re: Phan, Case No. 08-B-22214, and draws from those
proceedings in setting forth the factual background of this case.

found that Ms. Phan borrowed from Ratliff never intending to repay him and therefore
procured the debt by false pretenses, false representation, or actual fraud. In November
2011, the bankruptcy court concluded that Ms. Phan’s debt to Ratliff was not
dischargeable. In April 2012, the bankruptcy court amended its November 2011 order to
enter judgment against Ms. Phan, finding that she owed Ratliff $13,150 plus $1,008.30 in
costs.
On January 9, 2012, Gartner emailed Ms. Phan in an effort to collect the debt that
she owed to Ratliff. In the email, Gartner informed Ms. Phan that unless she submitted
funds to it by January 13, 2012, it would garnish her wages. Ms. Phan argues that
Garner’s email violates the FDCPA because at the time it was sent, Gartner had yet to
obtain a garnishment order and also because the bankruptcy court had found only that her
debt to Ratliff was not dischargeable and had not yet entered judgment against her.
Gartner moves to dismiss, arguing that: (1) Ms. Phan’s debt is not a consumer
debt as defined by the FDCPA; (2)Gartner is not a debt collector subject to the
requirements of the FDCPA; and (3) Ms. Phan’s complaint is so frivolous that it fails to
invoke the court’s subject matter jurisdiction.
II. STANDARD OF REVIEW
Gartner styles its motion as one brought under Federal Rule of Civil Procedure
12(b)(1). Gartner, however, attacks the sufficiency of Ms. Phan’s claim, arguing that she
cannot prove her debt is a consumer debt and that it is not a debt collector. “[T]he
absence of a valid (as opposed to arguable) cause of action does not implicate subject
matter jurisdiction, i.e., the courts’ statutory or constitutional power to adjudicate the
case.” Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 89, 118 S.Ct. 1003, 140
L.Ed.2d 210 (1998); see also Jogi v. Voges, 480 F.3d 822, 825-26 (7th Cir. 2007).
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“Dismissal for lack of subject-matter jurisdiction because of the inadequacy of the federal
claim is proper only when the claim is ‘so insubstantial, implausible, foreclosed by prior
decisions of this Court, or otherwise completely devoid of merit as not to involve a
federal controversy.’” Steel Co., 523 U.S. at 89 (quoting Oneida Indian Nation of N.Y. v.
Cnty. of Oneida, 414 U.S. 661, 666, 94 S.Ct. 772, 39 L.Ed.2d 73 (1974)). Accordingly,
the court will examine Gartner’s first two arguments, which challenge the sufficiency of
Ms. Phan’s claim, pursuant to Federal Rule of Civil Procedure 12(b)(6).
Under Rule 12(b)(6), the defendant may seek to dismiss the case if the plaintiff
“fail[s] to state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). The
court accepts as true all well-pleaded facts and draws all reasonable inferences in favor of
the plaintiff. Stayart v. Yahoo! Inc., 623 F.3d 436, 438 (7th Cir. 2010). Although
Federal Rule of Civil Procedure 8(a) requires only that the complaint contain “a short and
plain statement of the claim showing that the pleader is entitled to relief,” the complaint
must include “more than labels and conclusions, and a formulaic recitation of the
elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544,
555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007); see Ashcroft v. Iqbal, 556 U.S. 662, 678,
129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (noting that while Rule 8 does not require
detailed factual allegations, “it demands more than an unadorned, the-defendantunlawfully-harmed-me accusation”). The relevant question is whether the complaint
includes enough factual allegations to “raise a right to relief above the speculative level.”
Twombly, 550 U.S. at 555. In other words, to survive a motion to dismiss, “‘the plaintiff
must give enough details about the subject-matter of the case to present a story that holds
together,’ and the question the court should ask is ‘could these things have happened, not

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did they happen.’” Estate of Davis v. Wells Fargo Bank, 633 F.3d 529, 533 (7th Cir.
2011) (quoting Swonson v. Citibank, N.A., 614 F.3d 400, 404-05 (7th Cir. 2010)).
III. ANALYSIS
The primary goal of the FDCPA is to protect consumers from “abusive, deceptive
and unfair debt collection practices.” Bass v. Stolper, Koritzinsky, Brewster & Neider,
S.C., 111 F.3d 1322, 1324 (7th Cir. 1997). The FDCPA’s definition of “debt” limits the
scope of the Act. It defines a “debt” as:
any obligation or alleged obligation of a consumer to pay money arising out of a
transaction in which the money, property, insurance, or services which are the
subject of the transaction are primarily for personal, family, or household
purposes, whether or not such obligation has been reduced to judgment.
15 U.S.C. § 1692a(5).
Not all obligations are debts. Bass, 11 F.3d at 1324. To determine whether an
obligation is a debt, a court first examines whether it arises from a consensual transaction
in which the parties negotiate or contract for consumer-related goods or services.
Berman v. GC Servs. Ltd. P’ship, 146 F.3d 482, 484 (7th Cir. 1998); Reid v. Am. Traffic
Solutions, Inc., 2010 WL 5289108, at *4 (S.D. Ill. Dec. 20, 2010); Williams v. Allocated
Bus. Mgmt., LLC, No. 10 C 1711, 2010 WL 2330371, at * 1 (N.D. Ill. Jun. 8, 2010). If it
has, the court then determines whether it was owed primarily for personal, family, or
household purposes.

Berman, 146 F.3d at 484.

Accordingly, non-consensual

obligations, including those arising from shoplifting or theft, child support orders,
parking tickets, or automobile impoundment fees are not “transactions” and therefore do
not create “debt” within the scope of the FDCPA. See Reid, 2010 WL 5289108, at *4
(collecting cases). On the other hand, where a consumer writes a check that later is
dishonored, the consumer engages in a “transaction” and incurs a “debt” within the scope

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of the FDCPA. Bass, 111 F.3d at 1325-26; Narwick v. Wexler, 901 F. Supp. 1275, 1281
(N.D. Ill. 1995).
Gartner argues that Ms. Phan’s obligation to Ratliff is not a debt within the scope
of the FDCPA. In support, Gartner relies on a series of cases that address obligations that
are not voluntarily incurred. See, e.g., Mabe v. G.C. Servs. Ltd. P’ship, 32 F.3d 86 (4th
Cir. 1994) (holding that obligation arising from failure to pay child support was not a
debt within the scope of the FDCPA); Zimmerman v. HBO Affiliate Grp., 834 F.2d 1163
(3rd Cir. 1987) (theft of cable services); Riebe v. Juergensmeyer & Assocs., 979 F. Supp.
1218 (N.D. Ill. 1997) (library fines); Battye v. Child Support Servs., Inc., 873 F. Supp.
103 (N.D. Ill. 1994) (child support). Gartner argues that Ms. Phan’s obligation to pay
Ratliff is similar to the above-cited obligations because the bankruptcy court found that
she never intended to repay the money she borrowed. Gartner suggests that Ms. Phan
and Ratliff did not engage in a “consensual transaction” because Ms. Phan borrowed the
money from Ratliff under false pretenses. Therefore, Gartner argues that the transaction
she engaged in is more like that of a shoplifter or cable thief than one of a debtor.
Gartner’s arguments run contrary to clearly expressed precedent. The Seventh
Circuit has held that there is no “fraud exception” to the FDCPA. Keele v. Wexler, 149
F.3d 589, 595 (7th Cir. 1998). In Keele, the court addressed whether the act protected
consumers who passed bad checks, even if they knew those checks would be dishonored.
Id. at 595-96. The court observed that “nothing in the Act makes inquiry into the
debtor’s intent at the time he or she writes a subsequently-dishonored check.” Id. at 596.
Rather, the Act’s “language focuses primarily, if not exclusively, on the conduct of debt
collectors, not debtors.” Id. The FDCPA protects “any person --- not just ‘deserving’

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debtors --- in the debt collection process.” Id. at 595-96. The court reasoned that
Congress could have created an exception excluding debts that were fraudulently
incurred, but did not. Id. (internal quotation marks omitted); see also Bass, 111 F.3d at
1330 (expressing “discomfort with the proposition that the courts should create a fraud
exception where none exists in the Act’s text” because Congress was well aware that not
all debtors intend to repay their debts and yet chose not to exempt debt collectors from
following the act even where they could prove that the consumer never intended to repay
the debt); Fed. Trade Comm’n v. Check Investors, Inc., 502 F.3d 159, 169-171 (3rd Cir.
2007) (declining to craft a fraud exception onto the FDCPA that excludes the collection
of NSF fees from the scope of the Act). Gartner’s argument that Ms. Phan’s obligation to
pay Ratliff is not a “debt” within the scope of the FDCPA because she never intended to
repay him when she incurred is wrong, nearly to the point that it is frivolous.
Gartner next argues that it is not a debt collector within the meaning of the
FDCPA. This argument merits little discussion. In support of its argument, Gartner
argues that it has attempted to collect less than five debts since it was formed and its debt
collection fees represent less than 1% of its overall fees. Gartner relies on facts outside
of the pleadings to demonstrate that Ms. Phan’s claim lacks merit. Of course, the court
may not rely on facts outside the pleadings when considering a motion to dismiss unless
it converts the motion into one for summary judgment.2 Fed. R. Civ. P. 12(d); Marques
v. Fed. Reserve Bank of Chi., 286 F.3d 1014, 1017 (7th Cir. 2002). Gartner’s argument
fails because motions to dismiss test the sufficiency and not the merits of a claim.

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The court is not inclined to convert the motion because Ms. Phan has not been given any opportunity to
discover and present evidence to counter Gartner’s allegations.

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Finally, Gartner suggests that Ms. Phan’s claim is so frivolous that it fails to
invoke the court’s subject matter jurisdiction. Gartner offers little in the way of support
for this argument. As best the court can tell, Gartner believes Ms. Phan’s argument is
frivolous because: (1) she is attempting to avoid repayment of her debt; (2) she has
litigated other FDCPA claims; and (3) she did not list Ratliff as a creditor in her
bankruptcy proceedings. None of these arguments demonstrate, in any way, that Ms.
Phan’s claim is so lacking in merit that it fails to invoke the court’s subject matter
jurisdiction.
IV. CONCLUSION
The court DENIES Gartner’s motion to dismiss. The court orders Gartner to
answer the complaint on or before October 4, 2012.

ENTER:
/s/
JOAN B. GOTTSCHALL
United States District Judge
DATED: September 10, 2012

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