Welnowska et al v. Westward Management, Inc. et al
Filing
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MEMORANDUM Opinion and Order signed by the Honorable Edmond E. Chang. For the reasons stated in the Opinion, the motion to dismiss 52 is denied, though only one theory of liability remains viable as to whether Defendant was acting as a "debt collector" under the FDCPA, and discovery will be limited to that issue for now. Status hearing of 08/27/2014 is accelerated to 08/06/2014 at 10:00 a.m. Mailed notice(slb, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
ANNA WELNOWSKA and JERZY
SENDOREK, individually and on behalf
of others similarly situated,
Plaintiffs,
v.
WESTWARD MANAGEMENT, INC.
d/b/a Westward Property Management,
Defendant.
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No. 13 C 06244
Judge Edmond E. Chang
MEMORANDUM OPINION AND ORDER
Plaintiffs Anna Welnowska and Jerzy Sendorek filed this amended complaint
[R. 49] against Defendant Westward Management, Inc., doing business as
Westward Property Management, alleging that Westward violated provisions of the
Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq., while
attempting to collect a debt from Plaintiffs.1 Westward now moves to dismiss [R. 52]
the amended complaint under Federal Rule of Civil Procedure 12(b)(6) for failure to
state a claim. For the reasons stated below, the motion to dismiss is denied,
although only one of Plaintiffs’ theories of liability remains in the case.
I. Background
In evaluating a motion to dismiss, the Court must accept as true the
complaint’s factual allegations and draw reasonable inferences in Plaintiffs’ favor.
Ashcroft v. al-Kidd, ––– U.S. –––, 131 S.Ct. 2074, 2079 (2011). Plaintiffs are
1This
Court has subject matter jurisdiction under 28 U.S.C. § 1331. Citations to the
docket are indicated by “R.” followed by the docket entry.
Chicago residents who own a condominium in the Madison Manor 2 complex. Am.
Compl. ¶ 4. The Madison Manor 2 Condominium Association hired Westward as its
property manager on July 1, 2012. Id. ¶¶ 4, 7. Part of Westward’s duties as property
manager was to collect monthly assessments and other charges due to the
Association and to prepare notices of delinquency for unpaid debts. R. 49-1,
Management Agreement at 9. According to Westward’s records, Plaintiffs were
already in arrears on Association assessments when Westward assumed its
position. Am. Compl. ¶ 8.
On August 30, 2012, Westward sent its first collection letter to Plaintiffs,
attempting to collect on a debt allegedly owed to the Association. Id. ¶ 18. Plaintiffs
disputed, in writing to Westward, that they owed any debt to the Association. R. 496, Pl.’s Exh. 6; R. 49-7, Pl.’s Exh. 7. On February 6, 2013, Westward sent Plaintiffs a
second letter, notifying Plaintiffs that failure to pay the alleged debt within thirty
days would lead to seizure of their home (by termination of possession).2 R. 49-5,
Pl.’s Exh. 5, February 6 Letter. At some point, the Association filed a lawsuit
against Plaintiffs in an Illinois state court, seeking collection of assessments, fees,
and costs, as well as termination of possession. R. 52-1, Def.’s Br. at 2.
Plaintiffs filed this lawsuit in August 2013, alleging five FDCPA violations by
Westward. R. 1, Compl.; Am. Compl. Westward now moves to dismiss each count
under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim on the
grounds that it is not a debt collector under the FDCPA. R. 52, Mot. Dismiss.
2Plaintiffs
allege that this notice was sent by Westward, but the notice is signed by
“The Board of Managers of Madison Manor 2 Condominium Association” and “David
Westveer, its Agent.” R. 49-5, Pl.’s Exh. 5, February 6 Letter. Construing the facts in
Plaintiffs’ favor, the Court assumes for the purposes of this motion that the February 6th
notice was sent by Westward.
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II. Legal Standard
Under Federal Rule of Civil Procedure 8(a)(2), a complaint generally need
only include “a short and plain statement of the claim showing that the pleader is
entitled to relief.” Fed. R. Civ. P. 8(a)(2). This short and plain statement must “give
the defendant fair notice of what the claim is and the grounds upon which it rests.”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quotation marks and citation
omitted). The Seventh Circuit has explained that this rule “reflects a liberal notice
pleading regime, which is intended to ‘focus litigation on the merits of a claim’
rather than on technicalities that might keep plaintiffs out of court.” Brooks v. Ross,
578 F.3d 574, 580 (7th Cir. 2009) (quoting Swierkiewicz v. Sorema N.A., 534 U.S.
506, 514 (2002)).
“A motion under Rule 12(b)(6) challenges the sufficiency of the complaint to
state a claim upon which relief may be granted.” Hallinan v. Fraternal Order of
Police Chicago Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). “[W]hen ruling on a
defendant’s motion to dismiss, a judge must accept as true all of the factual
allegations contained in the complaint.” Erickson v. Pardus, 551 U.S. 89, 94 (2007)
(citing Twombly, 550 U.S. at 555–56); McGowan v. Hulick, 612 F.3d 636, 638 (7th
Cir. 2010) (courts accept factual allegations as true and draw all reasonable
inferences in plaintiff's favor). “[A] complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). These
allegations “must be enough to raise a right to relief above the speculative level.”
Twombly, 550 U.S. at 555. The allegations that are entitled to the assumption of
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truth are those that are factual, rather than mere legal conclusions. Iqbal, 556 U.S.
at 678-79.
III. Analysis
Westward asserts a single argument in support of its motion to dismiss
Plaintiffs’ amended complaint: that Westward is not a “debt collector” under the
FDCPA. Def.’s Br. at 4-12. The FDCPA defines a “debt collector” as “any person who
uses any instrumentality of interstate commerce or the mails in any business the
principal purpose of which is the collection of any debts, or who regularly collects or
attempts to collect, directly or indirectly, debts owed or due or asserted to be owed
or due another.” 15 U.S.C. § 1692a(6). It also clarifies that not every entity involved
in collecting a debt owed to another is a “debt collector” for purposes of the Act. In
particular, the following are not debt collectors:
[A]ny person collecting or attempting to collect any debt owed or due or
asserted to be owed or due another to the extent such activity (i) is incidental
to a bona fide fiduciary obligation or a bona fide escrow arrangement; (ii)
concerns a debt which was originated by such person; (iii) concerns a debt
which was not in default at the time it was obtained by such person; or (iv)
concerns a debt obtained by such person as a secured party in a commercial
credit transaction involving the creditor.
15 U.S.C. § 1692a(6)(F).
Westward contends that, as a full-service property manager for the
Association, its attempts to collect Plaintiffs’ debt were “incidental to a bona fide
fiduciary obligation” and thus fall under exception (i). Def.’s Br. at 4, 7. In support,
Westward argues that federal district courts have consistently recognized the
distinction between a debt collector that is hired for the sole purpose of debt
collection and a property manager that is responsible for performing a variety of
property management services, including collecting debts from unit owners or
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lessees. Id. at 7-8 (citing Kirby v. Prof’l Ass’n Mgmt., Inc., No. 3:12-cv-697-J20-MCR,
2012 WL 5497951, at *4 (M.D. Fla. Nov. 9, 2012) (granting summary judgment to
property manager on FDCPA claim under § 1692a(6)(F)(i) fiduciary duty exception);
Reynolds v. Gables Residential Servs., Inc., 428 F. Supp. 2d 1260, 1264 (M.D. Fla.
2006) (“[Property manager] not only had a right but indeed a fiduciary obligation to
collect rent and corresponding fees from tenants.”); Berendt v. Fairfield Resorts,
Inc., 339 F.Supp.2d 1064 (W.D. Wis. 2004) (“Because the [Management Agreement]
designates the [property] manager . . . as the Association’s agent and because
agency creates a fiduciary relationship between the agent and the Association . . .
defendant was acting incidentally to a bona fide fiduciary obligation when it
collected the maintenance fees on behalf of the Association.”)). Because debt
collection was only one of many duties that Westward assumed as the Association’s
property manager, see Management Agreement at 9-10, Westward argues that its
debt-collection practices fall squarely under the fiduciary-duty exception. Def.’s Br.
at 10.
In response, Plaintiffs rely primarily on the Seventh Circuit’s holding in
Carter v. AMC, LLC, 645 F.3d 840, 843-44 (7th Cir. 2011), to argue that Westward
is a debt collector. R. 55, Pl.’s Response Br. at 3-5. Like this case, the tenant in
Carter sued a property manager under the FDCPA. 645 F.3d at 843-44. But unlike
this case, in determining whether the property manager was a debt collector, the
Seventh Circuit considered 15 U.S.C. § 1692a(6)(F)(iii), a different FDCPA exception
that “concerns a debt which was not in default at the time it was obtained by [the
debt collector].” 645 F.3d at 843. Finding that a property manager “obtains” a debt
when it becomes the property owner’s agent, and that the plaintiff’s debt in that
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case arose only after the defendant had assumed its management position, the
Seventh Circuit affirmed the district court’s dismissal of the plaintiff’s FDCPA
claims under § 1692a(6)(F)(iii). Id. at 843-44.
Here, Plaintiffs argue that because their alleged debt arose before Westward
assumed its management position, the Seventh Circuit’s holding in Carter compels
the conclusion that Westward is a debt collector. Pl.’s Response Br. at 3-5. This
argument misses the mark. In deciding that the Carter property manager was not a
debt collector, the Seventh Circuit relied on only one of the four exceptions
enumerated in § 1692a(6)(F). Nothing about the Seventh Circuit’s conclusion in
Carter limits the potential application of the other three exceptions. Indeed, on
determining that the pre-existing-relationship exception applied, there would have
been no need to consider any other exception. So the fact that Plaintiffs here had
allegedly defaulted on their debt by the time Westward “obtained” it has no effect on
whether Westward’s attempt to collect that debt was incidental to a bona fide
fiduciary obligation owed to the Association.
Plaintiffs concede that Westward owed the Association fiduciary duties, but
argue that Westward’s debt collection was not incidental to those duties. Pl.’s
Response Br. at 5. Numerous courts have held that “[t]he ‘incidental to’ requirement
means that the collection activity must not be ‘central to’ the fiduciary relationship.”
See Grady v. Ocwen Loan Servicing, LLC, 11-CV-1531, 2012 WL 929928, at *4 (N.D.
Ill. Mar. 19, 2012) (quoting Rowe v. Educ. Credit Mgmt. Corp., 559 F.3d 1028, 1034
(9th Cir. 2009)). In support of their contention that Westward’s debt collection was
not incidental to its fiduciary obligations, Plaintiffs advance two contradictory
arguments: (1) Westward’s duties were “almost exclusively financial,” rendering
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debt-collection fatally central to Westward’s management responsibilities, and (2)
Westward “expressly excluded debt collection as one of its duties to the Association,
so debt collection was not incidental to anything.” Pl.’s Response Br. at 5-8.
On the first point, Westward supports its position that debt collection was
merely incidental to its management duties by highlighting the breadth of its duties
as a “full-service property manager.” R. 56, Def.’s Reply Br. at 7. Under the
Management Agreement, Westward’s duties fall under the following headings:
Collections; Online System, Records, Statements; Budget Preparation and Approval
by Association; Meeting Attendance; Annual Statement; Utilities and Other
Services for Association; Insurance Placement, Records, and Claims; Sales and
Leasing Responsibilities; and other Managerial Responsibilities. Management
Agreement at 9-10. Under each heading, the Agreement imposes numerous
additional duties like “reviewing the references and credentials of prospective
purchasers and lessees” and “investigat[ing] and report[ing] all accidents or claims
for damage related to the ownership, operation, and maintenance of the common
elements of the Building.” Id. In light of these duties, Westward contends that its
collection of unit owners’ assessments and preparation of delinquency notices are
clearly incidental to its bona fide fiduciary obligation to the Association.
In response, Plaintiffs emphasize that certain duties under each heading are
“subject to Board approval” or arise only at the “direction or request of the Board.”
See id.; Pl.’s Response Br. at 6-7. Plaintiffs further allege that there is no evidence,
at least at the pleading stage, that the Board exercised these rights and that
Westward’s other duties (like attending Association/Board meetings) are negligible.
Pl.’s Response Br. at 7. Accordingly, Plaintiffs contend that “virtually the only
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actually imposed duties for Defendant are financial, i.e., collecting current
assessments, reporting on the state of finances and proposing a budget based on
those finances.” Id.
Plaintiffs’ own correspondence with Westward—which they attached to their
pleading, so we may consider them—refutes this argument: in their letters,
Plaintiffs asked Westward to resolve issues relating to a leak in their unit, to
forward a home-inspection report completed by a plumber hired by Westward, to
provide Plaintiffs with “a copy of hours and duties for every day of that cleaning
person who is working for that association,” and to send Plaintiffs a copy of the
minutes from an Association meeting—all non-financial, managerial tasks. Pl.’s
Exh. 6, 7. Moreover, the fact that certain duties are subject to Board approval does
not withdraw them from the scope of duties Westward must be prepared to perform.
But even if Plaintiffs’ argument were correct, and Westward’s duties were primarily
financial, it does not follow that debt collection was central to Westward’s many
management responsibilities under the Management Agreement. For all of these
reasons, Plaintiffs’ first argument is unavailing.
As to Plaintiffs’ second argument—that debt collection fell entirely outside
the scope of Westward’s duties—Plaintiffs point to the Collections provision of
Schedule A (“Administrative Duties of Manager”) to the Management Agreement:
Manager shall collect and, as necessary, receipt for all monthly or other
assessments and other charges due to the Association for operation of the
Association; provided, however, that the Manager shall have no responsibility
for collection of delinquent assessments or other charges except preparation of
notices of delinquency consistent with the Fair Debt Collection Practices Act.
Management Agreement at 9 (emphasis added). Plaintiffs allege that, true to
Westward’s disclaimer of responsibility for debt-collection efforts, Westward billed
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Plaintiffs separately for preparation of the February 6 Demand Letter. Pl.’s
Response Br. at 4-5; R. 49-2, Account Statement. Plaintiffs argue that “[i]f such
notices were incidental to (i.e., part of) other duties, Defendant would not charge
extra. Such services would be part of Defendant’s everyday management duties.”
Pl.’s Response Br. at 5. It is worth noting that, for the purposes of this analysis,
“incidental to” does not mean “part of”—on the contrary, “incidental to” means “not
. . . central to the fiduciary relationship.” Grady, 2012 WL 929928, at *4. But
Plaintiffs seem to allege that, in preparing its notices of delinquency, Westward was
not acting under the Management Agreement at all—that is, that it acted instead
under a separate obligation to the Association, and under that separate obligation,
debt collection was not incidental to other fiduciary duties.
At this stage of the litigation, when the amended complaint is entitled to the
presumption of truth and to every reasonable inference in Plaintiffs’ favor, the
Court concludes that there is just barely enough plausibility to the allegation to
permit the case to move forward on this particular theory of liability. At the
pleading stage, the $245.00 charge for the February 6 Demand Letter raises a fact
question as to whether Westward prepared the notices of delinquency under the
Management Agreement or under some other agreement with the Association. If
Westward acted under the Management Agreement, then its debt-collection efforts
were incidental to a bona fide fiduciary obligation to the Association, as discussed
above. If, on the other hand, Westward acted under some other agreement separate
from the Management Agreement, then additional facts would be necessary to
determine the applicability of § 1692a(6)(F)(i). Practically speaking, the Court
doubts whether there really is a separate agreement under which Westward was
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collecting debts, because the Management Agreement’s Collections provision
appears to have obligated Westward to collect all monthly assessments and charges
due to the Association and to prepare notices of delinquency. Management
Agreement at 9. Nevertheless, this is not a fact question on which the Court can
simply pronounce a finding at this stage of the case. Accordingly, the parties will be
permitted to engage in limited discovery on this narrow issue (that is, whether the
debt-collection efforts were part of the Management Agreement or some separate
agreement), which will be discussed at the next status hearing.
IV. Conclusion
For the reasons stated above, Westward’s motion to dismiss [R. 52] is denied,
though only one theory remains on how Westward might be a debt collector under
the FDCPA. And, for the reasons stated in the Court’s February 18, 2014 Minute
Entry [R. 53], the class-certification issues are continued.
ENTERED:
s/Edmond E. Chang
Honorable Edmond E. Chang
United States District Judge
DATE: July 24, 2014
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