Purdue Employees Federal Credit Union v. VanHouten et al

Filing 11

MEMORANDUM OPINION and ORDER, granting 4 MOTION to Dismiss Counterclaim filed by Purdue Employees Federal Credit Union. Signed by Judge Allen Sharp on 9/24/08. (mlc)

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF INDIANA H A M M O N D DIVISION AT LAFAYETTE PURDUE EMPLOYEES, F E D E R A L CREDIT UNION, ) ) ) P l a i n t i f f, ) v. ) ) D A V I D P. VAN HOUTEN, ) A N N E T T E VAN HOUTEN, and ) B E N E F I C IA L OF INDIANA, INC. ) d /b /a BENEFICIAL MORTGAGE ) C O ., ) ) Defendants. ) ******************************* ) D A V I D P. VAN HOUTEN, and ) A N N E T T E VAN HOUTEN, ) ) D e f e n d a n t s/C o u n t e r Plaintiffs, ) v. ) ) P U R D U E EMPLOYEES, ) F E D E R A L CREDIT UNION, ) ) P lain tiff/C o u n ter Defendant. )

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M E M O R A N D U M , OPINION & ORDER

P u r s u a n t to Federal Rules of Civil Procedure 41(b) and 12(b)(6), Plaintiff/Counter D e f en d a n t Purdue Employees Federal Credit Union ("PEFCU") filed a motion to dismiss the c o u n te rc la im of Defendants/Counter Plaintiffs, David and Annette Van Houten ("the Van H o u te n s" ). The Van Houtens' counterclaim alleged violations of the Fair Credit Reporting A c t ("FCRA')and the Fair Debt Collection Practices Act ("FDCPA"), and they asserted a

c la im of defamation. The case was removed to this Court on June 19, 2008 from the Jasper S u p e rio r Court, based on federal question jurisdiction as alleged in the counterclaim. For the r e a so n s set forth below, PEFCU's motion to dismiss the counterclaim is GRANTED. I . Background T h is case arose out of a mortgage foreclosure filed by PEFCU against the Van H o u tens in Jasper Superior Court on March 3, 2006 (Docket No. 1). In its foreclosure c o m p la in t, PEFCU alleged that it held two mortgages on the Van Houtens' property which s e c u re d two promissory notes. Id. Though the Van Houtens filed bankruptcy in April, 2004, th e y remained in a reaffirmation agreement with PEFCU. O n May 11, 2006, the Van Houtens, represented by counsel, filed an answer to P E F C U 's complaint, and filed a counter-claim alleging that PEFCU did the following: (1) c o m m itte d negligent noncompliance in violation of the FCRA; (2) committed defamation by n e g lig e n tly publishing false information about the Van Houtens' credit, and (3) violated the F D C P A (Docket No. 2). On September 25, 2006, PEFCU filed a motion to dismiss the Van Houtens' counter c la im for failure to state a claim upon which relief can be granted pursuant to Indiana Trial R u le 12(b)(6) (Docket No. 10.2). Specifically, PEFCU argued that the FCRA does not apply to PEFCU because it is not a "consumer reporting agency" as defined by the Act. Id. at 3. A d d itio n a lly, PEFCU argued that the Van Houtens' negligent publication claim fails because th e FCRA grants them qualified immunity. Id. at 5. Finally, PEFCU argued that the FDCPA

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d o e s not apply to them as a bank acting to collect debt on its own behalf. Id. at 4. O n or about November 21, 2006, the Jasper Superior Court held a hearing on P E F C U 's motion to dismiss. At the hearing, the Van Houtens requested that the court enter f in d in g s of fact and conclusions of law within 14 days. On December 4, 2006, PEFCU submitted its response to the request. However, that s a m e day, PEFCU and the court received a fax stating that Annette Van Houten filed a p e titio n under the Federal Bankruptcy Code and sought a stay of the foreclosure and c o u n te rc la im , both of which the Jasper Superior Court granted. Also, that day the Van H o u te n s filed a motion for extension of time to submit their proposed findings of fact. The m o tio n was granted, though the Van Houtens never filed their findings. Meanwhile, Annette Van Houten's bankruptcy case proceeded in the bankruptcy c o u rt, with Ms. Van Houten represented by an attorney different than the attorney who re p re s e n te d the Van Houtens in the instant counterclaim.1 On October 3, 2007, in the course o f the Bankruptcy case, Ms. Van Houten's attorney stated that her claim against PEFCU was " n o t stayed under Section 362 of the Federal Bankruptcy Code" and that Ms. Van Houten " k n o w s of no reason that it cannot proceed to its resolution in the State court." (Bankruptcy C a s e 06-40434, Docket No. 63).

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It should be noted that the foreclosure underlying PEFCU's original claim against the V a n Houtens was incorporated into the chapter 13 plan and, thus, this Court need not a d d re ss the foreclosure action in ruling on the motion to dismiss but will do so by s e p a ra te order. 3

O n February 6, 2008, PEFCU filed a motion to dismiss the Van Houtens' c o u n te rc la im for failure to prosecute under Indiana Trial Rule 41(e) (Docket No. 4). The V a n Houtens failed to respond to this motion. On March 4, 2008, the Van Houtens' attorney for the counter-claim against PEFCU w ith d re w from the case, apparently in reaction to the Van Houtens' failure to notify him of th e October 3 admission made by their bankruptcy attorney (Docket No. 7). On June 19, 2008, on the eve of a hearing in the circuit court regarding PEFCU's m o tio n to dismiss, the Van Houtens removed their counter claim to Federal Court (Docket N o . 5). On June 27, 2008, in the interests of justice, this Court offered the Van Houtens a w ind o w of time in which they could respond to PEFCU's motion to dismiss (Docket No. 6). O n July 31, 2008 the Van Houtens filed their response to the motion to dismiss, raising no le g a l arguments, but merely admitting or denying certain aspects of PEFCU's February 6, 2 0 0 8 motion to dismiss (Docket No. 7). On August 22, 2008, PEFCU filed its reply to the Van Houtens' response, reiterating th e ir earlier arguments for this Court to dismiss the Van Houten's claims for failure to p rose cu te under Federal Rule of Civil Procedure 41(b) or, in the alternative, for this Court to dismiss the Van Houtens' claims for failure to state a claim upon which relief can be g ra n te d under Federal Rule of Civil Procedure 12(b)(6). II. Standard of Review

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A c c o rd in g to Federal Rule of Civil Procedure 41(b), "If the plaintiff fails to prosecute . . . a defendant may move to dismiss the action or any claims against it." Fed. R. Civ. P. 4 1 (b). This Court's power under Rule 41(b) has been described as an inherent power, " g o v e rn e d not by rule or statute but by the control necessarily vested in courts to manage th e ir own affairs so as to achieve the orderly and expeditious disposition of cases." Link v. W a b a sh R.R. Co., 370 U.S. 626, 630-31 (1962); Joseph J. Anclien, Broader is Better: The In h e re n t Powers of Federal Courts, 64 N.Y.U. Ann. Surv. Am. L. 37, 48 (2008). The S e v e n th Circuit further states that under Rule 41(b), "[t]he circumstances warranting . . . d is m is s a l are infinitely variable, making it difficult to formulate a standard more particular th a n that the district judge should not act precipitately, willfully, unreasonably . . . ." Ball v. C ity of Chicago, 2 F.3d 752, 755 (7th Cir. 1993). F u r th e r , under Federal Rule of Civil Procedure 12(b)(6), dismissal is appropriate if th e complaint sets forth no viable cause of action upon which relief can be granted. Fed. R. C iv. P. 12(b)(6); Challenger v. Ironworkers Local No. 1, 619 F.2d 645, 649 (7th Cir. 1980). In assessing the propriety of a motion to dismiss pursuant to Rule 12(b)(6), the court accepts a ll factual allegations in the complaint and the inferences reasonably drawn from them as tr u e . Jackson v. E.J. Brach Corp., 176 F.3d 971, 977 (7th Cir.1999). The Van Houtens' c la im s are subject to dismissal only if it is clear that they can prove no set of facts consistent w ith the allegations in the complaint that would entitle them to relief. Scott v. City of C h ic a g o , 195 F.3d 950, 951 (7th Cir.1999).

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I I I . Discussion A . Motion to Dismiss for Failure to Prosecute G e n e ra lly, when considering dismissing a case for failure to prosecute under Federal R u le of Civil Procedure 41(b), the Seventh Circuit has held that the standard for district ju d g e s to follow is "unclear." Ball, 2 F.3d at 755. However, in Ball, the court held that a d is tric t judge should not dismiss a case for failure to prosecute unless "due warning" has b e e n given to the parties. Id. The court further stated that even though such warnings need n o t be formalized, they must be explicit. Id. In the present case, there can be no doubt that, as of the filing of PEFCU's motion in J a s p e r Superior Court on February 26, 2008, the Van Houtens knew of the possibility that their case could be dismissed due to their failure to prosecute. Further, the procedural record in this case seems to reveal a frustrating failure on the part of the Van Houtens to efficiently m o v e this case forward. However, this Court recognizes that this case presents a unique in s ta n c e due to the late removal of the case to Federal Court in June, 2008, and due to the V a n Houtens' recent status as pro se litigants (Docket No. 7 at 2). Accordingly, this Court declines to rest its ruling upon a failure to prosecute for the f o l lo w in g reasons: (1) this Court gave the Van Houtens no explicit warning that their case w o u ld be dismissed due to failure to prosecute, (2) it is unknown whether such notice was g iv e n at the state court level prior to removal, (3) the Van Houtens are pro se litigants, thus this Court's duty to warn them of the possibility of dismissal for failure to prosecute is more

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p re ss in g , and, most importantly (4) as of July 31, 2008, the Van Houtens did, in fact, respond to PEFCU's motion to dismiss. Therefore, this Court denies PEFCU's motion to dismiss on th e basis of a failure to prosecute. B. Motion to Dismiss for Failure to State a Claim upon which Relief Can Be Granted P r o se complaints are generally held to a less stringent standard than those drafted by a n attorney. See Alvardo v. Litscher, 267 F.3d 648, 651 (7th Cir. 2001). However, this C o u rt notes that the complaint containing the Van Houtens' counter-claim was not filed pro s e , but was in fact filed by their attorney on May 11, 2006, nearly two years before he w ith d re w in March, 2008 (Docket No. 2). On the other hand, the Van Houtens' response to P E F C U ' s motion to dismiss was filed pro se on July 31, 2008 (Docket No. 7). Thus, the d e c is io n that follows reflects the appropriate level of leniency with regard to the Van H o u te n s ' pro se response. 1. Negligent Noncompliance Under the Fair Credit Reporting Act Generally the FCRA was designed to regulate the vast network of credit reporting b u r e a u s, or consumer reporting agencies. 15 U.S.C. §1681(f). A "consumer reporting a g e n c y" is defined in the FCRA as, "any person which for monetary fees . . . regularly e n g a g e s in whole or in part in the process of assembling or evaluating consumer credit in f o rm a tio n . . . for the purpose of furnishing consumer reports to third parties . . . ." Id. It is well established that banks and retailers are not consumer reporting agencies u n d e r the FCRA when they are merely providing information to consumer reporting agencies 7

b a se d upon their own experiences with customers. See e.g., DiGianni v. Stern's, 26 F.3d 3 4 6 , 348 (2d Cir. 1994); Todd v. Ass'd Credit Bureau Services, Inc., 451 F.Supp. 447, 4484 9 (E.D. Pa. 1977); aff'd without opinion 578 F.2d 1376 (3d Cir. 1978); Smith v. First N a tio n a l Bank, 837 F.2d 1575 (11th Cir. 1988). Instead, the term "consumer reporting a g e n c y" refers to firms that are in the business of assembling and evaluating consumer credit in f o rm a tio n . DiGianni, 26 F.2d at 349. Thus, under the FCRA, only consumer reporting a g e n cie s are charged with assuring the "accuracy, confidentiality, and proper dissemination" o f information about a specific individual; the FCRA does not impose obligations upon c re d ito rs who pass along information to the consumer reporting agencies. Id. at 349. In the instant case, PEFCU is not a consumer reporting agency. According to the Van H o u te n 's pro se response, this case arose out of a "foreclosure action by PEFCU on an o u ts ta n d in g mortgage held by the Van Houtens." (Docket Nos. 4 at 5; 7 at 1). Specifically, th e Van Houtens brought suit against PEFCU for providing information to consumer re p o rtin g agencies based upon PEFCU's own experiences with the Van Houtens. As such, th e FCRA does not apply to PEFCU in this case. Even accepting all factual allegations in the their complaint as true, the Van Houtens h a v e failed to state a claim under the FCRA upon which relief can be granted. Accordingly, P E F C U ' s motion to dismiss count one of the counterclaim is granted. 2. Negligent Publication of Credit Information T h e second count of the Van Houtens' counterclaim also involves the FCRA. The 8

F C R A grants qualified immunity to organizations that furnish information to credit reporting a g e n c ie s unless the organization reports "false information . . . with malice or willful intent to injure such consumer." 15 U.S.C. §1681(h)(e). Thus, in all instances not involving intent to injure consumers, the FCRA preempts state law defamation claims. Id.; Nwoke v. C o u n tryw id e Home Loans, Inc., 251 Fed. Appx. 363, 365 (7th Cir. 2007). In the present case, the Van Houtens alleged that PEFCU "falsely, recklessly, and m a lic i o u s l y" published their credit information (Docket No. 2 at 6). Consideration of P E F C U 's motion to dismiss requires this Court to examine the pleadings and accept all f a ctu a l allegations in favor of the non-moving party: the Van Houtens. Thus, even though th e r e is no supporting evidence in the record, for the limited purposes of the motion to d is m is s , this Court must accept the allegation that PEFCU acted with malice in publishing f a ls e information about the Van Houtens. Accordingly, PEFCU is not entitled to qualified im m u n ity because a furnisher of credit information who acts with malice waives their im m u n ity from defamation claims under the FCRA. Thus, this Court must assess the Van Houtens' defamation claim under state law. In In d ia n a , the plaintiff in a defamation claim must prove the following four elements: (1) c o m m u n ic a tio n with defamatory imputation; (2) malice; (3) publication; and (4) damages. A a f co Heating & Air Conditioning Co. v. Northwest Publications, Inc., 321 N.E.2d 580 (Ind. A p p . 1974). Further, Indiana courts have long held that the precise words of the alleged 9

d ef am atory statement must be included in the original complaint. Shepard v. Schurz C o m m u n icatio n s, Inc., 847 N.E.2d 219, 225 (Ind. App. 2006) ("The alleged defamatory s t a te m e n t must be included in the complaint to aid the court in this task [of determining w h ethe r a communication is defamatory]"); Ernst v. Indiana Bell Telephone Co., 475 N.E.2d 3 5 1 , 354 (Ind. App. 1985) ("[B]road generalizations, of and to themselves, are not actionable d e f a m a tio n ."); Small v. Fisher, 28 N.E. 714 (Ind. App. 1891) ("A complaint in slander, w h ich does not give the slanderous words spoken, but only the effect of them, is bad."). In their complaint, the Van Houtens allege each element of a defamation claim by s ta tin g that PEFCU "falsely and maliciously" published information about them that caused t h e m to suffer "damages to their reputation in the community." (Docket No. 2 at 6-7). H o w ev er, the Van Houtens' complaint is insufficient to survive a motion to dismiss.2 In p a rticu lar , though the Van Houtens claim that they were defamed, they do not specifically id e n tify any defamatory statements in their complaint, let alone identify any statements in th e ir more recent response. Leaving this Court to guess the content of PEFCU's statements is not sufficient to survive a motion to dismiss. Therefore, under Indiana law, dismissal of th e Van Houtens' defamation claim is proper. Accordingly, PEFCU's motion to dismiss c o u n t two of the counterclaim is granted.

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The insufficiently pled defamation claim in the Van Houtens' original complaint was drafted the Van Houtens' former attorney, Robert Randle, in May 2006, a year and a half before he withdrew from the case on his own accord. (Docket No. 2). Thus, holding the Van Houtens' original complaint to the well settled standard enunciated by Indiana courts serves the interests of justice. 10

3. False Representation under the Fair Debt Collection Practices Act T h e FDCPA was designed to "eliminate abusive debt collection practices by debt c o lle c to rs ." 15 U.S.C. §1692(d). Under the statute, "debt collector" is defined as "any person . . . who regularly collects or attempts to collect . . . debts owed . . . to another." 15 U.S.C. § 1 6 9 2 a (6 ). Significantly, the FDCPA does not regulate the actions of creditors attempting to c o lle c t his or her own debts. Transamerica Fin. Serv., Inc. v. Sykes, 171 F.3d 553, 554 n.1 (7th Cir. 1999) (holding that the FDCPA did apply a bank pursuing a mortgage foreclosure b e c au s e it was a creditor rather than a debt collector); Aubert v. Am. Gen. Fin., Inc., 137 F.3d 9 7 6 , 978 (7th Cir. 1998) (stating, "Creditors who collect in their own name and whose p rin c ip a l business is not debt collection, therefore, are not subject to the Act."). Because PEFCU was acting in its capacity as the Van Houtens' creditor, rather than a c tin g as a third party debt collector, the FDCPA does not apply to any actions they may have ta k e n pursuant to the Van Houtens' mortgage foreclosure. Accordingly, PEFCU's motion to dismiss count three of the counterclaim is granted. IV. Conclusion D ism issal of this case for failure to prosecute under Federal Rule of Civil Procedure 4 1 (b) is inappropriate due to the fact that the Van Houtens were not given explicit warning o f an impending dismissal and due to the Van Houtens' belated, but nonetheless present, re sp o n se . Therefore, this Court does not dismiss the counterclaim on the basis of a failure to

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p ro s e c u te . However, because the Van Houtens' complaint sets forth no viable cause of action u p o n which relief can be granted, dismissal is appropriate under Federal Rule of Civil P roc ed u re 12(b)(6). Therefore, PEFCU's motion to dismiss the Van Houtens' counterclaim f o r failure to state a claim upon which relief can be granted is hereby GRANTED. SO ORDERED.

Date: September 24, 2008

/s/ ALLEN SHARP ALLEN SHARP, JUDGE UNITED STATES DISTRICT COURT

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