Harrington v. DH Capital Management, Inc.
Filing
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MEMORANDUM OPINION AND ORDER denying 5 Motion to Dismiss; Signed by Chief Judge Joseph H. McKinley, Jr on 11/4/14. cc: Counsel (DJT)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
LOUISVILLE DIVISION
CIVIL ACTION NO. 3:14CV-627-JHM
KIMBERLY HARRINGTON
PLAINTIFF
VS.
DH CAPITAL MANAGEMENT, INC.
DEFENDANT
MEMORANDUM OPINION AND ORDER
This matter is before the Court on Defendant DH Capital Management, Inc.’s (“DH
Capital”) Motion to Dismiss [DN 5]. Fully briefed, this matter is ripe for review.
I. BACKGROUND
This case arises out of Defendant DH Capital’s suit filed against Plaintiff Harrington to
recover a credit card debt owed to US Bank. While DH Capital initially filed suit in Warren
County, Kentucky on October 4, 2011, Defendant eventually transferred the case to Jefferson
County District Court. On February 10, 2014, Defendant and Plaintiff filed an Agreed Judgment
with the Jefferson District Court that called for Plaintiff to make $60 payments each month
starting on December 13, 2013. [Agreed Judgment, DN 1-2]. However, by June 25, 2014, DH
Capital had determined that Harrington was in default on her payments required under the
Agreed Judgment, and as a result, Defendant sought to garnish her wages.
After learning of the wage garnishment sent to her employer, Plaintiff filed an affidavit
and a motion with the Jefferson District Court seeking to vacate the Agreed Judgment. Plaintiff
asserted, inter alia, that the Agreed Judgment should be vacated on the grounds that: (1)
Defendant’s claim for the debt was barred by the statute of limitations; (2) the Agreed Judgment
called for Plaintiff to pay an interest rate in excess of the permitted rate; and (3) the Agreed
Judgment impermissibly required Plaintiff to pay attorney’s fees. [Pl.’s Mot. to Vacate, DN 5-6,
at 4-5]. On August 1, 2014, Jefferson District Court Judge David Bowles heard arguments on
Plaintiff’s motion to vacate and denied Plaintiff’s motion pursuant to Kentucky Rule of Civil
Procedure (CR) 60.02. [Hr’g Tr., DN 5-8, at 10]. Subsequently, Judge Bowles entered an Order
denying Plaintiff’s challenge to the garnishment. [Order Denying Garnishment Challenge, DN 59].
On September 10, 2014, Plaintiff Harrington filed suit in this Court seeking declaratory
relief and damages related to the previously described facts.
Plaintiff’s Complaint alleges
multiple causes of action falling under the Fair Debt Collections Practices Act (“FDCPA”), 15
U.S.C. § 1692 et seq. As it relates to the present motion to dismiss, three of those causes of
action mirror the issues raised by Plaintiff in her motion to vacate the Agreed Judgment in state
court. Specifically, Plaintiff claims that DH Capital filed suit on a debt outside the permissible
statute of limitations, attempted to collect interest in excess of the permissible rate, and attempted
to obtain attorney’s fees. [Compl., DN 1, at 5-6].
II. ANALYSIS
Defendant seeks to dismiss Plaintiff’s Complaint on two grounds. First, Defendant
contends that the Court lacks subject matter jurisdiction based on the Rooker-Feldman doctrine,
which originated from Rooker v. Fidelity Trust Co., 263 U.S. 413, 44 S. Ct. 149, 68 L. Ed. 362
(1923) and District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 103 S. Ct. 1303, 75
L. Ed. 2d 206 (1983). Second, Defendant asserts that Plaintiff is barred from raising her claims
based on issue and claim preclusion. Plaintiff responds to Defendant’s first assertion by arguing
that the Rooker-Feldman doctrine is inapplicable to the present case because her claims are
independent from the issues she raised in her motion to vacate in state court. As to issue and
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claim preclusion, Plaintiff contends that her claims were not actually litigated at the state court,
and thus not barred.
A. Rooker-Feldman Doctrine
“Rooker–Feldman is a combination of the abstention and res judicata doctrines, under
which the Supreme Court's appellate jurisdiction precludes lower federal courts from engaging in
what amounts to appellate review of state court proceedings.” Brown v. First Nationwide
Mortgage Corp., 206 F. App'x 436, 439 (6th Cir. 2006) (citing Exxon Mobil Corp. v. Saudi Basic
Indus. Corp., 544 U.S. 280, 283–84, 125 S.Ct. 1517, 161 L.Ed.2d 454 (2005)). As clarified by
Exxon Mobil, the Rooker–Feldman doctrine deprives federal courts of jurisdiction over “cases
brought by state-court losers complaining of injuries caused by state-court judgments rendered
before the district court proceedings commenced and inviting district court review and rejection
of those judgments.” Exxon Mobil, 544 U.S. at 284, 125 S.Ct. 1517; see also Feldman, 460 U.S.
at 482; Rooker, 263 U.S. at 415-16. However, “[f]ederal jurisdiction is proper if a federal
plaintiff presents an independent claim, ‘albeit one that denies a legal conclusion that a state
court has reached in a case to which he was a party.’” Brown, 206 F. App'x at 439 (quoting
Exxon Mobil, 544 U.S. at 293, 125 S.Ct. 1517). To distinguish permissible independent claims,
the Sixth Circuit adopted the test used by the Fourth Circuit, which provides as follows:
The plaintiffs in Rooker and Feldman sought redress for an injury allegedly
caused by the state-court decision itself—in Rooker, the plaintiff sought to
overturn a state-court judgment in federal district court, and in Feldman, the
plaintiffs sought to overturn a judgment rendered by the District of Columbia
court in federal district court. In Barefoot [a pre-Exxon Mobil case], by contrast,
we extended the Rooker–Feldman doctrine to apply in situations where the
plaintiff, after losing in state court, seeks redress for an injury allegedly caused by
the defendant's actions.
McCormick, 451 F.3d at 393 (quoting Davani v. Virginia Dep't of Transp., 434 F.3d 712 (4th
Cir. 2006)). Therefore, if a plaintiff’s injury derives from some other source besides the state
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court decision, then the claim is independent and not barred by Rooker-Feldman. See Id. For
claims determined to be independent, “state law determines whether the defendant prevails under
principles of preclusion.” Exxon, 544 U.S.at 293, 125 S. Ct. 1517, 1527, 161 L. Ed. 2d 454
(2005) (quoting GASH Assocs. v. Rosemont, 995 F.2d 726, 728 (7th Cir. 1993)).
Shortly following the decision in Exxon Mobil, the Sixth Circuit addressed the
application of the Rooker-Feldman doctrine in a case involving FDCPA claims. In Todd v.
Weltman, Weinberg & Reis Co., L.P.A, a debt collection firm obtained a judgment against
Robert Todd and his wife in state court for a debt related to the purchase of furniture. Todd, 434
F.3d 432, 434-35 (6th Cir. 2006). After the entry of judgment, the collection firm filed an
affidavit stating that the plaintiffs had non-exempt assets that could be garnished. Id. at 435. As
a result of the defendant’s affidavit, the court froze the plaintiffs’ bank account. Id. However,
after a hearing on the garnishment order, the state court concluded that all of plaintiffs’ asserts
were exempt under state law. Id. The plaintiffs then filed suit in federal court claiming that the
defendant violated the FDCPA by failing to adequately investigate plaintiffs’ property in order to
determine whether it was exempt or not. Id.
Applying the facts in Todd to the Supreme Court’s holding in Exxon-Mobil, the Sixth
Circuit concluded that Rooker-Feldman did not preclude the district court from exercising
jurisdiction over the plaintiffs’ FDCPA claims. Todd, 434 F.3d at 437.
In making this
determination, the Sixth Circuit explained:
Defendant in the instant case claims this Court lacks subject matter jurisdiction
because Plaintiff's federal claim is inextricably intertwined with the Ohio state
court decision that Defendant's affidavit was valid. This argument ignores the fact
that Plaintiff here does not complain of injuries caused by this state court
judgment, as the plaintiffs did in Rooker and Feldman. Instead, after the state
court judgment, Plaintiff filed an independent federal claim that Plaintiff was
injured by Defendant when he filed a false affidavit. This situation was explicitly
addressed by the Exxon Mobil Court when it stated that even if the independent
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claim was inextricably linked to the state court decision, preclusion law was the
correct solution to challenge the federal claim, not Rooker–Feldman. While
Defendant is technically correct that this guidance was not essential to the holding
on the facts of Exxon Mobil, as that case dealt with parallel state and federal
proceedings, the Supreme Court went beyond the facts of the case to give clear
instructions to the circuits on how to address additional factual situations. To
follow the reasoning of Defendant would be to ignore these unambiguous
directives from the Supreme Court.
Id. (internal citations omitted).
The facts of the present case differ slightly from those found in Todd. Namely, Plaintiff
seeks redress based on actions taken prior to the entry of a judgment. However, this is a
distinction without a difference. In fact, another district court examined facts similar to the
present case where the debt collection agency obtained a default judgment that included
attorney’s fees and interest at a prohibited rate. See Wyles v. Excalibur I, LLC, 2006 WL
2583200 (D. Minn. Sept. 7, 2006). Based on Todd, the district court concluded that the plaintiff
could assert her FDCPA claims in federal court, despite those claims being directly related to the
state judgment. Wyles v. Excalibur I, LLC, 2006 WL 2583200, 6 (D. Minn. Sept. 7, 2006)
(“[Plaintiff] does not seek review of a state court judgment, but through the FDCPA, [he] may
challenge the law that [the collection agency] advanced in the state court proceedings.”). This
logic also applied to a FDCPA claim premised on the debt collection agency obtaining a default
judgment from a claim falling outside the statute of limitations. See Naranjo v. Universal Sur. of
America, 679 F. Supp. 2d 787, 795 (S.D. Tex. 2010) (“Plaintiff here is not asking this Court to
review or reject the state default judgment itself. Rather, Plaintiff is complaining about
Defendants' alleged practices of bringing time-barred collections actions, and committing
numerous violations under the FDPCA and state law.”). Furthermore, Plaintiff’s Complaint
reflects no language to suggest this is an attempt to vacate the Agreed Judgment, which would
clearly be prohibited under Rooker-Feldman. See Ness v. Gurstel Chargo, P.A., 933 F. Supp. 2d
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1156, 1163 (D. Minn. 2013) (“To the extent Plaintiffs seek to avoid Rooker–Feldman by asking
this Court to order Defendants themselves to take steps to vacate the state-court judgments, the
Court rejects that subterfuge.”). As such, the Court finds that Plaintiff’s claims are independent
of the Agreed Judgment and not precluded based on the Rooker-Feldman doctrine.
B. Claim and Issue Preclusion
Defendant next seeks to dismiss Plaintiff’s Complaint based on preclusion law. Before
addressing the merits of Defendant’s arguments, two issues must be addressed. First, it should
be noted that the Court will apply Kentucky law to the issue of preclusion law in this matter
because “[s]tate-court judgments are given the same preclusive effect under the doctrines of res
judicata and collateral estoppel as they ‘would receive in courts of the rendering state.’” Ohio ex
rel. Boggs v. City of Cleveland, 655 F.3d 516, 519 (6th Cir. 2011) (quoting ABS Indus., Inc. ex
rel. ABS Litig. Trust v. Fifth Third Bank, 333 Fed. Appx. 994, 998 (6th Cir. 2009)). Second,
unlike the Rooker-Feldman doctrine, “the rule of res judicata is an affirmative defense . . . .”
Indep. Order of Foresters v. Chauvin, 175 S.W.3d 610, 614 (Ky. 2005) (quoting Yeoman v.
Commonwealth, Health Policy Bd., 983 S.W.2d 459, 464 (Ky.1998) (internal quotation marks
omitted). As such, “[c]ourts generally cannot grant motions to dismiss on the basis of an
affirmative defense unless the plaintiff has anticipated the defense and explicitly addressed it in
the pleadings.” Estate of Barney v. PNC Bank, Nat. Ass'n, 714 F.3d 920, 926 (6th Cir. 2013)
(citation and internal quotation marks omitted). In the present case, considering the natural
entanglement of the Rooker-Feldman doctrine and preclusion law, Plaintiff should have
realistically predicted that the Defendant would challenge her Complaint based on preclusion
law. Therefore, the Court will review Defendant’s affirmative defenses.
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“Under Kentucky law, res judicata, or claim preclusion, ‘may be used to preclude entire
claims that were brought or should have been brought in a prior action, while the doctrine of
collateral estoppel [or issue preclusion] only applies to issues actually litigated.’” Donovan v.
Thames, 105 F.3d 291 (6th Cir. 1997) (quoting City of Covington v. Board of Trustees of
Policemen's and Firefighters' Retirement Fund, 903 S.W.2d 517, 521 (Ky. 1995)). For claim
preclusion, Kentucky law requires a showing of three elements: (1) “there must be identity of the
parties . . . .”; (2) “there must be identity of the causes of action . . . .”; and (3) “the action must
have been resolved on the merits.” Yeoman v. Commonwealth, Health Policy Bd., 983 S.W.2d
459, 465 (Ky. 1998) (citing Newman v. Newman, 451 S.W.2d 417, 419 (Ky. 1970)). For issue
preclusion, the following four elements must be present: (1) “the issue in the second case must
be the same as the issue in the first case . . . .”; (2) “the issue must have been actually litigated . .
. .”; (3) “the issue was actually decided in that action . . . .”; and (4) “the decision on the issue in
the prior action must have been necessary to the court's judgment.” Yeoman, 983 S.W.2d at 465
(citing Restatement (Second) of Judgments § 27 (1982)).
According to Defendant, “ [t]he
District Court considered [Plaintiff’s] authorities, heard her arguments, denied her garnishment
challenge, and overruled her motion for relief from her Agreed Judgment.” [Mot. to Dismiss, DN
5-1, 8]. In response, Plaintiff contends that the state court record demonstrates that the court did
not reach the merits of her claims currently before this Court.
Under issue preclusion, it’s clear that there is an identity of parties between the federal
and state action. Additionally, the record reflects that Plaintiff actually raised the issue of
attorney’s fees, statute of limitations, and interest rate in both her motion to vacate and in front of
Judge Bowles. However, issue and claim preclusion do not turn on whether the party raised the
issue but whether the issue was actually decided.
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Therefore, the Court believes that the
application of the preclusion doctrines in this case center on the reason Judge Bowles denied
Plaintiff’s motion to vacate.
During the hearing on August 1, 2014, Judge Bowles stated, “I just don't think you've met
your burden under Rule 60. And therefore, I'm going to deny your motion.” [Hr’g Tr., DN 5-8, at
10]. Specifically, Judge Bowles noted, “I do not believe that under the terms of Rule 60, you
know, that the subsection F, any other reason of an extraordinary nature justifying relief.” Id. at
9.
Despite Plaintiff’s arguments regarding the lack of counsel, the statute of limitations,
attorney’s fee, and interest rate, it appears Judge Bowles’ decision to deny Plaintiff’s motion to
vacate was based on a finding that the moving party had failed to show a “reason of an
extraordinary nature justifying relief.”1
Although there is no indication that Judge Bowles actually decided the merits of the
arguments made regarding the statute of limitations, attorney’s fee, and interest rate, it is possible
that he could have rejected each one on the merits. But if he did, at most, this would constitute
an alternate determination for denying Plaintiff’s motion. In situations where an alternate basis
could be determinative in a court’s ruling, “the judgment is not conclusive with respect to either
issue standing alone.” Restatement (Second) of Judgments § 27 (1982). Thus, preclusion does
not apply to either finding. Id. (“[S]ince the question of preclusion will almost always be a close
one if each case is to rest on its own particular facts, it is in the interest of predictability and
simplicity for the result of nonpreclusion to be uniform.”); see also Hammond v. Citibank, N.A.,
No. 2:10-CV-1071, 2011 WL 4484416, at *5 (S.D. Ohio Sept. 27, 2011) (“Because the state
court did not explain the basis for its rejection of the Plaintiff's motion, and because there was an
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This is the position that Defendant’s counsel took at the hearing in front of Judge Bowles. In response to
Plaintiff’s counsel’s argument concerning the FDCPA violations, Defendant’s counsel stated, “The other issue with
DCPA - - I mean, I don’t even think we get there. I think Rule 60 is very clear on when you can set it aside.” [Hr’g
Tr., DN 5-8, at 6-7].
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alternative basis for the court's ruling, it cannot be said with certainty that the issue was actually
passed upon by the state court.”). For these reasons, the Court rejects Defendant’s argument
regarding issue and claim preclusion.
C. Statute of Limitations
In footnote 4 of Defendant’s reply, it asserts that Plaintiff’s claims are barred by the
statute of limitations for FDCPA claims. As this argument was raised for the first time in
Defendant's reply, and Plaintiffs have not had a chance to respond to it, the Court will not
consider it. See Keys v. Dart Container Corp. of Ky., 2012 WL 2681461, at *6–7 (W.D. Ky. July
6, 2012); O & G Energy, LLC v. Rimkus Consulting Grp., LLC, 2011 WL 6153194, at *6 (E.D.
Ky. Dec. 12, 2011).
III. CONCLUSION
For the foregoing reasons, Defendant DH Capital Management, Inc.’s (“DH Capital”)
Motion to Dismiss [DN 5] is DENIED.
cc: counsel of record
November 4, 2014
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