Lind et al v. Midland Funding LLC et al

Filing 17

MEMORANDUM OPINION AN ORDER granting defendants' 4 Motion to Dismiss/General (Written Opinion). Signed by Judge John R. Tunheim on September 8, 2011. (DML)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
TRACY LIND and STEVE LIND,

Civil No. 11-1242 (JRT/LIB)

Plaintiffs,
v.
MIDLAND FUNDING, L.L.C., MESSERLI
& KRAMER, P.A., and DERRICK WEBER,

MEMORANDUM OPINION AND
ORDER GRANTING
DEFENDANTS’ MOTION TO
DISMISS

Defendants.

Nicholas P. Slade, BARRY & SLADE, L.L.C., 2021 East Hennepin
Avenue, Suite 195, Minneapolis, MN 55413, for plaintiffs.
Derrick N. Weber and Jennifer M. Zwilling, MESSERLI & KRAMER
P.A., 3033 Campus Drive, Suite 250, Plymouth, MN 55441, for
defendants.
Tracy and Steve Lind (“the Linds”) brought the instant complaint alleging
defendants Midland Funding, L.L.C. (“Midland”), Messerli & Kramer, P.A. (“M&K”),
and Derrick Weber (collectively, “defendants”) violated their due process rights and the
Fair Debt Collection Practices Act (“FDCPA”) when they attached funds in the Linds’
joint bank account after the bank only sent notice to Steve Lind. Defendants move to
dismiss. Because the Court finds the Linds had constitutionally sufficient notice, were
offered a hearing, and failed to allege state action, the Court dismisses the due process
claim. Further, because the pleading does not clearly allege an independent violation of
the FDCPA aside from the due process claim, the Court dismisses the FDCPA claim.

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With no underlying controversy, the Court declines to address the constitutionality of the
garnishment statute as it applies to the Linds, as sought in the declaratory judgment
claim.

BACKGROUND
The Linds brought the instant action, alleging that defendants violated their right
to due process and the FDCPA, 15 U.S.C. §§ 1692-1692p, in connection with credit card
debt owed by Steve Lind to Bank of America that was purchased by Midland Funding,
and assigned to M&K for collection. (Am. Compl. ¶¶ 9-11, Docket No. 10.) Midland
filed suit in state court against Steve Lind for the debt and received a default judgment in
the amount of $11,410.90. (Id. ¶¶ 13-15.)

Thereafter, M&K and Midland served a

garnishment summons on First National Bank of the North (“FNB”) for accounts in the
name of Steve Lind, including one that was a joint account of the Linds. (Id. ¶¶ 20-21.)
FNB sent notice to Steve Lind that the funds in the accounts were now attached, pursuant
to Minnesota’s garnishment statutes. (Aff. of Derrick N. Weber, Ex. F, June 3, 2011,
Docket No. 6); see Minn. Stat. §§ 571.911-.915. The notice was sent to the address Steve
Lind shared with Tracy Lind and it explained the procedure for claiming exemption.
(Weber Aff., Ex. F, Docket No. 6.) Tracy Lind did not receive a garnishment notice in
her name, but she was fully aware of the notice sent to Steve Lind, and she sought legal
counsel immediately. (Am. Compl. ¶¶ 32-35, 43, Docket No. 10.)
The Linds aver that the money in the joint account was Tracy Lind’s, or was
unemployment compensation paid to Steve Lind, and therefore not subject to

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garnishment. (Id. ¶¶ 36-39.) In response to the notice, the Linds claimed exemption, to
which defendants objected and an exemption claim hearing was scheduled in Pine
County Court. (Id. ¶ 73.) At the hearing, the judge ordered the parties to discuss
settlement prior to the hearing, and the parties reached an agreement that, of the
$1,339.72 attached to the accounts, defendants would keep $500 and the remainder
would be returned to the Linds. (Weber Aff., Ex. K, Docket No. 6.) As a result, the
exemption claim hearing was cancelled.
The Linds argue their rights to due process were violated because Tracy Lind did
not receive notice in her name of the garnishment of the joint account and because the
money was attached before a hearing. Further, the Linds claim that the actions of
defendants in reaching this settlement were unfair, deceptive, harassing and abusive
attempts to collect a debt, in violation of several sections of the FDCPA. They seek a
declaratory judgment that the Minnesota garnishment statute is unconstitutional.
Defendants move to dismiss.

ANALYSIS
I.

STANDARD OF REVIEW
Reviewing a complaint under a Rule 12(b)(6) motion to dismiss, the Court

considers all facts alleged in the complaint as true, and construes the pleadings in a light
most favorable to the non-moving party. See, e.g., Turner v. Holbrook, 278 F.3d 754,
757 (8th Cir. 2002). To survive a motion to dismiss a complaint must provide more than
“‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of

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action . . . .’” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007)). That is, to avoid dismissal, a complaint must
include “sufficient factual matter, accepted as true, to state a claim to relief that is
plausible on its face.” Id. (internal quotation marks omitted). “A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Id. “Where
a complaint pleads facts that are merely consistent with a defendant’s liability, it stops
short of the line between possibility and plausibility,” and therefore must be dismissed.
Id. (internal quotation marks omitted). At the motion to dismiss stage, the record for
review before the Court is generally limited to the complaint and any documents attached
as exhibits that are necessarily embraced by the complaint. Porous Media Corp. v. Pall
Corp., 186 F.3d 1077, 1079 (8th Cir. 1999).
II.

MINNESOTA’S GARNISHMENT STATUTES
The Minnesota Supreme Court explained the process dictated by Minnesota’s

garnishment statutes on a certified question. Savig v. First Nat. Bank of Omaha, 781
N.W.2d 335 (Minn. 2010); see Minn. Stat. §§ 571.71 to 571.932.
Garnishment is “an ancillary proceeding to a civil action for the recovery of
money.” Minn. Stat. § 571.71. The process begins with a creditor
[Midland] serving a garnishment summons and disclosure form on a
garnishee [FNB]; copies of the summons and disclosure form are also
served on the debtor [Steve Lind]. Minn. Stat. § 571.72, subds. 2, 4, 5. If
the debtor is a natural person and the funds to be garnished are held on
deposit [attached] in a financial institution (the garnishee), the creditor must
also send an exemption notice with the garnishment summons to the debtor
and garnishee. See Minn. Stat. § 571.72, subds. 4, 8. Within two business
days of receiving the summons and exemption notice, the garnishee must
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serve upon the debtor two copies of the exemption notice so that the debtor
may claim an exemption. Minn. Stat. § 571.913. In addition, the garnishee
must complete the disclosure form, indicating the garnishee’s indebtedness,
money, or other property owing to the debtor, and serve the written
disclosure upon the creditor and the debtor. Minn. Stat. §§ 571.72, subd.
2(3); 571.75, subd. 1. The garnishee must also retain the amount it has on
deposit owing to the debtor, but not more than 110 percent of the creditor’s
claim. Minn. Stat. § 571.911.
Savig, 781 N.W.2d at 338-39. The Linds allege that this statutory process, standing alone
and as applied to the facts of their case, is unconstitutional, violated their rights to due
process, and violated the FDCPA.

III.

SUBJECT-MATTER JURISDICTION
Defendants argue that the Court lacks subject matter jurisdiction based on the

Rooker-Feldman doctrine. Questions of jurisdiction should be addressed before all other
issues since “[w]hen it clearly appears that the court lacks jurisdiction, the court has no
authority to reach the merits. In such a situation the action should be dismissed for want
of jurisdiction.” Melo v. United States, 505 F.2d 1026, 1030 (8th Cir. 1974).
“The Rooker–Feldman doctrine [bars] 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 Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005).
The doctrine “stands for the general principle that . . . lower federal courts lack subject
matter jurisdiction to review state court judicial decisions.” Prince v. Ark. Bd. of Exam’rs
in Psychology, 380 F.3d 337, 340 (8th Cir. 2004); see also D.C. Court of Appeals v.
Feldman, 460 U.S. 462, 482–83 (1983); Rooker v. Fid. Trust Co., 263 U.S. 413, 415–16
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(1923). Litigants may not pursue federal claims with allegations that are “inextricably
intertwined” with a state court decision. Feldman, 460 U.S. at 483 n.16. Federal claims
are inextricably intertwined with the state court judgment if they “succeed[] only to the
extent that the state court wrongly decided the issue before it.” Lemonds v. St. Louis
Cnty., 222 F.3d 488, 493 (8th Cir. 2000) (quoting Pennzoil Co. v. Texaco, Inc., 481 U.S.
1, 25 (1987) (Marshall, J., concurring)). “Once a party has litigated in state court . . . he
cannot circumvent Rooker-Feldman by recasting his or her lawsuit as a [section] 1983
action.” Prince, 380 F.3d at 341 (alteration original) (quotation marks omitted) (citing
Bechtold v. City of Rosemount, 104 F.3d 1062, 1065 (8th Cir. 1997)).
It is not clear from the state court record, however, that the cancelation of the
exemption hearing and docketing of the settlement agreement constitutes a final decision
by the state court. The settlement paper in the record has no judicial stamp or signature
from the judge. (See Weber Aff., Ex. K, Docket No. 6.)

The Feldman Court, in

analyzing Supreme Court precedent on whether an action was judicial or administrative,
found an action to be judicial because “[a]lthough no entry was placed by the Clerk in the
file, on a docket, or in a judgment roll, we found that the state court had taken cognizance
of the petition and passed an order which was validated by the signature of the presiding
[judicial] officer.” Feldman, 460 U.S. at 478 (internal quotation marks, citations, and
alterations omitted). The Supreme Court has noted that “[t]he form of the proceeding is
not significant. It is the nature and effect which is controlling.” In re Summers, 325 U.S.
561, 567 (1945) (denying the Illinois Supreme Court’s administrative characterization of

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its refusal to admit a person to the bar based on conscientious objector status and finding
the case conferred federal jurisdiction).
Given the lack of clarity from the state court record, the absence of a judicial
signature on the settlement, and the fact that the exemption hearing was simply cancelled
in response to the settlement, the Court concludes the settlement is more akin to a
voluntary dismissal without prejudice by the parties than a judicially approved settlement
of the claims. As a result, the Court determines the settlement does not constitute a final
decision of the state court that would invoke the Rooker-Feldman doctrine and the Court
has jurisdiction to hear the claims.
IV.

DUE PROCESS
The Linds assert that they were not afforded due process in the garnishment

process because notice was only sent in the name of Steve Lind and because the hearing
on the matter occurred after the attachment of the funds. “For more than a century the
central meaning of procedural due process has been clear: ‘Parties whose rights are to be
affected are entitled to be heard; and in order that they may enjoy that right they must
first be notified.’” Fuentes v. Shevin, 407 U.S. 67, 80 (1972) (citing Baldwin v. Hale, 68
U.S. 223, 233 (1863)). To be constitutionally adequate, notice must be “reasonably
calculated, under all the circumstances, to apprise interested parties of the pendency of
the action and afford them an opportunity to present their objections.” Baldwin v. Credit
Based Asset Servicing and Securitization, 516 F.3d 734, 737 (8th Cir. 2008) (quoting
Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 313 (1950)).

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The Linds assert Tracy Lind received no notice of the garnishment because the
notice that FNB sent came in Steve Lind’s name. Courts have found that notice to only
one account holder can be constitutionally deficient if it is not “reasonably calculated” to
reach the joint account holder. For example, the Third Circuit found that a woman who
had been divorced from her husband for nine years, lived in a different state from her exhusband, and received no notice of an Internal Revenue Service tax levy on a joint
account they still held as a result of the divorce decree, had stated a due process claim
after she discovered the account had been closed. Scheafnocker v. C.I.R., 642 F.3d 428,
436 (3d Cir. 2011) (“We conclude that these facts amply plead a claim that the
government violated the constitution by failing to provide her notice that was reasonably
calculated to apprise her of the levy.”). However, absent such extreme situations, courts
have generally held that “[d]ue process is satisfied by mailing a single notice to joint
account holders because that notice is ‘reasonably calculated’ to give actual notice to
both.” In re Adler, Coleman Clearing Corp., 204 B.R. 99, 106 (Bankr. S.D.N.Y. 1997).
This holding is particularly so in the case of co-habitating spouses because “[t]he only
difference is that instead of opening just one envelope, the [couple] will open two
envelopes containing identical papers.” In re Tornheim, 181 B.R. 161, 168 (Bankr.
S.D.N.Y. 1995) (addressing service requirements of the Federal Rules of Civil Procedure,
and finding singular notice constitutionally sufficient). Furthermore, “a person cannot
complain about the constitutionality of the method used to provide notice when he or she
has received actual notice (assuming it is timely), for he or she has suffered no harm.”
Nunley v. Dep’t of Justice, 425 F.3d 1132, 1139 (8th Cir. 2005) (emphasis added).
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As an initial matter, the Linds make no assertion that Steve Lind’s notice of the
garnishment was insufficient. Furthermore, the complaint describes in great detail the
manner in which Tracy Lind availed herself of the procedures to protest the garnishment.
She contacted an attorney (Am. Compl. ¶ 43, Docket No. 10), learned about Minnesota’s
garnishment procedures (id.), mailed numerous statements to defendants detailing her
exemptions claims (id. ¶¶ 47-58), attended a court hearing on the issue (id. ¶ 76), for
which she sought the advice of counsel (id. ¶¶ 74-75), and participated in a settlement of
the dispute. (Id. ¶¶ 78-89.) Regardless of whose name was on FNB’s notice, it strains
credulity to argue Tracy Lind had no actual notice of the garnishment given her active
participation in the proceedings as pled in the complaint.1 As a result, the Court finds
both Steve and Tracy Lind received notice that was “reasonably calculated” to reach
them both and that Tracy Lind suffered no harm since she had actual notice and
participated in the proceedings. The Court agrees that there may be a case where the
Minnesota garnishment statute is subject to challenge by joint account holders on the
issue of notice, but this is not such a case.
The Linds argue that their due process rights were violated because the attachment
occurred before notice of the garnishment was sent. However, “[t]he usual rule [of due

1

The Court notes, without finding, that the Linds may also have waived a right to
different notice when they opened the bank account and agreed to singular notice. The
paperwork they signed with FNB states: “Notice from us to any one of you is notice to all of
you.” (Weber Aff., Ex. P at 2, Docket No. 6.) “The United States Supreme Court has explicitly
recognized that due process rights to notice and a hearing may be waived.” Whitfield v. Pub.
Hous. Agency of City of Saint Paul, No. 03-6096, 2004 WL 2801589, at *3 (D. Minn. Dec. 7,
2004) (citing D.H. Overmyer Co., Inc. v. Frick Co., 405 U.S. 174, 184-85 (1972)).

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process] has been [w]here only property rights are involved, mere postponement of the
judicial enquiry is not a denial of due process, if the opportunity given for ultimate
judicial determination of liability is adequate.” Mitchell v. W. T. Grant Co., 416 U.S.
600, 611 (1974) (citing Phillips v. Comm’r, 283 U.S. 589, 596-97 (1931)). Essentially,
“some kind of hearing is required at some time before a person is finally deprived of his
property interests.” Wolff v. McDonnell, 418 U.S. 539, 557-58 (1974) (emphasis added).
Here, the Linds took advantage of the post-attachment procedures and attended the
court date scheduled to allow them a hearing on the merits. The hearing was scheduled
on January 31, 2011, twenty-eight days after the garnishment. (Am. Compl. ¶¶ 36, 73,
Docket No. 10.) They chose to settle the claim. To the extent that they were deprived a
post-garnishment hearing, they waived their right to one by settling the case and
cancelling the hearing. Whitfield, 2004 WL 2801589, at *3. Therefore, the Court finds
the hearing requirement of due process satisfied in this case.
Furthermore, regardless of the notice and hearing issues, the Linds have failed to
adequately plead state action necessary for a due process claim. The Supreme Court
articulated a two-part test to determine state action.
First, the deprivation must be caused by the exercise of some right or
privilege created by the State or by a rule of conduct imposed by the state
[such as] a state statute provid[ing] the right to garnish or to obtain
prejudgment attachment, as well as the procedure by which the rights could
be exercised. Second, the party charged with the deprivation must be a
person who may fairly be said to be a state actor.
Lugar v. Edmondson Oil Co., Inc., 457 U.S. 922, 937 (1982).

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While the Minnesota garnishment statute satisfies the first prong for state action,
in Savig v. First Nat. Bank of Omaha, No. 09-132, 2011 WL 883642, at *2 (D. Minn.
Mar. 11, 2011), the court expressly held that private actors operating under Minnesota’s
garnishment statute are not state actors under the Lugar Court’s “fairly attributable” test.
As a result, even if the Court were to find the notice was deficient, and the hearing was
insufficient, the Linds have failed to properly allege state action necessary to state a
claim. Therefore, the Court dismisses the Linds’ due process claim.

V.

FDCPA
The Linds allege the behavior of the defendants violates “numerous and multiple

provisions of the FDCPA including but not limited to 15 U.S.C. §§ 1692d, 1692e,
1692e(2), 1692e(5), 1692e(10), 1692f, and 1692f(1) amongst others.” (Am. Compl. ¶ 71,
Docket No. 10.) However, § 1692d, for example, prohibits a debt collector from “[t]he
use or threat of use of violence or other criminal means to harm the physical person,
reputation, or property of any person” and “[t]he use of obscene or profane language or
language the natural consequence of which is to abuse the hearer or reader.”

The

complaint alleges no actions or words by the defendants that, even in a light most
favorable to the Linds’ claims, could accord with this statute. In fact, the complaint
makes no specific allegations regarding behaviors that would violate these statutes.
Instead, the complaint alleges “labels and conclusions” which cannot survive a motion to
dismiss. (See Am. Compl. ¶ 42, Docket No. 10 ( Defendants [sic] actions seizing Tracy
Lind’s funds in their attempts to collect a debt that she did not owe was [sic] unfair and

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abusive in violation of numerous provisions of the [FDCPA] . . . .”)); see Twombly, 550
U.S. at 555.
The Linds argue that the claim survives because the absence of due process
violates the FDCPA. However, the Court has already concluded that the pleadings do not
establish a viable due process claim. Furthermore, even if the debt collection activities at
issue in this case were unconstitutional under state law, they would not necessarily
constitute a per se violation of the FDCPA. “[N]ot . . . all debt collector actions in
violation of state law constitute per se violations of the FDCPA. Rather, the conduct or
communication at issue must also violate the relevant provision of the FDCPA.” LeBlanc
v. Unifund CCR Partners, 601 F.3d 1185, 1192 (11th Cir. 2010). To the extent the Linds
argue the garnishment statute is unconstitutional under the Minnesota Constitution, to
successfully plead that this violation also constitutes a violation of the FDCPA they must
independently allege facts and actions that violate the FDCPA. The complaint does not
so allege.

Additionally, on a certified question, the Minnesota Supreme Court

specifically addressed the constitutionality of Minnesota’s garnishment statutes, Minn.
Stat. § 571.71-571.932, as they apply to joint account holders and found them to be
constitutional. Savig, 781 N.W.2d at 341. As a result, the Court dismisses the FDCPA
claim.
Because neither of the Linds’ underlying claims survive, the Court declines to
consider

a

declaratory

judgment

that

Minnesota’s

garnishment

statutes

are

unconstitutional because the Court does not have jurisdiction to do so without a
justiciable claim. Val-Com Acquisitions Trust v. CitiMortgage, Inc., No. 10-11010, 2011
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WL 1332039, at *2 (5th Cir. Apr. 7, 2011) (“In a declaratory judgment action, the parties
litigate the underlying claim, and the declaratory judgment is merely a form of relief that
the court may grant.”).

ORDER
Based on the foregoing, and all the files, records, and proceedings herein,
defendants’ Motion to Dismiss/General [Docket No. 4] is GRANTED.

The Amended

Complaint First [Docket No. 10] is DISMISSED with prejudice.

LET JUDGMENT BE ENTERED ACCORDINGLY.

DATED: September 8, 2011
at Minneapolis, Minnesota.

____s/
____
JOHN R. TUNHEIM
United States District Judge

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