Peters v. Northland Group, Inc.

Filing 27

ORDER denying 10 Motion to Dismiss for Failure to State a Claim and directing Plaintiff to file an Amended Complaint by October 20, 2014. Signed on 9/30/14 by District Judge Ortrie D. Smith. (Wolfe, Steve)

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
WESTERN DIVISION
MILADY R. PETERS,
Plaintiff,
vs.
NORTHLAND GROUP INC.,
Defendant.

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Case No. 14-0488-CV-W-ODS

ORDER AND OPINION (1) DENYING DEFENDANT’S MOTION TO DISMISS AND
(2) DIRECTING PLAINTIFF TO FILE AN AMENDED COMPLAINT

Pending is Defendant’s Motion to Dismiss. The Court agrees with Defendant’s
analysis of the law that governs Plaintiff’s claim, but does not agree that dismissal is the
appropriate remedy at this juncture. Accordingly, the motion (Doc. # 10) is denied, and
Plaintiff is directed to file an Amended Complaint.

I. BACKGROUND

Plaintiff borrowed money on a credit card financed by GE Electric Capital Corp.
(“GE Capital”), and thereafter became delinquent in her payments. GE eventually
charged off the debt; there is no allegation as to the amount of the debt at the time of
charge off but it was less than $829.41. After charging off the debt GE stopped sending
periodic statements to Plaintiff. GE thereafter sold the debt to LVNV Funding, LLC,
which retained Defendant to collect the debt. In the course of collecting the debt
Defendant reported to a credit reporting agency that Plaintiff owed $829.41. Plaintiff
then filed suit in state court alleging a violation of the Fair Debt Collection Practices Act
(“FCDPA”) arising from Defendant’s attempt to collect an amount greater than the actual
debt.

II. DISCUSSION

The liberal pleading standard created by the Federal Rules of Civil Procedure
requires Aa short and plain statement of the claim showing that the pleader is entitled to
relief.@ Erickson v. Pardus, 551 U.S. 89, 93 (2007) (per curiam) (quoting Fed. R. Civ. P.
8(a)(2)). “Specific facts are not necessary; the statement need only >give the defendant
fair notice of what the . . . claim is and the grounds upon which it rests.’” Id. (citing Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). In ruling on a motion to dismiss,
the Court “must accept as true all of the complaint=s factual allegations and view them in
the light most favorable to the Plaintiff[ ].” Stodghill v. Wellston School Dist., 512 F.3d
472, 476 (8th Cir. 2008).
To survive a motion to dismiss, a complaint must contain sufficient factual
matter, accepted as true, to state a claim to relief that is plausible on its
face. 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. The plausibility standard is
not akin to a probability requirement, but it asks for more than a sheer
possibility that a defendant has acted unlawfully. Where a complaint
pleads facts that are merely consistent with a defendant's liability, it stops
short of the line between possibility and plausibility of entitlement to relief.
Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009).
The parties generally agree that LVNV stepped into GE Capital’s shoes, so
LVNV’s ability to charge interest was no greater than GE Capital’s. The question thus
becomes: did GE Capital have the right to charge interest after it charged off the debt?
The answer is that GE Capital could not charge interest pursuant to the contract, but it
could charge interest based on the statutory rate for prejudgment interest.
Plaintiff alleges GE Capital charged off the account and elected not to charge
more interest, which permitted it to stop sending periodic statements. See 12 C.F.R. §
226.5(b)(2)(i). Defendant contends there might be other reasons why GE Capital
elected not to send periodic statements, but the Court must accept Plaintiff’s allegations
as true. The facts the Court must accept as true demonstrate GE could not recover the
contractual rate of interest – but this does not end the inquiry. Defendant contends that
even if GE Capital surrendered the right to charge contractual interest (and, therefore,
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denied LVNV the opportunity to so), it retained the right to charge prejudgment interest
at the statutory rate established by Missouri law. Defendant is correct: courts have
consistently held that creditors may charge interest at a state’s statutory rate even after
the creditor charges off the debt and waives the right to collect interest at the
contractual rate. E.g., Peters v. Financial Recovery Services, Inc., No. 14-0489-CV-WGAF (W.D. Mo. Sept. 18, 2014); Grochowski v. Daniel N. Gordon, P.C., 2014 WL
1516586 (W.D. Wash. Apr. 17, 2014); Stratton v. Portfolio Recovery Associates, LLC,
2013 WL 6191804 (E.D. Ky. Nov. 26, 2013). Plaintiff argues these cases are incorrect
and that 12 C.F.R. § 226.5(b)(2)(i) flatly prohibits the collection of all interest. The
regulation’s context and the enabling statutes suggest otherwise, as they regulate
disclosure of interest and finance charges imposed by the consumer’s loan agreement;
the regulation is not targeted toward disclosure of the fixed rate of interest states
routinely impose on debts prior to judgment. Plaintiff’s alternative argument that
Missouri’s statute does not apply is rejected; the statute is substantially the same as the
Kentucky statute considered in Stratton.
GE had the right to charge prejudgment interest on the charged-off amount, so
LVNV had the same right. Defendant contends this justifies dismissal because Plaintiff
has not specified that LVNV charged the improper (contractual) interest. The Court
tends to disagree and believes Defendant is imposing a higher standard than that
required by Iqbal and Twombley. The Court will not resolve this issue, however;
instead, the Court notes that the Petition filed in state court was not required to adhere
to Iqbal and Twombley because those cases govern pleading in federal court. It would
be a miscarriage of justice to dismiss the pleading filed in state court simply because it
fails to abide by federal pleading standards – particularly given that it should be a simple
matter to plead sufficient detail and prove Plaintiff’s case.1

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The charged off debt was for an unspecified amount less than the $829.41
Defendant is attempting to collect for LVNV. It should be a simple matter to compare
the amounted owed GE Capital at the time the debt was charged off with the amount
claimed by Defendant on LVNV’s behalf, and then determine if the difference is due to
interest charged at the contractual rate or the statutory rate.
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III. CONCLUSION

The Motion to Dismiss is denied. Plaintiff shall have until and including October
20, 2014, to amend her Complaint to specify that Defendant is attempting to collect a
debt to which the contractual rate of interest was added after the debt was charged off.

IT IS SO ORDERED.

/s/ Ortrie D. Smith
ORTRIE D. SMITH, SENIOR JUDGE
UNITED STATES DISTRICT COURT

DATE: September 30, 2014

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