ARDINO et al v. SOLOMON AND SOLOMON, P.C., et al

Filing 22

OPINION fld. Signed by Judge Kevin McNulty on 1/23/14. (sr, )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
ANDREW J. ARDINO; JOSEPH ARDINO
and LISA A. ARDINO, on behalf of
themselves and all others similarly
situated,

Civ. No. 13-1821 (KM)

:

OPINION

Plaintiffs,
V.

SOLOMON AND SOLOMON, P.C., and
JOHN DOES 1-25,
Defendants.

KEVIN MCNULTY, U.S.D.J.:

Andrew J. Ardino obtained a student loan from the New Jersey Higher
Education Student Assistance Authority (“HESAA”), which his parents, Joseph
and Lisa Ardino, co-signed (Plaintiffs are collectively referred to as “the
Ardinos.”) HESAA employed Solomon and Solomon, P.C. (“Solomon”) to be its
debt collector. In this putative class action, the Ardinos allege that Solomon
sent them collection letters, dated September 13 and 24, 2012, which
misstated the amount they owed HESAA. In particular, they claim that the
letters misleadingly stated that $4,561.45 in attorneys’ fees were then currently
due and payable. In fact, the Ardinos allege, such fees had not yet accrued
under Solomon’s contract with HESAA, which contains a contingent fee
arrangement. The Ardinos’ single-count complaint claims violations of multiple
provisions of the Fair Debt Collection Practice Act (“FDCPA”), 15 U.S.C. § 1692
et seq.
Solomon has moved to dismiss the Ardinos’ complaint pursuant to
Federal Rule of Civil Procedure 1 2(b)(6). Solomon contends that its statements
regarding attorneys’ fees were accurate and that the Ardinos thus have no
cognizable claim. As to the claim for damages, I disagree and deny the motion
to dismiss. As to the claim for declaratory and injunctive relief, however, I grant
Solomon’s motion as a matter of law. I decide this motion without oral
argument. See Fed. R. Civ. P. 78(b).

Facts and Contentions

In May 2008, the Ardinos applied for and obtained a student loan for
Andrew J. Ardino in the amount of $20,000. (Complaint at ¶ 15-20 (Doc. No.
1)). The Ardinos allegedly defaulted on the repayment of the loan. Solomon,
acting on behalf of HESAA, sent letters to each of the Ardinos “in an attempt to
collect a debt.” (Id. at Exs. B-D; the “September 13 Collection Letter”). Each of
these substantially identical letters, dated September 13, 2012, states at the
top:
“Amountdue as of 9/13/2012: $25,385.66.”
(Id.). The letter then states, in its second paragraph:

“Attorney fees of 22% of the claim referred are due to
the State pursuant to the terms of the note(s) and NJ
Regulation 9A: 10-6.16(b).”
(Id. at

¶J

35-36, Exs. B-D).

Plaintiff Joseph Ardino’s attorney sent Solomon a letter dated September
20, 2012, disputing the amount owed and demanding an accounting. (Id. at
Ex. E). Solomon responded on September 24, 2012, with a collection letter
itemizing the alleged balance. This letter stated that the amount demanded
included $4,561.25, representing “22% of the amount [of unpaid principal and
interest] referred to our office.” (Id. at ¶ 51 and Ex. F; the “September 24
Collection Letter”).
In the terms and conditions of the underlying promissory note between
the Ardinos and HESAA, each Plaintiff promised that “If I am in Default, I agree
to pay all amounts, including reasonable collection agency and attorneys fees
and court and other collection costs that you incur in effecting collection of this
Note, up to the maximum penalty permitted by law.” (NJCLASS Loan Terms,
Conditions, and Definitions, Certification of Gregg S. Kahn Ex. 2 at Ex. A
thereto (emphasis added)).
The attorneys’ fees that HESAA will incur are governed by a retainer
letter agreement that it entered into with Solomon. In that retainer letter,
HESAA advises Solomon that “You have agreed to handle all accounts referred
to you on a contingent fee basis, with your fee to be calculated on the basis of
monies collected by you from debtors referred to you by HESAA for handling.”
(Retainer Agreement, Kahn Cert. Ex. 1 at Ex. C thereto (emphasis added)). The
agreement sets the contingency fee rate for services in New Jersey at 22%.
(Id.).’

1

Because this is a motion to dismiss, the allegations of the Complaint control. I
2

There is no dispute that state law, in general, permits the lender to
recover attorneys’ fees of up to 30% of the debt collected. The Ardinos deny,
2
however, that Solomon’s 22% fee is properly based on the amount referred for
collection, as stated in the September 13 and 24 Collection Letters. This
statement, they say, is contrary to the Note and the Retainer Agreement, which
provide that HESAA will pay Solomon based on the amount actually collected.
Relatedly, the Ardinos contend that they did not (or at least did not yet)
owe HESAA any attorneys’ or collection fees as of September 13 and 24, 2012,
when Solomon sent the Collection Letters. Solomon had not yet billed HESAA
for any fees; indeed, Solomon could not have done so, because its fees, by
contract, were contingent on the amount ultimately collected. The 22% fee,
they contend, is not incurred or calculable until Solomon collects some amount
from the Ardinos, and it becomes calculable and due from the Ardinos only at
that time. Accordingly, say the Ardinos, Solomon’s statement in the September
13 and 24 Collection Letters that $4,561.25 in attorneys’ fees was currently
due was false and misleading.
Solomon disputes that its statements in the Collection Letters are
actionable. It argues that the FDCPA is not intended to punish debt collectors
based on a plaintiff’s “hyper.-scrutinizing every word in a perfectly clear and
straightforward letter and twisting certain words’ meaning.” Solomon
note, however, that Solomon’s associate attorney responsible for collection from the
Ardinos has confirmed, by certification, that Solomon “is retained at a contingency
rate of 22%.” (Certification of Douglas M. Fisher, Esq. dated 4/18/2013 (“Fisher Cert.),
Ex. 1 to Kahn Cert. at ¶ 15). A representative of HESAA has also certified that
“[r]easonable attorney fees pursuant to the terms of the agreement and NJ regulation
9A: 10-6.16(b) are due to [HESAA] from [the Ardinos]. The fees payable to counsel are
based on a contingency fee of 22%.. .That fee is set based on the initial amount turned
over for collection.” (Certification of Janice Seitz dated 4/17/13, Ex. 2 to Kahn Cert. at
Id. at ¶ 14).
2
The collection charges and fees that HESAA may pass along to debtors are
defmed by N.J.A.C. § 9A:10-6.16:
(b) Upon default, the borrower and/or cosigner, if any, are
liable for the entire balance of the loan... Default may result
in any or all of the following: expedited increase of interest
rate, loss of State income tax refunds or State tax rebates,
legal action, assessment of collection charges including
attorney fees of up to 30 percent of the debt collected, loss
of eligibility for other student aid, negative credit reports,
administrative wage garnishment, offset of lottery prize
winnings, and suspension of New Jersey occupational and
professional license.
3

complains that “the amount in dispute for purposes of this motion is a mere
$4,561.45, the attorneys’ fees portion of the debt.” And Solomon contends that
the Ardinos’ “theory of the case directly contradicts the actual practice of law
concerning the collection of unpaid student loan debts in New Jersey—which
[loan debts] are governed by statute—and the procedural aspect of fee recovery
in such case.” (Dfd’s Br. at pp. 1-2 (Doc. No. 6-1)). More directly contradicting
the basis of the claim, Solomon contends that “the attorneys fees sought are
part of the overall claim irrespective of any possible, future settlement. or the
amount ultimately collected,” that such fees are “authorized pursuant to the
promissory note entered into between the Ardinos and HESAA. and [have]
been approved by the New Jersey State Court[,]” and that “the fee amount
sought. accurately represents what [Solomon] is entitled to recover.” (Id. at 3)
. .

. .

. .

Solomon is accurate in stating that that the 22% attorney fee of
$4561.25 is “expressly recoverable” under N.J.A.C. § 9A: 10-6.16(b) and the
retainer agreement. (Id. at 7). HESAA may recover its collection and attorneys’
fees, and the Ardinos do not dispute that. The issue here is narrower. The
Ardinos raise a question about whether and when a lender (or its debt
collector) may tell a debtor that collection costs and fees are “due.” As to that
issue—nuanced, perhaps, but clearly defined—the Ardinos have stated a
cognizable claim.
Analysis

Federal Rule of Civil Procedure 12(b)(6) provides for the dismissal of a
complaint, in whole or in part, if the plaintiff fails to state a claim upon which
relief can be granted. The moving party bears the burden of showing that no
claim has been stated. Hedges v. United States, 404 F.3d 744, 750 (3d Cir.
2005). For purposes of a motion to dismiss, the well-pleaded factual allegations
of the complaint must be taken as true, with all reasonable inferences drawn in
plaintiffs favor. Phillips v. County of Allegheny, 515 F.3d 224, 231 (3d Cir.
2008) (established “reasonable inferences” principle not undermined by
subsequent Supreme Court case law). In reviewing the well-pleaded factual
allegations and assuming their veracity, this Court must “determine whether
they plausibly give rise to an entitlement to relief.” Ashcroft v. Iqbal, 556 U.S.
662, 679 (2009). That facial-plausibility standard is met “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. at 678 (citing Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007).
In reviewing a complaint under Federal Rule of Civil Procedure 12(b)(6), a
court is limited to an examination of the pleadings, matters of public record,
orders and exhibits attached to the complaint. Yuhasz v. Poritz, 166 F. App’x
642, 646 (3d Cir. 2006) (not precedential) (citing Oshiver v. Levin, Fishbein,
Sedran & Berman, 38 F.3d 1380, 1385 n. 2 (3d Cir. 1994)); see also Garlanger
v. Verbeke, 223 F. Supp. 2d 596, 600-601 (D.N.J. 2002).
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Here, the Ardinos’ complaint contains specific factual allegations and it
articulates the legal basis for the claims. Solomon argues, not that the
allegations are insufficiently specific, but that there is simply no legal infraction
here. Its view depends on an unduly narrow view of the applicable law and of
the straightforward documents before me.
The ultimate issue in this case is whether Solomon made untrue or
misleading statements in its collection letters. The Complaint alleges three
specific violations of the FDCPA: 1) false, deceptive, or misleading statements;
2) false representations and/or deceptive means to collect or attempt to collect
a debt; and 3) unfair and unconscionable means to collect or attempt to collect
a debt.
3
The statements in a debt collection letter “should be analyzed from the
perspective of the least sophisticated debtor.” Brown v. Card Serv. Ctr., 464
F.3d 450, 453-454 (3d Cir. 2006). This standard is much lower than that of a
“reasonable debtor.” The standard does, however, rule out “bizarre or
idiosyncratic interpretations of collection notices by preserving a quotient of
reasonableness and presuming a basic level of understanding and willingness
to read with care.” Id. at 454 (quoting Wilson v. Quadramed Corp., 225 F.3d
350, 354-355 (3d Cir. 2000)).
Solomon’s Collection Letters stated that: $25,385.66 was the amount
due as of September 13, 2013; that attorneys’ fees of 22% of the claim referred
were “due” as of that date; and that the $25,385.66 total included attorneys’
fees of $4,561.25, representing 22% of the amount referred to Solomon for
collection. A debtor, whether sophisticated or unsophisticated, could conclude
from these Letters that he or she owed HESAA $25,358.66, inclusive of
HESAA’s collection costs, as of the date of the Letter(s).
The Ardinos’ Complaint, after quoting these statements, makes adequate
factual allegations that they are false or misleading.
The Ardinos allege that Solomon violated 15 U.S.C. § 1692e, 1692e(2)(A),
1692e(10), 1692f, and 1692f(1). The pertinent provisions are as follows: “A debt
collector may not use any false, deceptive, or misleading representation or means in
connection with the collection of any debt. Without limiting the general application of
the foregoing, the following conduct is a violation of this section... (2) The false
representation of (A) the character, amount, or legal status of any debt; or (B) any
services rendered or compensation which may be lawfully received by any debt
collector... (10) The use of any false representation or deceptive means to collect or
attempt to collect any debt or to obtain information concerning a consumer.” Id. at
1692e. And further: “A debt collector may not use unfair or unconscionable means to
collect or attempt to collect any debt. Without limiting the general application of the
foregoing, the following conduct is a violation of this section: (1) The collection of any
amount (including any interest, fee, charge, or expense incidental to the principal
obligation) unless such amount is expressly authorized by the agreement creating the
debt or permitted by law.” Id. at § 1692f.

3

—

.

5

First, the Ardinos quote the terms of the Note they gave HESAA. In the
Note, they promise to pay collection costs “and all other costs permitted under
this Note for the collection of this loan, which the lender.. .incurs in collecting
this loan.” (Complaint at ¶ 39, Ex. A; see also Kahn Cert. Ex. 2 at Ex. A
thereto). Next, the Ardinos allege that the attorneys’ fees are determined by a
“contingency fee agreement between Solomon and HESAA,” (Complaint at ¶
38), as acknowledged in the September 24 Collection Letter. (Id. at ¶ 5). With
its motion, Solomon has furnished a copy of its retainer agreement with
HESAA, which confirms that it works “on a contingent fee basis, with [its] fee to
be calculated on the basis of monies collected by [it] from debtors referred to [it]
by HESAA.” (Retainer Letter, Kahn Cert. at Ex. 1 at Ex. C thereto).
4
.

These allegations are enough to require the case to go forward on the
issue of whether the pertinent statements in Solomon’s Collection Letters are
false. In short, the Ardinos allege that, under the Note and the retainer
agreement, the attorneys’ fees were not due until actually incurred, and that
they would be calculated on a contingent basis, i.e., 22% of the amount
actually collected. Solomon’s Collection Letter(s) did not reflect this. While the
Ardinos agreed to pay costs incurred by HESAA, they did not agree to pay—and
Solomon had no basis to demand—a prospective or estimated fee. Relatedly,
the September 24 Collection Letter may be read to state inaccurately that
Solomon’s fee equals 22 percent of the amount of the debt referred to it for
collection, not the amount collected. Those two amounts could turn out to be
quite different. In short, the amount of the attorneys’ fees was not set in stone
as of the dates of the Collection Letters.
Hemandez v. Miracle Fin., Inc., 2011 U.S. Dist. LEXIS 144356 (D.N.J.
Dec. 13, 2011), is on point. There, the plaintiff alleged that a debt collector sent
letters stating that its collection fee was due and owing, together with the
underlying debt, even though the debt collector’s agreement with the creditor
was contingent and the creditor had not yet incurred any collection charge. Id.
at *1.3. In a well-reasoned unpublished decision, District Judge Linares of this
The retainer agreement, submitted as an exhibit to Solomon’s motion to
dismiss, is properly considered on a Rule 12(b)(6) motion because the Complaint refers
to the “contingency fee arrangement” contained therein (Complaint at ¶ 38) and
attaches the September 24 Collection Letter in which Defendants refer to their retainer
agreement with HESAA (id. at Ex. F). See Pryor v. NCAA, 288 F.3d 548, 560 (3d Cir.
2002)(on 12(b)(6) motion, “documents whose contents are alleged in the complaint and
whose authenticity no party questions, but which are not physically attached to the
pleading, may be considered” (quoting 62 Fed. Proc., L. Ed. § 62:508)); see also
Pension Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir.
1993)(”a court may consider an undisputedly authentic document that a defendant
attaches as an exhibit to a motion to dismiss if the plaintiffs claims are based on the
document.”). Solomon’s attorney responsible for Defendants’ debt confirmed this fee
arrangement, though I do not consider this for purposes of this motion. (Fisher Cert.,
Ex. 1 to Kahn Cert. at ¶ 15).
6

Court held that “under the least sophisticated debtor standard, Plaintiff states
a claim sufficient to state a plausible right to relief regarding the inclusion of a
contingent fee not yet charged to which Verizon was only entitled in the event
of successful collection. These allegations are sufficient to state a plausible
right to relief under 15 U.S.C. § 1692e.” Id. at *10 (citing Gathuru v. Credit
Control Services, Inc., 623 F. Supp. 2d 113, 12 1-122 (D. Mass. 2009)).
The cases cited by Solomon do not persuade me otherwise. Kennedy v.
United Collection, 2010 U.S. Dist. LEXIS 9042 (D.N.J. Feb. 3, 2010) (Debevoise,
S.D.J.), stands for the rudimentary proposition that a collection letter may seek
costs authorized by an agreement, even though the agreement does not set the
exact amount or measure. Id. at *8...9. Kennedy also states that the plaintiff
would not have a FDCPA claim based on the hypothetical possibility (not even
pled) that the creditor underpaid the collection agency. Id. at *10.12. In short,
Kennedy does not address the issue presented here.
New Jersey Higher Education Assistance Authority v. Martin, 265 N.J.
Super 564 (App. Div. 1993), merely states that a note provision requiring
payment of counsel fees in the event of default is valid and enforceable, and
that the court may not award less than the full amount of fees incurred. Id. at
567-568. The Ardinos probably would not argue with that general proposition;
at any rate, their claim is a different, more nuanced one.
Bull v. Asset Acceptance, 444 F. Supp. 2d 946 (N.D. Ind. 2006), also cited
by Solomon, considered whether the fees sought in a complaint filed by a
collector were excessive and violated the FDCPA in light of the debtor’s promise
to reimburse only “reasonable” attorneys’ fees. Id. at 949. Bull does not address
the issues in this case.
Newman v. Ormond, 396 Fed. Appx. 636, 639-40 (11th Cir. 2010), also
dealt with an agreement to pay “reasonable” collection costs. The creditor
sought a particular amount, but a court ultimately awarded less. The issue
was whether the creditor’s demand for the higher amount had violated FDCPA.
Here, there is no “reasonable” costs provision or any issue comparable to the
one in Newman. The Ardinos acknowledge that they have agreed to pay actual
costs at a specified rate once Solomon completes its collection effort.

Solomon cites N.J.A.C. § 9A: 10-6.16 (quoted supra at n.2), which merely
authorizes HESAA to pass on its attorney fees to its borrowers at a rate of up to
30%. That regulation does not advance Solomon’s position as to the issues in
this case: the issue of when such fees become due, and when the lender may
tell the debtor such fees are currently due. Indeed, although the regulation
authorizes collection of costs in a general way, this case will more likely be
decided based upon the terms of the Note and the retainer agreement between
Solomon and HESAA.

7

I authorized Solomon to make a surreply submission, in which it
furnished a transcript of a hearing and decision on a motion for summary
judgment in a case filed by HESAA (through Solomon) in New Jersey Superior
Court. That collection case presented an issue similar to the one here, albeit
via a counterclaim by the student debtor. Judge Kenneth J. Slomienski,
disagreeing with the debtor, granted summary judgment in favor of HESAA.
(See NJHEAA v. Burke, No. L-9571-12 (N.J. Super. Ct. Bergen Co.) Transcript.
Doc. No. 18, Ex. C).
This three-paragraph oral decision does not convince me, because it
failed to analyze and apply the FDCPA. The decision merely found that N.J.A.C.
§ 9A: 10-6.16 is a valid basis for fee recovery (true enough) and essentially
dismissed the debtors’ FDCPA argument because “there’s no case law on that.”
(Id. at Docket p. 30 (p. 15 of transcript). The learned judge may have been
referring to published New Jersey authority, or he may not have had the benefit
of a citation to Judge Linares’s unpublished opinion in Hemaridez, 2011 U.S.
Dist. LEXIS 144356, which in turn cited Gathuru, 623 F. Supp. 2d at 121-22, a
published District of Massachusetts opinion. At any rate, the oral opinion
contains no significant analysis, and it does not address the bases, expressed
above, for my opinion.
In sum, the Ardinos have made allegations sufficient to set forth a
plausible claim of
-

-

-

false, deceptive, or misleading representation(s), by alleging that the
collection letters demanded an amount which included attorneys’ fees
not yet accrued, see 15 U.S.C. § 1692e(2)(A) (prohibiting false
representation of amount of debt),
false representation(s) or deceptive means to collect or attempt to
collect a debt, by alleging that the collection letters asserted that
HESAA was legally entitled to collection cost of 22% of the “claim
referred,” see
id. at § 1692e(10) (prohibiting use of any false
representation or deceptive means to collect or attempt to collect a
debt)); and
the use of unfair or unconscionable means to collect a debt, by
alleging that the collection letters demanded an amount which
included attorneys’ fees not yet accrued and which was based on the
value of the “claim referred,” see id. at § 1692(f)(1) (prohibiting the use
of unfair or unconscionable means, including the collection of fees not
expressly authorized by agreement creating the debt)).

I will therefore deny the portion of Solomon’s motion seeking dismissal of
the Ardinos’ claims for damages. Solomon’s argument that the Ardinos’ class
action allegations must be dismissed is based solely on its contention that the
Ardinos themselves have failed to state any cognizable claim. So I will also deny
the class action component of the motion to dismiss the damages claims.
8

Finally, Solomon argues that I should dismiss the Ardinos’ demand for
injunctive and declaratory relief because those forms of relief are not available
to them under FDCPA. The authorities support Solomon’s view. The United
States Court of Appeals for the Third Circuit has held that “injunctive and
declaratory relief are not available to litigants acting in an individual capacity
under the FDCPA.” Weiss v. Regal Collections, 385 F.3d 337, 342 (3d Cir.
2004). It reasoned that “[t]he remedies under the FDCPA differ depending on
who brings the action. The statute authorizes damages for civil liability, but
permits only the Federal Trade Commission to pursue injunctive or declaratory
relief. Because the statute explicitly provides declaratory and equitable relief
only through action by the Federal Trade Commission, we believe the different
penalty structure demonstrates Congress’s intent to preclude equitable relief in
private actions.” Id. at 341-42 (internal citations omitted); see also Hemandez,
2011 U.S. Dist. LEXIS 144356 at *14.45 (D.N.J. Dec. 13, 2011) (citing Weiss at
342). Solomon’s motion to dismiss the claims for injunctive and declaratory
relief will therefore be granted.
. .

Conclusion

For the reasons stated above, the motion of Solomon and
to dismiss the complaint is GRANTED IN PART and DENIED
claims, insofar as they demand injunctive and declaratory
DISMISSED WITH PREJUDICE. As to all other claims and
motion to dismiss is DENIED.

Solomon, P.C.,
IN PART. The
relief, will be
demands, the

An appropriate order follows.

HON. KEVIN MCNULTY
United States District Judge
Date: January 23, 2014
Newark, New Jersey

9