JANICE L. PEPE v. CAVALRY SPV I, LLC et al

Filing 27

OPINION. Signed by Judge William J. Martini on 5/26/16. (gh, )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

Civ. No. 2:15-08634 (WJM)

JANICE L. PEPE,
Plaintiff,

OPINION
v.
CAVALRY SPV I, LLC, et al.,
Defendants.

WILLIAM J. MARTINI, U.S.D.J.:
Plaintiff Janice Pepe brings this Fair Debt Collection Practices Act, 15 U.S.C.
§ 1692 et seq. (“FDCPA”) action against Cavalry SPV I, LLC and other John Doe
Defendants (hereinafter, “Cavalry”). Pepe alleges that Cavalry violated the FDCPA by
bringing a time-barred state court debt collection action against her.
Discovery has not yet commenced, but Pepe has filed the following motions
before the Court: (1) a motion for partial summary judgment, arguing that Cavalry has
violated the FDCPA as a matter of law; (2) a motion to dismiss Cavalry’s recoupment
counterclaim; (3) a motion to strike Cavalry’s statute of limitations affirmative defense,
which Cavalry consents to. Cavalry cross-moves under Rule 56(d) to deny Pepe’s
motion for summary judgment or, in the alternative, defer consideration of Pepe’s
summary judgment motion until discovery is complete. There was no oral argument.
Fed. R. Civ. P. 78(b).
For the reasons described below, Pepe’s partial motion for summary judgment is
DENIED without prejudice to renewal upon the completion of discovery; it follows
that Cavalry’s cross-motion is GRANTED. Pepe’s motion to dismiss Cavalry’s
counterclaim is GRANTED, and Pepe’s unopposed motion to strike is GRANTED.

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I.

BACKGROUND1
A. Underlying Factual Background

According to Pepe’s Complaint, in 2005, Pepe entered into a credit card agreement
with MBNA America Bank (which later merged to become Bank of America). ECF doc.
4-4, p. 10. Pepe agreed to pay the minimum payment shown on her monthly statement
by the payment due date each month, or else she would be deemed in default. Id. at 2831. The Agreement had a choice of law provision, which stated that it was “governed by
the laws of Delaware (without regard to its conflict of laws principles) and by any
applicable federal laws.” Id. at 36. According to a redacted copy of the “final bill”
attached to Pepe’s Complaint, Pepe had an outstanding total balance of $19,551.76 with a
payment due date of February 3, 2010. Id. at 4. Pepe apparently failed to pay the
minimum monthly balance, and was deemed in default. In February 2012, Bank of
America assigned Pepe’s outstanding debt to Cavalry. ECF doc. 8 at 10.
B. State Court Proceedings
In January 2015, Cavalry, as assignee of Pepe’s credit card debt, filed a debt
collection action for $19,551.76 against Pepe in New Jersey state court. ECF doc. 4-4 at
1-3. Pepe initially answered the complaint pro se, and denied ownership or knowledge of
the debt. Id. at 6-8. She subsequently obtained counsel, and moved to amend her answer
to assert a statute of limitations defense. Id. at 26. In March 2016, this motion was
denied. ECF doc. 26, Ex. A. The parties dispute the extent to which discovery has been
conducted in state court; in any case, neither side has provided this Court with any
documents produced in state court since Pepe raised her statute of limitations defense.
Trial is currently set for June 6, 2016. Id.
C. The Instant Action
Meanwhile, in December 2015, Pepe filed a Complaint in this Court against
Cavalry. ECF doc. 1. Pepe alleges that, in commencing the state court debt collection
action, Cavalry violated several provisions of the FDCPA and the New Jersey Consumer
Fraud Act. ECF doc. 1. Specifically, Pepe contends that the cause of action accrued on
February 4, 2010 (the day after payment on the final bill came due) but that the state
court action was not commenced until January 5, 2015 – more than 4 years and 11
months later. Pepe argues that, because the Agreement contains a Delaware choice of
law provision, and Delaware enforces a three-year statute of limitations on debt
collection actions, the action was time barred and thus, violates the FDCPA.

The facts are drawn from Pepe’s Complaint and filings submitted in connection with her motion for summary
judgment. Because discovery has not yet commenced, Cavalry has not had an opportunity to fully prepare a
counterstatement of facts; however, it is noted by the Court that Cavalry generally disputes the authenticity of some
underlying documents and Pepe’s statement of facts.
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Twelve days after Cavalry was served with the Complaint – and before discovery
had commenced – Pepe moved for partial summary judgment on her FDCPA claim,
arguing that Cavalry’s liability was clear as a matter of law. ECF doc. 4.
In its answer, Cavalry asserts, inter alia, an affirmative defense that, if a violation
of the FDCPA occurred, it was unintentional and resulted from a bona fide error.
Cavalry also asserts a counterclaim for recoupment against any sums awarded to Pepe.
ECF doc. 8. Pepe moves to dismiss Cavalry’s recoupment claim. ECF doc. 11.2
Cavalry also opposes Pepe’s motion for summary judgment, arguing that New
Jersey law (which provides a six-year statute of limitations) applies to the debt collection
action and, therefore, that action is not time-barred. Cavalry further argues that, even if
the action is time-barred, any violation of the FDCPA in bringing a time-barred action
was unintentional. ECF doc. 9. Cavalry has also moved, under Rule 56(d), to deny or
defer consideration of Pepe’s motion for summary judgment until factual discovery is
completed. ECF doc. 21. In its supporting affidavit, Cavalry asserts that discovery must
be conducted before the Court undertakes its choice of law analysis. Id.
II.

SUMMARY JUDGMENT MOTIONS
A. Legal Standard

Federal Rule of Civil Procedure 56 provides for summary judgment “if the movant
shows that there is no genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(a). A factual dispute is genuine if a
reasonable jury could find for the non-moving party, and is material if it will affect the
outcome of the trial under governing substantive law. Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248 (1986). A party must support its position by citing to “materials in the
record, including depositions, documents, electronically stored information, affidavits or
declarations, stipulations[,] . . . admissions, interrogatory answers, or other materials . . .
.” Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).
The Court considers the record in the light most favorable to the non-moving party while
drawing all reasonable inferences in that party’s favor. Bowers v. NCAA, 475 F.3d 524,
535 (3d Cir. 2007).
Under Rule 56(d), “a party seeking further discovery in response to a summary
judgment motion [must] submit an affidavit specifying, for example, what particular
information is sought; how, if uncovered, it would preclude summary judgment; and why
it has not previously been obtained.” Dowling v. City of Phila., 855 F.2d 136, 139–40
(3d Cir. 1988). “District courts usually grant properly filed [Rule 56(d)] motions as a
matter of course.” St. Surin v. Virgin Islands Daily News, Inc., 21 F.3d 1309, 1314 (3d
Pepe also moves to strike Cavalry’s seventh affirmative defense (statute of limitations). Cavalry consents, ECF
doc. 25; accordingly, that unopposed motion is GRANTED.
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Cir. 1994) (internal citations omitted). In fact, “[i]f discovery is incomplete, a district
court is rarely justified in granting summary judgment, unless the discovery request
pertains to facts that are not material to the moving party’s entitlement to judgment as a
matter of law.” Shelton v. Bledsoe, 775 F.3d 554, 568 (3d Cir. 2015) (citing Doe v.
Abington Friends Sch., 480 F.3d 252, 257 (3d Cir. 2007)).
B. Pepe’s Partial Motion for Summary Judgment Must be Denied
Cavalry argues that summary judgment must be denied under Rule 56(d) because
discovery is incomplete as to Pepe’s FDCPA claim.3 The Court agrees.
“To prevail on an FDCPA claim, a plaintiff must prove that: (1) she is a consumer,
(2) the defendant is a debt collector, (3) the defendant’s challenged practice involves an
attempt to collect a ‘debt’ as the Act defines it, and (4) the defendant has violated a
provision of the FDCPA in attempting to collect the debt.” Douglass v. Convergent
Outsourcing, 765 F.3d 299, 303 (3d Cir. 2014) (citation omitted). A “debt collector’s
filing of a lawsuit on a debt that appears to be time-barred, without the debt collector
having first determined after a reasonable inquiry that that limitations period has been or
should be tolled” violates the FDCPA. Kimber v. Federal Fin. Corp., 668 F. Supp. 1480,
1487 (M.D. Ala. 1987) (seminal authority); see also Huertas v. Galaxy Asset Mgmt., 641
F.3d 28, 33 (3d Cir. 2011) (citing to and “agree[ing] with the logic underlying
[Kimber]”). However, a debt collector may not be held liable in any action brought under
the FDCPA if the debt collector shows that the violation was not intentional and resulted
from a bona fide error notwithstanding the maintenance of procedures reasonably adapted
to avoid any such error. 15 U.S.C. § 1692k(c).
Here, the Court simply does not have enough facts before it to decide Pepe’s
summary judgment motion, and Cavalry has not had “an adequate opportunity to obtain
discovery.” Dowling, 855 F.2d at 138–39. Pepe filed the present summary judgment
motion merely twelve days after serving Cavalry with the Complaint; discovery remains
incomplete as to several material facts. Doe, 480 F.3d at 257. For example, Cavalry
challenges the authenticity and enforceability of the Agreement containing the Delaware
choice of law provision, and avers that Pepe, too, has challenged its authenticity in state
court. But even assuming that Delaware’s three-year statute of limitations does apply,
other material questions of fact persist: Has that limitations period been tolled? Did
Cavalry conduct a “reasonable inquiry” into whether the limitations period had tolled?
Did Cavalry’s alleged FDCPA violation result from a bona fide error?
The Court briefly notes that Cavalry’s Rule 56(d) motion should have been served with its original opposition to
Pepe’s summary judgment motion, rather than as a later, separate filing. See generally Local Rule 7.1(d)(6) (“no
sur-replies are permitted without permission of the Judge . . . to whom the case is assigned.”). But the
“unambiguous text of [Rule 56] does not require an opposition on Rule 56(d) grounds to be formally styled as a
motion,” Shelton, 775 F.3d at 566, and, since Cavalry ultimately filed the requisite Rule 56(d) affidavit, the Court
finds that Cavalry has substantially complied with Rule 56(d).
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At the very least, Cavalry’s belief that New Jersey’s six-year statute of limitations,
and not Delaware’s three-year statute of limitations, applies – a question that the Court
need not resolve at this juncture – indicates the possibility of a bona fide error defense.
See Taylor v. Luper, Sheriff & Niedenthal Co., L.P.A., 74 F. Supp. 2d 761 (S.D. Ohio
1999) (debt collector’s time-barred lawsuit was a bona fide error, due to conflicting case
law); Simmons v. Miller, 970 F. Supp. 661, 664 (S.D. Ind. 1997) (FDCPA, which “seeks
to proscribe intentional creditor misconduct” not applicable to a collection suit that may
not have been time barred due to lack of clarity as to what limitations apply under Indiana
law); Almand v. Reynolds & Robin, P.C., 485 F. Supp. 2d 1361, 1367 (M.D. Ga. 2007)
(“the uncertainty regarding exactly which statute of limitations applies results in a finding
of no violation of the FDCPA . . . .”). Accordingly, Pepe’s motion for partial summary
judgment is DENIED without prejudice to renewal upon the completion of discovery;
Cavalry’s Rule 56(d) motion is GRANTED.
III.

MOTION TO DISMISS
A. Legal Standards

Federal Rule of Civil Procedure 12(b)(1) provides for the dismissal of a claim for
lack of subject matter jurisdiction. As is the case here, if a Court lacks original
jurisdiction over a claim (a point that Cavalry does not contest), it may, in its discretion,
exercise supplemental jurisdiction over the claim under 28 U.S.C. § 1367. Pursuant to
§ 1367, federal courts have the power to hear a state claim if the federal claim has
“substance sufficient to confer subject matter jurisdiction on the court,” and the state and
federal claims “derive from a common nucleus of operative facts.” United Mine Workers
v. Gibbs, 383 U.S. 715, 725 (1966). “The decision to exercise this power, on the other
hand, remains open, and should be based on considerations of judicial economy,
convenience and fairness to the litigants.” New Rock Asset Partners, L.P. v. Preferred
Entity Advancements, Inc., 101 F.3d 1492, 1505 (3d Cir. 1996) (internal citations and
quotation marks omitted).
Federal Rule of Civil Procedure 12(b)(6) provides for the dismissal of a claim, in
whole or in part, if the pleader 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). In deciding a motion to dismiss under
Rule 12(b)(6), a court must take all allegations in the pleading as true and view them in
the light most favorable to the pleader. See Warth v. Seldin, 422 U.S. 490, 501 (1975);
Trump Hotels & Casino Resorts, Inc. v. Mirage Resorts Inc., 140 F.3d 478, 483 (3d Cir.
1998).
B. Cavalry’s Recoupment Claim Must be Dismissed
In its motion to dismiss Cavalry’s recoupment affirmative defense and
counterclaim (“the recoupment claim”), Pepe argues that the Court should decline to
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exercise supplemental jurisdiction over the recoupment claim and that, in any event,
Cavalry has failed to state a claim under Rule 12(b)(6). The Court agrees.
Recoupment “is the setting up of a demand arising from the same transaction as
the plaintiff’s claim or cause of action, strictly for the purpose of abatement or reduction
of such claim.” Newbery Corp. v. Fireman’s Fund Ins. Co., 95 F.3d 1392, 1399 (9th Cir.
1996) (internal citations omitted) (emphasis in original); see also In re Frescati Shipping
Co., Ltd., 718 F.3d 184, 214 (3d Cir. 2013) (“Equitable recoupment is a principle that
diminishes a party’s right to recover a debt to the extent that the party holds money or
property of the debtor to which the party has no right . . . . The competing claims must
arise from the ‘same transaction.’” (internal citations omitted)). The justification for the
recoupment doctrine is that where the creditor’s claim against the debtor arises from the
same transaction as the debtor’s claim, it is essentially a defense to the debtor’s claim
against the creditor rather than a mutual obligation. Lee v. Schweiker, 739 F.2d 870, 875
(3d Cir. 1984). However, the mere fact that a contract exists between the debtor and
creditor does not automatically enable the creditor to effect a recoupment. In re Univ.
Med. Ctr., 973 F.2d 1065, 1080 (3d Cir. 1992).
The Court declines to exercise supplemental jurisdiction over Cavalry’s
recoupment claim for the same reason that the claim must be dismissed under Rule
12(b)(6): Cavalry’s recoupment claim does not arise from the same transaction as Pepe’s
FDCPA claim. Quite simply, the “transaction” underlying Pepe’s FDCPA claim is
Cavalry’s filing of the state court collection action. The “transaction” underlying
Cavalry’s recoupment claim, on the other hand, is the debt itself. Cavalry argues that it
has stated a valid recoupment claim because both claims generally arise out of Pepe’s
debt. But “the fact that the same two parties are involved, and that a similar subject
matter gave rise to both claims . . . does not mean that the two arose from the ‘same
transaction.’” Lee, 739 F.2d at 875-76. Rather, as is the case here, “different operative
facts” underlie a “typical debt collection action” and an FDCPA action. Jackson v.
Midland Funding, LLC, 468 F. App’x 123, 125-26 (3d Cir. 2012); see also Peterson v.
United Accounts, Inc., 638 F.2d 1134, 1137 (8th Cir. 1981) (“the two claims [i.e., the
FDCPA and the debt claim] bear no logical relation to one another”). Accordingly,
Pepe’s motion to dismiss Cavalry’s recoupment claim is GRANTED. Because a
recoupment counterclaim cannot survive in this action, amendment would be futile;
therefore, the claim is DISMISSED with prejudice.

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IV.

CONCLUSION

For the above reasons, Pepe’s motion for summary judgment is DENIED and
Cavalry’s Rule 56(d) motion is GRANTED. Pepe’s motions to dismiss and strike are
GRANTED. An appropriate order follows.
/s/ William J. Martini
WILLIAM J. MARTINI, U.S.D.J.
Date: May 26, 2016

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