KAETZ v. EDUCATIONAL CREDIT MANAGEMENT CORPORATION et al

Filing 35

OPINION. Signed by Judge Claire C. Cecchi on 9/11/2017. (JB, )

C,

Case 2:16-cv-09225-CCC-MF Document 35 Filed 09/11/17 Page 1 of 8 PageID: 252

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

WILLIAM F. KAETZ,

Civil Action No.: 2:16-cv-09225
Plaintiff,
OPINION

V.

EDUCATIONAL CREDIT MANAGEMENT
CORPORATION, ET AL.,
Defendants.
CECCHI, District Judge.
I.

INTRODUCTION

This matter comes before the Court on the motion of Educational Credit Management
Corporation (“Defendant”) to dismiss Plaintiff William F. Kaetz’s (“Plaintiff’) Complaint
pursuant to Fed. R. Civ. P. 12(b)(6). (ECF No. 10). The Court has given careful consideration
to the submissions from each party. Pursuant to Fed. R. Civ. P. 78(5), no oral argument was
heard. For the reasons that follow, Defendant’s Motion to Dismiss is granted.
II.

BACKGROUND

On August 7, 2012, Plaintiff filed a voluntary petition for relief pursuant to Chapter 7 of
the Bankruptcy Code in the United States Bankruptcy Court for the District of New Jersey.’

Plaintiff does not include as an attachment to his Complaint a copy of his voluntary petition.
On a motion to dismiss, however, the Court may consider the allegations in the complaint, any
exhibits attached to the complaint, matters of public record, and undisputedly authentic
documents upon which the plaintiffs complaint is based. Pension Benefit Guar. Corp. v. White
Consot. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993). A document falls into the latter
category even where the complaint does not cite or “explicitly rely[]” on it; “[r]ather, the
essential requirement is that the plaintiffs claim be ‘based on that document.” Brusco v.
Harleysville Ins. Co., No. 14-914, 2014 WL 2916716, at *5 (D.N.J. June 26, 2014) (quoting In re
Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997)). Here, Plaintiffs

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(ECF No. 10-1 at 8). As part of Plaintiffs voluntary petition, Plaintiff listed Defendant as a
creditor holding an unsecured non-priority claim in the amount of $15,835.00, incurred in July
2010. (Id. at 24). On January 2$, 2013, the Honorable Morris Stem, United States Bankruptcy
Judge, granted Plaintiff “a discharge under section 727 of title 11, United States Code.” (Id. at
36).

Included with Plaintiffs discharge was an “EXPLANATION OF BANKRUPTCY

DISCHARGE 1N A CHAPTER 7 CASE,” which states: “{m]ost, but not all, types of debts are
discharged if the debt existed on the date the bankruptcy case was filed

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Some of the

common types of debts which are not discharged in a [C]hapter 7 bankruptcy case are:

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Debts

for most student loans.” (Id. at 37).
On December 13, 2016, Plaintiff filed his Complaint with this Court, contending that,
despite the discharge he received on January 28, 2013, Defendant “continued to collect a
discharged debt” and “furnished fraudulent information to the other defendants[:] Experian,
TransUnion, and Equifax.” (ECF No. 1 at 3). On January 25, 2017, Defendant filed its Motion
to Dismiss.2 (ECF No. 10). Defendant argues that Plaintiff fails to state a claim upon which
relief may be granted because: (1) Plaintiffs debts are student loans, governed by 11 U.S.C.

§ 523(a)(8), and therefore were not automatically discharged on January 28, 2013; and (2)
Defendant “is required by statute to report certain information to consumer reporting agencies,”
and the information Defendant furnished was entirely accurate. (ECF No. 11 at 6-7).
On March 10, 2017, Plaintiff filed an opposition. (ECF No. 17). Although Plaintiffs
opposition was untimely filed, as Plaintiff is pro se, the Court will still consider Plaintiffs
opposition. On March 22, 2017, Defendant filed a reply, (ECF No. 21), and on April 12, 2017,
Complaint explicitly relies on his voluntary petition, which Plaintiff argues “discharg[ed] all
debts that included debts managed by [Defendant].” (ECF No. 1 at 3). As such, this Court will
properly consider Plaintiffs voluntary petition with Defendant’s Motion to Dismiss.
2
Experian, TransUnion, and Equifax, the remaining three defendants in this case, did not join
Defendant’s Motion to Dismiss.
2

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Plaintiff filed a sur-reply.

(ECF No. 25).

Although the Court did not grant permission to

Plaintiff to file a sur-reply, the Court will consider Plaintiffs submission.
III.

LEGAL STANDARD
A.

Defendant’s Motion to Dismiss Pursuant to Rule 12(b)(6)

For a complaint to survive dismissal pursuant to Fed. R. Civ. P. 12(b)(6), it “must contain
sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombty, 550 U.S. 544,
570 (2007)). In evaluating the sufficiency of a complaint, the Court must accept all well-pleaded
factual allegations in the complaint as true and draw all reasonable inferences in favor of the
non-moving party. See Phillips v. Cty. ofAllegheny, 515 F.3d 224, 234 (3d Cir. 2008). “factual
allegations must be enough to raise a right to relief above the speculative level.” Twombly, 550
U.S. at 555. Furthermore, “[a] pleading that offers ‘labels and conclusions’

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will not do. Nor

does a complaint suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual
enhancement.” Iqbal, 556 U.S. at 678 (citations omitted).
B.

Liberal Pleading Standard for Pro Se Litigants

A pro se litigant’s complaint is held to “less stringent standards than formal pleadings
drafted by lawyers.” Homes v. Kerner, 404 U.S. 519, 520 (1972).

Courts have a duty to

construe pleadings liberally and apply the applicable law, irrespective of whether apro se litigant
has mentioned the law by name. See Mala v. Crown Bay Marina, Inc., 704 F.3d 239, 244 (3d
Cir. 2013). A pro se complaint “can only be dismissed for failure to state a claim if it appears
‘beyond doubt that the plaintiff can prove no set of facts in support of his claim which would
entitle him to relief.” Estelle v. Gamble, 429 U.S. 97, 106 (1976) (quoting Homes, 404 U.S. at
520-21); see also Bacon v. Minner, 229 f. App’x 96, 100 (3d Cir. 2007).

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IV.

DISCUSSION
A.

Fair Debt Collection Practices Act

Plaintiff purports to bring a claim under the F air Debt Collection Practices Act
(“fDCPA”), arising from Defendant “attempting to collect federally discharged debts” in
violation of the FDCPA. (ECF No. 1 at 3). Defendant has filed a Motion to Dismiss, (ECF No.
10), on the ground that Plaintiffs student loans were not discharged in Plaintiffs Chapter 7
bankruptcy proceedings, and therefore, Plaintiff fails to state a claim upon which relief may be
granted.
1.

Discharged Debts and Exceptions to Discharge

The provision of the Bankruptcy Code governing discharge of student loans reads:
A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title
does not discharge an individual debtor from any debt
unless excepting such
debt from discharge under this paragraph would impose an undue hardship on the
debtor and the debtor’s dependents, for. an educational benefit overpayment or
loan made, insured, or guaranteed by a governmental unit, or made under any
program funded in whole or in part by a governmental unit or nonprofit
institution; or.
an obligation to repay funds received as an educational benefit,
scholarship, or stipend; or
any other educational loan that is a qualified
education loan, as defined in section 221(d)(1) of the Internal Revenue Code of
1986, incurred by a debtor who is an individual[.]
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11 U.S.C.

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.

§ 523(a)(8).

Here, Plaintiff does not argue that his debts to Defendant are anything other than
“educational.

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.

loan[s] made, insured, or guaranteed by a governmental unit, or made under any

program funded in whole or in part by a governmental unit or nonprofit institution.” See Id.
Rather, Plaintiff contends:
{T]he alleged loans are claimed to be “student [l]oans” that were originated by
Kaplan Online University and a few years ago Kaplan was found guilty of fraud
with other Online University scams
[T]his fraud challenges the authenticity
of the loans and their alleged exempt from discharge status.
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(ECF No. 25 at 4).

Nonetheless, Plaintiff provides no evidence that: (1) Kaplan Online

University originated Plaintiffs loans;3 (2) Kaplan Online University was found guilty of fraud
with other “Online University scams;” or (3) such alleged fraud had any relation to the
origination of Plaintiffs loans. Further, 11 U.S.C.

§ 523(a)($) provides no provision excepting

from the discharge exemption student loans originated by a company that has at some time, for
some reason, been found guilty of fraud. As such, Plaintiffs obligations are presumptively
nondischargeable pursuant to 11 U.S.C.

§ 523(a)(8). See In re Sperazza, 366 B.R. 397, 407

(Bankr. E.D. Pa. 2007) (noting that neither party suggested plaintiffs debts to Education Credit
Management Corporation, the same defendant here, were anything other than educational loans
and therefore “the obligations [were] presumptively nondischargeable”); see also In re Jones,
392 B.R. 116, 124-25 (Bankr. E.D. Pa. 200$) (same).
2.

Undue Hardship Exception

Although student loans are presumptively nondischargeable, Plaintiff contends that his
debts were discharged because the Bankruptcy Code has a “hardship exception.” (ECF No. 25 at
4).

Plaintiff provides a number of reasons why the hardship exception applies.

(Id. at 5).

Plaintiff maintains that it was Defendant’s burden “to timely file an action to have [Plaintiffs]
debts declared nondischargeable” because “[t]here is no requirement for an adversary hearing to
determine debts alleged to be under 11 USC
United States “Code

§ 523[a]($).” (Id. at 6).

§ 523(a)($) is not self-effectuating. Rather, it requires the debtor to

bring an adversary proceeding to determine whether a student loan debt is dischargeable under
that provision, or to plead and prove dischargeability under this section as an affirmative defense
in an action brought by the creditor in state court.” In re Kahi, 240 B.R. 524, 530 (Bankr. E.D.
Rather, it appears Plaintiffs loans were originated by Citibank ELT Student Loan Corp. and
guaranteed by Defendant’s predecessor-in-interest, California Student Aid Commission. (ECF
No. 10-1 at 2, 5-7).
5

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Pa. 1999); see also In re Miller, No. 06-1082, 2006 WL 2361819, at *3 (Bankr. W.D. Pa. Aug.
14, 2006) (“[Debtor] did not commence an adversary proceeding to determine whether her
educational loans were dischargeable prior to the issuance of discharge and closing of the case
on September 18, 2003 and accordingly, [Debtor’s] original loans were not discharged in the
bankruptcy case.”).

“In its present iteration, student loan debts are not dischargeable in

bankruptcy absent a showing of ‘undue hardship’ within meaning of that provision.” In re Kahi,
240 B.R. at 529 n.7.
Although Plaintiff maintains that Defendant “must show that the plaintiff had wealth and
a residual wealth to be able to pay without undue hardship,” (ECF No. 25 at 11), the law says
otherwise.

Having failed to bring an adversary proceeding against Defendant to determine

whether Plaintiff was entitled to a discharge of his student loan debts for “undue hardship,”
Plaintiffs debts were never discharged. As such, Plaintiff has failed to articulate any facts
entitling him to relief for a violation of the FDCPA,4 and the Court will dismiss Plaintiffs claim.
B.

Fair Credit Reporting Act

Plaintiff also purports to bring a claim under the Fair Credit Reporting Act (“FCRA”),
arising from Defendant providing Experian, TransUnion, and Equifax with “fraudulent
information” regarding Plaintiffs debts. (ECF No. 1 at 3). Defendant counters that Plaintiff
cannot prevail on this claim because the disputed information was accurate and Defendant is
required to disclose such information by law. (ECF No. 11 at 7 (citing 20 U.S.C.
C.F.R.

§ 1080a(a); 34

§ 682.410(b)(5))).
“The FCRA was enacted to protect consumers from the transmission of inaccurate

information about them, and to establish credit reporting practices that use accurate information.”
For the same reasons that the Court finds Plaintiff has failed to state a claim for any FDCPA
violation, the Court also finds Plaintiff has failed to state a claim for any violation of Plaintiffs
bankruptcy order.
‘

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Harris v. Pa. Higher Educ. Assistance Agency/Am. Educ. Servs., No. 16-2963, 2017 WL
2691170, at *2 (3d Cir. June 22, 2017).
Under [the] FCRA, [credit reporting agencies (“CRAs”)] collect consumer credit
data from “furnishers,” such as banks and other lenders, and organize that
material into individualized credit reports, which are used by commercial entities
to assess a particular consumer’s creditworthiness. [The] FCRA imposes a
variety of obligations on both furnishers and CRAs.
Seamans v. Temple Univ., 744 F.3d 853, 860 (3d Cir. 2014).
As a furnisher of information, Defendant’s actions are governed by 15 U.S.C.
though a private right of action only arises under 15 U.S.C.

§ 1681s-2,

§ 168 ls-2(b). See Harris, 2017 WL

2691170, at *23. In order to sufficiently plead a violation of 15 U.S.C.

§ 1681s-2(b), a plaintiff

must allege “(1) that he notified a credit reporting agency of the dispute under

§ 16811, (2) that

the credit reporting agency notified the party who furnished the information under

§ 1681 i(a)(2),

and (3) that the party who furnished the information failed to investigate or rectify the disputed
charge{].” Taggart v. Nw. Mortg., Inc., No. 09-1281, 2010 WL 114946, at *9 (E.D. Pa. Jan. 11,
2010), aff’d, 539 F. App’x 42 (3d Cir. 2013).
Here, although Plaintiffs Complaint alleges that “Plaintiff contacted [the credit reporting
agencies and Defendant] multiple times explaining that the debts [were] discharged via
[b]ankruptcy,” (ECF No. 1 at 3), Plaintiff does not allege that the credit reporting agencies
notified Defendant of the dispute, or that Defendant failed to undertake a reasonable and timely
investigation.

For this reason, Plaintiffs Complaint should be dismissed.5

See Berkery v.

The Court notes that even if Plaintiff repleads the legal elements of his FCRA claim, under the
same facts, Plaintiffs argument will likely fail. 15 U.S.C. § 1681s-2(b) “provides consumers a
cause of action against ‘furnishers of information’ that receive notice of disputed information on
a credit report from a CRA but ‘fail[] to investigate that dispute’ and continue to provide
‘inaccurate information after receiving notice[.]” Obarski v. United Collection Bureau, Inc.,
No. 12-07788, 2013 WL 5937412, at *2 (D.N.J. Nov. 4, 2013) (alteration in original) (emphasis
added) (citations omitted). By failing to bring an adversary proceeding against Defendant for a
determination of whether Plaintiff was entitled to an undue hardship discharge, Plaintiffs
7

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Verizon Commc’ns, Inc., No. 15-1085, 2015 WL 6599694, at *4 (E.D. Pa. Oct. 29, 2015), aff’d,
65$ F. App’x 172 (3d Cir. 2016) (“[Plaintiff] fails to allege that a credit reporting agency notified
[defendant], as the furnisher of information here, of the dispute, and [defendant] subsequently
failed to undertake a reasonable and timely investigation. Therefore, [plaintiff’s] FCRA claim
does not state a plausible claim for relief as currently pleaded.”); see also Taggart, 2010 WL
114946, at *10 (dismissing plaintiffs complaint for failing to “specifically plead that he
contacted a credit reporting agency to notify it of the dispute”); King

V.

Glob. Credit Network,

No. 13-960, 2014 WL 2571554, at *5..6 (D.N.J. June 9, 2014) (same).
V.

CONCLUSION
For the foregoing reasons, Defendant’s Motion to Dismiss is granted. If Plaintiff wishes,

he may file an amended complaint within thirty (30) days of the date of this Opinion. However,
Plaintiff is cautioned to examine the requirements of the Bankruptcy Code and the Fair Credit
Reporting Act before filing an amended pleading. An appropriate order follows this opinion.

DATED:

s

.-•

t

CLAIRE C. CECCHI, U.S.D.J.

student loans were not discharged during bankruptcy. As such, the information provided by
Defendant was likely accurate and would fail to give rise to an FCRA violation. See id.
(dismissing with prejudice plaintiffs claim, finding amendment would be futile when
information furnished was “for a permissible purpose” and “entirely accurate”).
8