KAETZ v. EDUCATIONAL CREDIT MANAGEMENT CORPORATION et al
Filing
99
OPINION. Signed by Judge Claire C. Cecchi on 9/30/2019. (ams, )
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
Civil Action No.: 2:16-cv-09225
WILLIAM F. KAETZ,
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 ECMC”) to dismiss Plaintiff William F. Kaetz’s (“Plaintiff’) Second
Amended Complaint pursuant to Fed. R. Civ. P. 12(b)(6) (ECF No. 58) and Equifax Information
Services LLC (“Defendant Equifax”) and Experian Information Solutions Inc.’s (“Defendant
Expeñan”) joint motion to dismiss Plaintiffs Second Amended Complaint pursuant to Fed. R.
Civ. P. 12(b)(6) (ECF No. 59). The Court has given careful consideration to the submissions
from each party. Pursuant to Fed. R. Civ. P. 78(b), no oral argument was heard. For the reasons
that follow, Defendants’ Motion to Dismiss is granted.
II.
BACKGROUND
In September 2007, Plaintiff signed a Master Promissory Note requesting student aid
under the Federal Family Education Loan Program (“FFEL Program”). ECF No. 59-1 at 2.
When Plaintiff failed to honor his repayment obligations under the Note, the loans went into
default and the initial loan provider, Citibank, filed a default claim. Id. Thereafler, Defendant
ECMC assumed all responsibilities as the designated guaranty agency for Plaintiffs defaulted
loans. Id. Defendant ECMC is a not-for-profit corporation created under the direction of the
U.S. Department of Education “to provide specialized guarantor service pursuant to [FFEL
Program], including accepting transfer of title of certain student loan accounts on which the
student loan borrower has filed a bankruptcy proceeding.” Id.
On August 7, 2012, Plaintiff filed a voluntary petition for relief pursuant to Chapter 7 of
the Bankruptcy Code in the United States Banlcruptcy Court for the District of New Jersey.’
ECF No. 57 at 2-3. Plaintiff listed Defendant ECMC as a creditor holding an unsecured nonpriority claim in the amount of$15,835.00, incurred in July 2010. Id. at 3. On January 28, 2013,
the Honorable Morris Stem, United States Bankruptcy Judge, granted Plaintiff “a discharge
under section 727 of title 11, United States Code.” Id. Under 11 U.S.C.
§ 523(a)(8), educational
benefits or loans are exempt from discharge under section 727, unless “exempting such debt
from discharge under this paragraph would impose an undue hardship on the debtor.” 11 U.S.C.
§ 523(a)($).
On December 13, 2016, Plaintiff filed his Complaint with this Court, contending that,
despite the discharge he received on January 28, 2013, Defendant ECMC “continued debt
collection practices” and “furnished fraudulent information to the other defendants[:] Experian,
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
Consol. 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.
Harleysvilte 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
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.
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TransUnion, and Equifax.” ECF No. 1 at 3. On January 25, 2017, Defendant ECMC filed its
First Motion to Dismiss.2 ECF No. 10. In that motion, Defendant ECMC argued that Plaintiff
failed 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. After considering the parties’ submissions (ECF Nos. 17, 21, 25), the Court
granted Defendant ECMC’s First Motion to Dismiss Plaintiffs Complaint without prejudice.
ECF No. 35.
Thereafter, Plaintiff filed an Amended Complaint on October 12, 2017. ECF No. 41. On
October 23, 2017, Plaintiff requested leave to amend his Amended Complaint (ECF No. 48),
which the Court granted (EfC No. 54).
Plaintiff subsequently filed a Second Amended
Complaint. ECF No. 57. Defendant Equifax and Defendant Expenan jointly moved to dismiss
Plaintiffs Second Amended Complaint. ECF No. 58. Defendant ECMC also moved to dismiss
Plaintiffs Second Amended Complaint. ECF No. 59. Plaintiff opposes the instant motions.
ECF Nos. 63, 64). Defendants Equifax and Experian replied to Plaintiffs opposition. ECF No.
67.
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 Ad. Corp. v. Twombly, 550 U.S. 544,
2
Experian, TransUnion, and Equifax, the remaining three defendants in this case, did not join
Defendant’s First Motion to Dismiss.
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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’
.
.
.
will not do. Nor
does a complaint suffice if it tenders ‘naked assertionts]’ devoid of ‘further factual
enhancement.” Iqbal, 556 U.S. at 678 (citations omitted). Apro se litigant’s complaint is held
to “less stringent standards than formal pleadings drafted by lawyers.” Haines v. Kerner, 404
U.S. 519, 520 (1972). Apro 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.” Estetle v. Gamble, 429 U.S. 97, 106 (1976) (quoting Haines, 404
U.S. at 520-21); see also Bacon v. Minner, 229 f. App’x 96, 100 (3d Cir. 2007).
IV.
DISCUSSION
Plaintiff brings seven causes of action in his Second Amended Complaint: (1) Violation
of the Tenth Amendment of the U.S. Constitution as to Defendant ECMC, (2) facial Challenge
to the Legitimacy of Alleged Student Loans under the Tenth Amendment as to Defendant
ECMC, (3) facial Challenge to 11 U.S.C.
§ 523 (a)(8), (4) As Applied Challenge to 11 U.S.C. §
523 (a)(8), (5) Violation of the fair Debt Collection Practices Act as to Defendant ECMC,
Defendant Equifax, and Defendant Experian (collectively “Defendants”), (6) Violation of the
fair Credit Reporting Act as to Defendants, and (7) Civil Contempt of Order for United States
Bankruptcy Court.
ECf No. 57 at 1-2.
Defendant ECMC asserts that Plaintiffs Second
Amended Complaint fails to state a cause of action because Plaintiffs federal student loans with
ECMC were not discharged in his bankruptcy case and accordingly any acts taken by Defendants
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to collect the debt were legitimate. ECF No. 59-2 at 5. Defendants Equifax and Experian argue
that “the only cause of action even potentially applicable to a consumer reporting agency such as
Equifax and Experian is the sixth cause of action alleging a violation of FCRA” and further
asserts that Plaintiffs FCRA claim fails as a matter of law because Plaintiff is unable to prove
the inaccuracy of the information. ECF No. 58 at 3, 9-10. For the reasons set forth below,
Defendants’ motions to dismiss Plaintiffs Second Amended Complaint are granted.
A.
Tenth Amendment
Plaintiff claims in Counts 1 and 2 that the existence of both the Federal Department of
Education and Defendant ECMC, an entity created under the direction of the U.S. Department of
Education, are unconstitutional under the Tenth Amendment because “[n]owhere in the
Constitution is the federal government delegated the power to regulate or fund elementary or
secondary education.” ECF No. 57 at 6. According to Plaintiff, his student loans issued by
Defendant ECMC pursuant to the federal government’s FFEL Program are also unconstitutional
under the Tenth Amendment because they are based on illegal practices. Id. at 7•3
Plaintiffs Tenth Amendment arguments concerning the existence of the Department of
Education and Defendant ECMC fail because the U.S. Constitution gives the Federal
Government the power to create departments to oversee matters that affect the general welfare of
U.S. citizens. U.S. Const. Art. 2. Additionally, Congress has the authority to employ federal
funding for education programs, such as the FFEL Program that was created under the Higher
Education Act of 1965 to address the need for financial assistance of students seeking higher
education. 20 U.S.C.
§ 1071. Therefore, any arguments that Plaintiffs student loans were
issued in violation of the Tenth Amendment are misplaced.
The Court notes that Plaintiffs student loans were issued by Citibank ELT Student Loan Corp.
(“Citibank”), which is not part of the federal government.
‘
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B.
11 U.S.C. 523
§ (a)(8)
Plaintiff next challenges the constitutionality of 11 U.S.C. 523
exceptions to banlcruptcy discharge.
ECF No. 57 at 8-13.
§ (a)(8), which provides
In the relevant bankruptcy
proceedings, Plaintiff was granted a discharge under section 727 of title 11, United States code.
Id. at 2-3. A discharge of debt under section 727 does not discharge any debt “for an obligation
to repay funds received as an education benefit” unless “excepting such debt from discharge
under this paragraph would impose an undue hardship on the debtor.” 11 U.S.C. 523
§ (a)(8).
The debts at issue here are educational loans. ECF No. 57 at 2-3. Under section 523(a)(8),
student loan debt is “presumptively nondischargable ‘unless’ a determination of undue hardship
is made.” United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010); see also 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”); In re Jones, 392 B.R. 116, 124-25 (Bankr. E.D. Pa. 2008) (same). The
Banlcruptcy Rules “require a party seeking to determine the dischargeability of a student loan debt
to commence an adversary proceeding by serving a summons and complaint on affected
creditors.” Espinosa, 559 U.S. 260; see also In re Miller, No. 06-1082, 2006 WL 2361819, at *3
(Bankr. W.D. Pa. Aug. 14, 2006); In reKahl, 240 B.R. 524, 530 (Bankr. E.D. Pa. 1999).
Plaintiff argues that the statute is unconstitutional both on its face and as applied because
it is vague and therefore violates Plaintiffs due process rights. ECF No. 57 at 8-13. However,
Plaintiff also writes in his Second Amended Complaint that “[t]he Statute is fine” and that “[t]he
law is not that ambiguous and it does not need interpretation.” Id. at 8, 11. Plaintiff seemingly
contends that the statute itself is not unconstitutional but rather that “the vagueness
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doctrine. also should apply to the techniques courts use to decide on legal definitions and
. .
requirements.” See Id. at 9-11 (“The Statute is fine, its relying on courts and opponents to do
what’s right does not work.”). From these statements in the Second Amended Complaint and
Plaintiffs brief in opposition, the Court discerns that Plaintiff is challenging how this section of
the Bankruptcy Code, 11 U.S.C.
§ 523 (a)(8), was implemented in his case. The Court finds that,
based on Plaintiffs allegations and a review of the underlying bankruptcy order, the statute was
properly applied in Plaintiffs proceedings.
Plaintiff contends that his student loan debts were automatically discharged under the
undue hardship exception because “11 U.S.C. 523 (a)($) is neutral and self-executing to creditors
and debtors meaning immediately effective without further action, legislation or legal steps, no
other process required.” ECF No. 57 at 9. As stated above, however, an individual seeking
discharge under the undue hardship exception must commence an adversary proceeding in
Bankruptcy Court to determine whether his student loan debts were eligible to be discharged.
Here, because Plaintiff does not allege that he commenced an adversary proceeding to determine
whether his student loans were dischargeable, Plaintiffs debts were not discharged through the
bankruptcy proceedings. Accordingly, Plaintiffs claims fail.
C.
Fair Debt Collection Practices Act
Next, Plaintiff purports to bring a claim under the Fair Debt Collection Practices Act
(“FDCPA”), alleging that Defendants “used unfair or unconscionable means to collect or attempt
to collect a fraudulent debt” and “engaged in conduct to harass, oppress, intimidate and abuse the
plaintiff’ in violation of the FDCPA. ECF No. 57 at 14. Defendants Experian and Equifax
argue that the FDCPA is inapplicable to consumer reporting agencies like Experian and Equifax
because FDCPA was enacted to eliminate abusive debt collection practices by debt collectors,
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see 15 U.S.C.
§ 1692 et. seq., not by consumer reporting agencies. ECF No. 67 at 3-4.
Defendant ECMC does not argue about the FDcPA’s applicability but instead asserts 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. ECF No. 59-2 at
4.
First, as to Defendants Experian and Equifax, the Court finds that Plaintiff has failed to
plead sufficient facts to show that Experian and Equifax engaged in debt collection under the
FDCPA. The goal of the FDCPA is to control the collection practices of debt collectors. 15
U.S.C.
§ 1692k; Brown v. Card Service Ctr., 464 F.3d 450, 453 (3d Cir. 2006) (“[T]he [FDCPA]
provides consumers with a private cause of action against debt collectors who fail to comply
with the Act.”). A debt collector is defined under the act as any business with the principal
purpose of collecting debts, or who regularly collects or attempts to collect debts owed to
another. 15 U.S.C.
§ 1 692(a)(6). As Plaintiff does not allege that Defendants Experian and
Equifax regularly collect debt or engage in debt collection, the statute does not apply. Moreover,
even if the statute did apply to these Defendants, Plaintiff does not allege that Defendants
Experian and Equifax attempted to collect any debt from him, much less that Defendants
Experian and Equifax engaged in any harassment or abuse in connection with the collection of
Plaintiffs debt, such as the threat of violence or profane language, or the use of false, deceptive,
or misleading statements. Accordingly, Plaintiff has not plead sufficient facts to support his
FDCPA claims against Defendants Experian and Equifax.
Plaintiff further contends that Defendant ECMC violated the FDCPA by attempting to
collect Plaintiffs debt after the January 2013 Bankruptcy Court Order that, according to
Plaintiff, discharged his student loan debt. ECF No. 57 at 3. Specifically, Plaintiff states that
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Defendant ECMC contacted Plaintiff with “phone calls, letters and credit reporting for each
account that became ruthless harassment debt collection activities” and further contends that
Defendant ECMC “represented the law fraudulently.”
Id. at 3-4.
According to Plaintiff,
Defendant violated multiple sections of the FDCPA, namely sections 1 672d, 1 692e, 1 692f and
1692g. The Court addresses Plaintiffs arguments as to each section of the FDCPA below.
First, under 15 U.S.C.
§ 1692d, a debt collector may not “engage in any conduct the
natural consequence of which is to harass, oppress, or abuse any person in connection with the
collection of a debt.” Such conduct includes in relevant part (l)”[t]he use or threat of use of
violence,” (2)”[t]he use of obscene or profane language,” (3)”[t]he publication of a list of
consumers who allegedly refuse to pay debts, except to a consumer reporting agency,” (4)”[t]he
advertisement for sale of any debt to coerce payment,” (5)”[c]ausing a telephone to ring or
engaging any person in telephone conversation repeatedly or continuously,” and (6)”the
placement of telephone calls without meaningful disclosure of the caller’s identity.” 15 U.S.C.
1 692d. To state a claim pursuant to
§
§ 1 692d(5), a plaintiff must allege not only that the debt
collector contacted him by telephone repeatedly or continuously but also that he did so with
intent to annoy, abuse or harass him. Corson v. Accounts Receivable Management, Inc., 2013
WL 4047577, at *6 (D.N.J. Aug. 9, 2013).
According to Plaintiff, Defendant ECMC made telephone calls and sent letters to Plaintiff
that “became ruthless harassment” in violation of the FDCPA. ECF No. 57 at 3. However,
Plaintiff does not provide facts to support this assertion. Plaintiff does not allege how many
phone calls or letters he received, nor does he allege over what time period this occurred. Cf
Shand-Fistitti v. Frof’t Account Sen’s., Inc., 2010 WL 2978029, at *4 (E.D.Pa. July 26, 2010)
(analyzing the number and pattern of phone calls to ascertain whether plaintiff stated a sufficient
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claim under section 1692d).
As such, the Court cannot discern from Plaintiff’s allegations
whether Defendants called repeatedly or continuously or whether this was done with the intent to
harass, oppress or abuse Plaintiff. Thus, the Court finds that Plaintiff has not sufficiently pled a
violation of 15 U.S.C.
§ 1692d.
Second, Plaintiffs arguments pursuant to 15 U.S.C.
§ 1692e fail because this section
requires that the debt collector make false or misleading representations. 15 U.S.C.
§ 1692e (“A
debt collector may not use any false, deceptive, or misleading representation or means in
connection with the collection of any debt.”). Here, as discussed above, Plaintiffs student loan
debts were not discharged through the related bankruptcy proceedings and therefore attempts to
collect this debt are not in and of themselves false, deceptive, or misleading.
Absent any
allegations that Defendant ECMC falsely represented the amount or character of the debt,
Plaintiff has failed to plead sufficient facts to support a violation of § I 692e.
Third, a debt collector is also prohibited from utilizing “unfair or unconscionable means
to collect or attempt to collect any debt” under 15 U.S.C.
§ l692f While Plaintiff alleges that
“Defendants used unfair or unconscionable means to collect or attempt to collect a fraudulent
debt” (ECF No. 57 at 14), this conclusoiy statement is insufficient to support Plaintiffs claim as
there are no specific facts to support this assertion.
finally, Plaintiff alleges that Defendant ECMC acted in violation of 15 U.S.C.
§ 1692g,
which governs the procedures for disputing and validating debts. According to this subsection, if
a consumer notifies a debt collector in writing within a thirty-day period that the debt is disputed,
the debt collector must obtain verification of the debt or a copy of the judgment and mail this
verification to the consumer. 15 U.S.C.
§ 1692g(a). Plaintiff argues that the debts were not
validated after he contacted Defendants to dispute the debt, as prohibited under the FDCPA.
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ECF No. 57 at 4, 14.
Defendant ECMC counters that Plaintiffs claim is baseless because
Plaintiffs loans remained due according to the Bankruptcy Court decision and therefore,
Defendant ECMC acted in accordance with the statutory requirements and its fiduciary
obligations in reporting this outstanding debt. ECF No. 59-1 at 3 (citing 20 U.S.C. §lO8Oa; 34
C.F.R.
§ 682.4 10(b)(5)). Plaintiff acknowledges that Defendant ECMC responded to Plaintiffs
attempts to dispute the debt but asserts that their response “represented the law fraudulently” and
“furnished inaccurate information.” ECF No. 57 at 4. Because the Bankruptcy Court order
accurately verified that Plaintiffs educational loan debt remained outstanding, the Court finds
that Plaintiff has failed to plead sufficient facts to support his claim that Defendant ECMC
violated 15 U.S.C.
§ 1692g.
As such, Plaintiff has failed to articulate any facts entitling him to relief for a violation of
the FDCPA and the Court will dismiss Plaintiffs claim.
D.
Fair Credit Reporting Act
Plaintiff also purports to bring a claim under two different subsections of the Fair Credit
Reporting Act (“FCRA”). Plaintiff asserts that Defendants acted in violation 15 U. S.C.
§ 1681 s
2(a)(1)(A) & (B), which prohibits the furnishing of inaccurate information, by publishing false
information about the alleged student loans on Plaintiffs credit report. ECF No. 57 at 4-5, 15.
Additionally, Plaintiff argues that Defendants are liable under 15 U.S.C.
§ 1681 e(b) of FCRA
because they negligently and willfully failed “to ensure the maximum level of accuracy in
reporting consumer-credit information.” ECF No. 57 at 15. Defendants counter that Plaintiff
cannot prevail under either subsection because the disputed information was accurate, and
Defendants are required to disclose such information by law. ECF No. 58 at 9-10; ECF No. 59-2
at 5-6.
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“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.”
Harris v. Pa. Higher Educ. Assistance Agency/Am. Educ. Servs., No. 16-2963, 2017 WL
2691170, at *2 (3d Cir. June 22, 2017). A person acts in violation of 15 U.S.C.
§ 1681s-2 when
he furnishes consumer information that he knows or has reasonable cause to believe is
inaccurate. 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). Similarly, accuracy is a threshold element of §
1681 e(b) and, accordingly, Plaintiff bears the burden of proving that information was inaccurate.
See Cortez v. Trans Union, LLC, 617 F.3d 688, 708 (3d Cir. 2010) (stating that “inaccurate
information” is a requirement for
§ 1681 e(b) claims). Here, Plaintiff has not sufficiently alleged
that the disputed information is inaccurate. While Plaintiff contends that his student loan debts
were discharged after the Bankruptcy Court’s decision, these debts are presumptively nondischargeable, as discussed above. Therefore, the information relied upon by Defendants was
accurate and Plaintiffs FCRA claims must fail.
E. Civil Contempt
Finally, Plaintiff asserts that Defendants acted in civil contempt of the January 28, 2013
order of the Honorable Morris Stem of the United States Banlcruptcy Court. A court may hold a
creditor in civil contempt when the creditor attempts to collect a debt in violation of a bankruptcy
discharge order. Taggart v. Lorenzen, 139 S.Ct. 1795, 1801 (2019). Here, as explained above,
Defendants did not act in violation of a bankruptcy discharge order because Plaintiffs student
loans were not discharged in Plaintiffs Chapter 7 bankruptcy proceedings. Therefore, Plaintiff
has failed to plead sufficient facts to show that Defendants acted in civil contempt.
V.
CONCLUSION
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For the foregoing reasons, Defendants’ Motion to Dismiss is granted and Plaintiffs
Second Amended Complaint is dismissed with prejudice as to Counts 1-4 and 6-7. As to Count
5, Plaintiffs Complaint is dismissed without prejudice. If Plaintiff wishes, he may file a third
amended complaint within twenty-one (21) days of this Opinion. However, Plaintiff is limited to
raising allegations under 15 U.S.C.
§ 1692d(5) and may only bring such claim against Defendant
ECMC. An appropriate Order follows this Opinion.
DATED: ‘fcvcr
CLAIRE C. CECCHI, U.S.D.J.
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