Huebner v. Midland Credit Management, Inc.

Filing 26

MEMORANDUM DECISION AND ORDER dated 5/1/15 that plaintiff's 20 motion for recusal and related relief is DENIED. The case shall proceed in the normal course to determine if the new version of the claim that plaintiff has not set forth has any merit. However, I am sanctioning plaintiff's attorney for failing to participate in the Initial Status Conference in good faith as required by Rule 16. ( Ordered by Judge Brian M. Cogan on 5/1/2015 ) (Guzzi, Roseann)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
----------------------------------------------------------LEVI HUEBNER on behalf of himself and all
others similarly situated,
Plaintiff,
- against MIDLAND CREDIT MANAGEMENT, INC.,
Defendant.
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MEMORANDUM DECISION
AND ORDER
14 Civ. 6046 (BMC)

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COGAN, District Judge.
On February 11, 2015, I issued a Memorandum Opinion and Order to Show Cause
(“Order to Show Cause”) directing plaintiff to show cause why this action under the Fair Debt
Collection Practices Act (“FDCPA”) should not be dismissed, with costs awarded and sanctions
issued, for having been brought in bad faith. See Huebner v. Midland Credit Mgmt., Inc., No. 14
Civ. 6046, ___ F. Supp. 3d ___, 2015 WL 569194 (E.D.N.Y. Feb. 11, 2015). Familiarity with
the Order to Show Cause is assumed, but to summarize, a transcript of the recorded conversation
that plaintiff, an attorney, had initiated with defendant debt collection agency strongly suggested
that plaintiff had deliberately, but unsuccessfully, sought to entrap defendant into an FDCPA
violation. Plaintiff then brought this action despite his failed effort at manipulation.
Plaintiff’s attorney told me at the Initial Status Conference that his client’s claim was
based exclusively on the recorded conversation. He assured me that once I listened to the
recording, I would see that defendant had told plaintiff that he could only dispute his debt in
writing, which would violate the FDCPA. I issued the Order to Show Cause because, in fact,
after the conference, when he produced the recording to me, the recorded conversation showed
just the opposite of what counsel had represented. Moreover, the record showed that

immediately following the recorded conversation, defendant instructed the three major credit
reporting agencies to delete plaintiff’s account with defendant from his credit file.
In responding to the Order to Show Cause, plaintiff does not deny that he attempted to
trick defendant into a violation of the FDCPA. 1 Instead, he makes essentially two arguments.
First, he claims that if I had a more complete record, which he has now supplied, I would have
seen that defendant did, in fact, violate the FDCPA, for reasons to which he did not refer at the
Initial Status Conference. Second, he alleges that because the Order to Show Cause criticized
abuses of the FDCPA by some attorneys and plaintiffs, and because of the manner in which I
have managed this case, I have demonstrated bias that mandates my recusal. As part of this
argument, he contends that I have a financial interest in defendant, and therefore should not be
hearing this case. Based on these allegations, he moves to vacate the Order to Show Cause, to
have me recuse myself, and to certify for appeal my ruling on these motions in the event I deny
them. Defendant has opposed plaintiff’s motion, urging that there is neither merit to his case nor
to his motion for recusal.
As shown below, plaintiff’s motion for recusal is in part frivolous and entirely without
merit. Had plaintiff done his research, he would have learned that I have no financial interest, as
that term is defined in the Code of Conduct for United States Judges, in defendant, and that
nothing in the Order to Show Cause, or in my management of this case, approaches the level
necessary to warrant disqualification. With respect to the merits of plaintiff’s case, to the extent
that the Order to Show Cause was based on only a partial view of the facts (and it appears now
that it was), it was because plaintiff’s counsel, in violation of his obligations under Federal Rule
1

Plaintiff, for the first time in his reply, suggests that “there is simply no evidence whatsoever” of inducement or
entrapment. If anything, he says, the insistence that defendant was induced by plaintiff to violate the FDCPA “is a
genuine issue of fact”. Notably, this argument does not deny that plaintiff called defendant with the intent to
manufacture this claim. Plaintiff’s intent is readily apparent from the transcript of the phone conversation between
the parties. See Huebner, 2015 WL 569194, at Appendix A.

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of Civil Procedure 16, failed to give me any of the facts behind his claim other than his reliance
on the recorded conversation, which proved nothing except plaintiff’s failed attempt to entrap
defendant.
Accordingly, for the reasons set forth below, plaintiff’s motion for recusal and related
relief is denied. 2 The case shall proceed in the normal course to determine if the new version of
the claim that plaintiff has now set forth has any merit. However, I am sanctioning plaintiff’s
attorney for failing to participate in the Initial Status Conference in good faith as required by
Rule 16.
I.

The Recusal Motion

In preparing his motion for recusal, plaintiff obtained copies of my publicly-available
Financial Disclosure Reports (“FDRs”) for the 2012 and 2013 calendar years. The FDRs
disclose that I own shares in a substantial number of large, publicly traded mutual funds and
exchange-traded funds (“ETFs”). Plaintiff apparently went through the trouble of looking up the
holdings for each of these funds, and found that one of them, Ishares Russell 2000 Growth ETF,
holds shares in Encore Capital Group, Inc., which plaintiff asserts is the parent company of
defendant. Plaintiff also references my ownership of a portfolio in The Vanguard Group, Inc.

2

As mentioned above, plaintiff also moves, pursuant to Federal Rule of Civil Procedure 60(b), to vacate the Order
to Show Cause. However, “[b]y its terms, Rule 60(b) applies only to ‘a final judgment, order, or proceeding.’”
Johnson v. Askin Capital Mgmt., L.P., 202 F.R.D. 112, 113 (S.D.N.Y. 2001). Since the Order to Show Cause is not
a final judgment, order, or proceeding, Rule 60(b) is not the proper vehicle to challenge it. To the extent plaintiff is
making any motion beyond his recusal motion – and I doubt he is – it would properly be a motion for
reconsideration pursuant to Local Civil Rule 6.3. Nevertheless, other than mentioning Rule 60(b) on the first and
last pages of his memorandum of law, plaintiff does not provide any legal basis, let alone a sufficient legal basis, for
why this relief should be granted.
In the alternative, plaintiff moves for leave to appeal pursuant to 28 U.S.C. § 1292 if any portion of his application is
denied. Plaintiff does not offer any legal basis in support of this motion.

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under its 529 College Access portfolios, which, plaintiff alleges, also owns shares in Encore. 3
Plaintiff therefore asserts that I have a financial interest in defendant, and must recuse myself
from hearing this case.
Defendant points out that the ETF’s investment in Encore constitutes 0.0603% of its
holdings, and considering the amount of my investment in this ETF, my alleged “interest” in
Encore comes to about $9, but this is beside the point. If I owned even $9 in shares of
defendant’s parent company, I would have to recuse myself. However, the law is quite clear that
a judge who owns shares in a mutual fund or ETF does not thereby own the securities held by
those mutual funds or ETFs. 4
Canon 3C(1)(c) of the Code of Conduct for United States Judges provides that a judge
must disqualify himself in a proceeding where he “has a financial interest in the subject matter in
controversy or in a party to the proceeding, or any other interest that could be affected
substantially by the outcome of the proceeding.” However, it also states that “ownership in a
mutual or common investment fund that holds securities is not a ‘financial interest’ in such
securities unless the judge participates in the management of the fund.” Code of Conduct for
United States Judges Canon 3C(3)(c)(i). The Committee on Codes of Conduct has elaborated on
this Canon in a published opinion:
We approach our analysis with the following principle firmly in mind: that the
Code should be interpreted to the extent reasonably possible to enable judges to
invest in funds without transgressing the Code or engaging in a conflict of
interest.

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Plaintiff asserts that “The Vanguard Group” owns “over 10%” of Encore, but that is misleading. The exhibits he
annexes show that several different Vanguard funds own shares in Encore, but not all of those Vanguard funds are
held by the 529 plan.

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The 529 plan is the same as a mutual fund for these purposes. It is actually a diversified portfolio invested in 15
different mutual funds.

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Canon 3C(1)(c) requires a judge to disqualify himself or herself when the judge
knows that he or she “has a financial interest in the subject matter in controversy
or in a party to the proceeding,” or when the judge has “any other interest that
could be affected substantially by the outcome of the proceeding.” However,
“ownership in a mutual or common investment fund that holds securities is not a
‘financial interest’ in such securities unless the judge participates in the
management of the fund.” Canon 3C(3)(c)(i). These Code provisions, read
together, provide that investments in a mutual fund will normally avoid triggering
recusal concerns with respect to the securities that the fund holds. Consistent
with the “safe harbor” concept, the Committee has advised that investment in a
mutual fund does not convey an ownership interest in the companies whose stock
the fund holds. We also have advised that a judge who invests in a mutual fund
has no duty to affirmatively monitor the underlying investments of the fund for
recusal purposes.
Judicial Conference of the United States, Committee on Codes of Conduct, Advisory Opinion
No. 106 (2014). The opinion expressly states that ETFs are the same as mutual funds for these
purposes. And while there are limited exceptions to this rule, such as when the judge’s interest
in the fund could be materially affected by a particular litigation, none of them is even arguably
applicable here. The point is thus not that my interest in defendant’s parent corporation is de
minimis; it is that under the rules, it is not a financial interest at all.
It is a serious matter for a party to accuse a judge of holding an undisclosed financial
interest in a case before him. It is particularly serious here since plaintiff is not alleging an
unknowing or technical violation. 5 Instead, he expressly alleges that I am hostile to his case
because of this alleged financial interest. Yet in making this accusation, plaintiff did not
research the relevant law with the same diligence he used to scrutinize the funds listed in my
FDRs. His suggestion that I have a disqualifying interest in this case is frivolous.
The other grounds offered by plaintiff in support of his motion for recusal are similarly
without merit. He first argues that the Order to Show Cause shows that I am biased against
FDCPA cases in general. It is true that the Order to Show Cause noted that the statute is
5

In fact, I had no knowledge that these securities were held by the ETF fund or the Vanguard portfolio until this
motion.

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frequently abused. However, judges have to be free to be able to relate those kinds of
observations without triggering recusal. The public, and indeed Congress, are entitled to have
the perspective of judges who witness litigation abuse, and who are in a unique position to
identify such abuses for the public. See LoCascio v. United States, 473 F.3d 493, 495-96 (2d
Cir. 2007) (“[J]udicial rulings alone almost never constitute a valid basis for a bias or partiality
motion. Furthermore, opinions formed by the judge on the basis of facts introduced or events
occurring in the course of the current proceedings, or of prior proceedings, do not constitute a
basis for a bias or partiality motion unless they display a deep-seated favoritism or antagonism
that would make fair judgment impossible.”) (citations and quotation marks omitted); see also
Caldwell v. Pesce, No. 14 Civ. 4196, 2015 WL 430382 (E.D.N.Y. Feb. 3, 2015) (recognizing
that a motion for recusal may not be made upon a court’s rulings or conduct); In re Holocaust
Victim Assets Litig., No. 09 Civ. 3215, 2014 WL 3670998 (E.D.N.Y. July 23, 2014).
In fact, I am not the only Judge to comment on the frequent misuse of the FDCPA in this
district. As Judge Dearie recently held:
The statute . . . has evolved into something dramatically different than its original
purpose would suggest. Enterprising and imaginative advocates have extended its
protections to a wide variety of communications that, like the content in question
here, do not on their face reflect obvious deception or dissembling. . . . In this
Court’s view, no reasonable assessment of the correspondence in question here –
as in a growing number of cases before this Court – could be found to violate the
letter or spirit of the Act.
Avila v. Riexinger & Assocs., LLC, No. 13 Civ. 4349, 2015 WL 1731542, at *12 (E.D.N.Y.
Apr. 14, 2015).
Nevertheless, the Order to Show Cause clearly pointed out that despite the abuses that I,
and others, have observed in cases under the FDCPA, I fully acknowledge and adhere to the
obligation to review each case individually and to apply the law impartially, according to its

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language and the case law construing it. No reasonable observer could conclude that I am
required to recuse myself in FDCPA cases on the basis of such statements.
Plaintiff also argues that the way I have managed this case demonstrates my bias. His
argument compiles trivial complaints. For example, he points that out I set the Initial Status
Conference in this case for a date six weeks after he filed his amended complaint, even though he
has 120 days to effect service under Federal Rule of Civil Procedure 4(m). 6 However, all of my
Initial Status Conferences are set on this timetable, whether they are FDCPA cases or not (except
in social security and habeas corpus cases). If a plaintiff requires more time to effect service, he
tells me, and the conference is almost always adjourned. (In fact, it is usually defendants, not
plaintiffs, who ask for more time before the Initial Status Conference, as most plaintiffs
recognize their interest in prosecuting a case promptly.) Plaintiff’s general complaints about my
management of this case are even more unfounded since I granted all three of his requests to
adjourn the Initial Status Conference as well as a fourth request to allow him to attend by
telephone instead of in person. 7
Plaintiff also points out that upon initial review of the case, I directed him to either file an
amended complaint or show cause why the one initially filed should not be dismissed. The
initial complaint constituted a teaching exercise in how not to draft a pleading. It contained
pages and pages of case citations and discussion of case law along with other allegations that
have no place in any complaint. An objective observer would recognize that I directed the filing
of an amended complaint not because of any prejudice against plaintiff, but because his

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Rule 4(m) is likely to be amended, as of December 15, 2015, reducing the 120 day period to 90 days, thus
emphasizing the need to accelerate the resolution of cases.

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Plaintiff’s counsel goes so far as to accuse me of bias against the disabled because he is in a wheelchair. Of
course, I did not know he was in a wheelchair until he told me in his request to appear by telephone, which I
immediately granted.

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complaint very clearly failed to comply with the “short and plain statement of the claim”
requirement of Federal Rule of Civil Procedure 8(a).
Federal Rule of Civil Procedure 1 provides that the Rules should be applied to achieve
the “just, speedy, and inexpensive determination” of cases, and the Rule is likely to be amended
as of this December to emphasize the Court’s and the parties’ need to be actively involved in
achieving those goals. 8 By directing plaintiff to file an amended complaint or show cause why
he should not have had to, I eliminated weeks or months of unnecessary motion practice that
would have likely resulted in the dismissal of his complaint with leave to amend and, ultimately,
the amended complaint that we have now. Again, getting plaintiff closer to his presumed goal of
resolving this case quickly is hardly evidence of bias.
Finally, plaintiff contends that since he submitted an affidavit in support of his motion, I
am required by 28 U.S.C. § 144 to reassign his motion for recusal to another judge. 9 Again,
plaintiff misreads the law. Section 144 requires a party to file an affidavit stating the reasons
why the Court has a “personal bias or prejudice either against him or in favor of an adverse
party.” Although plaintiff has filed an affidavit, it does not meet the explicit requirements set by
the statute because it does not offer any meaningful allegations about this Court’s bias or
prejudice either in favor of, or against, any party. See e.g., Manko v. Steinhardt, No. 12 Civ.
2964, 2012 WL 3779913, at *1 (E.D.N.Y. Aug. 30, 2012) (finding the “plaintiff’s affidavit in
support of her recusal motion legally insufficient because it does not allege, must less provide

8

See Judicial Conference of the United States Committee on Rules of Practice and Procedure, Proposed
Amendments to the Federal Rules of Civil Procedure, Rule 1 (Sept. 2014) (available at
http://www.uscourts.gov/uscourts/RulesAndPolicies/rules/Reports/ST09-2014.pdf).
9

It is worth noting that plaintiff also mentions 28 U.S.C. § 455 as a basis for his recusal motion. However, plaintiff
never discusses this statute (or any of its subsections) at any point in his memorandum of law. For that reason, I can
only address his argument pursuant to 28 U.S.C. § 144.

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facts supporting a claim, that this court has a personal bias or prejudice either against [her] or in
favor of any adverse party.”) (internal quotation marks omitted).
Even if plaintiff had submitted a proper affidavit under the statute, “[t]he mere filing of
an affidavit of prejudice does not require a judge to recuse himself.” See Nat’l Auto Brokers
Corp. v. Gen. Motors Corp., 572 F.2d 953, 958 (2d Cir. 1978). “Rather, the trial judge must
review the facts included in the affidavit for their legal sufficiency and not recuse himself . . .
unnecessarily.” Hoffenberg v. United States, 333 F.Supp.2d 166, 171 (S.D.N.Y. 2004) (internal
quotation marks omitted). As discussed above, an objective observer would not believe that I
have any bias towards defendants in FDCPA cases, or against plaintiff in this particular case.
In any event, none of the prejudices that plaintiff perceives are extrajudicial in nature.
See e.g., LoCascio, 473 F.3d at 495-96. Plaintiff has not demonstrated any basis for recusal.
II.

Sanctions

Federal Rule of Civil Procedure 16 sets forth the goals to be accomplished at the Initial
Status Conference. It explains that
the court may order the attorneys and any unrepresented parties to appear for one
or more pretrial conferences for such purposes as: (1) expediting disposition of
the action; establishing early and continuing control so that the case will not be
protracted because of lack of management; discouraging wasteful pretrial
activities; (4) improving the quality of the trial through more thorough
preparation; and (5) facilitating settlement.
Fed. R. Civ. P. 16(a). In addition, Rule 16(c)(2) provides that a court may consider the following
matters at pretrial conferences:
(A) formulating and simplifying the issues, and eliminating frivolous claims or
defenses; (B) amending the pleadings if necessary or desirable; (C) obtaining
admissions and stipulations about facts and documents to avoid unnecessary proof
. . . and (P) facilitating in other ways the just, speedy, and inexpensive disposition
of the action.

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Rule 16(f)(1) provides that, “[o]n motion or on its own, the court may issue any just orders,
including those authorized by Rule 37(b)(2)(A)(ii)-(vii), if a party or its attorney . . . is
substantially unprepared to participate – or does not participate in good faith – in the [pretrial]
conference.” Fed. R. Civ. P. 16(f)(1)(B).
Consistent with Rule 16, my Individual Practices require the parties, in advance of the
Initial Status Conference, to submit a detailed letter setting forth their versions of the facts that
they expect the evidence to show. This assists in the structuring of discovery by identifying the
material issues, whether legal or factual, and expedites the case.
In both the joint letter and his statements at the Initial Status Conference, plaintiff raised
one claim and one claim only – that the recorded conversation between plaintiff and defendant’s
agent would show that defendant advised plaintiff that he could only dispute his debt in writing,
not orally. 10 I issued the Order to Show Cause because the recording showed exactly the
opposite.
In responding to the Order to Show Cause, however, plaintiff has come up with a whole
new theory of the case that is at odds with the one he set forth in the joint letter and described at
the Initial Status Conference. He now asserts, for the first time, that when he subscribed to
Verizon service, Verizon billed him for $131.21, purportedly for rewiring his house. He
maintains that the bill is improper because there was no work done inside his home. Plaintiff
asserts that he disputed the bill with Verizon, which allegedly failed to process cancellation of
the bill. Plaintiff then recounts the conversations he had with defendant, and which were
described in the Order to Show Cause, in which he deliberately refused to tell defendant’s

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In his response to the Order to Show Cause, plaintiff now states, in a footnote, that “neither the complaint nor the
amended complaint makes any reference to a cause of action that Midland required its disputes to be in ‘writing’,”
and that to the extent that his submissions are construed as such, the Court should disregard all errors as the “mistake
does not affect any party’s substantial rights, and can easily be corrected by further amending the complaint.”

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employee any of these facts. In addition, plaintiff now contends that he never received the
cessation letter sent by defendant.
Notably, as mentioned above, plaintiff nowhere denies that he deliberately refrained from
disclosing any of these facts when asked point blank by defendant’s agent why he was disputing
the debt, or even if he had ever had a Verizon account. Nor does plaintiff deny that he refused to
answer the agent’s simple questions in order to manufacture an FDCPA claim.
Defendant has disputed all of these new allegations, but that is not the point. None of
these allegations were disclosed either prior to or at the Initial Status Conference. Plaintiff’s
accusation of bias based on my prejudging the case is thus particularly ironic since the Order to
Show Cause was premised on an entirely different description of his claim than he now asserts.
It was, in fact, plaintiff’s counsel who violated Rule 16 by not participating in good faith,
apparently seeking to hold back his theory of the case for some later date.
The history of this case demonstrates that plaintiff’s counsel did not participate in the
Initial Status Conference in good faith. First, he raised only one claim, that plaintiff could not
dispute the debt verbally. In support of that claim, he relied on the recorded conversation, which
debunked his claim entirely. Nevertheless, plaintiff now comes forward with new allegations
that are not recently discovered, are relevant, and would have materially changed the posture of
this case had they been disclosed at the proper time, in the joint letter, or even at the Initial Status
Conference.
That is not the good faith cooperation required by Rule 16. It is, rather, an attempt to
mislead defendant and the Court, just as plaintiff himself attempted to trick defendant into
committing an FDCPA violation. Based on plaintiff’s failure to participate in the Initial Status
Conference in good faith and his intentionally misleading the Court and defendant as to his

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theory of the case, plaintiff’s counsel violated Rule 16(f)(1)(B). He is sanctioned in the amount
of $500, payable to the Clerk within one week, with proof of payment filed in this action. 11
The case will proceed in the normal course based on plaintiff’s new theory of the case.
By separate order, the Court will schedule a Status Conference to set a discovery plan.

SO ORDERED.

Digitally signed by Brian M. Cogan
U.S.D.J.

Dated: Brooklyn, New York
May 1, 2015

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It is also arguable that plaintiff’s frivolous recusal motion is sanctionable under Fed. R. Civ. P. 11(c). I have
determined not to impose a sanction under that Rule. The prior decision and this decision are publicly available
documents and are sufficient to illustrate the nature of plaintiff and his attorney’s conduct.

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