Romeo et al v. FMA Alliance, Ltd.
Filing
19
MEMORANDUM OF DECISION AND ORDER: Based on the foregoing (PLEASE SEE ORDER FOR FURTHER DETAILS), the Defendants motion to dismiss the complaint is granted in part and denied in part. The Court grants the motion to dismiss the complaint under Rule 12( b)(1) with respect to Romeo on the ground that he lacks standing, and thus the Court lacks subject matter jurisdiction over his claims. The Court also grants the motion to dismiss the complaint with respect to Arpino on the ground that she is barred by principles of judicial estoppel from pursuing her claims. However, the Court denies the motion to dismiss with respect to Motz. The Court also denies without prejudice the Defendants application for an award of attorneys fees and costs. Accordingl y, the Defendant is directed to file a response to the complaint within 20 days of the date of this Order, and the matter is referred to United States Magistrate Judge Arlene R. Lindsay for discovery. Finally, the Clerk of the Court is respectfully d irected to amend the official caption of this matter as follows: CHRISTOPHER MOTZ, individually and on behalf of all others similarly situated, Plaintiff, -against- FMA ALLIANCE, LTD., Defendant. It is So Ordered by Judge Arthur D. Spatt on 6/30/2016. (Deborah Arpino (individually and on behalf of all others similarly situated) and Louis Romeo terminated.) (Ortiz, Grisel)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
---------------------------------------------------------------------------------x
LOUIS ROMEO, CHRISTOPHER MOTZ and DEBORAH
ARPINO, individually and on behalf of all others similarly
situated,
Plaintiffs,
MEMORANDUM OF
DECISION AND ORDER
15-cv-6524 (ADS)(ARL)
-againstFMA ALLIANCE, LTD.,
Defendant.
---------------------------------------------------------------------------------x
APPEARANCES:
Barshay Sanders, PLLC
Attorneys for the Plaintiffs
100 Garden City Plaza, Suite 500
Garden City, NY 11530
By: David M. Barshay, Esq.
Craig B. Sanders, Esq., Of Counsel
Sessions Fishman Nathan & Israel LLC
Attorneys for the Defendant
3 Cross Creek Drive
Flemington, NJ 08822
By: Aaron R. Easley, Esq., Of Counsel
SPATT, District Judge:
On November 13, 2015, the Plaintiffs Louis Romeo (“Romeo”), Christopher Motz (“Motz”),
and Deborah Arpino (“Arpino,” together with Romeo and Motz, the “Plaintiffs”) commenced this
putative class action against the Defendant FMA Alliance, Ltd. (“FMA” or the “Defendant”), alleging
that certain debt collection activities by FMA violated the federal Fair Debt Collection Practices Act
(“FDCPA”), 15 U.S.C. § 1692 et seq.
On January 15, 2016, the Defendant filed a motion under Federal Rule of Civil Procedure
(“Fed. R. Civ. P.”) 12(b)(1), seeking to partially dismiss the complaint for lack of subject matter
jurisdiction on the ground that Romeo and Motz lack standing. The Defendant also sought to
dismiss the complaint in its entirety on the alternative ground that the equitable doctrine of judicial
1
estoppel bars the Plaintiffs’ claims. Finally, contending that the Plaintiffs commenced this action in
bad faith for the primary purpose of harassing FMA, the Defendant seeks an award of attorneys’
fees and costs under section 1692k of the FDCPA.
For the reasons that follow, the Defendant’s motion to dismiss is granted in part and denied
in part.
I.
Background
Beginning in January 2015, the Defendant, a debt collector, sent letters (the “FMA Collection
Letters”) to a class of at least 35 individuals, including the Plaintiffs, seeking to collect alleged
consumer debts. Although the Plaintiffs allege that these letters violated the provisions of the
FDCPA in numerous respects, the present motion does not involve the legal sufficiency of the FMA
Collection Letters. Rather, the Defendant contends that, before the Court reaches the merits of the
Plaintiffs’ substantive allegations, it must dismiss this case due to certain intervening events that
transpired during the Plaintiffs’ personal bankruptcy proceedings.
The following salient facts are drawn from the complaint and the documentary evidence
submitted in connection with the motion. See Marakova v. United States, 201 F.3d 110, 113
(2d Cir. 2000) (“In resolving a motion to dismiss for lack of subject matter jurisdiction under Rule
12(b)(1), a district court . . . may refer to evidence outside the pleadings”).
A.
The Facts Relating to the Plaintiff Louis Romeo
On or about January 14, 2015, Romeo received the allegedly objectionable FMA Collection
Letter. See Compl. ¶ 13.
On or about May 13, 2015, he filed for Chapter 7 bankruptcy in the Eastern District of New
York. See Jan. 15, 2016 Declaration of Aaron R. Easley, Esq. (“Easley Decl.”), Exhibits “A” & “B.” In
the standard voluntary petition for Chapter 7 relief, Romeo was required to complete certain
financial disclosures, one of which is entitled “Schedule B – Personal Property” (“Schedule B”), and
directs debtors to “list all personal property . . . of whatever kind,” including “contingent and
2
unliquidated claims of every nature.” See Easley Decl., Ex. “B,” at Sch. B. Romeo indicated that he
possessed no such property interests at the time of the filing. See id.
Another schedule, entitled “Schedule C – Property Claimed as Exempt” (“Schedule C”),
directs debtors to describe and estimate the value of any property that he or she believes is exempt
from the bankruptcy estate. See id., at Sch. C. Romeo did not identify a potential lawsuit against
FMA, or any other party, among his exempt property. See id.
Nevertheless, on or about June 13, 2015, Romeo commenced an action in the United States
District Court for the Southern District of Texas, entitled Louis Romeo v. FMA Alliance, Ltd. (the
“Texas Action”), alleging violations of the FDCPA and section 349 of the New York General Business
Law (“NYGBL”), based on the same FMA Collection Letters that are at issue in this case. See Easley
Decl., Ex. “C.”
Also on or about June 13, 2015, Romeo commenced a second action in this District, which
was assigned to this Court, entitled Louis Romeo v. Northland Group, Inc. Case No. 15-cv3439 (ADS)(ARL) (the “Northland Action”). See Easley Decl., Ex. E”; see also Case No. 15-cv-3439,
Docket Entry [1]. In that case, Romeo also alleged violations of the FDCPA and NYGBL, based on
allegedly improper collection letters sent by Northland Group, Inc. See generally id. The Court
notes that the same law firm that represents Romeo in this case, namely, Barshay Sanders PLLC,
also represented Romeo in the Northland Action. See Case No. 15-cv-3439, Docket Entry [4].
On June 23, 2015, with the Texas and Northland Actions undisclosed, the trustee in Romeo’s
Chapter 7 proceeding filed a “report of no distribution,” attesting to the bankruptcy court that, after
making a diligent inquiry into Romeo’s financial affairs, as reported in his schedules, he possessed
no distributable assets. See Easley Decl., Ex. “A.”
On or about July 5, 2015, the complaint in the Texas Action was amended by, among other
things, adding Christopher Motz as a plaintiff. See Easley Decl., Ex. “D.”
3
On July 17, 2015, counsel for the Plaintiffs apparently learned that Romeo had failed to
identify the Texas Action as an asset on Schedule B of his bankruptcy petition. See Feb. 28, 2016
Declaration of Craig B. Sanders, Esq. (“Sanders Decl.”) ¶ 3. Thus, on July 21, 2015, prior to issue
being joined in that case, Romeo and Motz voluntarily dismissed the Texas Action without prejudice
to refiling. See id. ¶ 4.
In his affidavit, Mr. Sanders makes no reference to the Northland Action, in which his law
firm was also counsel, or whether he learned at any time that the Northland Action also had not
been disclosed on Romeo’s bankruptcy petition. The Court’s records indicate that, unlike the Texas
Action, the Northland Action was not voluntarily discontinued.
On July 22, 2015, Romeo filed amended Schedules B and C in the Chapter 7 proceeding. See
Easley Decl., Ex. “F.” On the portion of Schedule B where he was asked to list any “contingent and
unliquidated claims,” Romeo wrote, “Possible Fair Debt Collection Claim.” Id., at Am. Sch. B. On the
portion of Schedule C where he was asked to identify exempt property, Romeo again wrote
“Possible Fair Debt Collection Claim,” and assigned a value of $1,000. See id., at Am. Sch. C.
The Plaintiffs assert, and the Defendant does not deny, that because FMA was a creditor in
Romeo’s Chapter 7 proceeding, it was served with copies of the amended schedules. See Pl. Memo
of Law at 4-5. The Court notes that the official docket in Romeo’s bankruptcy case indicates that an
affidavit of service was filed on July 22, 2015, although a copy of that document was not provided.
See Easley Decl., Ex. “A.” In any event, it is undisputed that FMA did not object to Romeo’s amended
schedules in the bankruptcy court.
On or about August 26, 2015, the bankruptcy court granted Romeo a full discharge and
closed his Chapter 7 proceeding. See Easley Decl., Ex. “A.”
On November 13, 2015, he, along with the other individual Plaintiffs, commenced this
action.
4
On May 13, 2016, while this action was pending, Romeo notified the Court that the
Northland Action had settled. See Case No. 15-cv-3439, Docket Entry [19]. That matter was closed
for administrative purposes the same day.
B.
The Facts Relating to the Plaintiff Christopher Motz
On March 10, 2015, Motz also received an allegedly objectionable FMA Collection Letter.
See Compl. ¶ 14.
On or about May 30, 2015, he also filed for Chapter 7 bankruptcy in this District. See Easley
Decl., Ex. “H” & “I.” Like Romeo, Motz indicated on Schedule B that he possessed no distributable
personal property, including contingent or unliquidated claims. See Easley Decl., Ex. “I,” at Sch. B.
Likewise, he did not identify any interest in a potential lawsuit among his exempt property. See id.,
at Sch. C.
As noted above, on July 5, 2015, Motz joined Romeo as a plaintiff in the then-pending Texas
Action, which was based on the FMA Collection Letters. See Easley Decl., Ex. “D.”
On July 14, 2015, with the Texas Action still undisclosed, the trustee in Motz’s bankruptcy
case filed a “report of no distribution,” attesting to the bankruptcy court that, after making an
inquiry into Motz’s financial affairs, he, too, possessed no distributable assets. See Easley Decl.,
Ex. “H.”
As noted above, on July 17, 2015, Motz’s attorneys apparently learned that he had failed to
disclose the Texas Action as an asset on his Chapter 7 petition, and on July 21, 2015, voluntarily
dismissed that lawsuit without prejudice. See Sanders Decl. ¶¶ 3-4.
On or about July 22, 2015, Motz filed amended Schedules B and C. See Easley Decl., Ex. “J.”
Similar to Romeo, he amended Schedule B to include a “Possible Fair Debt Collection Claim” among
his contingent and unliquidated claims. Id., at Am. Sch. B. He also amended Schedule C to claim a
$1,000 exemption for the same cause of action. See id., at Am. Sch. C.
5
Again, the Plaintiffs assert, and the Defendant does not deny, that FMA was served with the
amended schedules, but did not object to them. See Pl. Memo of Law at 4-5. Motz’s bankruptcy
docket indicates that an affidavit of service was filed on July 22, 2015, but a copy of that document
was not provided to the Court. See Easley Decl., Ex. “H.”
On or about September 10, 2015, the bankruptcy court granted Motz a full discharge and
closed his Chapter 7 proceeding. See Easley Decl., Ex. “H.”
On November 13, 2015, he, along with the other individual Plaintiffs, commenced this
action.
C.
The Facts Relating to the Plaintiff Deborah Arpino
On June 29, 2015, Arpino also received an allegedly objectionable FMA Collection Letter.
See Compl. ¶ 15.
On or about August 5, 2015, she filed for Chapter 13 bankruptcy in the Eastern District of
New York. See Easley Decl., Ex. “K” & “L.” Like the petition for Chapter 7 relief, the standard
Chapter 13 petition contains a Schedule B for debtors to identify their assets, and a Schedule C to
claim authorized exemptions. Similar to Romeo and Motz, Arpino indicated that she possessed no
distributable personal property at the time of filing, including contingent or unliquidated claims.
See Easley Decl., Ex. “L,” at Sch. B. She also did not identify an interest in a potential lawsuit as part
of her exempt property. See id., at Sch. C.
Nevertheless, approximately three weeks later, on August 26, 2015, Arpino commenced an
action in the United States District Court for the District of Colorado, entitled Arpino v. Professional
Bureau of Collections of Maryland, Inc., alleging violations of the FDCPA and the NYGBL. See Easley
Decl., Ex. “P.”
On or about September 1, 2015, Arpino filed an amended Schedule B, which included a
$1,000 “Possible Fair Debt Collection Claim” among her distributable assets. See Easley Decl., Ex.
“M,” at Am. Sch. B.
6
In the week between September 8, 2015 and September 15, 2015, Arpino commenced three
more actions against three separate debt collector-defendants in Pennsylvania, Illinois, and the
Eastern District of New York.
On November 13, 2015, she, along with the other individual Plaintiffs, commenced this
action.
On or about December 21, 2015, the bankruptcy court confirmed Arpino’s Chapter 13 plan.
See Easley Decl., Ex. “K.” However, apparently, at no point between September 1, 2015, when she
amended her schedules to disclose a $1,000 possible FDCPA claim, and December 21, 2015, when
she emerged from bankruptcy, did Arpino further amend her petition or otherwise disclose the four
additional lawsuits she filed.
II.
A.
Discussion
Subject Matter Jurisdiction
First, the Defendant moves under Fed. R. Civ. P. 12(b)(1) to dismiss the claims asserted by
Romeo and Motz for lack of subject matter jurisdiction. The Court notes that FMA did not similarly
challenge Arpino’s standing.
In any event, the Defendant argues that because Romeo and Motz failed to disclose their
putative FDCPA claims against FMA on their bankruptcy petitions, those claims now belong to the
respective bankruptcy estates, which, through their trustees, are the only parties with standing to
enforce them.
Although the Defendant acknowledges that both Romeo and Motz amended their
respective Schedules B and C to include a potential FDCPA claim, FMA nevertheless argues that the
form of the eventual disclosure – namely, “Possible Fair Debt Collection Claim” – was insufficient to
provide the bankruptcy trustees with proper notice of the claims, and to make an informed decision
about whether to pursue or abandon them.
7
1.
The Standard of Review
“ ‘A motion to dismiss for lack of subject-matter jurisdiction under [Fed. R. Civ. P.] 12(b)(1)
is the appropriate mechanism for challenging a plaintiff’s constitutional standing to bring a
particular claim.’ ” Barnett v. Countrywide Bank, FSB, 60 F. Supp. 3d 379, 385 (E.D.N.Y. 2014)
(Spatt, J.) (quoting Ali v. NYC DOT, Nos. 14-cv-312 & 14-cv-313, 2014 U.S. Dist. LEXIS 158331, at *2
(E.D.N.Y. Nov. 4, 2014)). Although this is the Defendant’s motion, the burden is nevertheless on the
Plaintiffs, as the parties seeking to invoke the Court’s jurisdiction, to establish that they have
standing, and by extension, that subject matter jurisdiction exists. See Lujan v. Defenders of
Wildlife, 504 U.S. 555, 561, 112 S. Ct. 2130, 119 L. Ed. 2d 351 (1992). As indicated above, in
resolving this jurisdictional question, the Court may refer to evidence outside the pleadings and
weigh the evidence in the record. See Ali, 2014 U.S. Dist. LEXIS 158331, at *3.
2.
The Applicable Legal Principles
a.
The Duty of Disclosure in Bankruptcy Proceedings
In general, “[t]he price of a discharge in bankruptcy is high, and the disclosure requirements
of the Bankruptcy Code and Rules are onerous indeed.”
In re Arana, 456 B.R. 161, 169
(Bankr. E.D.N.Y. 2011). In this regard, pursuant to 11 U.S.C. § 521(a)(1), a debtor seeking the
benefits of bankruptcy is under a duty to disclose in the relevant schedules all of his or her interests
and property rights. See In re Lowery, 398 B.R. 512, 515 (Bankr. E.D.N.Y. 2008); see also Arana, 456
B.R. at 169 (“An individual debtor must ‘disclose all his interests at the commencement of a case’ ”
(emphasis in original) (quoting Chartschlaa v. Nationwide Mut. Ins. Co., 538 F.3d 116, 122 (2d Cir.
2008))).
Relevant here, this duty includes an obligation to disclose any inchoate legal claims
possessed by the debtor. See Tilley v. Anixter Inc., 332 B.R. 501, 508-09 (D. Conn. 2005) (noting
that “[a] debtor filing for bankruptcy has a duty to list all of his or her assets, including legal claims,
on the appropriate schedule of the bankruptcy petition”) (citations omitted).
8
This obligation “is a continuing one,” which “does not end with the filing of the bankruptcy
petition.” Lowery, 398 B.R. at 515. As in this case, “a debtor may amend ‘[a] voluntary petition, list,
schedule, or statement . . . as a matter of course before the case is closed.’ ” Arana, 456 B.R. at 169
(quoting Fed. R. Bankr. P. 1009(a)).
In all cases, “the debtor has a duty to prepare [the] schedules carefully, completely, and
accurately.” In re Mohring, 142 B.R. 389, 394 (Bankr. E.D. Ca. 1992), aff’d, 153 B.R. 601 (B.A.P. 9th
Cir. 1993), aff’d, 24 F.3d 247 (9th Cir. 1994). To be sure, “[f]ull and honest disclosure in a
bankruptcy case is crucial to the effective functioning of the bankruptcy system.” Lowery, 398 B.R.
at 515. “Because the bankruptcy court, trustees, and creditors rely on the information disclosed by
a debtor, the importance of full disclosure cannot be overemphasized.” Id.
b.
The Interrelationship Between Disclosure and Standing
Central to this case is the proposition that a debtor’s compliance with the disclosure
requirement determines his or her standing to prosecute a claim after emerging from bankruptcy.
In particular, “[w]hen a bankruptcy petition is filed, an estate is created,” which
“encompasses ‘every conceivable interest of the debtor, future, nonpossessory, contingent,
speculative, and derivative.’ ” Arana, 456 B.R. at 169 (quoting Chartschlaa, 538 F.3d at 122). At that
point, only the assigned bankruptcy trustee “may administer property of the estate, including
bringing actions on behalf of the estate.” Id. at 169-70 (citing 11 U.S.C. §§ 323 & 704); see also id. at
170 (“[D]uring the pendency of a bankruptcy case, the debtor does not have standing to initiate or
pursue an action based on a prepetition claim unless the trustee abandons it back to the debtor”
(citations omitted)).
When a potential legal claim is disclosed by a debtor on his or her bankruptcy petition, “the
trustee may seek to be substituted as the plaintiff and pursue the claim”; “allow [the] debtor to
pursue [the] action on behalf of the estate”; or decline to pursue the claim. Id. (citations omitted).
In all scenarios, by disclosing the potential cause of action, the debtor allows the trustee to
9
“ ‘investigate whether [it] has value, and then prosecute it, settle it, abandon it, or arrange for [the
debtor] to prosecute it in exchange for the estate receiving a share of the proceeds.’ ” Id. (quoting In
re Lopez, 283 B.R. 22, 28 (B.A.P. 9th Cir. 2002)); see in re Costello, 255 B.R. 110, 113 (Bankr.
E.D.N.Y. 2000) (“The disclosure requirement allows the trustee and the creditors to determine
whether the assets, including causes of action, should be pursued on the creditors’ behalf”). Then,
“when the bankruptcy case is closed, [any] ‘correctly scheduled property not otherwise
administered by the trustee is abandoned to the debtor.’ ” Arana, 456 B.R. at 170 (quoting Lopez,
283 B.R. at 31). However, “[i]t is clear that an asset must be properly scheduled in order to pass to
the debtor through abandonment . . .” Hutchins v. IRS, 67 F.3d 40, 43 (3d Cir. 1995).
By contrast, “[w]hen an action is not disclosed by the debtor, it remains property of the
bankruptcy estate even after the case is closed – indeed, unless it is administered or abandoned by
the trustee, the action remains property of the estate ‘forever.’ ” Arana, 456 B.R. at 170 (quoting
Lopez, 238 B.R. at 28) (emphasis supplied); see id. at 169-70 (noting that “the debtor’s rights to
estate assets, including prepetition claims, ‘are extinguished unless the asset is abandoned back to
the debtor [by the trustee]’ ” (quoting Parker v. Wendy’s Int’l, Inc., 365 F.3d 1268, 1272 (11th Cir.
2004))); Kunica v. St. Jean Fin., Inc.. 233 B.R. 46, 53 (S.D.N.Y. 1999) (noting that “property that is not
formally scheduled is not abandoned and therefore remains part of the estate” (internal citation
and quotation marks omitted)); see also United States ex rel. Spicer v. Westbrook, 751 F.3d 354,
362 (5th Cir. 2014) (“The bankruptcy trustee . . . has exclusive standing to assert undisclosed claims
that fall within the bankruptcy estate” (citation omitted)).
c.
Determining the Factual Specificity Required on a Bankruptcy
Schedule
“[F]ew courts have addressed the level of specificity with which debtors must describe
assets in order to comply with 11 U.S.C. § 521[a](1).” Tilley, 332 B.R. at 509. As one district court
noted, “[t]here are . . . no bright-line rules for how much itemization and specificity is required” –
rather, “[w]hat is required is reasonable particularization under the circumstances.” Mohring, 142
10
B.R. at 395. In this regard, “ ‘it would be silly to require a debtor to itemize every dish and fork,’ ”
but “ ‘every bankrupt must do enough itemizing to enable the trustee to determine whether to
investigate further.’ ” Id. (quoting Payne v. Wood, 775 F.2d 202, 205-07 (7th Cir. 1985)).
Recently, a district court in this District (Irizarry, J.) noted that:
[A] review of authority from outside of this circuit and from courts of concurrent
jurisdiction inside this circuit reveals that courts typically look at whether the schedule
gives the trustee enough information about the claim so he or she can decide if the claim is
worth pursuing. See In re Furlong, 660 F.3d 81, 87 (1st Cir. 2011) (“As investigation is part
of the Trustee’s duties under § 704, a debtor is required only to do enough itemizing to
enable the trustee to determine whether to investigate further.” (citations and internal
quotation marks omitted)); Cusano v. Klein, 264 F.3d 936, 946 (9th Cir. 2001) (Schedule
was adequate where “listing was not so defective that it would forestall a proper
investigation of the asset.”); Payne v. Wood, 775 F.2d 202, 206 (7th Cir. 1985) (Purpose of
schedule of assets “is to allow the trustee to decide which claims to challenge.”); Tilley, 332
B.R. at 509 (“[I]n order for a bankruptcy trustee to accurately determine how much
property an estate has available for distribution to creditors, the schedule of assets must
put him or her on notice of all potential assets.”).
Eun Joo Lee v. Forster & Garbus LLP, 926 F. Supp. 2d 482, 489 (E.D.N.Y. 2013).
Several decisions cited by the parties help to illustrate this standard. For example, in In re
Lake, 49 B.R. 715 (Bankr. S.D. Fla. 1985), the debtor commenced a civil action approximately three
months before filing for Chapter 7 relief. However, the relevant schedule to his bankruptcy petition
stated only, “Intend to file lawsuit in Miami regarding my car that was stolen July 1981 by Auto
Recovery.” Id. at 716. Unaware that a civil lawsuit was actually pending at the time of the filing, the
bankruptcy trustee advised the court that the debtor possessed no distributable assets and the
matter was closed. See id. However, when a civil jury later returned a substantial verdict for the
debtor, the bankruptcy court reopened the Chapter 7 case and appointed a successor trustee to
recover the proceeds on behalf of the estate. See id. In opposition, the debtor argued that the civil
claim had reverted back to him because, during the original Chapter 7 proceeding, the trustee failed
to pursue it. See id.
The court disagreed, finding that “the lawsuit and the claim were concealed from the trustee
by the cryptic and deceptive references contained in the . . . schedule of property.” Id. at 717. In
11
reaching this conclusion, the court noted that although the civil lawsuit had been pending for
approximately three months by the time the debtor filed for bankruptcy, he did not reveal this fact
anywhere on the relevant schedules, and affirmatively stated that he did not own any property. See
id. at 716-17. Under those circumstances, the court held that the debtor’s civil claim remained the
exclusive property of the estate.
In Nielsen v. Dickerson, No. 98 C 5909, 1999 U.S. Dist. LEXIS 8334 (N.D. Ill. May 20, 1999),
the debtor received a collection letter, which she alleged violated the FDCPA because it implied the
involvement of a law firm that was not, in actuality, meaningfully involved in the collection efforts.
Several months after receiving the letter, she filed for Chapter 7 relief. See id. at *3. However, none
of the schedules to her initial bankruptcy filing referenced a potential FDCPA claim. See id. Rather,
two months into the proceeding, in a second amended Schedule C, the debtor for the first time
disclosed a putative claim against the law firm, but not the debt collector. See id. at *4. She
eventually received a full discharge from the bankruptcy court. See id.
After the conclusion of the bankruptcy case, the debtor commenced a putative class action
under the FDCPA against the law firm and the debt collector. See id. at *5. However, the debt
collector challenged her standing, arguing that the bankruptcy petition had only disclosed a
potential claim against the law firm, and therefore, any potential claim against other defendants
belonged exclusively to the estate.” Id. at *13.
The court disagreed, rejecting the notion that the debtor had “forfeited her claim against
[the debt collector] (or more appropriately, relinquished her rights in that claim to her bankruptcy
estate) simply because she failed to identify [the debt collector] in her bankruptcy schedules as a
potential defendant in the present action.” Id. In this regard, the court reasoned that:
12
Although we can envision a scenario in which a bankruptcy petitioner manipulates her
bankruptcy schedules to “hide,” from the trustee or her creditors, a deep-pocketed,
potential defendant (resulting in the parties’ failure to object to the inclusion of the
petitioner’s interest in such action as exempt property), such fears are not present here,
particularly where [the debtor]’s statutory damages are capped at $1,000.
Id. at *17.
Factually similar, in Eun Joo Lee v. Forster & Garbus LLP, 926 F. Supp. 2d 482 (E.D.N.Y.
2013), prior to filing for Chapter 7 bankruptcy, the debtor received an allegedly improper letter
from a debt collector. In her bankruptcy petition, she disclosed the putative claim, but only
identified the underlying creditor, and not the debt collector who sent the letter, as a potential
defendant. See id. at 489 & n.2. When she emerged from bankruptcy, she commenced a putative
class action against both the creditor and the debt collector. See id. at 485. However, as in Nielsen,
the debt collector challenged the debtor’s standing due to her failure to identify it as a potential
defendant. Id.
Similar to the court in Nielsen, Judge Irizarry found that the debtor’s description of her
FDCPA claim had “provided sufficient information . . . for the trustee to have been able to make an
educated decision not to bring the claims against both Defendants.” Id. at 489-90. Specifically:
Even though the Schedule did not list [the debt collector] as a possible defendant in any
FDCPA action, a minimal investigation by the trustee would have revealed that [the debt
collector] was a potential defendant in any such action. The trustee would have needed
only to take a cursory look at the Collection Letter to see that it was written on [the debt
collector]’s letterhead and sent from [the debt collector]’s offices. The trustee then easily
could have decided that [the debt collector] was responsible for any alleged FDCPA
violations arising out of the Collection Letter.
Id.
In Cusano v. Klein, 264 F.3d 936, 942 (9th Cir. 2001), the bankruptcy court confirmed a
Chapter 11 plan, in which the debtor, a musician, disclosed an asset of “unknown” value, identified
only as “songrights” for songs written while a member of a famous band. Under the terms of the
confirmed plan, the debtor made a payment of approximately $1,500 to retain these rights. See id.
13
Several years later, the debtor commenced a civil action, in which he asserted multiple
theories of tort and contract liability, including claims based on the prepetition musical
compositions. See id. The district court dismissed these claims, finding that they had not been
properly disclosed on his bankruptcy petition and therefore belonged to the estate. See id. at 943.
Further, to the extent the debtor disclosed “songrights” as an asset, for which he paid $1,500, the
court found that the claims had been “vastly undervalued.” Id.
The Ninth Circuit reversed in relevant part, finding that the debtor’s duty of disclosure only
required him “to be as particular as [was] reasonable under the circumstances.” Id. at 946.
Applying that standard, the court held that his listing of “songrights” was “not so defective that it
would forestall a proper investigation of the asset.” Id. More specifically:
Although it would have been more helpful for [the debtor] to break down the description
further so that it named songs, albums, and dates of and parties to royalty and copyright
agreements, the additional detail would not have revealed anything that was otherwise
concealed by the description as it was, which provided inquiry notice to affected parties to
seek further detail if they required it. Any undervaluation of the ‘songrights’ asset does not
impair [the debtor]’s interest in it . . .
Id. at 946-47.
More recently, in Lewis v. Portfolio Recovery Assocs., Ltd., No. 15-cv-2412, 2015 U.S. Dist.
LEXIS 153943, at *7 (D.N.J. Nov. 12, 2015), a debtor simply wrote “lawsuits” on the relevant portion
of his Chapter 7 petition. When he later sought to maintain an action under the FDCPA based on a
prepetition collection letter, the defendant contested standing, arguing that the debtor’s disclosure
during his bankruptcy proceeding had been below the legal standard. See id. at *2-*3.
The district court agreed, holding that the debtor’s unembellished disclosure of “lawsuits”
had been “inadequate to meet the requirements under the Bankruptcy Code.” Id. Specifically, the
court reasoned that the plaintiff had “failed to disclose against whom the lawsuits were directed, or
the specific type of claim being asserted . . . A generic designation of ‘lawsuits’ is not adequate to
notify the Trustee as to who the Trustee should pursue and what causes of action should be
14
brought.” Id. Accordingly, the court found that the plaintiff lacked standing to pursue the claim,
and dismissed the complaint under Fed. R. Civ. P. 12(b)(1).
With these principles in mind, the Court turns to the parties’ substantive contentions.
3.
Application –Romeo Lacks Standing to Pursue His FDCPA Claim
Applying the standards outlined above, the Court finds that Romeo lacks standing to
prosecute this action. In the Court’s view, the record leads unerringly to the conclusion that Romeo
failed to prepare his bankruptcy petition carefully, completely, or accurately, as he was required to
do under the Bankruptcy Code. On the contrary, the record clearly reflects that he engaged in
conduct designed to conceal, or at least minimize the likelihood that his assigned bankruptcy
trustee would receive proper notice of his claims.
In this regard, the Court notes that Romeo commenced the Texas Action and the Northland
Action fully one month into his bankruptcy proceeding, without having initially disclosed either of
those claims on his Chapter 7 filing. Although he eventually amended his schedules – as he was
permitted to do – the manner in which he did so was insufficient to satisfy his duty of disclosure.
Initially, Romeo amended the petition after the trustee issued a “report of no distribution,”
advising the bankruptcy court that, based on the inaccurate schedules, Romeo apparently
possessed no distributable assets.
More to the point, despite having commenced two actions, one of which was simultaneously
pending in this Court, Romeo disclosed only one “Possible Fair Debt Collection Claim,” without any
supporting details that would assist the trustee in conducting a related investigation. In this regard,
Romeo offers no rational justification for failing to disclose the existence of both of his claims; or for
concealing that one of them was active in this District; or for withholding important information
that was indisputably available to him and would have allowed the trustee to identify and
differentiate between the claims, such as the potential adverse parties to each. This was done
15
despite the fact that his attorneys, who represented him in both actions, clearly knew or should
have known all of these relevant details.
In their legal memorandum, the Plaintiffs contend that it makes no difference whether
Romeo identified one singular claim, or several claims, because under the so-called “Wildcard
Exemption” found in 11 U.S.C. § 522(d)(5), he was able to exclude the value of several FDCPA claims
from his bankruptcy estate. In making this argument, the Plaintiffs deem it “patently absurd” to
suggest that there was any appreciable consequence to only disclosing one potential claim, instead
of a number of claims. See Pl. Ans. Memo at 11. The Court disagrees.
Simply stated, the Bankruptcy Code does not authorize debtors to selectively divulge their
financial interests. Far from it: “[a]n individual debtor must ‘disclose all his interests at the
commencement of a case.’ ” Arana, 456 B.R. at 169 (quoting Chartschlaa, 538 F.3d at 122); see In re
Harper, No. 10-7510, 2011 Bankr. LEXIS 295, at *3 (“Debtors cannot pick and choose items for
disclosure on their schedules and rely on the trustee to uncover the rest through investigation of
public records. The trustee requires complete schedules so as to best protect the interests of the
estate and maximize distribution to creditors”); see also In re Cecil, 542 B.R. 447, 454 (B.A.P. 8th
Cir. 2015) (noting that “the bankruptcy system depends on complete disclosure” and “debtors are
not free to pick and choose what to disclose, and what not to disclose”); In re Kim, No. 10-66727,
2011 Bankr. LEXIS 4369, at *19 (Bankr. N.D. Ga. Oct. 26. 2011) (noting that “the debtor has an
uncompromising duty to disclose his or her financial information, not to pick and choose or to
obfuscate the answers” (internal citation and quotation marks omitted)).
The risk of an incomplete disclosure is apparent in this case. Indeed, even assuming that
the vague and inaccurate reference to a “possible” FDCPA claim succeeded in leading the trustee to
investigate Romeo’s financial interests; and even assuming that this investigation led the trustee to
discover the pending Northland Action, Romeo offers no sensible explanation – and the Court
cannot identify any – for how the trustee could then reasonably have been expected to know that a
16
second claim against FMA also existed, so that the trustee could conduct a proper evaluation of that
claim on behalf of the estate. Stated simply, to borrow from the Plaintiffs’ legal memorandum,
Romeo’s schedule plainly failed to give the trustee enough information to identify all of his claims,
let alone decide if they were worth pursuing. See Pl. Surreply at 3 (quoting Furlong, 660 F.3d at
87).
Romeo’s “no harm, no foul” approach, in which he argues that his deficient disclosure was
inconsequential because he could have simply claimed a Wildcard Exemption for the additional
FDCPA claim, misses the point. A similar situation was presented in Black v. Midland Credit Mgmt.,
No. C13-5626, 2013 U.S. Dist. LEXIS 130787, at *7 (W.D. Wa. Sept. 12, 2013), where the debtor
argued, as does Romeo, “that even if she did know about [her] FDCPA claim during the bankruptcy
proceedings, she would have exempted it from creditors under the Chapter 7 ‘wild card’
exemption . . .”
The court found this reasoning to be unpersuasive, noting that “the integrity of the
bankruptcy system depends on [ ] full and honest disclosures by debtors,” and therefore, even if the
debtor’s claim was theoretically eligible for an exemption, she “still had to list the claim as a
contingent asset in her schedules.” Id. The same reasoning applies here. In fact, in the Court’s
view, the Plaintiffs’ tacit admission that Romeo may have recognized the incompleteness of his
disclosure, but rationalized it using the Wildcard Exemption, “is further evidence that [he was]
manipulating [his] schedules,” to conceal one or both of his claims. In re Price, No. 14-13186, 2015
Bankr. LEXIS 996, at *24 (Bankr. D. Md. Mar. 30, 2015).
Perhaps the most troubling part of this situation is that, unlike the Texas Action, which he
discontinued prior to amending his petition, Romeo continued prosecuting the Northland Action in
this Court throughout his entire Chapter 7 proceeding, without ever disclosing that fact to the
trustee, the bankruptcy court, or this Court. As noted above, Romeo continued litigating the
undisclosed Northland Action until well after the conclusion of the bankruptcy case, finally advising
17
the Court of a settlement just last month. This was plainly a derogation of his duty to identify all of
his legal claims with as much specificity as was reasonable under the circumstances.
In this regard, the Court also takes note of a portion of the Plaintiffs’ legal memorandum, in
which they concede that the debtor in the Lake case made an “undeniably false statement” in his
Chapter 7 petition by indicating that he “intended” to file a civil lawsuit, when, in actuality, he had
already commenced one several months earlier. See Pl. Ans. Memo at 9. The Court discerns no
meaningful difference between those facts and Romeo’s conduct in this case. The Court’s records
clearly indicate that Romeo – through the same counsel that represents him in this case –
commenced both the Texas Action and the Northland Action on June 13, 2015.
Then,
approximately nine days later, on June 22, 2015, he amended his bankruptcy petition to describe
the then-pending Northland Action as a “possible” FDCPA claim, again without disclosing the
putative claim against FMA in any way. Applying the reasoning from Lake, the Court concludes that
Romeo’s inaccurate characterization of these claims was “deceptive” and “cryptic” – or, using the
Plaintiffs’ own words, that his disclosure constituted an “undeniably false statement.”
In sum, if “[f]ull and honest disclosure in a bankruptcy case is crucial to the effective
functioning of the bankruptcy system,” Lowery, 398 B.R. at 515, then Romeo’s conduct cannot be
approved. Accordingly, his claim against FMA remains the exclusive property of his bankruptcy
estate, and he lacks standing to prosecute this action. The Defendant’s motion to dismiss Romeo’s
complaint under Rule 12(b)(1) is therefore granted.
4.
Application – Motz Has Standing to Pursue His FDCPA Claim
The Court reaches a different conclusion with respect to Motz.
Although Motz also
attempted to prosecute the Texas Action without initially disclosing it on his petition; and although
he, too, waited to amend his petition until after the assigned trustee issued a “report of no
distribution,” there is no reason to believe that Motz’s ultimate disclosure was materially
incomplete or inaccurate so as to forestall a proper investigation of his FDCPA claim.
18
In particular, unlike Romeo, there is no evidence that Motz possessed multiple legal claims
at once, or that he attempted to simultaneously prosecute a civil action without advising his
Chapter 7 trustee. Rather, the record reflects that Motz possessed one claim based on the FMA
Collection Letters; that he initially pursued that claim in a Texas forum; but that he ultimately
discontinued that lawsuit in order to amend his Chapter 7 petition to include the claim.
More importantly, the record reflects that the description used by all of the Plaintiffs –
namely, “Possible Fair Debt Collection Claim” – was only actually accurate with respect to Motz.
Therefore, in the Court’s view, unlike Romeo, Motz’s petition did not pose a substantial risk of his
trustee being misled about the nature and extent of his contingent assets. Nor did it prevent the
trustee from making an educated decision about the value of Motz’s putative claim to the estate.
In reaching this conclusion, the Court does not overlook the fact that Motz’s description of
his claim, like Romeo’s, failed to identify potential adverse parties. However, because his disclosure
was otherwise substantially accurate, this fact does not alter the Court’s reasoning. In particular, as
applied to Motz, the description supplied was reasonably particularized in that it clearly identified
the relevant statutory authority, which, due to the specialized nature of the FDCPA, itself gave basic
notice of the underlying factual scenario, and the maximum possible value of the claim.
In this
regard, the Plaintiffs appropriately note that, under such circumstances, the contemplated
defendant is, as a practical matter, of little importance because any potential defendant could only
be held liable for a $1,000 statutory award. This concern was similarly addressed in Nielsen, where
the court noted that FDCPA claims are not, in most instances, susceptible to individual debtors
“manipulat[ing] [their] bankruptcy schedules to ‘hide,’ from the trustee or her creditors, a deeppocketed, potential defendant” because “statutory damages are capped at $1,000.” Nielsen, 1999
U.S. Dist. LEXIS 8334, at *17.
In any event, because Motz only had a single claim, thereby eliminating the need to assist
the trustee in differentiating between multiple causes of action and potential defendants, the Court
19
is persuaded by cases from within this Circuit that the identity of FMA as the putative defendant
was not necessarily required to be disclosed to comply with the Bankruptcy Code. See id. at *13
(debtor did not relinquish her rights in an otherwise properly disclosed FDCPA claim simply by
failing to identify a putative defendant in her Chapter 7 schedules); Eun Joo Lee, 926 F. Supp. 2d at
489-90 (same).
To quote from the Cusano opinion: “Although it would have been more helpful for” Motz to
identify FMA as the putative defendant, that “additional detail would not have revealed anything
that was otherwise concealed by the description as it was.” 264 F.3d at 946-47.
Accordingly, because Motz disclosed his claim with enough specificity to place the Chapter 7
trustee on inquiry notice of its full nature and extent; and because this claim was not otherwise
administered by the trustee, the Court finds that it reverted back to him at the conclusion of his
bankruptcy proceeding. Therefore, Motz has standing to maintain this action, and the Defendant’s
motion to dismiss his complaint under Rule 12(b)(1) is denied.
B.
Judicial Estoppel
Alternatively, the Defendant argues that the doctrine of judicial estoppel should apply to
prevent all three Plaintiffs from taking positions in this lawsuit which are inconsistent with
positions previously taken in their bankruptcy proceedings. In particular, FMA argues that, by
initially omitting their FDCPA claims from their bankruptcy filings, the Plaintiffs took the position in
the bankruptcy court that they did not have any valuable contingent assets. According to FMA, the
trustees and the bankruptcy court relied on this position by granting Romeo and Motz a discharge,
and by confirming Arpino’s Chapter 13 plan. Now, says the Defendant, the Plaintiffs are abandoning
that position, and taking the materially inconsistent position that they do, in actuality, each have
valuable interests in the form of legal claims against debt collectors. FMA contends that this
reversal is the type of unfair litigation tactic that the Plaintiffs should be judicially estopped from
pursuing.
20
1.
The Standard of Review
The Defendant does not specify what procedural rule it invokes to bring its judicial estoppel
argument before the Court. Although FMA appears to frame the judicial estoppel argument as part
of its Rule 12(b)(1) motion, several court have noted that Rule 12(b)(6) is the more appropriate
vehicle for doing so. See, e.g., Thomas v. JP Morgan Chase, N.A., No. 11-cv-3656, 2012 U.S. Dist.
LEXIS 96131, at *16 (E.D.N.Y. July 11, 2012) (noting that “[a] defendant may raise an affirmative
defense such as judicial estoppel on a motion pursuant to Rule 12(b)(6) of the Federal Rules of Civil
Procedure where the basis for that defense is established by the materials properly before the
Court”); Evercrete Corp. v. H-Cap Ltd., 429 F. Supp. 2d 612, 620 (S.D.N.Y. 2006) (same); see also
Idearc Media LLC v. Glassman, No. 10-cv-1216, 2011 U.S. Dist. LEXIS 14865, at *6 (E.D. Pa. Feb. 15,
2011) (noting that the defendant had “frame[d] his judicial estoppel argument as part of his
12(b)(1) motion to dismiss for lack of subject matter jurisdiction,” however, “[b]ecause judicial
estoppel is an affirmative defense that does not attack jurisdiction, his argument [was] more
properly considered under Rule 12(b)(6)” (citing Bethel v. Jendoco Constr. Corp., 570 F.2d 1168,
1174 (3d Cir, 1978))).
Under Fed. R. Civ. P. 12(b)(6), a party may move to dismiss a cause of action that “fail[s] to
state a claim upon which relief can be granted.” “To survive a motion to dismiss, the complaint
must plead ‘enough facts to state a claim to relief that is plausible on its face,’ Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007), and ‘allow[ ] the court to
draw the reasonable inference that the defendant is liable for the misconduct alleged,’ Ashcroft v.
Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009).” Otis-Wisher v. Medtronic, Inc.,
14-cv-3491, 2015 U.S. App. LEXIS 9565, at *2 (2d Cir. June 9, 2015).
However, “whether cast as a motion to dismiss under Rule 12(b)(1) or Rule 12(b)(6), the
scope of [the Court’s] review is essentially confined to the pleadings, and other undisputed
21
authentic records and documents.” Jackson v. WellSpan Health, No. 13-cv-1349, 2014 U.S. Dist.
LEXIS 13458, at *12 (M.D. Pa. Feb. 4, 2014).
2.
The Applicable Legal Principles
“Judicial estoppel is designed to prevent a party who plays fast and loose with the courts
from gaining an unfair advantage through the deliberate adoption of inconsistent positions in
successive suits.” Wight v. BankAmerica Corp., 219 F.3d 79, 89 (2d Cir. 2000) (citing Bates v. Long
Island R.R., 997 F.2d 1028, 1037-38 (2d Cir. 1993)). To invoke this equitable doctrine, a party must
demonstrate that: “(1) his adversary ‘advanced an inconsistent factual position in a prior
proceeding, and (2) the prior inconsistent position was adopted by the first court in some
manner.’ ” Id. at 90 (quoting AXA Marine & Aviation Ins. (UK) Ltd. v. Seajet Indus. Inc., 84 F.3d 622,
628 (2d Cir. 1996)).
“The doctrine of judicial estoppel requires that there be ‘a true inconsistency between the
statements in the two proceedings,’ ” and “ ‘[i]f the statements can be reconciled there is no
occasion to apply an estoppel.’ ” Inok v. SIAC-Sector Inc., No. 05-cv-6584, 2011 U.S. Dist. LEXIS
7312, at *17 (S.D.N.Y. Jan. 27, 2011) (Report and Recommendation), adopted, 2011 U.S. Dist. LEXIS
27301 (S.D.N.Y. Mar. 14, 2011). “In this circuit, moreover, ‘[w]e further limit judicial estoppel to
situations where the risk of inconsistent rulings with its impact on judicial integrity is certain.’ ” In
re Adelphia Recovery Trust, 634 F.3d 678, 696 (2d Cir. 2011) (quoting DeRosa v. Nat’l Envelope
Corp., 595 F.3d 99, 103 (2d Cir. 2010)). “This latter requirement means that judicial estoppel may
only apply where the earlier tribunal accepted the accuracy of the litigant’s statements.” Id. (citing
Simon v. Safelite Glass Corp., 128 F.3d 68, 72 (2d Cir. 1997)).
Relevant here, “many courts in this circuit have applied judicial estoppel in the bankruptcy
context to dismiss undisclosed claims.” Ibok, 2011 U.S. Dist. LEXIS 7312, at *17-*18 (collecting
cases); see also Coffaro v. Crespo, 721 F. Supp. 2d 141, 145 (E.D.N.Y. 2010) (observing that “[i]n the
bankruptcy context, judicial estoppel is commonly invoked in order ‘to prevent a party who failed
22
to disclose a claim in bankruptcy proceedings from asserting that claim after emerging from
bankruptcy’ ” (quoting Negron v. Weiss, No. 06-cv-1288, 2006 U.S. Dist. LEXIS 69906, at *8 (E.D.N.Y.
Sept. 27, 2006))). “ ‘The rationale of these decisions is that the integrity of the bankruptcy system
depends on full and honest disclosure by debtors of all of their assets.’ ” Ibok, 2011 U.S. Dist. LEXIS
7312, at *19 (quoting Rosenshein v. Kleban, 918 F. Supp. 98, 104 (S.D.N.Y. 1996)). Specifically,
courts have recognized that “[i]t would violate the ‘integrity’ of the bankruptcy system to ‘permit a
debtor to obtain relief from the bankruptcy court by representing that no claims exist and then
subsequently’ assert ‘those claims for his own benefit in a separate proceeding.’ ” Id. at *20
(quoting Rosenshein, 918 F. Supp. at 104).
3.
Application – Arpino is Judicially Estopped from Maintaining her Claim
The Defendant’s judicial estoppel argument is premised on the theory that all three
Defendants took the position in their bankruptcy proceedings that they either did not possess any
contingent legal claims, or they significantly undervalued their interest in such claims.
However, having already determined that Romeo lacks standing to survive dismissal under
Rule 12(b)(1), the Court need not reach the question of whether he is also judicially estopped from
pursuing this action.
Also, having determined that Motz sufficiently disclosed his claim in
bankruptcy, his allegations in this case do not constitute a clear departure from a previous position.
See Eun Joo Lee, 926 F. Supp. 2d at 490 (after determining that the debtor adequately disclosed a
putative legal claim on her bankruptcy petition, the court held that she was “not barred from
bringing [an FDCPA action] either on standing or judicial estoppel grounds”). Thus, the Court’s
consideration of judicial estoppel is limited to its application to Arpino. As noted above, it appears
that judicial estoppel is the only ground upon which FMA seeks to dismiss Arpino’s claims.
Applying the standards outlined above, the Court concludes that Arpino, like Romeo, clearly
failed to prepare her Chapter 13 petition carefully, completely, or accurately, as she was required
under the Bankruptcy Code to do. Therefore, she is judicially estopped from pursuing a claim for
23
her own benefit in this action, which she previously concealed from her Chapter 13 trustee, her
creditors, and the bankruptcy court.
In this regard, the Court reiterates that, like Romeo and Motz, Arpino commenced a civil
action within three weeks of filing for Chapter 13 relief, despite having failed to disclose any such
interest in her initial petition. She, too, amended her filing to include one “possible” FDCPA claim –
a disclosure that, like Romeo’s, was undeniably inaccurate considering that her claim was not
merely “possible,” it was actualized. Further, similar to Romeo, although Arpino’s first action was
simultaneously pending, she withheld any supporting details that would assist the trustee in
conducting a related investigation.
Then, despite disclosing only a single potential claim worth $1,000, Arpino proceeded to
commence four additional actions, two of them putative class actions, against four different
defendants in four different federal district courts. As noted above, she emerged from bankruptcy
on December 21, 2015 without ever having disclosed the existence of these claims. Thus, in the
Court’s view, it is facially implausible for the Plaintiffs to maintain that they proceeded “open[ly]
and honest[ly], and telegraphed exactly what their intentions were.” Pl. Ans. Br. at 20. It strains
credulity to suggest that by disclosing one “possible” FDCPA claim, Arpino sustained her
“uncompromising” burden to fully disclose the complete extent of her contingent assets.
In reaching this conclusion, the Court finds that Arpino’s conduct clearly exemplifies the
type of “play[ing] fast and loose with the courts” that the equitable doctrine of judicial estoppel was
designed to prevent, and which ought not to be rewarded. Wight, 219 F.3d at 89. As to the first
element of the standard, it is obvious that the factual position advanced by Arpino in the
bankruptcy court – namely, that she possessed one potential FDCPA claim – is irreconcilably
different then the position she took almost immediately thereafter by filing, but never disclosing,
four discrete lawsuits, bringing the total to five such actions, commenced in less than three months’
time.
24
As to the second element, there can be no question that her inaccurate disclosure in the
Chapter 13 proceeding was adopted by the bankruptcy court, which confirmed her proposed
repayment plan without ever learning of the true extent of her claims.
Accordingly, as the caselaw outlined above makes clear, judicial estoppel is appropriate in
this case to prevent Arpino from asserting claims for her own benefit in this proceeding, which
claims she previously concealed in order to obtain relief from the bankruptcy court. In this Court’s
view, the risk such conduct poses to the integrity of the bankruptcy system is self-evident. Thus,
the Defendant’s motion to dismiss Arpino’s complaint on this ground is granted.
C.
As to Attorneys’ Fees and Costs under 15 U.S.C. § 1692k
Finally, the Defendant seeks to recover an award of attorneys’ fees and costs pursuant to
15 U.S.C. § 1692k(a)(3) on the ground that the Plaintiffs commenced this action in bad faith for the
primary purpose of harassing FMA. In support of this request, the Defendant relies solely on a
declaration by FMA’s General Counsel and Vice President of Compliance Lauren Anne Rosenfeld,
which contains statements setting forth FMA’s positions on the merits of the Plaintiffs’ underlying
FDCPA claims. See Easley Decl., Ex. “R.” Essentially, the Defendant contends that it is entitled to an
award of attorneys’ fees and costs because, upon receiving notice of this action, Ms. Rosenfeld
contacted counsel for the Plaintiffs and advised him of these positions, asserting that the Plaintiffs’
allegations lacked merit. However, despite this warning, the Plaintiffs refused to withdraw the
complaint. See Def. Memo of Law at 20.
In the Court’s view, this is an insufficient basis for the drastic relief FMA seeks. Initially, the
present motion was directed exclusively at the Plaintiffs’ standing to maintain this action, and did
not touch on the merits of the case. Therefore, at this juncture, there is no apparent basis for
granting the Defendant’s request, because their position on the merits may not ultimately prevail.
In any event, as the Plaintiffs appropriately point out, even if, as the Defendant predicts, the
underlying claims turn out to lack merit, “the assertion of the claim [does] not by itself prove bad
25
faith,” Simmons v. Roundup Funding, LLC, 622 F.3d 93, 97 (2d Cir. 2010). Also, the Court notes that
the Defendant has not offered any other evidence to plausibly suggest that this action was brought
intentionally to harass FMA.
Accordingly, the Defendant has failed to sustain its burden under 15 U.S.C. § 1692k, and the
request for attorneys’ fees and costs is denied at this time.
III.
Conclusion
Based on the foregoing, the Defendant’s motion to dismiss the complaint is granted in part
and denied in part.
The Court grants the motion to dismiss the complaint under Rule 12(b)(1) with respect to
Romeo on the ground that he lacks standing, and thus the Court lacks subject matter jurisdiction
over his claims. The Court also grants the motion to dismiss the complaint with respect to Arpino
on the ground that she is barred by principles of judicial estoppel from pursuing her claims.
However, the Court denies the motion to dismiss with respect to Motz. The Court also
denies without prejudice the Defendant’s application for an award of attorneys’ fees and costs.
Accordingly, the Defendant is directed to file a response to the complaint within 20 days of
the date of this Order, and the matter is referred to United States Magistrate Judge Arlene R.
Lindsay for discovery.
Finally, the Clerk of the Court is respectfully directed to amend the official caption of this
matter as follows:
------------------------------------------------------------------------------------------------------------x
CHRISTOPHER MOTZ, individually and on behalf of all others similarly situated,
Plaintiff,
-againstFMA ALLIANCE, LTD.,
Defendant.
------------------------------------------------------------------------------------------------------------x
26
It is SO ORDERED.
Dated:
Central Islip, New York
June 30, 2016
/s/ Arthur D. Spatt_________________________
ARTHUR D. SPATT
United States District Judge
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