Taylor-Burns v. AR Resources, Inc.
OPINION. Upon the facts and conclusions set forth above, the summary judgment motion of ARR is granted and the Complaint is dismissed with prejudice. It is so ordered. re: 27 MOTION for Summary Judgment filed by AR Resources, Inc. (Signed by Judge Robert W. Sweet on 7/14/2017) (rjm)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
16 Civ. 1 259
- againstAR RESOURCES , INC .,
---------------------------------- - --x
A P P E A RA N C E S :
Attorneys for Plaintiff
RC LAW GROUP, PLLC
1 85 Passaic Street
Ha cken sack, NJ 07601
By : Daniel Kohn , Esq .
Matthew Ari Sarles , Esq.
Attorneys for Defendant
High Swartz LLP
40 East Airy Street
Norristown , PA 19404
By : Kevin Cornish , Esq.
Thomas Rees , Esq .
Defendant AR Resources , Inc.
("ARR" or the
"Defendant"), a debt collection business, has moved pursuant to
Rule 56 of the Federal Rules of Civil Procedure for summary
judgment to dismiss the complaint of plaintiff Tonya Taylor
Burns ("Burns" or the "Plaintiff") alleging violation of the
Fair Debt Collection Practices Act, 15 U.S.C.
1692 et seq.
(the "Complaint") . Based upon the facts and
conclusions set forth below , the motion of the Defendant is
granted, and the Complaint is dismissed.
The Complaint was filed in the Civil Court of the City
of New York on January 11, 2016 and removed to this court on
February 18, 20 16.
In her Complaint , Plaintiff alleges that ARR failed to
list an account as disputed after she purportedly sent a letter
to ARR disputing the debt . Compl .
11. She alleges that ARR's
failure to report the debt as d isput ed violates multiple
provisions of the FDCPA.
13. Plaintiff is requesting
actual damages , statutory damages , and attorney ' s fees and
On May 19 , 2016 , this Court d i smissed the instant
act i on with o ut prejudice for fa i lure to prosecute , giving the
Plaintiff an additional 30 days to show cause to reopen the
case . The case was reopened upon endorsement of a l etter from
the Plaintiff ' s counsel at RC Law Group dated June 16 , 2016 ,
explaining that the failure to prosecute resulted from the
resignation o f the attorney of record from the firm .
The instant motion was heard and marked fully
submitted on April 5 , 2017 .
The facts have been set forth in the unopposed
Statement of Material Facts in Support of Defendant ' s Motion for
Summary Judgment . They are summarized below .
Plaintiff was deposed on September 13 , 2016 . See
Motion for Summary Judgment , ECF No . 27 , 1 Ex . C [here i nafter ,
"T aylor - Burns Dep ." ] . During her deposition , she ident i f i ed the
All c i tations to exhibits are attachments to the Motion for Summary
Judgment , ECF No . 27 , unless otherwise noted .
purported dispute letter ("Letter " ) that was dated June 5 , 20 15.
Ex . B .; Tayl or - Burns Dep . 4:21-5:3 .
Plaintiff testified at her deposition that she did not
write , send , or sign the Letter . Taylor - Burns Dep . 4 : 25-5:12 .
She testified that Credit Shield 360
("CS360 " ) sent it.
Id . at
5:2 - 3 . The Letter was sent via facsimile from 1 - 303-991 - 7930 ,
which is a Denver , Colorado area code . Ex . B. The Plaintiff was
not in Denver , Colorado on June 5 , 2015 ; she resides in
Manhattan. Taylor-Burns Dep . 4 : 11 - 13 ; 7:7 - 9.
CS360 , the entity that sent the letter , is a credit
repair agency . Taylor-Burns Dep . 7 : 25 - 8 : 1 . Plaintiff contacted
CS360 around May of 2015 to obtain credit repair services .
Taylor - Burns Dep. 8:2 - 5 , 9 : 4 - 10 : 15.
She stated that she did not sustain any actual
damages . Taylor-Burns Dep. 49 : 3-51 : 5.
After Plaintiff ' s deposition , Plaintiff and CS360
produced an undated copy of a Collection Shield 360 Service
Agreement ("CS360 Agreement " ) with Plaintiff ' s purported
electronic signature . See Ex . D; Ex . E (P l aintiff ' s Discovery
Responses). The CS360 Agreement states that Plaintiff is not
responsible to pay CS360 for the deletion of collection
accounts . Ex . D. However , CS360 is entitled to "receive a fee of
$ 1 50.00 per Deleted Collection account only from FDCPA
sett l ement funds collected for Client in excess of $200 . 00 ." Id.
The CS360 Agreement provides that it shall only receive payment
from FDCPA settlement funds.
The CS360 Agreement a l so authorizes CS360 "to share
any info [sic] that could be a potential claim against such
companies with RC Law Group so that it may pursue such cla ims on
my behalf ." Id . CS360 and RC Law Group , the firm representing
Plaintiff in this action , both do business at 7150 Parsons
Avenue , Flushing , NY . Exs. G & H. Plaintiff testified that she
d i d not sign any fee agreement wi th RC Law Group. Taylor-Burns
Dep . 52 :1- 7.
Plaintiff also produced an undated Retainer Agreement
wi th RC Law Group ("RC Law Agreement " ) bearing her purported
electronic signature after her deposit i on . Ex. F; see also Ex . E
(Plaintiff ' s Discovery Responses) . The RC Law Agreement states
that Pla intiff retained RC Law Group " to provide legal advice
and services for suits and issues that may arise under the Fa ir
Debt Collection Practices Act ." Ex. F. The Scope of
Representation in the RC Law Agreement states that :
RC Law agrees to represent Client with respect to
potential claims for the types of claims listed above.
RC Law will investigate potential claims and if RC Law
deems such potential claims v i able, RC Law will file
suit on Client ' s behalf and/or seek to have the debt
collec t or(s) settle the claim(s) .
Id . The RC Law Agreement states that " the Client ' s agents should
also be tr eated as clients , including Col le ct i on Shield 360. "
The RC Law Agreement provides that the Plaintiff would
receive 20 % of the settlement amount on a FDCPA statutory award
up to $1 , 000, but her portion o f the settlement would not be
less than $200 . As such , RC Law Group would retain 80 % of a
$1 , 000 statutory FDCPA award. Further, RC Law Group is entitled
to retain 45 % of any actua l damages recovered under the FDCPA,
and all attorney ' s fees and costs awarded under the FDCPA.
The Agreement states that it "is to be interpreted in accordance
with the laws of the State of New York and with the ethical
requirements of that jurisdiction ." Id .
Nowhere in the CS360 Agreement or the RC Law Agreement
is it stated that Plaintiff retained CS360 or RC Law Gro up to
handle a cla im against ARR .
During the course of discovery , ARR took the
depos i tion of David Bergida, who was the corporate designee of
CS360. Ex. G [hereinafter, "Bergida Dep ." ] ; see also Ex. H. At
the deposition , Bergida produced a redacted copy of the CS360
Agreement. He stated that he did not think that CS360 would
receive any payment from RC Law Group if RC Law Group was
successful in recovering money for the Plaintiff in the instant
action . Bergida Dep . 86 :16-22, 90:13 - 91 : 3 . However , Bergida
testified that RC Law Group compensates CS360 for referring
clients to RC Law Group . Bergida Dep . 106:6-111: 24 .
The Applicable Standard
Summary judgment is appropriate only where "there is
no genuine issue as to any material fact and .
. the moving
party is entitled to a judgment as a matter of law ." Fed . R .
Civ. P. 56(c) . "[ T]he substantive law will identify which facts
are material." Anderson v . Liberty Lobby, Inc. , 477 U.S. 242 ,
A dispute i s "genuine" if "the evidence is such that a
reasonable jury could return a verdict for the nonmoving party."
Id. The relevant inquiry on application for summary judgment is
"whether the evidence presents a sufficient disagreement t o
require submission to a jury or whether i t is so one - sided that
one party must prevail as a matter of law ." Id. at 251 - 52 .
court is not charged with weighing the evidence and determining
its truth , but with determining whether there is a genu ine issue
for trial. Westinghouse Elec . Corp . v . N . Y . City Transit Auth .,
735 F . Supp . 1205 , 1212 (S.D . N. Y. 1990)
(quoting Anderson , 477
U. S . at 249) . "[ T]he mere existence of some alleged factual
dispute between the parties will not defeat an otherwise
prope rl y supported motion for summary judgment ; the requirement
is that there be no genuine issue of material fact ." Anderson ,
477 U. S . at 247 - 48
(emphasis in original).
While the moving party bears t h e initial burden of
showing that no genuine issue of material fact exists , Atl. Mut .
Ins . Co. v . CSX Lines, L . L . C., 432 F . 3d 428 , 433
(2d Cir . 2005) ,
in cases where the non - moving party bears the burden of
persuasion at trial , " the burden on the moving party may be
discharged by ' showing ' -that is , po i nting out to the district
court-that there is an absence of evidence to support the
nonmoving party ' s case ." Celotex Corp. v. Catrett , 477 U. S . 317 ,
325 (1986) . "It is ordinarily sufficient for the movant to point
t o a l ack of evidence
movant ' s claim .
. on an essential element of the non [T]he nonmov i ng party must [then] come
forward with admiss i ble evidence suff i cient to raise a genuine
issue of fact for trial . " Jaramillo v . Weyerhaeuser Co .,
F . 3d 140 , 145 (2d Cir . 2008)
(internal citations omitted) ;
also Goenaga v. March of Dimes Birth Defects Found ., 51 F . 3d 14 ,
(2d Cir . 1995)
("Once the moving party has made a properly
supported showing sufficient to suggest the absence of any
genuine issue as to a material fact , the nonmov i ng party
must come forward with evidence that would be sufficient to
support a jury verdict in his favor " ) . In evaluating the record
to determine whether there is a genuine issue as to any material
fact , "[ t ] he evidence of the non - movant is to be believed , and
all justifiable inferences are to be drawn in his favor."
Anderson , 477 U. S . at 255.
The CS360 Agreement is Void and Unenforceable
Plaintiff ' s claim is based upon ARR ' s failure to
report a debt as disputed after receiving the Letter . The
relevant section of the FDCPA provides that "[c]ommunicating or
threatening to communicate to any person credit information
which is known or which should be known to be false ,
includ i ng
the failure to communicate that a disputed debt is disputed ." 1 5
U. S . C . § 1 692e(8) . ARR does not dispute that it rece i ved the
Letter , or that it did not report the debt as disputed ; rather ,
ARR a r gues that the Letter was written and sent without actual
or apparent authority because CS360 is a c redit repair
organization , subject to the Credit Repair Organizations Act
(" CROA" ) , 15 U.S.C.
1679 et seq ., and the contract between the
Plaintiff and CS360 did not meet the CROA requirements. Thus ,
the issue is whet her ARR , the debt co ll ector, received a valid
dispute of the debt .
The term "credit repair organ izati on ," according to
the CROA :
means any person who uses any
instrumentality of interstate commerce or the
mails to sell , provide , or perform (o r represent
that such person can or will sell , provide , or
perform) any service , in return for the payment
of money or other valuable cons iderati o n, for the
express or implied purpose of -(i)
improving any consumer ' s credit record ,
credit history , or credit rating ; or
(ii) providing advice or assistance to any
consumer with regard to any activity or service
described in clause (i) ; and
does not in c lude-
any nonprofit organization which is exempt
from taxat i on under section 50l(c) (3) of Title
(ii) any creditor (as defined in
this title), with respect to any
extent the creditor is assisting
restructure any debt owed by the
creditor ; or
section 1602 of
consumer , to the
the consumer to
consumer to the
any depository instituti o n (as that term
is defined in section 1813 of Title 12) or any
Federal or State credit union (as those terms are
defined in section 1752 of Tit l e 12) , or any
affiliate or subsidiary of such a depository
institution or credit union .
15 U. S . C .
1679a(3) . CS360 is a credit repair organization as
defined by the CROA . Burns Dep . 7 : 25 - 8:1 ; Ex . D (CS360
The statute requires a written contract between the
client and the organization to include several mandatory terms
and disclosures . The CROA makes any contract not i n compliance
with the CROA void and unenforceable :
Any contract for services which does not comply
with the applicable provisions of this
shall be treated as void ; and
may not be enforced by any Federal or State
court or any ot her person .
15 U. S . C.
The CS360 Agreement failed to comply with the
following provisions of the CROA:
Failure to include the required written
statement with the contract as set forth in
1 5 U. S . C . § 16 79c ;
Failure to have a dated contract - 15 U. S.C .
Failure to provide a full and deta il ed
description of the services to be provided 15 u.s.c . § 1 679d(b) (2) ;
Failur e to p r ov i de an estimate of the date
by which the performance of the services
will be complete - 15 U.S . C .
§ 1 679d(b) (2) (B) (i) ;
Failure to prov ide the lengt h of the time
period necessary to perform such services 1 5 U. S . C . § 1 679d(b) (2) (B) (ii) ;
Failure to identify the credit repair
orga niz ation ' s prin c ipal business address 15 u.s.c . § 1679d(b) (3) ;
Fa il ure to include the three day
cance llati on notice - 15 U.S. C .
§ 1679d(b) (4) .
Because the Pl aintiff ' s contract wit h CS360 fails to
comply with the CROA , the CS360 Agreement is vo i d and this Court
will not enforce it . 15 U. S . C .
1679f(c) ( l ) - (2) .
The lack of a CROA- comp liant contract between CS360
and Plaintiff - and th ere f ore th e la ck of a val i d co ntra ct
between CS360 and Plaintiff - means t h at CS360 h ad no authority
to send the Letter o n Pla intiff's behalf . Highland Cap i tal Mgmt .
LP v . Schneider , 607 F.3d 322 , 327
(2d Cir. 2010)
( " An agent
must ha v e authority , whether apparent , actual o r impli ed , to
bind his princ ipal .u ) .
As previously noted , the Plaintiff testified that she
did not prepare , sign, or send the Letter. Ex . B; Taylor-Burns
Dep . 4 : 25 - 5 : 12 . She contacted CS360 , which sent the Letter on
her behalf . Taylor - Burns Dep . 5:6 - 9. Therefore , no valid dispute
was made , ARR cannot be liable for an alleged failure to report
the debt as disputed , and the ARR motion for summary judgment
dismissing the Complaint is granted .
The Claim for Attorneys' Fees is Dismissed
Plaintiff produced a fee agreement with her counsel,
RC Law Group, which states that it is governed by New York law.
Ex . F . The issue is whether the RC Law Agreement violates New
York ' s champerty laws and ethical rules .
"Champerty , as a term of art , grew out of the practice
where someone bought an interest in a claim under litigation,
agreeing to bear the expenses but also to share the benefits if
the suit succeeded." Justinian Capital SPC ex rel. Blue Heron
Segregated Portfolio v . WestLB AG, 37 Misc . 3d 518, 523-24
Sup . Ct. 2012)
(quoting Bluebird Partners, L . P . v . First
Fidelity Bank, N . A. , 731 N. E . 2d 581 , 585 (N.Y . 2000)). Champerty
was developed "to prevent or curtail the commercialization of or
trading in litigation." Id . New York adopted the prohibition
against champerty by statute , providing:
An attorney or counselor shall not:
Directly or indirectly, buy , take an assignment
of or be in any manner interested in buying or
taking an assignment of a bond, promissory note,
bill of exchange , book debt, or other thin g in
action, with the intent and for the purpose of
bringing an action thereon.
N.Y . Judiciary Law§ 488(1)
(McK inney ) .
The facts set forth above establish that CS360
identifies potential ind i v iduals to act as plaintiffs in
co nsumer protection la wsuits filed by RC La w Group. The CS360
Agreement states that CS360 provides free credit repair services
to clients, and CS360 receives payment of $150 . 00 "from FDCPA
settlement funds co lle cted for Client in excess of $200.00 ." Ex .
D. However, CS360 is not a law firm and cannot represent clients
in FDCPA lawsuits . The CS360 Agreement further provides that
CS360 is authorized "t o share any info that could be a potential
claim against such companies with RC Law Group so that it may
pursue such cla ims on my behalf." Id . RC Law Group identifies
CS360 as a client in its fee agreement. Ex. F . As evidenced by
the CS360 Agreement, the RC Law Agreement , and the deposition of
Bergida , CS360 and RC Law Group are intertwined entities ,
generating re v enue through the filing of lawsuits su c h as this
The CS360 Agreement and the RC Law Agreement show that
these entities ' operations depend up o n clients signing over the
majority of their interests in their lawsuits to CS3 60 and RC
Law Group , allowing the entities to pursue FDCPA claims as they
please and share in the majority of any recovery. The RC Law
Agreement states that RC Law Group is providing " legal advice
and services f o r suits and issues that may arise" under the
FDCPA . Ex . F . It further states that " RC Law will investigate
potential claims and if RC Law deems such potential claims
viable , RC Law will file suit on Client ' s behalf and/or seek to
have the debt collector(s) settle the claim(s ) . " Ex . F. Based on
this language , RC Law Group is retained by clients such as the
Plaint i ff in the instant action , through those clients '
agreements with CS360, to pursue claims not identified at the
time of the alleged agreement . RC Law Group thereby assumes a
direct interest in the lawsuit .
The RC Law Agreement provides that RC Law is ent i tled
to take 45 % of any actual damages recovery , 80 % of any statutory
damages , and all attorney's fees and costs. Given that there is
no evidence of actual damages in this case , Plaintiff therefore
stands to recover at most $200 , and likely only $50 afte r
payment of CS360 ' s $150 fee for a successful FDCPA claim . 2 See
Exs. E & F. Through the RC Law Agreement and CS360 Agreement, RC
Law Group has directly or indirectly taken over an interest in
the Burns '
cause of action , which is prohibited by the champerty
laws of New York .
In addition , Rule l . 8(i) of New York Rules of
Professional Conduct prohibits a lawyer from acquiring a
proprietary interest in a lawsuit . By taking an 80% cont ingent
fee on statutory damages and 45 % contingent fee on actual
damages , in addition to all attorney ' s fees and costs , RC Law
Group took a proprietary int e rest in this lawsuit . NY ST RPC
Rule l. 8( i)
(McKinney) . Rule 5 . 4 prohibits a lawyer from sharing
legal fees with a non - lawyer . The CS360 Agreement states that RC
Law Group pays CS360 $150 . 00 out of FDCPA settlements that RC
Law Group obtains on behalf of client ' s such as Burns . NY ST RPC
(McKinney). Rule 7.2 prohibits a lawyer from
compensating a person or organization to recommend or obtain
employment by a c lient. NY ST RPC Rule 7 . 2 (McKinney) . During
Bergida ' s deposition , he testified that RC Law Group compensates
In the scenario that a client such as the Plaintiff here could prove
actual damages , the client would obtain 55 % of such damages and RC Law Gr oup
would retain 45 % of such damages . Burns testified that she does not have any
actual damage s . Taylor- Burns Dep . 49 : 3 - 51 : 5 .
Law Group compensates CS360 for referring clients to RC Law
Group . Bergida Dep . 10 6 : 6- 20; see also In r e Clark, 77 N.E . 1, 2
(punishing lawyer for paying a third party to obtain
c lients on the attorney's behalf) .
Based on the v i olation s of the New York Rules of
Pr o fessional Conduct , and the champerty laws discussed above,
ARR ' s motion for summary judgment is granted and the Plaintiff ' s
claim for attorney's fees is dismissed .
Upon the facts and conc lusi ons set forth above, the
summary judgment motion of ARR is granted and the Complaint is
dismissed with prejudice.
is so orde red .
New York, NY
July /cf.+ 201 7
U.S . D . J.
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