Hagy et al v. Demers & Adams, LLC et al
Filing
42
ORDER denying 33 Motion to Strike re 32 Notice of Intention to Rely Upon Additional Authority & granting in part and denying in part 26 Motion to Dismiss for Failure to State a Claim re 18 Amended Complaint. Signed by Magistrate Judge Terence P Kemp on 12/7/2011. (kk2)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
James R. Hagy, III, et al.,
Plaintiffs,
:
:
v.
:
Case No. 2:11-cv-530
:
Demers & Adams, LLC, et al.,
Magistrate Judge Kemp
:
Defendants.
ORDER
This case is before the Court to consider the motion to
strike (#33) and the motion to dismiss the plaintiff’s amended
complaint (#26) filed by Defendants Demers & Adams, LLC and David
J. Demers (“the Law Firm Defendants”). Defendants Green Tree
Servicing LLC and Kevin Winehold (“Green Tree Defendants”) are
not parties to these motions. For the following reasons, this
Court grants in part and denies in part the motion to dismiss and
denies the motion to strike.
I. Background
Because the Law Firm Defendants have filed a motion to
dismiss, the facts on which this decision turns are contained in
the Amended Complaint and assumed to be true for purposes of this
motion only. This Court also relies, for background only, on
facts recited in the parties’ filings with this Court which are
also assumed to be true for purposes of this motion only.
According to the Law Firm Defendants, in September of 2002,
plaintiffs, James R. Hagy, III and Patricia R. Hagy, executed a
fixed-rate note and mortgage securing payment of that note with
Conseco Finance Servicing Corp. The Green Tree Defendants have
asserted that Conseco was subsequently converted to Green Tree
Servicing LLC. (Motion to Stay, #15, p. 2). According to the
Amended Complaint, on April 28, 2010, the Law Firm Defendants
filed a foreclosure action against the Hagys on behalf of Green
Tree Servicing LLC in the Carroll County Court of Common Pleas.
(Amended Complaint, #18, ¶11). After receiving the summons and
complaint, Patricia Hagy called the Law Firm Defendants and asked
whether some type of settlement could be reached regarding the
default on the note and mortgage.(Amend. Compl., #18, ¶12).
On
June 8, 2010, David Demers sent the Hagys a letter and warranty
deed in lieu of foreclosure. (Amend. Compl., #18, ¶13, Ex.3). Mr.
Demers stated in the letter that “in return for executing the
Deed In Lieu Green Tree has advised me that it will waive any
deficiency balance.”
(Amend. Compl., #18, Ex.3). On June 24,
2010, the Hagys signed the warranty deed in lieu of foreclosure.
(Amend. Compl., #18, Ex. 4). On June 30, 2010, Mr. Demers
confirmed in a letter to the Hagys’ counsel, James Sandy, Esq.,
that he had received the warranty deed in lieu of foreclosure and
that in return for the Hagys “executing the Warranty Deed in Lieu
of Foreclosure Green Tree will not attempt to collect any
deficiency balance which may be due and owing after the sale of
the collateral.” (Amend. Compl., #18, Ex. 5).
After the warranty deed in lieu of foreclosure was executed,
Green Tree began contacting the Hagys by phone for collection of
an alleged deficiency. (Amend. Compl., #18, ¶15). On June 15,
2011, the Hagys filed this case against the Law Firm Defendants
and the Green Tree Defendants alleging violations of the Fair
Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §§1692, et
seq., the Ohio Consumer Sales Practices Act, O.R.C. §§1345.01 et
seq., and common law invasion of privacy. In their amended
complaint, filed on August 11, 2011, the Hagys allege that the
Law Firm Defendants violated their rights under the FDCPA by
failing to provide them with the mandatory statutory notice in
violation of 15 U.S.C. §1692g; failing to consummate the deed in
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lieu of foreclosure with Green Tree in violation of 15 U.S.C.
§§1692e and/or 1692f; engaging in conduct the natural consequence
of which is to harass, and/or oppress in violation of 15 U.S.C.
§1692d; failing to provide the Hagys with the mandatory statutory
notice in violation of 15 U.S.C. §1692e(11); and using false,
deceptive, and/or misleading representations or means in
connection with the collection of any debt in violation of 15
U.S.C. §1692e. (Amend. Compl., #18, ¶¶22-24). The Hagys also
allege that all defendants knowingly committed unfair, deceptive,
and unconscionable acts and/or practices in violation of O.R.C.
§§1345.02 and/or 1345.03 and are therefore entitled to relief
under O.R.C. §1345.09. (Amend. Compl., #18, ¶¶28-31).
The Law Firm Defendants argue this case should be dismissed
because the claims were not filed within the time allowed by the
statute of limitations; because the FDCPA does not apply to
communications between debt collectors and a consumer’s attorney;
because the Law Firm Defendants did not communicate with the
Hagys regarding a debt; because they did not make false or
misleading representations or unfair practices; because they did
not harass, oppress, or abuse the Hagys; because they did not
attempt to collect a debt from the Hagys; and because they did
not commit unfair, deceptive or unconscionable acts in reaching a
settlement with the Hagys. The Hagys have opposed their motion.
For the following reasons, this Court grants in part and denies
in part the Law Firm Defendants’ motion to dismiss.
II. Motion to Strike
In the Law Firm Defendants’ Motion to Dismiss (#26), they
argue that the June 8, 2010 communication cannot form the basis
of the Hagys’ claims under the FDCPA because, among other
reasons, it falls outside the statute of limitations period. In
their Opposition (#29), the Hagys state they intend to rely on
the June 30, 2010 communication, not the June 8, 2010
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communication, to support their claims. In their Reply (##30/31),
the Law Firm Defendants respond by arguing, for the first time,
that the June 30, 2010 communication cannot form the basis of the
FDCPA claim because it was a communication made to a consumer’s
attorney, rather than directly to a consumer. Thus, the Law Firm
Defendants raised a new argument to which the Hagys did not have
the opportunity to respond.
As a result, the Hagys filed a “Notification of Intention to
Rely Upon Additional Authority” (#32), which cited cases that
responded to the Law Firm Defendants’ new argument. The Law Firm
Defendants then filed a Motion to Strike (#33), arguing that the
additional authority was an attempt to submit an additional brief
without leave of Court. Because the Hagys did not have an
opportunity to respond to the new argument raised in the Law Firm
Defendants’ Reply, this Court will consider their additional
authority. The Law Firm Defendants’ Motion to Strike will be
denied for that reason.
III. Motion to Dismiss Standard
A motion to dismiss under Fed. R. Civ. P. 12(b)(6) should
not be granted if the complaint contains “enough facts to state a
claim to relief that is plausible on its face.” Bell Atlantic
Corp. v. Twombly, 550 U.S. 544, 570 (2007). All well-pleaded
factual allegations must be taken as true and be construed most
favorably toward the non-movant. Scheuer v. Rhodes, 416 U.S. 232,
236 (1974); Gunasekera v. Irwin, 551 F.3d 461, 466 (6th Cir.
2009).
Rule 8(a) admonishes the Court to look only for a “short
and plain statement of the claim,” however, rather than requiring
the pleading of specific facts.
Erickson v. Pardus, 551 U.S. 89,
93 (2007).
A 12(b)(6) motion to dismiss is directed solely to the
complaint and any exhibits attached to it. Roth Steel Products v.
Sharon Steel Corp., 705 F.2d 134, 155 (6th Cir. 1983). The merits
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of the claims set forth in the complaint are not at issue on a
motion to dismiss for failure to state a claim. Consequently, a
complaint will be dismissed pursuant to Fed. R. Civ. P. 12(b)(6)
only if there is no law to support the claims made, or if the
facts alleged are insufficient to state a claim, or if on the
face of the complaint there is an insurmountable bar to relief.
See Rauch v. Day & Night Mfg. Corp., 576 F.2d 697, 702 (6th Cir.
1978). Rule 12 (b)(6) must be read in conjunction with Fed. R.
Civ. P. 8(a) which provides that a pleading for relief shall
contain “a short and plain statement of the claim showing that
the pleader is entitled to relief.”
PRACTICE
AND
PROCEDURE § 1356 (1990).
5A WRIGHT & MILLER, FEDERAL
The moving party is entitled
to relief only when the complaint fails to meet this liberal
standard.
Id.
On the other hand, more than bare assertions of legal
conclusions are required to satisfy the notice pleading standard.
Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 436 (6th
Cir. 1988).
“In practice, a complaint must contain either direct
or inferential allegations respecting all the material elements
to sustain a recovery under some viable legal theory.”
Id.
(emphasis in original, quotes omitted).
“[w]e are not holding the pleader to an impossibly high
standard; we recognize the policies behind rule 8 and
the concept of notice pleading. A plaintiff will not
be thrown out of court for failing to plead facts in
support of every arcane element of his claim. But when
a complaint omits facts that, if they existed, would
clearly dominate the case, it seems fair to assume that
those facts do not exist.”
Id. (quotes omitted). It is with these standards in mind that the
motion to dismiss will be decided.
IV. Discussion
“Congress enacted the FDCPA in order ‘to eliminate abusive
debt collection practices by debt collectors, to insure that
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those debt collectors who refrain from using abusive debt
collection practices are not competitively disadvantaged, and to
promote consistent State action to protect consumers against debt
collection abuses.’” Fed. Home Loan Mortg. Corp. v. Lamar, 503
F.3d 504, 508 (6th Cir. 2007) (quoting 15 U.S.C. §1692(e)). The
FDCPA is “extraordinarily broad” and crafted in response to what
Congress perceived “to be a widespread problem.” Frey v. Ganwish,
970 F.2d 1516, 1521 (6th Cir. 1992).
A. Statute of Limitations
The Law Firm Defendants argue that the June 8, 2010
communication between them and the Hagys occurred outside the
one-year statute of limitations under the FDCPA. See 15 U.S.C.
§1692k(d). The Hagys agree that the June 8, 2010 communication
fell outside the statute of limitations because they did not file
their complaint until June 15, 2011. The Hagys also agree that
their claim under 15 U.S.C. §1692g, alleging that the Law Firm
Defendants failed to provide them with the requisite statutory
notice, fell outside the statute of limitations and they have
abandoned this claim. (Memorandum in Opposition, #29, p. 8-9).
Therefore, the Court grants the Law Firm Defendants’ motion to
dismiss the Hagys’ claims under 15 U.S.C. §1692g.
Because the June 8, 2010 communication is outside the
statute of limitations and this Court cannot consider it as a
basis for the Hagys’ FDCPA claims, the only remaining
communication on which the Hagys can base their FDCPA claims
against the Law Firm Defendants is the June 30, 2010
communication between the Law Firm Defendants and the Hagys’
Attorney, James Sandy. In order to survive the Law Firm
Defendants’ motion to dismiss, the Hagys must have plausibly
stated a claim for violation of the FDCPA based on the June 30,
2010 communication.
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B. Debt Collector to Attorney Communication
The Law Firm Defendants argue that the June 30 communication
could not form the basis of the FDCPA claim because
communications from a debt collector to a consumer’s attorney are
not subject to the Act. The Hagys disagree and cite a number of
cases from outside this Circuit holding that communications made
to a consumer’s attorney are actionable under the FDCPA. For the
reasons that follow, this Court agrees with the Hagys.
This Court must start its analysis with the statutory
language of the FDCPA. The Hagys have brought claims under 15
U.S.C. §§1692d, 1692e (and specifically 1692e(11)), and 1692f.
The relevant language of each is as follows:
§1692d:
A debt collector may not engage in any conduct the
natural consequence of which is to harass, oppress, or
abuse any person in connection with the collection of a
debt. ...
§1692e:
A debt collector may not use any false, deceptive, or
misleading representation or means in connection with
the collection of any debt. Without limiting the
general application of the foregoing, the following
conduct is a violation of this section:
. . .
(11) . . . the failure to disclose in subsequent
communications that the communication is from a debt
collector, except that this paragraph shall not apply
to a formal pleading made in connection with a legal
action.
. . .
§1692f:
A debt collector may not use unfair or unconscionable
means to collect or attempt to collect any debt. ...
All three statutory sections prohibit a debt collector from
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engaging in certain conduct in connection with the collection of
a debt. Nothing in the language of these provisions states that
such a communication must be made directly to a consumer, or
that otherwise actionable communications made to a consumer’s
attorney do not violate the statute. Section 1692d states a debt
collector may not harass, oppress or abuse “any person” and
makes no exception for a consumer’s attorney. Section 1692e(11)
regulates the contents of “communications” from a debt
collector. A “communication” is defined elsewhere in the FDCPA
as “the conveying of information regarding a debt directly or
indirectly to any person through any medium.” 15 U.S.C.
§1692a(2) (emphasis added). Clearly, Congress intended that
“communication” be construed broadly to encompass more than just
conveying information directly to the consumer. The term “debt
collector” is defined in the statute to include any person who
regularly collects or attempts to collect, “directly or
indirectly,” debts owed another. 15 U.S.C. §1692a(6). Again,
Congress contemplated that debt collectors would deal with other
individuals besides the consumer. If Congress had intended to
limit the statutory sections at issue here to communications
made only to the consumer, it would have done so.
This Court’s interpretation of the statute is supported by
decisions from the Courts of Appeals for the Third, Fourth, and
Seventh Circuits. See Allen ex rel. Martin v. LaSalle Bank,
N.A., 629 F.3d 364, 368 (3rd Cir. 2011);
Sayyed v. Wolpoff &
Abramason, 485 F.3d 226, 232-33 (4th Cir. 2007); Evory v. RJM
Acquisitions Funding LLC, 505 F.3d 769 (7th Cir. 2007). The
Sixth Circuit Court of Appeals has so far declined to address
this question. Barany-Snyder, 539 F.3d at 333 n.2 (6th Cir.
2008). This Court is particularly persuaded by the Seventh
Circuit’s discussion in Evory, which interpreted the same
statutory language of the FDCPA that is at issue here. Evory,
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505 F.3d at 773. Judge Posner, writing for the court, points out
that the relevant sections of the FDCPA “do not designate any
class of persons, such as lawyers, who can be abused, misled,
etc., by debt collectors with impunity.” Evory, 505 F.3d at 773.
There is, not surprisingly, some contrary authority. See,
e.g., Guerrero v. RJM Acquisitions LLC, 499 F.3d 926 (9th Cir.
2007); Kropelnicki v. Siegel, 290 F.3d 118, 128 (2nd Cir.
2002)(stating, in dicta, that “[w]here an attorney is interposed
as an intermediary between a debt collector and a consumer, we
assume the attorney, rather than the FDCPA, will protect the
consumer from a debt collector’s fraudulent or harassing
behavior. However, this is not an issue on which we need to rule
today.”); Kline v. Mortgage Elec. Sec. Sys., 659 F. Supp. 2d 940
(S.D. Ohio 2009)(Rice, J.).
Guerrero, the case on which Judge Rice in this district
relied for his holding in Kline, held that the FDCPA does not
govern communications between debt collectors and a consumer’s
attorney. The court concluded that the FDCPA treats the consumer
and his attorney as legally separate entities and therefore a
communication to a consumer’s attorney would not be considered a
communication to the consumer, and thus would not be actionable.
Guerrero, 499 F.3d at 935. To support this conclusion, the court
pointed to 15 U.S.C. §1692c(a)(2), which requires that a debt
collector who knows that a consumer has retained counsel
regarding the subject debt may contact counsel, but may not
generally contact the consumer directly without the attorney’s
consent. Id. The court also pointed to 15 U.S.C. §1692c(b),
which requires that a debt collector not communicate with “any
person other than the consumer, his attorney, a consumer
reporting agency, the creditor, the attorney of the creditor, or
the attorney of the debt collector,” as evidence that consumers
and their attorneys are treated separately. Finally, the court
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pointed out that the definition of “consumer” included the
consumer’s “spouse, parent. . ., guardian, executor, or
administrator” and did not include the consumer’s attorney. 15
U.S.C. §1692c(d). Id. Thus, under this interpretation, the
statute as a whole suggests “that lawyers and their debtor
clients will be treated differently.” Id. at 935.
The fact that consumers and their attorneys are seen as
legally distinct does not necessarily imply, however, that both
of them are not included as persons to whom improper and
actionable communications can be made. Addressing this point,
the Guerrero court stated that “Congress did not view attorneys
as susceptible to the abuses that spurred the need for the
legislation to begin with. . .” Id. The court went on to analyze
§1692g(b), a provisions at issue in Guerrero but not at issue
here, and noted that it placed “repeated emphasis on the
‘consumer’. . .” Id. at 936. The court did not analyze the
statutory language of §1692e.
This Court respectfully disagrees with Guerrero. As the
dissent in Guerrero points out, the majority’s opinion focuses
almost entirely on analysis of §1692g(b), a section that is not
at issue in this case.
Guerrero, 499 F.3d at 943 (Fletcher, J.
dissenting). The majority decision does not even address the
statutory language of §1692e, a section that is at issue in this
case. Moreover, the fact that §1692c treats attorneys and
consumer differently demonstrates that Congress knew how to
differentiate between the two individuals, and simply choose not
to do so when it came to the statutory sections at issue here.
Section 1692c(a)(2)
specifically provides that, where a debtor is
represented by an attorney, the debt collector shall
direct all ‘communication’ to the attorney, absent
permission to communicate directly with the debtor. A
proper reading of the text therefore dictates that
§1692e, which regulates categorically the contents of
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communications by the debt collector, covers the
‘communication’ to the debtor’s attorney described in
§1692c(a)(2).
Guerrero, 499 F.3d at 943-944 (Fletcher, J. dissenting). Based
on a reasoned reading of the statutory text, this Court holds
that the sections of the FDCPA at issue in this case apply to
communications between debt collectors and a consumer’s
attorney.
Here, the Hagys argue that the June 30, 2010 communication
to their attorney, James Sandy, was a violation of §§1692e,
1692f, and 1692d of the FDCPA because Mr. Demers induced them to
sign the warranty deed in lieu of foreclosure by stating
(allegedly falsely) that Green Tree would not thereafter attempt
to collect any deficiency. They also claim the Law Firm
Defendants failed to communicate the Warranty Deed in Lieu to
Green Tree. In addition, the Hagys also claim that the Law Firm
Defendants violated §1692e(11) by failing to disclose that the
June 30, 2010 letter was a communication from a debt collector.
Here, the fact that this communication was made to Mr. Sandy, as
opposed to the Hagys themselves, is of no consequence under the
text of the statute and is not a sufficient reason to dismiss
the Hagys’ claims against the Law Firm Defendants.
C. In Connection with the Collection of a Debt or an Attempt to
Collect a Debt
Next, the Law Firm Defendants argue that the June 30
communication could not form the basis of the FDCPA claim
because it was simply an offer to settle litigation and not a
communication made in connection with the collection of a debt
or an attempt to collect a debt. In response, the Hagys argue
that even if a communication does not demand payment, it can
still have been made in connection with the collection or
attempt to collect a debt.
For the reasons that follow, this
Court agrees with the Hagys.
As laid out above, the statutory sections at issue in this
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case require that the conduct of a debt collector be “in
connection with the collection of a debt” under §§1692d and
1692e or an “attempt to collect any debt” under §1692f. Under
§1692e, a debt collector who fails to disclose in a “subsequent
communication” that the communication is from a debt collector
also violates the Act. As discussed above, “communication” is
defined as conveying information “regarding a debt. . .” 15
U.S.C. §1692a(2).
In order to be actionable, “a communication need not itself
be a collection attempt; it need only be ‘connect[ed]’ with
one.” Grden v. Leikin Ingber & Winters PC, 643 F.3d 169, 173
(6th Cir. 2011) (quoting 15 U.S.C. §1692e). The Court of Appeals
has not always required an “explicit demand for payment” in
order for the statute to apply.
Id. “[F]or a communication to
be in connection with the collection of a debt, an animating
purpose of the communication must be to induce payment by the
debtor.” Id. “A letter that is not itself a collection attempt,
but that aims to make such an attempt more likely to succeed, is
one that has the requisite connection.” Id.
Courts have routinely held that a settlement offer, when
made in a deceptive manner, can be a violation of the FDCPA.
Goswami v. Am. Collections Enter., 377 F.3d 488, 496 (5th Cir.
2004)(holding a debt collector may offer a settlement, but it
may not be deceitful in the presentation of that settlement
offer); Gully v. Van Ru Credit Corp., 381 F. Supp. 2d 766,
769-771 (N.D. Ill. 2005)(considering whether a settlement offer
is false or misleading under the FDCPA); Dupuy v. Weltman, 442
F. Supp. 2d 822, 828 (N.D. Cal. 2006)(where a debt collection
letter contains an offer to settle in an untruthful manner the
letter contains a false statement within the meaning of the
FDCPA). The Seventh Circuit has explicitly held that an offer
letter to discuss “foreclosure alternatives” was an attempt to
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collect on a defaulted home loan- by settlement or otherwise.
Gburek v. Litton Loan Servicing LP, 614 F.3d 380, 386 (7th Cir.
2010). While “it is important to permit collection agencies to
offer settlements, that policy consideration does not remove
collection agencies’ obligation under the FDCPA to deal in a
nondeceitful manner.” Goswami, 377 F.3d at 496.
Here, the Law Firm Defendants’ June 30 letter was sent “in
connection with the collection of a debt” and was also an
“attempt to collect any debt.” The purpose of the June 30, 2011
letter was to inform the Hagys and their attorney that should a
deficiency balance be realized after the sale of the collateral,
Green Tree would not attempt to collect a deficiency in return
for the Hagys execution of the warranty deed in lieu. The
animating purpose of the foreclosure action as well the
settlement discussions contained in the June 30, 2011
communication was to induce the Hagys to pay the Green Tree
defendants, at least in part, on the unpaid note. Therefore, the
June 30, 2010 communication does qualify as being made “in
connection with the collection of a debt” and as an “attempt to
collect” a debt.
In Grden, the consumer called the debt collector to verify
his account balance and the debt collector incorrectly told the
consumer he owed more than he actually did. Id. at 171. The debt
collector then sent the consumer a “ledger card” that reiterated
the incorrect balance. Id. In holding that the communication was
not made “in connection with a debt,” the Court of Appeal’s
decisive point was that the debt collector made the statements
only after the consumer called and asked for them and that the
statements were “merely a ministerial response to a debtor
inquiry, rather than part of a strategy to make payment more
likely.” Id.
Although the Law Firm Defendants’ settlement discussions in
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this case were likewise made in response to Mrs. Hagys original
phone call wanting to discuss settlement, they were also “part
of a strategy to make payment more likely.” That is, the
Warranty Deed in Lieu of Foreclosure allowed the Law Firm
Defendants to collect at least part of the debt owed to
Defendant Green Tree.
In Shaw v. NCO Financial Services, Inc., No. 3:07-CV-245-S,
2007 WL 3342291 (W.D.Ky. November 09, 2007), a debt collector,
in settling a prior litigation with the consumer, agreed to
satisfy the debt owed by the consumer. After entering into the
settlement agreement, however, the consumer was contacted by a
second debt collector demanding payment of the same debt. Id. at
*5. The court held that construing the allegations of the
complaint in a light most favorable to the consumer, the debt
collector, in agreeing to “release [the consumer] from any and
all liability concerning the debt at issue in the Lawsuit” not
only settled the lawsuit, but also settled the consumer’s debt.
Therefore, the settlement negotiation was in connection with the
collection of a debt. Id. at *7. Here, the material facts are
much the same. In attempting to settle the foreclosure actions,
the Law Firm Defendants also attempted to settle the Hagys’
debt. As such, their communications regarding that settlement
fall squarely within the FDCPA.
In support of their argument that settlement negotiations
do not constitute a “communication regarding a debt,” the Law
Firm Defendants cite to only one case, Jackson-Spells v.
Francis, 45 F. Supp. 2d 496 (D. Md. 1999). Jackson-Spells, a
brief decision with very little legal analysis, stated that an
attorney’s offer to settle a replevin action, which was brought
by the consumer against a repair shop, was not a “communication”
within the FDCPA but rather “an offer to settle litigation which
the consumer had herself initiated.” Id. at 497. Jackson-Spells
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was decided prior to the number of cases discussed above and the
Court does not find its reasoning persuasive.
D. Harassment, Oppression, or Abuse. False or Misleading
Representations, and Unfair Practices
The Law Firm Defendants next argue that the Hagys have not
stated a claim under §§1692d, 1692e, and 1692f because (1) the
Law Firm Defendants’ conduct could not possibly be seen as
conduct “the natural consequence of which is to harass, oppress,
or abuse any person in connection with the collection of a
debt”; (2) the Law Firm Defendants did not use “false, deceptive
or misleading representations” in connection with the collection
of a debt; and (3) the Law Firm Defendants did not use “unfair
or unconscionable means” to attempt to collect a debt. The Hagys
have, however, alleged sufficient facts in their complaint to
assert plausible claims under these sections.
“Courts use the least sophisticated consumer standard, an
objective test, when assessing whether particular conduct
violates the FDCPA.” Barany-Snyder v. Weiner, 539 F.3d 327, 333
(6th Cir. 2008).
This test asks “whether there is a reasonable
likelihood that an unsophisticated consumer who is willing to
consider carefully the contents of a communication might yet be
misled by them.” Grden v. Leikin Ingber & Winters PC, 643 F.3d
169, 172 (6th Cir. 2011). The least-sophisticated-consumer test
is designed “to ensure that the FDCPA protects all consumers,
the gullible as well as the shrewd.” Fed. Home Loan Mortgage
Corp. v. Lamar, 503 F.3d 504, 509 (6th Cir. 2007) (quoting
Clomon v. Jackson, 988 F.2d 1314, 1318 (2d Cir. 1993)). But the
standard also incorporates a level of reasonableness and
presumes a basic understanding and willingness to read with
care.
Fed. Home Loan Mortg. Corp., 503 F.3d at 510.
As discussed above, the communication at issue in this case
was not made to a consumer, but the consumer’s attorney. In
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Evory, Judge Posner noted that communications made to attorneys
should be not be judged under the least sophisticated consumer
standard, but instead under a “competent lawyer” standard. Evory
v. RJM Acquisitions Funding LLC, 505 F.3d 769, 775 (7th Cir.
2007). In Judge Posner’s opinion, however, under either
standard, if a debt collector makes a false claim of fact that
is material, that communication would be actionable whether made
to either the consumer or to the lawyer. Id.
Here, when analyzing the Hagys’ claims under §§1692d,
1692e, and 1692f on this motion to dismiss, this Court need not
reach the issue of whether the least sophisticated consumer
standard applies or whether the competent lawyer standard
applies because it is plausible that the Law Firm Defendants
made a false statement, which would be a violation of either
standard. The Hagys allege that the Law Firm Defendants
represented in the June 30, 2010 letter that in exchange for the
Warranty Deed in Lieu of Foreclosure, Green Tree would not
thereafter attempt to collect any deficiency. After signing the
Warranty Deed in Lieu of Foreclosure, the Green Tree Defendants
did attempt to collect such a deficiency. Therefore, the Hagys
plausibly allege that the Law Firm Defendants never intended to
communicate the Warranty Deed in Lieu of Foreclosure to Green
Tree or simply failed to do so after the agreement was signed.
If the Law Firm Defendants made a false statement, it is
plausible under either a least sophisticated consumer standard
or a competent lawyer standard that such a communication would
constitute conduct that violated §§1692d, 1692e, and 1692f.
In order to constitute conduct “the natural consequence of
which is to harass, oppress, or abuse any person in connection
with the collection of a debt” in violation of §1692d, the
tactics must be intended to “embarrass, upset, or frighten” a
debtor and may be sufficient if they concern “coercion, scare
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tactics, or fraud.” Harvey v. Great Seneca Fin. Corp., 453 F.3d
324, 330 (6th Cir. 2006). An intentional misrepresentation that
induced the consumer to believe that their debt was settled
would certainly be considered conduct intended to “embarrass,
upset, or frighten” a consumer.
Application of the standards
set forth in §§1692e and 1692f are even more straightforward.
Clearly, such a misrepresentation is a “false, deceptive, or
misleading representation” in violation of §1692e and would
certainly be considered an “unfair or unconscionable” means to
collect a debt in violation of §1692f.
For the above reasons, the Law Firm Defendants’ Motion to
Dismiss the Hagys FDCPA claims is denied with the exception of
the motion to dismiss the claims under 15 U.S.C. §1692g, which
is granted.
E. Violations of O.R.C. §§1345.02 and 1345.03
The Law Firm Defendants argue they did not knowingly commit
unfair, deceptive, and unconscionable acts or practices in
violation of O.R.C. §§1345.02 and 1345.03. They also argue, in
their reply, that they are not “suppliers” under the OCSPA and
therefore these provisions do not apply to them. For the reasons
that follow, this Court disagrees.
As a starting point, this Court notes that the OCSPA has a
two-year statute of limitations. O.R.C. §1345.10(C). Therefore,
both the June 8, 2010 communication from the Law Firm Defendants
as well as the June 30, 2010 communication from the Law Firm
Defendants can form the basis of the OCSPA violation. As with
the FDCPA, the OCSPA has a “remedial purpose and must
accordingly be liberally construed in favor of consumers.”
Charvat v. Farmers Ins. Columbus, Inc., 178 Ohio App.3d 118, 133
(Franklin Cty. 2008).
Under O.R.C. §1345.02(A), “[n]o supplier shall commit an
unfair or deceptive act or practice in connection with a
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consumer transaction.” O.R.C. §1345.03, in contrast, deals with
unconscionable acts or practices rather than deceptive acts or
practices. It states “[n]o supplier shall commit an
unconscionable act or practice in connection with a consumer
transaction.” O.R.C. §1345.03(A). Both sections indicate that
such acts or practices violate the section “whether [they]
occur[] before, during, or after the transaction.” O.R.C.
§§1345.02(A) and 1345.03(A).
The above sections of the OCSPA apply only to “suppliers”
within the meaning of the Act. A “supplier” is a “seller,
lessor, assignor, franchisor, or other person engaged in the
business of effecting or soliciting consumer transactions,
whether or not the person deals directly with the consumer.”
O.R.C. §1345.01(C). A supplier cannot “relieve itself of its
duty to act fairly by assigning its claim to an agent or
assignee and having that assignee conduct practices prohibited
by the Act.”
Celebrezze v. United Research, Inc., 19 Ohio App.
3d 49, 51 (Summit Cty. 1984). See also Midland Funding LLC v.
Brent, 644 F. Supp. 2d 961, 976 (N.D. Ohio 2009)(holding debt
collectors are suppliers under the OCSPA).
Accordingly, a
collection agency, for purposes of the OCSPA, “is a person
engaged in the business of effecting consumer transactions
(i.e., payment) and, as such, is a supplier pursuant to R.C.
1345.01(C).” Celebrezze, 19 Ohio App. 3d at 51.
The OCSPA has generally been interpreted by the district
courts in Ohio to apply to the filing of lawsuits by attorneys
in order to collect debts associated with consumer transactions.
Turner v. Lerner, Sampson & Rothfuss, 776 F. Supp. 2d 498, 509
(N.D. Ohio 2011)(concluding that the debt collection activities
of attorneys, i.e. the filing of foreclosure lawsuits, fell
within the purview of the OCSPA); Delawder v. Platinum Fin.
Servs. Corp., 443 F. Supp. 2d 942 (S.D. Ohio 2005)(applying the
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OCSPA to attorneys who filed an allegedly deceptive complaint
and affidavit); Lee v. Javitch, Block & Rathbone LLP, 601 F.3d
654 (6th Cir. 2010)(applying the OCSPA to attorneys who filed
suit on behalf of an assignee of debt). See generally Schroyer
v. Frankel, 197 F.3d 1170, 1177-78 (6th Cir. 1999)(assuming
generally that an attorney who filed suit against a consumer for
breach of contract and unjust enrichment would be liable under
the OCSPA if debt collection was more than incidental to his
practice of law). At least one court in the Southern District of
Ohio has held that a law firm collecting debts on behalf of a
mortgagee via a foreclosure action may be amendable to suit
under the Act. Turner, 776 F. Supp. 2d at 510.
It is not until the Law Firm Defendants’ Reply that they
argue they are not “suppliers” under the OCSPA. (Reply, #31, p.
3). Thus, this Court need not address their argument. See
Sanborn v. Parker, 629 F.3d 554, 579 (6th Cir. 2010)(arguments
made for the first time in a reply brief are waived). But the
argument would fail in any event. The Law Firm Defendants argue
they are not “suppliers” because they simply represented a
supplier, Green Tree Servicing, LLC, in a foreclosure action.
They argue they did not “engage in a consumer transaction” with
the plaintiffs and “took no action to initiate sales, lease,
assignment or other transfer of an item of goods with
plaintiffs.” (Reply, # 31, p. 3). The Law Firm Defendants fail
to acknowledge, however, that acts or practices can violate the
OCSPA “whether [they] occur[] before, during, or after the
transaction.” O.R.C. §§1345.02(A) and 1345.03(A). Thus, the fact
that the Law Firm Defendants did not “initiate” the transfer of
goods to plaintiffs is not relevant to this analysis.
Celebrezze, 19 Ohio App. 3d at 51 (holding the OCSPA prohibits
the supplier from employing unfair practices “from the initial
contact with the consumer until the debt is paid.”). Moreover,
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under the definition of “supplier” the individual need only
“effect[] consumer transactions” (O.R.C. §1345.01(C)), not
“initiate” them.
Finding that the Hagys have adequately alleged that the Law
Firm Defendants are “suppliers” within the meaning of the OCSPA,
this Court must next consider whether the amended complaint
states a claim that they committed “unfair or deceptive” or
“unconscionable” acts or practices in connection with a consumer
transaction. O.R.C. §§1345.02(A) and 1345.03(A). Given the facts
discussed above, and based on the allegations in the Amended
Complaint it can be inferred that the Law Firm Defendants never
intended to communicate the Warranty Deed in Lieu of Foreclosure
to Defendant Green Tree or simply failed to do so after the
agreement was signed. This Court finds that such actions could
plausibly be considered “unfair or deceptive” as well as
“unconscionable” in violation of the OCSPA.
The Law Firm
Defendants have not cited a case to this Court that indicates
otherwise. Thus, the Law Firm Defendants Motion to Dismiss the
Hagys OCSPA claims are denied.
V. Order
For the above reasons, this Court denies the Law Firm
Defendants Motion to Strike (#33), and grants in part and denies
in part the Law Firm Defendants motion to dismiss (#26).
/s/ Terence P. Kemp
United States Magistrate Judge
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