McGhee v. Buffaloe & Associates, PLC et al

Filing 23

MEMORANDUM with order to follow; Signed by District Judge Curtis L Collier on 2/6/2013. (AWH, )

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
AT GREENEVILLE
DIANE S. McGHEE
Plaintiff,
v.
BUFFALO & ASSOCIATES, PLC,
CAPITAL ONE BANK (USA), NATIONAL
ASSOCIATION
Defendants.

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No. 2:12-CV-333
Judge Curtis L. Collier

MEMORANDUM
Before the Court is Defendant Buffalo & Associates, PLC’s (“Defendant”) partial motion
to dismiss (Court File No. 8). Defendant argues it is not a “creditor” under the Truth In Lending Act
(“TILA”), 15 U.S.C. §§ 1601, et seq., and is therefore not a proper defendant for TILA claims.
Defendant similarly argues one of Plaintiff Diane McGhee’s (“Plaintiff”) claims under the Fair Debt
Collection Practices Act (“FDCPA”), 15 U.S.C. §§ 1692, et seq., is predicated on her TILA claim
and should also be dismissed. Plaintiff responded to Defendant’s motion in opposition (Court File
No. 16). For the following reasons, the Court GRANTS Defendant’s motion (Court File No. 8).
I.

FACTUAL BACKGROUND
The following factual allegations are made in the complaint. Plaintiff incurred credit card

debt owned or serviced by Defendant Capital One Bank. After Plaintiff defaulted on this debt, it
was “consigned, sold, or otherwise transferred” to Defendant for collection. However, Plaintiff also
alleges Defendant is a “debt collector” under 15 U.S.C. § 1692a(6). Defendant sent “misleading and
deceptive communications” in connection with this duty. These communications “raised the specter
of potential legal action,” because Defendant communicated through its law firm, although it stated

it was not acting in a legal capacity. Specifically, on August 15, 2011, Defendant sent a collection
letter to Plaintiff in an attempt to collect the debt. The letter contains the name “Law Office of
Buffaloe & Associates, PLC,” and lists the names of several attorneys. The letter, however
specifically stated no attorney had “personally reviewed” the account, but if Plaintiff did not contact
their office “our client [Capital One Bank] may consider additional remedies to recover the balance
due.” The letter alleged a debt of $1,089.59 and stated Plaintiff may also be liable for attorney’s fees
and interest.
On November 1, 2011, Defendant and Defendant Capital One Bank filed a civil summons
and affidavit in state court, which were served on Plaintiff. The summons stated the debt amount
was $1,217.41 in principal, and alleged interest accruing as of August 15, 2011 at a rate of 26.15%.
Plaintiff filed the instant action on August 13, 2012. Plaintiff alleges Defendant violated TILA by
failing to send periodic statements to Plaintiff in violation of 15 U.S.C. § 1637(b). Plaintiff also
alleges violations of the FDCPA, 15 U.S.C. § 1692e, failure to include a 15 U.S.C. § 1692e(11)
disclosure, failure to send written notice containing the amount of debt in violation of 15 U.S.C. §
1692a(2), and use of unfair means to collect a debt, 15 U.S.C. § 1692f. Plaintiff alleges additional
violations of the FDCPA predicated on Defendant’s alleged failure to send periodic statements to
Plaintiff. Plaintiff alleges Defendant is a “debt collector” as defined in 15 U.S.C. § 1692a(6) and
an agent of a “card issuer” as defined in 15 U.S.C. § 1602(h).
II.

STANDARD OF REVIEW
A Rule 12(b)(6) motion should be granted when it appears “beyond doubt that the plaintiff

can prove no set of facts in support of his claim which would entitle him to relief.” Lewis v. ACB
Bus. Servs., Inc., 135 F.3d 389, 405 (6th Cir. 1998). For purposes of this determination, the Court

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construes the complaint in the light most favorable to the plaintiff and assumes the veracity of all
well-pleaded factual allegations in the complaint. Thurman v. Pfizer, Inc., 484 F.3d 855, 859 (6th
Cir. 2007). The same deference does not extend to bare assertions of legal conclusions, however,
and the court is “not bound to accept as true a legal conclusion couched as a factual allegation.”
Papasan v. Allain, 478 U.S. 265, 286 (1986).
The Court next considers whether the factual allegations, if true, would support a claim
entitling the plaintiff to relief. Thurman, 484 F.3d at 859. Although a complaint need only contain
a “short and plain statement of the claim showing that the pleader is entitled to relief,” Ashcroft v.
Iqbal, 556 U.S. 662, 677-78 (2009) (quoting Fed. R. Civ. P. 8(a)(2)), this statement must
nevertheless contain “factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Id. “[T]o survive a motion to dismiss, a complaint
must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on
its face.’” Id. (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Plausibility as
explained by the Court “is not akin to a ‘probability requirement,’ but it asks for more than a sheer
possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678 (quoting Twombly, 550
U.S. at 556). “[W]here the well-pleaded facts do not permit the court to infer more than the mere
possibility of misconduct, the complaint has alleged—but it has not ‘show[n]’—‘that the pleader is
entitled to relief.’” Id. at 679 (quoting Fed. R. Civ. P. 8(a)(2)).
III.

DISCUSSION
Defendant seeks to dismiss Plaintiff’s claims against it in paragraphs 42 to 63, which are

based on the TILA. Defendant argues it is not a “card issuer” nor an agent of a card issuer under
the TILA and is thus not a proper defendant with respect to those claims. Further, Defendant argues

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the FDCPA claim in paragraph 64, which is predicated on the violations of the TILA, should be
dismissed. Plaintiff argues Capital One Bank was a “card issuer” under the TILA, and Defendant
acted as its agent. Plaintiff agrees, however, the claim in paragraph 64 should be dismissed.
Congress enacted the TILA in 1968 “to assure a meaningful disclosure of credit terms” in
order to “avoid the uninformed use of credit” and to “protect the consumer against inaccurate and
unfair credit billing and credit practices.” 15 U.S.C. § 1601(a). At issue with respect to the instant
motion is 15 U.S.C. § 1637(b), which requires “creditors” to issue periodic statements regarding an
outstanding debt balance. Pursuant to 15 U.S.C. § 1602(g), “creditor” includes the “card issuer” in
the case of “an open-end credit plan involving a credit card,” which Plaintiff alleges is the character
of the underlying debt in this case. Of particular importance to the instant motion, “card issuer” is
further defined as “any person who issues a credit card, or the agent of such person with respect to
such card.” 15 U.S.C. § 1602(o) (emphasis added). The question for the Court is whether Defendant
is an “agent” of Capital One Bank, and accordingly may be considered a “card issuer” for the
purposes of the TILA.
Agent is not defined by the TILA or in the regulations. This omission was intentional. The
Supplement to the regulations containing the official staff interpretations states the following.
An agent of a card issuer is considered a card issuer. Because agency relationships
are traditionally defined by contract and by state or other applicable law, the
regulation does not define agent. Merely providing services relating to the production
of credit cards or data processing for others, however, does not make one the agent
of the card issuer. In contrast, a financial institution may become the agent of the
card issuer if an agreement between the institution and the card issuer provides that
the cardholder may use a line of credit with the financial institution to pay
obligations incurred by use of the credit card.
12 C.F.R., pt. 226, Supp. I, 2(a)(7). Courts have interpreted this provision to require a “line of
credit” between the card issue and the “agent” in order to create an agency relationship for the
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purposes of the TILA.
For instance, Defendant places significant emphasis on Neff v. Capital Acquisitions & Mgmt.
Co., 352 F.3d 1118 (7th Cir. 2003). In Neff, two debtors paid their credit card loans off in full, or
believed they had, until an entity that had purchased their accounts from a prior purchaser, who in
turn had purchased the account from the original card issuer, contacted them five years following
their last payment demanding the outstanding debt with interest. The debtors received no
correspondence in the intervening five year period, and sued the two debt-purchasing entities under
the TILA, the FDCPA, and the Illinois Consumer Fraud Act, alleging the failure to issue monthly
statements. Affirming the district court’s Rule 12(b)(6) dismissal, the Seventh Circuit held only
“creditors” are required to send monthly statements pursuant to § 1637(b). The plaintiff argued, as
Plaintiff argues here, the entities were either card issuers or agents of card issuers.
The court rejected these arguments. First, it concluded the entities were not “card issuers”
because neither entity granted the plaintiffs a “right to ‘incur debt’ or to ‘defer payment of debt.’”
Id. at 1120 (quoting 15 U.S.C. § 1602(e); American Express Co. v. Koerner, 452 U.S. 233, 240-41
(1981)). Second, and relevant here, the court concluded neither entity was an “agent” of a card
issuer. Quoting the staff interpretation noted above, the court stated, “To become an agent, there
must be an agreement that ‘the cardholder may use a line of credit with the financial institution to
pay obligations incurred by use of the credit card.’” Id. (quoting 12 C.F.R., pt. 226, Supp. I, 2(a)(7)).
Because the plaintiff had no “credit privileges” with the defendant entities, and no contractual
relationship existed between the card issuer and the entities, neither could be considered an agent
of the card issuer. The court thus concluded the plaintiff failed to state a claim under the TILA.
Plaintiff claims Neff is inapplicable to this case because the card issuer in Neff had sold the

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debt to the defendants, whereas here Defendant is the “agent” of the card issuer. Plaintiff refers to
its allegation in the complaint to suggest Defendant is an “agent.” However, such an allegation is
a legal conclusion the Court need not assume for the purposes of this motion. The Court notes the
complaint is somewhat internally contradictory. It alleges both (1) Capital One Bank “consigned,
sold, or otherwise transferred” the underlying debt to Defendant, and (2) Defendant is a “debt
collector” as defined in 15 U.S.C. § 1692a(6). Section 1692a(6) defines a debt collector as
any person who uses any instrumentality of interstate commerce or the mails in any
business the principal purpose of which is the collection of any debts, or who
regularly collects or attempts to collect, directly or indirectly, debts owed or due or
asserted to be owed or due another. . . . [T]he term includes any creditor who, in the
process of collecting his own debts, uses any name other than his own which would
indicate that a third person is collecting or attempting to collect such debts.
As such, Defendant could not simultaneously have received the debt by consignment, sale, or other
means of transfer and be a debt collector on behalf of Capital One Bank, if the consignment, sale,
or transfer resulted in a transfer of ownership. See Marcotte v. General Elec. Capital Servs., Inc.,
709 F. Supp. 2d 994, 998 (noting the TILA requires credit card companies to send monthly
statements, but the FDCPA prohibits debt collectors from sending billing statements to represented
debtors.). Regardless, the Court concludes on either theory Defendant is not an “agent” of Capital
One Bank.
If Plaintiff alleges Defendant owns the debt now at issue, Defendant fits comfortably within
the Neff holding, and is neither a card issuer nor in a contractual relationship with Capital One Bank
sufficient to confer agency status on it. If, as the Plaintiff appears to argue, Defendant is not the
owner of the debt, but merely an entity collecting debt on behalf of Capital One Bank, Defendant
still fails to qualify as an agent for the purposes of the TILA. The Court reaches this conclusion
because the complaint does not allege any of the credit privileges alluded to by the official staff
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interpretation in 12 C.F.R. pt. 226, Supp. I, ¶ 2(a)(7) and relied upon by Neff. At least one other
member of this court has concluded, on a similar complaint, “[p]roviding support services, as
opposed to credit-issuing services, does not make an entity the agent of a ‘card issuer’ under TILA.”
King v. AllianceOne Receivables Mgmt., Inc., No. 2:12-CV-314, 2012 WL 4758220, at *3 (E.D.
Tenn. Oct. 5, 2012) (citing 12 C.F.R. pt. 226, Supp. I, ¶ 2(a)(7)). The King court concluded “[f]or
§ 1637(b) to apply to [the defendant] under an agency theory, there must have been an agreement
under which plaintiff could use a line of credit with [the defendant] to pay obligations incurred by
use of the credit card.” Id.; see also Neff, 352 F.3d at 1120; Langenfeld v. Chase Bank USA, N.A.,
537 F. Supp. 2d 1181, 1205 (N.D. Okla. 2008) (“The Official Staff Commentary to the TILA
regulations explains that to become an ‘agent’ of a card issuer, there must be an agreement that ‘the
cardholder may use a line of credit with the [alleged agent] to pay obligations incurred by use of the
credit card.’”). No such line of credit has been alleged here.
The Court concludes Defendant is not an “agent” of a card issuer under the TILA and the
claims alleged against it under the TILA must be dismissed. Additionally, because the Court
concludes Defendant is not liable under the TILA, the FDCPA allegation in paragraph 64 predicated
on Defendant’s failure to comply with the TILA must also be dismissed. See Neff v. Capital
Acquisitions & Mgmt. Co., 238 F. Supp. 2d 986, 992 (N.D. Ill. 2002), aff’d, 352 F.3d 1118 (7th Cir.
2003).
IV.

CONCLUSION
For the foregoing reasons, the Court will GRANT Defendant’s partial motion to dismiss

(Court File No. 8).
An order shall enter.

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/s/
CURTIS L. COLLIER
UNITED STATES DISTRICT JUDGE

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