Daugherty v. Convergent Outsourcing, Inc. et al
Filing
31
MEMORANDUM AND ORDER GRANTING 7 Defendant LVNV Funding, LLC's Motion to Dismiss and 12 Defendant Convergent Outsourcing, Inc.'s Motion to Dismiss. Plaintiff's claims are DISMISSED with prejudice. (Signed by Judge Ewing Werlein, Jr) Parties notified. (marflores, 4)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
ROXANNE DAUGHERTY,
Plaintiff,
v.
CONVERGENT OUTSOURCING, INC.
and LVNV FUNDING, LLC,
Defendants.
§
§
§
§
§
§
§
§
§
§
CIVIL ACTION NO. H-14-3306
MEMORANDUM AND ORDER
Pending are Defendant LVNV Funding, LLC’s Motion to Dismiss
(Document No. 7) and Defendant Convergent Outsourcing, Inc.’s
Motion to Dismiss (Document No. 12).
After having carefully
considered the motions, responses, replies, supplemental brief, and
applicable law, the Court concludes that the motions should be
granted.
I. Background
Plaintiff Roxanne Daugherty (“Plaintiff”) brings this suit
against
Defendants
Outsourcing,
Inc.
LVNV
Funding,
(“Convergent”
LLC
and
(“LVNV”)
and
collectively
Convergent
with
LVNV,
“Defendants”), alleging that she received a January 23, 2014 letter
from Convergent that violated the Fair Debt Collection Practices
Act (the “FDCPA”), 15 U.S.C. § 1692, et seq.1
1
Document No. 1 (Orig. Compl.).
Plaintiff alleges
that she is obligated “to pay a debt owed or due, or asserted to be
owed or due to a creditor other than Convergent,” arising from
transactions she incurred on a personal credit card.2
She alleges
that LVNV is “an entity who acquires debt in default merely for
collection purposes,” and that it acquired her debt after her
default and retained Convergent to collect the debt.3
Convergent’s
January 23, 2014 letter about which Plaintiff complains (the “Offer
Letter”)
was
titled
“Settlement
Offer,”
and
represented
that
Plaintiff owed LVNV on her account a total balance of $32,405.91,
consisting of $12,824.24 in principal and $19,581.67 in interest,
and that LVNV was willing to settle the account in full for
$3,240.59.
The Offer Letter stated:
This notice is being sent to you by a collection agency.
The records of LVNV Funding LLC show that your account
has a past due balance of $32,405.91.
Our client has advised us that they are willing to settle
your account for 10% of your total balance due to settle
your past balance. The full settlement must be received
in our office by an agreed upon date.
If you are
interested in taking advantage of this offer, call our
office within 60 days of this letter. Your settlement
amount would be $3,240.59 to clear this account in full.
Even if you are unable to take advantage of this offer,
please contact our office to see what terms can be worked
out on your account. We are not required to make this
offer to you in the future.
2
Id. ¶ 10.
3
Id. ¶¶ 8, 13-15.
2
Sincerely,
Convergent Outsourcing, Inc.
THIS IS AN ATTEMPT TO COLLECT A DEBT AND ANY
INFORMATION OBTAINED WILL BE USED FOR THAT PURPOSE.
THIS COMMUNICATION IS FROM A DEBT COLLECTOR.
NOTICE: PLEASE SEE REVERSE SIDE
FOR IMPORTANT CONSUMER INFORMATION4
At the close of the Offer Letter there was a detachable form
available to be included with payment, which invited the debtor to
“Select Your Plan” from three proposals: (1) a “Lump Sum Settlement
Offer of 10%,” which reiterated the above offer to pay $3,240.59 to
settle Plaintiff’s account in full; (2) a “Settlement Offer of 25%
& Pay Over 3 Months,” which allowed Plaintiff to pay $2,700.49 for
three months for a settlement of $8,101.48; and (3) an offer for
Plaintiff to “Spread Your Payments Over 12 Months,” which allowed
Plaintiff to pay off the entire balance of the account by making
$2,700.49 payments for 12 months.5
The Offer Letter contained no
mention, express or implied, of a lawsuit or threat of a lawsuit.
Plaintiff does not allege that she was “interested in taking
advantage of this offer,” or that she called Convergent’s office
“within 60 days of this letter” as she was invited to do if she
were interested in the settlement offer, or that she had any
interaction with Convergent or with LVNV during those 60 days or
4
Id. ¶¶ 16-18; id., ex. A at 2 of 3.
5
Id., ex. A at 3 of 3.
3
thereafter.
Nor does she allege that she made any payment or
partial payment of her debt.
Nearly 10 months later, however, on
November 18, 2014, Plaintiff filed this suit to recover statutory
damages of $1,000, non-specified “actual damages,” and attorneys’
fees.
Plaintiff alleges--without citation to any subsection either
of 15 U.S.C. 1692e or of 1692f--that the Offer Letter violated
those sections because (1) it did not disclose that Plaintiff may
incur tax liability for the forgiven debt and (2) it failed “to
advise
that
the
Debt
was
outside
the
applicable
statute
of
limitations,” or that “partial payment would have revived the
statute
of
scionable.”6
limitations,”
which
Plaintiff
alleges
is
“uncon-
LVNV and Convergent move to dismiss Plaintiff’s suit
for failure to state a claim.7
II. Legal Standard
Rule 12(b)(6) provides for dismissal of an action for “failure
to state a claim upon which relief can be granted.”
P. 12(b)(6).
FED. R. CIV.
When a district court reviews the sufficiency of a
complaint before it receives any evidence either by affidavit or
admission, its task is inevitably a limited one.
6
Id. ¶¶ 18-23.
7
Document Nos. 7, 12.
4
See Scheuer v.
Rhodes, 94 S. Ct. 1683, 1686 (1974), abrogated on other grounds by
Harlow v. Fitzgerald, 102 S. Ct. 2727 (1982).
The issue is not
whether the plaintiff ultimately will prevail, but whether the
plaintiff is entitled to offer evidence to support the claims. Id.
In considering a motion to dismiss under Rule 12(b)(6), the
district court must construe the allegations in the complaint
favorably to the pleader and must accept as true all well-pleaded
facts in the complaint.
See Lowrey v. Tex. A&M Univ. Sys.,
117 F.3d 242, 247 (5th Cir. 1997).
To survive dismissal, a
complaint must plead “enough facts to state a claim to relief that
is plausible on its face.”
1955, 1974 (2007).
Bell Atl. Corp. v. Twombly, 127 S. Ct.
“A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to draw the
reasonable
inference
misconduct alleged.”
(2009).
While
a
that
the
defendant
is
liable
for
the
Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949
complaint
“does
not
need
detailed
factual
allegations . . . [the] allegations must be enough to raise a right
to relief above the speculative level, on the assumption that all
the allegations in the complaint are true (even if doubtful in
fact).”
Twombly, 127 S. Ct. at 1964-65 (citations and internal
footnote omitted).
5
III. Analysis
It is undisputed that Plaintiff was a “consumer,” that she
owed a “debt,” and that Defendants were “debt collectors” within
the meaning of the FDCPA and properly identified themselves as such
as required by the FDCPA.8
Plaintiff argues that the Offer Letter
was a “false, deceptive, or misleading representation or means in
connection with the collection of any debt” in violation of section
1692e, and constituted an “unfair or unconscionable means to
collect or attempt to collect any debt, in violation of section
1692f.”9
15 U.S.C. §§ 1692e, 1692f.
includes
long
identifies,
lists
of
respectively,
specific
as
Each of these two sections
conduct
“false,
that
deceptive,
such
section
or misleading
representation or means,” or “unfair or unconscionable means,” in
collecting a debt. None of these subsections is cited by Plaintiff
and, indeed, none of them states that in connection with the
8
See 15 U.S.C. § 1692a(3) (“The term ‘consumer’ means any
natural person obligated or allegedly obligated to pay any debt.”);
id. § 1692a(5) (“The term ‘debt’ means any obligation or alleged
obligation of a consumer to pay money arising out of a transaction
in which the money, property, insurance, or services which are the
subject of the transaction are primarily for personal, family, or
household purposes, whether or not such obligation has been reduced
to judgment.”); id. § 1692a(6) (“The term ‘debt collector’ means
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.”).
9
Document No. 1 ¶¶ 24-27.
6
collection of a debt legal advice must be given on a debtor’s
potential
income
limitations
for
tax
obligations
lawsuits
where
or
no
on
state
lawsuit
is
statutes
of
mentioned
or
threatened, either expressly or impliedly.
A.
Not Providing Advice on Possible Tax Consequences of Debt
Forgiveness
Plaintiff alleges that the Offer Letter “did not disclose that
[if Plaintiff accepted the offer to settle the debt for 10% of the
balance due] Convergent or LVNV would be required by the IRS to
report the forgiven $29,165.32 as Plaintiff’s income, and issue a
form 1099-C,” and that accordingly, “Defendant’s representation
that Plaintiff’s payment obligations would be satisfied in full is
misleading, where Plaintiff would also have to pay an additional
amount due to the proposed settlement.”10
Courts confronted with this argument have uniformly held that
non-lawyer debt collectors have no obligation under the FDCPA to
disclose in dunning letters possible tax consequences of debt
forgiveness.
Most recently, the Second Circuit last month held
that a similar letter offering settlement of the debtor’s account
for
a
lump-sum
payment
equal
to
a
“savings
of
48%
on
your
outstanding account balance” did not violate the FDCPA for omitting
advice on the possible tax consequences of the forgiven portion of
10
Id. ¶¶ 19-20.
7
the debt.
See Altman v. J.C. Christensen & Associates, Inc., No.
14-2240-CV, 2015 WL 2242398, at *1 (2d Cir. May 14, 2015) (“We
. . . hold that a debt collector need not warn of possible tax
consequences when making a settlement offer for less than the full
amount owed to comply with FDCPA.”).
See also Rigerman v. Forster
& Garbus LLP, No. 14-CV-1805 MKB, 2015 WL 1223760, at *4 (E.D.N.Y.
Mar. 16, 2015) (“There is no language in the FDCPA that requires a
debt collector to notify a debtor of the potential tax consequences
of any debt forgiveness.”) (finding dunning letter not misleading);
Schaefer v. ARM Receivable Mgmt., Inc., No. CIV.A. 09-11666-DJC,
2011 WL 2847768, at *5 (D. Mass. July 19, 2011) (“The language of
the FDCPA does not require a debt collector to make any affirmative
disclosures of potential tax consequences when collecting a debt.
. . . [R]equiring, as a matter of law, debt collectors to inform a
debtor of such a potential collateral consequence of settling a
pre-existing debt seems far afield from even the broad mandate of
FDCPA to protect debtors from abusive debt collection practices.”);
Landes v. Cavalry Portfolio Servs., LLC, 774 F. Supp. 2d 800,
802-03 (E.D. Va. 2011) (“Boiled down to its essence, the Complaint
essentially amounts to a claim that [defendant] violated the FDCPA
by failing to advise [plaintiff] and other consumers of the tax
consequences of accepting a discount of their debt. However, there
is no language anywhere in the FDCPA that mandates such affirmative
8
disclosures by a debt collector.”).11
Accordingly, Plaintiff’s
FDCPA claim based on Defendants’ not having given to her advice on
possible tax consequences if she agreed to the settlement offer is
dismissed.
B.
Not Providing Advice on Statute of Limitations for a Lawsuit
Where No Lawsuit is Mentioned or Threatened
Plaintiff alleges that the Offer Letter “failed to advise that
the Debt was outside the applicable statute of limitations period,”
and that “Defendant’s offer to accept $2,700.49 as a partial
payment toward the total Debt balance without disclosing that
Plaintiff was not obligated to make such partial payment or that
Plaintiff could not be sued is unconscionable, where Plaintiff’s
partial payment would have revived the statute of limitations
period to collect the Debt.”12
Plaintiff primarily argues that the
11
Landes also noted that debt collectors who--like Defendants
in this case--are not lawyers were prohibited under state law from
providing tax advice. 774 F. Supp. 2d at 804 (“Cavalry is simply a
debt collection agency; it is not a law firm or an accounting firm
of any sort. . . . Cavalry is therefore not licensed or authorized
by law to give legal or tax advice. . . . It is therefore facially
implausible for Landes to assert that Cavalry’s failure to risk
criminal sanctions by providing her with tax advice regarding a
specific debt reduction offer somehow constituted a violation of
the FDCPA.”).
In the only case to have found that failure to
disclose the tax consequences of forgiven debt might violate the
FDCPA, the defendant was a law firm. Ellis v. Cohen & Slamowitz,
LLP, 701 F. Supp. 2d 215 (N.D.N.Y. 2010); see also Landes, 774 F.
Supp. 2d at 805 (“[Ellis] is inapposite, as it involved a law firm
that sent misleading letters to consumers offering savings on a
debt owed to a bank.”) (emphasis in original).
12
Document No. 1 ¶¶ 22-23.
9
Offer Letter was misleading in violation of § 1692e because “it
could mislead the reader into believing that the debt is legally
enforceable or that collection could be achieved through judicial
means,” but “if the Court does not find that the Letter was
misleading or deceptive . . . it may still find that the Letter is
an unfair or unconscionable means to collect a debt” in violation
of § 1692f.13
The Fifth Circuit “evaluate[s] any potential deception in [a
dunning] letter under an unsophisticated or least sophisticated
consumer standard,” which “assume[s] that the plaintiff-debtor is
neither
shrewd
nor
experienced
in
dealing
with
creditors.”
McMurray v. ProCollect, Inc., 687 F.3d 665, 669 (5th Cir. 2012)
(quoting Goswami v. Am. Collections Enter., Inc., 377 F.3d 488, 495
(5th Cir. 2004)).
protecting
untrained
all
and
This standard “serves the dual purpose of
consumers,
the
including
credulous,
from
the
inexperienced,
deceptive
debt
the
collection
practices and protecting debt collectors against liability for
bizarre or idiosyncratic consumer interpretations of collection
materials.”
Id. (quoting Taylor v. Perrin, Landry deLaunay &
Durand, 103 F.3d 1232, 1236 (5th Cir. 1997)).
Section 1692e provides that “[a] debt collector may not use
any false, deceptive, or misleading representation or means in
connection
13
with
the
collection
Document No. 13 at 3, 8.
10
of
any
debt,”
and
lists
16
non-exclusive
section.
examples
of
specific
15 U.S.C. § 1692e.
conduct
that
violate
this
As observed above, Plaintiff in her
Complaint alleges no violation by Defendants of any of the long
list of conduct listed by Congress as deceptive or misleading and
specifically proscribed to protect consumers.
Indeed, Plaintiff
has not alleged that the letter contains any false statement or
misrepresentation.
Instead, Plaintiff broadly pleads that the
Offer Letter is “false, deceptive, or misleading” because receipt
of an offer to settle the account for a fraction of what is owed
“could mislead the reader” into believing the debt was legally
enforceable or that collection could be achieved through judicial
means.14
In this instance, the debt is not disputed, and there is no
allegation that it is not a lawful existing debt of Plaintiff.
Courts have regularly held that it is not a violation of the FDCPA
to attempt to collect an actual debt for which the statute of
limitations has run so long as the debt collector does not file or
threaten the filing of litigation.
“[T]he majority of courts have
held that when the expiration of the statute of limitations does
not invalidate a debt, but merely renders it unenforceable,15 the
14
Document No. 13 at 3.
15
This is true under Kentucky law, upon which Plaintiff
appears to rely. See Reamer’s Ex’r v. Coleman, 10 S.W.2d 1095,
1097 (1928) (“A statute does not invalidate the debt, but merely
renders it unenforceable.
The debt is still in existence, but
11
FDCPA permits a debt collector to seek voluntary repayment of the
time-barred debt so long as the debt collector does not initiate or
threaten legal action in connection with its debt collection
efforts.”
Huertas v. Galaxy Asset Mgmt., 641 F.3d 28, 32-33 (3d
Cir. 2011) (collecting cases and affirming dismissal of claims
under §§ 1692e and 1692f because dunning letter did not threaten
litigation).
See also, e.g., Freyermuth v. Credit Bureau Servs.,
Inc., 248 F.3d 767, 771 (8th Cir. 2001) (“Here, no legal action was
taken or even threatened.
As several cases have noted, a statute
of limitations does not eliminate the debt; it merely limits the
judicial remedies available.
We . . . hold that, in the absence of
a threat of litigation or actual litigation, no violation of the
FDCPA has occurred when a debt collector attempts to collect on a
potentially time-barred debt that is otherwise valid.”) (rejecting
claims under §§ 1692e and 1692f).
Last year, however, the Seventh Circuit gave a contrary
interpretation
to
the
FDCPA,
expressly
recognizing
that
its
decision “conflicts with that of the Eighth and Third Circuits” in
Freyermuth and Huertas. See McMahon v. LVNV Funding, LLC, 744 F.3d
1010, 1020 (7th Cir. 2014).
McMahon held that offers to “settle”
time-barred debts could mislead consumers into believing that the
debt
was
judicially
enforceable,
in
violation
of
the
FDCPA.
until the bar of the statute of limitations is removed no legal
method for its collection is available to the creditor.”).
12
Relying in large part upon a 2013 FTC report newly recommending
such a result and an invited amicus brief filed jointly by the FTC
and the recently created Consumer Financial Protection Bureau,16 the
Seventh Circuit concluded that “an unsophisticated consumer could
be misled by a dunning letter for a time-barred debt, especially a
letter that uses the term ‘settle’ or ‘settlement.’”
Id. at 1020.
Early this year, the Sixth Circuit in a 2-1 decision followed
McMahon’s precedent.
Buchanan v. Northland Grp., Inc., 776 F.3d
393 (6th Cir. 2015) (finding fact issue as to whether dunning
letter’s
“settlement
offer”
could
mislead
an
unsophisticated
consumer into thinking her lender could enforce the debt in court).
Plaintiff argues this Court should follow these two decisions,
which dramatically expand upon the accepted interpretation of the
FDCPA
that
has
prevailed
for
more
than
35
years
since
its
enactment.17
The Fifth Circuit appears not to have expressly decided this
issue but, in a different context, Judge Dennis writing for the
16
The Dodd Frank Wall Street Reform and Consumer Protection
Act, enacted in July 2010, created the Consumer Financial
Protection Bureau (“CFPB”).
17
One commentator attributes what he calls the “crusade
against time-barred debt” in large part to the recent concerted
advocacy of the FTC and CFPB “as the two agencies have authored
joint amicus briefs in support of cases against debtor collectors
that attempted to collect (without explicitly threatening suit on)
time-barred debts.” Thomas R. Dominczyk, Time-Barred Debt: Is It
Now Uncollectable?, 33 No. 8 Banking & Fin. Services Pol’y Rep. 13
(August 2014).
13
court cited Freyermuth and quoted its holding that “[i]n the
absence
of
a
threat
of
litigation
or
actual
litigation,
no
violation of the FDCPA has occurred when a debt collector attempts
to collect on a potentially time-barred debt that is otherwise
valid.”
2011)
Castro v. Collecto, Inc., 634 F.3d 779, 783 (5th Cir.
(“[T]hreatening
constitute
a
violation
to
of
sue
on
the
time-barred
FDCPA.”)
debt
(citing,
may
inter
well
alia,
Freyermuth’s holding as quoted above). See also Johnson v. Capital
One Bank, No. CIV. A. SA00CA315EP, 2000 WL 1279661, at *2 (W.D.
Tex. May 19, 2000) (Prado, J.) (dunning letter that threatened
further collection efforts on time-barred debt did not violate
FDCPA).
Judge Prado, now a judge on the Fifth Circuit, wrote:
[A] statute of limitations bar applies only to judicial
remedies; it does not eliminate the debt. Creditors are
entitled to attempt to pursue even time-barred debts, so
long as they comply with the rules of the FDCPA. The
collection language here is neither harassing nor
threatening. It simply states that failure to challenge
the debt will result in further collection efforts.
There is no mention of legal remedies or of any remedy
that the creditor may not legally pursue.
Id. (emphasis in original).
These decisions suggest that the Fifth Circuit is likely to
follow the majority rule, which seems consistent with the text and
purpose of the FDCPA.
After all, Congress acted in 1977 on its
findings of “abundant evidence of the use of abusive, deceptive,
and unfair debt collection practices by many debt collectors.”
14
15 U.S.C. § 1692(a). The United States Senate Banking, Finance and
Urban Affairs Committee had found:
[D]ebt collection abuse by third party debt collectors is
a widespread and serious national problem. Collection
abuse takes many forms, including obscene or profane
language, threats of violence, telephone calls at
unreasonable hours, misrepresentation of a consumer’s
legal rights, disclosing a consumer’s personal affairs to
friends, neighbors, or an employer, obtaining information
about a consumer through false pretense, impersonating
public officials and attorneys, and simulating legal
process.
S. REP. 95-382, at 2 (1977), reprinted in 1977 U.S.C.C.A.N. 1695,
1696.
was
Congress’s declared purpose for this remedial legislation
“to
eliminate
abusive
debt
collection
practices
by
debt
collectors, to insure that 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.”
15 U.S.C. § 1692(e).
In the instant case there is no allegation that Plaintiff was
not morally and legally obligated to pay to Defendants the account
balance that was stated in the Offer Letter.
Plaintiff does not
contend that Defendants would have violated the FDCPA by demanding
of Plaintiff full payment of the account balance in the sum of
$32,405.91, notwithstanding the alleged unavailability of a legal
remedy for Defendants to recover a judgment for such.
Instead, in
the Offer Letter, which in all respects complied with the stated
requirements of the FDCPA, Defendants offered to settle Plaintiff’s
15
account for 10 cents on the dollar, $3,240.59, “to clear this
account in full.”
There is no threat of a lawsuit, express or
implied, in the Offer Letter proposing to settle the account in
full.
The Court finds no plausibility in Plaintiff’s contention
that an offer to settle her “account in full” for pennies on the
dollar--rather
than
to
demand
full
payment
of
the
entire
$32,405.91--should reasonably cause an “unsophisticated consumer”
who is “neither shrewd nor experienced in dealing with creditors”
to
believe
she
is
being
threatened
with
a
lawsuit
or
that
collection could be achieved through judicial means. Judge Raymond
Kethledge’s dissenting observation in Buchanan persuasively applies
to the claim made here:
The
relevant
perspective
here
is
that
of
an
unsophisticated
debtor--an
unsophisticated
debtor,
moreover, who by definition has received dunning letters
for years without a lawsuit ever having been brought
against her. In that context, the mere fact of another
collection letter is itself no reason to think that a
lawsuit might follow close behind. And the letter here
says nothing about any lawsuit--which is good reason, so
far the threat of a lawsuit is concerned, not to
distinguish this letter from the legions of letters that
surely preceded it.
If anything, [debt collector’s]
willingness to settle the debt at a discount should make
the letter seem less threatening, not more.
Buchanan, 776 F.3d at 401 (Kethledge, J., dissenting) (emphasis in
original).
Defendants here did not engage in an “abusive debt collection
practice” within the meaning of the FDCPA.
16
Indeed, a reading of
the catalog of debt collector abuses listed in Sections 1692e and
1692f--none
of
which
applies--demonstrates
the
stark
contrast
between what Congress regarded as “false, deceptive, or misleading
representation or means” and “unfair or unconscionable means” to
collect
a
debt,
and
Defendants’
statutory-compliant,
non-
threatening written offer to settle in full a $32,405.91 past due
account for $3,240.59.
Accordingly, Plaintiff has not stated a claim for which relief
can be granted for violation of the FDCPA.
IV.
Order
For the foregoing reasons, it is
ORDERED that Defendant LVNV Funding, LLC’s Motion to Dismiss
(Document No. 7) and Defendant Convergent Outsourcing, Inc.’s
Motion to Dismiss (Document No. 12) are GRANTED and Plaintiff
Roxanne Daugherty’s claims are DISMISSED with prejudice.
The Clerk will enter this Order and provide a correct copy to
all parties.
SIGNED at Houston, Texas, on this 18th day of June, 2015.
____________________________________
EWING WERLEIN, JR.
UNITED STATES DISTRICT JUDGE
17
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