AUDREY R. EVANS, Bankruptcy Judge.
Now before the Court is the Defendants' Motion for Summary Judgment and/or for Judgment on the Pleadings ("
The Defendants filed this Motion for Summary Judgment alleging that there is no genuine issue of material fact present regarding the Plaintiff's causes of action, and requesting that the Court enter summary judgment in its favor. Additionally, the Defendants request that the Court dismiss the Plaintiff's causes of action for failure to state a claim on which relief can be granted.
This Court has jurisdiction pursuant to 28 U.S.C. §§ 157 and 1334.
Rule 56 of the Federal Rules of Civil Procedure, as made applicable to these proceedings through Federal Rule of Bankruptcy Procedure 7056, provides that summary judgment shall be granted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(a). A genuine issue of material fact exists if the evidence presented is such that a reasonable jury could find for the non-moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 257, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The burden is on the moving party to establish the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Burnette v. Dow Chemical Company, 849 F.2d 1269, 1273 (10th Cir.1988). The burden then shifts to the nonmoving party to go beyond its pleadings to show, through affirmative evidence, that there is a genuine issue for trial. Celotex, 477 U.S. at 324, 106 S.Ct. 2548. The nonmovant may not rely on allegations or denials in its pleadings, but instead an affirmative showing of evidence is required. Anderson, 477 U.S. at 249-50, 106 S.Ct. 2505. "[T]his court is
Additionally, the Defendants request that the Court enter judgment on the pleadings, pursuant to Fed.R.Civ.P. 12, made applicable by Fed. R. Bankr.P. 7012, for the Plaintiff's failure to state a claim on which relief can be granted under Fed. R.Civ.P. 12(b)(6), and for the Plaintiff's failure to plead its claims of fraud or mistake with sufficient particularity under Fed.R.Civ.P. 9(b), made applicable by Fed. R. Bank. P. 7009. Fed.R.Civ.P. 9(b) states "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Rule 12(b)(6) provides that a case may be dismissed for "failure to state a claim upon which relief can be granted." Fed.R. Civ. P. 12(b)(6). The Court reviews these motions in the light most favorable to the plaintiff, and looks for the Plaintiff to "nudge his claims across the line from conceivable to plausible." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007); Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir.2007).
Based on the evidence submitted, the Court finds the following facts are not in dispute:
1. The Plaintiff incurred a debt with Citibank USA, N.A. ("
2. LVNV hired Hosto to collect on the debt. On September 12, 2008, Hosto filed a lawsuit against Plaintiff in the District Court of Lawrence County, Arkansas (Case No. CIV-08-215) (the "
3. On October 29, 2008, the complaint in the state court lawsuit was served on the Plaintiff. Attached to that complaint was an orange paper, which read:
4. The Plaintiff called the number on the orange paper and spoke with an employee of Hosto.
5. After receiving the orange paper and after speaking with the Hosto representative, the Debtor made the following payments: November 25, 2008 ($50.00); December 22, 2008 ($50.00); January 30, 2009 ($60.00); February 17, 2009 ($60.00); March 16, 2009 ($60.00); April 14, 2009 ($60.00); May 19, 2009 ($60.00); June 12, 2009 ($60.00); July 16, 2009 ($40.00); August 20, 2009 ($60.00); September 29, 2009 ($60.00); and November 10, 2009 ($60.00).
6. On January 20, 2009, Hosto obtained a default judgment in the state court lawsuit. The default judgment was in the amount of $2,962.83, consisting of $2,576.37 for principal and interest, and $386.46 for attorney fees. The default judgment did not award the Defendants their costs for the filing fee or process server fee.
8. On March 26, 2010, the Plaintiff filed a Chapter 13 bankruptcy, Case No. 3: 10-bk12140.
9. The Plaintiff filed this adversary proceeding against LVNV and Hosto on January 28, 2011.
Each of the Plaintiff's causes of action stems from the events he contends took place after he received the orange paper with the complaint and summons for the state court lawsuit. As set out in the facts above, the orange paper informed the Plaintiff that: "You have been sued. If you would like to arrange to pay the debt, please call our law firm at 800-892-1460. This may avoid the necessity of you appearing in Court or filing an Answer." The Plaintiff asserts that after he read this message, he called the number on that paper and spoke with a representative of Hosto, and during that conversation he was informed that if he entered into a payment agreement, the lawsuit would "go away." At that point, the Plaintiff began making monthly payments and continued to do so for a period of 12 months.
The Defendants deny that they made an agreement not to pursue a judgment in the state court lawsuit. When the Plaintiff did not file an answer in the lawsuit, the Defendants obtained a default judgment against him. This default judgment was entered between the time the Plaintiff made the second and third monthly payment. The Plaintiff continued to make the monthly payments for approximately 10 months after the Defendants obtained the default judgment, for a total of 12 payments. Then, more than a year after the default judgment was entered, the Defendants obtained a writ of garnishment against the Plaintiff's bank account.
The Plaintiff asserts that the Defendants entered into an agreement with him not to pursue the state court lawsuit in exchange for his agreement to make payments on the debt, and that Defendants breached that agreement by obtaining a default judgment against him. The Plaintiff argues that if he had known that a default judgment was going to be entered in the state court lawsuit, he would have sought counsel to file an answer, but that the Defendants' actions deprived him of that opportunity. The Defendants deny that the Plaintiff was ever told that the state court lawsuit would "go away," and claim that even if such a representation was made, the Plaintiff has no cause of action against them.
The Plaintiff's Complaint sets forth causes of action based on alleged violations of multiple statutory provisions (the FDCPA, AFDCPA, and ADTPA), and also asserts liability against the Defendants for breach of contract, and the torts of fraud and misrepresentation. Additionally, the Plaintiff objects to LVNV's proof of claim, and requests that the Court avoid any judgment liens the Defendants have obtained against his property.
The FDCPA protects consumers from "abusive debt collection practices." 15 U.S.C. § 1692(e). Under the FDCPA, a debt collector is subject to civil liability for engaging in any prohibited collection activities. See Morrison v. Hosto, Buchan, Prater & Lawrence, 2009 WL 3010917, *3 (E.D.Ark.2009). Actions prohibited by the FDCPA include (1) harassing, oppressive or abusive conduct (15 U.S.C. § 1692d); (2) false, deceptive or misleading representations (15 U.S.C. § 1692e); and (3) unfair or unconscionable collection practices (15 U.S.C. § 1692f). Each of the statutory provisions contains a non-exhaustive list of conduct that would constitute a violation of that provision, and a single deed can violate more than one provision. See Fox v. Citicorp Credit Services, Inc., 15 F.3d 1507 (9th Cir.1994). In evaluating whether the conduct constituted a violation, the Court views that conduct through the eyes of the "unsophisticated consumer." Morrison, 2009 WL 3010917, *3 (E.D.Ark.2009).
In this case, the Plaintiff has alleged four different violations of the FDCPA. Three of those violations are based on the same set of facts. That is, the Plaintiff claims that the Defendants made representations to him, and entered into a repayment agreement with him, in order to prevent or deter him from seeking counsel and filing an answer in the state court lawsuit. The Plaintiff claims that these acts constitute violations of the FDCPA's protections against abusive conduct (15 U.S.C. § 1692d); misleading representations (15 U.S.C. § 1692e); and unfair collection practices (15 U.S.C. § 1692f). The Plaintiff also claims that the Defendant failed to take into account the two payments made by the Plaintiff between the date the state court lawsuit was filed and the date that the default judgment was obtained. The Plaintiff claims that this violated the specific FDCPA provision that prohibits the use of misleading representations concerning the amount of a debt (15 U.S.C. § 1692e(2)(A)). The Court reviews the Motion for Summary Judgment with regard to each of these claims below.
The Plaintiff states that he received an orange paper with the complaint and summons in a state court lawsuit. That orange paper informed the Plaintiff that
The Defendants contend that the Court should grant summary judgment in their favor because the language on the orange paper does not violate the FDCPA. See Born v. Hosto, 2010 Ark. 292 (Ark. 2010); Morrison v. Hosto, Buchan, Prater & Lawrence, 2009 WL 3010917, *3 (E.D.Ark.2009). In Morrison, Chief Judge Leon Holmes reviewed a claim under the FDCPA based on the exact language that was used in the orange paper in this case—"[t]his may avoid the necessity of you appearing in Court or filing and Answer." The court determined that the language on the orange paper did not violate the FDCPA because there was no evidence that the statements were false. However, Chief Judge Holmes specifically noted that in the Morrison case there was "no allegation that Hosto ever lulled a debtor into not filing an answer and then moved for a default judgment." Those exact allegations are made by the Plaintiff in this case. In his affidavit, the Plaintiff states that "after I began making payments, [Hosto] double crossed me by obtaining a judgment when they told me that the case against me would go away." While it is clear from the holdings in Morrison that the language in the orange paper itself does not violate the FDCPA, there are additional facts present in this case to support the Plaintiff's claims that the statements were intended to "lull" him into not filing an answer. As such, the findings set out in Morrison do not operate as a bar to the Plaintiff's FDCPA claims; the Plaintiff has pled a legal cause of action under the FDCPA.
The only remaining question is whether the allegations made by the Plaintiff in the Complaint are sufficiently supported by evidence to withstand the Defendants' Motion for Summary Judgment. The factual issues in dispute are whether the Defendants told the Plaintiff that by
In addition to the claim of a misleading representation described above, the Plaintiff also makes a claim of misrepresentation specifically under 15 U.S.C. § 1692e(2)(A). That provision states that it is a violation of the FDCPA to falsely represent the amount of any debt in connection with collection activity. 15 U.S.C. § 1692e(2)(A). The Plaintiff claims that the Defendants violated this provision because the amount stated in the default judgment did not take into account the two $50 payments made after the complaint was filed, but before the default judgment was obtained. The Plaintiff supports this assertion by pointing out that the amount of the debt in the state court complaint is the same as the amount of the debt in the default judgment, even though two payments of $50 were made between those two filings. However, an affidavit submitted by Hosto's Chief Financial Officer, Colleen Martin, explains that the two $50 payments were applied to the filing and service of process fees incurred in filing the state court lawsuit. Hosto represents through its affidavits that each of those fees was $50. These assertions are further supported by the fact that the Defendants were not awarded those costs in the default judgment, which specifically granted the Defendants $0 for those costs. The Plaintiff has not provided any evidence to controvert the Defendants' representations that the first two $50 payments were allocated to the Defendants' court fees. However, the Plaintiff made a total of 12 payments on the account after the filing of the state court lawsuit, and the Plaintiff raised concerns as to the proper application of those payments in its Objection to Proof of Claim, as is further discussed in subsection IV of this Order. Although the Defendants have provided proof of the application of the two initial $50 payments, the
The Defendants claim that the Court should dismiss the Plaintiff's claims brought under the FDCPA because the statute of limitations has expired. Claims resulting from violations of the FDCPA are subject to a one-year statute of limitations. 15 U.S.C. § 1692k(d). In this case, the only event taking place within one year of the filing of this action was the garnishment executed against the Plaintiff's bank account in March of 2010. All other activities—the filing of the complaint, the orange paper, the phone call, and the entry of default—took place more than one year prior to filing of the case.
The Defendant argues that the statute of limitations had expired because the statute begins to run from the violator's last opportunity to avoid violating the statute. Mattson v. U.S. West Communications, et al., 967 F.2d 259 (8th Cir.1992). The Defendants argue that the last opportunity to avoid violating the statute was the telephone call during which the Plaintiff claims representations were made that the lawsuit would "go away." However, the statement that the lawsuit would "go away" standing alone does not clearly violate the FDCPA. If the Defendants had not pursued the lawsuit after that point, the Plaintiff could not allege that the statement was a misleading representation in violation of the FDCPA. Instead, it is the Defendants subsequent act of obtaining the default judgment that would make the representation misleading. Thus, the Defendants' "last opportunity to avoid" violating the statute was the point in time when the default judgment was entered.
If the Defendants' "last opportunity to avoid" violating the FDCPA was January 20, 2009, when the default judgment was entered, then this adversary proceeding, which was filed on January 28, 2011, was well beyond the FDCPA's one-year limitations period. However, the discovery rule "postpones a claim's accrual until the plaintiff knew, or with the exercise of reasonable diligence should have known, of the wrongful act and its resulting injury." Executive Air Taxi Corp. v. City of Bismarck, N.D., 518 F.3d 562, 570 (8th Cir.2008). Where a statute is silent on the issue of the discovery rule, the general rule is that the discovery rule applies. See Greenfield v. Kluever and Platt, L.L.C., 2010 WL 604830, *1-2 (N.D.Ill. 2010). The Plaintiff states in the Complaint, and in his supporting affidavit, that he was never notified of the default judgment being obtained against him, and that he only became aware of the default judgment (i.e., that the lawsuit did not "go away") when Hosto executed a garnishment against his bank account in March of 2010. The Plaintiff's factual assertions are sufficient that a reasonable finder of fact could determine that the Plaintiff lacked knowledge about the alleged wrongful conduct. Therefore, there are genuine issues of material fact as to when the Plaintiff reasonably should have known of the FDCPA violations, and the Defendants' request for summary judgment on the basis of the statute of limitations is denied.
In the Complaint the Plaintiff alleges a cause of action under the ADTPA. Specifically, the Plaintiff alleges that LVNV violated Ark.Code Ann. § 4-88-107(a)(10), which prohibits "[e]ngaging in any other unconscionable, false, or deceptive act or practice in business, commerce, or trade[.]" In the Motion for Summary Judgment, LVNV makes two arguments that the Plaintiff's claim should be dismissed. LVNV argues that the Plaintiff has failed to state a claim upon which relief can be granted because the Plaintiff has failed to plead the claim with sufficient particularity to meet the requirement of Fed.R.Civ.P. 9(b), and more specifically, that the Plaintiff has failed to establish any proof of damages. Additionally, LVNV argues that Arkansas law exempts its actions from liability under the ADTPA. Each of these arguments is discussed below.
LVNV argues that the Plaintiff has failed to state a claim upon which relief can be granted because the Plaintiff did not plead its ADTPA claim with sufficient particularity under Fed.R.Civ.P. 9(b). This rule requires that "[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." Fed.R.Civ.P. 9(b). The Plaintiff alleges that the orange paper he received was attached to the summons and complaint served on him in the state court lawsuit. The Plaintiff states that the statements made on the orange paper led him to believe that if he called the number on that paper he would be able to "avoid the necessity of ... appearing in Court or filing and Answer." The Plaintiff asserts that based on this information, he called the number on the orange paper. The Plaintiff alleges that during the telephone conversation he was advised that if he entered into a repayment agreement with the Defendants, the lawsuit would "go away." The Plaintiff states through his complaint that
The Plaintiff asserts that he began making payments based on this agreement, but that despite his payments pursuant to the agreement, the Defendants obtained a default judgment in the state court lawsuit. Finally, the Plaintiff alleges that he suffered actual damages as a result of these actions through
The Court finds these assertions sufficient to state a claim under the ADTPA in compliance with the pleading requirements of the Federal Rules of Civil Procedure. The Plaintiff has sufficiently stated a claim under the ADTPA.
LVNV also argues that as a matter of law, it is exempt from liability for this cause of action because the actions taken by Hosto were performed in their capacity as LVNV's attorneys. The law is
In Preston, an attorney had agreed to represent a client in a medical malpractice lawsuit in Arkansas. That medical malpractice lawsuit was dismissed with prejudice because the attorney was not licensed to practice law in Arkansas. Subsequently, the client sued the attorney for, among other things, violating the provisions of the ADTPA. The Arkansas Supreme Court dismissed the client's claim against the attorney because it found that the ADTPA did not apply to the practice of law. The basis for this holding was that the Arkansas General Assembly did not have the authority to create a law that would control the practice of law. Preston v. Stoops, 373 Ark. at 594, 285 S.W.3d 606("The suggestion that the practice of law can be regulated by an Act of the General Assembly is without merit. Oversight and control of the practice of law is under the exclusive authority of the judiciary."). However, that same protective rationale does not apply to LVNV; it is a separate entity apart from Hosto, and Preston does not shield LVNV from the Plaintiff's cause of action under the ADTPA. As a result of these findings, the Motion for Summary Judgment on the Plaintiff's ADTPA cause of action is denied.
In the Complaint, the Plaintiff alleges that LVNV breached its contractual agreement with the Plaintiff by obtaining a default judgment in the state court lawsuit. The factual basis for this cause of action is that at the time of the lawsuit the Plaintiff's only contractual agreement to pay the debt was with Citi. The Plaintiff claims that a new contract between the Plaintiff and LVNV was created through novation when the Plaintiff called the number on the orange paper and agreed to make payments in exchange for LVNV's agreement not to pursue the state court lawsuit. The Plaintiff claims that the agreement contained provisions requiring that the lawsuit would "go away," and that LVNV breached that agreement when it obtained the default judgment.
The Court does not find any support for the Plaintiff's contention that a new agreement was formed with LVNV through novation.
The Defendants argue that there was no agreement prohibiting them from filing the default judgment. The Defendants assert that even if the representations regarding the agreement were made to the Plaintiff, the contract itself would prevent that oral modification of the agreement from being valid. The contractual agreement specifically authorizes the Defendants to enforce their right to repayment under the contract by pursuing a lawsuit against the Plaintiff. Additionally, the contract states that "[a]ny waiver of rights by us must be in writing and signed by one of our authorized representatives." The Defendants argue that because no writing exists, the Plaintiff's argument that the Defendants agreed to waive their right to pursue the state court lawsuit is invalid, and no cause of action for breach of contract exists. However, under South Dakota law,
The Complaint includes an objection to LVNV's proof of claim filed in the Plaintiff's bankruptcy case, Case No. 3:10-bk-12140. The Plaintiff objects to LVNV's
The Plaintiff's Complaint contains a cause of action against the Defendants for the torts of fraud and misrepresentation. The Defendants claim in the Motion for Summary Judgment that the Plaintiff has failed to sufficiently plead this claim in compliance with Fed.R.Civ.P. 9(b). The Court reviewed a similar argument with regard to the Plaintiff's ADTPA cause of action in Section II of this Order, and finds that the same factual assertions described in that analysis also satisfy the pleading requirements for the Plaintiff's cause of action for fraud.
"To establish fraud, a plaintiff must show: (1) a false representation of material fact; (2) knowledge that the representation is false or that there is insufficient evidence upon which to make the representation; (3) intent to induce action or inaction in reliance upon the representation; (4) justifiable reliance on the representation; and (5) damage suffered as a result of the reliance." Fleming v. Cox Law Firm, 363 Ark. 17, 21, 210 S.W.3d 866, 868-69 (Ark.2005) (citing Knight v. Day, 343 Ark. 402, 36 S.W.3d 300 (2001)). The Plaintiff has asserted facts sufficient to satisfy these elements. The Plaintiff asserts that the Defendants made a false representation of a material fact by telling him that if he entered into a repayment agreement the lawsuit would "go away." The Plaintiff asserts that the Defendants knew that this representation was false because after receiving two payments from the Plaintiff, they continued to pursue the state court lawsuit by obtaining a default judgment. These same assertions are sufficient to support the Plaintiff's allegation that the Defendants made these statements with an intent to deter the Plaintiff from responding to the state court lawsuit, and the Plaintiff asserts that he relied on the representations in electing not to respond to the state court lawsuit. Finally, the allegations in the Plaintiff's Complaint regarding the damages suffered as a result of the Defendants' acts are sufficient to support this cause of action. The factual assertions made by the Plaintiff in the Complaint are more than conclusory allegations and are sufficient to satisfy the pleading requirements for this claim. The Court finds that the Plaintiff has sufficiently plead a cause of action for the torts of fraud and misrepresentation.
Furthermore, as previously discussed, there are genuine issues of material fact as to whether the Plaintiff was told that by entering into a repayment agreement the state court lawsuit would "go away," and whether or not the Plaintiff and Defendants did actually enter into a repayment agreement on that basis. These issues are directly related to whether the Defendants are liable to the Plaintiff
For the reasons stated herein, the Defendants' Motion for Summary Judgment is
