MARC T. TREADWELL, District Judge.
Defendants LVNV Funding LLC, Resurgent Capital Services LP, Sherman Acquisition LLC, Sherman Financial Group LLC, Sherman Originator LLC (the "Sherman Defendants"), and Atlas Acquisitions LLC ("Atlas") have moved to dismiss the Plaintiffs' second amended and recast complaint (Doc. 74) for lack of subject matter jurisdiction pursuant to the Rooker-Feldman doctrine and failure to state a claim as to all counts. (Docs. 20; 21).
Arrow Financial Services LLC ("Arrow"), which was recently added as a Defendant, has not yet moved to dismiss. However, because the primary point of the motions is that the Court lacks subject matter jurisdiction, the Court will consider the Court's subject matter jurisdiction over the Plaintiffs' claims against Arrow sua sponte. See Univ. of S. Ala. V. Am. Tobacco Co., 168 F.3d 405, 410 (11th Cir. 1999) ("[A] court should inquire into whether it has subject matter jurisdiction at the earliest possible stage in the proceedings. Indeed, it is well settled that a federal court is obligated to inquire into subject matter jurisdiction sua sponte whenever it may be lacking.").
The Plaintiffs allege that the "Defendants collectively participate in the operation and management of a sophisticated consumer debt collection enterprise." (Doc. 74, ¶ 15). Defendant Sherman Financial operates its part of this enterprise through various "interdependent subsidiaries engaged in purchasing and servicing portfolios of consumer defaulted debt." (Id. ¶ 17). Defendants LVNV Funding LLC ("LVNV") and Sherman Acquisition are "two of Sherman Financial's asset holding entities [who] do nothing more than own portfolios of consumer debt." (Id. ¶ 21). "Resurgent, one of Sherman Financial's operating entities," collects consumer debt owned by LVNV by entering into agreements with law firms that file debt collection lawsuits in state courts. (Id. ¶ 22). Like Sherman Financial, Arrow also "acquired defaulted consumer debts at a large discount and then sought to collect on those debts by bringing actions in state courts," and then in June 2012, Arrow sold most of its "consumer debt portfolio" to LVNV. (Id. ¶ 26). "Atlas purchases consumer bankruptcy debt at a large discount from entities such as LVNV and Sherman Acquisitions" and collects the purchased debts by filing proofs of claim in bankruptcy. (Id. ¶ 27).
The Plaintiffs allege Calvin Ferrell Davis was a victim of the Defendants' "scheme" which began when Arrow filed a complaint in the State Court of Houston County to recover a "defaulted credit card debt from `Calvin Davis' . . . allegedly owed to Wells Fargo Financial Inc. (`Wells Fargo') amounting to $17,369.63 (the `Debt')." (Id. ¶¶ 28-29). However, the Plaintiffs allege Davis has only had an automobile loan with Wells Fargo, which he paid off on March 7, 2006. (Id. ¶ 30). The complaint listed Davis's address as 6089 Lakeview Road Apt. 904, Warner Robins, Georgia 31088 ("the Lakeview Apartment"). (Id. ¶ 33). Davis's girlfriend lived at this address in 2005 and 2006, and Davis received mail there during that time. (Id. ¶ 34). He also listed this address on his 2005 W-2 and his automobile loan with Wells Fargo. (Id.). However, the Plaintiffs deny Davis ever lived there or had any connection with the address at the time of the Houston County action in 2010. (Id.).
Arrow hired process server Bradley Hill to serve Davis, and Hill swore under penalty of perjury that he personally served Davis at the Lakeview Apartment on September 22, 2010. (Id. ¶ 35). However, Hill was not an authorized process server in Georgia. (Id. ¶ 36). Also, a man named Hung Van Thai lived at the Lakeview Apartment on the date Hill swore he served Davis, while Davis lived in Powder Springs, Georgia, 120 miles away.
After Arrow assigned the debt to LVNV, LVNV mailed Davis a letter on May 31, 2013 to notify him that it intended to initiate garnishment proceedings. (Id. ¶¶ 47-48). Specifically, the letter stated that "a garnishment has been, or will be filed," that "it will be served upon [Davis's employer]," and that it would be filed in the name of "LVNV Funding LLC FNA Arrow Financial Services LLC." (Id. ¶ 48). This letter was mailed to his mother-in-law's residence where Davis has never resided. (Id. ¶ 49). The Plaintiffs allege LVNV knew that Davis did not reside at his mother-in-law's residence and did not owe the debt. (Id. ¶ 50). Nevertheless, LVNV initiated garnishment proceedings on June 7, 2013 in the State Court of Fayette County, Georgia, and thereafter Davis's employer was served with a summons of continuing garnishment which stated that Davis owed $21,201.42 plus costs to LVNV. (Id. ¶ 53). Davis's employer notified him about the garnishment on June 17, 2013. (Id. ¶ 56). The Plaintiffs allege Davis was completely unaware of the preceding events until he spoke with his employer. (Id. ¶ 46).
On June 20, 2013, Davis called LVNV's counsel to dispute the validity of the garnishment proceedings in Fayette County, to inform LVNV that he never had a Wells Fargo account and never lived at the Lakeview Apartments, and to request them to investigate the purported Wells Fargo account. (Id. ¶ 61). LVNV maintained that Davis owed the debt and that the default judgment arising out of the Houston County action was valid and refused to investigate or release the garnishment. (Id. ¶¶ 62-63). Thereafter, Davis's attorney called LVNV's counsel who maintained Davis owed the debt. (Id. ¶ 65). Instead of moving to set aside the default judgment, Davis filed for bankruptcy to immediately stop the garnishment. (Id. ¶¶ 66, 68, 70-71).
LVNV then "assigned or transferred" the default judgment to Sherman Acquisition who then "assigned or sold" the judgment to Atlas. (Id. ¶¶ 72-73). The Plaintiffs allege that "both entities [knew] . . . Davis never owed the Debt, that neither entity had documentation to support attempting to collect the supposed Debt, and that the Default Judgment had been fraudulently obtained." (Id. ¶ 73). Atlas filed a proof of claim in bankruptcy on August 30, 2013 "as the purported assignee of Wells Fargo" to collect the debt from Davis, stated the "basis of its proof of claim was a `Credit Card,'" and claimed Davis owed $23,343.06. (Id. ¶¶ 75-76). The Plaintiffs allege Atlas knew its claim "lacked substantial justification" and included false information in the proof of claim. (Id. ¶ 76).
Following the bankruptcy proceedings, the Plaintiffs filed this lawsuit. The Sherman Defendants and Atlas moved to dismiss the Plaintiffs' complaint primarily on the ground the Court lacks subject matter jurisdiction pursuant to the Rooker-Feldman doctrine. (Docs. 20-21). The Defendants argued that the Plaintiffs' allegations were effectively a challenge of the default judgment in Houston County. (Id.). In response, the Plaintiffs adamantly argued that Rooker-Feldman was inapplicable because the Defendants actually sued a different Calvin Davis in state court. (Docs. 32 at 2; 34 at 1).
However, this argument became problematic when documents surfaced suggesting a connection between the "real" Calvin Davis and the address for the Calvin Davis sued in state court. (Doc. 46-1). The Plaintiffs then reframed their argument to challenge service of process in state court. (Doc. 56). The Court stayed the case to allow the Plaintiffs to challenge the default judgment, but the State Court of Houston County concluded it lacked jurisdiction to hear the Plaintiffs' motion because of Davis's bankruptcy discharge. (Docs. 63; 66-1). Given the evidence that came to light during the parties' briefing and during the attempt to set aside the default judgment, the Plaintiffs asked the Court for permission to amend their complaint, dismiss Greene & Cooper as a Defendant, and add Arrow as a Defendant. (Doc. 66). The Court granted these requests. (Doc. 73).
"A defendant can move to dismiss a complaint under Rule 12(b)(1) for lack of subject matter jurisdiction by either facial or factual attack." Stalley v. Orlando Reg'l Heathcare Sys., Inc., 524 F.3d 1229, 1232 (11th Cir. 2008). "A facial attack on the complaint requires the court merely to look and see if the plaintiff has sufficiently alleged a basis of subject matter jurisdiction, and the allegations in his complaint are taken as true for the purposes of the motion." Id. at 1232-33 (internal quotations and citation omitted). A factual attack, however, "challenges the existence of subject matter jurisdiction using material extrinsic from the pleadings, such as affidavits or testimony." Id. at 1233. The Defendants here have introduced material extrinsic from the pleadings and thus have made a factual attack on the Court's jurisdiction. The parties have been given ample opportunity to brief the issue and submit evidence to the Court.
To avoid dismissal pursuant to Fed. R. Civ. P. 12(b)(6), a complaint must contain sufficient factual matter to "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "At the motion to dismiss stage, all well-pleaded facts are accepted as true, and the reasonable inferences therefrom are construed in the light most favorable to the plaintiff." Garfield v. NDC Health Corp., 466 F.3d 1255, 1261 (11th Cir. 2006) (internal quotation marks and citation omitted). However, "where 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.'" Iqbal, 556 U.S. at 679 (alteration in original) (quoting Fed. R. Civ. P. 8(a)(2)). "[C]onclusory allegations, unwarranted deductions of facts or legal conclusions masquerading as facts will not prevent dismissal." Oxford Asset Mgmt., Ltd. v. Jaharis, 297 F.3d 1182, 1188 (11th Cir. 2002). The complaint must "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Twombly, 550 U.S. at 555 (alteration in original) (internal quotation marks and citation omitted). Where there are dispositive issues of law, a court may dismiss a claim regardless of the alleged facts. Marshall Cty. Bd. of Educ. v. Marshall Cty. Gas Dist., 992 F.2d 1171, 1174 (11th Cir. 1993).
The Plaintiffs have asserted claims pursuant to the Fair Debt Collection Practices Act ("FDCPA"), Georgia's Racketeer Influenced and Corrupt Organizations ("RICO") statute, and Georgia's Fair Business Practices Act ("GFBPA"), as well as claims for intentional infliction of emotional distress, loss of consortium, negligence per se, attorney's fees, and punitive damages. Each Defendant argues the Court lacks subject matter jurisdiction over these claims pursuant to the Rooker-Feldman doctrine.
Rooker-Feldman is a narrow doctrine confined to cases "brought by state-court losers complaining of injuries caused by state-court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments." Vasquez v. YII Shipping Co., Ltd., 692 F.3d 1192, 1195-96 (11th Cir. 2012) (quoting Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005)); see also Lance v. Dennis, 546 U.S. 459, 464 (2006). The doctrine operates as a bar to federal court jurisdiction where claims are "inextricably intertwined" with the state-court judgment. Alvarez v. Attorney Gen. for Fla., 679 F.3d 1257, 1262-63 (11th Cir. 2012) (citation omitted). In other words, the doctrine prevents state-court losers "from seeking what in substance would be appellate review of the state judgment in a United States district court, based on the losing party's claim that the state judgment itself violates the loser's federal rights." Johnson v. De Grandy, 512 U.S. 997, 1005-1006 (1994). However, the doctrine is "inapplicable where the party against whom the doctrine is invoked was not a party to the underlying state-court proceeding." Lance, 546 U.S. at 464.
For the Rooker-Feldman doctrine to apply, the state-court proceedings must have ended before the federal case was filed. Nicholson v. Shafe, 558 F.3d 1266, 1274-75 (11th Cir. 2009). It is clear the state-court proceedings had ended before this case was filed, and the Plaintiffs do not challenge this point. In their many briefs, the Plaintiffs have raised and raised again a number of arguments against the applicability of the Rooker-Feldman doctrine. However, in their final pleading on the issue, the Plaintiffs have distilled their arguments to three: (1) Davis was not a party to the state-Court action because he was not properly served; (2) their claims are independent of the state-court judgment as they "flow at least in part from" the Defendants' later conduct; and (3) preclusion law, rather than Rooker-Feldman, applies and does not bar the Plaintiffs from bringing their state or federal claims to this Court. (Doc. 66 at 9-10). The Court addresses these arguments in turn.
Davis contends that he was not a "state-court loser" because he was never properly served in the state-court action. Id. at 9. However, a claim of faulty service does not allow a party to avoid the Rooker-Feldman doctrine. See, e.g., Skit Int'l, Ltd. v. DAC Techs. of Ark., Inc., 487 F.3d 1154, 1157 (8th Cir. 2007); In re Knapper, 407 F.3d 573, 581 (3d Cir. 2005); Schmitt v. Schmitt, 324 F.3d 484, 487 (7th Cir. 2003). "[S]tate courts [are] competent to determine their own jurisdictional boundaries," and Davis could have raised the faulty service issue to the state court. Schmitt, 324 F.3d at 487.
Citing O.C.G.A. § 9-11-60(a), the Plaintiffs also argue that Rooker-Feldman does not prevent the Court "from collaterally reviewing the state default judgment for lack of personal jurisdiction" due to faulty service because pursuant to Georgia law, "[a] judgment void on its face may be attacked in any court by any person." (Doc. 66 at 4 (alteration in original) (quoting O.C.G.A. § 9-11-60(a)). However, the Eleventh Circuit has stated that "[O.C.G.A. § 9-11-60] establishes a method for attacking Georgia state court judgments, but only in Georgia state courts."
In short, that Davis may not have been properly served does not prevent the application of the Rooker-Feldman doctrine.
The Plaintiffs also argue that Rooker-Feldman does not apply because their claims are independent of the state-court judgment. (Doc. 66 at 9). The necessary implication is that their claims are not inextricably intertwined with that judgment. See Goodman ex rel. Goodman v. Sipos, 259 F.3d 1327, 1333-34 (11th Cir. 2001). As stated, "the Rooker-Feldman doctrine operates as a bar to federal court jurisdiction where the issue before the federal court was `inextricably intertwined' with the state court judgment." Alvarez, 679 F.3d at 1262. "A claim is inextricably intertwined if it would effectively nullify the state court judgment, or [if] it [would] succeed[ ] only to the extent that the state court wrongly decided the issues." Casale v. Tillman, 558 F.3d 1258, 1260 (11th Cir. 2009) (internal quotation marks and citations omitted). Here, the Plaintiffs' claims against Arrow and the Sherman Defendants primarily regard the proceedings in the State Court of Houston County and the State Court of Fayette County. The Plaintiffs' claims against Atlas regard its filing a proof of claim in bankruptcy court.
The gravamen of the Plaintiffs' allegations against Arrow and the Sherman Defendants, specifically LVNV, is a challenge to the debt and to the validity and propriety of the proceedings and default judgment in the State Court of Houston County and the corresponding garnishment proceedings in the State Court of Fayette County. The alleged FDCPA violations are based on Arrow's filing the Houston County action and service of process, LVNV's pursuing the garnishment action, and LVNV's communication with Davis and his attorney
If the Court were to accept that Arrow and the Sherman Defendants violated the above statutes and legal doctrines through their attempt to a collect a debt that Davis allegedly does not owe and was not properly collected in the state-court proceedings, the Court "would effectively declare the state court judgment was fraudulently procured and thus void." Kropelnicki, 290 F.3d at 129. For the FDCPA claims (and thus the GFBPA claim and derivative state law claims) to prevail, the Court would have to conclude that the debt was not properly owed and not properly collected in state court. For the Georgia RICO claims to prevail, the Court would have to conclude that Arrow and the Sherman Defendants committed various predicate acts of racketeering activity during the litigation of the state court action that resulted in a default judgment and during the corresponding garnishment action and enforcement. Thus, the Court would, in effect, conclude that the default judgment and corresponding garnishment were wrongfully obtained and thus void. See Figueroa v. Merscorp, Inc., 766 F.Supp.2d 1305, 1324 (S.D. Fla. 2011), aff'd, 477 F. App'x 558 (11th Cir. 2012). Indeed, if the State Court of Houston County had not entered a default judgment against Davis, the claims premised on the default judgment and corresponding garnishment would cease to exist.
In sum, it is clear the FDCPA, Georgia RICO, and GFBPA claims and the derivative claims premised on the allegedly fraudulent service; false filings, mailings, and communications; and other acts of litigation in state court to collect the debt are a de facto appeal challenging the validity of the default judgment and corresponding garnishment and thus are inextricably intertwined with the state-court judgment.
The Plaintiffs allege Atlas violated Georgia RICO and the FDCPA by knowingly and fraudulently filing a false proof of claim in bankruptcy to collect the debt. (Doc. 74, ¶¶ 86, 73-77, 96-97, 99-100). If the Court were to conclude that Atlas's proof of claim was false and fraudulently filed because Atlas knew the state judgment was wrongfully obtained and that Davis did not owe the underlying debt, the Court would still, in effect, conclude the state-court judgment that Davis did owe the debt was erroneous, wrongfully obtained, and void. See In re Knapper, 407 F.3d 573, 581 (3d Cir. 2005) (holding that the plaintiff's attack in bankruptcy on the state-court judgment for lack of personal jurisdiction due to defective service of process was "inextricably intertwined with the state-court judgment and thus barred by Rooker-Feldman"). Again, this claim challenges the validity of the state-court judgment and thus is inextricably intertwined with that judgment. The Plaintiffs' "attempt to cloak [their]" claim as an FDCPA challenge and a predicate act under Georgia RICO does not alter the result. Id. at 585 (Rosen, J., concurring). "Courts must look beyond the form to address the substance of the claim." Id. And here, the substance of the FDCPA and Georgia RICO claims—the collection of an allegedly invalid state-court judgment—is inextricably intertwined with that judgment, and the Plaintiffs had a reasonable opportunity to challenge the validity of this judgment and the propriety of creditors' collection of it in state court.
The Court is aware of the Eleventh Circuit's recent opinion in Molina v. Aurora Loan Servs., LLC, ___F. App'x___, 2015 WL 7753215 (11th Cir.). There, the plaintiff's "principal claim [was] that the defendants discriminated against her during the loan modification process" that occurred after the defendants obtained a foreclosure judgment against her in state court. Id. at *3. The Eleventh Circuit held that this claim was not barred by the Rooker-Feldman doctrine because the plaintiff had no reasonable opportunity to raise it during the foreclosure proceedings. Id. The discriminatory conduct that formed the substance of the claim occurred two years after the state-court proceedings, and the substance of the claim was different from the substance of the state-court claims. See id. But here, the Plaintiffs' argument is just a rehash of their argument that Davis was not properly served and that he did not owe the underlying debt. The Court recognizes that the conduct at issue—the filing of an allegedly false proof of claim—occurred subsequent to the state-court judgment. But the substance of the claim is still that the state-court judgment was erroneous.
In sum, the Plaintiffs' claims challenge the validity of the default judgment and the corresponding garnishment and otherwise complain of injuries caused by the state court. Thus, the Court could not decide in the Plaintiffs' favor without effectively deciding that the state court made an erroneous judgment. See Franklin v. Arbor Station, LLC, 549 F. App'x 831, 833 (11th Cir. 2013) (reasoning the same). This is precisely what the Rooker-Feldman doctrine seeks to prevent. Even if certain claims were independent of the state-court judgment, those claims would still be dismissed for the reasons discussed.
In their final motion before the Court, the Plaintiffs rather confusingly add that because their injuries "flow at least in part from" the Defendants' later conduct, preclusion law, rather than Rooker-Feldman, applies, and preclusion law does not bar their claims because O.C.G.A. § 9-11-60(a) permits the Court to collaterally attack the state-court judgment. (Doc. 66 at 8-10). The Plaintiffs contend that because their claims are independent of the state-court proceedings and not an attempt to set aside the judgment, "state law determines whether the defendant prevails under principles of preclusion." (Doc. 66 at 8 (bold, italics, and citation omitted)).
However, as discussed, the Plaintiffs are seeking a de facto appeal challenging the validity of the default judgment and corresponding garnishment, and thus, their argument is without merit. See Vasquez, 692 F.3d at 1196 ("The question of whether a federal court may review factual issues determined by a state court is a question of collateral estoppel and res judicata, whereas the Rooker-Feldman doctrine is confined to cases that invit[e] district court review and rejection of judgments." (alteration in original) (internal quotation marks and citation omitted)). In any event, the Plaintiff's preclusion argument raises the same meritless argument regarding O.C.G.A. § 9-11-60(a).
For the foregoing reasons, the Defendants' motions to dismiss are
