Joseph F. Bianco, District Judge:
Plaintiff Darian Derosa ("Derosa" or "plaintiff") brings this putative class action on behalf of himself and other individuals similarly situated,
The Court takes the following facts from the complaint, as well as the collection notice from Computer Credit, which is attached
Plaintiff alleges that he is a "consumer" and that Computer Credit is a "debt collector," as defined by the FDCPA. (Compl. ¶¶ 5, 10-12.) Plaintiff received a letter from Computer Credit, dated December 11, 2015, seeking to collect a financial obligation plaintiff incurred primarily for personal, family, or household purposes — a "debt" as defined by the FDCPA. (Compl. ¶ 8.) The letter, which lists an address of 17 Edna Lane, Selden, NY 11784-1529 in the upper-left corner, reads, in relevant part:
(Compl. at 11-12 ("Ex. A," or "Letter").)
Plaintiff asserts that, because of two specific omissions, this letter violates 15 U.S.C. §§ 1692e ("Section 1692e") and 1692g ("Section 1692g"). In particular, plaintiff contends that Computer Credit failed to notify him that: first, the "Amount Due" may increase due to "reasonable attorney's fees and court costs," and, second, the "Amount Due" may increase due to interest pursuant to N.Y. C.P.L.R. § 5001. (Compl. ¶¶ 15-18, 21-22, 32.)
With regard to the first purported omission, plaintiff notes that the agreement between Derosa and the Hospital allows the Hospital to charge Derosa, "in addition to the `Amount Due' of $174.15, `reasonable attorney's fees and court costs' `if there is a default in payment of any sums due' and John T. Mather Memorial Hospital `retains an attorney to prosecute a claim for unpaid balances.'" (Compl. ¶ 16.) Plaintiff further contends that Computer Credit, as an assignee or successor-in-interest, would have a right to charge Derosa the additional sum, and violated Sections 1692e and 1692g by failing to notify Derosa of this
Plaintiff's second claim, as noted above, is premised on his argument that his debt could increase due to pre-judgment interest, as afforded by N.Y. C.P.L.R. § 5001. There is no allegation (nor does plaintiff argue) that, at the time defendant sent the debt collection letter, plaintiff's debt had been reduced to a judgment. Section 5001(a) states that "[i]nterest shall be recovered upon a sum awarded because of a breach of performance of a contract." (Compl. ¶ 24 (citing N.Y. C.P.L.R. § 5001(a)).) Plaintiff asserts that this statute allows for interest to begin to accrue on the "earliest ascertainable date the cause of action existed." (Compl. ¶ 27 (citing N.Y. C.P.L.R. § 5001(b)).) Plaintiff claims that interest, therefore, began accruing on or before the date Computer Credit sent the collection letter. (Compl. ¶¶ 26-32.) Relying on his argument that this pre-judgment interest would be recoverable, plaintiff claims Computer Credit violated the FDCPA by failing to notify Derosa of this potential increase in debt. (Compl. ¶ 19.)
Plaintiff filed a complaint in the Supreme Court of the State of New York, County of Suffolk, on May 15, 2017. Defendant removed the case to this Court on May 19, 2017. Defendant filed a motion to dismiss on July 31, 2017. Plaintiff filed his memorandum in opposition to defendant's motion to dismiss on September 7, 2017. Plaintiff replied on September 21, 2017. The Court held oral argument on October 17, 2017, and reserved decision. On November 20, 2017 and November 30, 2017, defendant submitted notices of supplemental authority, bringing to the Court's attention decisions relating to the pending motion that had been issued after oral argument. The Court has fully considered the parties' submissions and arguments.
In reviewing a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), the Court must accept the factual allegations set forth in the complaint as true and draw all reasonable inferences in favor of the plaintiff. See Cleveland v. Caplaw Enters., 448 F.3d 518, 521 (2d Cir. 2006); Nechis v. Oxford Health Plans, Inc., 421 F.3d 96, 100 (2d Cir. 2005). "In order to survive a motion to dismiss under Rule 12(b)(6), a complaint must allege a plausible set of facts sufficient `to raise a right to relief above the speculative level.'" Operating Local 649 Annuity Tr. Fund v. Smith Barney Fund Mgmt. LLC, 595 F.3d 86, 91 (2d Cir. 2010) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). This standard does not require "heightened fact pleading of specifics, but only enough facts to state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570, 127 S.Ct. 1955.
The Supreme Court clarified the appropriate pleading standard in Ashcroft v. Iqbal, setting forth a two-pronged approach for courts deciding a motion to dismiss. 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). The Supreme Court instructed district courts to first "identify[ ] pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth." Id. at 679, 129 S.Ct. 1937 (explaining that though "legal conclusions can provide the framework of a complaint, they must be supported by factual allegations"). Second, if a complaint contains "well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Id. A claim has "facial plausibility when the plaintiff pleads factual content that allows the court to draw the
The Court notes that, in adjudicating this motion, it may consider: "(1) facts alleged in the complaint and documents attached to it or incorporated in it by reference, (2) documents `integral' to the complaint and relied upon in it, even if not attached or incorporated by reference, (3) documents or information contained in defendant's motion papers if plaintiff has knowledge or possession of the material and relied on it in framing the complaint, (4) public disclosure documents required by law to be, and that have been, filed with the Securities and Exchange Commission, and (5) facts of which judicial notice may properly be taken under Rule 201 of the Federal Rules of Evidence." In re Merrill Lynch & Co., 273 F.Supp.2d 351, 356-57 (S.D.N.Y. 2003), aff'd sub nom. Lentell v. Merrill Lynch & Co., 396 F.3d 161 (2d Cir. 2005).
Plaintiff conceded at oral argument that this case could be decided based on the pleadings. Plaintiff claims that, as a matter of law, Computer Credit was required to disclose in its collection notice that his debt may increase in the future due to Section 5001 interest or future legal fees and costs under the agreement. There is no allegation that the debt was accruing interest, late charges, or other fees under the agreement between plaintiff and the Hospital. Under such circumstances, where there are no factual disputes based upon the pleadings for which discovery is required, it is simply a question of law as to whether the letter violates the FDCPA. Contra Sperber v. Cent. Credit Servs., LLC, No. 16-CV-5222 (ARR) (RLM), 2017 WL 1737702, at *5 (E.D.N.Y. May 1, 2017) (denying a motion for judgment on the pleadings because the question before the court of "whether or not interest was accruing" was "a factual question" that could not be resolved at the pleadings stage).
Defendant moves to dismiss, arguing that plaintiff does not state a claim for relief under the FDCPA because there was nothing false, misleading, or deceptive about the letter it sent plaintiff in an attempt to collect his past due debt. Defendant's main argument is that the FDCPA does not require debt collectors to disclose that additional interest or fees may accrue when an account is not actually accruing interest or fees. This argument addresses plaintiff's remaining claims, which allege that defendant violated the FDCPA by failing to notify defendant of the potential that he might in the future incur additional charges in the form of (1) attorney's fees and court costs under the agreement (incurred to collect the unpaid balance), or (2) pre-judgment interest under N.Y. C.P.L.R. § 5001.
For the reasons set forth below, the Court concludes that, as a matter of law, defendant's collection notice was not false, deceptive, or misleading in omitting information about these potential charges that would be contingent upon the occurrence of future litigation events.
Congress created the FDCPA to respond to the "use of abusive, deceptive, and unfair debt collection practices by many debt collectors." 15 U.S.C. § 1692(a); see Greco v. Trauner, Cohen & Thomas, L.L.P., 412 F.3d 360, 363 (2d Cir. 2003). Finding that such practices "contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy," the FDCPA aims "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(a), 1692(e).
To determine whether a debt collector's communication violates the FDCPA, courts apply an objective test based on the understanding of the "least sophisticated consumer." Jacobson v. Healthcare Fin. Servs., Inc., 516 F.3d 85, 90 (2d Cir. 2008) (citing Clomon v. Jackson, 988 F.2d 1314, 1318 (2d Cir. 1993)); Bentley v. Great Lakes Collection Bureau, 6 F.3d 60, 62 (2d Cir. 1993). According to the Second Circuit, the "least sophisticated consumer" standard is "an objective analysis that seeks to protect `the naïve' from abusive practices while simultaneously shielding debt collectors from liability for `bizarre or idiosyncratic interpretations' of debt collection letters." Greco, 412 F.3d at 363 (citations omitted). The Second Circuit has emphasized, however, that "even the least sophisticated consumer can be presumed to possess a rudimentary amount of information about the world and a willingness to read a collection notice with some care." Id. (quoting Clomon, 988 F.2d at 1318-19).
Section 1692e provides that "[a] debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt." 15 U.S.C. § 1692e. A communication is considered false, deceptive, or misleading to the "least sophisticated consumer" if it is "open to more than one reasonable interpretation, at least one of which is inaccurate."
Section 1692g(a) sets forth the required disclosures for a debt collector's initial communication to a consumer. Specifically, the debt collector must include (1) the amount of the debt; (2) the name of the
Plaintiff claims that the collection notice violated the FDCPA because it failed to disclose that the amount of the debt may increase in the future if attorney's fees and court costs are incurred in connection with litigation to recover the unpaid balance. As set forth below, that claim fails as a matter of law under Sections 1692e and 1692g(a).
As noted above, the agreement between Derosa and the Hospital allows the Hospital to charge Derosa, "in addition to the `Amount Due' of $174.15, `reasonable attorney's fees and court costs' `if there is a default in payment of any sums due' and John T. Mather Memorial Hospital `retains an attorney to prosecute a claim for unpaid balances.'" (Compl. ¶ 16.) Thus, this attorney's fees-shifting provision would only be triggered if the following conditions were met: (1) the Hospital retained an attorney; (2) a lawsuit was commenced; (3) attorney's fees and costs were incurred; and (4) a court determined those fees and costs were reasonable. In the instant case, there are no allegations suggesting that the attorney's fees-shifting provision had been triggered at the time the collection letter was received. In other words, plaintiff does not allege that such attorney's fees and costs had been incurred, or that an attorney had even been retained. Thus, at the time the letter was received, there could be no conceivable argument that the amount of the debt had increased. The amount of the debt under the FDCPA does not include unaccrued attorney's fees and costs that are contingent upon future events. In short, this Court holds that the FDCPA is not violated, under the least sophisticated consumer standard, by the failure to disclose that the amount of the debt may increase in the future if attorney's fees and court costs are incurred in connection with litigation to recover the unpaid balance. In fact, any mention of the possibility of incurring these fees and costs would be so speculative that it could render the disclosure itself misleading under the FDCPA to the least sophisticated consumer.
This Court's decision is consistent with the analysis by the Seventh Circuit in Veach v. Sheeks, 316 F.3d 690 (7th Cir. 2003). In Veach, the Seventh Circuit held that an affirmative mention of attorney's fees in a collection notice violated the FDCPA. Id. at 692, 694. The debt collector in Veach had described the "amount of the claimed debt" as the "[r]emaining principal balance $1,050.00; plus reasonable attorney fees as permitted by law, and costs if allowed by the court." Id. at 692. The Seventh Circuit pointed to the definition of a "debt" under the FDCPA — an "obligation or alleged obligation" — and found that "by assuming the outcome of future events in drafting his notice, Sheeks ran afoul of the FDCPA." Id. at 692, 694.
The Second Circuit reached a similar conclusion in Carlin v. Davidson Fink LLP, where the Court held that a debt collector's inclusion of estimated attorney's fees and costs in the collection letter could be a violation of the FDCPA, even if allowed under the contractual agreement between the parties:
852 F.3d 207, 216 (2d Cir. 2017) (citations omitted).
Notwithstanding the Second Circuit's decision in Carlin, plaintiff contends that his claim is supported by the Second Circuit's decision in Avila v. Riexinger & Assocs., LLC, 817 F.3d 72 (2d Cir. 2016). This Court, however, disagrees. Although Avila held that "Section 1692e requires debt collectors, when they notify consumers of their account balance, to disclose that the balance may increase due to interest and fees," id. at 74 (emphasis added), the Avila holding does not apply to the circumstances in this case. Instead, as discussed below, the holding and rationale of Avila is confined to cases where a balance is actually increasing, or where the possibility that it may increase is not contingent upon a future event.
In Avila, the debt collector informed the debtors of their "current balance[s]," but not that those amounts were increasing over time, or could increase if not paid by a certain date. Id. at 77. The debt at issue was allegedly accruing interest on a daily basis at a rate of 500% per annum at the time of the action, and would also allegedly result in a late fee if the debt was not paid within a certain amount of time. Id. at 74. Under those circumstances, where the amount of the debt had actually increased by the time the letter reached the debtor, the Second Circuit held an additional disclosure was required:
Id. at 76. Derosa, on the other hand, asks this Court to extend Avila to apply in
Plaintiff relies upon the above-referenced language in Avila allowing for claims where a collection notice failed to disclose that a balance may increase. Other decisions have focused on the Avila requirement that debt collectors disclose when debt is actually increasing. See, e.g., Dick v. Enhanced Recovery Co., LLC, No. 15-CV-2631 (RRM) (SMG), 2016 WL 5678556, at *5 (E.D.N.Y. Sept. 28, 2016) (summarizing the Second Circuit's holding in Avila as "that it is misleading for a debt collector to list the amount owed without disclosing the fact that said amount is increasing"). This Court recognizes that — as plaintiff notes — the Avila decision also left open the possibility of challenges based on future increases in debt resulting from late fees.
The distinction between the different types of potential future increases, and reason for requiring only certain disclosures, focuses on notice. In Avila, the Second Circuit found that the omitted information rendered the collection letter inadequate notice to the consumer. 817 F.3d at 76. The plaintiffs successfully argued that the "least sophisticated consumer" (or even a reasonable consumer) might not expect the "current balance" on a debt collection notice to increase with the mere passage of time. Id. The Second Circuit accepted the plaintiffs' argument that the collection notice misled them to believe that the "current balance" was a "static" amount, and that payment at any time would satisfy the debt. Id. at 74, 76.
This rationale does not apply in Derosa's case, as the least sophisticated consumer would have been correct in believing that the "Amount Due" was not increasing at the time of the collection letter and, thus, was a static amount. Unlike in Avila, Derosa's
The Court concludes not only that the disclosures plaintiff argues were required in this case by the FDCPA are not compelled by Avila, but also that such mandated disclosures would potentially do more harm than good. Warnings about unaccrued interest and/or fees contingent upon future events (such as litigation) could easily confuse debtors as to the sum they owe, or might owe in the future. See, e.g., Castro v. Green Tree Serv. LLC, 959 F.Supp.2d 698, 711 (S.D.N.Y. 2013) ("The Court finds that the least sophisticated consumer would be misled by the inclusion of the total underlying balance, rather than the amount being collected.... [The] letter could mislead a consumer as to the `nature and legal status of the underlying debt"); see also Beauchamp v. Fin. Recovery Servs., No. 10 Civ. 4864(SAS), 2011 WL 891320, at *2-3 (S.D.N.Y. March 14, 2011) (debt collector's disclosure that the debt may increase due to interest, late charges, and other charges violated the FDCPA when debt collector never sought to collect on any amount beyond that stated in the letter). Opening the floodgates to mandatory additional notifications based upon future, contingent events could produce collection notices that leave debtors unsure of the legal status of their debt and what their next steps should be, thereby impeding the underlying objectives of the FDCPA.
In sum, because the attorney's feesshifting clause had not been triggered and the debt at issue was not actually increasing at the time the letter was received, the Court holds that the failure to disclose the possibility of owing future attorney's fees and costs was not a violation of the FDCPA under Section 1692e or Section 1692g(a).
Plaintiff's claim that he might incur additional charges in the form of pre-judgment interest turns on N.Y. C.P.L.R. § 5001, as state law determines whether pre-judgment interest is recoverable. (See Compl. ¶¶ 24-28); see also In re Arcade Pub., Inc., 455 B.R. 373, 379 (Bankr. S.D.N.Y. 2011) (citing In re Milham, 141 F.3d 420, 423 (2d Cir. 1998)). Under New York law, it is abundantly clear that pre-judgment interest under Section 5001 only applies after a lawsuit has been successfully prosecuted and a sum has been awarded.
The language of Section 5001 indicates that the award of a judgment must precede any claim for interest:
N.Y. C.P.L.R. § 5001(c) (emphasis added).
Not only does the first clause of this provision discuss a "sum awarded" — which presumes a court has made a decision and calculated damages — but the second clause also refers to a past decision date (when the verdict "was rendered"). See N.Y. C.P.L.R. § 5001. In addition to the plain language of the statute, the commentary clarifies that this provision precludes the award of such pre-judgment interest. See, e.g., In re Arcade Pub., Inc., 455 B.R. at 379 (citing Weinstein, Korn & Miller, NEW YORK CIVIL PRACTICE ¶ 5001.00 (2d ed. 2005) (explaining that this provision was intended to compensate a "successful plaintiff")).
Given this legal framework under New York law, this Court holds that statutory interest under N.Y. C.P.L.R. § 5001 does not accrue on a debt until it is awarded by a court. This is not a situation where the obligation to pay exists prior to that obligation later being reduced to a judgment and, thus, is part of the debt, see 15 U.S.C. § 1692a(5); the obligation to pay the interest does not exist at all under New York law until that judgment is awarded by a court. Thus, pre-judgment interest under Section 5001 is not part of the debt under the FDCPA until such an award is made by a court. Here, there is no allegation of such an award and, therefore, the amount of the debt was static at the time the letter was received. Accordingly, the Court holds that the failure to include any disclosure in the letter about the possibility of pre-judgment interest being awarded in the future does not violate Section 1692e or Section 1692g(a) under the least sophisticated consumer standard.
As noted supra, this holding is not contrary to the Second Circuit's holding (or reasoning) in Avila. Unlike Avila, where the debt at issue was accruing on a daily basis at a rate of 500% per annum, the debt here is not accruing any interest under N.Y. C.P.L.R. § 5001 at the time the letter was received because no such interest has been awarded. Likewise, although plaintiff also cites Sperber, that case is also distinguishable because the debt at issue had already been reduced to a judgment and New York law provides for automatic 9% statutory interest on judgments. 2017 WL 1737702, at *1. Other case authority plaintiff provides in support of his argument demonstrates only that pre-judgment interest can be recovered after a judgment has been awarded. (See Pl.'s Mem. 10 (citing Lee v. Joseph E. Seagram & Sons, Inc., 592 F.2d 39, 42 (2d Cir. 1979) (finding that, where plaintiffs had already received a judgment in their favor and sought to amend the judgment to add pre-judgment interest, under N.Y. C.P.L.R. 5001, "plaintiffs were unquestionably entitled to pre-judgment interest from some date"))). In short, the Court finds the case authority cited by plaintiff, and the accompanying arguments, to be unpersuasive in the context of this case.
Several other New York federal and state courts have reached the same conclusion on this issue under the FDCPA. In Cruz v. Credit Control Services, in a thorough and well-reasoned decision, the Honorable Arthur D. Spatt granted a motion to dismiss a similar claim premised on a debt collector's failure to disclose a potential balance increase resulting from pre-judgment interest under N.Y. C.P.L.R.
Similarly, in Altieri v. Overton, Russell, Doerr, and Donovan, LLP, the court held that the failure to advise plaintiff in a collection letter about the possibility that interest could be assessed under N.Y. C.P.L.R. § 5001 in the future did not violate Section 1692e. 281 F.Supp.3d 254, 265 (N.D.N.Y. 2017). In reaching its decision, the court noted that "N.Y. C.P.L.R. § 5001 interest cannot be assessed unless and until a civil action is commenced" and there was no allegation, at the time the collection letter was received, that any such action had been commenced. Id. (citations omitted). Thus, the court emphasized that, "contrary to the situation addressed in Avila II, the [collection letter's] statement of the Amount Due is not false and would not mislead the least sophisticated consumer from the belief that, at the time, payment of the Amount Due would clear her account." Id. (citation omitted). Moreover, the court noted that the possibility that the debt could be sold to a third party, who could then seek interest under N.Y. C.P.L.R. § 5001, did not change the analysis because "the potential of future events (i.e. the debt is sold to a third party and the third party commences a civil action seeking N.Y. C.P.L.R. § 5001 interest) does not make the [collection letter's] statement ... false or a violation of the rule announced in Avila II." Id. at 266, (citation omitted).
Finally, in two decisions in New York state court, the court similarly concluded, citing Cruz, that "pre-judgment interest under CPLR 5001 is not considered part of the amount of the debt if no request for recovery of pre-judgment interest has been made before a court." (ECF No. 19-1 (Ex. 1, Jackson v. Comput. Credit, Inc., No. 613935/2016E (N.Y. Sup. Ct. Suffolk Cty. Nov. 22, 2017) (citation omitted)); accord ECF No. 19-2 (Ex. 2, Brown v. Comput. Credit, Inc., No. 617003/2016E (N.Y. Sup. Ct. Suffolk Cty. Nov. 22, 2017))).
In sum, the Court concludes that, where there is no allegation that any legal action has been commenced in connection with the debt, the failure to disclose in the collection letter the possibility that pre-judgment interest could be assessed under N.Y. C.P.L.R. § 5001 does not violate the FDCPA.
For the foregoing reasons, the Court grants Computer Credit's motion to dismiss the remaining (the first, second, and fifth) causes of action.
SO ORDERED.
Plaintiff in this case made — and lost — a similar claim in Derosa v. CAC Fin. Corp. with regard to a collection notice sent to recover his credit card debt. 278 F.Supp.3d 555, 561 (E.D.N.Y. 2017). In Derosa, plaintiff did not base his claim that there could be a future increase in debt on the contingent event discussed here (a lawsuit). Plaintiff simply pointed to the Avila holding that, under § 1692e, "debt collectors, when they notify consumers of their account balance, [must] disclose whether the balance may increase due to interest and fees," and then made the bare allegation that the debt collector "fail[ed] to disclose whether Plaintiff's balance may increase due to interest and fees." Amended Compl. ¶¶ 20, 33, Derosa v. CAC Fin. Corp., 278 F.Supp.3d 555 (E.D.N.Y. 2017), ECF No. 19. Absent any indication of potential future increases in Derosa's debt, the court treated his case as one "where there [was] not a possibility" of the balance increasing due to interest or fees. Derosa, 278 F.Supp.3d at 560. The court noted that the Second Circuit had not yet addressed the question of whether a collection notice must affirmatively state that debt is static, and concluded that such a notification is unnecessary. Id. at 560-561.
