GEORGE B. DANIELS, District Judge.
On October 14, 2015, Plaintiff Mary Ellen Toohey filed this putative class action against Defendants Portfolio Recovery Associates, LLC and PRA Group, Inc. (together, "PRA"), and Malen & Associates, P.C. ("Malen") (collectively, with PRA, "Defendants"). She alleges that PRA, a debt-buying company, and Malen, its law firm, orchestrated a scheme to fraudulently obtain and enforce consumer debt judgments against her and similarly situated individuals in state courts. Specifically, she alleges that Defendants brought and maintained consumer debt lawsuits without having sufficient evidence to prove the claimed debts, and filed false, deceptive and misleading affidavits of merit in support of their claims to obtain default judgments. Toohey claims this conduct violated the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692, et seq., the Racketeer Influences and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961, et seq., and New York State General Business Law ("GBL") § 349. She also claims Defendants were unjustly enriched by virtue of their alleged misconduct. (Class Action Complaint ("CAC"), (ECF No. 1), at ¶¶ 57-102.)
Pending before this Court are Defendants' motions to dismiss the CAC pursuant to Federal Rules of Civil Procedure 9(b), 12(b)(1), and 12(b)(6). Defendants' motions to dismiss the RICO, GBL § 349 and unjust enrichment causes of action are GRANTED. Defendants' motions to dismiss the FDCPA cause of action are DENIED.
On September 8, 2015, the Consumer Financial Protection Bureau ("CFPB") issued a "Consent Order" detailing its review of PRA's practices regarding its purchase of consumer debts, and subsequent collection efforts including the filing of lawsuits against consumers. (Consumer Financial Protection Bureau Consent Order ("Consent Order"), (ECF No. 1-1), at 1, 60.) In the CFPB's opinion, PRA's practices violated, inter alia, the FDCPA.
Toohey filed the CAC approximately five weeks after the issuance of the Consent Order. The CAC's allegations are partially based on the CFPB's findings.
PRA purchases debt in bulk. (CAC at¶ 30; Consent Order at¶ 24.) Although the seller typically provides PRA with an electronic spreadsheet containing certain account-specific information, such as the consumer's name, social security number, and the current balance on the debt, (CAC at ¶ 30; Consent Order at ¶ 27), the debt purchase agreements often specify this information might be inaccurate, incomplete, or otherwise unreliable, (see CAC at ¶ 31; Consent Order at¶ 29). Additionally, some purchase agreements limit PRA's ability to acquire account level (i.e., primary source) documentation, in which case its ability to confirm the accuracy of the information in the spreadsheet is impaired. (See CAC at¶ 33; Consent Order at¶ 31.)
The CAC alleges that, despite knowing that the information pertaining to a particular debt might be inaccurate, and that it often will be unable to secure the documentation to prove the existence and amount of the debt owed, PRA nonetheless filed lawsuits in state and local courts to collect on the debts it had purchased. (CAC at¶ 35.) If the alleged debtor appeared to defend against the suit, and demonstrated that the amount claimed was incorrect, PRA and the law firm would amend the complaint by reducing the amount of the claimed debt by the amount the consumer contended was already paid. (Id. at ¶ 38.) If, however, the debtor failed to defend against the action, PRA would file a motion for default judgment. (See id. at¶ 39.) Approximately 10% of alleged debtors ever appear to defend against collection actions filed by PRA, so approximately 90% of PRA's actions lead to default judgments. (Id. at¶ 38.)
To secure a default judgment, PRA must demonstrate that it has firsthand knowledge of the account-level documentation demonstrating that the person from whom collection is sought owes the debt and amount claimed. (See id. at ¶I 39.) Accordingly, with each default judgment motion, PRA submits an affidavit sworn to by a PRA employee in which the employee asserts personal knowledge of the claimed debt and amount (I.e., an "affidavit of merit"). (Id.; Consent Order at¶ 49.) The "boilerplate language" included in these affidavits of merit provide, inter alia, that:
(CAC at ¶ 39 (emphasis and alterations in original); see Consent Order at ¶¶ 50.)
The CAC contends these assertions are false, deceptive, or misleading because PRA's affiants do not personally review any account-level documentation, but simply relies on the unreliable, hearsay information contained in the original spreadsheet provided by the sellers. (CAC at ¶ 40; Consent Order at ¶¶ 50-51, 100-02.)
Malen is a New York law firm that has maintained thousands of debt-collection lawsuits on PRA's behalf. (CAC at ¶¶ 18, 42.) The CAC alleges that Malen was aware of PRA's practice to acquire debt without obtaining the account-level documentation that would establish the debts' validity. (See id. at ¶ 46.) Thus, Malen was aware of the misleading nature of the affidavits of merit submitted by PRA to support their default judgment motions. The CAC further alleges that PRA prohibited Malen from directly contacting original creditors and debt sellers, so Malen could not itself confirm the legitimacy or accuracy of any debt or amount claimed by PRA. (Id.) Nevertheless, the CAC alleges that Malen prepared and filed the default judgment motions supported by the allegedly false, deceptive or misleading affidavits on behalf of PRA. (See id. at ¶ 46.)
On June 6, 2012, Malen initiated a debt-collection lawsuit on behalf of PRA against Toohey in Monroe County Supreme Court. (Id. at ¶ 50.) The action sought $976.08, inclusive of interest, for a debt Toohey allegedly incurred to HSBC Bank Nevada, N.A., which was later assigned to PRA. (Id.) After Toohey failed to answer, Malen, on behalf of PRA, filed an application for default judgment on February 22, 2013. (Id. at¶ 51.) The application included an affidavit from PRA employee Yvette M. Stephen who identified herself as a records custodian for PRA. (Id. at¶ 52.) Stephen's affidavit stated, in relevant part:
(Id. (emphasis and alterations in original).)
The application for default judgment was granted by the Monroe County Clerk on March 18, 2013. (Id. at ¶ 54.) Inclusive of costs and fees, the default judgment was in the amount of $1,405.04. (Id.) On or about May 8, 2013, at Malen's request, the Monroe County Sheriff's Office issued an income execution to Toohey's employer in conjunction with the recently granted default judgment. (Id. at¶ 55.) On November 10, 2014, Malen filed a satisfaction of judgment notice, which reflected that PRA had garnished Toohey's wages in the amount of $1,405.04. (Id. at ¶ 56.)
To survive a Rule 12(b)(6) motion to dismiss, the "complaint must contain sufficient factual matter . . . to `state a claim for relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 677 (2009) (quoting Bell At!. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "The plausibility standard is not akin to a `probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. "[W]hen the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged," the motion must be denied. Id. On the other hand, if the court is left speculating as to whether the defendant is liable for the misconduct alleged, the motion must be granted. ATS! Commc'ns, 493 F.3d at 98 (2d Cir. 2007) (citing Twombly, 550 U.S. at 555)).
"Under the Rooker-Feldman doctrine, lower federal courts lack subject matter jurisdiction over claims that effectively challenge state court judgments." Kropelnicki v. Siegel, 290 F.3d 118, 128 (2d Cir. 2002). The doctrine applies when: "(1) the federal-court plaintiff lost in state court; (2) the plaintiff complains of injuries caused by a state court judgment; (3) the plaintiff invites review and rejection of that judgment; and (4) the state judgment was rendered before the district court proceedings commenced." Vossbrinck v. Accredited Home Lenders, Inc., 773 F.3d 423, 426 (2d Cir. 2014) (citation and internal quotation marks omitted). However, "[c]laims sounding under the FDCP A, RICO, and state law speak not to the propriety of the state court judgments, but to the fraudulent course of conduct that defendants pursued in obtaining such judgments." Sykes v. Mels Harris and Assocs., LLC ("Sykes IF'), 780 F.3d 70, 94-95 (2d Cir. 2015); Gabriele v. Am. Home Mortg. Servicing, Inc., 503 F. App'x 89, 92 (2d Cir. 2012) ("The alleged litigation misconduct lasserted, inter alia, under the FDCP A] was not the product of the state court's denial of sanctions, its judgment . . ., or any other decision rendered, but rather, was `simply ratified, acquiesced in, or left unpunished by [the state court judgment].'" (quoting Hoblock v. Albany Cty. Bd. of Elections, 422 F.3d 77, 88 (2d Cir. 2005)) (second alteration in original)). Because Toohey does not seek to undo the state court judgment through this federal action, but merely seeks damages based on Defendants' alleged independent wrongful conduct, the Rooker-Feldman doctrine does not apply, and Defendants' motions on this ground are denied.
Res judicata "bars later litigations if [an] earlier decision was (1) a final judgment on the merits, (2) by a court of competent jurisdiction, (3) in a case involving the same parties or their privies, and (4) involving the same cause of action." EDP Med. Computer Sys., Inc. v. United States, 480 F.3d 621, 624 (2d Cir. 2007) (citation and internal quotation marks omitted). Thus, "later claims arising out of the same factual grouping as an earlier litigated claim are barred, even if the later claims are based on different legal theories or seek dissimilar or additional relief." Garcha v. City a/Beacon, 232 F. App'x 74, 75 (2d Cir. 2007).
Resjudicata does not bar Toohey's claims because the causes of action alleged do not arise out of the same factual grouping as the underlying debt-collection lawsuit. The facts relevant to the instant causes of action (e.g., whether Defendants filed a false, misleading or deceptive affidavit and were engaged in an ongoing scheme to defraud putative debtors) arose independent of the facts relevant to the underlying debt-collection lawsuit (I.e., whether Toohey borrowed money from HSBC and failed to pay it back, and whether HSBC assigned that debt to PRA). See Gabriele, 503 F. App'x at 93 (holding that neither res judicata nor collateral estoppel barred plaintiff's claims based on defendants' conduct during the course of litigation); Goddard v. Citibank, NA, No. 04CV5317 (NGG)(LB), 2006 WL 842925, at *7 (E.D.N.Y. Mar. 27, 2006) (holding that res judicata did not bar claims because, inter alia, New York law allows a party to maintain a subsequent action if the prior judgment had been procured by fraud, the instant claims had not previously been alleged, and award of damages would not invalidate prior judgment). Accordingly, Defendants' motions to dismiss Toohey's claim on resjudicata grounds are denied.
The FDCPA was enacted in 1977 to "eliminate abusive debt collection practices by debt collectors, [and] to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged. . . ." 15 U.S.C. § 1692. To help accomplish these purposes, the FDCPA prohibits debt collectors from, inter alia, using any "false, deceptive, or misleading representation or means in connection with the collection of any debt." 15 U.S.C. § 1692e.
Defendants first argue that Toohey's FDCPA claim should be dismissed because this action was commenced after the applicable statute of limitations expired. The FDCPA provides for a private right of action against alleged violations. 15 U.S.C. § 1692k. Such actions must be commenced "within one year from the date on which the violation occurs." 15 U.S.C. § 1692k(d).
The violation allegedly occurred on February 22, 2013 when Defendants filed the affidavit of merit in support of PRA's default judgment motion in the Monroe County Supreme Court. This action was not commenced until October 14, 2015, more than two years after the alleged violation occurred. Thus, Toohey's FDCPA cause of action is untimely unless she can plausibly allege a basis for tolling. See Coble v. Cohen & Slamowilz, LLP, 824 F.Supp.2d 568, 571 (S.D.N.Y. 2011) ("Equitable tolling applies to FDCP A claims in appropriate circumstances.").
A statute of limitations may be equitably tolled if a plaintiff establishes that: "(1) the defendant concealed from him the existence of his cause of action; (2) he remained in ignorance of that cause of action until some length of time within the statutory period before commencement of his action; and (3) his continuing ignorance was not attributable to lack of diligence on his part." Sykes v. Mel Harris and Assocs., LLC ("Sykes I"), 757 F.Supp.2d 413, 422 (S.D.N.Y. 2010) (citing State of N. Y. v. Hendrickson Bros., Inc., 840 F.2d 1065, 1083 (2d Cir. 1988)). A defendant may be deemed to have concealed the existence of the cause of action when the conduct forming the basis of the action is "inherently self-concealing." Hendrickson Bros., 840 F. 2d at 1083.
The CAC plausibly alleges that equitable tolling applies to Toohey's claim. First, the allegedly false affidavit-purporting that the affiant personally reviewed underlying documentation establishing the existence and amount of Toohey's debt-is inherently selfconcealing. Its alleged falsity is information of which only the Defendants could be aware. Cf id. ("The passing off of a sham article as one that is genuine is an inherently self-concealing fraud. . . .").
Second, Toohey plausibly alleges that she remained in ignorance of the basis of her cause of action until the CFPB issued its September 8, 2015 Consent Order revealing that routine representations made by PRA employees in nearly identical affidavits were false. Toohey filed this action approximately five weeks later, well within the one-year limitations period triggered by the Consent Order's issuance.
Third, Toohey's continuing ignorance was not attributable to a lack of diligence on her part. As just discussed, Defendants' allegedly false, deceptive and misleading affidavit of merit was inherently self-concealing. Toohey had no reason to question the truthfulness of the affidavit of merit, and, therefore, no reason to doubt that Defendants lawfully carried their burden of proof to obtain the default judgment.
Malen argues that Toohey could have discovered her FDCPA claim by defending against the collection action. Toohey's decision not to defend against the collection action, however, does not lead to the conclusion that she failed to act diligently with respect to discovering this independent cause of action. The FDCPA provides that "[t]he failure of a consumer to dispute the validity of a debt . . . may not be construed by any court as an admission of liability by the consumer." 15 U.S.C. § 1692g(c). Thus, according to the express terms of the FDCPA, Defendants had to submit evidence sufficient to establish Toohey's liability regardless of whether Toohey defended against the collection action.
Toohey has plausibly alleged that equitable tolling applies to her FDCPA claim. Defendants' motions to dismiss on this ground are denied.
Defendants next argue that Toohey's FDCPA claim should be dismissed because FDCPA liability does not attach to representations directed to state courts, as opposed to consumers.
The Second Circuit has not yet addressed whether representations made to courts, rather than consumers, can violate the FDCPA. Sykes II, 780 F.3d at 96-9; id. at 97 n.2 (citing Kropelnicki, 290 F.3d at 128 for proposition that Second Circuit has not ruled on the broader issue of "whether an FDCPA claim may be brought for misrepresentations made to third parties"). Section 1692e's text, particularly when construed in accordance with the purpose of the FDCPA, leads to the conclusion that they can. See Gross v. FBL Fin. Servs., Inc., 557 U.S. 167, 175 (2009) ("Statutory construction must begin with the language employed by Congress and the assumption that the ordinary meaning of that language accurately expresses the legislative purpose." (internal quotation marks omitted)).
Section 1692e states: "A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt." Notably, the text does not expressly limit the class of persons to whom the false representation must be made in order to be actionable. In other subsections, however, Congress explicitly singled out conduct specifically directed at consumers when it intended to limit liability for otherwise identical conduct. See Schendzielos v. Silverman, 139 F.Supp.3d 1239, 1244-45 (D. Colo. 2015) (noting that language in 15 U.S.C. §§ 1692b, c(b) expressly limits the conduct that those subsections apply to specific types of persons). This supports an interpretation that § 1692e applies to conduct directed not only to consumers, but to others, as well. See United States v. Lockhart, 749 F.3d 148, 154 (2d Cir. 2014), cert. granted, 135 S.Ct. 2350 (2015), and afj'd, 136 S.Ct. 958 (2016) ("[I]t is well established that statutory phrases should not be construed in isolation; we read statutes as a whole." (internal quotation marks and citations omitted)).
Additionally, "the FDCPA is `remedial in nature, [and] . . . must be construed in [a] liberal fashion if the underlying Congressional purpose is to be effectuated.'" Vincent v. The Money Store, 736 F.3d 88, 98 (2d Cir. 2013) (quoting NC. Freed Co. v. Bd. O[Governors of Fed. Reserve Sys., 473 F.2d 1210, 1214 (2d Cir.1973)); see Pipiles v. Credit Bureau ofLockport, Inc., 886 F.2d 22, 27 (2d Cir. 1989) ("Congress painted with a broad brush in the FDCPA to protect consumers from abusive and deceptive debt collection practices."). The FDCPA's thrust is to "limit[] the suffering and anguish often inflicted by independent debt collectors." Russell v. Equifax A. R. S., 74 F.3d 30, 34 (2d Cir. 1996) (internal quotation marks omitted). There can be no doubt that false, deceptive, or misleading representations made by debt collectors to state courts with the power to enter judgments adverse to consumers have the ability to cause consumers severe harm. See Sykes I, 757 F.3d at 427-28 (describing harms to consumers even when they are eventually able to vacate default judgments); (New York State Court System Press Release, Chief Judge Announces Comprehensive Reforms to Promote Equal .Justice for New York Consumers in Debt Cases, (ECF No. 1-3), at 4 (quoting Chief Judge Lippman as saying that "unwarranted default judgments[] often [have] devastating consequences for the debtor").) Thus, an interpretation categorically excluding such representations from the ambit of § 1692e would fail to accord with the canon that statutes are to be construed consistent with their purpose.
In the instant case, the affidavit of merit submitted by Defendants to the Monroe County Supreme Court allegedly contained a false, deceptive, and misleading representation. The affidavit was submitted so that Defendants could obtain a default judgment that they could then use to garnish Toohey's wages in satisfaction of her debt. Defendants likely would have been unable to obtain the default judgment without having made the allegedly false, deceptive, or misleading representation. Such conduct falls squarely within the prohibition set forth in the text of§ 1692e. Consequently, these allegedly false, deceptive, or misleading representations are actionable under the FDCP A, and Defendants' motions to dismiss on this ground are denied.
Defendants also argue that Toohey's FDCPA claims should be dismissed because the challenged statement in the affidavit of merit was not materially misleading. "[C]ommunications and practices that could mislead a putative-debtor as to the nature and legal status of the underlying debt, or that could impede a consumer's ability to respond to or dispute collection" are material, and therefore, violate the FDCPA. Gabriele v. Am. Home Mortg. Servicing, Inc., 503 F. App'x 89, 94 (2d Cir. 2012). Whether a representation is in fact false, deceptive, or misleading is evaluated from the perspective of the "least sophisticated consumer."
The affidavit of merit could be interpreted as a representation that Defendants actually possessed and reviewed evidence sufficient to establish Toohey's debt. Nothing about such an interpretation can plausibly be considered "bizarre or idiosyncratic." Id. at 1320. In fact, such an interpretation appears to be the intended interpretation, since attesting to have reviewed documents insufficient to prove the claimed debt would be senseless.
The Hoer-Pennington doctrine "immunizes from liability a party's commencement of a prior court proceeding." TF.T.F. Capital Corp. v. Marcus Dairy, Inc., 312 F.3d 90, 93 (2d Cir. 2002). "The doctrine's `sham exception,' however, excludes any abuse of process that bars access to the courts, `such as unethical conduct in the setting of the adjudicatory process or the pursuit of a pattern of baseless, repetitive claims.'" Sykes I, 757 F. Supp. 2d at 429 (quoting Landmarks Holding Corp. v. Bermant, 664 F.2d 891, 896 (2d Cir. 1981) (additional internal quotation marks and citation omitted)). Additionally, it is doubtful the doctrine applies to FDCPA causes of action. Hanna & Assocs., 114 F. Supp. 3d at 1359-61. Therefore, given Toohey alleges that litigationrelated misconduct violated the FDCPA, PRA's motion to dismiss on this ground is also denied.
To successfully plead a RICO claim, a plaintiff must sufficiently allege that (i) she suffered injury to business or property caused by RICO predicate acts of mail or wire fraud; (ii) the existence of a RICO "enterprise"; (iii) a "pattern of racketeering"; or (iv) any conspiracy to violate RICO. See 18 U.S.C. §§ 1962(c)-(d), 1964(c).
Toohey has failed to carry her pleading burden with respect to this claim. Unlike an FDCPA claim, a RICO claim requires a plaintiff to plead "injury to business or property by reason of' the alleged predicate acts of fraud at issue here. See 18 U.S.C. § 1964(c). This requirement means that Plaintiff must "show that a RICO predicate offense `not only was a "but for" cause of [her] injury, but was the proximate cause as well.'" Hemi Grp., LLC v. City ofNew York, 559 U.S. 1, 9 (2010) (quoting Holmes v. Sec. lnv'r Prat. Corp., 503 U.S. 258, 268 (1992)). Toohey does not allege that she did not owe the debt for which her wages were garnished. Accordingly, she has failed to allege that RICO predicate acts caused harm to any business or property to which she was entitled. See Sykes II, 780 F.3d at 91 (indicating plaintiff cannot actually be an injured party under RICO if a debt was actually owed and default judgment was achieved by means of proper service); cf infra note 17. This pleading failure is fatal to her RICO claim, and it is therefore dismissed.
"A plaintiff under [GBL] section 349 must prove three elements: first, that the challenged act or practice was consumer-oriented; second, that it was misleading in a material way; and third, that the plaintiff suffered injury as a result of the deceptive act." Stutman v. Chem. Bank, 731 N.E.2d 608, 611, 709 N.Y.S.2d 892, 895 (N.Y. 2000). "In addition, a plaintiff must prove `actual' injury to recover under the statute, though not necessarily pecuniary harm." Id. at 612, 709 N.Y.S.2d at 896.
Toohey has failed to carry her pleading burden with respect to this claim because she has failed to allege harm suffered as a result of Defendants' alleged deceptive acts. For instance, the harm caused by the improper freezing of a bank account might qualify as actual injury, even if no pecuniary injury accrued. See Sykes I, 757 F. Supp. 2d at 427-28 (presumably relying, at least in part, on fact that plaintiffs' bank accounts had improperly been frozen since the default judgments against them had been vacated). Again, however, Toohey has not alleged that she did not owe the debt for which her wages were garnished, and therefore has not alleged any "actual" injury suffered as a result of Defendants' alleged deceptive acts.
To survive a motion to dismiss an unjust-enrichment claim, a plaintiff must plead facts supporting the reasonable inference "l) that the defendant benefitted; 2) at plaintiffs expense; and 3) that equity and good conscience require restitution." Kaye v. Grossman, 202 F.3d 611, 616 (2d Cir. 2000) (internal quotation marks omitted).
Again, Toohey has not alleged that she did not owe the debt on which Defendants collected; therefore, Defendants could not have benefitted at Toohey's expense merely by utilizing the legal system to collect a debt she actually owed. Under these circumstances, equity and good conscience do not require restitution, since restitution would, in effect, be a windfall for Toohey. Toohey's unjust-enrichment claim is therefore dismissed.
Defendants' motions to dismiss Toohey's RICO, GBL § 349, and unjust enrichment claims are GRANTED. Defendants' motions to dismiss Toohey's FDCPA claim are DENIED. The Clerk of Court is directed to close the motions docketed as ECF Nos. 20 and 25.
A case management conference is scheduled for September 22, 2016 at 9:45 AM.
SO ORDERED.
(Id. at¶¶ 100-02.)
