Banker v. Family Credit Counseling Copr.

Page 392

440 F.Supp.2d 392

Sheralina BAKER, Carrie Contessa, Pamela Jack, Christine Smith, and Tara Scott, Plaintiffs, v. FAMILY CREDIT COUNSELING CORPORATION; Debt Solutions, Inc., James R. Armstrong, Jr., Igor M. Gelman, FCCC Services Inc., JRA Property & Land Management, Llc, Top Financial Sales & Marketing, Inc., Consumer Financial Marketing, Inc., Consumer Debt Management & Education, Inc., and Vegga Corporation, Defendants.

Civil Action No. 04-5508.

United States District Court, E.D. Pennsylvania.

July 28, 2006.

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Debora A. O'Neill, Meyerson Law Firm, Mary L. Russell, Roberta D. Liebenberg, Fine Kaplan and Black, R.P.C., Philadelphia, PA, for Plaintiffs.

Andrew Hanan, Conrad, O'Brien, Gellman & Rohn, P.C., Philadelphia, PA, for Defendants.

MEMORANDUM

DuBOIS, District Judge.

I. INTRODUCTION

Plaintiffs Sheralina Baker, Carrie Contessa, Pamela Jack, Christine Smith, and Tara Scott have filed a class action on behalf of themselves and other consumers who have entered into debt management plans.¹ Second Am. Compl. ¶¶ 1-2 ("Compl."). Each of the named plaintiffs enrolled in a debt management plan with defendant Family Credit Counseling Corp. ("FCCC") or defendant Consumer Debt Management & Education, Inc. ("CDME"). Id. ¶¶ 36-40. Named as defendants are those entities and two individuals, James R. Armstrong, an officer, director, shareholder, and founder of FCCC and Igor M. Gelman, also an officer, director, shareholder, and founder of both FCCC and FCCC Services Inc. ("FCCC-2"). Id. ¶¶ 44-45. Also named as defendants are FCCC-2, Debt Solutions, Inc. ("Debt Solutions"), JRA Property and Land Management, LLC ("JRA Property"), Top Financial Sales & Marketing, Inc. ("Top Financial Sales"), Consumer Financial Marketing, Inc. ("Consumer Financial"), and Vegga Corporation ("Vegga"), which plaintiffs allege are closely interrelated with the defendants FCCC and CDME, the companies with which they contracted for debt management services. Id. ¶¶ 42, 47-49, 52. Plaintiffs' claims against all defendants are based on the Credit Repair Organization Act ("CROA"), the Racketeer Influenced and Corrupt Organizations Act ("RICO"), Pennsylvania's Unfair Trade Practices and Consumer Protection Law ("UTPCPL"), breach of fiduciary duty, breach of contract, and unjust enrichment. Defendants have filed a Motion to Dismiss the Second Amended Complaint. For' the reasons that follow, defendants' motion is granted in part and denied in part.

II. BACKGROUND

The following is taken from plaintiffs' Second Amended Complaint (hereinafter "Complaint").

A. Facts of the Case

As summarized by plaintiffs in the first paragraph of their Complaint:

This is a consumer class action brought on behalf of victims of a complicated scheme, involving interrelated companies and individuals, to appropriate hundreds of dollars from individual consumers under the guise of "debt management" or credit repair without actually providing worthwhile or timely services to the consumers. As a result of defendants' actions and inaction, members of the class are worse off financially than they were before dealing with the defendants, and many find that the credit ratings they were trying to improve actually have worsened.

Compl. ¶ 1.

Defendants market and sell debt management plans ("DMPs") as a means for consumers to pay off their debts by consolidating a consumer's debts into one monthly payment. Id. ¶ 6. Defendants tell consumers that they have relationships with creditors, so that if the consumer enrolls in a DMP with one of the defendants, they will receive lower interest rates on their debts and "repair bad credit negatives" on their credit reports. Id. ¶¶ 7, 16. Each named plaintiff enrolled in a DMP with defendant CDME or FCCC,² paying a sign-up fee to do so.³ Id. ¶ 2. Plaintiffs were told that this sign-up fee would be used to pay off their creditors; instead, however, defendants kept the fee.⁴ Id. ¶ 117. Plaintiffs also authorized defendants to make monthly withdrawals from their checking accounts in order to fund the DMPs.⁵ Id. ¶¶ 36-40. Further, each plaintiff executed a "Limited Power of Attorney" form allowing defendants to act as plaintiffs' fiduciary to disclose information to creditors and negotiate with creditors. Id. ¶¶ 111, 141(a).

Despite payment of the sign-up fee and authorization of the monthly withdrawals, defendants failed to establish a DMP for any of the named plaintiffs. Id. ¶ 3. While defendants were purportedly establishing DMPs, they told plaintiffs not to contact their creditors, and to direct all contacts from creditors to defendants. Id. ¶¶ 23, 31. As a result, plaintiffs stopped paying their creditors directly, believing instead that defendants were making their payments through the DMPs. Id. ¶ 31. Because defendants failed to initiate and administer DMPs, as they agreed to do, plaintiffs claim they have suffered a variety of harms — loss of the start-up fees which were never refunded; damage to their credit histories; payment of higher interest rates on their outstanding debts; and payment of late fees on those debts. Id. ¶¶ 124, 126, 128, 130, 140.

Plaintiff Baker's alleged experience with defendants, which lasted the longest of the five named plaintiffs, paints a picture of consumers lulled into believing that defendants were paying off their creditors when in fact their debts were continuing to accumulate.⁶ Plaintiff Baker enrolled in a DMP with defendant FCCC on March 12, 2003, paying a sign-up fee of $199.00. Id. ¶ 142(d). On April 23, 2003, FCCC sent two "form proposals" to IC Systems, one of Baker's creditors. Id. ¶ 143. The proposals stated the amount of debt Baker owed to IC Systems and stated that a payment of $18.00 would be disbursed on Baker's behalf on May 28, 2003. Id. The proposals also attempted to solicit a commission from IC Systems payable to FCCC in exchange for FCCC collecting plaintiff Baker's payments. Id. By letter dated May 6, 2003, IC Systems notified FCCC that it did not accept payments from credit counseling agencies such as FCCC, nor did it accept "bulk" payments for multiple consumers' accounts. Id. ¶ 144. Despite this information, defendant FCCC sent IC Systems a series of bulk payments on behalf of Baker and other individuals in January and February of 2004.⁷ Id. ¶ 146(m).

On December 18, 2003, plaintiff Baker authorized FCCC to make monthly automatic withdrawals from her checking account in the amount of $153.00.⁸ Id. ¶ 145(g). At that same time, she sent three form letters to her creditors., stating that she was closing her accounts with them because FCCC would now be handling those accounts. Id. ¶ 145(h). Subsequently, in January of 2004, FCCC withdrew the $153.00 monthly charge and a $24.00 service fee from Baker's checking account. Id. ¶¶ 146(b)-(c). In early February 2004, FCCC sent Baker a monthly statement listing the four creditor accounts to be paid under Baker's DMP and the amounts of the payments: two $18.00 payments to IC Systems, a $75.00 payment to NCO Financial, and an $18.00 payment to Verizon Wireless. Id. ¶ 146(d). However, none of these payments were credited to Baker's accounts with these creditors. Id.

After FCCC obtained two additional automatic monthly withdrawals from Baker's checking account totaling $310.00, FCCC prepared a new creditor form for PECO Energy, another of Baker's creditors. Id. ¶ 146(I). FCCC was supposed to disperse $75.00 a month to Baker's PECO account. Id. Despite the fact that Baker told FCCC that PECO had transferred the account to another company, Inovision, FCCC sent proposed disbursement forms to PECO (and not Inovision) on March 12, 2004. Id. PECO also informed FCCC that Baker's account had been transferred to Inovision some time in March 2004. Id. ¶ 146(l). Notwithstanding such notices, FCCC sent a $75.00 check to PECO on March 22, 2004. Id. ¶ 146(n).

In early May 2004, Baker, who had applied for a mortgage, was notified that her application was in jeopardy due to nonpayment of accounts on her credit report. Id. ¶ 146(r). By this time, FCCC had made four automatic withdrawals from Baker's checking account, each in the amount of $177.00,⁹ and the two additional withdrawals totaling $310.00. Id. ¶¶ 146(i), 146(o)-(p). Baker began calling FCCC Customer Service, asking about the payments that were to have been made on her accounts, and was told that FCCC had to "research the matter." Id. ¶ 146(r). Despite several telephone calls over the next few days, Baker received no further information about her account.¹⁰ Id. On May 25, 2004, Baker was notified that her mortgage application was rejected because of her failure to make monthly payments on her outstanding debts. Id. ¶ 146(u). Baker continued to try to contact FCCC, without success, in order to find out what had happened to her payments and to terminate her DMP. Id. ¶¶ 146(x), 146(y).

In early June 2004, defendants sent Baker a monthly statement, showing that Baker's Verizon Wireless account had been paid down to $194.59 from its original balance of $284.00, and that Baker's PECO account had been paid down to $1,859.00 from its original balance of $2,336.00. Id. ¶ 146(z). At this same time, Baker received a notice from a collection agency stating that her PECO account had actually increased and that, at that point, she owed PECO $2,410.78. Id. After more telephone calls to FCCC, Baker finally received a statement showing that none of Baker's monthly payments had been sent to creditors. Id. ¶ 146(aa). As a result, Baker asked for a refund of the money she had paid to FCCC, but FCCC refused to return any of her money, and continued to deduct the $24.00 monthly service fee from her checking account until August 2004. Id. ¶ 146(bb).

B. The Defendants

Plaintiffs allege that defendants are a network of interconnected businesses and individuals.¹¹ Specifically, as alleged by plaintiffs, "all of the named de...