Banks v. Kottemann Law Firm

ERICKA BANKS, individually and on behalf of all others similarly situated v. KOTTEMANN LAW FIRM

CONSOLIDATED WITH

SHELITA KING, individually and on behalf of all others similarly situated v. KTTEMANN LAW FIRM, ET AL.

CIVIL ACTION NO. 19-375-JWD-EWD

CIVIL ACTION NO. 20-340-JWD-EWD

UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF LOUISIANA

March 31, 2021

RULING AND ORDER

This matter comes before the Court on the Motion to Set Aside Clerk's Entry of Default and to Compel Arbitration (Docs. 16, 41) filed by Defendant Kottemann Law Firm ("Defendant"). Plaintiff Ericka Banks ("Plaintiff") opposes the motion.¹ (Docs. 22, 42.) Defendant has filed a reply. (Doc. 27.) Oral argument is not necessary. The Court has carefully considered the law, facts in the record, and arguments and submissions of the parties and is prepared to rule. For the following reasons, Defendant's motion is denied.

I. Background

A. Overview

This is a putative class action brought pursuant to the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692, et seq. Defendant is Kottemann Law Firm, a Louisiana company that uses mail, telephone, or facsimile in a business, the principal purpose of which is the collection of debts. (Compl. ¶¶ 8-10, Doc. 1.) Plaintiff is a Louisiana resident (id. ¶ 7) who allegedly incurred an obligation to First Heritage Credit of Louisiana, LLC ("FHC") (id. ¶ 12). Thereafter, FHC "or a purchaser, assignee, or subsequent creditor" contracted with Defendant to collect on the alleged debt owed. (Id. ¶ 16.) In connection with this debt, on December 17, 2018, Defendant sent Plaintiff a collection letter.² (Id. ¶ 18.)

Based on this letter, Plaintiff brings three causes of action against Defendant, alleging that Defendant's debt-collection practices violated various provisions of the FDCPA. Specifically, Plaintiff alleges that Defendant violated 15 U.S.C. § 1692(e) by falsely representing the amount of the debt, threatening to take action that cannot legally be taken or that is not intended to be taken, and using false, deceptive and misleading representations in connection with the collection of a debt, (id. ¶¶ 44-48); 15 U.S.C. § 1692(f) by attempting to collect an amount not expressly authorized by the agreement creating the debt or permitted by law, (id. ¶¶ 49-53); and finally, 15 U.S.C. § 1692(g) by overshadowing the validation notice (id. ¶¶ 54-57).

Plaintiff seeks, inter alia, declaratory and injunctive relief, actual and statutory damages, attorney's fees, and any other relief this Court "may deem just and proper." (Id. ¶ 6; see also Doc. 1 at 11.)

B. Procedural History

On June 10, 2019, Plaintiff filed her class action Complaint against Defendant. (Doc. 1.) On June 11, 2019, a summons was issued to Defendant and a Scheduling Conference was set for August 8, 2019. (Docs. 2, 3.) On June 29, 2019, Defendant was served personally through its registered agent, owner, and principal attorney, Stanley Kottemann. (Doc. 6.) Defendant's answer was due by July 22, 2019. (Id.) Due to Defendant's failure to submit an answer by that date, on July 24, 2019, the Court reset the Scheduling Conference for September 5, 2019. (Doc. 7.)

On August 20, 2019, Plaintiff moved for the Clerk's Entry of Default. (Doc. 8.) On August 21, 2019, the Clerk's Entry of Default was entered. (Doc. 9.) On that same day, Plaintiff submitted a status report and a request to cancel the September 5, 2019 Scheduling Conference. (Doc. 10.)

On August 23, 2019, the Court cancelled the Scheduling Conference and requested a status report by November 25, 2019. (Doc. 11.) On September 26, 2019, Plaintiff filed a Motion for Leave to Conduct Discovery and to Waive the Meet-and-Confer Requirements of FRCP 26(f), Due to Defendant's Refusal to Participate in This Action. (Doc. 12.)

On December 5, 2019, the Court granted Plaintiff's motion and directed Plaintiff's counsel to submit proposed discovery demands to the Court for review by December 20, 2019. (Docs. 13, 14.) On January 13, 2020, the Court permitted Plaintiff to propound discovery on Defendant after modifying the proposed discovery. (Doc. 15.)

On May 8, 2020, Defendant filed a Motion to Set Aside Clerk's Entry of Default and to Compel Arbitration. (Doc. 16.) On May 28, 2020, Plaintiff filed an opposition. (Doc. 22.) On June 22, 2020, Defendant filed a reply. (Doc. 27.)

On November 30, 2020, the King case was transferred to this Court and consolidated with the instant case upon Defendant's motion. As Judge Jackson explained in his Ruling and Order on the motion to consolidate, "both actions [were] filed on behalf of Louisiana consumers under the [FDCPA]. Both actions involve the same attorneys, the same Defendant[], functionally the same claims, a request for class certification, and call for the same relief."³ (King, No. 20-340, Doc. 19 at 1-2.) Thereafter, Defendant re-submitted its original motion and accompanying brief and Plaintiff re-submitted her opposition. (See Docs. 41, 42.) Defendant did not re-submit its reply.

II. Parties Arguments

A. Defendant's Memorandum (Doc. 41-1)

In support of its motion, Defendant argues that the entry of default should be set aside for "good cause" shown under Federal Rule of Civil Procedure 55(c). Defendant first points out that the default entry will only have a limited effect if it is not set aside. (Doc. 41-1 at 6-7.) According to Defendant, a default entry is not an unqualified admission of liability; it does not establish the amount of damages; and it does not admit facts in the Complaint that are not well-pleaded. (Id. at 7.) Therefore, even if the default entry is not set aside, Defendant can still contest the sufficiency of the Complaint. (Id.)

Next, Defendant urges the Court to set aside the default entry because all three of the factors set forth in Lacy v. Sitel Corp., 227 F.3d 290, 291-92 (5th Cir. 2000) are met. (Id. at 8.) Defendant first contends that its default was not willful. (Id. at 9.) In support of this contention, Defendantrelies on the affidavit of Mr. Kottemann (hereinafter "Kottemann Aff.," Doc. 41-3), who attests that: (1) on June 29, 2019, "an unknown individual dropped a summons and complaint" on his car (id. ¶ 5); (2) he then "promptly notified FHC of the complaint" (id. ¶ 6); (3) thereafter, he was "repeatedly assured by FHC that [it] 'will take care of' the complaint," which he "reasonably understood" to mean that FHC had taken or would take action to resolve the matter directly with Plaintiff either by demanding arbitration or settling (id. ¶¶ 8-9); (4) he reached out to FHC's legal representative after receiving emails from Plaintiff's counsel, but "again" was reassured by FHC that it was handling the matter (id. ¶ 9); (5) after receiving discovery from Plaintiff's counsel, he "began to attempt to inquire further with FHC" about the status of the case, but was unable to reach FHC's representatives due to COVID-19 (id. ¶ 10); (6) "upon investigation" he learned of the Clerk's entry of default and engaged the services of legal counsel (id. ¶ 11); and (7) he followed all legal and ethical guidelines in handling this matter (id. ¶ 12). (Doc. 41-1 at 9.) Thus, "Defendant's failure to respond was not due to bad faith, an attempt to take advantage of the Plaintiff, or an attempt to interfere with the legal process." (Id.)

Second, Defendant avers that its default has not legitimately caused delay or increased Plaintiff's legal fees. (Id. at 10.) Further, "Plaintiff cannot complain about losing any right to a jury trial because there is no recognized right to a jury trial in FDCPA cases" in the Fifth Circuit. (Id. at 11 (citing Moore v. Frazier, 35 Fed. Appx. 386 (5th Cir. 2002) (unpublished)).)

Third, Defendant presents three "meritorious defenses" to Plaintiff's claims: (1) that there is a binding arbitration agreement; (2) that Plaintiff lacks standing; and (3) that Plaintiff's claims are subject to dismissal under Rule 12(b)(6). (Id. at 11-21.) Accordingly, this factor also weights in favor of setting aside the default. (Id. at 21.)

Finally, the "most important discretionary factor that the Court considers is the fact that the Defendant is ready and willing to arbitrate and only if necessary, litigate the case on its merits." (Id.)

In closing, Defendant notes that because it provided a reasonable explanation for its untimely response, there is no injustice to Plaintiff, and it has demonstrated meritorious defenses, good cause exists to set aside the Clerk's Entry of Default. (Id. at 22.) Moreover, given that there is only an entry of default, relief in this case should be "more readily granted than a motion to set aside a default judgment." (Id. at 21 (quoting In re Dierschke, 975 F.2d 181, 184 (5th Cir. 1992)).) As such, the entry of default should be vacated, Defendant's request for arbitration should be granted, and this case should be stayed pending the outcome of arbitration. (Id. at 22.)

B. Plaintiff's Opposition (Doc. 42)

In opposition, Plaintiff argues that the Court should not set aside the default entry because "Defendant's default was both willful and intentional." (Doc. 42 at 11.) In broad strokes, the crux of Plaintiff's argument is as follows:

The plain and simple facts of this case demonstrate that the Kottemann Law Firm decided to ignore this case at every stage of the litigation. It decided to ignore the Complaint personally served on it. It decided to ignore the Plaintiff's July 30 and August 13 emails, each warning that a default would be entered if the Defendant failed to interpose a response to the Complaint. It decided to ignore the August 21, 2019 Clerk's Entry of Default. It decided to ignore the Plaintiff's Status Report and subsequent Motion to Conduct Class Discovery. It decided to ignore the class discovery demands and deposition served on it. In short, the Kottemann Law Firm willfully, intentionally and consciously decided to default in this case. Now that it realized that its head-in-the-sand strategy had

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