Brown v. Transworld Sys.

646 F.Supp.3d 1328

Tommy BROWN, on his own and on behalf of other similarly situated persons, Plaintiff, v. TRANSWORLD SYSTEMS INC., et al., Defendant.

CASE NO. 2:20-cv-00680-DGE

United States District Court, W.D. Washington, at Seattle

Signed December 15, 2022

Scott C. Borison, Borison Firm LLC, Casper, WY, Christina Latta Henry, Henry & Degraaff PS, Seattle, WA, Phillip Robinson, Consumer Law Center LLC (MD), Silver Spring, MD for Plaintiff.

Benjamin C. Byers, Emily J. Harris, Corr Cronin LLP, Seattle, WA, Bradley J. St. Angelo, Pro Hac Vice, Bryan C. Shartle, Pro Hac Vice, Justin Homes, Pro Hac Vice, Sessions Israel & Shartle LLC, Metairie, LA, for Defendant Transworld Systems Inc.

Marc Rosenberg, Lee Smart PS Inc., Seattle, WA, for Defendant Patenaude & Felix APC.

Albert J. Rota, Pro Hac Vice, Jones Day, Dallas, TX, Jeff Castellano, Pro Hac Vice, DLA Piper LLP, Wilmington, DE, Kristine E. Kruger, Perkins Coie, Seattle, WA, Thomas N. Abbott, Perkins Coie, Portland, OR, for Defendant U.S. Bank NA.

Kristine E. Kruger, Perkins Coie, Seattle, WA, Thomas N. Abbott, Perkins Coie, Portland, OR, for Defendants National Collegiate Student Loan Trust 2004-1, National Collegiate Student Loan Trust 2004-2, National Collegiate Student Loan Trust 2005-1, National Collegiate Student Loan Trust 2005-2, National Collegiate Student Loan Trust 2005-3, National Collegiate Student Loan Trust 2006-1, National Collegiate Student Loan Trust 2006-2, National Collegiate Student Loan Trust 2007-1, National Collegiate Student Loan Trust 2007-2.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTIONS TO DISMISS (DKT. NOS. 105, 106, 107, 108)

David G. Estudillo, United States District Judge

I INTRODUCTION

This matter comes before the Court on Defendants' motions to dismiss for failure to state a claim. (Dkt. Nos. 105, 106, 107, 108.) The Court considered the pleadings filed in support of and in opposition to the motions and the remainder of the record and hereby GRANTS IN PART AND DENIES IN PART Defendants' motions for the reasons stated herein.

II BACKGROUND

Defendants sought to collect on student loans Plaintiff Tommy Brown cosigned on behalf of his son. (Dkt. No. 104 at 25.) Plaintiff alleges Defendants engaged in deceptive acts and practices in their "effort[s] to lead consumers and the courts to believe that [they] have the right to collect consumer debts when they [could not] show a satisfactory factual basis for their claims." (Id. at 2.) Plaintiff seeks to represent a class of plaintiffs "in the state of Washington whom the Trusts have communicated with, directly or indirectly, for the purpose of collecting a purported student loan owned by a Trust since April 3, 2015." (Id. at 25.)

A. The Parties

Plaintiff sued Defendants Transworld Systems, Inc. ("TSI"), Patenaude & Felix, APC ("Patenaude"), U.S. Bank, NA ("U.S. Bank"), and a group of National Collegiate Student Loan Trusts¹ ("Trusts" and collectively "Defendants"). (Dkt. No. 1-2.) The Trusts are Delaware statutory trusts, formed and existing under Delaware law for the purpose of acquiring purported consumer debts and issuing debt securities. (Id. at 13.) The Wilmington Trust Company serves as the owner trustee for the Trusts acting solely on behalf of the investors who purchase offered notes or shares of the Trusts. (Id. at 16.) As Delaware statutory trusts, they have no officers, no employees, and any actions performed on their behalf are performed by their Trustees or others engaged by the Trustees to perform contractual or legal duties. (Dkt. No. 104 at 17-18.)

Servicers collect amounts due on the loans on behalf of the Trusts. (Id. at 3.) For delinquent and default loan servicing, known as "Special Servicing," the Trusts' owner trustee, acting on behalf of the Trusts, entered into a Special Servicing Agreement ("SSA") with First Marblehead Education Resources, Inc. ("FMER") to act as Special Servicer. (Dkt. Nos. 97-1; 104 at 13.) The SSA designated U.S. Bank as "Back-Up Special Servicer" to automatically replace FMER if the Special Servicer resigned or was removed. (Dkt. No. 97-1 at 8; 104 at 13.)

The Default Prevention and Collection Services Agreement ("TSI Agreement"), which was incorporated by reference in the SSA (Dkt. No. 97-1 at 11), was entered into between FMER and NCO Financial Systems ("NCO") for NCO "to provide certain default prevention and collection activities . . . in the event that the Back-Up Special Servicer becomes the Special Servicer." (Dkt. No. 97-2 at 2.)

On June 21, 2012, the TSI Agreement was amended ("Third Amendment") after FMER resigned as Special Servicer making U.S. Bank the Successor Special Servicer and NCO a Special Subservicer. (Dkt. Nos. 104 at 13; 97-2 at 77-91.) The Third Amendment also recognized an agreement between U.S. Bank and Turnstile Capital Management, L.L.C. where Turnstile became a Special SubServicer. (Id.) Part of Turnstile's duties included being "responsible for global portfolio strategy and oversight of NCO's performance." (Dkt. No. 97-2 at 78; see also Dkt. No. 104 at 13.)

TSI succeeded NCO as Special Subservicer in 2014. (Id. at 18.) As Special Subservicer, TSI oversees loan collection efforts on behalf of the Trusts. (Id. at 4.) TSI is a licensed Washington collection agency. (Id. at 11.) TSI retains a network of attorneys across the country to assist in its debt collection efforts. (Id. at 18.) Patenaude was hired by TSI to help collect Plaintiff's debt. (Id.) Patenaude is a law firm that also is a licensed Washington collection agency. (Id.)

B. The State Collection Action

The State actions stem from private student loans taken out by non-party Osure Brown, to which Plaintiff Tommy Brown, Osure Brown's father, was a cosigner. (Dkt. No. 1-2 at 4.) In October 2018, Tommy Brown received letters from Patenaude stating it would initiate collection efforts on an outstanding balance on the student loans owed to the Trusts. (Dkt. No. 104 at 19.) In January 2019, Tommy Brown again received letters from Patenaude explaining it would discount a portion of his loan obligation if he agreed to settle out of court. (Id.)

On April 5, 2019, Patenaude, on behalf of the Trusts, filed ten complaints ("Collection Actions") in King County Superior Court. (Id.) The Trusts alleged Osure and Tommy Brown were liable for each of the ten loans the Trusts purchased from the loan originator Bank of America. (Id. at 20.) All ten actions were eventually consolidated into one action. (Id.) Osure Brown went through Chapter 13 bankruptcy after he took out the student loans, but before Patenaude sought to collect on the outstanding debt. (Id.) Osure Brown maintains he believed his student loans were discharged in bankruptcy and that he had no outstanding obligations. See Brown v. Transworld, et al., No. C20-669-DGE.

In each case brought by the Trusts, Patenaude filed an affidavit ("Audet Affidavit") signed by Jennifer A. Audet, an employee of TSI, attesting she had personal knowledge of the records of the assignment of the loans to the Trusts and representing there were outstanding balances owed to the Trusts. (Dkt. No. 104 at 20.) When the Browns challenged the Audet Affidavit, the Trusts responded with a new affidavit signed by Bradley Luke ("Luke Affidavit"). (Id.) Bradley Luke was another TSI employee who presented himself as the custodian of records for the Trusts. (Id.) The Luke Affidavit was accompanied by various documents purporting to show proper assignment of the loans to the Trusts. (Id.)

On September 20, 2019, the Browns moved for summary judgment for lack of standing and failure to prove proper assignment of the loans, arguing Bradley Luke could not testify about the Trusts' ownership of the loans. (Id. at 22.) The court struck the Luke Affidavit as hearsay as Bradley Luke was not an employee of the entity that had custody and possession of the records purporting to show proper assignment from Bank of America. (Id.) Without the Luke Affidavit, the Trusts provided no evidence in support of ownership of the loans and the court granted the Browns summary judgment. (Id.) The Trusts did not appeal the decision and that case was closed. (Id.)

C. The Present Dispute

Plaintiff filed a class action complaint in King County Superior Court against TSI, Patenaude, U.S. Bank, and the Trusts. (Dkt. No. 1-2.) Defendants removed the action to this Court. Plaintiff filed an Amended Complaint ("FAC") defining the Washington Class and alleging civil conspiracy to violate the Washington State Consumer Protection Act ("CPA"), violation of the CPA, invasion of privacy, and injunctive relief against all Defendants. (Dkt. No. 104 at 29-36.) Plaintiff asserts claims for violation of the Washington Collection Agency Act ("CAA") and Fair Debt Collection Practices Act ("FDCPA") as per se violations of the CPA against Patenaude and TSI. (Id. at 31-34.)

Plaintiff alleges Defendants caused him significant injuries including having to defend against the Collection Actions and being "unable to manage his finances and causing him to incur out of pocket expenses to determine his legal rights and responsibilities which caused loss of time away from his business." (Id. at 32.)

Defendants Patenaude, the Trusts, U.S. Bank, and TSI all filed separate motions to dismiss the claims in the FAC. (Dkt. Nos. 105, 106, 107, 108.)

III DISCUSSION

A. Legal Standard

Federal Rule of Civil Procedure 12(b) motions to dismiss may be based on either the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory. Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1988). Material allegations are taken as admitted and the complaint is construed in the plaintiff's favor. Keniston v. Roberts, 717 F.2d 1295 (9th Cir. 1983). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels...