Carlvin v. Ditech Fin. LLC, Case No. 16–CV–08386

237 F.Supp.3d 753

Belinda CARLVIN, Plaintiff,

v.DITECH FINANCIAL LLC and Landmark Asset Receivables Management LLC, Defendants.

Case No. 16–CV–08386

United States District Court, N.D. Illinois, Eastern Division.

Signed February 16, 2017

Celetha Chatman, Michael Jacob Wood, Community Lawyers Group, Ltd., Chicago, IL, for Plaintiff.

Justin Anthony Seccombe, Ryan Matthew Holz, Simon M. Feng, Locke Lord LLP, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

AMY J. ST. EVE, United States District Court Judge

On August 26, 2016, Plaintiff Belinda Carlvin brought the present Complaint against Ditech Financial Services, LLC and Landmark Asset Receivables Management, LLC, collectively "Defendant,"¹ alleging violations of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. ("FDCPA"), specifically, 15 U.S.C. § 1692e(5) and e(10). Before the Court is Defendant's motion to dismiss brought pursuant to Federal Rule of Civil Procedure 12(b)(6). For the following reasons, the Court grants Defendant's motion in part and denies it in part.

BACKGROUND

Defendant is a Delaware limited liability company that maintains its principal office in Florida. (R. 1, Compl. ¶ 5.) Defendant is registered to do business in Illinois, and its registered agent and office is CT Corporation System, of Chicago, Illinois. (Id. ) Plaintiff alleges that Defendant is a debt collector as defined by the FDCPA, and its business entails the collection of debts originally owed to others using the mails and telephone. (Id. ¶¶ 6–9.)

Plaintiff incurred an alleged debt in relation to a home residential mortgage and subsequently went into default. (Id. ¶¶ 15–16.) Defendant purchased Plaintiff's debt, and on October 26, 2015, Defendant sent Plaintiff a letter in an attempt to collect the debt. (Id. ¶¶ 17–18.) The letter contained information about the debt, including the identity of the creditor and an account number. (Id. ¶ 19.) On or about October 27, 2015, Defendant sent Plaintiff another letter conveying information about the debt, including an account number and a current balance. The October 27 letter stated, in part: "Ditech is required to report any debt forgiveness to the Internal Revenue Service. This may result in consequences regarding your federal state or local tax liability." (Compl. ¶ 25; see also R.1, Ex. E.) The October 27 letter also stated, "In addition, if you receive public assistance, the forgiveness of debt may affect your eligibility for these benefits." (Compl. ¶ 38; see also R.1, Ex. E.) Finally, on or about November 23, 2015, Defendant sent Plaintiff a privacy notice regarding the Plaintiff's debt. (Compl. ¶ 43). The notice conveyed information about the debt, including the identity of the creditor and an account number, and informed Plaintiff that Defendant can share personal information it collects from Plaintiff, including her Social Security number, income, payment history, and credit history. (Id. ¶¶ 44, 49; see also R.1, Ex. F.) The notice stated that Defendant will share her personal information with "other financial companies," "affiliates," and "non-affiliates." (Compl. ¶ 51; see also R.1, Ex. F.)

In her Complaint, Plaintiff asserts three claims. First, Plaintiff alleges that Defendant's October 27 letter violated U.S.C. §§ 1692e(5) and e(10) because it made materially false statements that Defendant reports all balances forgiven to the Internal Revenue Service ("IRS") and that Defendant would report any debt forgiven to the IRS. (Compl. ¶¶ 64–65.) Second, Plaintiff alleges that the October 27 letter violated U.S.C. § 1692e(5) and e(10) because it attempted to coerce Plaintiff into paying her full debt by claiming that partial debt forgiveness would cause Plaintiff to lose public assistance. (Id. ¶ 66.) Third, Plaintiff alleges that Defendant's privacy notice violated U.S.C. §§ 1692e(5) and e(10) by misstating the parties to whom Defendant could disclose Plaintiff's personal information and the protections Plaintiff had against such disclosures. (Id. ¶¶ 67–68.)

LEGAL STANDARD

"A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) challenges the viability of a complaint by arguing that it fails to state a claim upon which relief may be granted." Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 736 (7th Cir. 2014). Under Rule 8(a)(2), a complaint must include "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). The short and plain statement under Rule 8(a)(2) must "give the defendant fair notice of what the claim is and the grounds upon which it rests." Bell Atlantic v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (citation omitted). Under the federal notice pleading standards, a plaintiff's "factual allegations must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555, 127 S.Ct. 1955. Put differently, a "complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955 ).

In determining the sufficiency of a complaint under the plausibility standard, courts must "accept all well-pleaded facts as true and draw reasonable inferences in the plaintiffs' favor." Roberts v. City of Chicago , 817 F.3d 561, 564 (7th Cir. 2016). When ruling on motions to dismiss, courts may also consider documents attached to the pleadings without converting the motion to dismiss into a motion summary judgment, as long as the documents are referred to in the complaint and central to the plaintiff's claims. See Adams v. City of Indianapolis , 742 F.3d 720, 729 (7th Cir. 2014) ; Fed. R. Civ. P. 10(c). Because Plaintiff attaches photocopies of the collection letter and privacy notice to her Complaint and these documents are central to her claim, the Court may consider these attachments in ruling on the present motion.

ANALYSIS

Section 1692e(5) provides that it is a violation to "threat[en] to take any action that cannot legally be taken or that is not intended to be taken." ( 15 U.S.C. § 1692e(5).) Under § 1692e(10), it is a violation to use "any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a customer." ( 15 U.S.C. § 1692e(10).)

Under well-settled Seventh Circuit precedent, "[c]laims brought under the Fair Debt Collection Practices Act are evaluated under the objective ‘unsophisticated consumer’ standard." Gruber v. Creditors' Prot. Serv., Inc., 742 F.3d 271, 273 (7th Cir. 2014) ; see also McMahon v. LVNV Funding, LLC, 744 F.3d 1010, 1019 (7th Cir. 2014) (unsophisticated consumer "standard applies to claims under both § 1692e and § 1692f"). As the Seventh Circuit has explained, "[o]n the one hand, the unsophisticated consumer may be ‘uninformed, naive, or trusting,’ but on the other hand the unsophisticated consumer does possess[ ] rudimentary knowledge about the financial world, is wise enough to read collection notices with added care, possesses reasonable intelligence and is capable of making basic logical deductions and inferences." Gruber, 742 F.3d at 273–74 (citation and internal quotation marks omitted). The Seventh Circuit, however, has been explicit that "as a matter of law, we shall not entertain a plaintiff's bizarre, peculiar, or idiosyncratic interpretation" under the unsophisticated consumer standard. McMillan v. Collection Prof'l Inc., 455 F.3d 754, 758 (7th Cir. 2006).

In its motion, Defendant argues that Plaintiff has failed to state a plausible claim that it violated the FDCPA because the statements Defendant made in its October 27 letter were not false or misleading. Defendant also argues that Plaintiff's privacy notice claim fails because Defendant's privacy notice was not sent in connection with any debt. The Court addresses each argument in turn.

I. Plaintiff's IRS Reporting Claim

Plaintiff alleges that the statement in Defendant's October 27 letter that "Ditech is required to report any debt forgiveness to the Internal Revenue Service" is a violation of § 1692e(5) and e(10) because the statement is "false and deceptive" and "threat[ens] to take an action [Defendant] could not legally take." (Compl. ¶¶ 33–35.)

Defendant argues that its statement was not false because had Plaintiff participated in Defendant's payment reduction plan, resulting in Defendant's discharge of $2,500 in debt, Defendant would have been required to report that debt forgiveness to the IRS under the applicable regulations.

The law requiring 1099–C filings is codified in the Internal Revenue Code and provides that any applicable entity that discharges (in whole or in part) any person's debt during any calendar year must make a return setting forth certain information about the individual and the discharge, unless the discharge is for less than $600. I.R.C. § 6050P ; see also Velez v. Enhanced Recovery Co., LLC , No. CV 16–164, 2016 WL 1730721, at *2–3 (E.D. Pa. May 2, 2016). The related IRS regulation explains this requirement in more detail and notes that a discharge of indebtedness is deemed to have occurred "if and only if there has occurred an identifiable event." 26 C.F.R. § 1.6050P–1(a)(1). An "identifiable event" is defined as a "discharge of indebtedness pursuant to an agreement between an applicable entity and a debtor to discharge indebtedness at less than full consideration." 26 C.F.R. § 1.6050P–1(b)(2)(F). Importantly, the regulation lists certain exceptions to its reporting requirement. These seven exceptions include, bankruptcy discharges, interest discharges, and discharges, "[i]n the case of a lending transaction," of amounts "other than stated principal." 26 C.F.R. § 1.6050P–1(d).

Defendant asserts that its statement, "Ditech is required to report any debt forgiveness to the Internal Revenue Service," is true because it is an accurate...