Fritz v. Resurgent Capital Servs., LP

955 F.Supp.2d 163

Giselle FRITZ f/k/a Giselle Carter, Evan Davis, Jason Spiegel–Grote, and Patricia Casertano, on behalf of themselves and all others similarly situated, Plaintiffs,

v.RESURGENT CAPITAL SERVICES, LP; LVNV Funding, LLC; Alegis Group, LLC; Mel S. Harris and Associates, LLC; David Waldman; and Resurgent Capital Services, LLC, Defendants.

Case No. 11–CV–3300 FB VVP.

United States District Court, E.D. New York.

July 24, 2013.

Ahmad Keshavarz, Esq., The Law Office of Ahmad Keshavarz, Brooklyn, NY, Charles M. Delbaum, National Consumer Law Center, Boston, MA, Daniel Scott Blinn, Consumer Law Group, LLC, Rocky Hill, CT, Matthew Austin Schedler, Camba Legal Services, Brooklyn, NY, for Plaintiffs.

Brett A. Scher, Esq., Kaufman Dolowich Voluck & Gonzo LLP, Woodbury, NY, for Defendants.

MEMORANDUM AND ORDER

BLOCK, Senior District Judge:

Plaintiffs assert claims under the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §§ 1692–1692p, and New York General Business Law (“GBL”) § 349. Defendants move to dismiss the Second Amended Complaint (“SAC”) pursuant to Federal Rule of Civil Procedure 12(b)(6).

Because defendants urge numerous grounds for dismissal, it is necessary to structure the Court's analysis. Part I presents the allegations of the SAC. Part II addresses plaintiffs' claims under the FDCPA, including any defenses particular to those claims. Part III addresses plaintiffs' claims under GBL § 349. Part IV addresses defenses common to all of plaintiffs' claims. Part V addresses the liability of defendants LVNV Funding, LLC (“LVNV”), and Alegis Group, LLC (“Alegis”).¹ For the reasons that follow, defendants' motion to dismiss is granted in part and denied in part.

I. ALLEGATIONS

The following facts are taken from the SAC. For present purposes, they are taken as true, with all inferences drawn in plaintiffs' favor. See Cohen v. S.A.C. Trading Corp., 711 F.3d 353, 358 (2d Cir.2013).

LVNV purchases hundreds of thousands of dollars in consumer debt from creditors who have written off the accounts. It outsources efforts to collect those debts to defendant Resurgent Capital Services, LP (“Resurgent LP”). Alegis is the general partner of Resurgent LP. Defendant Resurgent Capital Services, LLC (“Resurgent LLC”) is an “entity related to” Resurgent LP. SAC ¶ 24.

The SAC alleges that LVNV, Resurgent LP and Resurgent LLC are “engaged in a joint venture to collect debts owned by LVNV.” Id. In furtherance of that venture, Resurgent LP retains various law firms to handle the legal aspects of collection. Defendant Mel Harris and Associates, LLC (“the Harris Firm”), is one such firm. Defendant David Waldman is an attorney with the Harris Firm.

In 2010, the named plaintiffs were separately sued in state court by Resurgent LLC. In each suit, Resurgent LLC sought to collect a consumer debt; it alleged that it was the “purchaser and assignee” of the debt at issue, and that it “own [ed] and retain[ed] all beneficial rights and interests therein.” SAC, Exs. D, G, P, Q. Resurgent LLC further alleged that it was a licensed debt-collection agency and held license number 1326179 from the New York City Department of Consumer Affairs. The collection complaints were signed by Waldman on behalf of the Harris Firm.

In fact, the debts were held by LVNV. In addition, the license number listed in the complaints belonged to LVNV, and not to Resurgent LLC. The complaints made no mention of LVNV.

The SAC also contains allegations unique to plaintiff Giselle Fritz. On May 27, 2010, the Harris Firm sent Fritz a letter demanding payment on behalf of its client, which it identified as Resurgent LLC. The letter made no mention of LVNV. In addition, Resurgent LP reported to various credit agencies, on behalf of LVNV, that Fritz owed $2,838, which sum included $160 in court costs. At the time, the collection action against Fritz was pending; it was discontinued without prejudice on July 6, 2011.

II. FDCPA CLAIMS

Plaintiffs assert that defendants' actions violated the FDCPA in three ways:

A. by misrepresenting Resurgent LLC as the owner of the debts and as a licensed debt collector in the collection complaints;

B. by including court costs in the amount of Fritz's debt reported to credit reporting agencies; and

C. by failing to name LVNV as the creditor in the May 27, 2010 collection letter to Fritz.

A. Misrepresentations in Collection Complaints

The FDCPA prohibits the use of “any false, deceptive, or misleading representation or means in connection with the collection of any debt.” 15 U.S.C. § 1692e. The statute then lists a series of specific prohibited acts. See id. § 1692e(1–16). The list is not exhaustive, however, and “a debt collection practice can be a ‘false, deceptive, or misleading’ practice in violation of § 1692e even if it does not fall within any of the subsections of § 1692e.” Clomon v. Jackson, 988 F.2d 1314, 1318 (2d Cir.1993).

The collection complaints represented that Resurgent LLC owned the debts, and that it held a debt-collection license from the New York City Department of Consumer Affairs. Defendants do not dispute that those representations were false. Instead, they argue (1) that § 1692e does not apply to litigation activity, and (2) that the misrepresentations were not material.

1. Litigation Activity

In Heintz v. Jenkins, 514 U.S. 291, 115 S.Ct. 1489, 131 L.Ed.2d 395 (1995), the Supreme Court held that the FDCPA “applies to attorneys who regularly engage in consumer-debt-collection activity, even when that activity consists of litigation.” Id. at 299, 115 S.Ct. 1489 (internal quotation marks omitted). Several circuit courts have concluded that the broader implication of Heintz is that the FDCPA applies to all litigation activities. See Sayyed v. Wolpoff & Abramson, 485 F.3d 226, 232 (4th Cir.2007) (collecting cases). And in Goldman v. Cohen, 445 F.3d 152 (2d Cir.2006), the Second Circuit cited Heintz in support of its holding that a pleading was an “initial communication” which, under the FDCPA, must include certain disclosures. See id. at 156.

Congress legislatively overruled Cohen by amending the FDCPA section dealing with initial communications to exclude “a formal pleading in a civil action.” SeePub.L. 109–351, § 809, 120 Stat.2006 (2006) (amending 15 U.S.C. § 1692g). That amendment demonstrates that Congress knows how to create an exemption for litigation activity. Yet it created no analogous exception for § 1692e's general prohibition on false statements. The Supreme Court recently repeated the longstanding rule that “[w]here Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.” Sebelius v. Cloer, –––U.S. ––––, 133 S.Ct. 1886, 1894, 185 L.Ed.2d 1003 (2013) (quoting Bates v. United States, 522 U.S. 23, 29–30, 118 S.Ct. 285, 139 L.Ed.2d 215 (1997)).

Defendants cite Simmons v. Roundup Funding, LLC, 622 F.3d 93 (2d Cir.2010), and McAfee v. Law Firm of Forster & Garbus, 2008 WL 3876079 (E.D.N.Y. Aug. 18, 2008), in support of the contrary proposition that the FDCPA does not apply to litigation activities. The import of those cases, however, is not as broad as defendants make it out to be. Simmons held that a proof of claim in a bankruptcy proceeding was not subject to § 1692e because “[t]here is no need to protect debtors who are already under the protection of the bankruptcy court.” 622 F.3d at 96. In McAfee, the claims related “solely to Defendants' alleged improprieties in prosecuting a court action against him in state court and his criticisms of the state-court system,” 2008 WL 3876079, at *5; Judge Garaufis dismissed them because the plaintiff had offered neither allegations nor evidence “tending to establish misrepresentation.” Id.

2. Materiality

Many courts have read a materiality requirement into § 1692e. See Warren v. Sessoms & Rogers, P.A., 676 F.3d 365, 374 (4th Cir.2012) (collecting cases). The Second Circuit has not made an analogous pronouncement, but it did cite Warren and similar cases with apparent approval in a recent summary order. See Gabriele v. Am. Home Mortg. Servicing, Inc., 503 Fed.Appx. 89, 94 (2d Cir.2012) (“Although Congress did not expressly require that any violation of § 1692e be material, courts have generally held that violations grounded in ‘false representations' must rest on material misrepresentations.”). While Gabriele is not binding precedent, the Court agrees that only material misrepresentations are actionable under the FDCPA.

Gabriele also persuasively explains what makes a misrepresentation material: “Our case law demonstrates that communications 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, violate the FDCPA.” Id. That case law also establishes that compliance with the FDCPA is assessed “from the perspective of the ‘least sophisticated consumer.’ ” Jacobson v. Healthcare Fin. Servs., Inc., 516 F.3d 85, 90 (2d Cir.2008) (quoting Clomon, 988 F.2d at 1318).

Applying those standards, the Court concludes that a false representation of the owner of a debt could easily mislead the least sophisticated consumer as to the nature and legal status of the debt. It could, moreover, impede the consumer's ability to respond. As Judge Irizarry reasoned, “[t]he entity to which a debtor owes money potentially affects the debtor in the most basic ways, such as what the debtor should write after ‘pay to the order of’ on the payment check to ensure that the debt is satisfied.” Eun Joo Lee v. Forster & Garbus LLP, 926 F.Supp.2d 482, 488 (E.D.N.Y.2013). In other words, one possible response to a collection action would be to voluntarily pay the debt. A consumer—even a sophisticated one—might reasonably believe that paying the entity bringing suit would extinguish...