Summary
finding letter, followed up with conversation asserting "further steps would be taken," could be threatening to least sophisticated consumer
Summary of this case from White v. First Step Grp. LLCOpinion
No. C-02-05561 RMW
May 5, 2003
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS [Re Docket No. 11]
Defendant's motion to dismiss plaintiffs first amended complaint was heard on May 2, 2003. For the reasons set forth below, the court grants in part and denies in part defendant's motion.
I. BACKGROUND
This lawsuit arises from a collection letter sent by defendant Capital Acquisitions Management Company ("CAMCO") to plaintiff Michael Perretta ("Perretta") and a subsequent telephone conversation between plaintiff and a CAMCO employee. The question in the present motion is whether defendant violated the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. ("FDCPA") and the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq. ("FCRA") by way of these communications with plaintiff
Defendant also asserts that should its motion to dismiss plaintiffs federal claims be granted, the court should also dismiss plaintiffs pendant state law claims.
A. Factual Allegations
The facts underlying this case are neither extensive nor complicated. On August 20, 2002, defendant sent a letter to plaintiff representing that an account belonging to plaintiff had recently been purchased by CAMCO. The letter states in relevant part:
Although the complaint specifically refers to the August 20, 2002 letter, plaintiff did not attach a copy of the letter to the complaint. Defendant, however, has submitted a copy of what appears to be the letter. Generally, a court ruling on a motion to dismiss may not consider any material outside the pleadings. Branch v. Tunnell, 14 F.3d 449, 453 (9th Cir. 1994). However, "a document is not `outside' the complaint if the complaint specifically refers to the document and if its authenticity is not questioned." Id. (citing Townsend v. Columbia Operations, 667 F.2d 844, 848-49). As the complaint makes particular reference to the August 20 letter, and plaintiff has not questioned the authenticity of the document submitted by defendant, the court will consider the letter. While the court notes a minor discrepancy between the complaint and the letter submitted by defendant in support of its motion, cf. Compl. ¶ 9 ("The letter shows an Account #5415490001193847. . . .") with Ex. A to Mem. of P. A In Supp. Def.'s First Am. Compl. (containing no reference to this account number), plaintiff has not objected to the authenticity of this document.
RE: YOUR ACCOUNT WITH CAPITAL ACQUISITION AND MANAGEMENT COMPANY
CURRENT BALANCE: $6,152.69
THIS LETTER IS TO NOTIFY YOU THAT YOUR HOUSEHOLD ACCOUNT WHICH WAS FORMERLY HELD BY AFFINITY FINANCIAL SERVICES LL HAS BEEN PURCHASED BY CAPITAL ACQUISITION AND MANAGEMENT COMPANY.
UNLESS YOU NOTIFY THIS OFFICE WITHIN 30 DAYS AFTER RECEIVING THIS NOTICE THAT YOU DISPUTE THE VALIDITY OF THE DEBT OR ANY PORTION THEREOF, THIS OFFICE WILL ASSUME THE DEBT IS VALID. IF YOU NOTIFY THIS OFFICE IN WRITING WITHIN 30 DAYS FROM RECEIVING THIS NOTICE THIS OFFICE WILL: OBTAIN VERIFICATION OF THE DEBT (OR) OBTAIN A COPY OF JUDGMENT AND MAIL YOU A COPY OF SUCH JUDGMENT (OR) VERIFICATION. IF YOU REQUEST [sic] THIS OFFICE IN WRITING WITHIN 30 DAYS OF RECEIVING THIS NOTICE, THIS OFFICE WILL PROVIDE YOU WITH THE NAME AND ADDRESS OF THE ORIGINAL CREDITOR, IF DIFFERENT FROM THE CURRENT CREDITOR.
TO DISCUSS, CALL. . . .
THIS IS AN ATTEMPT TO COLLECT A DEBT. ANY INFORMATION OBTAIN [sic] WILL BE USED FOR THAT PURPOSE.
Ex. A to Mem. of P. A In Supp. Def.'s First Am. Compl.; see also Compl. ¶ 9. Within a few days of receiving this letter, plaintiff telephoned defendant to ascertain its meaning. Compl. ¶ 10. One of defendant's employees told plaintiff that "they would reduce the amount of the debt if he made an immediate partial payment by telephone." Id. The employee then stated to plaintiff that "failure to agree to make payment would result in the debt being reported to the credit bureaus" and that if plaintiff "did not work with him, further steps would be taken." Id. Plaintiff alleges that he "understood this to mean legal proceedings would be commenced against him by defendants." Id.
On September 6, 2002, plaintiffs attorney sent defendant a letter requesting verification of the alleged debt. Defendant failed to provide the requested verification. Id. ¶ 11.
Plaintiff further alleges, on information and belief, that prior to September 6, 2002, defendant had been subscribed to a consumer reporting agency, and that defendant "requested, obtained, and used Plaintiffs consumer report from the consumer reporting agency." Id. ¶ 16. Plaintiff alleges that defendant did not have a lawful purpose for requesting, obtaining, and using the consumer report about plaintiff. Id. at 17.
B. Defendant's Motion to Dismiss
Defendant's motion seeks dismissal of plaintiffs first cause of action under the FDCPA and plaintiffs third cause of action under the FCRA. The motion is based on defendant's contention that plaintiff apparently does not dispute his incurrence of the subject debt, but rather that plaintiff alleges that his debt is more than 10 years old and, therefore, collection is time-barred. From this premise, defendant first argues that a debt collector does not violate the FDCPA by merely attempting to collect on a time-barred debt. Defendant reasons that although the statute of limitations bars recovery of the debt through judicial processes, it does not extinguish the obligation of the debtor. See Department of Indus. Relations v. Seaboard Sur. Co., 50 Cal.App.4th 1501, 1511 (1996). Therefore, defendant argues, so long as defendant does not threaten plaintiff with litigation, its actions are consistent with an attempt to seek voluntary payment and not in violation of the FDCPA. See Freyermuth v. Credit Bureau Serv., Inc., 248 F.3d 767 (8th Cir. 2001); Reese v. Arrow Fin. Serv., LLC, 202 F.R.D. 83, 92-93 (D. Conn. 2001); Johnson v. Capital One Bank, No. Civ. A SA00CA315EP, 2000 WL 1279661 at *2 (W.D. Tex. May 19, 2000). Defendant asserts that because neither its August 20, 2002 letter, nor its telephone conversation with plaintiff involved a threat of litigation, plaintiffs FDCPA claim fails.
Turning to plaintiffs third cause of action, defendant argues that even if plaintiffs debt were time-barred, defendant's acts of requesting and receiving plaintiffs credit report are not actionable under the FCRA. Defendant argues that it, as a party who intended to use the information in the report for the purpose of collecting on plaintiffs account, had a permissible purpose for requesting, receiving and using the report. See 15 U.S.C. § 1681b(a)(3)(A) (listing permissible purposes for which a credit report may be obtained). Since defendant had a permissible purpose for requesting plaintiffs credit report, it argues that plaintiff cannot state a claim on the theory that defendant acquired the credit report under false pretenses. See Edge v. Prof'l Claims Bureau, Inc., 64 F. Supp.2d 115 (E.D.N.Y. 1999). The fact that defendant could not use the legal system to collect on plaintiffs alleged debt does not foreclose its use of other legitimate means to collect on the account.
In his opposition, plaintiff acknowledges that the heart of his claim lies in the telephone conversation between plaintiff and defendant's employee, not in defendant's August 20 letter. Plaintiff then argues, relying on Stepney v. Outsourcing Solutions, Inc., No. 97 C 5288, 1997 WL 772972 (N.D. Ill. Nov. 13, 1997), that even assuming he owns the time-barred debt, defendant's statement that it would take "further steps" is sufficient to state a FDCPA claim. Plaintiff apparently argues that while defendant did not expressly use the word "litigation," its threat to take further steps violates the FDCPA. Moreover, plaintiff appears to assert, again relying on Stepney, that defendant's mere attempt to collect on a time-barred debt violates the FDCPA. Finally, plaintiff also asserts that (1) defendant's statement that it would report the debt to credit bureaus if not paid immediately and (2) defendant's attempt to collect money from plaintiff within the 30 day validation period are also actionable under the FDCPA.
As for his FCRA claim, plaintiff apparently argues that because it disputes the debt defendant sought to collect, defendant cannot establish a debtor-creditor relationship as to plaintiff. Thus, plaintiff argues, as no such relationship exists, defendant could not have had a permissible purpose to request and receive his credit report. Furthermore, plaintiff argues that defendant obtained the credit report under false pretenses by representing that it was seeking the report for permissible purposes when it really only obtained the report to harass and intimidate him.
II. ANALYSIS
A. Plaintiffs claim under the Fair Debt Collection Practices Act
With respect to plaintiffs first theory of recovery under the FDCPA, the instant motion boils down to the following inquiry: would the least sophisticated debtor reasonably understand that defendant was threatening litigation based on the statements made to plaintiff during his telephone conversation with the CAMCO employee? The court concludes that under the circumstances of this case, the answer to this question is yes.
"Whether language employed in connection with the collection of debt violates the FDCPA is a question of law for the court to decide." Van Westriennen v. Americontinential Collection Corp., 94 F. Supp.2d 1087 (D. Or. 2000) (citing Terran v. Kaplan, 109 F.3d 1428, 1432-33 (9th Cir. 1997)); Baker v. Citibank (South Dakota) N.A., 13 F. Supp.2d 1037, 1041 (S.D. Cal. 1998) (same); see also Valdez v. Hunt, No. C 01-01712 SC, 2002 U.S. Dist. LEXIS 4575 at *7-8 (N.D. Cal. March 19, 2000). The impact of the language alleged to violate the FDCPA is judged under the "least sophisticated debtor" standard. Baker, 13 F. Supp.2d at 1041. The "least sophisticated debtor standard" is "objective, but `lower than simply examining whether particular language would deceive or mislead a reasonable debtor.'" Id. (quoting Terran, 109 F.3d at 1432).
In the instant case, the gravamen of plaintiffs claim is not that the language in defendant's August 20 letter violates the FDCPA, but that defendant's employee threatened plaintiff with litigation over a time-barred debt during the subsequent telephone conversation. The court, therefore, focuses on the alleged oral statements directed to plaintiff. As detailed in section I above, during his telephone conversation with plaintiff, defendant's employee allegedly stated that defendant would reduce the amount of plaintiffs debt if plaintiff made an immediate payment. The employee apparently then "told Plaintiff that failure to agree to make payment would result in the debt being reported to the credit bureaus." Compl. ¶ 10. Finally, the employee "told Plaintiff that if he [Plaintiff] did not work with him, further steps would be taken." Id.
The court recognizes that in his opposition, plaintiff argues that he states a FDCPA claim based merely on defendant's attempt to collect a time-barred debt. The court disagrees.
While the language in the Stepney decision is not entirely clear, a careful reading of the decision reveals that in Stepney, the court concluded that the complaint at issue sufficiently stated a claim under the FDCPA because " Stepney alleges the violation of the FDCPA based on defendant's knowing attempt to collect time-barred debts with threats of `further collection action.'" Stepney, 1997 WL 722972 at *5 (emphasis added). Indeed, the court's statement that " Kimber and its progeny establish the viability of claims premised on a debt collector's knowing attempts to collect time-barred debts" must be read in conjunction with this statement. Unlike the Ninth Circult, the Seventh Circuit has held that the impact of a collection letter on an unsophisticated consumer is a question of fact, not a question of law. See Marshall-Mosby v. Corporate Receivables, Inc., 205 F.3d 323, 326 (7th Cir. 2000); Walker v. Nat'l Recovery, Inc., 200 F.3d 500, 503 (7th Cir. 1999) ("Whether a given message is confusing is . . . a question of fact, not of law or logic."); Valdez, 2002 U.S. Dist. LEXIS at 8 (noting difference between Ninth Circuit and Seventh Circuit law). Thus, the Stepney court "need[ed] not resolve the issue" of whether defendant's threat of "further collection action" constituted a threat of litigation — as a matter of law — to reach its conclusion that plaintiff stated a FDCPA claim. Id. at 5. The court's subsequent reference to Kimber and its progeny appears to have been made with this threatened action in mind.
Moreover, the court agrees with those courts which have held that the attempt to collect a time-barred debt alone is insufficient to state a cause of action. See, e.g., Walker v. Cash Flow Consultants, 200 F.R.D. 613, 615-616 (N.D. Ill. 2001); Wallace v. Capital One Bank, 168 F. Supp.2d 526 (D. Ind. 2001); Shorty v. Capital One Bank, 90 F. Supp.2d 1330 (D.N.M. 2000). These decisions are consistent with the principle under California law that the statute of limitations may bar judicial remedies, but it does not extinguish the obligation of a debtor. See Department of Indus. Relations v. Seaboard Sur. Co., 50 Cal.App.4th 1501, 1511 (1996). As the debt remains, the mere attempt to collect that debt is not actionable.
Plaintiff has not conceded that he incurred the debt in dispute. The complaint, however, alternatively alleges that the disputed debt is time-barred. Compl. ¶ 12.
While defendant contends that plaintiffs claim fails because defendant's employee did not expressly threaten litigation, plaintiff argues that the least sophisticated debtor would have understood the employee's statements to constitute such a threat. Defendant correctly identifies multiple cases which stand for the proposition that absent a threat of litigation, a party's attempt to collect a time-barred debt does not violate the FDCPA. See Freyermuth, 248 F.3d at 771; Reese, 202 F.R.D. at 92-93; Walker v. Cash Flow Consultants, 200 F.R.D. 613, 615-616 (N.D. Ill. 2001); Wallace v. Capital One Bank, 168 F. Supp.2d 526 (D. Ind. 2001); Shorty v. Capital One Bank, 90 F. Supp.2d 1330 (D.N.M. 2000); Johnson, 2000 WL 1279661 at *2 (W.D. Tex. May 19, 2000); Aronson v. Commercial Fin. Serv., Inc., 1997 No. Civ A. 96-2113, 1997 WL 1038818 (W.D. Pa. 1997). However, of the cases defendant cites, only the Eighth Circuit opinion in Freyermuth involves language similar to the contested language here.
In fact, many of the cases cited by defendant either do not identify the language in question or involve language that is not even arguably a threat of litigation. See Reese, 202 F.R.D. at 92-93; Walker, 200 F.R.D. at 615-616; Wallace v. Capital One Bank, 168 F. Supp.2d at 527.
In Freyermuth, the Eighth Circult held that the following passage from a collection letter did not convey a threat of litigation:
Our records show the amount due indicated below remains in our CHECKMATE PERMANENT BAD CHECK DATA FILE. TO PROTECT YOUR CHECK-WRITING PRIVILEGES, REMIT THE BALANCE DUE IMMEDIATELY (CASH OR MONEY ORDER ONLY) . . . To be sure of proper credit and to stop further procedure [sic], make your payment in full.Freyermuth, 248 F.3d at 769 (italics added). After surveying the case law addressing a debt collector's attempt to collect time-barred debt, the Freyermuth court noted that following the decision in Kimber v. Fed. Fin. Corp., 668 F. Supp. 1480 (M.D. Ala. 1987), which held that the filing of a lawsuit to collect time-barred debt violates the FDCPA, subsequent cases have "turned on the threat, or actual filing, of litigation." See Freyermuth, 248 F.3d at 771. The court then explained that only one court — the Stepney court — "has found a violation of the Act in the absence of an express threat of litigation when a creditor attempts to collect on a time-barred debt." Id. (citing Stepney). Apparently concluding that the phrase "to stop further procedure, make your payment in full" was not a threat of legal proceedings, the Eighth Circuit granted summary judgment against the plaintiff. See id. at 771.
On the other end of the spectrum is Stepney, the primary case on which plaintiff relies. As discussed in footnote three supra, the Stepney court concluded that plaintiff stated a cause of action under the FDCPA where the defendant's letter stated: "THIS IS AN OPPORTUNITY TO RESOLVE YOUR ACCOUNT WITH NO FURTHER COLLECTION ACTION BEING TAKEN AGAINST YOU." Stepney, 1997 WL at *1. The court apparently found the threats of "further collection action" sufficient to present the claim to the trier of fact. See id.; n. 3 supra. Indeed, subsequent courts have concluded that the threat of "further collection action" in Stepney was equivalent to a "thinly-veiled threat of future litigation." Walker, 200 F.R.D. at 616; see also Freyermuth, 248 F.3d at 771 (threat of "further collection action" in Stepney is an "express threat of litigation").
Thus, the question for this court is essentially whether the statements made to plaintiff are more akin to the statements in Freyermuth or those in Stepney. While a close call, this court does not hold that as a matter of law, it would be unreasonable for the least sophisticated debtor to interpret defendant's statements as a threat of legal action. Having already threatened to report plaintiffs debt to the credit bureaus, defendant told plaintiff that if he did not "work with" defendant, "further steps would be taken." While this statement is vague, it begs the question of what additional steps — beyond reporting the debt to credit bureaus — defendant could take. When considered in this light, the court concludes that the least sophisticated debtor would be reasonable to interpret the threat of "further steps" to mean legal action. Indeed, given our rather litigious society, an individual not well versed in the mechanics of debt collection may very well consider legal action to be the next possible — and probable — "step." Also, the vague nature of defendant's statement lends itself to such an interpretation. See Tsenes v. Trans-Continental Credit Collection Corp., 892 F. Supp. 461, 465 (E.D.N.Y. 1995) (finding that, in view of its vagueness, the "least sophisticated consumer could construe" the statement "to withhold further action, return this statement with payment in full" as a threat to commence legal action). Moreover, as defendant's employee threatened "further steps" as the consequence for plaintiffs failure to "work with" it, the statements were no longer consistent with an effort to seek voluntary payment from plaintiff. Accordingly, the court holds that as alleged, plaintiffs complaint sufficiently states a cause of action under the FDCPA. B. Plaintiffs claim under the Fair Credit Reporting Act
Further, while plaintiffs complaint does not specifically allege a violation of section 1692g, it appears that he might be able to amend his complaint to state a cause of action thereunder. Defendant's reply brief appears to acknowledge the potential for such a claim, see Reply at 5, but dismisses plaintiff argument on the ground that plaintiff makes no reference to section 1692g in his complaint.
Defendant also seeks dismissal of plaintiffs claim under the FCRA. The court grants defendant's motion.
Plaintiff essentially alleges — on information and belief — that defendant obtained his consumer report from a consumer reporting agency under false pretenses and without a permissible purpose. See 15 U.S.C. § 1681n(b). Plaintiffs claim is without merit.
"To prove a violation of Section 1681n(b), plaintiff must show that credit information was obtained for an impermissible purpose — a showing of a permissible purpose is a complete defense." Edge, 64 F. Supp.2d at 117; see also Hansen v. Morgan, 582 F.2d 1214, 1219 (9th Cir. 1978) ("The standard for determining whether a consumer report has been obtained under false pretenses will usually be defined in relation to the permissible purposes of consumer reports which are enumerated in 15 U.S.C. § 1681b."). "Where a permissible purpose for obtaining the credit information is demonstrated, then, as a matter of law, the information cannot have been obtained under false pretenses." Id. (citing Baker v. Bronx-Westchester Investigations, Inc., 850 F. Supp. 260, 264 (S.D.N.Y. 1994).
The "permissible purposes" for obtaining credit information are set forth at 15 U.S.C. § 1681b. See 15 U.S.C. § 1681b; Hansen, 582 F.2d at 1219. Under section 1681b(a)(3)(A), a party is permitted to obtain an individual's credit information in connection with the collection of a debt. See Hasburn v. County of Los Angeles, 323 F.3d 801, 2003 U.S. App. LEXIS 5381 at *4 (9th Cir. 2003) (citing Edge, 64 F. Supp.2d 115). Here, plaintiff alleges that defendant "is a domestic corporation doing business collecting consumer debts," that "the principal purpose of defendants is the collection of debts using the mails and telephone, and [that] defendants regularly attempt to collect debts alleged to be due to another." Compl. ¶¶ 4, 6. Further, the letter which defendant sent plaintiff on August 20, 2002 plainly states that defendant was attempting to collect a debt from plaintiff Since it appears that if in fact defendant obtained plaintiffs consumer report it was in connection with an effort to collect a debt, plaintiffs FCRA claim fails.
Plaintiffs argument that defendant only obtained his consumer report for the impermissible purpose to harass and intimidate him is unavailing. See Opp'n at 9. Not only is this theory not alleged in the complaint, but the fact that plaintiff may find defendant's efforts to collect a debt harassing does not transform defendant's purpose from permissible to impermissible. Further, contrary to plaintiffs assertion, section 1681b does not appear to require the existence of a debtor-creditor relationship for a party to lawfully acquire a consumer report.
III. ORDER
For the above reasons, the court grants and denies defendant's motion to dismiss as follows:
(1) Defendant's motion to dismiss plaintiffs first cause of action under the FDCPA is denied.
(2) Defendant's motion to dismiss plaintiffs third cause of action under the FCRA is granted.