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holding that the collection of attorneys' fees does not violate the FDCPA when an express agreement between a debtor and a creditor expressly permits the collection
Summary of this case from Munoz v. Pipestone Financial, LLCOpinion
Civ. File No. 02-2510 (PAM/RLE)
January 23, 2003.
MEMORANDUM AND ORDER
This matter is before the Court on Defendants' Motion for Judgment on the Pleadings and to Dismiss. For the following reasons, the Motion is denied in part and granted in part.
BACKGROUND
Plaintiff John Resler ("Resler") accumulated consumer debt on a Discover Card. Discover Card sold the overdue account to Midland Credit Management, and Midland Credit Management directed its attorneys, Defendant Messerli Kramer, P.A., to collect the debt. Three attorneys from Messerli Kramer are also named as Defendants. One of the individual Defendants, Derrick Weber, is defending himself, the other attorneys, and his law firm in this matter.
Messerli Kramer served a summons and complaint on Resler in December 2001, claiming that he owed a debt of approximately $4000, including interest. On January 14, 2002, Resler sent a letter directly to the law firm. That letter stated that it was Resler's "response to your summons." (Weber Aff. Ex. C.) The letter acknowledged that Resler had been paying the debt but could not afford the amount he had been paying. Resler suggested lowering the monthly payment to $30 per month and threatened to file bankruptcy if Messerli Kramer did not agree to his terms. (Id.)
Less than 10 days later, Messerli Kramer sought a default judgment in the state-court collection action. Included with the motion for default judgment was an affidavit signed by Defendant Jeffrey J. Cohen stating that no answer or other pleading had been received from Resler. (Id. Ex. D.) On February 1, 2002, the state court issued a default judgment in the amount of $4492.27. (Id. Ex. E.)
Resler brought this action in July 2002, claiming that Defendants' conduct violated the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692 et seq., and several state statutes. Resler claims that Defendants violated the FDCPA by: (1) deducting attorneys' fees from amounts Resler paid against his debt; (2) telling the state court that Resler had failed to file an answer and that no attorneys' fees were due; (3) sending a writ of execution directly to Resler after learning that Resler had retained an attorney; and (4) mailing a garnishment notice to Resler that did not comply with Minnesota law. Resler also claims that Defendants committed deceit on the state court in violation of Minnesota law by averring that Resler had failed to answer the summons and complaint and by stating that there were no attorneys' fees due. Finally, Resler brings a claim under Minnesota law for the allegedly defective garnishment notice.
Defendants now seek judgment on the pleadings. They argue is that Resler's claims are barred by the Rooker-Feldman doctrine. They also contend that Resler has failed to state a claim on which relief can be granted.
DISCUSSION
A. Standard of Review
Defendants style their entire Motion as one for judgment on the pleadings under Fed.R.Civ.P. 12(c) and dismissal pursuant to Fed.R.Civ.P. 12(b)(6). However, Defendants actually seek to dismiss this case pursuant to Fed.R.Civ.P. 12(b)(1) for lack of subject matter jurisdiction.
A motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1) may challenge the plaintiff's complaint either on its face or on the factual truthfulness of its averments. Titus v. Sullivan, 4 F.3d 590, 593 (8th Cir. 1993). Where the motion challenges the factual truthfulness of the complaint, courts have the authority to look beyond the face of the complaint and consider materials outside of the pleadings. Osborn v. United States, 918 F.2d 724, 729 (8th Cir. 1990). No presumptive truthfulness attaches to the plaintiff's factual allegations and the court may weigh the evidence to determine if it has the power to hear the case. Id. at 730. The existence of disputed material facts does not preclude the trial court from evaluating the merits of the jurisdictional challenge. Id.
If the jurisdictional challenge fails, Defendants contend that the Amended Complaint should be dismissed for failure to state a claim on which relief can be granted. When considering a motion to dismiss, the Court takes all facts alleged in the Amended Complaint as true. Westcott v. Omaha, 901 F.2d 1486, 1488 (8th Cir. 1990). The Court must construe the allegations in the Amended Complaint and reasonable inferences arising from the Amended Complaint favorably to Resler. Morton v. Becker, 793 F.2d 185, 187 (8th Cir. 1986). A motion to dismiss will be granted only if "it appears beyond doubt that the Plaintiff can prove no set of facts which would entitle him to relief." Id.; see also Conley v. Gibson, 355 U.S. 41, 45-46 (1957).
B. Rooker-Feldman Doctrine
Under the Rooker-Feldman doctrine, lower federal courts do not have subject matter jurisdiction over certain challenges to state-court judgments. Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923); District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983). Nor do federal district courts have jurisdiction "over claims that are `inextricably intertwined' with claims adjudicated in state court." Fielder v. Credit Acceptance Corp., 188 F.3d 1031, 1034 (8th Cir. 1999). A claim is inextricably intertwined with a state court judgment if it "succeeds only to the extent that the state court wrongly decided the issues before it or if the relief requested . . . would effectively reverse a state court decision or void its ruling." Id. at 1035 (quoting Charchenko v. City of Stillwater, 47 F.3d 981, 983 (8th Cir. 1995)). The Eight Circuit has further explained that the doctrine applies only "[w]hen the goal of the federal action is to nullify a state judgment." Canal Capital Corp. v. Valley Pride Pack, Inc. 169 F.3d 508, 513 (8th Cir. 1999)
C. Count II: Deceit on the Court
Resler contends that Defendants committed deceit on the state court by averring that Resler had not responded to the summons and complaint and by stating in the default judgment papers that no attorneys' fees were claimed. Minnesota Statutes sections 481.07 and 481.071 provide that an attorney who acts with intent to deceive a court is guilty of a misdemeanor and must "forfeit to the party injured treble damages, to be recovered in a civil action." Minn. Stat. § 481.071. Defendants argue that Resler's letter of January 14, 2002, does not constitute an answer under the Minnesota Rules of Civil Procedure, and thus that there was no deceit on the state court.
Defendants are mistaken that Resler's deceit count fails to state a claim. Taking all facts as alleged in the Amended Complaint as true, Resler has set forth a claim for deceit on the state court. As he stated, Resler intended his letter to be in response to the summons. It is possible that Defendants' failure to bring the letter to the attention of the state court could constitute deceit on the court under Minnesota law. However, whether Defendants' actions did in fact constitute deceit on the state court is not for this Court to determine. Resler must bring his challenge in a motion seeking relief from the judgment in state court. See Fed.R.Civ.P. 60(b); Minn. R. Civ. P. 60.02. As discussed above, the Rooker-Feldman doctrine prevents a federal court from granting relief that would reverse or vacate the state court decision. Because a finding that Defendants committed fraud on the state court in seeking a default judgment would nullify that default judgment, the Rooker-Feldman doctrine prohibits the Court from entertaining this challenge. Count II must be dismissed.
D. Count III: Defective Notice under State Law
In Count III of the Amended Complaint, Resler claims that the notice of garnishment served by Defendants in the underlying collection action violated the notice requirements of Minnesota law. Minn. Stat. § 551.06, subd. 6; id. § 571.925. Minnesota law requires that a garnishment or levy notice notify the debtor that certain income, such as welfare benefits and medical assistance, is exempt from garnishment or levy. Defendants do not dispute that the notice sent to Resler does not strictly comply with Minnesota law. Rather, Defendants argue that Minnesota law only requires substantial compliance with the notice provisions. In their reply brief, Defendants for the first time contend that because Resler has not alleged that he received any sort of public assistance that is exempted from garnishment, he has failed to make out a claim under the relevant statutes.
Defendants do not distinguish among Resler's various claims when discussing the applicability of the Rooker-Feldman doctrine. However, it is clear that the Rooker-Feldman doctrine does not apply to Resler's claim involving the garnishment notice. The success of this claim does not depend on anything the state court did or did not do in the underlying collection action. Thus, the Rooker-Feldman doctrine does not bar this Court's determination of the merits of this claim.
Moreover, Defendants' argument that Resler failed to allege that he was damaged by the allegedly ineffective notice is misplaced. The statute does not require proof of actual damages, but allows the debtor named in the defective garnishment to recover $100 and attorneys' fees and costs. Minn. Stat. §§ 571.90, 551.04, subd. 11. The statutes also allow a debtor to recover actual damages, but the presence of statutory damages indicates that actual damages are not a prerequisite to recovery under the statute.
Defendants contend that a claim that a notice is defective must be brought in the underlying state court case, and cite generally Minnesota Statutes Chapter 551. (Defs.' Reply Mem. at 4.) A review of the chapter reveals no such requirement.
Finally, Defendants' assertion about substantial compliance is better suited for a motion for summary judgment. Resler has stated a claim under the Minnesota notice requirements and Count III will not be dismissed.
E. Count I: FDCPA
Count I of the Amended Complaint contends that Defendants' actions constitute violations of the FDCPA. Specifically, Resler asserts that Defendants' statement that Resler failed to file an answer and did not owe any attorneys' fees amount to a false and deceptive practice in the collection of a consumer debt in violation of 15 U.S.C. § 1692e and 1692f. (Am. Comp. ¶ 19.) Resler also contends that the allegedly defective garnishment notice violates the FDCPA. (Id. ¶ 28.) Resler complains that Defendants violated the FDCPA by mailing the writ of execution directly to him, even though they knew that he was represented by an attorney. (Id. ¶ 43.) Finally, Resler asserts that Defendants' collection of attorneys' fees from the amounts Resler paid is a violation of the FDCPA. (Id. ¶ 17.)
The first part of Resler's FDCPA claim depends on the merits of his deceit-on-the-court claim. As discussed above, because the resolution of that claim requires this Court to examine the state-court judgment, the Rooker-Feldman doctrine does not permit the Court to entertain the claim. Thus, to the extent Resler's FDCPA claim rests on his contention that Defendants committed deceit on the court, the Court may not consider it.
However, the remainder of Resler's FDCPA claim does not depend on the underlying state-court judgment. Thus, the Rooker-Feldman doctrine does not preclude this Court's consideration of his claim. The Court has already determined that Resler has stated a claim for allegedly defective notice. If the Court finds that the notice violated state law, Resler is entitled to claim that the defective notice constitutes a deceptive or unfair practice under the FDCPA. This portion of his claim survives Defendants' Motion.
Resler's claim that Defendants' violated the communication requirements of the FDCPA rests on shakier ground. The statute provides that a debt collector may not communicate directly with a consumer "if the debt collector knows the consumer is represented by an attorney with respect to such debt." 15 U.S.C. § 1692c(a)(2). However, the statute exempts communications made with "the express permission of a court of competent jurisdiction." Id. As Defendants argue, Minnesota law requires service of an garnishment levy on the judgment debtor. Thus, the state court's default judgment was in effect that court's permission to follow the collection procedures outlined in Minnesota law, including service of the levy directly on the judgment debtor. If Resler wishes to challenge the correctness of the underlying default judgment, he may do so in that court but cannot bring such a challenge here without running afoul of the Rooker-Feldman doctrine. Assuming that Resler does not take issue with the underlying default judgment, he has failed to state a claim for a violation of the FDCPA's communication provisions.
Resler also alleges that Defendants' conduct violated § 1692c(c), which requires a debt collector to cease communication with a consumer if the consumer states in writing that he refuses to pay the debt or that the consumer wishes that the debt collector cease further communication. Resler has not alleged that he wrote to Defendants refusing to pay the debt or asking Defendants to cease further communication. He has not stated a claim for a violation of § 1692c(c).
It is undisputed that Resler made some payments toward his Discover Card debt. Defendants retained $448.41 of this money for attorneys' fees. Resler contends that the collection of attorneys' fees violates the FDCPA. This contention has no merit. The agreement between Resler and Discover Card expressly permits the payment of attorneys' fees, and thus the collection of fees does not violate § 1692f(1). Nor has Resler explained how the collection of fees constitutes a false or deceptive representation under § 1692e. It appears that Resler's complaint is that Defendants failed to inform the state court that some attorneys' fees had been paid. This challenge is part and parcel of Resler's deceit claim and under the Rooker-Feldman doctrine may not be considered here.
CONCLUSION
Resler's claims for deceit on the court must be dismissed for lack of subject matter jurisdiction under the Rooker-Feldman doctrine. His FDCPA claims based on the alleged deceit must also be dismissed under the Rooker-Feldman doctrine. His claims contending that Defendants' violated the communication provisions of the FDCPA and that Defendants' collection of attorneys' fees violated the FDCPA fail to state a claim on which relief can be granted. His claims that the garnishment notice violated state law and the FDCPA, however, will not be dismissed.
Accordingly, IT IS HEREBY ORDERED that:
1. Defendants' Motion for Judgment on the Pleadings and to Dismiss is DENIED in part and GRANTED in part as set forth above; and
2. Count II of the Amended Complaint is DISMISSED WITH PREJUDICE.