Simmonds & Narita LLP v. Schreiber et al

Memorandum in Opposition re MOTION to Dismiss for Lack of Jurisdiction MOTION to Transfer Case

N.D. Cal.July 3, 2008

Case No. CV 08 2209 SI OPPOSITION TO MOTION TO DISMISS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 40 0 M on tg om er y St re et , S ui te 5 01 ▪ Sa n Fr an ci sc o, C A 9 41 04 ▪ 41 5- 81 4- 04 05 (t ) 4 15 -2 17 -7 01 1 (f ) SMITH LILLIS PITHA LLP DAMIEN P. LILLIS (SBN 191258) dlillis@slplawfirm.com 400 Montgomery Street, Suite 501 San Francisco, California 94104 Telephone: (415) 814-0405 Facsimile: (415) 217-7011 Attorneys for Plaintiff Simmonds & Narita LLP UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION SIMMONDS & NARITA LLP, a limited liability partnership, Plaintiff, v. JEFFREY SCHREIBER; SUZANNE E. SCHREIBER; and DOES 1 through 50, inclusive, Defendants. Case No. CV 08 2209 SI PLAINTIFF’S OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS AND/OR TRANSFER FOR “IMPROPER VENUE” [Request for Judicial Notice Submitted Separately] Date: July 25, 2008 Time: 9:00 a.m. Courtroom: 10, 19th Floor Judge: Honorable Susan Illston Case 3:08-cv-02209-SI Document 12 Filed 07/03/2008 Page 1 of 25 i Case No. CV 08 2209 SI OPPOSITION TO MOTION TO DISMISS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 40 0 M on tg om er y St re et , S ui te 5 01 ▪ Sa n Fr an ci sc o, C A 9 41 04 ▪ 41 5- 81 4- 04 05 (t ) 4 15 -2 17 -7 01 1 (f ) Table of Contents I. INTRODUCTION .................................................................................................................... 1 II. FACTUAL BACKGROUND AND PROCEDURAL HISTORY ........................................... 2 A. The Parties..................................................................................................................... 2 B. The Underlying Alameda Litigation Sought To Hold The Defendants Liable Based On Their Conduct In Operating Their Debt Collection Businesses. .................. 2 C. Defendants Hired Plaintiff Simmonds & Narita LLP To Defend Them In The Alameda Litigation And Refused To Pay For The Work. ............................................ 4 D. Plaintiff Filed Suit In San Francisco Superior Court And Defendants Voluntarily Removed This Action To Federal Court. .................................................. 5 III. LEGAL ANALYSIS ................................................................................................................. 5 A. The Removal Statute, 28 U.S.C. §1441, Governs Any Venue Determination In This Case And Venue Is Statutorily Proper In This District. ................................... 5 B. Because Venue In This Court Is Statutorily Proper, 28 U.S.C. §1406(a) Provides No Basis For Dismissal Or Transfer. ............................................................. 6 C. Neither The FDCPA Nor Its Venue Provisions Apply To This Case. .......................... 7 1. The FDCPA Does Not Apply Because Defendants’ Obligation To Pay For The Defense Of The Alameda Litigation Is A “Business” Obligation, Not A “Consumer” Debt Covered By The FDCPA. ...................... 7 2. The Venue Provision Of The FDCPA Does Not Apply Because A Debt Collector Did Not File Suit On Behalf Of Plaintiff, And No Debt Collector Is Prosecuting This Case Now. ......................................................... 9 IV. CONCLUSION ....................................................................................................................... 12 Case 3:08-cv-02209-SI Document 12 Filed 07/03/2008 Page 2 of 25 ii Case No. CV 08 2209 SI OPPOSITION TO MOTION TO DISMISS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 40 0 M on tg om er y St re et , S ui te 5 01 ▪ Sa n Fr an ci sc o, C A 9 41 04 ▪ 41 5- 81 4- 04 05 (t ) 4 15 -2 17 -7 01 1 (f ) Table of Authorities Cases Bacik v. Peek, 888 F. Supp. 1405, 1413 (N.D. Ohio 1993) ....................................................................... 7 Bloom v. I.C. Systems, Inc. 972 F. 2d 1067, 1068 (9th Cir. 1992) .............................................................. 8 First Gibraltar Bank v. Smith, 62 F. 3d 133, 136 (5th Cir. 1995) .............................................................. 8 Hartford Fire Ins. Co. v. Westinghouse Elec. Corp., 725 F. Supp. 317, 320 (S.D. Miss. 1989) ............... 6 IBC Aviation, Inc. v. Compania Mexicana de Aviacion, 125 F. Supp. 2d 1008, 1014 (N.D. Cal. 2000) ...................................................................................... 6 Kotan v. Pizza Outlet, Inc., 400 F. Supp. 2d 44 (D.D.C. 2005) ................................................................. 7 Polizzi v. Cowles Magazines, 345 U.S. 663, 665-66 ................................................................................. 5 Schroyer v. Frankel, 197 F. 3d 1170, 1176 (6th Cir. 1999) ...................................................................... 10 Schroyer v. Frankel, 197 F. 3d at 1176 .................................................................................................... 11 Turner v. Cook, 362 F. 3d 1219, 1228 (9th Cir. 2004) ............................................................................... 8 Statutes 15 U.S.C. §1681 ......................................................................................................................................... 2 15 U.S.C. §1692 ......................................................................................................................................... 1 15 U.S.C. §1692a(5) .................................................................................................................................. 8 15 U.S.C. §1692a(6) ................................................................................................................................ 10 15 U.S.C. §1692i ........................................................................................................................................ 5 15 U.S.C. §1692i(a) ............................................................................................................................. 9, 10 28 U.S.C. §1391 ......................................................................................................................................... 5 28 U.S.C. §1406(a) ................................................................................................................................ 6, 7 28 U.S.C. §1441(a) ...................................................................................................................... 1, 5, 7, 12 28 U.S.C. §1441(f) ..................................................................................................................................... 6 Treatises Schwarzer, Tashima, & Wagstaffe, Cal. Prac. Guide: Fed. Civ. Proc. Before Trial (Rutter Group 2007) §4:394 ........................................ 6 Case 3:08-cv-02209-SI Document 12 Filed 07/03/2008 Page 3 of 25 1 Case No. CV 08 2209 SI OPPOSITION TO MOTION TO DISMISS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 40 0 M on tg om er y St re et , S ui te 5 01 ▪ Sa n Fr an ci sc o, C A 9 41 04 ▪ 41 5- 81 4- 04 05 (t ) 4 15 -2 17 -7 01 1 (f ) I. INTRODUCTION Defendants Jeffrey and Suzanne Schreiber hired Plaintiff Simmonds & Narita LLP, a top San Francisco law firm specializing in the defense of the credit and collection industry, to defend them in litigation arising from Defendants’ operation of a group of debt-collection and law-firm businesses. Plaintiff performed all the pre-trial work and showed up for the first day of trial fully prepared to try the case to verdict. But the court moved the trial date, and Defendants then refused to pay the $88,552 they owed (and still owe) Plaintiff for defending them. After withdrawing as counsel, Plaintiff sued in state court for the unpaid legal fees. Defendants then removed the case to this Court. Defendants’ pending motion to dismiss or transfer for allegedly “improper venue” fails on the law and facts. Defendants elected to remove this case to federal court, and thus the venue provisions of the removal statute (28 U.S.C. §1441(a)) govern all questions of proper venue. Section 1441(a) provides that venue is proper in this Court as a matter of law. Defendants ignored this controlling statute in their moving papers and failed to even acknowledge that they had removed this action from state court. Defendants’ motion should be denied on this basis alone. Beyond this, Defendants’ motion also fails because it is a complete distortion of the Fair Debt Collection Practices Act (15 U.S.C. §1692 et seq., the “FDCPA”) and is riddled with fundamentally flawed premises. Defendants basically contend that venue in this Court is improper because a “debt collector” purportedly filed this suit, based upon a “debt” allegedly covered by the FDCPA, and that, under a narrow provision of the FDCPA, a “debt collector” can file such a suit only in the county where Defendants reside or the county in which they signed the contract with Plaintiff. Defendants are wrong. The FDCPA simply does not, and cannot, apply. Defendants’ obligation to pay for the defense of litigation arising from the operation of their businesses is not a “consumer debt” incurred for “personal, household, or family purposes” under the FDCPA. Instead, it is an obligation to pay for business-related services that the FDCPA does not cover. And, a “debt collector” did not institute this suit, so the narrow venue provision of the FDCPA does not apply either, even if the FDCPA applied to Defendants’ business obligations (it patently does not). Venue is proper in this Court under the removal statute and the FDCPA does not apply. Plaintiff respectfully requests that the Court deny Defendants’ motion. Case 3:08-cv-02209-SI Document 12 Filed 07/03/2008 Page 4 of 25 2 Case No. CV 08 2209 SI OPPOSITION TO MOTION TO DISMISS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 40 0 M on tg om er y St re et , S ui te 5 01 ▪ Sa n Fr an ci sc o, C A 9 41 04 ▪ 41 5- 81 4- 04 05 (t ) 4 15 -2 17 -7 01 1 (f ) II. FACTUAL BACKGROUND AND PROCEDURAL HISTORY A. The Parties. Plaintiff Simmonds & Narita LLP is an AV-rated San Francisco law firm specializing in complex business litigation, with an emphasis on defending consumer financial services litigation and claims brought under the FDCPA and the Fair Credit Reporting Act, 15 U.S.C. §1681 et seq. (“FCRA”). See www.snllp.com. The firm’s attorneys are specialists and regularly speak as invited guests at symposiums and continuing education seminars regarding the FDCPA and FCRA. Id. Defendant Jeffrey Schreiber is an attorney admitted to practice law in Indiana, New York, Massachusetts, New Hampshire, and Washington D.C. See Declaration of Jeffrey Schreiber at ¶¶3-10, attached as Exhibit B to the accompanying Request for Judicial Notice (“RJN”). Defendant Jeffrey Schreiber also owned and operated debt collection agencies in addition to owning several law firms that share personnel with those collection firms. See id., ¶¶9, 10; see also RJN, Exhibit H. Defendant Suzanne Schreiber, together with her ex-husband Defendant Jeffrey Schreiber, owned and operated S&A Services of Marion, Ltd., a debt collection agency “call center” through which the Schreiber Defendants and their employees worked to collect debts owed by consumers. Declaration of Suzanne Schreiber at ¶¶3-12, attached to the RJN as Exhibit C. Through their employees at the debt collection and related law firm businesses, the Defendants collected debts and published information regarding debtors and their accounts to consumer reporting agencies such as Experian, Equifax, and TRW. Id., ¶¶7, 8; Jeffrey Schreiber Decl., ¶¶9, 10. B. The Underlying Alameda Litigation Sought To Hold The Defendants Liable Based On Their Conduct In Operating Their Debt Collection Businesses. The unpaid invoices for legal services at issue in this action do not constitute a “personal, family or household” debt within the meaning of the FDCPA. Because of the manner in which the Defendants allegedly operated their debt collection business, they became embroiled in financial services litigation in California. On August 25, 2004, Robert Siemons filed a lawsuit in Alameda County Superior Court (the “Alameda Litigation”) alleging, in essence, that the Schreiber Defendants, through their related businesses, had defamed him and caused him severe emotional distress by inaccurately reporting information about Siemons to several consumer reporting agencies. See Siemons’ Complaint, attached Case 3:08-cv-02209-SI Document 12 Filed 07/03/2008 Page 5 of 25 3 Case No. CV 08 2209 SI OPPOSITION TO MOTION TO DISMISS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 40 0 M on tg om er y St re et , S ui te 5 01 ▪ Sa n Fr an ci sc o, C A 9 41 04 ▪ 41 5- 81 4- 04 05 (t ) 4 15 -2 17 -7 01 1 (f ) as Exhibit A to the RJN. Siemons named as defendants a host of law firms owned and operated by Defendant Jeffrey Schreiber (The Schreiber Law Firm, LLC; Harris & Dial P.C.; and Schreiber & Associates P.C.) See “Doe Amendments” to the Siemons’ Complaint, also attached as Exhibit A to the RJN. Siemons also named S&A Services of Marion, Ltd. as a defendant (the debt collection agency owned by Defendants), and he named the Schreibers as defendants as well. Id. In the Alameda Litigation, Siemons sought to hold Jeffrey and Suzanne Schreiber liable based on the manner in which they allegedly operated their debt collection and law firm businesses: The owners of a collection company who do not properly train the collectors and who devise and implement inadequate systems cannot escape liability because they do not personally know the alleged debtors who are harassed and victimized by illegal collection tactics. The law is just the opposite. The owners have a duty to properly train and supervise collectors so that the collectors do not break the law, and to devise and implement systems that make sure that the law is followed. It is foreseeable that the breach of these duties will result in the injury and damage to alleged debtors…. **** The only issue is whether the Schreibers, as the owners, “top bosses” and creators of these companies, are responsible. **** Suzanne Schreiber was fully involved in the creation of the collection business…. Not only was she CEO of every collection location [she addressed all of the day-to- day issues a CEO typically addresses]. **** Jeffrey had his office located in the same facility as S&A of Marion. Allegedly because Jeffrey Schreiber was the General Counsel for all of the collection entities, if his law practice did not pay the rent, S&A would pay for him…. **** In 2003 the Schreibers were engaged in operating 3 debt collection locations, one of which was S&A Services of Marion, Ltd…. The center of the collection operations was Schreiber and Associates, P.C. … totally owned by Jeffery Schreiber…. However, non-lawyer Suzanne Schreiber was CEO…. Siemons’ Opposition to Motion for Summary Judgment at 2:1-7, 5-8; RJN Ex. D. The Superior Court confirmed that the plaintiff in the Alameda Litigation had sought to hold the Defendants liable for their allegedly unlawful business activities: The undisputed facts demonstrate that S&A [Services of] Marion [Ltd.] was a separately incorporated entity and that Defendants Jeffrey and Suzanne Schreiber were not a DBA for S&A Marion…. There are triable issues of material fact whether Defendants Jeffrey and Suzanne Schreiber can be held liable for the actions they took as agent directors and officer of S&A Marion. There is evidence that the Case 3:08-cv-02209-SI Document 12 Filed 07/03/2008 Page 6 of 25 4 Case No. CV 08 2209 SI OPPOSITION TO MOTION TO DISMISS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 40 0 M on tg om er y St re et , S ui te 5 01 ▪ Sa n Fr an ci sc o, C A 9 41 04 ▪ 41 5- 81 4- 04 05 (t ) 4 15 -2 17 -7 01 1 (f ) Schreibers authorized, directed, or meaningfully participated in torts committed by the entity. Order Denying Summary Judgment at 1 (emphasis added), attached to the RJN as Exhibit E. C. Defendants Hired Plaintiff Simmonds & Narita LLP To Defend Them In The Alameda Litigation And Refused To Pay For The Work. In April 2007, after they became dissatisfied with their first set of attorneys in the Alameda Litigation, the Schreiber Defendants hired Plaintiff Simmonds & Narita LLP to defend them. See Plaintiff’s Complaint (and its attached Engagement Agreement), attached as Exhibit 1. Plaintiff fully prepared the case for trial, conducted many depositions, and engaged in extensive law and motion practice (largely as a result of counsel for Siemons increasing the costs and expenses of litigation). See, e.g., the extensive fifteen-page Docket from the Alameda Litigation, attached to the RJN as Exhibit G. Plaintiff Simmonds & Narita not only fully prepared the case for trial, but appeared with the Defendants on the first day of trial on November 2, 2007, ready to try the case to verdict. The Superior Court, however, continued the trial date for lack of an available court room. See id. In October 2007, with a November 2, 2007 trial date looming, Plaintiff expressed serious concern over the Defendants’ failure to timely pay for the professional legal services rendered in preparing the Alameda Litigation for trial, particularly in light of the extensive work made necessary by the conduct of counsel for Siemons. In response to these concerns, Defendants induced Plaintiff to continue representing them with countless oral and written promises to pay, including: “You will never have to worry that I am not going to pay you,” and “I know how hard you work. You do a phenomenal job….You never have to worry about me paying you…. I promise you will get all the money that is billed,” among others. Based on Defendants’ promises and assurances, Plaintiff continued to represent the Defendants and devoted their efforts to getting the Siemons case ready for trial. Then, after Plaintiff completed all of the pre-trial work and the court continued the trial date, the Defendants refused to pay the $88,552.99 balance they owed for the work performed by Plaintiff. After much back and forth, Plaintiff informed Defendants they would need to retain new counsel. (Defendants then retained their third set of lawyers for the Alameda Litigation and ultimately obtained a defense verdict.) Case 3:08-cv-02209-SI Document 12 Filed 07/03/2008 Page 7 of 25 5 Case No. CV 08 2209 SI OPPOSITION TO MOTION TO DISMISS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 40 0 M on tg om er y St re et , S ui te 5 01 ▪ Sa n Fr an ci sc o, C A 9 41 04 ▪ 41 5- 81 4- 04 05 (t ) 4 15 -2 17 -7 01 1 (f ) D. Plaintiff Filed Suit In San Francisco Superior Court And Defendants Voluntarily Removed This Action To Federal Court. On March 13, 2008, Plaintiff filed a Complaint against Defendants in San Francisco Superior Court for the legal fees Defendants refused to pay. On April 29, 2008, Defendants removed the action to this Court on diversity grounds. Notice of Removal, attached to the RJN as Exhibit F. (Although the fact of removal is dispositive of the relief sought by Defendants, as discussed below, Defendants’ motion fails to even mention that Defendants removed this action from state court.) III. LEGAL ANALYSIS Defendants basically contend that venue in this Court is improper because, in their unfounded view, a “debt collector” filed this suit based on a “debt” covered by the FDCPA, and a “debt collector” can file such a suit only in the county where Defendants reside or the county in which they signed the contract with Plaintiff (as purportedly provided by 15 U.S.C. §1692i). In making these arguments, Defendants have ignored the law governing the proper venue of this removed action, and have done mental gymnastics in an effort to distort the FDCPA beyond all recognition. (It is more than a little rich for the owners of debt collection firms to seek the protection of the FDCPA.) A. The Removal Statute, 28 U.S.C. §1441, Governs Any Venue Determination In This Case And Venue Is Statutorily Proper In This District. Defendants’ motion overlooks the consequences of their decision to remove Plaintiff’s state- court action to this federal district court. The removal statute, 28 U.S.C. §1441(a), governs all questions of venue for an action removed to federal court. Polizzi v. Cowles Magazines, 345 U.S. 663, 665-66 (“The venue of removed actions is governed by 28 U.S.C. §1441(a)”). In a removed case, other venue statutes do not apply. See id. (finding general venue statute, 28 U.S.C. §1391, inapplicable to a removed case). Section 1441(a) provides that “any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending.” 28 U.S.C. §1441(a) (emphasis added). In other words, venue in this Court is proper and it is of no moment that other inapplicable venue provisions may exist. Courts have held that, so long as a removed action satisfies 28 U.S.C. §1441(a), as this case does, venue is proper in the federal district court even if venue was not proper in the state court. See Case 3:08-cv-02209-SI Document 12 Filed 07/03/2008 Page 8 of 25 6 Case No. CV 08 2209 SI OPPOSITION TO MOTION TO DISMISS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 40 0 M on tg om er y St re et , S ui te 5 01 ▪ Sa n Fr an ci sc o, C A 9 41 04 ▪ 41 5- 81 4- 04 05 (t ) 4 15 -2 17 -7 01 1 (f ) IBC Aviation, Inc. v. Compania Mexicana de Aviacion, 125 F. Supp. 2d 1008, 1014 (N.D. Cal. 2000) (a federal district court may assert jurisdiction over a matter removed from a state court where venue was improper under state law but compliant with §1441(a)). Section §1441(f) essentially confirms this point: “The court to which a civil action is removed under this section is not precluded from hearing and determining any claim in such civil action because the State court from which such civil action is removed did not have jurisdiction over that claim.” 28 U.S.C. §1441(f). As a leading treatise explains, in an action removed from state court to federal court, the removing party cannot claim that venue in the federal court is “improper,” as Defendants assert here. This is so because removing an action under 28 U.S.C. §1441(a) establishes venue in federal court “automatically proper” even if venue in the state court was not: Actions Removed From State Court: In actions removed from state court, venue is automatically proper in the federal district court located where the state action was pending. It is immaterial that venue would not have been proper if the action had been brought initially in that district. The removal statute authorizes defendant to remove “to the district court ... embracing the place where such action is pending. 28 USC § 1441(a); see Polizzi v. Cowles Magazines, Inc. (1953) 345 US 663, 665–666, 73 S.Ct. 900, 902–903; Kerobo v. Southwestern Clean Fuels, Corp. (6th Cir. 2002) 285 F3d 531, 534…. Schwarzer, Tashima, & Wagstaffe, Cal. Prac. Guide: Fed. Civ. Proc. Before Trial (Rutter Group 2007) §4:394 (emphasis original).1 In sum, because Defendants voluntarily removed this case from state court, this Court is, necessarily, the proper venue under § 1441(a). See Hartford Fire Ins. Co. v. Westinghouse Elec. Corp., 725 F. Supp. 317, 320 (S.D. Miss. 1989) (“defendant's voluntary application for removal confers venue over him”). Section 1441(a), therefore, renders irrelevant all the statutes and venue arguments raised in Defendants’ motion – they simply do not apply. B. Because Venue In This Court Is Statutorily Proper, 28 U.S.C. §1406(a) Provides No Basis For Dismissal Or Transfer. Defendants seek dismissal or transfer solely under 28 U.S.C. §1406(a). See Motion at 1, 7:14- 19. That section provides as follows: The district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice, transfer such case to any district … in which it could have been brought. 1 Counsel for Plaintiff called counsel for Defendants to discuss this readily-accessible authority in the hope of avoiding the need for a hearing on Defendants’ motion. Those efforts bore no fruit. Case 3:08-cv-02209-SI Document 12 Filed 07/03/2008 Page 9 of 25 7 Case No. CV 08 2209 SI OPPOSITION TO MOTION TO DISMISS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 40 0 M on tg om er y St re et , S ui te 5 01 ▪ Sa n Fr an ci sc o, C A 9 41 04 ▪ 41 5- 81 4- 04 05 (t ) 4 15 -2 17 -7 01 1 (f ) 28 U.S.C. §1406(a) (emphasis added). Section 1406(a) does not apply for two independent reasons. First, as the plain language of section 1406(a) suggests, the statute applies only if venue is improper in this Court. Venue is proper here under 28 U.S.C. §1441(a), as noted above. As such, section 1406(a) does not, and cannot, apply, as this Court is not a “wrong” venue, as required. See Bacik v. Peek, 888 F. Supp. 1405, 1413 (N.D. Ohio 1993) (Holding that, in light of the defendants’ removal of the action, the Court could not dismiss or transfer under 28 U.S.C. §1406(a) because it was “immaterial that this forum would obviously have been an improper venue had this action been brought here originally…. By their voluntary application for removal, the defendants have sanctioned the propriety of venue in this district and division.”). Second, a court may act pursuant to section 1406(a) only when a plaintiff files a case “in the wrong division or district” of the federal courts. 28 U.S.C. §1406(a). Defendants’ motion ignores the fact that Plaintiff did not file this case in this district (or any other federal district). Plaintiff filed its action in San Francisco Superior Court. Complaint, Exhibit 1. This case is now in the Northern District only because Defendants voluntarily removed it from state court. RJN, Exhibit F. Because no party “filed a case” in a federal district court, section 1406(a) does not apply and cannot support dismissal or transfer. See Kotan v. Pizza Outlet, Inc., 400 F. Supp. 2d 44 (D.D.C. 2005) (denying motion under §1406(a) because venue was proper under §1441(a) and noting that “a court may only act pursuant to [§1406(a)] when a case is filed in the wrong venue”). Because Defendants cite no basis other than 28 U.S.C. §1406(a) to support their venue arguments for dismissal or transfer and that section does not apply, Defendants have offered no authority for the relief they seek.2 C. Neither The FDCPA Nor Its Venue Provisions Apply To This Case. 1. The FDCPA Does Not Apply Because Defendants’ Obligation To Pay For The Defense Of The Alameda Litigation Is A “Business” Obligation, Not A “Consumer” Debt Covered By The FDCPA. Conspicuously absent from Defendants’ motion is a single case, secondary authority, or statutory provision holding that the FDCPA applies to a business owner’s obligation to pay for 2 Although some courts find that the only means of changing venue after removal is by way of a motion for a “convenience” transfer under 28 U.S.C. §1404(a) (see id.), Defendants’ motion requests no such relief. Case 3:08-cv-02209-SI Document 12 Filed 07/03/2008 Page 10 of 25 8 Case No. CV 08 2209 SI OPPOSITION TO MOTION TO DISMISS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 40 0 M on tg om er y St re et , S ui te 5 01 ▪ Sa n Fr an ci sc o, C A 9 41 04 ▪ 41 5- 81 4- 04 05 (t ) 4 15 -2 17 -7 01 1 (f ) professional legal services rendered in defending the business owner in litigation arising from his or her operation of a commercial enterprise (as is the case here). No such authority exists. The FDCPA plainly does not apply to Defendants’ payment obligations. The FDCPA applies only to “consumer” debts. 15 U.S.C. §1692a(5). It does not apply to obligations incurred for business or commercial purposes. Bloom v. I.C. Systems, Inc. 972 F. 2d 1067, 1068 (9th Cir. 1992). The FDCPA defines the “debts” subject to its terms as “obligation[s] of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes….” 15 U.S.C. §1692a(5) (emphasis added). Put another way, “the Act applies [only] to consumer debts and not business loans.” Bloom, 972 F. 2d at 1068. While Defendants’ motion pays lip service to the definition of “debt” under the FDCPA (Motion at 4:21-27), it ignores the very cases Defendants cite. In the Ninth Circuit, the determination of whether an obligation is subject to the FDCPA depends on the “end uses” of the services purchased and “whether [the] intended use can be characterized as ‘primarily for personal, family or household purposes.’” Bloom, 972 F. 2d at 1068-69. In Bloom, the Ninth Circuit held that even though the plaintiff “personally” owed a debt for taking out an informal loan from a friend, the debt was not a “consumer” debt subject to the FDCPA because the plaintiff incurred the obligation to “invest[] the proceeds of the loan as venture capital in a software company with which he was closely associated.” Id. at 1068-69. Because the plaintiff “borrowed the money to invest in a software company[, it] was a business loan” that was not subject to the FDCPA. Id. Other cases recognize that the FDCPA does not apply to obligations incurred for “business” reasons because such obligations are not for personal, family, or household purposes. See, e.g., Turner v. Cook, 362 F. 3d 1219, 1228 (9th Cir. 2004) (“We … hold that the FDCPA does not apply to … [a judgment] awarded for … commercial torts”); First Gibraltar Bank v. Smith, 62 F. 3d 133, 136 (5th Cir. 1995) (debtor’s obligation on a personal guaranty of a bank loan for the purchase and development of property not a “debt” under FDCPA because the guaranty obligation related to an underlying commercial transaction). Defendants incurred the obligation to pay Plaintiff for legal services because, through the operation of Defendants’ businesses (S&A Services of Marion, Ltd., Schreibers & Associates, The Case 3:08-cv-02209-SI Document 12 Filed 07/03/2008 Page 11 of 25 9 Case No. CV 08 2209 SI OPPOSITION TO MOTION TO DISMISS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 40 0 M on tg om er y St re et , S ui te 5 01 ▪ Sa n Fr an ci sc o, C A 9 41 04 ▪ 41 5- 81 4- 04 05 (t ) 4 15 -2 17 -7 01 1 (f ) Schreiber Law Firm, Harris & Dial, etc.), Defendants had allegedly published information about Robert Siemons that caused Mr. Siemons harm. The Alameda Litigation resulted from Defendants’ operation of a debt collection business. It did not result from anything even remotely related to “personal, family, or household purposes.” The obligation to pay for legal services arose from Defendants allegedly engaging in commercial transactions and business dealings with reporting agencies, formulating business policies and procedures (or failing to do so), and acting as the “top bosses” and owners of their businesses. RJN, Exhibit A-D. Refusing to pay for the defense of the Alameda Litigation cannot reasonably be compared with a consumer defaulting on a credit card bill for the purchase of home furnishings or medical supplies, which might be considered “personal or household” purposes. Defendants were sued and needed to hire lawyers because of how the Defendants ran their businesses. This is not even a close call. Defendants’ motion also appears to confuse the issue of “personal liability” with the term “personal” under the FDCPA. See Motion at 5:7-18. Courts are clear that the existence of personal liability for repaying a business loan does not transmute a business loan into a “personal debt” subject to the FDCPA. Bloom, 972 F. 2d at 1068-69. The same is true here: Defendants’ personal liability for paying legal fees is no different from any other business obligation they incurred in operating their businesses. It is a business obligation or expense, not a “consumer” debt of any kind. (Tellingly, for the legal bills that Defendants did choose to pay, they used a business account under the name Consolidation USA, Inc., further underscoring the business nature of the obligations they incurred.) 2. The Venue Provision Of The FDCPA Does Not Apply Because A Debt Collector Did Not File Suit On Behalf Of Plaintiff, And No Debt Collector Is Prosecuting This Case Now. Defendants’ motion is also based upon the assumption that the case was filed by and is being prosecuted by a “debt collector” within the meaning of the FDCPA. Both assumptions are wrong, which provides an additional reason why the motion must fail. The “venue” provision of the FDCPA, 15 U.S.C. §1692i(a), states: Any debt collector who brings any legal action on a debt against any consumer shall-- *** (2) in the case of an action not described in paragraph (1), bring such action only in the judicial district or similar legal entity-- (A) in which such consumer signed the contract sued upon; or Case 3:08-cv-02209-SI Document 12 Filed 07/03/2008 Page 12 of 25 10 Case No. CV 08 2209 SI OPPOSITION TO MOTION TO DISMISS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 40 0 M on tg om er y St re et , S ui te 5 01 ▪ Sa n Fr an ci sc o, C A 9 41 04 ▪ 41 5- 81 4- 04 05 (t ) 4 15 -2 17 -7 01 1 (f ) (B) in which such consumer resides at the commencement of the action. 15 U.S.C. §1692i(a) (emphasis added). By its plain language, 15 U.S.C. §1692i(a) does not apply where, as here, the attorney filing the legal action is not a “debt collector” as defined by the FDCPA. Under the FDCPA, “the term ‘debt collector’ means any person who … regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another….” 15 U.S.C. §1692a(6). “[F]or a court to find that an attorney or law firm ‘regularly’ collects debts for purposes of the FDCPA, a plaintiff must show that the attorney or law firm collects debts as a matter of course for its clients or for some clients, or collects debts as a substantial, but not principal, part of his or its general law practice.” Schroyer v. Frankel, 197 F. 3d 1170, 1176 (6th Cir. 1999). Factors courts consider include “the volume of the attorney's collection activities, the frequent use of a particular debt collection document or letter, [] whether there exists a steady relationship between the attorney and the collection agency or creditor he represented,” as well as “what portion of the overall caseload debt collection cases constitute, and what percentage of revenues derive from debt collection activities.” Id. (a) Defendants Have Not Offered Any Admissible Evidence That A “Debt Collector” Instituted Or Is Prosecuting This Action. There is no competent evidence before the Court that Plaintiff’s former counsel, Glassberg, Pollak & Associates, is a “debt collector” as defined by the FDCPA. To support this fundamental premise, Defendants offer nothing more than inadmissible hearsay -- a single paragraph from Martindale-Hubbell describing Glassberg, Pollak & Associates (Defendants’ Exhibit 2) and a short biography of one of its attorneys, Robert Pollak (Defendants’ Exhibit 3). Defendants offer no admissible evidence regarding Glassberg, Pollak & Associates, the scope of its practice or the type of cases it handles. Defendants offer no public filings or surveys of public filings suggesting that the firm collects consumer debts on a regular or systematic basis or is otherwise “regularly engaged” in debt collection activity within the meaning of the FDCPA, as Defendants concede is required. Motion at 5:28-6:13. There is an utter failure of proof on this fundamental and dispositive question.3 3 Despite the absence of competent evidence, even the hearsay materials submitted by Defendants refute any inference that former counsel is a debt collector under the FDCPA. In the motion, Defendants fail to distinguish between Glassberg, Pollak & Associates’ practice of collecting “commercial accounts,” which are not covered by the FDCPA (as discussed above), and any alleged practice of collecting “consumer accounts,” which might be Footnote continues on next page. Case 3:08-cv-02209-SI Document 12 Filed 07/03/2008 Page 13 of 25 11 Case No. CV 08 2209 SI OPPOSITION TO MOTION TO DISMISS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 40 0 M on tg om er y St re et , S ui te 5 01 ▪ Sa n Fr an ci sc o, C A 9 41 04 ▪ 41 5- 81 4- 04 05 (t ) 4 15 -2 17 -7 01 1 (f ) The Schroyer case cited by and relied upon by Defendants actually supports Plaintiff’s position. Motion at 6. There, the plaintiffs based their FDCPA claims against a law firm on evidence showing that “two percent of [defendant law firm] Smith & Smith's overall practices consisted of debt collection cases,” that “7.4%, 29 of 389 cases annually, of [one of its attorney’s] overall practice consisted of debt collection cases,” and that the attorney “represented a number of business clients who were the source of his twenty-nine debt collection cases.” Id. at 1176. Despite this evidence – none of which is present here – the Schroyer court found that the plaintiffs had failed to offer sufficient evidence to carry their burden of proving that the law firm was a “debt collector” under the FDCPA: Plaintiffs failed to offer evidence showing that fees generated or collected by Smith & Smith or Frankel from debt collection activities constituted a great portion of overall revenues, and failed to offer proof that Smith & Smith or Frankel handled debt collection cases as part of an ongoing relationship with a major creditor or business client with substantial debts for collection. While these facts do support the inference that it was not unusual for Defendants to perform debt collection work, or that their debt collection work occurred in more than an isolated instance, we believe it does not support a claim that Defendants were “in the business” of debt collection, that they were in the “debt collection” industry, or that Smith & Smith was a “debt collection firm.” Rather, the facts establish that Defendants' debt collection activities were incidental to, and not relied upon or anticipated in, their practice of law, and that therefore they should not be held liable as “debt collectors” under the FDCPA. Schroyer v. Frankel, 197 F. 3d at 1176-77. The plaintiffs in Schroyer failed to prove that a law firm was subject to the FDCPA despite offering actual admissible evidence regarding case volume, caseload ratios, and client relationships. Defendants, by comparison, have offered no more than a few lines of text from Martindale-Hubbell. Defendants’ “showing” on the fundamental “debt collector” element is just rank speculation coupled with hearsay. The motion fails. subject to the FDCPA. The hearsay Martindale-Hubbell description submitted by Defendants, if considered by the Court, clearly states that “Glassberg, Pollak & Associates primarily provides assistance to creditors in collecting delinquent and/or disputed commercial accounts.” Defendants’ Exhibit 2. Nowhere in the few lines of “evidence” offered by Defendants does the Glassberg Pollak firm state or suggest that it engages in the practice of collecting “consumer accounts.” Defendants ignore the fact that the FDCPA does not apply to commercial obligations, and ignore the fact that the hearsay they submit to support their motion indicates that Glassberg Pollak has a practice of collecting commercial accounts, not consumer accounts. For this reason alone Defendants’ motion should be denied because, in the absence of a “debt collector” filing suit, the FDCPA “venue” provision does not apply. Case 3:08-cv-02209-SI Document 12 Filed 07/03/2008 Page 14 of 25 12 Case No. CV 08 2209 SI OPPOSITION TO MOTION TO DISMISS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 40 0 M on tg om er y St re et , S ui te 5 01 ▪ Sa n Fr an ci sc o, C A 9 41 04 ▪ 41 5- 81 4- 04 05 (t ) 4 15 -2 17 -7 01 1 (f ) (b) The Substitution Of New Counsel For Plaintiff Renders Defendants’ Motion Moot. Even if venue was not proper under 28 U.S.C. §1441(a), even if the FDCPA applied to Defendants’ obligation to pay for legal fees , and even if Glassberg, Pollak & Associates was a debt collector under the FDCPA, the fact that Glassberg, Pollak & Associates no longer represents Plaintiff in this action renders Defendants’ motion moot. New counsel for Plaintiff is not in the collection business and is not a debt collector. As such, because the “venue” provision of the FDCPA does not apply to an action prosecuted by a law firm that is not a “debt collector” under the FDCPA, the FDCPA presents no barrier to this case moving forward. Common sense should also play a role here. Because current counsel for Plaintiff is not a debt collector under the FDCPA, Plaintiff could simply dismiss its present suit, have current counsel re-file it, and thereby eliminate any possible FDCPA challenge to venue. Defendants’ refusal to withdraw their motion in light of the substitution of new counsel reveals this motion for what it is – a delay tactic, plain and simple. IV. CONCLUSION Venue is proper in this Court under 28 U.S.C. §1441(a). The FDCPA does not apply. For these and all of the foregoing reasons, Plaintiff respectfully requests that the Court deny Defendants’ motion. Dated: July 3, 2008 SMITH LILLIS PITHA LLP By: DAMIEN P. LILLIS Attorneys for Plaintiff Case 3:08-cv-02209-SI Document 12 Filed 07/03/2008 Page 15 of 25 EXHIBIT 1 EXHIBIT 1 Case 3:08-cv-02209-SI Document 12 Filed 07/03/2008 Page 16 of 25 Case 3:08-cv-02209-SI Document 12 Filed 07/03/2008 Page 17 of 25 Case 3:08-cv-02209-SI Document 12 Filed 07/03/2008 Page 18 of 25 Case 3:08-cv-02209-SI Document 12 Filed 07/03/2008 Page 19 of 25 Case 3:08-cv-02209-SI Document 12 Filed 07/03/2008 Page 20 of 25 Case 3:08-cv-02209-SI Document 12 Filed 07/03/2008 Page 21 of 25 Case 3:08-cv-02209-SI Document 12 Filed 07/03/2008 Page 22 of 25 Case 3:08-cv-02209-SI Document 12 Filed 07/03/2008 Page 23 of 25 Case 3:08-cv-02209-SI Document 12 Filed 07/03/2008 Page 24 of 25 Case 3:08-cv-02209-SI Document 12 Filed 07/03/2008 Page 25 of 25