Eichman v. MANN BRACKEN, LLC

Citations: 689 F. Supp. 2d 1094; 2010 U.S. Dist. LEXIS 17516; 2010 WL 681403Docket: 09-cv-624-slc

Court: District Court, W.D. Wisconsin; February 25, 2010; Federal District Court

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Dawn M. Eichman filed a civil action against Weld, Riley, Prenn. Ricci S.C. and Ryan J. Steffes, claiming violations of the Fair Debt Collection Practices Act (FDCPA), the Wisconsin Consumer Act, and the Uniform Commercial Code (UCC) related to a state court action aimed at vacating an arbitration award from Chase Bank for alleged credit card debt. Eichman alleges that during the lawsuit, the defendants filed unfounded counterclaims on behalf of Chase Bank regarding the balance due on two credit card accounts. The defendants moved to dismiss these claims under Fed. R. Civ. P. 12(b)(6).

The court confirmed jurisdiction under 15 U.S.C. 1692k(d) and 28 U.S.C. 1331 and 1367, highlighting an issue concerning the FDCPA's applicability to state court debt collection litigation. The defendants argued their counterclaims were filed in good faith, while Eichman contended that the counterclaims lacked evidentiary support and were based on invalid debt. 

Although the court found many of Eichman's allegations to be conclusory, it determined that she had sufficiently stated claims under the FDCPA and Wisconsin Consumer Act, particularly regarding the defendants' alleged disregard for evidence of debt cancellation and misrepresentation of the debt amount. Consequently, the motion to dismiss these claims was denied. However, the court dismissed Eichman's UCC claim without prejudice, indicating that she could amend her complaint to address identified deficiencies.

The court also noted the consideration of several documents related to settlement negotiations and the underlying state action, which were deemed central to the claims and permissible for review without converting the motion to a summary judgment under Rule 56.

Plaintiff, a Turtle Lake, Wisconsin resident, alleges that defendant law firm Weld, Riley, Prenn. Ricci, S.C. and attorney Ryan Steffes engaged in improper debt collection practices related to her Chase Bank Visa account. In March 2008, plaintiff received a collection notice from Mann Bracken, which claimed her debt was subject to an arbitration agreement. Plaintiff disputed the debt and requested documentation, but the information provided was insufficient for validation. Following an arbitration process, an award of $18,107.55 was issued to Chase Bank in October 2008. Plaintiff later received a 1099-C form indicating a canceled debt of $16,898.21.

In January 2009, plaintiff filed a civil action to vacate the arbitration award, claiming she never entered into an arbitration agreement. Defendant Steffes filed a counterclaim for the unpaid Visa account. In August 2009, plaintiff proposed a settlement to dismiss the counterclaim and revoke the arbitration award, which was rejected. An amended counterclaim was subsequently filed for a Mastercard debt of $37,392.92. Plaintiff initiated this lawsuit in October 2009, alleging violations of the Fair Debt Collection Practices Act, the Wisconsin Consumer Act, and the Uniform Commercial Code.

A claim may be dismissed under Fed. R. Civ. P. 12(b)(6) if the allegations do not establish a viable claim for relief, as established in Bell Atlantic Corp. v. Twombly.

In Savory v. Lyons, the Seventh Circuit examined whether the plaintiff's claim that defendants filed a baseless counterclaim in state court constituted a plausible violation of the Fair Debt Collection Practices Act (FDCPA), the Wisconsin Consumer Act, and the Uniform Commercial Code. The plaintiff argued that defendants were aware or should have been aware that the counterclaims lacked evidence because Chase Bank had previously issued a 1099-C form canceling her debt, asserting that she was never indebted to the bank and that the defendants' evidence was fraudulent. She claimed that defendants did not review her file, relied on inadequate computer printouts, and presented unsigned agreements as proof of the alleged debts.

The FDCPA aims to protect consumers from abusive debt collection practices, regardless of whether a valid debt exists. It prohibits various forms of misconduct by debt collectors, including harassment, making false representations about a debt, and threatening unlawful actions. Similar protections are outlined in the Wisconsin Consumer Act, which also forbids the use of physical threats, disclosing false information that could harm a consumer's credit reputation, and making claims without a legitimate right. Both statutes emphasize the requirement for debt collectors to act transparently and lawfully in their collection efforts.

The parties acknowledge the plaintiff as a consumer under both the Fair Debt Collection Practices Act (FDCPA) and Wisconsin law. The defendants admit they are debt collectors for the sake of argument. Both statutes prohibit debt collectors from making or threatening false claims. The Supreme Court's decision in Heintz v. Jenkins establishes that the FDCPA applies to lawyers engaged in consumer debt collection, including litigation activities, but left unclear whether filing a debt collection claim without sufficient proof constitutes harassment or a deceptive practice. The litigation activity in Heintz involved a settlement letter rather than a formal complaint. The case arose from a bank suing Darlene Jenkins over a defaulted loan, and Jenkins claimed that the amount stated included unauthorized charges. The Supreme Court interpreted this conduct as falling within the FDCPA's scope.

The extent to which the FDCPA governs the content of state court pleadings remains uncertain. In Beler v. Blatt Hasenmiller, the Seventh Circuit questioned whether the FDCPA regulates state court documents, suggesting that state procedural rules determine required details. Although the court did not resolve this matter, it cited Heintz to confirm the law firm was a debt collector. In a later unpublished decision, the court referenced Beler in determining that an attorney's effort to secure a lien did not violate the FDCPA. Conversely, the Sixth Circuit's ruling in Harvey v. Great Seneca Financial Corp. concluded that filing a debt collection lawsuit, even without immediate proof of debt, does not constitute abusive conduct under the FDCPA, as such actions do not inherently harass or oppress the debtor.

The court emphasized that the plaintiff did not dispute the existence of the debt or claim any misrepresentation by the defendant regarding the debt amount, nor did she allege a lack of reasonable investigation into the debt's validity. The Ninth Circuit's ruling in Donohue v. Quick Collect, Inc. established that a complaint served directly on a debtor qualifies as a communication under the Fair Debt Collection Practices Act (FDCPA). In Donohue, the debtor accused the creditor of false representation concerning interest calculation, a claim the court upheld despite the creditor's reliance on Beler, which did not definitively address FDCPA applicability in litigation. Various district courts in the Seventh Circuit have permitted FDCPA claims based on alleged misrepresentations during state court actions, as seen in cases like Guevara and Polzin, where plaintiffs successfully argued unfair collection practices. The Seventh Circuit has not conclusively ruled on FDCPA's relevance to state court filings, but it has indicated that deceptive practices by debt-collection attorneys during litigation can be scrutinized under the FDCPA, as established in cases like Veach and Gearing. However, the mere act of filing a counterclaim does not inherently violate the FDCPA unless supported by evidence of harassment or deception. Thus, plaintiffs must provide substantial evidence beyond mere counterclaim filings to prevail against a motion to dismiss.

Plaintiff must assert that defendants' counterclaims are frivolous, based on falsehoods or misrepresentations of key facts. She claims defendants were aware or should have been aware that she does not owe Chase Bank a debt, particularly because Chase issued a 1099-C form canceling her debt following a 2008 arbitration award. If this form pertains to her debts, it would indicate that defendants misrepresented the debt amount in their counterclaims. Under the Fair Debt Collection Practices Act (FDCPA), even unintentional false representations can lead to liability, as established in Seventh Circuit case law, which imposes strict liability on debt collectors. The determination of a violation of Section 1692e is based on whether a reasonable, unsophisticated consumer would be misled, rather than the debt collector's knowledge. Defendants may defend against liability by proving a "bona fide error," but this is a matter for trial or summary judgment.

Plaintiff also contests the validity of unsigned credit card contracts attached to the counterclaims, claiming she never entered such agreements. This assertion is actionable if it demonstrates that defendants misrepresented her agreement with Chase Bank; however, the absence of a signed contract does not inherently invalidate the debt claim. The state court will ultimately decide what documentation is necessary for pleadings.

Moreover, plaintiff's claims of harassment and deception may appear premature as the state lawsuit is still in its early stages, and pursuing simultaneous lawsuits might lead to inconsistencies. Nonetheless, the Seventh Circuit has acknowledged that different legal systems can coexist. Plaintiff has presented sufficient allegations to support claims under the FDCPA and the Wisconsin Consumer Act, although it remains uncertain which specific provisions she may invoke. 

On the matter of the Uniform Commercial Code (UCC), plaintiff argues that defendants are using nonexistent contracts to substantiate her debt to Chase Bank. She incorrectly references a "federal Uniform Commercial Code," as the UCC is a model code adopted at the state level. Defendants contend that plaintiff has not clearly identified any violations of Wisconsin law by them.

Chapters 403-405 of the Uniform Commercial Code (UCC) are cited as relevant to the plaintiff's claims against the defendants for alleged violations related to business transactions with Chase Bank. However, the plaintiff's general references to negotiable instruments, bank deposits, and letters of credit are deemed insufficient to establish a viable claim under these statutes. The court emphasizes that Federal Rule of Civil Procedure 8 necessitates detailed allegations that demonstrate a plausible basis for each claim, referencing Bell Atlantic Corp. v. Twombly and Riley v. Vilsack to support this requirement. The court finds that the plaintiff has not provided enough facts to infer a potential violation of the UCC, resulting in the dismissal of that claim without prejudice, allowing the plaintiff to amend her complaint. The motion to dismiss filed by the defendants is partially granted and partially denied: claims under the Fair Debt Collection Practices Act and the Wisconsin Consumer Act remain intact, while the UCC claim is dismissed, with a deadline set for amending the complaint by March 19, 2010.