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Born v. Hosto & Buchan, PLLC
Citations: 372 S.W.3d 324; 2010 Ark. 292; 2010 Ark. LEXIS 345Docket: No. 09-971
Court: Supreme Court of Arkansas; June 17, 2010; Arkansas; State Supreme Court
The appellants, referred to as the Born debtors, faced lawsuits initiated by Hosto. Buchan, PLLC (H&B) on behalf of various creditors to recover debts. Specific lawsuits were filed against individual appellants between 2007 and 2009. On April 13, 2009, the Born debtors filed a Second Amended and Substituted Complaint against H&B, seeking class action status on eight grounds, including violations of the Fair Debt Collection Practices Act (FDCPA) and the Arkansas Deceptive Trade Practices Act (ADTPA), alongside allegations of fraud, negligence, and defamation. H&B responded with a motion to dismiss the complaint under Arkansas Rule of Civil Procedure 12(b)(6), asserting immunity from suit under Arkansas Code Annotated section 16-22-310, which protects attorneys from liability for civil damages except for actual fraud or intentional torts. H&B argued that claims other than those exempted were barred and that the Born debtors should have raised these issues in the prior complaints, invoking res judicata. Additionally, H&B contended that appellant Born lacked standing to sue. In their response, the Born debtors argued that H&B was acting as a debt collector rather than providing legal services, thereby negating the claimed immunity. A hearing was held on July 27, 2009, where the circuit judge ultimately granted H&B's motion to dismiss, stating that the actions in question were conducted in H&B's capacity as a law firm, despite the allegation that they acted as a debt collector. The judge noted potential sanctions under procedural rules but found no viable cause of action against H&B. In reviewing a motion to dismiss, allegations in the complaint are accepted as true and interpreted in the plaintiff's favor, requiring reasonable inferences to support the complaint. However, complaints must include factual statements rather than mere conclusions to warrant relief, per Arkansas Rule of Civil Procedure 8(a)(1). The standard for reviewing a motion to dismiss hinges on whether the circuit judge abused discretion. Section 16-22-310 establishes that attorneys and their firms are generally immune from civil liability for actions performed in their professional capacity for individuals not in privity of contract, with exceptions for fraud and intentional misrepresentations. Previous case law has affirmed that this immunity applies to actions taken during the attorney's employment and is limited to professional services rendered. Claims such as negligent hiring are not covered by this immunity. The statute explicitly excludes claims for fraud and intentional torts like abuse of process. In the case at hand, the Born debtors argued that H&B should not enjoy immunity as it operates partly as a debt-collection agency. Despite this, the circuit judge correctly dismissed the claims of abuse of process, civil conspiracy, constructive fraud, and negligence, as they were based on H&B's professional legal services in filing complaints, not its debt collection activities. Therefore, the judge’s dismissal of the claims was justified. The Born debtors present individual arguments regarding their claims, which the court recognizes as attempts to bypass the immunity statute's intent. The court notes that the debtors could pursue sanctions or file complaints against H&B for any alleged misconduct in their legal practice. Regarding the abuse-of-process claim, the debtors argue that the immunity statute is inapplicable due to intentional misconduct by H&B, citing Almand v. Benton County as precedent. In Almand, the court held that an attorney could be liable for abuse of process based on intentional actions that misused legal procedures. To establish abuse of process, a plaintiff must demonstrate: (1) a legal motion initiated properly; (2) perversion of that procedure for an ulterior purpose; and (3) a willful act not proper in standard proceedings. However, the Born debtors fail to substantiate their claim, as they do not allege H&B acted with any ulterior motive beyond attempting to collect debts. The court concludes that allowing abuse-of-process claims under these circumstances would undermine the immunity statute. For civil conspiracy, a claimant must show a combination of two or more individuals pursuing an unlawful or oppressive purpose. The Born debtors assert that H&B conspired with its clients to violate the Arkansas Deceptive Trade Practices Act, but H&B counters that no civil conspiracy exists between a principal and its agent, referencing Dodson v. Allstate Insurance Co. and supporting case law, including Heffeman v. Hunter, which establishes a ban on conspiracy claims in the attorney-client context. Civil conspiracy claims between an attorney and client are generally disallowed when actions are taken in the scope of legal representation. Constructive fraud, characterized by a breach of duty that deceives others without the need for intent to deceive, was not applicable in the case against H&B, as the Born debtors failed to demonstrate that H&B owed them any legal or equitable duty. Previous rulings, such as Wiseman v. Batchelor, support this conclusion by highlighting that an attorney's duty is primarily to their client, not to opposing parties, resulting in the dismissal of the constructive fraud claim. Regarding negligence, while claims of simple negligence are barred by immunity statutes, the Born debtors argued that claims of negligent hiring, supervision, and training should be exempt. However, H&B maintained that such claims were also barred and that the Born debtors had not established a duty owed to them. Although certain claims for negligent hiring and supervision can be exempt under specific circumstances, they require proof that the employer was aware of or should have been aware of the potential for harm from an employee's conduct. The Born debtors' allegations against H&B focused on failures in supervision and training but lacked sufficient factual detail to support their claims. Conclusive statements made by the Born debtors were deemed insufficient under the Arkansas Rules of Civil Procedure, which require fact-pleading. Consequently, the circuit judge correctly dismissed their negligence claim. Regarding the fraud claim, the debtors argued that the circuit judge erred in dismissal, asserting that fraud is exempt from immunity and that they alleged several material misrepresentations. Specifically, they claimed H&B misrepresented its identity in settlement notices, falsely asserted amounts owed in lawsuits, and incorrectly stated that its clients were properly registered to sue in Arkansas, violating the Wingo Act. To establish fraud, plaintiffs must demonstrate a false representation of material fact, knowledge of its falsity, intent to induce reliance, justifiable reliance, and resultant damages. The complaint failed to provide specific factual allegations supporting these elements, thus violating Rule 9(b), which mandates particularity in fraud claims. Accordingly, the circuit judge's dismissal of the fraud claims was upheld. Additionally, the debtors contended that their claims under the Arkansas Deceptive Trade Practices Act (ADTPA) were wrongly dismissed. They argued that H&B engaged in deceptive acts in violation of the ADTPA. H&B countered that the ADTPA does not apply to attorneys practicing law, referencing the case Preston v. Stoops, which established that the ADTPA does not govern legal practice. Although the debtors claimed Preston was irrelevant, the court affirmed the circuit judge's dismissal of the ADTPA claims, reiterating that the regulation of legal practice falls under the exclusive jurisdiction of the judiciary, aligning with the separation-of-powers doctrine. Appellants argue the circuit judge incorrectly granted H&B's motion to dismiss FDCPA claims, asserting that H&B is not immune under the immunity statute and that the complaint sufficiently stated a claim. H&B did not argue immunity on appeal but contended the dismissal was appropriate due to the complaint's failure to state a claim under the FDCPA. The FDCPA aims to eliminate abusive debt collection practices, ensuring fair competition among debt collectors and promoting consumer protection. Claims under the FDCPA can be filed in any competent court within one year of the violation. The complaint alleged that H&B violated various provisions of the FDCPA, including engaging in impermissible debt collection methods such as harassment and misleading representations. However, the complaint failed to specify which FDCPA provisions were violated, complicating the review of the appellants' arguments, which suggested a collective pattern of violations without legal backing. The specific FDCPA claims included: (1) H&B's knowledge that some underlying claims were time-barred; (2) inadequacy of the underlying complaints; and (3) misleading settlement notices that implied debtors could avoid court involvement by contacting H&B, among other issues. A key argument was that H&B violated the FDCPA by pursuing claims that were barred by the statute of limitations. H&B argued that a five-year statute of limitations applied due to a written contract, while the Born debtors contended that a three-year statute applied since H&B did not attach the contract to the complaints, asserting that the burden of proof for the written contract lies with H&B. Bringing litigation or threatening to collect a debt beyond the statute of limitations may constitute a violation of the Fair Debt Collection Practices Act (FDCPA). However, if no litigation threat exists, a debt collector's attempt to collect a potentially time-barred debt is not a violation. Relevant case law includes Freyermuth v. Credit Bur. Servs., where a violation occurred due to a threat to sue on a time-barred debt, and Kimber v. Fed. Fin. Corp., which found it unfair for a collector to sue without confirming the debt's status. Conversely, Simmons v. Miller ruled there was no FDCPA violation if the collector did not knowingly pursue a time-barred claim. In this case, the FDCPA claims of debtors Johnson and Nabours are time-barred. The claim of debtor Born, alleging the underlying complaint was time-barred, was dismissed because the debt from a credit card contract was still within the five-year statute of limitations. Additionally, the Born debtors claimed violations by H&B, including filing suits on behalf of clients not authorized to operate in Arkansas under the Wingo Act and failing to comply with Arkansas Rules of Civil Procedure regarding affidavits. H&B contended that no Wingo Act violation occurred and that procedural rule violations do not constitute FDCPA violations. The court noted a lack of authority cited by the Born debtors to support their claims, emphasizing that violations of state procedural rules do not automatically lead to FDCPA claims. Consequently, the court upheld the dismissal of the Born debtors' claims against H&B for failure to state a valid cause of action. The Born debtors allege that H&B violated the Fair Debt Collection Practices Act (FDCPA) by sending settlement notices, but their complaint fails to link these notices to specific FDCPA provisions. Their claim of a deceptive pattern also lacks legal validity as they haven't established entitlement to relief under the FDCPA. Allegations that the notices contain misrepresentations do not succeed under Arkansas Rule of Civil Procedure 12(b)(6). The settlement notices inform the debtors of their lawsuit and encourage them to contact H&B to potentially avoid court appearances, clearly stating that the communication is an attempt to collect a consumer debt. The Born debtors argue the notices violated the FDCPA by (1) suggesting payments barred by the statute of limitations, (2) not identifying H&B as an attorney, (3) discouraging independent legal counsel, and (4) using a fictitious name. However, the court assesses communications from the perspective of the "unsophisticated debtor," as established in Morrison v. Hosto, where similar claims were dismissed. The court found no false statements in the settlement notice and noted that the Born debtors did not specify how the notice violated the FDCPA. Separately, appellant Scoggins contends that an H&B employee failed to inform him of the legal basis for his claim and did not suggest seeking independent counsel. However, he also does not cite any FDCPA provision requiring such notification, rendering his argument without merit. Furthermore, Scoggins did not specify which FDCPA provision was allegedly violated by the employee's statement. Regarding the statute of limitations for FDCPA claims, H&B asserts that Johnson's and Nabours' claims are time-barred under the one-year limit of 15 U.S.C. § 1692k. Johnson's complaint dates back to March 2007, and Nabours' to October 31, 2007, while the class action complaint was filed on February 6, 2009. Johnson's and Nabours's claims under the Fair Debt Collection Practices Act (FDCPA) are deemed time-barred due to the statute of limitations. H&B asserts that the limitations period begins either when a lawsuit is filed or when the complaint is served, with both methods leading to the conclusion that the claims are time-barred. The Born debtors argue that a new limitations period starts with any FDCPA violation, but they provide no supporting authority, and the court declines to adopt this view. Judicial precedent shows a split on when the statute of limitations begins, with some courts starting it upon filing the collection action and others upon service of the complaint. Since both approaches confirm the claims are time-barred, the dismissal of their FDCPA claims is affirmed. The court also notes that the Born debtors have waived their right to plead further following their appeal of the dismissal order, which is modified to a dismissal with prejudice. Additionally, although the complaint references claims on behalf of the Born debtors and other Arkansas citizens, there was no motion for class certification, and thus the appeal solely concerns the dismissal based on Arkansas Rule of Civil Procedure 12(b)(6). The Born debtors submitted exhibits just before the hearing that do not necessitate converting H&B’s motion to dismiss into a summary judgment motion, as the circuit judge confirmed his decision was based solely on the pleadings and arguments presented. The defamation claim was also dismissed, but the appellants have abandoned this claim in the appeal. The Born debtors contended that H&B misrepresented information on settlement notices, specifically suggesting that contacting H&B could negate the need for the appellants to file an answer in an underlying lawsuit. The U.S. Supreme Court's ruling in Heintz v. Jenkins confirms that the Fair Debt Collection Practices Act (FDCPA) applies to attorneys engaged in consumer debt collection, including litigation. The Born debtors did not allege that the underlying complaints against Miller and Scoggins were time-barred. They also claimed that H&B improperly filed suit against Born and operated without a necessary debt collection license under Arkansas law, but these allegations were not clearly stated in their complaint. The appellants did not show how violations of state licensing could implicate the FDCPA. H&B argued that it was not required to register with the Secretary of State based on a specific statutory exception for securing or collecting debts. The Born debtors countered that this exception pertains only to secured debt collection, not to general debt collection activities. The circuit judge dismissed the FDCPA claim regarding the settlement notices, as no false statements were identified, nor was a specific violation of the FDCPA substantiated. Appellant Scoggins claimed that during a phone call, an H&B employee stated there was no legal basis for disputing the claim and failed to advise him to seek independent legal counsel. However, Scoggins did not cite any FDCPA provisions that H&B violated, rendering his argument unsubstantiated. Regarding the statute of limitations, H&B asserted that the FDCPA claims of appellants Johnson and Nabours were barred by the one-year limitation period, as their underlying complaints were filed before the class action complaint in February 2009, indicating that their claims were time-barred. H&B argued that the limitations period begins either when the lawsuit is filed or when the complaint is served. The Born debtors argue that the start of the statute of limitations for their Fair Debt Collection Practices Act (FDCPA) claim is a factual question and propose that any violation of the FDCPA resets the limitations period. The court declines this interpretation, noting a split in authority regarding when the statute of limitations begins: some courts say it starts when the collection action is filed (Naas v. Stolman), while others say it begins when the debtor is served (Johnson v. Riddle). The court finds that the Born debtors’ FDCPA claims are time-barred under both interpretations and affirms their dismissal. Further, the court states that because the dismissal is affirmed, it need not address additional claims by H&B regarding res judicata and procedural rules. The Born debtors have waived their right to plead further since they appealed the dismissal, leading to a modification of the dismissal to one with prejudice. The complaint was filed on behalf of the Born debtors and potentially others in a class action context, but no motion for class certification was made, and the issue was not raised on appeal. The sole issue in the appeal is whether the circuit court erred in granting H&B's motion to dismiss under Arkansas Rule of Civil Procedure 12(b)(6). On July 24, 2009, the Born debtors submitted three exhibits related to previous dismissals of counterclaims and complaints, but the court finds these do not necessitate converting the dismissal motion to one for summary judgment, as the circuit judge did not consider the exhibits in making the ruling. Additionally, the defamation claim was dismissed, but the appellants have abandoned this claim on appeal. The Bom debtors contend that H&B misrepresented the implications of contacting them, suggesting that it could prevent the need for the appellants to file an answer in the lawsuit. The U.S. Supreme Court has clarified that the Fair Debt Collection Practices Act (FDCPA) applies to attorneys who regularly engage in consumer debt collection, including litigation. The complaint does not indicate that the claims against Miller and Scoggins were time-barred. The appellants also argue that H&B improperly sued Born, claiming he was not the correct debtor, and that H&B operated without the necessary debt-collection agency license as mandated by Arkansas law. However, these issues were not explicitly presented in the complaint. The appellants have not demonstrated how violations of Arkansas licensing requirements could constitute violations of the FDCPA. H&B asserts that its clients are exempt from registering with the Secretary of State under a specific provision, arguing that they were involved in securing or collecting debts. The Bom debtors counter that this exception pertains only to secured debt collection and does not apply to regular debt collection businesses. The date of the class action complaint, mentioned in H&B's motion to dismiss, is acknowledged and not disputed by the Bom debtors.