Galdamez v. I.Q. Data International, Inc.

Citations: 170 F. Supp. 3d 890; 2016 WL 1042938; 2016 U.S. Dist. LEXIS 33709Docket: 1:15-CV-1605(LMB/JFA)

Court: District Court, E.D. Virginia; March 15, 2016; Federal District Court

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Defendant I.Q. Data International, Inc. (IQ) filed a Motion to Dismiss a complaint from plaintiffs Sara Judith Garcia Galdamez, Jorge Armando Escobar Barillas, and Virginia de Jesus Pena Pozuelos, alleging violations of the Fair Debt Collection Practices Act (FDCPA). The plaintiffs claim that IQ improperly added interest to an alleged unpaid balance related to a residential lease without legal or contractual basis, utilizing false and misleading representations about the debt and engaging in unfair collection practices. The lease, signed on May 11, 2012, only allowed for a one-time late fee and did not provide for interest charges. After vacating the apartment on June 10, 2015, plaintiffs disputed a claimed balance of $3,276.84 for unpaid rent and other charges, which was not itemized in the collection letter sent by IQ on July 17, 2015. The letter stated that $19.93 in interest was due and that the principal would accrue interest at 6% per annum. Plaintiffs contend that these interest claims are false under Virginia law and the lease terms and assert emotional distress due to concerns over an accruing balance. They allege violations under specific FDCPA provisions regarding misleading representations and misrepresentation of the debt amount. Plaintiffs seek statutory damages, actual damages, and attorney's fees.

In its Motion to Dismiss, IQ argues that the plaintiffs’ claims are based on a misunderstanding of Virginia law regarding interest on unpaid rent. Plaintiffs counter that Virginia law does not permit debt collectors to impose interest unless it is explicitly stated in the lease or a judgment has been rendered. The court will grant the motion in part and deny it in part.

To survive a motion to dismiss under Fed. R. Civ. P. 12(b)(6), a complaint must present facts that establish a plausible claim for relief, elevating the right to relief above mere speculation. Plaintiffs need not provide evidence to prove their claims initially, but must allege sufficient facts to support the legal elements of their claims. Formulaic recitations are inadequate. Courts are required to accept the truth of all factual allegations while not assuming the truth of bare legal conclusions.

In Count I, the claim involves allegations that a false statement regarding interest accrual contravened 15 U.S.C. §§ 1692e and 1692f. To succeed under § 1692e, plaintiffs must demonstrate that the debt collector employed false, deceptive, or misleading means in debt collection. Under § 1692f, they must show the use of unfair or unconscionable methods. A false representation regarding the amount of a debt constitutes a violation of § 1692e, while § 1692f is violated if any amount collected is not expressly authorized by the debt agreement or permitted by law.

The defendant, IQ, asserts that Virginia law permits the collection of 6% interest per annum on overdue residential lease balances, arguing that this means their collection letter was not false or misleading. IQ bases its claim on Va. Code Ann. § 55-227, which stipulates that interest is allowed in actions for rent. IQ interprets the phrase "shall be allowed" as eliminating discretion in awarding interest. However, case law indicates that while damages typically include the principal and legal interest for breach of contract, it remains uncertain whether interest is automatically assumed. Plaintiffs contend that in Virginia, pre-judgment interest on unpaid rent is only allowable when collected through judicial proceedings.

The Virginia Residential Landlord and Tenant Act (VRLTA) defines an "action" broadly, encompassing various legal proceedings related to landlord-tenant disputes. According to the plaintiffs, if a landlord has not specified interest in the lease, any claim for interest can only be pursued as a court-ordered remedy, and since no legal action has been initiated against them, the defendant cannot collect interest under Virginia Code § 55-227. The plaintiffs assert that even when interest is permissible, it remains discretionary according to § 55-227, contrasting with the mandatory nature of post-judgment interest as established by Virginia Supreme Court precedent.

They also argue that previous case law cited by the defendant supports the idea that pre-judgment interest is merely an available remedy rather than an automatic entitlement. Specifically, they note that the late fee in the lease suffices as a remedy for breach and that Virginia courts seldom award pre-judgment interest for unpaid rent. Furthermore, the plaintiffs reference § 55-248.31 of the VRLTA, which details the procedures and remedies for landlords collecting unpaid rent, asserting its applicability over § 55-227 of the older Virginia Landlord-Tenant Act (VLTA). They highlight that no modern cases have applied § 55-227 to circumstances similar to theirs, and the VRLTA explicitly governs their lease, with no exemptions applicable.

In response, the defendant disputes the applicability of the VRLTA to the tenancy and contends that the VLTA and VRLTA contain complementary provisions. They also reference a Ninth Circuit opinion suggesting that a debt collector need not obtain a judgment to be entitled to certain types of relief under federal law.

The comparison between the California statute in Diaz and the Virginia statute reveals significant differences regarding entitlement to prejudgment interest. The California statute allows for the recovery of interest from the time the right to damages vests, while the Virginia statute lacks such explicit language. Furthermore, a reference to Trease v. Tri-State Adjustments, Inc. indicates that under Wisconsin law, if the amount of debt is disputed, defendants do not have a right to seek prejudgment interest, highlighting a distinction from Virginia law.

Plaintiffs assert that even if Virginia law permitted prejudgment interest without an enforceable judgment, this right was waived in the lease terms. The defendant counters that there is a presumption against excluding statutory rights and claims no clear waiver exists in the lease. IQ contends that a 10% late fee does not imply a waiver of prejudgment interest, arguing the lease does not express an exclusive remedy intent.

Plaintiffs, however, maintain that Virginia courts construe unambiguous leases strictly, citing case law to support their view that only specific remedies mentioned in the lease, such as the late fee and associated costs, are available. They emphasize an integration clause in the lease that negates any additional terms, asserting that the lease, being a contract of adhesion, should be construed against the landlord as the drafter. Consequently, the court denies the defendant's Motion to Dismiss concerning Count I.

Plaintiffs allege that IQ violated 15 U.S.C. § 1692g by including a misleading statement in a collection letter, asserting that unless the recipient disputes the debt within 30 days, it will be assumed valid, and that the outstanding balance will accrue interest at 6% per annum. IQ contends that the statement on interest, being separated by three sentences from the dispute notice, could not overshadow the consumer's right to dispute the debt. Citing Bryant v. Wells Fargo Bank, IQ argues that the statement merely affirms interest accrual, which even a minimally sophisticated consumer would understand. However, the court finds the interest statement misleading since Virginia law does not allow automatic interest on unpaid rent, indicating that the letter inaccurately implies entitlement to interest. Despite this misrepresentation, the court agrees with the reasoning in Bryant, concluding that the erroneous interest statement does not overshadow the dispute notification. Consequently, the court grants the Motion to Dismiss for Count II but allows Count I to proceed. Furthermore, plaintiffs seek to establish a class action representing consumers in Virginia and surrounding states who received similar letters within the previous year. The resolution of class action status remains pending, and the court notes that questions of fact regarding the correctness of interest charges and unpaid balances will be addressed later. Virginia law establishes a legal interest rate of 6% per annum when there is an obligation to pay interest without a specified contractual rate, but no such provision exists in the lease.