Court: District Court, E.D. New York; January 3, 2019; Federal District Court
Julie Somerset, the Plaintiff, filed a putative class action against Stephen Einstein, Associates, P.C., Einstein, P.C., and Stephen Einstein (the "Defendants") for alleged violations of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. 1692 et seq. The Defendants moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6), while the Plaintiff sought to amend her complaint. The Court, noting that the Defendants had sufficient opportunity to respond to the amended allegations, decided to consider the motion to dismiss in the context of the Amended Complaint.
The Court indicated that if the Amended Complaint cannot withstand the Defendants' motion to dismiss, the Plaintiff's motion to amend would be deemed futile. However, the Court ultimately denied the Defendants' motion to dismiss and granted the Plaintiff's motion to amend.
The relevant facts include that the Plaintiff, a New York resident, was contacted by the Defendants regarding a consumer debt. Einstein, P.C. is a debt collection professional corporation, and Stephen Einstein is an attorney associated with it. On January 10, 2017, the Defendants sent an "Income Execution" to the Plaintiff's employer, which was her first communication from them. The Plaintiff contended that this Income Execution failed to include required language under FDCPA Sections 1692e(11) and 15 USC 1692g(a) and falsely asserted a valid judgment against her from Rushmore Recoveries X, LLC. The Plaintiff claimed that the judgment, a default issued by the New York State District Court in 2005, was invalid due to improper service by the Defendants, who allegedly relied on a false affidavit of service from a process server. She further alleged that no attorney meaningfully reviewed the Income Execution prior to its service and that the Defendants should have been aware of the invalid service.
On May 24, 2016, the U.S. District Court for the Southern District of New York approved a class action settlement that vacated over 200,000 default judgments linked to the Mel Harris Firm and SamServe in Sykes v. Mel Harris Assocs. LLC. The Plaintiff claims the Defendants were aware of the Sykes case but still pursued a default judgment through their operations. The Plaintiff initiated this action on December 27, 2017, alleging violations of several sections of the Fair Debt Collection Practices Act (FDCPA). She seeks to represent all New York consumers who received similar income executions.
The Defendants filed a motion to dismiss the complaint on March 26, 2018, for failure to state a claim. In response, the Plaintiff sought to vacate a prior default judgment against her and requested leave to amend her complaint, which would drop some claims. The Defendants contended that any amendment would be futile. On May 30, 2018, the Plaintiff informed the Court that the prior default judgment was vacated.
The legal standard for dismissal under Fed. R. Civ. P. 12(b)(6) requires that a complaint must contain sufficient factual allegations to support a plausible claim for relief. The court assesses whether the complaint can survive by drawing reasonable inferences in favor of the Plaintiff while accepting the factual allegations as true, excluding mere legal conclusions or conclusory statements. Dismissal is only warranted if the complaint fails to state any set of facts that could entitle the Plaintiff to relief.
The Defendants contend that the Plaintiff lacks Article III standing due to insufficient allegations of concrete harm beyond a mere violation of the Fair Debt Collection Practices Act (FDCPA). They reference the Supreme Court's ruling in Spokeo, Inc. v. Robins, which asserts that mere procedural violations do not meet the injury-in-fact requirement. However, the Court has previously rejected this argument, confirming that violations of FDCPA Sections 1692e and 1692g protect concrete interests, thus satisfying the standing requirement. The Court denies the Defendants' motion to dismiss based on standing.
Regarding material misrepresentations under Section 1692e, while the Second Circuit has not established a formal materiality requirement, it has indicated that actionable violations must be based on material misrepresentations. The Court agrees with this interpretation and defines material statements as those that influence a consumer's decision to pay a debt or impair their ability to contest it. The Defendants argue that the Plaintiff cannot demonstrate confusion or impairment resulting from their actions; however, the Court disagrees, noting that the Plaintiff's claim is not solely based on the failure to disclose that a communication was from a debt collector but also includes allegations regarding the Defendants' knowledge of the invalidity of the judgment they attempted to enforce.
The Income Execution mandates wage garnishment for debt collection without explaining the underlying debt or providing context about the judgment creditors. The Amended Complaint claims the Income Execution does not address issues related to Mel Harris firm and SamServe, despite the Defendants' awareness of their use of improper service methods to obtain default judgments. The Plaintiff, having received the document from the Sheriff’s department, may feel pressured to pay the debt or misunderstand their rights to dispute it. The Court finds that the alleged misrepresentations could mislead consumers regarding the nature and legal status of the debt, opposing the Defendants' argument about the lack of materiality concerning the Income Execution's failure to identify itself as a debt collector. The Court aligns with other rulings that deem such omissions under Section 1692e(11) as actionable per se, indicating that failure to disclose this information is materially significant for an unsophisticated consumer's understanding. Consequently, the Court denies the Defendants' motion to dismiss based on failure to plead materiality.
The Defendants contend that the Court should dismiss the Plaintiff's claims under Sections 1692e(11) and 1692g(a) on the basis that their "initial communication" was an October 7, 2015 letter, which is not referenced in the Amended Complaint, rather than the Income Execution. They argue that the statutory disclosure requirements pertain only to the initial communication, which they assert was satisfied by the October 7 letter. Consequently, they classify the Income Execution as a compliant "subsequent communication." However, the Court rejects this argument, determining that the October 7 letter is not appropriate for consideration at the pleading stage and denies the Defendants' motion. The Court emphasizes its discretion under Rule 12(b)(6) to determine if materials beyond the pleadings should be accepted, citing precedents that outline specific instances when such materials may be considered, including facts in the complaint, documents integral to the complaint, and publicly filed documents.
The Court rejects the Defendants' request to consider the October 7, 2015 letter as integral to the Amended Complaint, emphasizing that for a document to be deemed integral, the plaintiff must have actual notice of it and must have relied on it in formulating the complaint. The Amended Complaint claims that the Income Execution was the first and only communication received by the Plaintiff from the Defendants. The Defendants failed to provide evidence that the Plaintiff actually received the letter, relying solely on their assertion of having mailed it. This lack of actual notice means the Plaintiff could not have relied on the letter when framing the complaint. Consequently, the Court upholds that the Income Execution was indeed the Plaintiff's initial communication with the Defendants and does not need to evaluate its compliance with the Fair Debt Collection Practices Act (FDCPA) as a subsequent communication.
Regarding the applicability of Section 1692e(11) of the FDCPA, which addresses failures to disclose in initial written communications with consumers, the Defendants argue that the Income Execution was a communication with the Sheriff, not the consumer. Although this argument has some merit, it conflicts with the legal interpretations within the Circuit. The FDCPA does not define "initial communication," nor does it clarify if such communications exclude those initiated by the consumer. However, the FDCPA broadly defines "communication" as the conveyance of information regarding a debt to any person, and the Second Circuit has suggested that the statute should be interpreted broadly in alignment with its purpose. Thus, the Court concludes that the Income Execution qualifies as a communication covered by Section 1692e(11).
Defendants created the Income Execution to send to the Plaintiff via the Sheriff, aiming to inform the Plaintiff's employer about the judgment for collection purposes. The Sheriff's inclusion of a cover letter does not change the Income Execution's intended function. If this document was indeed the Plaintiff's first notice of the judgment, then the disclosures required by Section 1692e(11) would further the objectives of the Fair Debt Collection Practices Act (FDCPA). Courts must interpret the FDCPA broadly to eliminate abusive debt collection practices and ensure fair competition among collectors. Communications with third parties can also be actionable under the statute. Cases cited by the Plaintiff demonstrate that communications sent through an intermediary, such as an attorney, still qualify as actionable communications when they are intended for the debtor. In this instance, the Defendants utilized the Sheriff's department as an intermediary to enforce the default judgment against the Plaintiff.
In Nara v. Palisades Acquisition XVI, LLC, the court allowed the plaintiff to amend their complaint to include a claim under Section 1692e(11) of the Fair Debt Collection Practices Act (FDCPA), concerning an income execution. Judge Lindsay did not determine if the income execution qualified as an "initial communication" under the FDCPA but dismissed the argument that it was exempt due to compliance with New York CPLR requirements. The court rejected the defendants' assertion that the income execution, served by the Sheriff's office on official letterhead, fell outside FDCPA jurisdiction, emphasizing that the cases cited by the defendants relied on non-binding precedents from other circuits that conflict with local case law.
The discussion included a consideration of whether the income execution qualifies as a "formal pleading" exempt from Section 1692e(11), which generally excludes formal legal documents and related communications. Although some precedent exists regarding the exemption of various legal documents, the court found that the income execution does not qualify as a formal pleading exempt from the statute. Competing case law from outside the circuit yielded differing conclusions about the applicability of the formal pleading exception to income executions. The court expressed reluctance to apply the FDCPA to communications not made by the debt collector, who lacks control over the message.
The Court finds it illogical for the Fair Debt Collection Practices Act (FDCPA) to exempt debt collectors from disclosure requirements in their initial court filings while mandating disclosures in later filings. The term "formal pleading" is specifically defined, and if Congress intended a broader exemption, it would have used different terminology. The Court emphasizes that statutory interpretation begins with the language of the statute, which should be understood in its plain meaning. Both federal and New York civil procedure rules limit pleadings to specific documents at the lawsuit's initiation. The Court notes that while the Second Circuit has described the exemption as "broad," it has still confined it to documents essential for initiating a case. The Court concludes that it cannot deviate from the statute's clear language without further guidance from the Second Circuit. Despite potential odd outcomes, the ruling will not significantly impact most debt collection cases since subsequent filings only trigger disclosure requirements if they represent the debt collector's first communication with the debtor. In this case, the Court denies the Defendants’ motion to dismiss based on their argument that the Income Execution is not a communication under Section 1692e(11).
Regarding the Plaintiff's claims under various sections of the FDCPA, the Defendants argue that the Plaintiff fails to state a claim because she is not part of the class benefiting from the vacation of judgments in Sykes v. Mel S. Harris Assoc. LLC. They assert the validity of the debt owed to Rushmore Recoveries X, a separate entity, and contend that no false or misleading information is present in the Income Execution. The Court, however, disagrees, stating that the Amended Complaint alleges the Defendants obtained the default judgment against the Plaintiff through the same entities involved in the Sykes action.
Plaintiffs in Sykes allege that over 200,000 fraudulent default judgments were obtained through "sewer" service, supporting their claims with evidence. They successfully vacated these judgments prior to the Defendants submitting an Income Execution. The Plaintiff contends that the Defendants should have known that the judgment was fraudulent. The Defendants argue that the prior case involved a different creditor, which the court finds irrelevant, as the Plaintiff's claims relate to the agents involved in service, not the defendants themselves. Although proving the Defendants' knowledge may be challenging, the Amended Complaint alleges that the Defendants knowingly misrepresented facts by submitting the Income Execution despite their awareness of its improper origin. Previous cases cited, such as Sykes v. Mel Harris Assocs. LLC, support the notion that the Defendants cannot dismiss the claims solely because the judgment had not been vacated at the time of the complaint's filing. The core issue is the Defendants' knowledge of the judgment's validity. The Plaintiff also claims the Defendants engaged in "robosigning" the Income Execution without meaningful review of the judgment, which aligns with precedents permitting claims under Section 1692e(3) when debt collectors fail to conduct thorough reviews before enforcing judgments. The court denies the Defendants' motion to dismiss regarding the Plaintiff's claims under multiple sections of the Fair Debt Collection Practices Act (FDCPA).
The Defendants argue that the statute of limitations bars the Plaintiff's claims due to a default judgment from September 16, 2005. However, this argument is rejected. Under the Fair Debt Collection Practices Act (FDCPA), claims must be initiated within one year of the violation occurring, as established in 15 U.S.C. 1692k(d). The Second Circuit, in Benzemann v. Citibank N.A., clarified that an FDCPA violation is recognized only when the plaintiff has both a complete cause of action and notice of the violation. Here, the Plaintiff's claim began when they received the Income Execution, with the district court determining that the earliest accrual date was August 28, 2014. Consistent with other district court rulings, the one-year statute of limitations for an FDCPA violation starts when the consumer receives the debt collection notice, leading to the denial of the motion to dismiss.
As for the Defendants' assertion that the Plaintiff's Section 1692f claims are duplicative of Section 1692e claims, the Second Circuit has ruled that these sections are not mutually exclusive. The Court denies the motion to dismiss on the grounds of duplicative claims, referencing Arias v. Gutman, Mintz, Baker, Sonnenfeldt LLP, where similar arguments were rejected. Consequently, the Court denies the Defendants' motion to dismiss and permits the Plaintiff to amend the Complaint, requiring submission within ten days.
