Opinion
CASE NO. 2:20-cv-00680-DGE
2022-12-15
Tommy BROWN, on his own and on behalf of other similarly situated persons, Plaintiff, v. TRANSWORLD SYSTEMS INC., et al., Defendant.
Scott C. Borison, Borison Firm LLC, Casper, WY, Christina Latta Henry, Henry & Degraaff PS, Seattle, WA, Phillip Robinson, Consumer Law Center LLC (MD), Silver Spring, MD for Plaintiff. Benjamin C. Byers, Emily J. Harris, Corr Cronin LLP, Seattle, WA, Bradley J. St. Angelo, Pro Hac Vice, Bryan C. Shartle, Pro Hac Vice, Justin Homes, Pro Hac Vice, Sessions Israel & Shartle LLC, Metairie, LA, for Defendant Transworld Systems Inc. Marc Rosenberg, Lee Smart PS Inc., Seattle, WA, for Defendant Patenaude & Felix APC. Albert J. Rota, Pro Hac Vice, Jones Day, Dallas, TX, Jeff Castellano, Pro Hac Vice, DLA Piper LLP, Wilmington, DE, Kristine E. Kruger, Perkins Coie, Seattle, WA, Thomas N. Abbott, Perkins Coie, Portland, OR, for Defendant U.S. Bank NA. Kristine E. Kruger, Perkins Coie, Seattle, WA, Thomas N. Abbott, Perkins Coie, Portland, OR, for Defendants National Collegiate Student Loan Trust 2004-1, National Collegiate Student Loan Trust 2004-2, National Collegiate Student Loan Trust 2005-1, National Collegiate Student Loan Trust 2005-2, National Collegiate Student Loan Trust 2005-3, National Collegiate Student Loan Trust 2006-1, National Collegiate Student Loan Trust 2006-2, National Collegiate Student Loan Trust 2007-1, National Collegiate Student Loan Trust 2007-2.
Scott C. Borison, Borison Firm LLC, Casper, WY, Christina Latta Henry, Henry & Degraaff PS, Seattle, WA, Phillip Robinson, Consumer Law Center LLC (MD), Silver Spring, MD for Plaintiff. Benjamin C. Byers, Emily J. Harris, Corr Cronin LLP, Seattle, WA, Bradley J. St. Angelo, Pro Hac Vice, Bryan C. Shartle, Pro Hac Vice, Justin Homes, Pro Hac Vice, Sessions Israel & Shartle LLC, Metairie, LA, for Defendant Transworld Systems Inc. Marc Rosenberg, Lee Smart PS Inc., Seattle, WA, for Defendant Patenaude & Felix APC. Albert J. Rota, Pro Hac Vice, Jones Day, Dallas, TX, Jeff Castellano, Pro Hac Vice, DLA Piper LLP, Wilmington, DE, Kristine E. Kruger, Perkins Coie, Seattle, WA, Thomas N. Abbott, Perkins Coie, Portland, OR, for Defendant U.S. Bank NA. Kristine E. Kruger, Perkins Coie, Seattle, WA, Thomas N. Abbott, Perkins Coie, Portland, OR, for Defendants National Collegiate Student Loan Trust 2004-1, National Collegiate Student Loan Trust 2004-2, National Collegiate Student Loan Trust 2005-1, National Collegiate Student Loan Trust 2005-2, National Collegiate Student Loan Trust 2005-3, National Collegiate Student Loan Trust 2006-1, National Collegiate Student Loan Trust 2006-2, National Collegiate Student Loan Trust 2007-1, National Collegiate Student Loan Trust 2007-2. ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTIONS TO DISMISS (DKT. NOS. 105, 106, 107, 108) David G. Estudillo, United States District Judge
I INTRODUCTION
This matter comes before the Court on Defendants' motions to dismiss for failure to state a claim. (Dkt. Nos. 105, 106, 107, 108.) The Court considered the pleadings filed in support of and in opposition to the motions and the remainder of the record and hereby GRANTS IN PART AND DENIES IN PART Defendants' motions for the reasons stated herein.
II BACKGROUND
Defendants sought to collect on student loans Plaintiff Tommy Brown cosigned on behalf of his son. (Dkt. No. 104 at 25.) Plaintiff alleges Defendants engaged in deceptive acts and practices in their "effort[s] to lead consumers and the courts to believe that [they] have the right to collect consumer debts when they [could not] show a satisfactory factual basis for their claims." (Id. at 2.) Plaintiff seeks to represent a class of plaintiffs "in the state of Washington whom the Trusts have communicated with, directly or indirectly, for the purpose of collecting a purported student loan owned by a Trust since April 3, 2015." (Id. at 25.)
A. The Parties
Plaintiff sued Defendants Transworld Systems, Inc. ("TSI"), Patenaude & Felix, APC ("Patenaude"), U.S. Bank, NA ("U.S. Bank"), and a group of National Collegiate Student Loan Trusts ("Trusts" and collectively "Defendants"). (Dkt. No. 1-2.) The Trusts are Delaware statutory trusts, formed and existing under Delaware law for the purpose of acquiring purported consumer debts and issuing debt securities. (Id. at 13.) The Wilmington Trust Company serves as the owner trustee for the Trusts acting solely on behalf of the investors who purchase offered notes or shares of the Trusts. (Id. at 16.) As Delaware statutory trusts, they have no officers, no employees, and any actions performed on their behalf are performed by their Trustees or others engaged by the Trustees to perform contractual or legal duties. (Dkt. No. 104 at 17-18.)
Defendants National Collegiate Student Loan Trust 2004-1, National Collegiate Student Loan Trust 2004-2, National Collegiate Student Loan Trust 2005-1, National Collegiate Student Loan Trust 2005-2, National Collegiate Student Loan Trust 2005-3, National Collegiate Student Loan Trust 2006-1, National Collegiate Student Loan Trust 2006-2, National Collegiate Student Loan Trust 2007-1, and National Collegiate Student Loan Trust 2007-2.
Servicers collect amounts due on the loans on behalf of the Trusts. (Id. at 3.) For delinquent and default loan servicing, known as "Special Servicing," the Trusts' owner trustee, acting on behalf of the Trusts, entered into a Special Servicing Agreement ("SSA") with First Marblehead Education Resources, Inc. ("FMER") to act as Special Servicer. (Dkt. Nos. 97-1; 104 at 13.) The SSA designated U.S. Bank as "Back-Up Special Servicer" to automatically replace FMER if the Special Servicer resigned or was removed. (Dkt. No. 97-1 at 8; 104 at 13.)
The Default Prevention and Collection Services Agreement ("TSI Agreement"), which was incorporated by reference in the SSA (Dkt. No. 97-1 at 11), was entered into between FMER and NCO Financial Systems ("NCO") for NCO "to provide certain default prevention and collection activities . . . in the event that the Back-Up Special Servicer becomes the Special Servicer." (Dkt. No. 97-2 at 2.)
On June 21, 2012, the TSI Agreement was amended ("Third Amendment") after FMER resigned as Special Servicer making U.S. Bank the Successor Special Servicer and NCO a Special Subservicer. (Dkt. Nos. 104 at 13; 97-2 at 77-91.) The Third Amendment also recognized an agreement between U.S. Bank and Turnstile Capital Management, L.L.C. where Turnstile became a Special SubServicer. (Id.) Part of Turnstile's duties included being "responsible for global portfolio strategy and oversight of NCO's performance." (Dkt. No. 97-2 at 78; see also Dkt. No. 104 at 13.)
TSI succeeded NCO as Special Subservicer in 2014. (Id. at 18.) As Special Subservicer, TSI oversees loan collection efforts on behalf of the Trusts. (Id. at 4.) TSI is a licensed Washington collection agency. (Id. at 11.) TSI retains a network of attorneys across the country to assist in its debt collection efforts. (Id. at 18.) Patenaude was hired by TSI to help collect Plaintiff's debt. (Id.) Patenaude is a law firm that also is a licensed Washington collection agency. (Id.)
B. The State Collection Action
The State actions stem from private student loans taken out by non-party Osure Brown, to which Plaintiff Tommy Brown, Osure Brown's father, was a cosigner. (Dkt. No. 1-2 at 4.) In October 2018, Tommy Brown received letters from Patenaude stating it would initiate collection efforts on an outstanding balance on the student loans owed to the Trusts. (Dkt. No. 104 at 19.) In January 2019, Tommy Brown again received letters from Patenaude explaining it would discount a portion of his loan obligation if he agreed to settle out of court. (Id.)
On April 5, 2019, Patenaude, on behalf of the Trusts, filed ten complaints ("Collection Actions") in King County Superior Court. (Id.) The Trusts alleged Osure and Tommy Brown were liable for each of the ten loans the Trusts purchased from the loan originator Bank of America. (Id. at 20.) All ten actions were eventually consolidated into one action. (Id.) Osure Brown went through Chapter 13 bankruptcy after he took out the student loans, but before Patenaude sought to collect on the outstanding debt. (Id.) Osure Brown maintains he believed his student loans were discharged in bankruptcy and that he had no outstanding obligations. See Brown v. Transworld, et al., No. C20-669-DGE.
In each case brought by the Trusts, Patenaude filed an affidavit ("Audet Affidavit") signed by Jennifer A. Audet, an employee of TSI, attesting she had personal knowledge of the records of the assignment of the loans to the Trusts and representing there were outstanding balances owed to the Trusts. (Dkt. No. 104 at 20.) When the Browns challenged the Audet Affidavit, the Trusts responded with a new affidavit signed by Bradley Luke ("Luke Affidavit"). (Id.) Bradley Luke was another TSI employee who presented himself as the custodian of records for the Trusts. (Id.) The Luke Affidavit was accompanied by various documents purporting to show proper assignment of the loans to the Trusts. (Id.)
On September 20, 2019, the Browns moved for summary judgment for lack of standing and failure to prove proper assignment of the loans, arguing Bradley Luke could not testify about the Trusts' ownership of the loans. (Id. at 22.) The court struck the Luke Affidavit as hearsay as Bradley Luke was not an employee of the entity that had custody and possession of the records purporting to show proper assignment from Bank of America. (Id.) Without the Luke Affidavit, the Trusts provided no evidence in support of ownership of the loans and the court granted the Browns summary judgment. (Id.) The Trusts did not appeal the decision and that case was closed. (Id.)
C. The Present Dispute
Plaintiff filed a class action complaint in King County Superior Court against TSI, Patenaude, U.S. Bank, and the Trusts. (Dkt. No. 1-2.) Defendants removed the action to this Court. Plaintiff filed an Amended Complaint ("FAC") defining the Washington Class and alleging civil conspiracy to violate the Washington State Consumer Protection Act ("CPA"), violation of the CPA, invasion of privacy, and injunctive relief against all Defendants. (Dkt. No. 104 at 29-36.) Plaintiff asserts claims for violation of the Washington Collection Agency Act ("CAA") and Fair Debt Collection Practices Act ("FDCPA") as per se violations of the CPA against Patenaude and TSI. (Id. at 31-34.)
Plaintiff alleges Defendants caused him significant injuries including having to defend against the Collection Actions and being "unable to manage his finances and causing him to incur out of pocket expenses to determine his legal rights and responsibilities which caused loss of time away from his business." (Id. at 32.)
Defendants Patenaude, the Trusts, U.S. Bank, and TSI all filed separate motions to dismiss the claims in the FAC. (Dkt. Nos. 105, 106, 107, 108.)
III DISCUSSION
A. Legal Standard
Federal Rule of Civil Procedure 12(b) motions to dismiss may be based on either the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory. Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1988). Material allegations are taken as admitted and the complaint is construed in the plaintiff's favor. Keniston v. Roberts, 717 F.2d 1295 (9th Cir. 1983). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 554-55, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (internal citations omitted). "Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Id. at 555, 127 S.Ct. 1955. The complaint must allege "enough facts to state a claim to relief that is plausible on its face." Id. at 547, 127 S.Ct. 1955.
B. Preliminary Legal Challenges
1. Patenaude - Judicial Action Privilege
Patenaude argues Plaintiff's "claims are based on actions taken by the Patenaude law firm in the course of litigation" which are protected by Washington's "judicial-action privilege." (Dkt. No. 105 at 5-7) (citing Jeckle v. Crotty, 120 Wash.App. 374, 85 P.3d 931, 937 (2004)). "[C]ourts have unanimously rejected this argument." Howard v. Patenaude & Felix APC, 634 F.Supp.3d 990, 1015 (W.D. Wash. Sept. 30, 2022), reconsideration denied, 2022 WL 9969188 (W.D. Wash. Oct. 17, 2022) (citing cases); Hoffman v. Transworld Sys. Inc., 2021 WL 22590, at *2-3 (W.D. Wash. Jan. 4, 2021).
Recently in Scott v. Am. Express Nat'l Bank, the Washington Court of Appeals reversed the lower court's dismissal of CPA claims brought against a law firm for their actions involved in a debt collection lawsuit. 22 Wash.App.2d 258, 514 P.3d 695 (2022). The defendants in Scott were a law firm that filed a lawsuit against the plaintiff in attempt to collect a debt. Id. at 698. Notwithstanding dismissal of the lawsuit, the law firm filed a motion for summary judgment almost two years after dismissal. Id. The plaintiff in Scott alleged the law firm violated the CAA (a per se violation of the CPA) when it filed the motion for summary judgment along with an affidavit the plaintiff alleged contained inaccurate representations. Id. As here, the plaintiff in Scott alleged the law firm's "respective businesses is the collection of debts" and that their actions went beyond simply representing their clients in litigation. Id. at 699. Scott held a litigation privilege did not apply to the law firm's actions as alleged in the complaint "[b]ecause law firms may be collection agencies subject to liability under the WCAA . . . , applying [a] litigation privilege would defeat the public policy considerations justifying the privilege." Id. at 702.
Patenaude also argues the "judicial-action privilege" recognized in Jeckle is separate from a "litigation privilege" and that "in the vast majority of cases, there is no intersection" between the two doctrines. (Dkt. No. 105 at 6-7.) Washington, however, does not appear to recognize a distinction as courts often refers to Jeckle as upholding the litigation privilege. See Mason v. Mason, 19 Wash. App.2d 803, 497 P.3d 431, 452 (2021) ("In holding that the attorney was entitled to litigation privilege, the Jeckle court relied . . ."); Scott, 514 P.3d at 701 (citing Jeckle when referring to the extension of the litigation privilege beyond defamation cases).
The Court finds Scott persuasive; a law firm acting as a debt collector is not immune from CPA claims.
The Court recognizes Scott appears to limit its holding to a per se CPA claim based on a violation of the CAA. Id. at 702. But Scott's analysis, arguably, would extend to a per se CPA claim based on an FDCPA violation as both the CAA and the FDCPA allow claims against law firms acting as debt collectors.
2. U.S. Bank - Vicarious Liability
U.S. Bank argues Plaintiff fails to plausibly allege U.S. Bank is directly or indirectly liable for the Trusts' debt collection activities. (Dkt. No. 107 at 12-21.) This is because under the SSA, TSI is an agent of the Trusts, not U.S. Bank, and there is no other allegation U.S. Bank and TSI entered into an agency relationship outside the relationship defined by the SSA. (Id.)
Plaintiff argues "TSI is an agent of U.S. Bank, under the [SSA] and U.S. Bank was responsible for 'the enforcement, collection and servicing of Delinquent Loans and Defaulted Loans.' " (Dkt. No. 113 at 7.) Plaintiff also argues the Court should adopt the analysis in Gosse v. Transworld Sys. Inc. where the court reviewed the SSA agreement and found the plaintiffs there had "adequately pled claims of indirect liability against Defendant U.S. Bank." 2022 WL 2128631, at *2 (M.D. Pa. May 3, 2022).
Despite the contention that both TSI and U.S. Bank acted on behalf of the Trusts as independent contractors (Dkt. No. 107 at 15), being defined as an independent contractor in the agreements does not foreclose a finding that an agency relationship existed. Henderson v. United Student Aid Funds, Inc., 918 F.3d 1068, 1072 (9th Cir. 2019), as amended on denial of reh'g and reh'g en banc (May 6, 2019) ("whether an agency relationship exists is for a court to decide based on an assessment of the facts of the relationship and not based on how the parties define their relationship") (citing Restatement (Third) of Agency § 1.02).
The FAC contains allegations TSI was an agent of U.S. Bank, and the agreements cited by U.S. Bank do not foreclose the possibility of such a relationship. Indeed, the Third Amendment to the TSI Agreement stated U.S. Bank appointed Turnstile to, among other things, "be responsible for the global portfolio strategy and oversight of [TSI]'s performance under the Agreement[.]" (Dkt. No. 97-2 at 78.)
Accepting the allegations in the FAC as true, Plaintiff alleges TSI and Patenaude were "acting on the authority of and at the direction of" U.S. Bank in the Collection Actions. (Dkt. No. 104 at 19.) The FAC states the Trusts have no employees and therefore U.S. Bank "was the ultimate decision maker and controller of the collection actions pursued on behalf of the Trusts." (Id. at 3.) The agreements between all the relevant parties do not foreclose the possibility that U.S. Bank acted as the principle in an agency relationship with TSI and Patenaude.
U.S. Bank appears to rely on the ten-factor test created in Jones for a finding of sufficient control over an agent. But U.S. Bank's reliance on this test is misplaced as the Ninth Circuit made clear that the test was only relevant to question of vicarious viability via an employer relationship. Jones v. Royal Administration Services, Inc., 887 F.3d 443, 451 n.4 (9th Cir. 2018) ("We emphasize that our decision to adopt these Restatement factors is limited to the issue before the court. These factors are of use for determining whether a principal, who has hired third-party telemarketers, exercises sufficient control to be held vicariously liable under the TCPA to the same degree that an employer may be held liable for the actions of its employees . . . . We express no opinion on the usefulness of these factors in establishing other common law theories for holding a principal liable for the conduct of its agent.") (emphasis in original).
3. Trusts - Compulsory Counterclaim
Whether a claim is a compulsory counterclaim which should have been pled in an earlier state court action is a question of state law. Pochiro v. Prudential Ins. Co. of Am., 827 F.2d 1246, 1249 (9th Cir. 1987). Washington Civil Rule 13 requires that "[a] pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction." Wash. Super. Ct. Civ. R. 13. In evaluating whether two claims arise from the same "transaction or occurrence," courts ask "whether the claim and counterclaim are logically related." Schoeman v. New York Life Ins. Co., 106 Wash.2d 855, 726 P.2d 1, 6 (1986). "The failure to assert a compulsory counterclaim bars a later action on that claim" even if the initial action occurred in a different jurisdiction. See id. at 5.
The Trusts argue "all of Plaintiff's claims are barred by the compulsory counterclaim rule [because] Plaintiff failed to bring his claims when he responded to the Trusts' complaints in the Collection Lawsuits." (Dkt. No. 106 at 8.) The Trusts argue the loans, debt collection, and debt collection lawsuits satisfy the Washington test for compulsory counterclaims because they are all logically related. (Id. at 12-14) (citing Gilchrist v. First Nat'l Bank of Omaha, 2018 WL 317267 (W.D. Wash. Jan. 8, 2018)). The Trusts also argue Plaintiff's claims are not within an exception to the compulsory counterclaim rule because they "matured before he filed his Answers in the Collection Lawsuits." (Dkt. No. 106 at 15.)
Plaintiff does not dispute that his claims matured prior to his answer in the Collection Lawsuits. Instead, he argues "[t]he debt collection lawsuits involve claims that the Plaintiff owed money under certain loan transactions" while the present action is "about unfair and deceptive means to collect and attempt to collect debts allegedly owned by the Trusts through improper means and through the reckless use of false and misleading representations to the Plaintiff." (Dkt. No. 113 at 17.) Plaintiff also argues, "[e]very court in Washington that has considered these issues has held that claims brought pursuant to consumer protection statutes arise from a different transaction or occurrence than an earlier action for judgment on a debt[.]" (Dkt. No. 113 at 18) (citing Olson v. Armada Corp., 2021 WL 4948189, at *4-5 (W.D. Wash. Oct. 22, 2021)).
Plaintiff also raises arguments about issue preclusion and that Wash. Super. Ct. Civ. R. 13 does not mandate that a defendant bring counterclaims that require additional parties. (Dkt. No. 113 at 18-19.) But the Court need not address those arguments for this motion.
In Olson, the plaintiff brought FDCPA, CAA, and CPA claims against Armada, the assignee of the plaintiff's original debt. 2021 WL 4948189, at *1 (W.D. Wash. Oct. 22, 2021). The claims were brought in a lawsuit separate from Armada's debt collection lawsuit. Armada argued plaintiff should have filed these claims as counterclaims in the original lawsuit. The court rejected this argument and agreed that plaintiff's claims were not logically related because the issue in the debt collection lawsuit was " 'offer, acceptance and consideration for a debt,' whereas the question before the court [in the separate lawsuit wa]s 'whether the debt collector followed the rules in collecting the debt.' " Id. at *4.
Contrary to Defendants' assertions, Gilchrist is inapposite because the FDCPA claim in that case was not subjected to a compulsory counterclaim analysis. Instead, only plaintiff's TCPA claim, which is not premised on unlawful debt collection practices, was the subject of the compulsory counterclaim analysis. As the court noted, "there [was] a logical relationship" between the alleged unlawful phone calls concerning the credit agreement between the bank and the plaintiff and the bank's efforts to enforce the credit agreement. 2018 WL 317267 at 2. The same is not true of unfair debt collection practices. In this Court's view, these are two separate transactions or occurrences.
In the present matter, the issue in the underlying state court action was whether the defendants could establish they had the right to enforce and collect on a debt. The issue in the current litigation is whether Defendants' conduct seeking to collect on a debt violated consumer protection laws where Defendants allegedly knew beforehand that they lacked the ability to prove ownership of the debt.
The Trusts contend that like the state court action, this action is won or lost on whether the Trusts owned the debt. (Dkt. No. 119 at 7.) But that is not true as even proper owners of debt can still violate the CPA. See Panag v. Farmers Ins. Co. of Washington, 166 Wash.2d 27, 204 P.3d 885, 895 (2009) ("a communication may contain accurate information yet be deceptive."). If Plaintiff were to have brought his claims against the Trusts as a counterclaim in the Collection Actions, the state court would have had to hold two separate trials - the first to see if the Trusts could establish a valid debt against Plaintiff and the second to determine whether Defendants conduct in pursuing a debt collection lawsuit violated consumer protection laws when Defendants knew they could not prove they held a valid debt.
The Court finds Plaintiff's claims against the Trusts were not compulsory counterclaims in the earlier Collection Actions.
C. Stand Alone CPA Claim
To prevail on a CPA claim, plaintiffs must establish these elements: (1) unfair or deceptive act or practice, (2) occurring in trade or commerce, (3) public interest impact, (4) injury to plaintiff in his or her business or property, and (5) causation. Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wash.2d 778, 719 P.2d 531, 535 (1986).
1. Unfair or Deceptive Practice
"To prove that an act or practice is deceptive, neither intent nor actual deception is required." Bain v. Metro. Mortg. Grp., Inc., 175 Wash.2d 83, 285 P.3d 34, 50 (2012) (quoting State v. Kaiser, 161 Wash.App. 705, 254 P.3d 850, 858 (2011)). The question is whether the conduct has "the capacity to deceive a substantial portion of the public." Hangman Ridge Training Stables, Inc., 719 P.2d at 535. Even accurate information may be deceptive " 'if there is a representation, omission or practice that is likely to mislead.' " Panag, 204 P.3d at 895-96 (quoting Sw. Sunsites, Inc. v. F.T.C., 785 F.2d 1431, 1435 (9th Cir. 1986)). Whether particular actions are deceptive is a question of law. Bain, 285 P.3d at 50 (quotations omitted).
The Trusts and Patenaude argue Plaintiff fails to adequately allege an unfair or deceptive practice. The Trusts assert Plaintiff cannot rely on the CFPB Consent Order because "[h]e fails to allege that the actions referred to in the Consent Order apply to his loan." (Dkt. No. 106 at 21.) They also allege their failure to obtain summary judgment in the Collection Lawsuits does not establish they committed a false or deceptive act. (Id. at 20-21.) Patenaude asserts its actions in the Collection Lawsuits were "reasonable in relation to the development and preservation of business" and therefore exempt from CPA liability. (Dkt. No. 105 at 10-11.)
Plaintiff alleges Defendants committed unfair or deceptive acts or practices by attempting to collect on debts despite knowing they could not prove ownership of the debt. (Dkt. Nos. 113 at 13-15; 115 at 15-16.) Plaintiff alleges Defendants were aware of the allegations made by "the CFPB in the Transworld Consent Order and by other government agencies in their enforcement actions against the Trusts' collectors" and yet "continued to demand payment on the debt, [and] facilitated the filing of lawsuits against him in state court[.]" (Dkt. Nos. 113 at 14; 115 at 16.)
Viewed in the light most favorable to Plaintiff, the FAC alleges Defendants attempted to collect on debt they attributed to Plaintiff despite not having the necessary records to prove they owned the debt. (See generally Dkt. No. 104.) Defendants' actions included sending demand letters, initiating the Collection Actions, and filing affidavits in support of their ownership of the debt. (Id.) The Court finds this conduct has the "the capacity to deceive a substantial portion of the public." Hangman Ridge Training Stables, Inc., 719 P.2d at 535; see Hoffman v. Transworld Sys., Inc., 806 F. App'x 549, 551 (9th Cir. 2020) ("Reading the complaint in the light most favorable to the Plaintiffs, . . . the consent order that TSI entered into with the [CFPB] makes it plausible that the affidavits filed by the Defendants in the collection actions against the Plaintiffs were false and that the supporting documentation was lost or missing."). Thus, Plaintiff's FAC satisfies the first element of the Hangman Ridge test.
As a law firm, Patenaude argues it merely was representing its clients during the Collection Actions and because its "conduct [was] motivated by legitimate business concerns, there is no violation of the CPA." (Dkt. No. 105 at 10.) Notwithstanding, Patenaude is alleged to be a licensed debt collector, not just a law firm (Dkt. No. 104 at 12) and Patenaude provides no authority supporting exceptions for law firms acting as debt collectors.
The Court finds Plaintiff adequately alleges Defendants committed an unfair or deceptive practice as defined by the CPA.
2. Trade/Commerce
Patenaude argues it is a law firm and it did not perform an act in "trade" or "commerce" as defined by the CPA. (Dkt. No. 105 at 14.) Plaintiff argues that Patenaude's actions as both a lawyer and debt collector occurred in trade or commerce. (Dkt. No. 115 at 16-17.)
Under the CPA, debt collection activities occur within trade or commerce. Hoffman, 806 F. App'x at 552 (citing Evergreen Collectors v. Holt, 60 Wash.App. 151, 803 P.2d 10, 13 (1991) and Panag, 204 P.3d at 899 n.14). Viewing the FAC in light most favorable to Plaintiff, the FAC alleges Patenaude engaged in debt collection activities that may be considered outside the performance of legal services. The FAC, therefore, adequately alleges Patenaude's conduct occurred in trade or commerce.
3. Injury
Compensable injuries under the CPA are limited to "injury to [a] plaintiff in his or her business or property." Frias v. Asset Foreclosure Servs., Inc., 181 Wash.2d 412, 334 P.3d 529, 538 (2014) (citing Hangman Ridge Training Stables, Inc., 719 P.2d at 533). "The injury element can be met even where the injury alleged is both minimal and temporary" and "quantifiable monetary loss is not required." Id. (citations omitted).
Defendants argue Plaintiff fails to plead an adequate injury under the CPA. (Dkt. Nos. 106 at 21-22; 105 at 16-19; 108 at 16-17.) Plaintiff asserts injury to his business or property because "[t]he allegations in the Amended Complaint are that Tommy Brown was injured by incurring expenses to send debt verification letters and notices of appearances in response to collection letters and the receipt of ten unfiled lawsuits [and] these debt collection actions caused Tommy Brown to struggle to manage his finances and spend time away from his business to determine his legal rights and responsibilities." (Dkt. Nos. 113 at 15; 115 at 18.)
The Court finds Plaintiff adequately alleges an injury under the CPA because "the business and property injuries compensable under the CPA are relatively expansive." Frias, 334 P.3d at 538. Injury is sufficient where a plaintiff alleges an inability "to tend to her store the way she normally would have . . . in order to address matters regarding her contract with [defendant]." Sign-O-Lite Signs, Inc. v. DeLaurenti Florists, Inc., 64 Wash.App. 553, 825 P.2d 714, 720 (1992). This together with a plaintiff being self-employed and owning their own business "is sufficient to support an inference that there was some injury . . . , even though . . . that injury was not quantifiable." Id.
Here, Plaintiff alleges Defendants' conduct has "ma[de] him unable to manage his finances and causing him to incur out of pocket expenses to determine his legal rights and responsibilities which caused loss of time away from his business." (Dkt. No. 104 at 32.)
At this stage of the litigation, the Court finds Plaintiff adequately alleges an injury under the CPA.
4. Causation
To prove causation, "[a] plaintiff must establish that, but for the defendant's unfair or deceptive practice, the plaintiff would not have suffered an injury." Indoor Billboard/Washington, Inc. v. Integra Telecom of Washington, Inc., 162 Wash.2d 59, 170 P.3d 10, 22 (2007). If the injury would have occurred no matter if the alleged violation existed, causation cannot be established. Panag, 204 P.3d at 903.
The Trusts argue, "Plaintiff's failure to pay a note that he co-signed—not the allegedly false affidavits or lack of documentation—was the proximate cause of his alleged damages." (Dkt. No. 106 at 22) (citing Babrauskas v. Paramount Equity Mortg., 2013 WL 5743903, at *4 (W.D. Wash. Oct. 23, 2013)).
In Babrauskas, the plaintiff alleged the false designation of a beneficiary on a deed of trust caused injury to their credit rating, clouded their title, and resulted in the threat of foreclosure. The court held these injuries existed regardless of the misidentification of the beneficiary because "plaintiff's failure to meet his debt obligations is the 'but for' cause of the default, the threat of foreclosure, any adverse impact on his credit, and the clouded title." 2013 WL 5743903, at 3-4. The Court, however, did note that if "borrower's attempts to negotiate a modification fail because he is bargaining with the wrong entity or the borrower incurs costs while trying to locate the actual holder of the original promissory note, a claim may exist[.]" Id.
Here, as alleged, the Trusts, through their representatives, authorized debt collection activities, including the filing of a lawsuit, despite knowing they lacked the ability to prove ownership of the debt. But for these debt collection activities, Plaintiff would not have had to invest time in reviewing and defending against Defendants' actions, which caused loss of time away from his business. In essence, Plaintiff was forced to interact and bargain with the wrong entities, which under Babrauskas, establishes sufficient causation to support Plaintiffs' claims.
Patenaude argues its conduct was not the cause in fact or the legal cause of Plaintiff's injuries. (Dkt. No. 105 at 17-18.) Patenaude also argues that even if causation could be shown for the Trusts and TSI, Patenaude is not liable for its client's actions. (Dkt. No. 105 at 18) (citing Clark v. Cap. Credit & Collection Servs., Inc., 460 F.3d 1162, 1173 (9th Cir. 2006)). Finally, Patenaude argues the Collection Actions disrupted the causal connection between any of its actions and Plaintiff's injury. (Dkt. No. 105 at 19.) These arguments are not persuasive.
The FAC alleges Patenaude knew its clients had no proof of ownership of the debt and yet it continued to pursue debt collection efforts, acting as both a law firm and a collection agency. Courts in this district have found similar allegations against Patenaude to be sufficient to satisfy the causation element. Frias v. Patenaude & Felix APC, 2022 WL 136816, at *7 (W.D. Wash. Jan. 14, 2022); Hoffman, 2021 WL 22590, at *6; Mitchell v. Patenaude & Felix APC, 2019 WL 4043974, at *8 (W.D. Wash. July 15, 2019), report and recommendation adopted, 2019 WL 4034958 (W.D. Wash. Aug. 27, 2019).
TSI argues Plaintiff does not allege how TSI's conduct caused him "out of pocket expenses" and that Plaintiff must have paid money to Defendants to establish causation. (Dkt. No. 108 at 17) (citing Hoffman, 806 F. App'x at 553). While incursion of expenses or payment to TSI certainly could establish injuries caused by Defendants' actions, it is sufficient for a plaintiff to establish their inability "to tend to her store the way she normally would have . . . in order to address matters regarding her contract with [defendant]." Sign-O-Lite Signs, 825 P.2d at 720. This together with a plaintiff being self-employed and owning their own business "is sufficient to support an inference that there was some injury . . . , even though . . . that injury was not quantifiable." Id.
Here, Defendants, including TSI, are alleged to have known they lacked proof of ownership of the debt at issue. Yet, they pursued debt collection activities, including a lawsuit, against Plaintiff causing him lost time away from his business. Taken as true, these allegations establish causation sufficient to defeat Defendants' motions to dismiss.
D. Per Se CPA Claim - FDCPA
"Consumer debt collection is a highly regulated field. When a violation of debt collection regulations occurs, it constitutes a per se violation of the CPA . . . under state . . . law, reflecting the public policy significance of this industry." Panag, 204 P.3d at 897. To plead an FDCPA claim, a party must allege the defendant is a debt collector under 15 U.S.C. § 1692a(6) and that they violated one of the FDCPA's substantive provisions. 15 U.S.C. 1692k(a); see also Stimpson v. Midland Credit Mgmt., Inc., 944 F.3d 1190, 1195 (9th Cir. 2019).
Here, Plaintiff alleges Patenaude and TSI are debt collectors under 15 U.S.C. § 1692a(6) and that they violated the FDCPA by making "false, deceptive, or misleading representation[s]," and using "unfair or unconscionable means to collect or attempt to collect" a debt. (Dkt. No. 104 at 33) (citing 15 U.S.C. §§ 1692e(2), 1692e(5), 1692e(10), and 1692f)).
As alleged in the FAC, Plaintiff received letters from Patenaude "stating that it would initiate collection efforts regarding an outstanding balance owed to the [ ] Trusts." (Dkt. No. 104 at 19.) Plaintiff then received unfiled complaints served on Plaintiff that he alleges "made false and deceptive claims that he had liability on the debt allegedly owed to the Trusts even though he had never made any payment on the loans." (Id.) During the litigation, Plaintiff alleges that Defendants filed two sperate affidavits of TSI employees claiming that they had " 'personal knowledge' regarding the records pertaining to the loan at issue, had verified that there was an outstanding principal balance on a loan currently owned by one of the Trusts, and was authorized by TSI and in turn, US Bank, to make the representations in the affidavit." (Id. at 20) (see generally id. at 19-22.)
Plaintiff alleges Defendants committed these acts while aware that similar conduct was the subject of the CFPB Consent Order. (Dkt. No. 104 at 24.) Plaintiff alleges that Defendants "were aware that they lacked the ability to prove their ownership of any loans taken out by Osure Brown and Tommy Brown at the time they filed their collection action against the Browns" and that despite the loans being "completely uncollectable" Defendants made "efforts to conceal they [could not] show ownership" of the debts. (Id. at 25.)
Taken as true, these allegations sufficiently allege a violation of the FDCPA and a per se violation of the CPA. In addition, the claim is not barred by the FDCPA's statute of limitations as CPA claims are governed by the CPA's four-year statute of limitation. Hoffman, 806 F. App'x at 552.
E. Per Se CPA Claim - CAA
The Washington Collection Agency Act is Washington's counterpart to the FDCPA. Panag, 204 P.3d at 897. The CAA "does not provide a cause of action," but is instead enforced through the CPA. Creager v. Columbia Debt Recovery, 618 F.Supp.3d 1094, 1106 (W.D. Wash. July 28, 2022) (citing Wash. Rev. Code § 19.16.440). If a creditor is found to have violated the CAA, "the creditor may collect only the 'amount of the original claim or obligation.' " Fireside Bank v. Askins, 195 Wash.2d 365, 460 P.3d 157, 162 (2020).
TSI and Patenaude both assert the FAC does not identify "which of the 29 'prohibited practices' specified in § 19.16.250" was violated. (Dkt. No. 108 at 14; see also Dkt. No. 105 at 20.) And in the responses to the motions to dismiss, Plaintiff does not identify the section allegedly violated.
To the extent Plaintiff relies on § 19.16.250(21) to assert a violation of the CAA, Patenaude argues the Court should treat § 19.16.250(21) consistently with §§ 1692e(2) and 1692f(1) and dismiss the claim. (Dkt. No. 105 at 20-21.) Plaintiff responds by arguing, "P&F and TSI 'improperly collected interest and fees' following the commission, by one or more of them, or their agents, of acts prohibited for the Plaintiff." (Dkt. No. 115 at 11-12.) But the FAC alleges that the defendants "improperly collected interest and fees from alleged borrowers" and not specifically from Plaintiff. (Dkt. No. 104 at 31.) The FAC, therefore, fails to claim a violation of § 19.16.250(21) as against him.
Plaintiff also claims "TSI . . . engaged in the servicing of student loans without obtaining a proper license." (Dkt. No. 104 at 31.) TSI, however, notes Plaintiff also alleges TSI is a licensed collection agency and that Washington Administrative Code 208-620-011(4) exempts licensed collection agencies from the definition of "student education loan servicer" under the Consumer Loan Act. (Dkt. No. 106 at 14-15.) This means there is no basis to support a CAA violation because TSI was not required to be a licensed student education loan servicer at the time it engaged in collection activities. Plaintiff's opposition to TSI's motion to dismiss does not challenge this argument.
Because the FAC fails to allege a § 19.16.250 violation, Plaintiff fails to state a CAA violation against TSI or Patenaude.
F. Conspiracy to Commit Violation of CPA Claim
A civil conspiracy "exists if two or more persons combine to accomplish an unlawful purpose or combine to accomplish some purpose not in itself unlawful by unlawful means." Corbit v. J.I. Case Co., 70 Wash.2d 522, 424 P.2d 290, 295 (1967). A plaintiff "must show that the alleged coconspirators entered into an [a]greement to accomplish the object of the conspiracy." Id. A conspiracy may be based on circumstantial evidence. Sterling Bus. Forms, Inc. v. Thorpe, 82 Wash.App. 446, 918 P.2d 531, 533-34 (1996).
Defendants argue the FAC fails to allege an agreement amongst Defendants to accomplish the object of the conspiracy. (Dkt. Nos. 106 at 16; 107 at 22-23; 108 at 11.) Defendants also argue the conspiracy allegations based on fraud violate Federal Rule of Civil Procedure 9(b). (Dkt. Nos. 106 at 19; 108 at 10-11.) Separately, Patenaude argues that most courts have held no conspiracy exists between attorney and its client. (Dkt. No. 105 at 8-9.)
The FAC alleges "[t]he Defendants have, amongst themselves, expressly or impliedly agreed to undertake unlawful debt collection efforts." (Dkt. No. 104 at 30.) Specifically, the FAC asserts "U.S. Bank agreed to be the Special Servicer of the Trusts and to be responsible for collection of debts allegedly owed to the Trusts. As part of accepting that role as Special Servicer, it has authorized and directed the other Defendants, TSI and P&F, to take actions on behalf of the Trusts to collect debts." (Id.) The Court finds these alleged facts sufficient at this stage to state a civil conspiracy claim.
Furthermore, even viewed under the heightened pleading standard of Federal Rule of Civil Procedure 9(b), the Court finds the FAC states a conspiracy claim. For claims grounded in fraud, Rule 9(b) states "a party must state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). At this point, Defendants are on notice of the misconduct underlying Plaintiff's conspiracy claim - sending demand letters, initiating the Collection Actions, and filing affidavits in support of their ownership of the debt, all despite knowing they could not prove their ownership of the debt. Thus, the FAC adequately alleges a civil conspiracy claim against Defendants.
Patenaude cites Linehan v. Allianceone Receivables Mgmt., Inc., 2016 WL 1408089 (W.D. Wash. Apr. 11, 2016) for its argument that a civil conspiracy cannot lie between lawyer and client. (Dkt. No. 105 at 8.) But factual issues regarding Patenaude's role as both a law firm and debt collector remain. Furthermore, an alleged conspiracy with non-clients and the law firm make the present case distinguishable from Linehan. The extent of Patenaude's role in the collection efforts is a question best left for a jury.
G. Injunctive Relief
Defendants concede Plaintiff's request for injunctive relief depends on Plaintiff's CPA claim. (Dkt. No. 106 at 22-23; 107 at 23; 108 at 20; 105 at 24.) As the Court finds Plaintiff alleges a viable CPA claim, Plaintiff's request for injunctive relief also remains viable.
H. Invasion of Privacy
To establish an invasion of privacy claim, Plaintiff must prove: (1) "[a]n intentional intrusion, physically or otherwise, upon the solitude or seclusion of plaintiff, or his private affairs;" (2) "[w]ith respect to the matter or affair which plaintiff claims was invaded, that plaintiff had a legitimate and reasonable expectation of privacy"; (3) "[t]he intrusion would be highly offensive to a reasonable person"; and (4) "[t]hat the defendant's conduct was a proximate cause of damage to the plaintiff." Doe v. Gonzaga Univ., 143 Wash.2d 687, 24 P.3d 390, 399 (2001), reversed on other grounds, 536 U.S. 273, 122 S.Ct. 2268, 153 L.Ed.2d 309 (2002) (relying on Restatement (Second) of Torts § 652B (1977)).
The Trusts argue debt collection activities are not an invasion of privacy. (Dkt. No. 104 at 24.) Patenaude and TSI argue Plaintiff had no expectation of privacy from lenders when he took out loans and failed to repay. (Dkt. No. 105 at 25-26.) Plaintiff argues Defendants actions "intruded on Tommy Brown's solitude and invaded his solitude and seclusion in a manner that would be offensive to any reasonable person[.]" (Dkt. No. 113 at 15-16.)
Reading the FAC in the light most favorable to Plaintiff, Plaintiff alleges he had a legitimate and reasonable expectation of privacy in his past financial affairs and Defendants' actions would be highly offensive to a reasonable person because Defendants knew they could not establish ownership of the debt. At this stage, the FAC adequately states an invasion of privacy claim.
IV. CONCLUSION
Accordingly, and having considered Defendants' motions, the briefing of the parties, and the remainder of the record, the Court finds and ORDERS that Defendants' Motions to Dismiss (Dkt. Nos. 105, 106, 107, 108) are GRANTED IN PART and DENIED IN PART as follows:
1. Defendants' motion to dismiss Count II: Violation of the Washington Collection Agency Act against TSI and Patenaude is GRANTED and this claim is dismissed without prejudice. 2. Defendants' motions to dismiss all other claims are DENIED.