Summary
In Trover Solutions, the plaintiff was injured in an accident in October 1999, and his health insurer, United Healthcare of Louisiana, Inc., paid for his medical care.
Summary of this case from Hamilton v. Avectus Health Care Solutions, LLCOpinion
CIVIL ACTION NO: 01-650, SECTION: "J"(4)
May 12, 2003
ORDER AND REASONS
Before the Court is Defendant Trover Solutions, Inc. d/b/a Healthcare Recoveries, Inc.'s ("HRI") Motion for Summary Judgment (Rec. Doc. 16) which was set for an April 16, 2003 hearing on the briefs. HRI has also submitted a reply memorandum (Rec. Doc. 27) in response to Plaintiff Kyle M. Hamilton's ("Hamilton") opposition (Rec. Doc. 22) and reply (filed May 2, 2003) memoranda. Upon consideration of the motion and memoranda submitted by counsel, the record, the complaint, and the applicable law, the Court concludes that HRI's motion should be granted. Furthermore, the Court, in its discretion, chooses not to exercise supplemental jurisdiction over Plaintiff's remaining state law claims and they are thus dismissed without prejudice.
Background
The Court has previously recounted the instant case's factual and procedural background. See Civil Action NO. 01-585, Rec. Docs. 48 61. However, the Court will briefly recite the facts relevant to HRI's motion for summary judgment.
In October 1999, Hamilton was seriously injured in a single vehicle automobile accident in which he was a passenger. As a result of the accident, Hamilton's group health insurer, United Healthcare of Louisiana, Inc. ("United"), paid for various medical and other services allegedly totaling more than $100,000.
As a member of the United health plan, Hamilton's insurance was governed by a certificate of coverage ("COC") issued by United. Pursuant to the COC, United, or its agents, had the right to seek subrogation or reimbursement for the medical and other services provided to Hamilton arising out of the accident, were Hamilton to recover benefits, payments, or damages from any third party.
In 1998, HRI contracted with United to provide subrogation and recovery services. HRI regularly received from United, via electronic transmission, information relating to claims paid by United on behalf of its members. HRI would then examine the information to determine if a potential subrogation or reimbursement claim existed. On December 12, 1999, HRI received information from United relating to the claims paid by United on behalf of Hamilton which arose out of the accident. According to HRI, its examination of the information revealed a potential subrogation claim on behalf of United arising out of Hamilton's accident.
Under section 7.8 of the COC, United is
"subrogated to and shall succeed to all rights of recovery, under any legal theory of any type, for the reasonable value of services and benefits provided by [United] to [Hamilton] from: (i) third parties, including any person alleged to have caused [Hamilton] to suffer injuries or damages; . . . (iii) any person or entity obligated to provide benefits or payments to you, including . . . for underinsured or uninsured motorist protection."See Civil Action NO. 01-650, Rec. Doc. 16, Exhibit 6. Hamilton agreed to assign to United "all rights of recovery against [t]hird [p]arties, to the extent of the reasonable value of services and benefits provided by [United]." Id.
However, Hamilton did not receive any settlement funds from a third party until February 7, 2000. On that date, and then on March 14, 2000, Hamilton received nearly a total of $92,000 in insurance proceeds from State Farm Mutual Automobile Insurance Company ("State Farm") representing benefits paid pursuant to the deceased driver's liability policy and the uninsured and/or underinsured motorist ("UM") policy of Hamilton's father. State Farm paid nearly $250,000 in total UM benefits and $5,000 in MedPay benefits to Hamilton. Shortly thereafter, HRI, acting pursuant to the contractual agreement with United, began contacting Hamilton in an attempt to enforce subrogation rights that United claimed to have against the proceeds recovered from third parties, including the State Farm UM policy. State Farm, through Hamilton's counsel, subsequently paid $57,757.06 out of the $250,000 in UM policy proceeds to HRI on behalf of United.
Hamilton then retained new counsel who attempted to recover the funds that United obtained from State Farm. Hamilton filed Civil Action NO. 01-585 in state court to recoup those funds and enjoin United and HRI from making further attempts to seek reimbursement. After United removed 01-585 to this Court, Hamilton filed the above-captioned suit against HRI alleging that HRI's recovery attempts violate the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692 et seq., as well as the Louisiana Unfair Trade Practices Act ("LUTPA"), La. R.S. § 51:1401 et seq. The two cases were consolidated in this Court.
On May 17, 2001, the Court remanded 01-585 to state court after concluding that United had failed to properly establish subject matter jurisdiction. HRI then filed a motion for judgment on the pleadings and/or summary judgment in 01-650. On July 13, 2001, the Court granted HRI's motion in part and dismissed Hamilton's FDCPA claim on the grounds that Hamilton failed to state a claim because HRI was not collecting a "debt" under the FDCPA. On August 17, 2001, the Court concluded that there was no independent jurisdictional basis existing over the supplemental state law claims because Hamilton failed to show that the amount in controversy exceeded $75,000 for purposes of diversity jurisdiction. The Court then refused to exercise its supplemental jurisdiction and dismissed the state law claims without prejudice. On appeal, the Fifth Circuit reversed this Court's holding on the "debt" issue, while affirming the holding on the diversity jurisdiction issue. The Fifth Circuit remanded this matter for further proceedings.
On March 21, 2003, HRI filed the instant motion for summary judgment. In its motion, HRI argues that Hamilton's FDCPA claim should be dismissed because HRI is not a "debt collector" as defined under the FDCPA. Specifically, HRI contends that it is not a "debt collector" under the FDCPA because the alleged "debt" in question was "not in default at the time it was obtained" for servicing by HRI. 15 U.S.C. § 1692a(6)(F)(iii). Thus, HRI is exempted from "debt collector" status under the FDCPA.
Hamilton vigorously opposes HRI's motion. Hamilton first argues that HRI's instant motion is really nothing more than a motion to reconsider the Court's ruling contained in its July 13, 2001 minute entry. Hamilton contends that in its July 13, 2001 minute entry, the Court denied HRI's motion on the "debt collector" issue. Hamilton argues that the instant motion should be denied because HRI has failed to establish any reasons that justify a reconsideration. Secondly, Hamilton contends that HRI is a "debt collector" under the FDCPA because the exception to the definition of "debt collector" contained in § 1692a(6)(F)(iii) is inapplicable to HRI. Hamilton asserts that HRI never "obtained" the debt from United. Hamilton claims that HRI's sole business purpose is to collect debts owed to other entities and thus is subject to the "debt collector" liability scheme contained in the FDCPA.
Discussion
I. HRI's Motion is Not a Motion to Reconsider
HRI's motion is clearly not a motion to reconsider as Hamilton contends. In the July 13, 2001 minute entry, the Court did not address the "debt collector" issue given that it found the "debt" issue to be dispositive. See Civil Action NO. 01-585. Rec. Doc. 61, at 12. On appeal, the Fifth Circuit remanded the instant case for consideration of the debt collector issue. Thus, in analyzing HRI's motion for summary judgment, the Court is guided by Federal Rule of Civil Procedure 56(c) and its accompanying jurisprudence; not by the jurisprudence setting out the factors and standards applied to motions to reconsider.
II. Standard of Review for Summary Judgment
Summary judgment is appropriate where the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (citing Fed.R.Civ.Proc. 56(c)). The moving party bears the initial burden of demonstrating to the court that there is an absence of genuine factual issues. Topalian v. Ehrmann, 954 F.2d 1125, 1132 (5th Cir. 1992). Once the movant meets that burden, the non-moving party must produce evidence sufficient to establish that there is a genuine issue of material fact in dispute. Id. Accordingly, a factual controversy exists when both parties have submitted evidence of contradictory facts. Little, 37 F.3d at 1075. On summary judgment, factual controversies are resolved in favor of the non-moving party. Id.
III. HRI is Exempted From "Debt Collector" Status Under the FDCPA
In its motion for summary judgment, HRI argues that it is specifically exempted from the definition of "debt collector" by the statutory language of the FDCPA. If HRI is indeed exempted from the statutory definition of "debt collector", then Hamilton's FDCPA claim must be dismissed. 15 U.S.C. § 1692a(6) defines a "debt collector" as
any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.
However, § 1692a(G)(F)(iii) specifically exempts from the definition of "debt collector"
any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity . . . concerns a debt which was not in default at the time it was obtained by such person.
(emphasis added). Thus, the FDCPA is inapplicable to "collection efforts by those who obtained the right to payment on the debt before the debt was in default." Franceschi v. Mautner-Glick Corp., 22 F. Supp.2d 250, 253 (S.D.N.Y. 1998)
Hamilton makes several arguments in support of his contention that the exception contained in § 1692a(E)(F)(iii) does not apply to HRI. First, Hamilton argues that his alleged obligation and debt to United arose prior to HRI's December 1999 receipt of the electronic data transmission pertaining to Hamilton's case. According to Hamilton, his obligation to reimburse United arose when it first began making payments on his behalf in October 1999. However, this argument fails to show that Hamilton's obligation or debt to United was in default when HRI received the electronic data transmission in December 1999. For purposes of § 1692a(E)(F)(iii), the time of default, and not when the obligation is incurred, is the critical time period. Under the COC, it was not possible for Hamilton to be in default until he began receiving payments from third parties. Hamilton did not receive his first payment from State Farm until February 7, 2000. Thus, Hamilton's argument fails to show that the "debt collector" exception is inapplicable to the instant case.
Next, Hamilton contends that the exception is inapplicable because HRI never "obtained" Hamilton's pre-default debt from United. In support of this contention, Hamilton argues that to meet the definition of "obtain" under § 1692a(6)(F)(iii), HRI must show that the ownership of the debt was transferred or assigned by United to HRI, instead of merely showing that the debt was serviced or collected by HRI. Since HRI cannot meet this burden, the "debt collector" provisions of the FDCPA are applicable.
The FDCPA provides no specific definition of the term "obtain". Franceschi, 22 F. Supp.2d at 254.
Hamilton asserts that Fifth Circuit precedent mandates such a burden. See Perry v. Stewart Title Co., 756 F.2d 1197 (5th Cir. 1985); see also Wadlington v. Credit Acceptance Corp., 76 F.3d 103 (6th Cir. 1996); Kimber v. Fed. Financial Corp., 668 F. Supp. 1480 (M.D. Ala. 1987). However, none of the cases cited by Hamilton support such a narrow definition of the term "obtain" as it is used in § 1692a(6)(F)(iii). In Perry, the Fifth Circuit held that a mortgage association was not a "debt collector" under the FDCPA because it purchased the mortgage debt at issue before the plaintiff was in default. 756 F.2d at 1208. Wadlington, 76 F.3d at 104-105, and Kimber, 668 F. Supp. at 1485, also dealt with debt that was allegedly assigned to the defendant before the plaintiff was in default. Hamilton's problem is that these cases do not address a situation where there was no assignment or transfer of the debt. Furthermore, the courts in these cases did not even hold that a transfer or assignment of ownership is necessary to invoke § 1692a(6)(F)(iii). These cases do not support the narrow definition of "obtained" that is asserted by Hamilton.
In fact, several federal courts have previously rejected the same assertion made by Hamilton. Kvassay v. Hasty, 236 F. Supp.2d 1240, 1270 (D.Kan. 2002); Franceschi, 22 F. Supp.2d at 254. In Franceschi, 22 F. Supp.2d at 254, the court rejected the narrow definition of "obtain" because it is not supported by the statutory language of the FDCPA. The court held that the term "obtain" "include[s] the possession of the right and responsibility to collect a debt." Id. The "debt collector" exception contained in § 1692a(6)(F)(iii) applies both to parties who have purchased a debt prior to default and those "who had responsibility prior to default for collecting the debt owed to another." Id. The court relied upon the legislative history of the FDCPA which clearly shows that Congress intended to except from FDCPA liability companies in the business of regularly servicing debts for others. Id. (citing S.Rep. No. 95-382 (1977), reprinted in 1977 U.S.C.C.A.N. 1695, 1698).
Likewise, this Court concludes that an assignment or transfer of the debt's ownership is unnecessary for meeting the definition of "obtain" under the FDCPA. All that is required is that HRI be in the business of regularly servicing alleged outstanding debts such as Hamilton's and have obtained the right and responsibility for collecting the debt owed to United before Hamilton defaulted.
Hamilton mistakenly relies on the Seventh Circuit's recent decision in Schlosser v. Fairbanks Capital Corp., 323 F.3d 534 (7th Cir. Mar. 20, 2003) in support of his argument that the exception contained in § 1692a(6)(F)(iii) is inapplicable to HRI. Hamilton contends that the Schlosser case apparently stands for the rule that a party who obtains a debt primarily for collection is a "debt collector" under the FDCPA, whether or not the debt was in default when it was obtained. However, the case stands for no such rule. In Schlosser, the defendant acquired the plaintiff's debt and, in incorrectly asserting that the debt was in default, took collection actions which allegedly violated the FDCPA. Id. at 535-36. The Seventh Circuit held that the § 1692a(6)(F)(iii) exception did not apply to the defendant where it "attempted to collect on a debt that it asserted to be in default and because that asserted default existed when [the defendant] acquired the debt." Id. at 539. The clear language of the § 3.692a(6)(F)(iii) states that a party collecting or attempting to collect a debt owed to another is not a "debt collector" where the debt "was not in default at the time it was obtained" by such person. Furthermore, there is little factual similarity between Schlosser and the instant case. In the instant case, there is no question that Hamilton's alleged debt was not in default at the time it was "obtained" by HRI.
It is evident from the record that HRI meets such requirements. See Civil Action NO. 01-650, Rec. Doc. 16, Exhibit 1-B. HRI was hired by United to perform much more than mere post-default debt collection services, pursuant to the HRI-United contract, HRI's responsibilities included: the identification of claims through electronic identification of accidents; the investigation of identified claims involving potential maximum recoveries in excess of $5,000; the generation of initial lien notices and transmission of such notices to the responsible parties; the electronic accumulation of related claims at the time of settlement; and the negotiation of claims at the time of settlement. Id. Thus, HRI's responsibilities are broader than those of an third party post-default debt collector.
Lastly, Hamilton argues that La. R.S. § 22:663 bars the application of the § 1692a(6)(F)(iii) exception because HRI could not "obtain" the right to collect a valid debt under the Louisiana statute. Hamilton contends that § 22:663 precluded United from pursuing a subrogation or reimbursement claim against Hamilton as a matter of law. Therefore, HRI could never have "obtained" the right to seek collection of Hamilton's debt owed to United because the debt never existed under Louisiana law. Since no debt or obligation could have existed or been enforceable under Louisiana law, the alleged debt never went into default, and thus the § 1692a(6)(F)(iii) exception is inapplicable.
The problem with Hamilton's argument is that under the FDCPA, a debt may be actual or alleged. Even if the "debt" at issue in the instant case was unenforceable as a matter of Louisiana law, it still was an alleged "debt" under the FDCPA for purposes of the actions taken by HRI. Thus, it is possible for a corporation such as HRI to "obtain" an alleged debt under the FDCPA, which later turns out to be unenforceable. Additionally, as stated above, there is no question that HRI obtained Hamilton's alleged debt before he went into default. This is so whether the debt was enforceable, and Hamilton then subsequently went into default, or unenforceable under Louisiana law, where Hamilton would never have gone into default even if he never reimbursed HRI or United. There is no statutory requirement that the "in default" provision contained in § 1692a(6)(F)(iii) necessitate that the debt or alleged debt in question be enforceable under state law. The Court sees no need to attach such a requirement in the instant case.
Johnson v. Riddle, 305 F.3d 1107 (10th Cir. 2002), the case Hamilton cites in support of this argument, is clearly not on point. In Johnson, the FDCPA defendant did not obtain the right to collect on the debt, a dishonored check, until after the plaintiff went into default. Id. at 1111-12. Thus, the Tenth Circuit was not presented with the issue of whether the potential unenforceability, due to state law, of an alleged debt bars the applicability of the § 1692a(6)(F)(iii) exception.
Conclusion
Neither party contests that HRI is a "debt collector" as defined by § 1692a(6). However, no genuine issues of material fact exist as to HRI's assertion that it obtained the right to collect the alleged debt owed by Hamilton to United before Hamilton went into default. See 15 U.S.C. § 1692a(6)(F)(iii). Thus, the § 1692a(6)(F)(iii) exception applies and HRI is exempted from "debt collector" status under the FDCPA. Accordingly, the actions taken by HRI in relation to United's subrogation or reimbursement claims involving Hamilton's alleged debt are not governed by the FDCPA. Therefore, HRI is entitled to summary judgment on Hamilton's FDCPA claim. The dismissal of the FDCPA claim leaves only state law claims remaining against HRI in the instant case. However, as the Court concluded in its August 17, 2001 minute entry, there is no independent basis for subject matter jurisdiction over these remaining claims. Given that no federal claims are left before the Court and that related litigation is currently ongoing in state court, the Court declines to exercise its supplemental jurisdiction over Hamilton's remaining state law claims. 28 U.S.C. § 1367(c)(3). When a court dismisses all federal claims in advance of trial, the general rule is that any pendent state law claims should be dismissed and allowed to proceed in the state courts. See Bass v. Parkwood Hosp., 180 F.3d 234, 246 (5th Cir. 1999) (citing Wong v. Stripling, 881 F.2d 200, 204 (5th Cir. 1989))
Accordingly,
It is HEREBY ORDERED that Defendant HRI's Motion for Summary Judgment (Rec. Doc. 16) is GRANTED.
It is FURTHER ORDERED that Plaintiff Hamilton's claim arising under the Federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq., is DISMISSED WITH PREJUDICE.
It is FURTHER ORDERED that Plaintiff's remaining state law claims are DISMISSED WITHOUT PREJUDICE.