Summary
In Reichert v. National Credit Systems, Inc., 2005 WL 5549677 (D. Ariz. Mar. 31, 2005), Gostony v. Diem Corporation, 320 F. Supp. 2d 932 (D. Ariz. 2003), and Axtell v. Collections USA, 2002 WL 32595276 (D. Ariz. Oct. 22, 2002), the district courts held that a request for attorneys' fees or costs in a demand letter was misleading because no judicial proceedings had been initiated and there had been no determination that the creditor was the prevailing party, as required for the recovery of such fees.
Summary of this case from Ceresko v. LVNV Funding, LLCOpinion
No. CV 03-1740-PHX-RGS.
March 31, 2005
ORDER
Pending before the Court are Plaintiff Robert Reichert's Motion for Summary Judgment as to Liability [Doc. # 6], Defendant National Credit Systems, Inc.'s Motion for Summary Judgment [Doc. # 18], and Plaintiff's Motion to Strike Scandalous Matter from Defendants' Motion for Summary Judgment [Doc. # 35-1] and Request (Motion) for Rule 11 Sanctions [Doc. # 35-2], and Defendants' Request (Motion) for Summary Adjudication [Doc. # 39]. Having considered said motions, the responses and replies thereto, and the applicable law, the Court now rules.
I. BACKGROUND
On October 14, 2001, Plaintiff entered into a written residential lease agreement with La Privada Apartments, LLC, ("Creditor") through its agent United Dominion Realty Trust ("Agent"). [Doc. # 1, ¶ 8] Plaintiff terminated the lease prior to its expiration. [ Id., ¶ 9] On September 10, 2002, the Agent sent Plaintiff a demand for $1899.20 allegedly due under the lease agreement. [ Id., ¶ 10] At the beginning of October 2002, Creditor, through its Agent, assigned the debt to Defendant National Credit Systems for collection. [ Id., ¶ 11] On October 10, 2002, Defendant Faye Miles, a collection representative, sent an initial demand letter to Plaintiff stating that he owed a balance of $1899.20. [ Id., ¶ 12]
On November 10, 2002, Plaintiff sent a letter to Defendants disputing the debt and requesting verification pursuant to the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. §§ 1692 et seq. [ Id., ¶ 17] In response, Defendant Jim North, another collection representative, sent Plaintiff written verification of the debt, which was stated to be $2,124.20. [ Id., ¶ 18] An accompanying document entitled "Move-Out Charges," included a charge of $400 for "concession." [ Id., ¶ 13] Another document entitled "Deposit Disposition" contained a handwritten notation, "Atty Fee, Letter," with a corresponding charge of $225. [ Id., ¶ 23] According to Defendants, the Creditor, through its Agent, specifically instructed Defendants to add the $225 charge for legal fees incurred by Creditor in having its attorney prepare a response letter. [Doc. # 11, Dec. of Ronald Sapp]
On September 5, 2003, Plaintiff filed this action alleging that Defendants violated the FDCPA by (1) seeking to collect amounts, specifically the $400 "concession" fee and the $225 "Attny Fee," which were not "expressly authorized by the agreement creating the debt or permitted by law," in violation of § 1692f; (2) by using false representations or deceptive means to collect a debt, in violation of § 1692e; and (3) by sending collection letters, the natural consequence of which was to harass, oppress, and abuse Plaintiff, in violation of § 1692d. [Doc. #1]
On October 23, 2003, Plaintiff filed a Motion for Summary Judgment as to Liability, claiming that he is entitled to judgment as a matter of law for the $225 amount attributable to attorneys' fees because Defendants have not been adjudicated the "prevailing party" by any court.
Defendants filed a response and Motion for Summary Judgment, arguing that they did not violate the FDCPA because they properly relied upon the representation made by the Creditor regarding the debt owed and that they had no obligation under the FDCPA to independently review the validity of the debt. Alternatively, Defendants argue that any violation of the FDCPA was unintentional and resulted from a bona fide error.
II. STANDARD OF REVIEW
A court must grant summary judgment if the pleadings and supporting documents, viewed in the light most favorable to the non-moving party "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). A material fact is one "that might affect the outcome of the suit under the governing law. . . ." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute is genuine "if the evidence is such that a reasonable jury could return a verdict for the non-moving party." Id. The court must resolve all ambiguities and draw all reasonable inferences in favor the nonmoving party. Provenz v. Miller, 102 F.3d 1478, 1483 (9th Cir. 1996).
A principal purpose of summary judgment is "to isolate and dispose of factually unsupported claims." Celotex, 477 U.S. at 323-24. Summary judgment is appropriate against a party who "fails to make a showing sufficient to establish the existence of a element essential to that party's case, and on which that party will bear the burden of proof at trial." Id. at 322. The moving party need not disprove matters on which the opponent has the burden of proof at trial. Id. at 317. The party opposing summary judgment "may not rest upon the mere allegations or denials of [the party's] pleadings, but . . . must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e); Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 585-88 (1986).
III. DISCUSSION
A. Motions for Summary Judgment
Both sides allege that they are entitled to summary judgment on the question of the $225 attorney fee sought by Defendants from Plaintiff. Plaintiff argues that Defendants violated § 1692f of the FDCPA by seeking to collect an amount that was not "expressly authorized by the agreement creating the debt or permitted by law." Defendants do not argue that this amount was authorized by the agreement or by law.
Section 1692f provides that a debt collector cannot use unfair means to collect "any amount . . . unless such amount is expressly authorized by the agreement authorizing the debt or permitted by law." 15 U.S.C. § 1692f(1). Here, the agreement that created the debt is the lease agreement, which provides in pertinent part:
ATTORNEY'S FEES In the event of legal action to enforce compliance with this Rental Agreement, the prevailing party may be awarded court costs and reasonable attorney's fees.
The prevailing party is the "party in whose favor a judgment is rendered. . . ." Black's Law Dictionary 1145 (7th ed. 1999); see also Buckhannon Bd. and Care Home, Inc. v. West Virginia Dep't of Health and Human Res., 532 U.S. 598, 603 (2001) (stating that "[a] prevailing party is one who has been awarded some relief by a court."). Here, at the time the $225 attorney fee was added to the amount of the initial debt, there had been no judicial proceeding and no determination that Defendants were "prevailing parties." Accordingly, Defendants' attempt to collect $225 in attorney's fees violates the FDCPA as they are attempting to collect an amount not expressly found in the agreement.
Relying on Anderson v. Canyon State Professional Services, Inc., No. CIV-03-428 PHX-JWS (D. Ariz. filed Sep. 1, 2003), Defendants argue that because they sought to collect precisely the amount they were instructed to collect by the creditor, as a matter of law, they did not violate the FDCPA. In Anderson, which involved a landlord-tenant dispute, the basis for the plaintiff's claim was an alleged incongruity between a $1,114.40 lease buy-out fee the creditor charged in the statement and a $1,098 administrative fee apparently authorized by the written lease agreement. The thrust of plaintiff's argument was that defendants were obligated by the FDCPA to interpret the residential lease agreement and provide the plaintiff with evidence that the amount being sought was the amount that was actually owed. In finding for the defendants, the court in Anderson held that "the FDCPA does not require debt collectors to independently review the validity of creditors' debts if the creditor confirms the terms of the debt." Anderson, No. CIV-03-428, slip op. at 10. The court in Anderson, however, distinguished the situation before it from the one presently before this Court. Quoting Transamerica Financial Services, Inc. v. Sykes, 171 F.3d 553, 555 (7th Cir. 1999), the court in Anderson stated that "section [ 15 U.S.C. § 1692f] applies to circumstances where debt collectors attempt to collect a fee for which the contract does not provide, or which is not authorized by law." Id. at 11. "The majority of cases applying § 1692f interpret this section to prohibit only the collection of additional charges or fees unauthorized by the principal obligation," for example, " Axtell [v. Collections USA], 2002 U.S. Dist. LEXIS 23019" in which a "debt collector added a $25 attorney's fee to [the] amount charged by [the] creditor." Id. at 11 n. 47. Accordingly, Anderson supports Plaintiff's position that the addition of the $225 attorney fee to the principal obligation violates the FDCPA.
Defendants argue in the alternative that they are not liable under the FDCPA because the violation, if any, was unintentional and resulted from a bona fide error. The bona fide error exception applies "if the debt collector shows by a preponderance of the evidence that the violation was not intentional, and resulted from a bona fide error, notwithstanding the maintenance of procedures reasonably adapted to avoid any such error." 15 U.S.C. § 1692(c). Even if Defendants could demonstrate that the violation of the FDCPA was unintentional, the Defendants still have the burden to show that they had procedures in place that were reasonably adapted to avoid such error. The only evidence offered of any procedure undertaken by Defendants to avoid the error in the present case is the declaration of Ronald Sapp, the General Manager of Defendant National Credit Systems, in which he states: "NCS has extensive procedures including ongoing education and employee training. These procedures include reviewing all debts which are disputed and advising this debt in writing, within 30 days of the dispute if the debt has been verified." [Doc. # 18, Ex. 1]
First, reviewing a disputed debt and verifying the debt in writing is no more than what is minimally required under the FDCPA. See 15 U.S.C. § 1692g. Second, even if these general statements could be construed as demonstrating that Defendants maintained adequate procedural safeguards designed to help eliminate the type of error presented in this case, the bona fide error defense applies only to unintentional clerical errors. "Reliance on advice of counsel or a mistake about the law is insufficient by itself to raise the bona fide error defense." Baker v. G.C. Servs. Corp., 677 F.2d 775, 779 (9th Cir. 1982). Defendants do not contend that the addition of $225 for attorney fees was clerical. Accordingly, Defendants have not met their burden of establishing the bona fide error defense. The Court will therefore grant Plaintiff's Motion for Summary Judgment as to Liability with respect to the addition of the $225 attorney fee and deny Defendants' Motion for Summary Judgment on this issue.
With respect to the $400 "concession" fee, because Plaintiff has not addressed this issue in any of his pleadings and has thereby failed to meet his burden to "set forth specific facts showing that there is a genuine issue for trial," see Fed.R.Civ.P. 56(e); Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 585-88 (1986), the Court will grant Defendant's Motion for Summary Judgment on this claim.
B. Motions to Strike and for Sanctions
Plaintiff has filed a Motion to Strike Scandalous Matter from Defendants' Motion for Summary Judgment [Doc. # 35-1] and Request (Motion) for Rule 11 Sanctions [Doc. # 35-2]. Plaintiff requests the Court to strike from Defendants' Motion for Summary Judgment [Doc. # 18] lines 23 through 28 on page 3, which contain a discussion of other FDCPA-related lawsuits filed by Plaintiff, and Exhibit 2, which is a transcript of a scheduling conference held before Judge Carroll that involved an FDCPA case involving counsel from the present case. Plaintiff further requests the Court to impose sanctions pursuant to Fed.R.Civ.P. 11.
Pursuant to Fed.R.Civ.P. 12(f), a court may order stricken from any pleading any "insufficient defense or any redundant, immaterial, impertinent or scandalous matter." Scandalous material is that which "cast[s] an excessively adverse light on the character of an individual or a party." OKC Corp. v. Williams, 461 F. Supp. 540, 550 (N.D. Tex. 1978), cert. denied, 449 U.S. 952 (1980). Immaterial matter is that which has no essential or important relationship to the claim for relief or the defenses being pleaded. 5 Charles Alan Wright Arthur R. Miller, Federal Practice and Procedure § 1382 (1990). Having reviewed the material cited by Plaintiff, the Court finds that it is both scandalous and immaterial. Said material has no relationship to the claims before the Court, and further, is designed solely to impugn Plaintiff's counsel's professional reputation. Accordingly, the Court will grant Plaintiff's motion to strike this material. Furthermore, the Court will grant Plaintiff's motion for sanctions against counsel for Defendants pursuant to Fed.R.Civ.P. 11 in the amount of $250.
IV. CONCLUSION
Based on the foregoing,
IT IS ORDERED granting Plaintiff's Motion for Summary Judgment as to Liability on the issue of the $225 attorney fee. [Doc. # 6]
IT IS FURTHER ORDERED denying in part and granting in part Defendants' Motion for Summary Judgment. [Doc. # 18]
IT IS FURTHER ORDERED denying Defendants' Motion for Summary Judgment with respect to the issue of the $225 attorney fee.
IT IS FURTHER ORDERED granting Defendants' Motion for Summary Judgment with respect to the issue of the $400 "concession" fee.
In light of the Court's ruling above,
IT IS FURTHER ORDERED denying Defendants' Notice of Plaintiff's Failure to Respond to Motion for Summary Judgment and Request for Summary Adjudication. [Doc. # 39]
IT IS FURTHER ORDERED granting Plaintiff's Motion to Strike Scandalous Matter from Defendants' Motion for Summary Judgment. [Doc. # 35-1] IT IS FURTHER ORDERED directing the Clerk of the Court to Strike from Defendants' Motion for Summary Judgment [Doc. # 18] lines 23 through 28 on page 2 (footnote 2) and Exhibit 2.
IT IS FURTHER ORDERED granting Plaintiff's Request (Motion) for Rule 11 Sanctions. [Doc. # 35-2]
IT IS FURTHER ORDERED awarding Rule 11 sanctions in the amount of $250 against counsel for Defendants and in favor of counsel for Plaintiff.
A Rule 16 scheduling conference having been held on March 8, 2004,
IT IS FURTHER ORDERED denying Plaintiff's Motion for Setting of Rule 16 Scheduling Conference as moot. [Doc. # 5]
IT IS FURTHER ORDERED setting the matter for a status hearing on April 24, 2005, at 10:30 a.m. The parties should be prepared to discuss the issue of damages and whether any claims remain before the Court.