Summary
In Walters, debt-buyer/assignee PDI was attempting to collect an alleged debt, originally owed to Chase, and was adding more than 21% interest to the balance.
Summary of this case from NIEMIEC v. NCO FINANCIAL SYSTEMS, INC. (N.D.Ind. 2006)Opinion
1:02-cv-1100-JDT-TAB.
June 14, 2004.
ENTRY CLARIFYING APRIL 6, 2004, ENTRY AND ON COUNTER-DEFENDANT'S MOTION FOR RECONSIDERATION
This Entry is a matter of public record and is being made available to the public on the court's web site, but it is not intended for commercial publication either electronically or in paper form. Although the ruling or rulings in this Entry will govern the case presently before this court, this court does not consider the discussion in this Entry to be sufficiently novel or instructive to justify commercial publication or the subsequent citation of it in other proceedings.
Counter-Defendant, Jane Walters, moves the court to reconsider its decision granting summary judgment in favor of PDI Management Services ("PDI") on PDI's counter-claim against Ms. Walters for accounts stated and also moves the court to enter summary judgment in favor of Ms. Walters on the issue of whether PDI is entitled to attorney fees for prosecuting the counter-claim. This matter is resolved as follows:
I. IUCCC Defense
"`Motions for reconsideration serve a limited function: to correct manifest errors of law or fact or to present newly discovered evidence.'" Caisse Nationale de Credit Agricole v. CBI Indus., 90 F.3d 1264, 1269 (7th Cir. 1996) (quoting Keene Corp. v. Int'l Fidelity Ins. Co., 561 F. Supp. 656, 665 (N.D. Ill. 1982), aff'd, 736 F.2d 388 (7th Cir. 1984), and citing Rothwell Cotton Co. v. Rosenthal Co., 827 F.2d 246, 251 (7th Cir. 1987)). It is clear that Ms. Walters does not present any newly discovered evidence. Thus, the court will review Ms. Walters' motion for reconsideration to determine whether the court made manifest errors of law or fact in the April 6, 2004, Entry. Familiarity with the court's April 6, 2004, Entry is presumed.
In Ms. Walters' Response Brief to PDI's Motion for Summary Judgment on the counter-claim, Ms. Walters argued that because PDI violated Indiana Code § 24-4.5-3-502 with respect to authority to take assignment of supervised loans, Ms. Walters' loan was void. According to Ms. Walters, upon Chase's assignment of Ms. Walters' account to Vision Nevada and PDI, both Vision Nevada and PDI were required to adhere to Indiana's twenty-one percent rate restriction or become a licensed supervised lender in order to take assignment of Ms. Walters' debt. Ms. Walters argued that because PDI took assignment of and attempted to collect on a debt with an interest rate exceeding twenty-one percent without obtaining a license, the underlying loan was void. In support of this argument, Ms. Walters cited Indiana Code § 24-4.5-5-202(2), which provides that "[i]f a creditor has violated the provisions of this Article applying to authority to make consumer loans (IC 24-4.5-3-502), the loan is void and the debtor is not obligated to pay either the principal or loan finance charge." Ind. Code § 24-4.5-5-202(2). The court held that Indiana Code § 24-4.5-5-202(2) did not apply to PDI because the section only applied to "creditors" and PDI was not a creditor under the Act.
Although Ms. Walters states the court's ruling was sound, Ms. Walters argues that "the [c]ourt did not address the fact that the various assignments leading up to the purported transfer of rights, title, and interest in the alleged debt to PDI, is not permitted under Indiana law." She contends that the assignments leading up to PDI owning Ms. Walters' account are void because they are illegal and that permitting PDI to collect the debt would require the court to "sanction, engage in, and otherwise permit PDI to engage in illegal and criminal conduct." Ms. Walters argues "specifically" that § 5-301(2) and § 5-301(3) apply, reasoning that "[n]ot only is PDI operating without a license in violation of I.C. § 24-4.5-3-503 (thereby committing a Class A misdemeanor) PDI is also attempting to undertake direct collection or enforcement of its purportedly assigned rights in Ms. Walters' debt, which is a Class A infraction."
Section 5-301(2)-(3) provides:
(2) A person, other than a supervised financial organization, who knowingly engages in the business of making consumer loans without a license in violation of the provisions of this article applying to authority to make consumer loans (IC 24-4.5-3-502) commits a Class A misdemeanor.
(3) A person who knowingly:
(a) engages in the business of making consumer credit sales, consumer leases, or consumer loans, or of taking assignments of rights against debtors; and
(b) undertakes direct collection of payments or enforcement of these rights, without complying with the provisions of this article concerning notification (IC 24-4.5-6-202) or payment of fees (IC 24-4.5-6-203); commits a Class A infraction.
Ind. Code § 24-4.5-5-301(2)-(3) (emphasis added).
Section 5-301(2) applies only to persons engaged in the business of making consumer loans. There is no evidence, previously submitted or newly discovered, that PDI is in the business of making consumer loans. Section 5-301(3) applies only to persons that are both engaged in the business of taking assignments and undertake direct collection of payments of enforcement of these rights without complying with Indiana Code § 24-4.5-6-202 or Indiana Code § 24-4.5-6-203. There is also no evidence, previously submitted or newly discovered, that PDI has failed to comply with § 6-202 or § 6-203. Moreover, this is the first time Ms. Walters has claimed a violation of § 6-202 or § 6-203, or § 5-301, by PDI.
Even if Ms. Walters had demonstrated that PDI took assignment of Ms. Walters' account in violation of § 5-301, Ms. Walters is unable to point to any provisions of the IUCCC which demonstrate she is entitled to the remedy that she seeks. The drafters of the IUCCC provided explicit "remedies and penalties" for violations of the IUCCC. See Ind. Code § 24-4.5-5. Section 5-301 provides for criminal penalties; § 5-301 does not provide for the voiding of the underlying loan. Without a statutory basis for a remedy, Ms. Walters seeks a common law remedy for an alleged violation of the IUCCC. Ms. Walters argues that because "the assignment of Ms. Walters' alleged debt to PDI constitutes criminal conduct by PDI," "the assignment of Ms. Walters' alleged debt to PDI is unenforceable because to enforce its rights under, or to even recognize the validity of, any such assignment, would sanction PDI's continued criminal conduct." The court is unwilling to read a remedy into the IUCCC for violation of its provisions when the IUCCC explicitly provides for remedies and penalties for such violations.
However, the court is also unwilling to permit PDI to recover damages for interest exceeding the statutory maximum. Under the IUCCC, an unsupervised lender is subject to a twenty-one percent maximum interest rate for consumer loans. Ind. Code § 24-4.5-3-201(1). Under Indiana Code § 24-4.5-5-202:
A debtor is not obligated to pay a charge in excess of that allowed by this Article, and if the debtor has paid an excess charge the debtor has a right to a refund. A refund may be made by reducing the debtor's obligation by the amount of the excess charge. If the debtor has paid an amount in excess of the lawful obligation under the agreement, the debtor may recover the excess amount from the person who made the excess charge or from an assignee of that person's rights who undertakes direct collection of payments from or enforcement of rights against debtors arising from the debt.
Ind. Code § 24-4.5-5-202(3). When a debtor has paid usurious interest, the debtor can recover the amount paid in interest that exceeds the legal rate. See Baum v. Thoms, 50 N.E. 357 (Ind. 1898); Bell v. Rush, 189 N.E. 181 (Ind.Ct.App. 1934); Jones v. Bryan, 102 N.E. 153 (Ind.Ct.App. 1913). In the present case, the court holds that PDI may only recover from Ms. Walters the principle and legal interest. PDI may not recover any interest exceeding twenty-one percent. The April 6, 2004, Entry is therefore MODIFIED to hold that PDI is not entitled to recover in damages any interest exceeding twenty-one percent that was charged after Ms. Walters' account was assigned to Vision Nevada. Otherwise finding no manifest errors of law or fact in the April 6, 2004, Entry, Ms. Walters' Motion for Reconsideration of the IUCCC defense is DENIED.
II. Breach of Contract Attorney Fees
Ms. Walters contends that PDI is not entitled to attorney fees on its counter-claim. "The general rule in Indiana is that each party to litigation must pay his or her own attorney fees." Reeder Assocs. II v. Chicago Belle, Ltd., 807 N.E.2d 752, 754 (Ind.Ct.App. 2004) (citing Morgan County v. Ferguson, 712 N.E.2d 1038, 1043 (Ind.Ct.App. 1999)). "However, an award of attorney fees may be authorized by contract, rule, statute, or agreement." Id. PDI argues that it is entitled to attorney fees pursuant to the terms of the written credit card agreement, which, according to PDI, contained language stating that the debtor agrees to pay attorney fees and costs incurred in the collection of the debt. Although PDI failed to produce the original credit card agreement, PDI argues that the fact that the original written agreement has been lost does not necessarily prevent PDI from recovering under the agreement. Essentially, PDI is asking for reconsideration of the breach of contract claim. The court's April 6, 2004, Entry was somewhat ambiguous about the status of the breach of contract claim, so the court welcomes this opportunity to clarify that summary judgment in favor of PDI on that claim is DENIED, but it remains a viable claim for trial."[T]he elements of a breach of contract action include: the existence of a contract; the defendant's breach of that agreement and damages." Wilson v. Lincoln Fed. Sav. Bank, 790 N.E.2d 1042, 1048 (Ind.Ct.App. 2003). "A party who fails to make payments as required by a contract is guilty of a breach thereof." Gaddis v. Stardust Hills Owners Ass'n, 804 N.E.2d 231, 235 (Ind.Ct.App. 2004) (citing Henthorne v. Legacy Healthcare, Inc., 764 N.E.2d 751, 758 (Ind.Ct.App. 2002)). PDI has not produced the original contract, but has submitted secondary evidence to demonstrate the terms of the contract. Ms. Walters has neither admitted or denied that the copy submitted by PDI is identical or similar to the document she allegedly signed in order to obtain the credit card. When there is a dispute over the contents of a document, "the optimal proof of the contents is the original document." United States v. McGaughey, 977 F.2d 1067, 1071 (7th Cir. 1992) (citing Fed.R.Evid. 1002), cert. denied, 507 U.S. 1019 (1993). PDI asserts that the original contract between Ms. Walters and Chase Manhattan has been "lost or has been misplaced." PDI cites Cua v. Ramos, 418 N.E.2d 1163, 1170 (Ind.Ct.App. 1981), vacated on other grounds, 433 N.E.2d 745 (Ind. 1982), for the proposition that if PDI "can show by the preponderance of the evidence that a diligent but unsuccessful search for the writing has been made in the place or places where it is most likely to be found, secondary evidence of the writing is admissible to prove content of the writing." However, the admissibility of evidence is a procedural matter, and for procedural matters the court is required to apply federal law. See Park v. City of Chi., 297 F.3d 606, 611-12 (7th Cir. 2002) (citations omitted); Houben v. Telular Corp., 309 F.3d 1028, 1032-33 (7th Cir. 2002) (citations omitted)).
Thus, the issue before the court is whether the best evidence rule prevents PDI from recovering on a claim for breach of contract against Ms. Walters because PDI cannot produce the original credit card agreement. Federal Rule of Evidence 1004, governing the "admissibility of other evidence of contents" of writings, states that "[t]he original is not required, and other evidence of the contents of a writing . . . is admissible if. . . . [a]ll originals are lost or have been destroyed, unless the proponent lost or destroyed them in bad faith." Fed.R.Evid. 1004(1). In support of its summary judgment motion PDI submitted a sample credit card agreement and the Affidavit of Cynthia Nestel, which states that the sample credit card agreement is "similar to the one signed and executed by the Counter-Defendant Jane M. Walters." (Nestel First Supp. Aff. ¶ 8.) However, "before secondary evidence may be used, it must be demonstrated that the original has actually been destroyed." McGaughey, 977 F.2d at 1071. "Unless someone testifies that he or she personally destroyed or witnessed the destruction of a document, such proof will ordinarily be circumstantial." Id. "[M]ore often the only available evidence will be circumstantial, usually taking the form that appropriate search for the document has been made without discovering it." McCormick on Evidence § 237. "Factors such as the relative importance of the document and the lapse of time since it was last seen have been seen to bear upon the extent of search required before loss or destruction may be inferred. The only general requirement, however, should be that all reasonable avenues of search should be explored to the extent that reasonable diligence under the circumstances would dictate." Id.
In Ms. Nestel's Affidavit she states that the original credit card agreement for Ms. Walters has been lost or misplaced ( see Nestel First Supp. Aff. ¶ 7), but provides no explanation or elaboration of the basis for that conclusion. Although "Rule 1004 does not contain an independent requirement that a search be conducted," McGaughey, 977 F.2d at 1071, a search is one "avenue by which the larger issue of the document's destruction may be proved," id. (citations omitted), and PDI has not offered any other type of reliable evidence in support of its assertion that the original agreement is lost. PDI argues that Ms. Walters did not contest the fact that the credit card agreement had been lost or that the sample credit card agreement was not similar to the one she signed. However, it is PDI's burden to demonstrate loss of the original document. Moreover, it does not appear from the record that Ms. Walters would have the requisite personal knowledge to assert that the original document is either lost or not lost. PDI has not conclusively demonstrated that a contract existed or the terms of the contract and therefore has failed to demonstrate that it is entitled to judgment as a matter of law on the breach of contract claim. Thus, PDI's request for reconsideration of the court's decision denying summary judgment on the breach of contract claim is DENIED.
Ms. Walters invited the court to enter summary judgment sua sponte on PDI's counter-claims. However, Ms. Walters also has not demonstrated that she is entitled to judgment as a matter of law on the breach of contract claim. As discussed above and in the April 6, 2004, Entry, Ms. Walters' defenses to PDI's claims of breach of contract and accounts stated fail as a matter of law. Thus, Ms. Walters' Motion for Summary Judgment sua sponte on the breach of contract claim is DENIED, and Ms. Walters' Motion for Summary Judgment sua sponte on the accounts stated claim is DENIED. For the reasons given in the April 6, 2004, Entry, PDI's motion for summary judgment on its claim for accounts stated will be GRANTED. However, absent a showing of a statutory provision which entitles PDI to attorney fees for successful prosecution of the accounts stated claim, PDI's claim for attorney fees for the accounts stated claim is DENIED.
III. Conclusion
Ms. Walters' Motion for Reconsideration of her IUCCC defense is DENIED. However, the April 6, 2004, Entry is MODIFIED to hold that PDI may not recover in damages any amount of interest in excess of twenty-one percent that was charged after Ms. Walters' account was assigned to Vision Nevada. PDI's request for reconsideration of the court's denial of PDI's motion for summary judgment on the breach of contract claim is DENIED. Additionally, PDI's request for reconsideration of the court's denial of attorney fees for the accounts stated claim is DENIED. The court CLARIFIES the April 6, 2004, Entry, as follows: Ms. Walters' invitation to the court to grant summary judgment sua sponte in her favor on the breach of contract claim and accounts stated claim is DENIED. The following issues remain for disposition: For PDI's action against Ms. Walters for accounts stated, the issue of damages remains for trial. PDI is not entitled to attorney fees for successful prosecution of the accounts stated claim. For PDI's action against Ms. Walters for breach of contract, the following issues remain for trial: 1) PDI's claim against Ms. Walters for breach of contract, including the issues of the existence of a contract, breach, and damages; and 2) if the trier of fact finds that a contract existed, whether the contract included a provision entitling PDI to attorney fees. If the trier of fact awards PDI damages on the breach of contract claim, the court will offset the damages awarded on the breach of contract claim by the damages awarded to PDI on its claim of accounts stated. If the trier of fact determines that there was a contract and that there was an attorney fee provision in the contract entitling PDI to an award of attorney fees, the issue of the amount of attorney fees to be awarded PDI will be determined by the court.
ALL OF WHICH IS ORDERED.