Opinion
Case No. 3:20-cv-00330-SB
12-22-2020
PAUL and SHELLEY COATES, Plaintiffs, v. ASSET RECOVERY GROUP, INC. and HASSON LAW, LLC, Defendants.
FINDINGS AND RECOMMENDATION
BECKERMAN, U.S. Magistrate Judge.
Plaintiffs Paul and Shelley Coates ("Plaintiffs") filed this action against defendants Asset Recovery Group, Inc. ("ARG") and Hasson Law, LLC ("Hasson Law") (together, "Defendants"), alleging violations of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692g ("FDCPA"). Defendants filed a motion to dismiss Plaintiffs' amended complaint ("FAC") for failure to state a claim. (ECF No. 7.) The Court has jurisdiction over this matter under 28 U.S.C. § 1331. For the reasons discussed below, the Court recommends that the district judge grant in part and deny in part Defendants' motion to dismiss. /// ///
BACKGROUND
The Court accepts the FAC's well-pleaded factual allegations as true and construes all inferences in favor of Plaintiffs. See Mashiri v. Epsten Grinnell & Howell, 845 F.3d 984, 988 (9th Cir. 2017). The Court also takes judicial notice of the state court summons and complaint (Mot. to Dismiss, Ex. 2 at 1-5), and the validation notice discussed herein (Mot. to Dismiss, Ex. 1). See Rueda Vidal v. Bolton, 822 F. App'x 643, 644 (9th Cir. 2020) ("On a motion to dismiss, a court may take judicial notice of 'documents crucial to the plaintiff's claims, but not explicitly incorporated in his complaint.'" (quoting Parrino v. FHP, Inc., 146 F.3d 699, 706 (9th Cir. 1998))).
Plaintiffs received services from Retina Northwest PC ("Retina") and allegedly failed to pay the bill. (Mot. to Dismiss at 2.) Retina assigned the alleged debt to ARG for collection. (Id.) ARG filed a debt collection lawsuit against Plaintiffs in Washington County Circuit Court, seeking to reduce the debt to judgment. (Id.)
On March 20, 2019, Hasson Law served Plaintiffs with a copy of the state court summons and complaint (Mot. to Dismiss, Ex. 2), along with a validation notice (the "Notice"). (Mot. to Dismiss, Ex. 1.) The summons required Plaintiffs to take action within thirty days: "YOU ARE HEREBY required to appear and defend the complaint filed against you in the above entitled action within thirty (30) days from the date of service of this summons upon you, and in case of your failure to do so, for want thereof, Plaintiff will apply to the court for the relief demanded in the complaint." (Mot. to Dismiss, Ex. 2.)
The Notice, served at the same time as the summons and complaint, contained the following language:
This office represents Asset Recovery Group, Inc., an Oregon Corporation, the collection agency for the creditors listed, with regards to the listed creditor's accounts.
This office is a debt collector. We are attempting to collect a debt and any information obtained will be used for that purpose.
Unless you notify this office within 30 days after receiving this notice that you dispute the validity of this debt or any portion thereof, this office will assume this
debt is valid. If you notify this office in writing within 30 days from receiving this notice that you dispute the validity of this debt or any portion thereof, this office will obtain verification of the debt or obtain a copy of a judgment against you and mail you a copy of such judgment or verification. If you request this office in writing within 30 days after receiving this notice, this office will provide you with the name and address of the original creditor, if different from the current creditor.(Mot. to Dismiss, Ex. 1.) The Notice identifies Retina as the current creditor. (Id.)
Plaintiff Shelley Coates alleges that she disputed the alleged debt and "would have taken advantage of" the thirty-day period to dispute the debt but was confused about her rights because she believed her answer in the state case was due earlier than the end of the validation period. (FAC ¶ 9.) Plaintiffs also allege that Defendants falsely stated in the Notice that Retina was the current creditor, when in fact "Defendant ARG was the current creditor at the time of the letter." (FAC ¶ 12.)
ANALYSIS
I. STANDARD OF REVIEW
"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. "'The plausibility standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully.'" Mashiri, 845 F.3d at 988 (quoting Twombly, 550 U.S. at 556).
II. DISCUSSION
Defendants move to dismiss the FAC, arguing that Plaintiffs have failed to state an FDCPA claim for two reasons: (1) Defendants' contemporaneous service of the summons and complaint did not "overshadow" the validation notice; and (2) Defendants did not misrepresent the identity of the current creditor.
A. The FDCPA
Recognizing that "[a]busive debt collection practices contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy" (15 U.S.C. § 1692(a)), Congress passed the FDCPA to "eliminate abusive debt collection practices by debt collectors [and] to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged[.]" 15 U.S.C. § 1692(e).
To prevent abusive debt collection practices, the FDCPA requires debt collectors to provide consumers with a notice about disputing the validity of the alleged debt, typically known as a "validation notice." 15 U.S.C. § 1692g(a). Under section 1692g(a), a consumer has thirty days to dispute the validity of the debt and request the identity of the original creditor. Id. "This 30-day window is known as the 'validation period.'" Dorsey v. David B. Schumacher, P.C., No. 3:14-cv-1190-SI, 2015 WL 569958, at *2 (D. Or. Feb. 11, 2015) (citing Feightner v. Asset Sys., Inc., No. 3:13-cv-00222-ST, 2014 WL 1571627, at *4 (D. Or. Apr. 18, 2014)). If the consumer disputes the validity of the debt during the validation period, section 1692g(b) requires a debt collector to "cease collection of the debt" until the debt collector verifies the debt or the identity of the original creditor. 15 U.S.C. § 1692g(b). As relevant here, section 1692g(b) also provides that "[a]ny collection activities and communication during the 30-day period may not overshadow or be inconsistent with the disclosure of the consumer's right to dispute the debt or request the name and address of the original creditor." Id.
"'[U]nder the law of this circuit, whether the . . . communication violates the FDCPA depends on whether it is likely to deceive or mislead a hypothetical 'least sophisticated debtor.'" Mashiri, 845 F.3d at 991 (quoting Terran v. Kaplan, 109 F.3d 1428, 1431 (9th Cir. 1997) (internal quotations omitted)). "An FDCPA plaintiff need not even have actually been misled or deceived by the debt collector's representation; instead, liability depends on whether the hypothetical 'least sophisticated debtor' likely would be misled." Afewerki v. Anaya Law Grp., 868 F.3d 771, 776 (9th Cir. 2017) (citation omitted).
B. Overshadowing
Defendants move to dismiss Plaintiffs' overshadowing claim, on the ground that serving the summons and complaint with the validation notice did not overshadow the validation notice. The Court cannot conclude as a matter of law that the summons and complaint did not overshadow the validation notice here.
In the Ninth Circuit, "[w]hether a debt collector's communications overshadowed or were inconsistent with a consumer's right to dispute a debt is a question of law." Adams v. David B. Schumacher, PC, No. 13-CV-02301-AC, 2014 WL 6977695, at *7 (D. Or. Dec. 9, 2014) (citing Feightner, 2014 WL 1571627, at *4, and Terran, 109 F.3d at 1432). "Overshadowing or inconsistency may exist where language in the notice would 'confuse a least sophisticated debtor' as to her validation rights." Mashiri, 845 F.3d at 991.
Neither the Ninth Circuit nor this court has specifically addressed whether serving a summons and complaint with the validation notice constitutes overshadowing under the FDCPA. However, the Ninth Circuit has held under analogous circumstances that "[a] demand for payment within less than the thirty-day timeframe necessarily requires the debtor to forego the statutory right to challenge the debt in writing within thirty days, or suffer the consequences." Terran, 109 F.3d at 1434. Thus, "requiring a payment that would eliminate the debt before the debtor can challenge the validity of that debt directly conflicts with the protections for debtors set forth in section 1692g." Id.; cf. Mashiri, 845 F.3d at 993 ("[T]he threat of filing a lien overshadowed [the consumer]'s right to dispute the debt, in violation of § 1692g. Because [the consumer] has plausibly alleged a violation of § 1692g on the basis of inconsistency and overshadowing, we reverse the district court's dismissal of that claim."); Adams, 2014 WL 6977695, at *8 (holding that overshadowing occurred when a consumer received a validation notice simultaneously with a notice of wage garnishment, and noting that "[t]he [c]orrespondence would suggest, even to an average consumer, that there is no point in disputing the debt because her wages are already being garnished"); Dunn v. Derrick E. McGavic, P.C., 653 F. Supp. 2d 1109, 1112-14 (D. Or. Sept. 1, 2009) (holding that a letter containing both the validation notice and a threat of commencing litigation within thirty days overshadowed the validation notice, and noting that "[w]ithout a clear explanation of the simple concept that [the debt collector] must cease litigation if [the debtor] disputes the debt, the least sophisticated consumer is likely to wonder what good it would do him to dispute the debt if he cannot stave off a lawsuit").
Although the Ninth Circuit has not squarely addressed the circumstances presented here, both the Second and Seventh Circuits have held that serving a summons and complaint at the same time as a validation notice may qualify as overshadowing under the FDCPA. For example, in Goldman v. Cohen, 445 F.3d 152, 157 (2d Cir. 2006), the Second Circuit recognized that "[i]n cases where debt collectors send debtors a validation notice either along with a summons and complaint or shortly thereafter, we recognize the risk that some debtors will become confused." Accordingly, the Second Circuit "join[ed] the Seventh Circuit in exhorting debt collectors who choose to send § 1692g validation notices along with paperwork initiating legal proceedings to send debtors a notice . . . that will ensure compliance with the FDCPA while only minimally disrupting the litigation process[.]" Id. (providing suggested language); see also Thomas v. Law Firm of Simpson & Cybak, 392 F.3d 914, 919 (7th Cir. 1997) ("[A] debt collector who chooses to send the validation notice either with the summons and complaint or shortly thereafter should take care to phrase its notice so as to not mislead [and] should make clear that the advice contained in the § 1692g validation notice in no way alters the debtor's rights or obligations with respect to the lawsuit, [specifically by] emphasizing that courts set different deadlines for filings."); cf. Ellis v. Solomon & Solomon, P.C., 591 F.3d 130, 136 (2d Cir. 2010) (holding that "the validation notice is overshadowed where a debt collector serves a consumer with process initiating a lawsuit during the validation period, without clarifying that commencement of the lawsuit has no effect on the information conveyed in the validation notice" and serving both the lawsuit and validation notice "'may well appear to the least sophisticated consumer that being taken to court trumps any other out-of-court rights she had'") (quotation marks and citation omitted).
Although these opinions are not binding, the Court agrees that the least sophisticated consumer may be confused about their right to dispute a debt upon receiving contemporaneous notice that the debt collector has already filed a lawsuit. Even sophisticated lawyers and judges may not readily understand what impact the pending lawsuit has on the consumer's right to dispute the debt. For example, it is unclear if the consumer's exercise of her right to verify the debt would require the debt collector to stay the pending state case, or if the consumer is required to answer the complaint within thirty days if she also disputes the debt in writing to the debt collector, or if the consumer's answer to the complaint qualifies as disputing the debt in writing to the debt collector. See Freire v. Aldridge Connors, LLP, 994 F. Supp. 2d 1284, 1289 (S.D. Fla. Feb. 4, 2014) ("By confusing the deadlines, or by disputing the debt and not responding to the complaint, a consumer may inadvertently waive valuable legal rights."). Surely many consumers, especially those unschooled in the law, may also believe that disputing the debt would be futile because the debt collector already filed a lawsuit to collect the debt. Cf. Mashiri, 845 F.3d at 992 (holding that where the validation notice stated that a lien "will" be recorded if the consumer "fail[ed] to pay," "[t]he least sophisticated debtor would likely (and incorrectly) believe that even if she disputed the debt and [the debt collector] had not yet mailed verification of the debt to her, [the debt collector] would record a lien on the thirty-fifth day after the date of the letter").
The Court's findings are not necessarily contrary to the holdings in Feightner and Wilfong v. Persolve, LLC, No. 10-3083-CL, 2011 WL 2678925 (D. Or. June 2, 2011). In those cases, the court held that debt collectors may file a collection lawsuit during the validation period if the consumer has not yet disputed the debt. Those cases did not address an overshadowing claim based on the debt collector's service of the summons and complaint contemporaneously with the validation notice. In any event, Wilfong did not involve an overshadowing claim at all, and Feightner relied on a Seventh Circuit case holding that the validation period is not "'a grace period'" from filing a collection lawsuit (see Feightner, 2014 WL 1571627, at *5) (citing Durkin v. Equifax Check Servs., 406 F.3d 410, 416 (7th Cir. 2005)), which is seemingly at odds with the Ninth Circuit's holding in Mashiri that even "the threat of filing a lien overshadowed [the consumer]'s right to dispute the debt [during the validation period], in violation of § 1692g." Mashiri, 845 F.3d at 993.
In light of the probable confusion caused by serving the validation notice and summons and complaint at the same time, the Court finds that Plaintiffs have stated a plausible overshadowing claim.
C. Current Creditor
Plaintiffs also allege that the validation notice falsely represents that Retina is the current creditor, despite the fact that Defendants filed the state lawsuit in ARG's name to collect the debt on behalf of Retina. (FAC ¶ 12.) /// ///
When collecting a debt, the FDCPA requires a debt collector to include in the validation notice "the name of the creditor to whom the debt is owed[.]" 15 U.S.C § 1692g(a)(2). The FDCPA defines a "creditor" as:
any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.15 U.S.C. § 1692a(4).
The Notice identifies Retina as the current creditor. (Mot. to Dismiss, Ex. 1.) Plaintiffs argue Retina must have sold the debt to ARG because ARG filed the state lawsuit in its own name, and therefore ARG must be the "current creditor." (Pl's Resp. at 5.) The Court disagrees that a debt collector's filing of a lawsuit to collect a debt necessarily signals that the debt collector purchased or holds a proprietary interest in the debt. In fact, Oregon law recognizes that "[a] registered collection agency has a property right in any claim or account assigned to the agency in writing for collection" and therefore may "[b]ring and maintain an action to recover the amount owing from the claim or account" in its own name. OR. REV. STAT. § 697.045(1), (c). Thus, Oregon law recognizes that if Retina assigned the debt, ARG has a statutory right to bring the collection action in state court because it has a property right in the debt by virtue of its role as debt collector. Indeed, the FDCPA's definition of creditor specifically carves out debt collectors that accept an "assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another." 15 U.S.C. § 1692a(4). Therefore, Plaintiffs' argument that the validation notice should list the debt collector as the current creditor is contrary to law, and would necessarily confuse the least sophisticated consumer. /// ///
Plaintiffs have alleged no facts to support their allegation that ARG was the current creditor at the time Defendants sent the validation notice, and therefore Plaintiffs have failed to state a claim that Defendants misrepresented the current creditor in the validation notice.
CONCLUSION
For the reasons stated, the Court recommends that the district judge DENY Defendants' motion to dismiss Plaintiffs' FDCPA overshadowing claim, and GRANT Defendants' motion to dismiss Plaintiffs' FDCPA "current creditor" misrepresentation claim (ECF No. 7), with leave to file a second amended complaint within thirty days.
SCHEDULING ORDER
The Court will refer its Findings and Recommendation to a district judge. Objections, if any, are due within fourteen (14) days. If no objections are filed, the Findings and Recommendation will go under advisement on that date. If objections are filed, a response is due within fourteen (14) days. When the response is due or filed, whichever date is earlier, the Findings and Recommendation will go under advisement.
DATED this 22nd day of December, 2020.
/s/_________
HON. STACIE F. BECKERMAN
United Sates Magistrate Judge