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finding a lawyer was not a debt collector where less than one percent of his practice involved debt collection activity, and where attorney handled a variety of matters on behalf of his clients
Summary of this case from Reyes v. Julia Place Condo. Homeowners Ass'n, Inc.Opinion
Civ. No. 99-3265, SECTION: "R" (1).
March 16, 2000.
ORDER AND REASONS
Before the Court are plaintiff William Franco's motion to reconsider this Court's order granting as unopposed defendant's motion for summary judgment, defendant's motion for reasonable attorneys' fees and costs pursuant to § 1692k(a)(3), and defendant's motion for Rule 11 sanctions. Because this Court finds that defendant is not a debt collector under the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692, et seq., plaintiff's motion to reconsider is denied. In addition, defendant's motions for attorneys' fees and Rule 11 sanctions are denied for the reasons stated below.
I. Background
On September 25, 1997, plaintiff and Herberth H. Barillas, an employee of Saks Fifth Avenue, executed a loan application for joint credit from Saks Fifth Avenue Federal Credit Union in the amount of $16,000.00, in order to consolidate their debts. ( See Def.'s Mot. Summ. J. Ex. A.) Plaintiff and Barillas were to pay the loan in monthly installments, which they agreed to split. Although plaintiff initially made his share of the payments, in August 1998, he began to make reduced payments and thereafter, he failed to make any further payments. In October of 1998, Barillas paid the outstanding balance of the loan.
Thereafter, Barillas hired defendant David J. Maraldo, an attorney licensed to practice in Louisiana, to enforce his claim against plaintiff for contribution of his agreed share of the loan. On February 11, 1999, Maraldo sent plaintiff a letter demanding reimbursement of his share of the loan within fifteen days. At the bottom of the letter, in bold capitals, he stated:
THIS IS AN ATTEMPT TO COLLECT A DEBT. ANY INFORMATION OBTAINED MAY BE USED FOR THAT PURPOSE. THIS COMMUNICATION IS FROM A DEBT COLLECTOR.
(Def.'s Mot. Summ. J. Ex., B.). Because plaintiff failed to respond to this letter, on March 19, 1999, Maraldo filed a petition on open account on behalf of Barillas against plaintiff in First City Court for the City of New Orleans. ( See id. Ex. C.)
On October 27, 1999, plaintiff sued Maraldo in this Court, alleging violations of the FDCPA, 15 U.S.C. § 1692, et seq., LA. Civ. CODE art. 2315 and the Louisiana Unfair Trade Practices Act, LA. REV. STAT. § 51:1401, et seq. He seeks damages for emotional distress, statutory and treble damages, and attorneys' fees and costs.
On December 27, 1999, Maraldo moved for summary judgment, seeking to dismiss plaintiff's claims against him on the grounds that he is not a debt collector within the meaning of the FDCPA. Maraldo also filed a motion for sanctions under Federal Rule of Civil Procedure 11 on January 18, 2000. Plaintiff failed to oppose the motion for summary judgment, and this Court granted it as unopposed on January 20, 2000.
Plaintiff now moves for reconsideration, opposing defendant's motions for summary judgment and for sanctions.
II. Discussion
A. Legal Standard
Although the Federal Rules of Civil Procedure do not recognize a motion to reconsider in haec verba, the Fifth Circuit has held that a motion to reconsider a dispositive pre-trial motion is analogous to a motion to "alter or amend the judgment" under Federal Rule of Civil Procedure 59(e), when it is served within ten days of the court's ruling. See Lavespere v. Niagara Mach. Tool Works, Inc., 910 F.2d 167, 173 (5th Cir. 1990). District courts have considerable discretion in deciding whether to reopen a case in response to a motion to alter or amend. See Lavespere, 910 F.3d at 174. In deciding whether to grant such a motion, this Court must "strike the proper balance between competing imperatives: (1) finality, and (2) the need to render just decisions on the basis of all the facts." Bohlin v. Banning Co., Inc., 6 F.3d 350, 355 (5th Cir. 1993).
The Court granted defendant's motion as unopposed on January 20, 2000, and plaintiff filed his motion to reconsider on January 26, 2000. Thus, this Court treats his motion as a motion to alter or amend judgment under Rule 59(e).
In deciding motions under Rule 59(e), courts in this district have considered four factors: (1) whether the movant demonstrates the motion is necessary to correct manifest errors of law or fact upon which the judgment is based; (2) whether the movant presents new evidence; (3) whether the motion is necessary in order to prevent manifest injustice; and. (4) whether the motion is justified by an intervening change in the controlling law. See Burma Navigation Corp. v. Seahorse, 1998 WL 781587 at *1 (E.D. La. Nov.: 3, 1998), citing Fields v. Pool Offshore, Inc., 1998 WL 43217 at *2 (E.D. La. Feb. 3, 1998).
Movant must satisfy at least one of the above criteria to prevail. Here, plaintiff's arguments are most apposite to the third factor, that the motion is necessary to prevent manifest injustice. The Court will review the merits of the motion for summary judgment de novo to determine if it must be modified to prevent manifest injustice.
B. FDCPA
Under the FDCPA, it is unlawful for any debt collector to make false or misleading representation or to engage in abusive and unfair practices while attempting to collect a debt from a consumer. See 15 U.S.C. § 1692, et seq.; Garrett v. Derbes, 110 F.3d 317, 317-18 (5th Cir. 1997), citing Heintz v. Jenkins, 514 U.S. 291, 292, 115 5. Ct. 1489, 1490 (1995). The Act provides in pertinent part:
The term "debt collector" means 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.15 U.S.C. § 1692a(6), emphasis added. Originally the FDCPA specifically exempted from the definition of debt collector attorneys collecting debts on behalf of their clients. Congress repealed this exemption in 1986. See Pub.L. 99-361, 100 Stat. 768 (1986); Jenkins, 514 U.S. at 294, 115 5. Ct. at 1491. In Jenkins, the United States Supreme Court held that the Act applies to attorneys who regularly engage in the practice of consumer debt collection. 514 U.S. at 299, 115 5. Ct. at 1493. In addition, the Fifth Circuit has held that "Congress must have intended the `principal purpose' prong of § 1692a(6) to differ from the `regularly' prong." Derbes, 110 F.3d at 318, citing Jarecki v. C. D. Searle Co., 367 U.S. 303, 307-08, 81 5. Ct. 1579, 1582 (1961). Thus, an attorney may be a debt collector within the definition of the Act if the volume of his debt collection practice is great enough, even if his principal business is not debt collection. See id. This Court must therefore determine whether the principal purpose of Maraldo's business was debt collection activity, or whether he regularly engaged in this practice.
Maraldo states in his declaration pursuant to 28 U.S.C. § 1746(2) that debt collection is not and has never been the principal purpose of his business. He avers that less than one percent of his practice involved the collection of debts on behalf of a client and that he has attempted to collect debts in this and only one other instance. ( See Def.'s Mot. Summ. J. Ex. D, ¶ 6.) In addition, Maraldo has attached sworn applications for professional liability insurance, which he alleges accurately reflect the percentages of income derived from various types of law practice. ( See id. Exs. 1-3.) These records do not list any percentage in the space provided for "Collection" or "Repossession" activities, ostensibly because less than one percent of Maraldo's practice involved collection activity. In addition, Maraldo has submitted a supplemental declaration, which states that he has handled the following matters as an attorney:
(1) over 500 real estate closings; (2) 20 domestic relations and family relations matters; (3) numerous corporate transactions on behalf of 29 corporate clients; (4) 14 personal injury matters for plaintiffs; (5) 4 wills, trusts or succession matters; (1) 4 commercial corporate litigation matters for plaintiffs; (2) 7 commercial corporate litigation matters for defendants; (3) 7 real estate litigation matters; (4) 2 criminal defense matters; (5) 21 general litigation matters; and (6) 2 collection matters.
The evidence that defendant has presented reveals that the principal purpose of his business is not debt collection and that he does not regularly engage in that activity. Thus, he is not a debt collector under the FDCPA.
Plaintiff contends that in spite of this evidence, that Maraldo held himself out as a debt collector in the letter addressed to plaintiff and in the state court petition establishes a question of fact that he is, in fact, a debt collector. This argument is meritless. As stated above, the appropriate inquiry into whether defendant is a debt collector within the definition of the FDCPA is whether the principal purpose of his business is debt collection or whether he is regularly engaged in that activity. His statements in the letter and in his client's complaint do not supersede the statutory definition of debt collector, or United States Supreme Court and Fifth Circuit case law interpreting that definition. In short, that defendant engaged in two isolated incidents of debt collection does not place him within the ambit of the FDCPA.
C. Sufficiency of Defendant's Declarations and Rule 56(f)
Plaintiff also claims that defendant's declarations under 28 U.S.C. § 1746 are vague and insufficient to support a motion for summary judgment. In the alternative, he contends that he is entitled to conduct additional discovery under Federal Rule of Civil Procedure 56(f), because it might uncover other collection activities that Maraldo has failed to disclose, and because any information relating to defendant's records are under his exclusive control. Neither argument has merit.
Section 1746 of Title 28 establishes that an unsworn declaration may be used in lieu of a sworn affidavit if it is given under penalty of perjury:
Wherever, under any law of the United States or under any rule, regulation, order, or requirement made pursuant to law, any matter is required or permitted to be supported, evidenced, established, or proved by the sworn declaration, verification, certificate, statement, oath, or affidavit, in writing of the person making the same . . . such matter may, with like force and effect, be supported, evidenced, established, or proved by the unsworn declaration, certificate, verification, or statement, in writing of such person which is subscribed by him, as true under penalty of perjury, and dated, in substantially the following form:
(2) If executed within the United States [:] . . . "I declare (or certify, verify, or state) under penalty of perjury that the foregoing is true and correct. Executed on (date).
28 U.S.C. § 1749. Here, defendant's declarations conform to this requirement. ( See Def.'s Mot. Summ. J. Ex. D; Def.'s Reply Ex. G, stating "I declare under penalty of perjury that the foregoing is true and correct.") They are therefore competent summary judgment evidence. See Holland America Line v. Panama Canal Com'n, 1994 WL 24250 at *3 n. 5 (E.D. La. Jan. 14, 1994) (noting. that declarations under § 1746 constitute evidence to be properly considered on motion for summary judgment); Carney v. United States Dept. of Justice, 19 F.3d 807, 812 (2d Cir. 1994) (finding that declarations were sufficient to sustain defendant's burden on motion for summary judgment); Goldman, Antonetti, Ferraiuoli, Axtmayer Hertell v. Medfit Internat'l Inc., 982 F.2d 686, 690 (1st Cir. 1993) (same). Moreover, the declarations are specific and unambiguously address the facts of the debt collection issue. This Court therefore rejects plaintiff's challenge to defendant's summary judgment evidence.
As to plaintiff's second argument, Rule 56(f) permits a Court to deny summary judgment, grant a continuance to permit further discovery or make other such order as is just, if a party opposing the motion cannot for reasons stated present facts essential to justify his opposition. See FED. R. CIV. P. 56(f). The disposition of a Rule 56(f) motion is discretionary. See Paul Kadair, Inc. v. Sony Corp. of America, 694 F.2d 1017, 1029-30 (5th Cir. 1983); accord United States Fidelity Guar. Co. v. Lipsmeyer Constr. Co., 754 F. Supp. 81, 84 (M.D. La. 1990). To obtain a continuance under Rule 56(f), the nonmovant must present "specific facts explaining his inability to make a substantive response as required by Rule 56(e)" and must specifically demonstrate how discovery will provide the means to rebut the movant's showing of the absence of a material fact. Washington v. Allstate Ins. Co., 901 F.2d 1281, 1285 (5th Cir. 1990). "The nonmovant may not simply rely on vague assertions that discovery will produce needed, but unspecified, facts." Id., citing Gossett v. Du-Ra-Kel Corp., 569 F.2d 869, 873 (5th Cir. 1978).
Nevertheless, a plaintiff's entitlement to discovery prior to a summary judgment ruling is not unlimited and this Court may limit discovery if (1) the record reveals that the requested discovery is unlikely to produce the facts needed to defeat the motion for summary judgment; (2) the record shows that denial is necessary to protect defendant from harassment or needless "fishing expeditions(;]" or (3) if it is dilatorily sought. Mills v. Damson Oil Corp., 931 F.2d 346, 350-51 (5th Cir. 1991), citing Kadair, 694 F.2d at 1030-31. In addition, "Rule 56 does not require that any discovery take place before summary judgment can be granted[.11" Washington, 901 F.2d at 1285, emphasis added.
In this case, this Court finds that, given defendant's declarations under penalty of perjury and applications for liability insurance, additional discovery is unlikely to produce a genuine issue of fact that defendant is a debt collector under the FDCPA. Plaintiff has raised nothing more than bare allegations in his opposition to defendant's motion, and defendant responded to plaintiff's pleas for more detailed facts concerning the number of matters he handled as an attorney in his reply memorandum and supplemental declaration.
Moreover, plaintiff was dilatory in requesting this discovery. A court considers the following factors in assessing dilatory motive:
(1) the length of the pendency of the case prior to the Rule 56(f) request; (2) whether and when plaintiff could have anticipated its need for the requested discovery; (3) the previous efforts, if any, made by plaintiff to obtain the needed information either through Rule discovery or otherwise; (4) the degree and nature of discovery already undertaken; (5) any limitations placed upon discovery previously by the trial court; (6) any prior solicitations of or provisions for discovery by the trial court; (7) any warning which plaintiff might have had that, absent a speedier request, discovery might be denied and his claim be dismissed; and (8) whether the requested information was inaccessible to plaintiff, e.g. as when within defendant's exclusive control, or whether alternative, accessible sources existed but were foregone.Kadair, 694 F.2d at 1031. Although plaintiff filed this case in October of 1999, he has not attempted to propound any discovery even though he had an extra thirty days within which to respond to defendant's motion (by filing a motion to reconsider) by virtue of his failure to oppose it prior to the hearing date. In addition, because plaintiff knew that he could not pursue his federal claim if defendant were not a debt collector under the FDCPA, and because defendant denied that he was a debt collector in his motion, plaintiff should have been aware months ago that any information tending to disprove that fact was necessary to defeat the motion for summary judgment, that he should attempt to discover such information as soon as possible and that his failure to do so might lead to the dismissal of his claims. Finally, the Court did not place any restrictions on discovery and plaintiff has presented nothing more than conclusory assertions that the information he seeks is under the exclusive control of defendant. See Lewis v. ACB Business Serv., Inc., 135 F.3d 389, 409 (6th Cir. 1998) (holding that it was not abuse of discretion to deny plaintiff's discovery request in case under FDCPA, in part, because plaintiff had provided only bare allegations to support claim that evidence regarding attorney's practice were under his exclusive control).
After reviewing the record and the Kadair factors, this Court denies plaintiff's request to propound discovery, and finds that defendant is not a debt collector within the meaning of the FDCPA. This Court therefore dismisses plaintiff's federal claim with prejudice.
D. State Law Claims
Plaintiff has not even tried to defend defendant's attack on his state law claims under the Louisiana Unfair Trade Practices Act ("LUPTA"), LA. REV. STAT. § 51:1401, et seq., and Louisiana Civil Code Article 2315. First, this Court doubts whether a person who suffers purely emotional damages may recover under the LUPTA, which authorizes a private action by anyone "who suffers any ascertainable loss of money or moveable property, . . . as a result of the use or employment by another person of an unfair or deceptive method, act or practice declared unlawful by R.S. 51:1405[.]" LA. REV. STAT. § 51:1409(A). In any case, plaintiff's LUPTA claim is defective for other reasons. Plaintiff does not deny that he owes the debt at issue, and an attempt to collect a debt admittedly owing does not amount to an unfair trade practice. See, e.g., Owl Constr. Co. v. Ronald Adams Contractor, Inc., 642 F. Supp. 475, 478 (E.D. La. 1986). Further, he has identified no specific deceptive practice engaged in by defendant other than that he was a debt collector. There is no indication of how such a representation, even if untrue, caused plaintiff any damage. Because proof of legal causation is also required under article 2315, plaintiff's claim under 2315 fails for the same reason. Thus, plaintiff's state law claims are dismissed with prejudice.
E. Attorneys' Fees and Costs Under § 1692k(a)(3)
Defendant asserts that he is entitled to reasonable attorneys' fees and costs under § 1692k(a)(3) of the FDCPA. He claims conclusorily that "there exists no genuine issue of material fact that Franco brought this purported action under the FDCPA in bad faith and for the purpose of harassment." (Def.'s Mot. Summ. J. at 10.) Section 1692k(a)(3) states in pertinent part:
On a finding by the court that an action under this section was brought in bad faith and for the purpose of harassment, the court may award to the defendant attorney's fees reasonable in relation to the work expended and costs.15 U.S.C. § 1692k(a)(3). To recover fees under this section, "the prevailing defendant must show affirmatively that the plaintiff brought the FDCPA claim in bad faith and for the purpose of harassment." Perry v. Stewart Title Co., 756 F.2d 1197, 1211 (5th Cir. 1985), emphasis added. There is nothing to suggest that plaintiff filed the suit with an improper motive. On the contrary, that defendant stated in his letter to plaintiff and in his state court petition: "This is an attempt to collect a debt. . . . This communication is from a debt collector[,]" indicates that plaintiff had reason, at that time, to believe that defendant was a debt collector. Further, the body of the letter failed to comply with the technical requirements of the FDCPA ( see, e.g., § 1692g(a)(3), requiring that within five days of initially communicating with a consumer regarding the collection of a debt, a debt collector send the consumer a written notice stating that he has thirty days to dispute the validity of the debt or the debt will be assumed to be valid). Compare Archer v. Beasley, 1991 WL 34889 at *3 (D.N.J. Mar. 5, 1991) (finding that fees not warranted when attorney may have reasonably believed she should bring FDCPA action in response to threat of suit, because merely incorrectly pursuing cause of action does not alone constitute bad faith), with Sierra v. Foster Garbus, 48 F. Supp.2d 393, 396 (S.D.N.Y. 1999) (finding bad faith and harassment when plaintiff had voluntarily abandoned FDCPA claims in order to have case remanded to state court, then voluntarily discontinued its prosecution, only to refile it later in federal court). Although this Court has dismissed plaintiff's claims, it does not find that they were brought in bad faith and in order to harass defendant.
F. Rule 11 Sanctions
Defendant also claims that plaintiff and his counsel, Robert Clemenz, should be sanctioned under Rule 11, because plaintiff's complaint sets forth claims that are not warranted by existing law and that have no evidentiary support, and that the complaint is being presented in order to harass and retaliate against defendant and his client, in violation of Rule 11(b)(1), (2) and (3). Rule 11 allows district courts to sanction an attorney or a represented party. See Jennings v. Joshua Indep. School Dist., 948 F.2d 194, 197 (5th Cir. 1991), citing Business Guides, Inc. v. Chromatic Communications Ent., Inc., 498 U.S. 533, 541-47, 111 S. Ct. 922, 928-31 (1991)
It provides in relevant part:
(b) Representations to Court. By presenting to the court (whether by signing, filing, submitting, or later advocating) a pleading, written motion, or other paper, an attorney or unrepresented party is certifying that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, —
(1) it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase, in the cost of litigation;
(2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law;
(3) the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery[.]
Rule 11 also states that a motion for sanctions shall be filed separately from other motions and that "it shall not be presented to the Court unless, within 21 days after service of the motion, . . . the challenged . . . claim is not withdrawn or appropriately corrected." FED. R. CIV. P. 11(c)(1)(A). Defendant filed his motion separately and sent plaintiff and his counsel a letter giving them twenty-one days to withdraw their claims, which they did not; defendant therefore complied with the provisions of Rule 11(c)(1)(A)
A district court may impose Rule 11 sanctions even if it lacks subject matter jurisdiction over a dispute. See Willy v. Coastal Corp., 915 F.2d 965, 966 (5th Cir. 1990), citing Cooter Gell v. Hartmarx Corp., 496 U.S. 384, 110 5. Ct. 2447 (1990) Therefore, if this Court finds that plaintiff and his counsel violated Rule 11, it must impose sanctions even though it has dismissed plaintiff's claims. In determining whether counsel or a represented party has violated Rule 11, courts apply an objective standard of reasonableness under the circumstances. Smith v. Our Lady of the Lake Hospital, Inc., 960 F.2d 439, 444 (5th Cir. 1992); Thomas v. Capital. Sec. Servs., Inc., 836 F.2d 866, 873 (5th Cir. 1988). "An attorney's good faith is no longer enough to protect him from . . . sanctions." Thomas, 836 f.2d at 873. "Rule 11 applies to each and every paper signed during the course of the proceedings and requires that each filing reflect a reasonable inquiry." Id. at 875. Once a court finds that counsel or a party has violated Rule 11, the imposition of sanctions is mandatory. See id. at 876. If the Court does impose sanctions, however, it has considerable discretion in fashioning appropriate sanctions, even though the rule expressly provides for attorneys' fees and reasonable expenses. See id. at 877.
Although defendant claims that the conduct of plaintiff and his counsel violated several provisions of Rule 11, as stated above, this Court finds no evidence that this suit was initiated in bad faith or in order to harass or retaliate against defendant. See discussion supra Part E. The real issue is whether the allegations in the complaint had evidentiary support or were likely to have it after a reasonable opportunity for discovery and investigation. See FED. R. CIV. P. 11(b)(3).
Under Rule 11(b)(3), plaintiff and his counsel had a duty to make a reasonable investigation into the basis of the complaint at the time it filed the suit. See International Shipping Co. v. Hydra Offshore, Inc., 875 F.2d 388, 390-91 (2d Cir. 1989). Because this Court must employ the "snapshot" approach in examining the conduct at issue, a finding that, in hindsight, the basis of plaintiff's federal claim was erroneous or tenuous does not warrant the imposition of sanctions. See Smith, 960 F.2d at 444. In assessing whether plaintiff and his counsel made a reasonable factual inquiry into the basis of the complaint, this Court may consider a number of factors, including: (1) the time available to counsel for investigation; (2) the extent he relied on his client for the factual support of the allegations; (3) the feasibility of prefiling investigation; (4) the complexity of the factual and legal issues; and (5) the extent to which the development of factual circumstances underlying the claim required discovery. See id.; Thomas, 836 F.2d at 875-76. Considering the foregoing factors, this Court does not find that the conduct of plaintiff and his counsel violated Rule 11 at the time they filed this suit.
First, as discussed above, an attorney whose primary business is not debt collection and who does not regularly engage in collection activities is not a debt collector. Thus, the factual issues involved in determining whether defendant was a debt collector under the Act are fairly straightforward. Second, it appears that plaintiff and his counsel had about seven months in which to investigate the basis for this allegation. Maraldo sent plaintiff the letter in which he stated that he was a debt collector on February 11, 1999, and filed his state court petition against plaintiff on March 17, 1999, in which he also stated he was a debt collector. Plaintiff and his counsel then filed this federal proceeding on October 27, 1999. In doing so, counsel relied on defendant's own statements in the letter and state court petition. Defendant asserts that a prefiling investigation was feasible, because, if asked, he would have provided plaintiff and his counsel information and documentation proving that he is not a debt collector under the FDCPA. Clemenz admits that at the time he filed plaintiff's complaint, he had made no inquiry into whether defendant was a debt collector under the Act, beyond accepting defendant's self-characterization. He explains — quite reasonably — that defendant first put his status as a debt collector An issue in his motion for summary judgment. Last, at the time plaintiff and his counsel filed the complaint, they had no reason to suspect that defendant was not a debt collector.
Although plaintiff and his counsel had sufficient time in which to conduct a prefiling investigation into a relatively straightforward factual contention, the remaining factors indicate that they reasonably believed the allegations had evidentiary support or were likely to have it at the time they filed plaintiff's complaint. Although defendant's statements that he was a debt collector do not automatically bring him under the FDCPA, the Court finds that it was plausible for plaintiff and his counsel to believe he was a debt collector. Accordingly, the Court declines to impose sanctions on Franco or Clemenz.
III. Conclusion
For the foregoing reasons, plaintiff's motion for reconsideration is denied, and defendant's motions for attorneys fees under § 1692k(a)(3) and for Rule 11 sanctions are denied.
New Orleans, Louisiana, this 15th day of March, 2000.