Summary
noting in the context of the relation-back doctrine that "the test is not simply whether the events giving rise to the different complaints occurred at about the same time"
Summary of this case from France v. Cnty. of WestchesterOpinion
No. 3:97CV1969 (RNC)
September 3, 1999
RECOMMENDED RULING ON PENDING MOTIONS
Numerous motions are pending before the court in this putative class action filed under the Fair Debt Collection Practices Act ("FDCPA"). Because the court concludes that the plaintiff's claims are barred by the statute of limitations, however, the court reaches only the motions for summary judgment as they are dispositive of the entire case. The court recommends that the defendants' motions for summary judgment be GRANTED and the plaintiff's motion be DENIED.
The pending motions are: plaintiff's motion to certify the class (doc. #58), ACB's motion for a more definite statement (doc. #69), plaintiff's motion for partial summary judgment (doc. #141), Wurcel's motion for summary judgment (doc. #144), ACB's motion for summary judgment (doc. #150), Century's motion for summary judgment (doc. #154), defendants' motions for reconsideration of this court's order dated 7/19/99 (doc. ## 183, 187)
I. BACKGROUND/PROCEDURAL HISTORY
Only those facts and procedural history which are relevant to this ruling are set forth.
The plaintiff filed a timely complaint on September 16, 1997. In his complaint, he alleged that the defendants violated the FDCPA, 15 U.S.C. § 1692e, 1692e(2)(A), 1692e(10) and 1692f by falsely and deceptively seeking payment for claimed debts that were in excess of reasonable amounts and not legally enforceable. Specifically, the plaintiff averred the following operational facts in his original complaint:
13. On or about September 18, 1996, the plaintiff received a collection letter from Associated attempting to collect a purported $28.50 balance of a bill allegedly owed to Yale-NH Hospital. A copy of the letter is attached as Exhibit A.
14. On information and belief, Century was also involved in sending the letter.
15. Plaintiff received medical services at Yale-NH Hospital pursuant to a pursuant to a contract with Physician's Health Services ("PHS")
16. Under the contracts with PHS, Yale-NH Hospital agreed to accept the amounts paid by PHS as full compensation for its services.
17. The reason that PHS did not pay the bill in full was that it exceeded the amounts which PHS determined to be reasonable and appropriate for medically necessary services provided to plaintiff.
18. The $28.50 balance of the bill is due to the partial denial by PHS.
19. Notwithstanding the contract between Yale-NH and PHS not to seek payment from PHS patients of amounts disallowed by PHS, Yale-NH sent the bill to Associated and/or Century for collection.
20. On information and belief, plaintiff has no legal liability for the services provided to him beyond the amounts allowed by PUS.
21. Plaintiff alleges that many other individuals are billed by Associated and Century for amounts determined to result from excessive or medically unnecessary charges or for which they are not contractually liable.
POLICIES AND PRACTICES COMPLAINED OF
22. It is the policy and practice of defendants to dun consumers for purported medical debts representing sums which private or Governmental insurance and benefits programs have rejected as excessive, unreasonable, or for which the provider has agreed to take a certain amount as payment in full.
23. Collection letters sent in furtherance of such efforts falsely represent to the recipients the amount and legal status of the debt, in that:
a. They represent that the patient owes the money: "since medical services have been rendered to you [McCarthy] in good faith perhaps there is a good reason why this debt is outstanding. Yale-New Haven Hospital urges you to send you (sic) full payment directly to Yale-New Haven Hospital," and
b. They conceal the material fact that defendants are seeking amounts in excess of those determined to be reasonable compensation for the medically necessary services provided.
24. Defendants knew or should have known that the $28.50 claimed on the bill was not a legally enforceable debt of plaintiff.
25. Defendants' deceptive and unfair collection practices violate the FDCPA, 15 U.S.C. § 1692d 1692e(2)(A), 1692e(10, and 1692f.
On January 4, 1999, well after the statute of limitations had expired, the plaintiff filed what he captioned as his "Second Amended Complaint" (doc. #76). The complaint does not re-allege the facts quoted above, but rather, alleges for the first time that the Hospital, ACB and Century engaged in an illegal "flat rating" scheme. Specifically, the operational facts as set forth in the amended complaint are as follows.
Although the plaintiff captioned doc. #76 as his "Second Amended Complaint," it is in fact the first amended complaint. On September 21, 1998, the plaintiff moved for permission to file an amended complaint but his request was denied. See doc. #49.
"A flat-rater" is someone who sells a creditor a series of dunning letters bearing the letterhead of the flat rater's collection agency. See Sokolski v. Trans Union Corp., ___ F. Supp.2d ___, 1999 WL 329758, at *4 (E.D.N.Y. May 21, 1999). The collection agency is not actually involved in the collection of the debts — it only sells the creditor the collection letters.See id. The FDCPA prohibits "flat rating" and makes it unlawful to furnish any form used to create a false belief that at third party is involved in the collection of a debt when in fact it is not. See id.; 15 U.S.C. § 1692j.
ACTS AND PRACTICES COMPLAINED OF
17. On or about September 18, 1996, plaintiff received a collection letter from Associated attempting to collect a purported $28.50 balance of a bill allegedly owed to Yale-NH Hospital. A copy of the letter is attached as Exhibit A.
18. The form letter represented by Exhibit A was designed to create a visual impact on the unsophisticated consumer, upon opening the letter, to the effect that his or her account had been referred to a collection agency, when that was not the case.
19. The top of the letter features the letterhead and emblem of ACB and appears to be a letter sent by a collection agency actually involved in the collection of a debt.
20. The body of the letter is filled with various notices and warnings that collection agencies are required to include by federal and state law.
21. The bottom of the letter also contains the language required to be included by collection agencies: "THIS IS AN ATTEMPT TO COLLECT A DEBT. ANY INFORMATION OBTAINED WILL BE USED FOR THAT PURPOSE."
22. If the recipient reads the text of the letter, he is referred to Yale-NH Hospital for inquiries, and is directed to send payment to Yale-NH Hospital. There is no phone number to contact Associated. Associated, and its owner, Century, are not authorized to receive or process payments received in response to the "pre-collection" letter, and any payments received directly from debtors are forwarded directly to Yale-NH Hospital.
23. Employees of Century/Associated were involved in sending the letter.
24. Plaintiff alleges that many other individuals have received the "pre-collection" letters received by plaintiff from Associated.
25. It is the policy and practice of defendants to dun consumers for purported medical debts using pre-collection" letters that create the impression that a third party collection agency has been retained to pursue payment of the debt (i.e., through phone calls, reports to credit agencies, etc.). In fact, Associated and Century are authorized to do nothing more than send the letter.
26. Collection letters sent in furtherance of such efforts falsely represent to the recipients that a collection agency has actually been retained, subjecting the patient to collection activity and risks to their credit, when in fact, no collection activity is actually underway.
27. Associated charges Yale-NH Hospital one dollar per letter sent out. Associated is not authorized to perform any other collection activity other than to send out the pre-collection letter. Everything relative to the pre-collection service is directed back to the client-hospital.
28. At the time the letters in the form represented by Exhibit A were mailed, Associated, and its owner, Century, had not undertaken to perform any collection services for Yale-NH Hospital with respect to the debt, other than permit Associated's name to be used on the form letter.
29. Yale-NH Hospital sends Associated a computer disk with debtor information for the "pre-collection" letters. The information is then integrated with a form letter, and the letters are sent.
30. "Pre-collection" letters of this nature are sold for a flat sum per account (in this case, $1 per letter sent) and are used because "it's more effective with some patients than letters from the doctor" or other health care provider. Medical Economics, September 17, 1990, vol. 67, no. 18, p. 83. The reason it is "more effective" is that it suggests that a collection agency is involved. In the meantime, the creditor does not have to pay a contingency fee on any payments received, thereby increasing its net recovery.
31. Defendants' deceptive and unfair collection practices violate the FDCPA, 15 U.S.C. § 1692e, 1692e(5), 1692e(10) and 1692j.
II. STANDARD OF REVIEW
A party is entitled to summary judgment if the pleadings, depositions, answers to interrogatories, admissions, together with affidavits, show that there is no genuine issue as to any material fact and that the party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c). Summary judgment is not appropriate where, based on the evidence, a reasonable jury could return a verdict for the nonmoving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The party seeking summary judgment bears the burden of showing the absence of any genuine dispute of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986)
The plaintiff and defendants both raise grounds which they assert entitle to them to summary judgment. The plaintiff argues that he is entitled to judgment because the defendants' practices violate the FDCPA as a matter of law. The defendants jointly argue that the plaintiff's claims are barred by the statute of limitations and that the defendants are entitled to a bona fide error defense. The Hospital also argues that it is not a debt collector under the FDCPA. Wurcel (the president of both ACB and Century) argues that the plaintiff has failed to allege or demonstrate that he was personally involved in the debt collection process. ACB maintains that it did not violate the FDCPA because it was meaningfully involved in the collection of a debt and Century asserts that there are genuine issues of material fact as to whether it can be held liable for the actions of its subsidiary, ACB. As stated above, the court reaches only the statute of limitations issue because it is dispositive of the case.
III. DISCUSSION
There is a one year statute of limitations for claims brought under the FDCPA. See 15 U.S.C. § 1692 (d). Thus, in order for the plaintiff's amended complaint (which was filed more than 2 years after the transaction in question occurred) to survive a statute of limitations challenge, the amendment must "relate back" to the initial complaint.
The defendants claim that the plaintiff's amended complaint is barred by the statute of limitations because the allegations in the second complaint do not "relate back" to the first. They argue that the amended complaint is not based on the same core set of operative facts as those set forth in the original complaint. The plaintiff, on the other hand, maintains that the allegations in the amended complaint are not time barred because both complaints center around the collection letter received on or about September 18, 1996 and the amended complaint merely sets forth an alternative legal theory of recovery.
Generally, the statute of limitations stops running when a complaint is filed. See Fed.R.Civ.P. 3; Holbridge v. Heyer Schulte Corp. of Santa Barbara, 440 F. Supp. 1088, 1093 (N.D.N Y 1977). In some cases, however, an amended complaint which is filed after the statute of limitations has otherwise expired relates back" to the initial filing and will survive a time bar. Fed.R.Civ.P. 15(c) provides in pertinent part:
An amendment of a pleading relates back to the date of the original pleading when . . . (2) the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading. . . .
"The rationale underlying the relation-back doctrine is that one who has been given adequate notice of litigation concerning a given transaction or occurrence has been provided with all the protection that statutes of limitations are designed to afford."In re Chaus Securities Litigation, 801 F. Supp. 1257, 1264 (S.D.N.Y. 1992). A plaintiff is generally permitted to amend his complaint after the statute of limitations has passed where he seeks to correct or elaborate upon the factual details as set forth in his original complaint. See id. "An amendment will not relate back if it sets forth a new set of operational facts; it can only make more specific what has already been alleged."Pruiss v. Bosse, 912 F. Supp. 104, 106 (S.D.N.Y. 1996)
If an amended complaint does not set forth a new cause of action, courts generally are liberal in finding that the later pleading relates back to the first. See Stevelman v. Alias Research. Inc., 174 F.3d 79, 87 (2d Cir. 1999). Where, however, an amended pleading sets forth a new cause of action, the pertinent inquiry is whether "the original complaint gave the defendant fair notice of the newly alleged claims." Wilson v. Fairchild Republic Co., Inc., 143 F.3d 733, 738 (2d Cir. 1997);See also Baldwin County Welcome Ctr. v. Brown, 466 U.S. 147, 150 n. 3 (1984). "The main inquiry under Fed.R.Civ.P. 15(c) is whether adequate notice has been given to the opposing party 'by the general fact situation alleged in the original pleading.'Holdridge v. Heyer-Schulte Corp. of Santa Barbara, 440 F. Supp. 1088, 1093 (N.D.N.Y. 1977)." Pruiss v. Bosse, 912 F. Supp. at 106.
In making the inquiry of whether adequate notice has been given, "the test is not contemporaneity." See Rosenberg v. Martin, 478 F.2d 520, 526 (2d Cir. 1973), cert. denied, 414 U.S. 872 (1973). In other words, the test is not simply whether the events giving rise to the different complaints occurred at about the same time. For example, in Rosenberg, the plaintiff, a convicted prisoner, alleged in his original complaint that the defendant Chief Inspector of Police "caused him to be convicted, by illegal means in lying and inflaming the public about [him] through various News Media and had deliberately fed the new media false information to slander and influence the courts, people and general public against [him]." Id. at 522 (internal quotation marks omitted). He later sought to amend his complaint to add a claim that shortly after he was arrested he was assaulted at police headquarters. The court held that the assault claim was barred by the statute of limitations even though the alleged assault occurred within a short time after the events giving rise to the original complaint. The court reasoned that even the most liberal reading of the complaint did not put the defendant on notice that the plaintiff was making a claim of physical assault. See id. Similarly, in this case, although the events giving rise to the claims in both versions of the complaint occurred during the same time period, the pertinent inquiry is whether the first complaint put the defendants on notice of what was alleged later in the amended complaint.
In many of the cases in which courts have found that an amended complaint relates back, the later pleading merely clarified or expanded upon the basic factual allegations of the original or simply altered a legal theory. For example, In re Chaus Securities litigation, 801 F. Supp. at 1264, the plaintiffs' alleged for the first time in their amended complaint that the defendants engaged in "accounting manipulations" in order to overstate their assets and income. In holding that the relation back doctrine enabled the amended complaint to survive the time bar, the court noted that the original complaint, while not specifically mentioning "accounts receivable," nevertheless provided the Chauses with sufficient notice of alleged financial and accounting manipulations such that the accounts receivable scheme alleged in the Amended Complaint is a "natural offshoot" of the "basic scheme" to defraud investors by misrepresenting the company's earnings and profitability. Id. In the present case, however, the allegations contained in the second complaint are not a "natural off shoot" of the "basic scheme" alleged in the original pleading. Rather, they are completely separate and distinct schemes. See also Stevelman v. Alias Research Inc., 174 F.3d at 86; In re Zsa Zsa Ltd., 106 F.R.D. 9, 13 (S.D.N.Y. 1985).
An amended complaint will not be found to relate back to the first complaint if it alleges a new set of operational facts. See Holdridge v. Heyer Schulte Corp. of Santa Barbara, 440 F. Supp. at 1093; Forzley v. Avco Corp. Elec. Div., 826 F.2d 974, 981-82 (11th Cir. 1987) (Fed.R.Civ.P. 15(c) not satisfied where first complaint was based solely on an alleged wrongful termination of an employment agreement before the expiration of a two year term; amended complaint was based on a claim for retroactive overtime pay that preceded the termination); Young v. Pick Hotels-Washington Corp., 420 F.2d 247, 249 (U.S. App. 1969) (no relation back where complaint and amended complaint arose out of separate transactions; first complaint was based on hotel's refusal to provide accommodations while amended complaint was based on the hotel's failure to honor a reservation).
In this case, the plaintiff asserts that the second set of allegations is not based on a new set of operational facts because "[t]he letter in the present case is the same in both the original and amended complaints. The amended complaint involves the same parties, and the same transaction, namely, the letter." The court is not persuaded. The operational facts that were alleged in the initial complaint concerned the contract between the Hospital and PHS and whether the amount the Hospital sought to collect was in excess of that contract. The gravamen of the plaintiff's original complaint was that the defendants were seeking to collect a debt that was unenforceable because it was in violation of a contract. The amended complaint, on the other hand, wholly abandons the claim that the amounts sought by the defendants were excessive or unreasonable — the gravamen of the second complaint is that the Hospital was improperly using ACB's name in an attempt to collect its own debts and that ACB allowed its name and letterhead to be used for such a purpose. See Holmes v. Greyhound Lines, Inc., 757 F.2d 1563, 1566 (5th Cir. 1985) (no relation back where allegations in first complaint are abandoned by the amended complaint). Although it is true that the original complaint alleged that the plaintiff received a letter from ACB, the reference to the letter was merely by way of background information and that reference alone is not enough. Compare In re Zsa Zsa Ltd., 106 F.R.D. at 12 ("The dispositive factor, however, is that ¶ 14 introduces an alleged breach of Gabor's service contract, a claim deriving from conduct which is different . . . Gabor's service contract was mentioned in the prior complaint only as an example of an intangible asset[.]")
Moreover, the two different sets of allegations are dependent upon entirely different facts and evidence. In Holmes v. Greyhound Lines, Inc., 757 F.2d at 1566, such a distinction persuaded the court that an amended complaint did not relate back to the first. In that case, the plaintiff's initial complaint alleged that an arbitration award should be set aside because the arbitrators engaged in improper conduct. After the statute of limitations expired, the plaintiff amended his complaint to focus entirely upon allegations that the union defendant breached its duty of fair representation. In holding that the amended complaint did not relate back to the first, the court noted that to recover under the first, the plaintiff would have to prove bias, fraud or prejudice. Under the amended complaint, however, proof of these elements was irrelevant and instead, the plaintiff was required to prove that the union defendant acted in bad faith or in an arbitrary and capricious manner. See id. Likewise, in this case, in order to prove the allegations as set forth in the first complaint, the plaintiff's evidence would focus almost entirely upon the contracts between the Hospital and various health insurers. The amended complaint, however, requires no proof of such contracts and instead, focuses on the relationships among the defendants and their involvement in various phases of the debt collection process. Cf. Benfield v. Mocatta Metals Corp., 26 F.3d 19, 23 (2d Cir. 1994) (where proof of one cause of action requires evidence of the same or similar wrongful acts of wrongdoing, later amendment relates back)
In summary, the court has carefully reviewed and compared the allegations set forth in the complaint and amended complaint. The plaintiff's initial complaint alleged no facts which possibly could have put the defendants on notice of his claims of flatrating. Even under the most liberal reading of the complaint, it cannot be said that the allegations in the amended complaint relate back to the original complaint. Because the new allegations were made well after the one year statute of limitations expired, the plaintiff's claims are time barred and the defendants are entitled to judgment as a matter of law.
IV. CONCLUSION
The court recommends that the defendants' motions for summary judgment (doc. ## 144, 150, 154) be GRANTED and the plaintiff's motion for summary judgment (doc. # 141) be DENIED.
Any party may seek the district court's review of this recommendation. See 26 U.S.C. § 636 (b) (written objections to proposed findings and recommendations must be filed within ten days after service of same); Fed.R.Civ.P. 6(a), 6(e) 72; Rule 2 of the Local Rules for United States Magistrate Judges, United States District Court for the District of Connecticut;Thomas v. Arn, 474 U.S. 140, 155 (1985); Frank v. Johnson, 968 F.2d 298, 300 (2d Cir. 1992) (failure to file timely objections to Magistrate Judge's recommended ruling waives further review of the ruling)