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Shetiwy v. Midland Credit Management

United States District Court, Second Circuit

September 19, 2013


Phillip Jaffe, Esq. New York, NY, George Bassias, Esq. Astoria, NY, for Plaintiffs.

Andrew A. Ruffino, Esq., Covington & Burling LLP, New York, NY, Robert D. Wick, Esq. Laura Brookover, Esq., Henry Liu, Esq. Covington & Burling LLP, Washington, DC for Defendant Chase Bank USA, N.A.

Casey D. Laffey, Esq., Brian S. Goldberg, Esq., Reed Smith LLP, New York, NY, for Defendant Midland Credit Management, Inc.

Donald S. Maurice, Jr., Esq., Rachel Marin, Esq., Thomas R. Dominczyk, Esq., Maurice & Needleman, PC, Flemington, NJ, For Defendants Cavalry Portfolio Services, LLC and Equable Ascent Financial, LLC.

Jonathan J. Greystone, Esq., Spector Gadon & Rosen, PC, Philadelphia, PA, for Defendant CACH, LLC.

W. Raley Alford, III, Esq., Stanley, Reuter, Ross, Thornton & Alford LLC, New Orleans, LA, for Defendant Debt One, LLC.

Concepcion A. Montoya, Esq., Hinshaw & Culbertson LLP, New York, NY, for Defendant LVNV Funding, LLC.

Aaron R. Easley, Esq., Sessions, Fishman, Nathan & Israel, LLC, Flemington, NJ, Kevin Barry McHugh, Esq., Law Offices of Edward Barfinkel, Brooklyn, NY, for Defendants NCO Financial Systems, Inc., and Capital Management Services.

Jill M. Wheaton, Esq., Dykema Gossett PLLC, Ann Arbor, MI, Richard David Lane, Jr., Esq., Marshall, Dennehey, Warner, Coleman & Goggin, New York, NY, for Defendant Asset Acceptance LLC.

Gillian I. Biron, Esq. S. Elaine McChesney, Esq. (pro hac vice) Jonathan M. Albano, Esq. (pro hac vice) Bingham McCutchen LLP, New York, NY, for Defendants Bank of America, N.A. and FIA Card Services, N.A.

Christopher W. Madel, Esq., (pro hac vice) Jennifer M. Robbins, Esq., (pro hac vice) Robins, Kaplan, Miller & Ciresi LLP, Minneapolis, MN, Oren D. Langer, Esq., Robins, Kaplan, Miller & Ciresi LLP, New York, NY, for Defendant Portfolio Recovery Associates, LLC.

Carmine D. Boccuzzi, Jr., Esq., Lauren K. Handelsman, Esq., Cleary Gottlieb Steen & Hamilton LLP, New York, NY, for Defendant American Express Company.

John E. Brigandi, Esq., The Salvo Law Firm, PC, Fairfield, N.J. Defendant ARS National Services, Inc.

Michael D. Hynes, Esq., DLA Piper LLP (US), New York, NY, for Defendant GE Capital Consumer Lending, Inc.

Mark P. Ladner, Esq., David J. Fioccola, Esq., Jessica L. Kaufman, Esq. Morrison & Foerster LLP, New York, NY, for Defendants Capital One Financial Corp. and Capital One Financial Advisors, LLC.

Stephen C. Robinson, Esq., Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY, for Defendants Citigroup, Inc. and Citibank, N.A.


SHIRA A. SCHEINDLIN, District Judge.


Plaintiffs in this putative class action begin their Amended Complaint with the following statement:

The purpose of this lawsuit is to correct the Fifth and Fourteenth Amendment Due Process abuses that have occurred over many years in the State Courts throughout the United States Court systems by principals, the debt collection companies that the principals have sold the debt to and the attorneys who represent those entities. In the debt collection process the Defendants have made the court systems of this country appear as if the courts were the O.K. Corral complete with Wild West shows, robo-signing, and an anything goes approach and other adjectival descriptions that are morally reprehensible, indefensible and vomitous.
More repugnant than the above, other than some outspoken judges, the impropriety has been well known and tolerated within the legal community for a lengthy period of time and has up to this point in time has not been addressed or confronted. Whether this Class Action Lawsuit is successful or not is secondary to the overall purpose of this action which is to expose the criminal and civil violations and those violations which have caused great suffering to the victims by the principals, the debt collectors and their attorneys against citizens of the United States. [1]

Many of the legal arguments and factual allegations in plaintiffs' eighty-eight page Amended Complaint are difficult to discern. A significant portion of the Amended Complaint consists of text copied and pasted, sometimes without citation, from newspaper articles.[2]

Defendants now move collectively to dismiss plaintiffs' claims pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6).[3] For the reasons stated below, defendants' motion is granted, in part with leave to amend.


A. Rule 8

Under Federal Rule of Civil Procedure 8, a pleading must contain "a short and plain statement of the claim showing that the pleader is entitled to relief."[4] "Such a statement must... give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests.'"[5] "Each allegation must be simple, concise, and direct."[6]

Although the Second Circuit has "noted in pro se cases that dismissal is disfavored unless the complaint is so confused, ambiguous, vague, or otherwise unintelligible that its true substance, if any, is well disguised, ' the underlying rationale for that pronouncement has significantly less force when a party is represented by counsel."[7] "[P]rolix, unintelligible, speculative complaints that are argumentative, disjointed and needlessly ramble have routinely been dismissed in this Circuit."[8] "When the court chooses to dismiss, it normally grants leave to file an amended pleading that conforms to the requirements of Rule 8."[9]

B. Rule 12(b)(6)

In deciding a motion to dismiss pursuant to Rule 12(b)(6), the court must "accept[] all factual allegations in the complaint as true, and draw[] all reasonable inferences in the plaintiff's favor."[10] The court may evaluate the sufficiency of a complaint under a "two-pronged approach" described by the Supreme Court in Ashcroft v. Iqbal. [11] First, "[a] court can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth.'"[12] "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice" to withstand a motion to dismiss.[13] Second, "[w]hen there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief."[14]

With regard to the second prong, "only a complaint that states a plausible claim for relief survives a motion to dismiss."[15] "Determining whether a complaint states a plausible claim for relief [is]... a context-specific task that requires the... court to draw on its judicial experience and common sense."[16] A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged."[17] Plausibility "is not akin to a probability requirement, " but requires "more than a sheer possibility that a defendant has acted unlawfully."[18] For the purposes of a 12(b)(6) motion, "a district court may consider the facts alleged in the complaint, documents attached to the complaint as exhibits, and documents incorporated by reference in the complaint."[19]

Plaintiffs in this case do not appear pro se, and thus their pleadings are not considered under the more lenient standard applied to pro se pleadings.[20]

C. The Rooker-Feldman Doctrine and Ordinary Claim and Issue Preclusion

Under the Rooker-Feldman doctrine, federal district courts "lack subject-matter jurisdiction over claims that effectively challenge state-court judgments."[21] "Underlying the Rooker-Feldman doctrine is the principle, expressed by Congress in 28 U.S.C. § 1257, that within the federal judicial system, only the Supreme Court may review state-court decisions."[22] The Second Circuit has held that four requirements must be met before the Rooker-Feldman doctrine applies:

(1) the plaintiff lost in state court, (2) the plaintiff complains of injuries caused by the state court judgment, (3) the plaintiff invites district court review of that judgment, and (4) the state court judgment was entered before the plaintiff's federal suit commenced.[23]

Rooker-Feldman does not "stop a district court from exercising subject-matter jurisdiction simply because a party attempts to litigate in federal court a matter previously litigated in state court, " nor does it apply to a federal plaintiff who "present[s] some independent claim... that denies a legal conclusion that a state court has reached in a case to which he was a party.'"[24] "[A] federal suit complains of injury from a state-court judgment, even if it appears to complain only of a third party's actions, when the third party's actions are produced by a state-court judgment and not simply ratified, acquiesced in, or left unpunished by it."[25]

Even where Rooker-Feldman does not apply, plaintiffs' claims may still be "barred by ordinary preclusion principles."[26] That is, "the narrow Rooker-Feldman inquiry is distinct from the question whether claim preclusion (res judicata) or issue preclusion (collateral estoppel) will defeat a federal plaintiff's suit."[27] "Because the Full Faith and Credit Act, 28 U.S.C. § 1738, requires federal courts to accord state judgments the same preclusive effect those judgments would have in the courts of the rendering state, New York preclusion law applies."[28]

D. Leave to Amend

Whether to permit a plaintiff to amend its complaint is a matter committed to a court's "sound discretion."[29] Rule 15(a) provides that leave to amend a complaint "shall be freely given when justice so requires." "When a motion to dismiss is granted, the usual practice is to grant leave to amend the complaint."[30] Leave to amend should be denied when the proposed amendment would be futile.[31]


The fifteen named plaintiffs claim that they were sued by one or more of defendants, or that their credit reports were negatively affected by defendants' claims, or that they received letters from defendants regarding claims.[32] Plaintiffs divide defendants into two groups: "Principals, " that is, creditors and affiliates of those creditors, such as Bank of America, N.A. and its affiliate FIA Card Services, N.A.; and "Debt Collection Companies, " or businesses that buy or collect on debts, such as Asset Acceptance LLC.[33] I will follow defendants' convention and refer to the former group as "Creditor Defendants" and the latter group as "Debt Buyer Defendants."[34]

Plaintiffs allege that defendants conspired to collect debts though "fraudulently obtained judgments of default" in state courts around the country.[35] Specifically, plaintiffs allege that the Creditor Defendants sold debt for pennies on the dollar that they had previously written off for tax purposes.[36] Then the Debt Buyer Defendants allegedly obtained judgments for default through fraudulent acts, including: (i) submitting affidavits containing statements of facts that were untrue or that were not based on the affiant's personal knowledge; (ii) failing to disclose how defendants calculated the amount of debt owed; (iii) proceeding without notifying plaintiffs that their debt had been assigned; (iv) suing on the full amount of debt even though the creditors had "already charged off a good portion of the debt for their tax advantage, " and (v) amending "the terms of [their] contract[s] with... consumer[s] after the litigation [had] begun."[37] Finally, plaintiffs allege that defendants' conduct is part of a larger pattern whereby debt collectors and creditors harass debtors and overwhelm the courts by filing thousands of debt collection suits based on false affidavits and inadequate documentation.[38]

Plaintiffs request injunctive relief and damages based on a wide variety of legal theories, including: (i) the Racketeer Influenced and Corrupt Organizations Act ("RICO");[39] (ii) the Fifth and Fourteenth Amendments of the United States Constitution;[40] (iii) the FDCPA;[41] (iv) unjust enrichment;[42] (v) intentional infliction of emotional distress;[43] (vi) fraud;[44] (vii) Section 349 of the New York General Business Law;[45] and (viii) Section 487 of the New York Judiciary Law.[46] Plaintiffs seek to represent the following class:

All persons in the United States who[] had Principals and their agent Debt Collection Companies use fraudulent papers to bring them into Court and then furthered their illegal action by presenting further fraudulent papers to Court and had the Principals and the Debt Collection Companies knowingly use their expertise in those papers to seize illegal gains from unknowledgeable citizens who were brought to Court and had their money taken (stolen) from them using illegal tactics - under the cover of so-called legality of process.[47]

In plaintiffs' words, "the center of this action... is that... attorneys on an everyday basis proceeded to court and provided perjured testimony and offered the court perjured documentary evidence."[48]


A. Due Process Claims

Plaintiffs' due process claims under the Fifth and Fourteenth Amendments are dismissed with prejudice because defendants are not state actors.[49]

B. FDCPA Claims

1. Creditor Defendants

"The FDCPA prohibits debt collector[s]' from using any false, deceptive, or misleading representation or means in connection with the collection of any debt.'"[50] The Creditor Defendants are not "Debt Collectors" for purposes of the FDCPA. "As a general matter, creditors are not subject to the FDCPA."[51] Plaintiffs do not allege that the Creditor Defendants attempted to collect on their debts under names indicating "that a third person is collecting or attempting to collect such debts, "[52] and no other exception to the general exclusion of creditors from the FDCPA applies. Thus, plaintiffs' FDCPA claims against the Creditor Defendants are dismissed with prejudice.

2. Debt Buyer Defendants

a. Rooker-Feldman

To the extent that plaintiffs allege injuries caused by faulty state court judgments and seek to vacate those judgments, [53] plaintiffs' claims are barred by the Rooker-Feldman doctrine, which states that federal district courts "lack subject-matter jurisdiction over claims that effectively challenge state-court judgments."[54] A federal court class action is not the appropriate avenue for redress from a state court judgment obtained through fraud. "Under New York law, [t]he remedy for fraud allegedly committed during the course of a legal proceeding must be exercised in that lawsuit by moving to vacate the civil judgment (CPLR 5015(a) (3)), and not by another plenary action collaterally attacking that judgment.'"[55]

However, plaintiffs' claims are not based only on injuries caused by state court judgments, and plaintiffs do not seek only to vacate such judgments. The litigation misconduct alleged by plaintiffs, such as the repeated submission of false affidavits, "was not the product of the state court's [judgment], or any other decision rendered, but rather, was simply ratified, acquiesced in, or left unpunished by [the state court judgment].'"[56] Thus, Rooker-Feldman does not bar plaintiffs' suit in its entirety.

b. "Debt Collectors"

Plaintiffs have adequately alleged that the Debt Buyer Defendants are "debt collectors" under the FDCPA. Although the Amended Complaint does not specifically allege with regard to each of plaintiff's debts that the debt had defaulted when the Debt Buyer Defendant obtained the debt, plaintiffs make this allegation generally, [57] and it can be reasonably inferred from plaintiffs' allegations that each of the Debt Buyer Defendants "regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another."[58]

c. Harassment or Abuse

"The FDCPA generally forbids collectors from engaging in unfair, deceptive, or harassing behavior, " including but not limited to examples of such behavior listed in the FDCPA.[59] Harassment or abuse is prohibited under 15 U.S.C. § 1692d. The Amended Complaint makes conclusory and formulaic allegations that two plaintiffs received harassing calls and mailings, but these allegations fail to plead a plausible violation sufficient to withstand dismissal under Rule 12(b)(6). Indeed, one allegation fails to state who made the harassing communications, or what they were about.[60]

d. Notice

"The New York Court of Appeals has held that [a] debtor, in order to be charged with a duty to pay a debt to an assignee, must first have actual notice of the assignment.'"[61] At least one court has held that a debt collector who sued a debtor without first giving actual notice of assignment could be liable under the FDCPA.[62] Several plaintiffs make unclear allegations that they were sued without first receiving requisite notice, but these allegations are insufficient to state a plausible claim under the FDCPA. For example, the Amended Complaint alleges that Amal Shetiwy's attorney stated in court that she was never given notice of the assignment of her alleged debts from Bank of America to CACH. But the Amended Complaint also states that Shetiwy received several calls and a letter from CACH prior to the lawsuit.[63] The Amended Complaint does not explain how these communications failed to put Shetiwy on notice that her alleged debts had been assigned to CACH.

Similarly, the Amended Complaint alleges that Louis Yeostros received "at least one letter from Chase and Equable before the lawsuit, " but that "there was no documentation attached to the letters or the lawsuits in support of a valid assignment having been made."[64] Because the Amended Complaint does not allege that the letter or letters Yeostros received before the lawsuit or lawsuits failed to provide actual notice of the assignment of Yeostros's debt to Equable, Yeostros does not have a claim under the FDCPA.[65]

In general, the Amended Complaint appears to be premised on the notion that collection actions are invalid unless the original creditor for a debt provides prior notice to the debtor of the assignment of the debt, with a variety of documentation including a copy of the "signature card, " a copy of the cardholder agreement, and perhaps an affidavit.[66] Plaintiffs have provided no legal support for this theory of notice.[67]

e. Statute of Limitations

In addition, claims under the FDCPA must be brought "within one year from the date on which the violation occurs."[68] Plaintiffs filed this action on September 19, 2012. The Debt Buyer Defendants argue that allegations relating to the following incidents are time-barred: the October 2010 suit against Shetiwy, the February or March 2006 suit against Murphy, and the 2007 and 2008 judgments against Ahmed Hassan.[69] Plaintiffs argue that the equitable tolling doctrine preserves these claims.

"A statute of limitations may be tolled in extraordinary circumstances, if a plaintiff establishes that: (1) the defendant concealed from him the existence of his cause of action; (2) he remained in ignorance of that cause of action until some length of time within the statutory period before commencement of his action; and (3) his continuing ignorance was not attributable to lack of diligence on his part."[70] Shetiwy has not alleged that CACH concealed the existence of the October 2010 suit. Indeed, she appeared with counsel during the suit.[71] As a result, her FDCPA claim relating to the October 2010 suit is time-barred. Murphy alleges that he never received service in the 2006 suit and only became aware of the suits after he discovered evidence of the 2011 judgments in his credit report. He does not allege, however, that LVNV concealed the existence of any suits from him, he acknowledges that he received "various mailings" and phone calls, and he does not allege that he only became aware of the 2006 suits after September 19, 2011.[72] As a result, his FDCPA claims are time-barred. Hassan's claims are time-barred because he does not allege that he was unaware of the suits until after September 19, 2011.[73]

f. Mass. Filings Containing Misrepresentations

The mass filing of form affidavits and other submissions containing false or deceptive representations about the status and character of a debt may, under certain circumstances, give rise to an actionable FDCPA claim.[74] But the Second Circuit has cautioned in Gabriele v. American Home Mortgage Servicing, Inc. that "the protective purposes of the FDCPA typically are not implicated when a debtor is instead protected by the court system and its officers.'"[75] The plaintiff in that case, Gabriele - who, unlike some of the plaintiffs in this case, appeared in court for his collection action and was represented by an attorney - alleged that a law firm had violated various procedural rules and deadlines set by the court, and that the law firm

falsely stated that it had forwarded both exhibits to the complaint; submitted an affidavit incorrectly representing that there were no set-offs or counterclaims; filed an unsigned affidavit; and misrepresented that Gabriele was ineligible for a federal loss mitigation program when in fact he was under consideration for such a program in mediation.[76]

Some of the litigation misconduct alleged in the Amended Complaint comes closer to a plausible claim under the FDCPA than the allegations in Gabriele. Nevertheless, while there is little doubt that at least some of the debt collection litigation practices described in the newspaper accounts pasted into the Amended Complaint would constitute violations of the FDCPA, plaintiffs have failed to plead such violations in their own cases with sufficient clarity to satisfy the minimal pleading standards of Rule 8, and lack standing to bring suits based on alleged injuries suffered by others.

g. Noerr-Pennington

Finally, I reject the Debt Buyer Defendants' argument that plaintiffs' FDCPA claims are barred by the Noerr-Pennington doctrine, which "generally immunizes from liability a party's commencement of a prior court proceeding."[77] Traditionally invoked in the context of antitrust litigation, the doctrine "protects under the First Amendment efforts to influence governmental action through litigation, lobbying, and the like. Such activities are immunized from antitrust liability, provided the activities are more than a mere sham.'"[78]

In the antitrust context, the "sham exception" applies "where the litigation is (1) objectively baseless' and (2) intended to cause harm to the defendant through the use [of] governmental process - as opposed to the outcome of that process.'"[79] More generally, the sham exception "excludes any abuse of process that bars access to the courts, such as "unethical conduct in the setting of the adjudicatory process or the pursuit of a pattern of baseless, repetitive claims."[80]

To the extent that the Noerr-Penington doctrine applies at all to FDCPA claims based on litigation misconduct by debt collectors, [81] Debt Buyer Defendants' alleged practice of "[u]sing fraudulent, deceptive, and misleading affidavits and affirmations to obtain default judgments against Plaintiffs, " including by "filing false attorney affirmations stating that service of the summons and complaint has been made, when in fact it was not, " would place Debt Buyer Defendants' suits under the sham exception.[82]

C. RICO Claims

The Amended Complaint asserts a claim against all defendants under Section 1962(a) of the RICO statute.[83] Plaintiffs apparently concede that the Amended Complaint fails to state a claim under Section 1962(a), because their opposition to defendants' motion to dismiss instead appears to assert a claim under Section 1962(c).[84] Under either section, the Amended Complaint fails on numerous grounds to state a plausible claim under Rule 9(b), which requires allegations of fraud to be "stated with particularity."[85] Above all, plaintiffs' conclusory allegations "fail to make any concrete factual assertions as to the mechanics of the interactions among defendants."[86]

D. State Law Claims

"Under 28 U.S.C. § 1367(c)(3), the Court may decline to exercise jurisdiction over any non-federal claims if it has dismissed all of the claims over which it has original jurisdiction."[87] Because I have dismissed all of plaintiffs' claims under federal law, I decline to exercise supplemental jurisdiction over plaintiffs' state law claims.


For the foregoing reasons, defendants' motion to dismiss is granted. Plaintiffs are granted leave to amend except with regard to (1) their due process claims, (2) their FDCPA claims against the Creditor Defendants, and (3) their attempts to challenge and vacate state court judgments. These pleadings are legally invalid for the reasons stated above, and amendment would be futile.

If plaintiffs choose to file a Second Amended Complaint, they must do so by October 20, 2013. In order to avoid being dismissed with prejudice, I emphasize that plaintiffs' Second Amended Complaint must comply in full with Rule 8 and Rule 9(b), as well as Rule 11, which prohibits frivolous legal arguments and sets minimum standards for factual contentions.[88] If plaintiffs' Second Amended Complaint displays the confused, unintelligible, argumentative, speculative, or rambling qualities of plaintiffs' Amended Complaint, the Second Amended Complaint will be dismissed without leave to amend.

The Clerk of the Court is directed to close defendants' motion and the motion of DebtOne, LLC [Dkt. Nos. 70-71].


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