Opinion
Civil No. 05CV0171 JAH(RBB).
July 25, 2005
ORDER DENYING DEFENDANT'S MOTION TO DISMISS [DOC. # 6]
INTRODUCTION
Now before the Court is defendant Arrow Financial Services LLC's ("defendant") motion to dismiss filed pursuant to Federal Rule of Civil Procedure 12(b)(6). The matter has been fully briefed by the parties. After a careful consideration of the pleadings presented, and for the reasons set forth below, this Court DENIES defendant's motion.
BACKGROUND
The instant complaint, filed on January 28, 2005, seeks class action relief, including statutory damages and attorneys fees, based on alleged violations of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq, ("the Act"). See Compl. at 4-5. Plaintiff alleges defendant sent two collection letters to plaintiff, on April 30, 2004 and July 8, 2004, seeking to collect on a debt that had been charged off in 1992. Id. ¶¶ 7-11. The letters stated that:
[u]pon receipt of the settlement amounts and clearance of funds, and if we are reporting the account, the appropriate credit bureaus will be notified that this account has been settled.Id. ¶ 12. Plaintiff avers that:
the reference to credit bureaus is misleading because under [the Act], a credit bureau cannot report a debt charged off more than 7 years previously. The `promise' to notify credit bureaus cannot legally be carried out. Furthermore, the references to credit bureau reporting are misleading because they tell the unsophisticated consumer that payment or nonpayment of the claimed debt may impact the consumer's credit rating, when that is not true.Id. ¶ 13. According to plaintiff, defendant's statement in the letters violate sections 1692e(5) and 1692e(10) of the Act. Id. ¶ 14.
On February 25, 2005, defendant filed the instant motion to dismiss, seeking dismissal of the complaint for failure to state a claim upon which relief may be granted. Plaintiff filed an opposition to the motion on March 21, 2005. Defendant's reply brief was filed on March 30, 2005. This Court subsequently took the matter under submission without oral argument. See CivLR 7.1(d.I).
DISCUSSION
I. Legal Standard
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the sufficiency of the complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Dismissal of a claim under this Rule is appropriate only where "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Navarro, 250 F.3d at 732. Dismissal is warranted under Rule 12(b)(6) where the complaint lacks a cognizable legal theory or where it presents a cognizable legal theory yet fails to plead essential facts under that theory.Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984); Neitzke v. Williams, 490 U.S. 319, 326 (1989).
In reviewing a motion to dismiss under Rule 12(b)(6), the court must assume the truth of all factual allegations and must construe all inferences from them in the light most favorable to the nonmoving party. Thompson v. Davis, 295 F.3d 890, 895 (9th Cir. 2002); Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). When ruling on a motion to dismiss, the Court may consider the facts alleged in the complaint, documents attached to the complaint, documents relied upon but not attached to the complaint when authenticity is not contested, and matters of which the Court takes judicial notice.Parrino v. FHP, Inc., 146 F.3d 699, 705-06 (9th Cir. 1998);Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001).
The Court, not the jury, determines whether a collection letter violates the Act. Swanson v. Southern Oregon Credit Services, Inc., 869 F.2d 1222, 1225-26 (9th Cir. 1988); Terran v. Kaplan, 109 F.3d 1428, 1432 (9th Cir. 1997); see also Baker v. Citibank (South Dakota), N.A., 13 F.Supp.2d 1037, 1041 (S.D.Cal. 1988). The determination is conducted objectively through the viewpoint of the "least sophisticated debtor."Swanson, 869 F.2d at 1227. The least sophisticated debtor "standard is lower than simply examining whether particular language would deceive or mislead a reasonable debtor." Id.
2. Analysis
Defendant moves to dismiss the complaint on the grounds that the complaint fails to state a claim as a matter of law. Mot. at I-2. Specifically, defendant argues the letters (a) are not actionable under the Act because they do not contain an actual threat; (b) are not misleading or deceptive; and (c) comply with state and federal collection laws.
a. Actual Threat
Defendant initially contends the letters at issue "do not threaten to take action that cannot legally be taken or that is not intended to be taken" but, instead, simply "advise the debtor that if [d]efendant has made a credit report of an account's delinquency in the past, then upon settlement funds clearing [d]efendant will update that account's tradeline with the credit bureaus." Mot. at 6. Thus, defendant contends the complaint fails to state a claim because the letters do not contain an actual threat to inform the credit bureaus of settlement. Id. at 7 (citing Freyermuth v. Credit Bureau Services, Inc., 248 F.3d 767, 771 (8th Cir. 2001)).
In opposition, plaintiff contends that an actual or explicit threat need not be alleged because implied threats are actionable under the Act. Opp. at 6. Plaintiff disagrees with defendant's characterization of the holding in Freyermuth, arguing that theFreyermuth court did not find only actual threats actionable as defendant posits. See id. n. 4 (quoting Freyermuth, 248 F.3d at 771)). According to plaintiff, case authority supports his position. Id. at 6-7 (citing, inter alia, Baker v. G.C. Services Corp., 577 F.2d 775, 779 (9th Cir. 1982); Swanson v. Southern Ore. Credit Serv., 869 F.2d 1222, 1227-28 (9th Cir. 1988)).
In reply, defendant explains that the Freyermuth case did, in fact, find only actual threats actionable. See Reply at 4. TheFreyermuth court, after a review of the case authority on point, noted "[o]nly one court has found a violation of the Act in the absence of an express threat of litigation when a collector attempts to collect on a time-barred debt," thus finding that "in the absence of a threat of litigation or actual litigation, no violation of [the Act] has occurred." 248 F.3d at 771. Defendant also claims that the cases relied upon by plaintiff in support of his position are inapposite to the instant case because those cases involve flagrant and egregious implied threats, whereas, here, the letters do not contain such flagrant or egregious implications. Reply at 4-7.
This Court disagrees with defendant. The case authority cited by the parties clearly hold that implied threats, albeit flagrant and egregious implied threats, are actionable under the Act. See Baker, 577 F.2d at 779 (finding creation of the impression that legal action is possible actionable); Swanson, 869 F.2d at 1227-28 (implied threat to undertake complete investigation of debtor's employment and assets found actionable); see also Beasley v. Collectors Training Inst. Inc., 1999 U.S. Dist. LEXIS 13275 at *7-8 (N.D.Ill.) (ambiguous threats actionable); Gammon v. G.C. Servs. Partnership, 27 F.3d 1254 (7th Cir. 1994) (finding creation of the impression that defendant is closely associated with the government actionable);Russell v. Equifax A.R.S., 74 F.3d 30, 36 (2d Cir. 1996) (finding message that is open to inaccurate interpretation actionable). This Court finds that, even though the letters here do not contain an express threat to inform the credit bureaus of settlement, the implication that the status of the debt may have already been or may, at some later date, be submitted to the credit bureaus is actionable under the Act. Therefore, defendant's first argument fails.
b. Misleading or Deceptive
Defendant next argues that the letters are not misleading or deceptive based upon the least sophisticated debtor test. Mot. at 7-9. Defendant contends plaintiff's reading of the collection letters is "an unreasonable interpretation" of the content of the letters and "rely on a tortured interpretation . . . in an attempt to establish liability under [the Act]." Mot. at 8-9. Defendant points out that the least sophisticated debtor test is objective, not subjective, and, based upon an objective reading of the collection letters, the wording cannot be found to violate the Act. Id.
Plaintiff contends, in opposition, the wording in the letters mislead the unsophisticated debtor to believe, if the debtor settles the debt with defendant, the credit bureaus will place the information on the debtor's credit report and the information on the report would be favorable to the debtor. Opp. at 8. Because the credit bureaus may not report a debt that is over seven years old, plaintiff contends that the letters mislead the least sophisticated debtor to believe settling a seven year old or older debt would benefit the debtor's credit report when, in fact, no such benefit would inure. Id. at 809 (citing, inter alia, 15 U.S.C. § 1681c(a)(4) ("accounts placed for collection or charged to profit and loss which antedate the report by more than seven years" may not be reported by a credit bureau)). Plaintiff argues that to utilize defendant's interpretation of the wording in the letters requires the Court to assume, among other things, that the least sophisticated debtor (1) understands "`if we are reporting the account'" means defendant "`has made a credit report of an account's delinquency in the past;'" (2) knows defendant reported the account previously; and (3) is aware of the seven year statute of limitations on reporting debts. Opp. at 11-12. Plaintiff notes that the least sophisticated debtor test "`is lower than simply examining whether particular language would deceive or mislead a reasonable debtor.'" Id. at 12, n. 12 (quoting Swanson, 869 F.2d at 1227). Defendant, in reply, claims that the wording in the letters "means that the credit bureaus will only be noticed of settlement if [d]efendant is otherwise reporting the account." Reply at 7.
Plaintiff notes that "[f]ew unsophisticated consumers are aware of the statute of limitations." Opp. at 12, n. 12 (citingKimber v. Federal Fin. Corp., 668 F.Supp. 1480, 1487 (M.D.Ala. 1987)).
This Court is unconvinced that the least sophisticated debtor would know or understand the impact of defendant's qualifying phrase "if we are reporting the account" on debts that are older than seven years or otherwise not reported to the credit bureaus. Although defendant's interpretation may be reasonable to a sophisticated or knowing person, it is not sufficiently clear that an unsophisticated debtor with a non-reportable debt would understand the qualifying language. The wording in the letters do not inform the least sophisticated debtor what type of debts are not reported nor does the wording provide insight into the impact of reporting the settlement on those debts that are older than seven years or not reported for any other reason. Nor do the letters indicate that not all debts are reportable. In this Court's view, the least sophisticated debtor could likely believe his debt is reportable just because the letters indicate the credit bureaus will be notified. This Court, therefore, finds defendant's argument that the wording in the letters are not misleading or deceptive fails.
c. Compliance with State and Federal Collection Laws
Defendant lastly contends the statement contained in the letters at issue is "merely a restatement of the requirements under [the Fair Credit Reporting Act ("FCRA")] and [the California's Consumer Credit Reporting Agencies Act ("CCCRA")] to correct and update credit information." Mot. at 10. Thus, defendant argues that the wording in the letters simply explain to the debtor what defendant is required to do under federal and state collection laws if the debt is reportable to the credit bureaus. Id. at 11. Plaintiff contends that defendant's argument is irrelevant because no FCRA or CCCRA claims are alleged. Opp. at 19.
This Court agrees with plaintiff. Plaintiff seeks relief based on defendant's misleading or deceptive language in its collection letters in violation of the Fair Debt Collections Practices Act, 15 U.S.C. § 1692, et seq. Whether the wording at issue provides a proper or improper explanation of the FCRA or CCCRA requirements is irrelevant to plaintiff's claims. The only determination required here is whether the wording at issue is misleading or deceptive to the least sophisticated debtor. Therefore, this Court finds defendant's final argument meritless.
d. Conclusion
This Court is mindful that the allegations in the complaint and all inferences drawn therefrom must be viewed in the light most favorable to plaintiff. See Thompson, 295 F.3d at 895;Cahill, 80 F.3d at 337-38. Because it can be inferred that the least sophisticated debtor with a non-reportable debt may be mislead to believe the debt would be reported to the credit bureaus when no such action may be taken, this Court finds the wording in the letters at issue, viewed in the light most favorable to plaintiff, could be found violative of the Act. Thus, this Court finds plaintiff has sufficiently plead facts that could entitle him to relief. Therefore, dismissal pursuant to Rule 12(b)(6) is not appropriate and defendant's motion to dismiss is denied. See Conley, 355 U.S. at 45-46.
ORDER
Based on the foregoing, IT IS HEREBY ORDERED that defendant's motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) is DENIED.