RACITI v. RUSHMORE LOAN MANAGEMENT SERVICES, LLC
3:18-cv-14869
D.N.J.Aug 28, 2019Background
- Plaintiffs Frank and Darlene Raciti filed bankruptcy (Chapter 7) in 2014 and received a discharge in 2015; they allege they vacated the mortgaged property thereafter.
- In 2017 Rushmore Loan Management Services began servicing/claimed assignment of the mortgage formerly held by Capital One and sent multiple communications stating amounts due and requesting payments.
- Plaintiffs allege Rushmore (1) violated the FDCPA by seeking collection on a debt discharged in bankruptcy and (2) violated the FCRA by pulling Frank Raciti’s credit report without a permissible purpose; they assert additional claims for contempt, negligent infliction of emotional distress, and declaratory relief.
- Rushmore moved to dismiss under Rule 12(b)(6), arguing it is not a “debt collector” under the FDCPA (it collects for its own account or as servicer) and that its credit inquiry was permissible because it retained in rem rights to the collateral after discharge.
- The District Court accepted the complaint’s factual allegations as true for pleading purposes but found Plaintiffs failed to plausibly plead that Rushmore “regularly collects” debts owed another, and held Rushmore’s credit pull was permissible given its in rem rights.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was Rushmore a “debt collector” under the FDCPA? | Rushiti: Rushmore acted as a debt collector by seeking payment and labeling itself sometimes a debt collector. | Rushmore: Plaintiffs failed to plead that Rushmore’s principal purpose is debt collection or that it regularly collects for another. | Dismissed — Plaintiffs failed to plead Rushmore met FDCPA definitions (no plausible allegation it regularly collects for others). |
| Did Rushmore violate FDCPA by misrepresenting legal status of discharged debt? | Rushiti: Collection communications and stated minimum payments misrepresented status post-discharge. | Rushmore: Even if communications occurred, it is not a debt collector subject to FDCPA. | Dismissed — FDCPA claims (Counts 1–3) fail because Rushmore is not alleged to be a debt collector. |
| Did Rushmore impermissibly access credit report in violation of FCRA? | Rushiti: After discharge there was no consumer credit relationship; pull was not for permissible purpose. | Rushmore: It retained in rem rights (lien/foreclosure rights) after discharge, providing a legitimate business need to review credit. | Dismissed — credit pull permissible given Rushmore’s in rem rights; FCRA claim fails. |
| Are Plaintiffs entitled to contempt, emotional distress, or declaratory relief? | Rushiti: Court should hold Rushmore in contempt for violating bankruptcy discharge; seek damages and declaratory/injunctive relief. | Rushmore: Discharge was entered by Bankruptcy Court; company retained in rem rights so communications were lawful. | Dismissed — contempt inappropriate (different court’s order) and no violation shown; emotional distress not plead with required specificity; declaratory relief denied as underlying claims dismissed. |
Key Cases Cited
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (pleading must raise claim above speculation)
- Ashcroft v. Iqbal, 556 U.S. 662 (courts disregard legal conclusions at pleading stage)
- Phillips v. County of Allegheny, 515 F.3d 224 (pleading standards in Third Circuit)
- Pollice v. National Tax Funding, L.P., 225 F.3d 379 (FDCPA generally applies to "debt collectors")
- Henson v. Santander, 137 S. Ct. 1718 (debt purchaser collecting for its own account may be a creditor, not a debt collector)
- Tepper v. Amos Fin., LLC, 898 F.3d 364 (Third Circuit discussing post-Henson FDCPA analysis)
- Johnson v. Home State Bank, 501 U.S. 78 (bankruptcy discharge extinguishes in personam liability but leaves in rem rights)
- Dewsnup v. Timm, 502 U.S. 410 (liens pass through bankruptcy)
- Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47 (willfulness standard under FCRA)