Davidson v. Capital One Bank (USA), N.A.Davidson v. Capital One Bank (USA), N.A.
OPINION AND ORDER
This matter is before the Court on Magistrate Judge E. Clayton Scofield’s Report and Recommendation [32] (“R & R”) recommending that Defendant Capital One Bank (USA), N.A.’s (“Defendant”) Motion to Dismiss [16] be denied and that Plaintiff Keith Davidson (“Plaintiff’) be given twenty days after the date of the Court’s order to renew his motion for class certification. The Court will also consider Defendant’s Motion for Hearing [36] (“Hearing Motion”) regarding its Objection [35] to the R & R and its Motion for Leave to File Reply in Support of Objection [38] (“Motion for Leave”), and Plaintiffs Motion to Certify Class [41],
I. BACKGROUND
This case involves a matter of first impression in the circuit, and is decided against the following factual, procedural, and statutory backdrop.
On September 26, 2013, Defendant filed its Motion to Dismiss, asserting that it was not a “debt collector” subject to the provisions of the FDCPA, because it was undertaking to collect debt that was owed to it, and not debt “owed or due another.”
On December 11, 2014, the Magistrate Judge issued his R & R, finding that Plaintiff had asserted sufficient facts to raise a plausible inference that Defendant was a “debt collector” as defined under the FDCPA. (R & R at 7).
On January 6, 2014, Defendant filed its Objection to the R & R and the Hearing Motion. On January 20, 2014, Plaintiff filed his Response [37] to Plaintiffs Objection to the R & R. On January 28, 2014, Defendant filed its Motion for Leave, and on January 31, 2014, Plaintiff filed his Re
II. DISCUSSION
A. Standard of Review
After conducting a careful and complete review of the findings and recommendations, a district judge may accept, reject, or modify a magistrate judge’s report and recommendation. 28 U.S.C. § 636(b)(1)(C); Williams v. Wainwright,
B. Analysis
The Magistrate Judge noted that the sole issue before him was whether Plaintiff had sufficiently alleged that Defendant was a “debt collector” under the FDCPA. (R & R at 7). Because Defendant objects to the Magistrate Judge’s conclusion in the R & R that Defendant is a “debt collector,” the Court reviews the Magistrate Judge’s findings and recommendations de novo. See 28 U.S.C. § 636(b)(1)(C).
1. Debt Collector Defined By FDCPA
The FDCPA protects consumers from unfair, harassing, or deceptive debt collection practices by debt collectors. 15 U.S.C. § 1692e; Acosta v. Campbell,
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).
To qualify as a “debt collector” under the FDCPA, a person must fall within one of the two definitions of § 1692a(6). They must either be “a person who uses an instrumentality of interstate commerce or the mails in a business which has the principal purpose of collecting debts, or who regularly collects debts owed to another.” Warren v. Countrywide Home Loans, Inc.,
The second definition—the regular collection or attempt at collection of “debts owed or due or asserted to be owed or due another”—has an exception to it. Section 1692a(6)(F) specifically states: “[t]he term [‘debt collector’] does not include—any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity ... concerns a debt which was not in default at the time it was obtained by such person....” 15 U.S.C. § 1692a(6)(F). Thus § 1692a(6)(F) excludes from debts “owed or due or asserted to be owed or due another” a debt that was “not in default at the time it was obtained by [a] person [who regularly collects debts.]” See id.
That is, the second prong, when read consistent with the exception, provides that a person who regularly collects debts, owed or due or asserted to be owed or due another person, is a “debt collector,” if the debts being collected were in default when acquired.
The FDCPA also defines a “creditor” as:any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.
15 U.S.C. § 1692a(4) (emphasis added).
2. Interpretation of Section 1692(a)(6)
Defendant’s objection is to the Magistrate Judge’s interpretation and application of the second prong of § 1692a(6). Plaintiff and the Magistrate Judge appear to interpret the § 1692a(6)(F) exception or the definition of creditor in § 1692a(4), or both, as creating a loophole that allows Defendant to avoid application of the FDCPA. Plaintiff and the Magistrate Judge believe this “loophole” violates the intent of the statute by excluding a party they contend is intended to be covered. They argue that reading the FDCPA definitions as a whole requires the statute to be applied to Defendant here. They rely on cases, including those from two other circuits, to support their FDCPA interpretation. A careful reading of the statute and these other cases shows the argument upon which Plaintiff and the Magistrate Judge relies does not support the interpretation or application of the FDCPA that they urge. The only issue here is whether Defendant “regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” See 15 U.S.C. § 1692a(6).
The process for reviewing the requirements of a statute are summarized by our Circuit in United States v. DBB, Inc.,
There are several canons of statutory construction that guide our interpretation of the statute. The starting point for all statutory interpretation is the language of the statute itself. We assume that Congress used the words in a statute as they are commonly and ordinarily understood, and we read the statute to give full effect to each of its provisions. We do not look at one word or term in isolation, but instead we look to the entire statutory context. We will only look beyond the plain language of a statute at extrinsic materials to determine the congressional intent if: (1) the statute’s language is ambiguous; (2) applying it according to its plain meaning would lead to an absurd result; or (3) there is clear evidence of contrary legislative intent.
DBB,
The statutory language in § 1692a(6) is unambiguous. Neither party claims otherwise. A “debt collector,” defined in the disjunctive, is any person (1) “in any business the principal purpose of which is the collection of any debts” or. (2) “who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” See 15 U.S.C. § 1692a(6) (emphasis added). It is undisputed that the principal purpose of Defendant’s business is not debt collection, see R & R at 7; Res. to Mot. to Dismiss at 5, and that the first prong of the disjunctive definition does not apply. The only issue is whether the second prong of § 1692a(6) includes Defendant as a “debt collector.” The Court finds it does not. Defendant does not regularly attempt to collect debts owed or due another.
To interpret § 1692a(6) to require that the debt in question be owed or due another to satisfy the second prong of § 1692a(6) does not preclude a person or entity who is owed a debt from being a “debt collector” under the first prong of § 1692a(6), and thus does not erode the protections the FDCPA grants to consumers. Although the Court does not rely on legislative history to interpret the plain language of the FDCPA, it notes that its interpretation comports with congressional intent and Congress’s concern about independent debt collectors, which Defendant is not.
3. The Magistrate Judge’s Decision
In considering the Magistrate Judge’s R & R and the contentions of the parties, the Court considers the Magistrate Judge’s different conclusion that the only requirement to successfully allege that a defendant is a “debt collector” pursuant to the second prong of § 1692a(6) is to allege that the defendant acquired debt that was in default when acquired. (R & R at 10-11). The Court specifically reviews the authorities upon which the Magistrate Judge relied to reach the conclusion he reached.
The Magistrate Judge correctly found that liability under the FDCPA attaches only to debt collectors. See Hasbun v. Recontrust Co., N.A.,
The Magistrate Judge then noted that creditors generally are not liable under the FDCPA when collecting amounts owed to them in their capacity as creditors. The Magistrate Judge noted further that it is possible to be both a “creditor” and a “debt collector” subject to the FDCPA. R & R at 7; see also Bates v. Novastar/Nationstar Mortgage LLC, 1:08-cv-1443,
A determination that a person is a “creditor” for FDCPA purposes does not itself foreclose that the creditor can also meet the definition of “debt collector” for the purpose of coverage under § 1692a(6) of the FDCPA. “A plaintiffs ability to properly classify a defendant as a debt collector is critical because the ‘FDCPA applies only to ‘debt collectors’ whose conduct involves the collection [of] a debt’” Underhill v. Bank of Am., N.A., 1:13-c.v-2614,
The Magistrate Judge interpreted § 1692a(6)’s second prong as including any person who acquired debt that was in default when acquired. The Magistrate Judge determined that collection activity on the debt in this case—because it appears to have been in default when acquired—was covered by the FDCPA. (R & R at 10-11).
Although the parties do not dispute that the debt at issue was in default when acquired, this fact does not necessarily lead to the conclusion that Defendant is a debt collector. It only supports that the exemption for those who seek to collect a debt that was not in default when acquired does not apply.
The Magistrate Judge, to support the interpretation offered, relies on several categories of cases that do not apply here. The first category includes cases under which the defendant’s principal business purpose was the collection of debts and, accordingly, the defendant qualified as a “debt collector” under the first prong of § 1692a(6). Kuria v. Palisades Acquisition XVI, LLC falls into the first category of cases the Magistrate Judge cited to support his conclusions. Kuria, and cases like it, do not apply here. In Kuria, the Court determined that the defendant, which was “engaged in the business of buying and collecting debts that are in default,” qualified as a debt collector despite attempting to collect debts owed to it and thus also qualifying as a creditor. See Kuria,
Kuria does not, however, stand for the proposition that an entity is automatically a “debt collector” based solely upon the debt being in default when acquired. The Kuria decision begins -with a factual finding that the defendant “is engaged in the business of buying and collecting debts that are in default.” Id. at 1296. This fact was undisputed by the plaintiff. Id. at 1301. While not explicitly stated in the opinion, likely because it was self-evident, the defendant in Kuria thus qualified as a “debt collector” under the first prong of § 1692a(6), because it was an entity whose principal purpose is the collection of debts. Kuria stands for the unremarkable proposition that an entity that qualifies as a
The second category of cases focus on whether debt was or was not in default when acquired. When debts are not in default when acquired, § 1692a(6)(F) plainly excludes the acquirer from the definition of “debt collector.” It thus is not necessary to evaluate whether the entity qualifies as a debt collector under the second prong of § 1692a(6). See De Dios v. Int’l Realty & Investments,
The Magistrate Judge’s reliance on the Court’s prior decision in Bates falls into this second category of cases. In Bates, the plaintiff failed to prove that the debt was in default when it was acquired by the defendant from the original lender. Bates,
For purposes of applying the Act to a particular debt, these two categories— debt collectors and creditors—are mutually exclusive. However, for debts that do not originate with the one attempting collection, but are acquired from another, the collection activity related to that debt could logically fall into either category. If the one who acquired the debt continues to service it, it is acting much like the original creditor that created the debt. On the other hand, if it simply acquires the debt for collection, it is acting more like, a debt collector.
Schlosser,
In Check Investors, the Third Circuit relied upon the reasoning in Schlosser. The court in Check Investors, like the court in Schlosser, rejected an argument that the defendant owned the debt and thus was a “creditor,” and thus not a “debt collector”. Check Investors,
The court in Check Investors noted: Appellants argue that Check Investors satisfies the statutory definition of a “creditor,” and, therefore, they are not subject to the provisions of the FDCPA. Although the argument is rather clever, it is wrong. It would elevate form over substance and weave a technical loophole into the fabric of the FDCPA big enough to devour all of the protections Congress intended in enacting that legislation.
Id. at 172-73.
Schlosser and Check Investors do not apply here. A careful reading of Schlosser and Check Investors shows that both of these cases involved entities whose principal business was the acquisition of defaulted debt for collection purposes. See Schlosser,
The Seventh Circuit and the Third Circuit both have held that one cannot be both a “creditor” and a “debt collector” under -the FDCPA. Constrained by this precedent, the plain language of the FDCPA would only apply to those who do not own the debts in question, as those who own the debts are “creditors,” and, thus, cannot be “debt collectors.”
Our Court has held that one can be both a “creditor” and a “debt collector,” and is not so constrained. See Kuria,
The conclusion that one can be both a creditor and a debt collector—if one is a debt collector under the first prong of § 1692a(6)—addresses the Check Investors concern with the possibility of creating a FDCPA loophole. Those entities whose principal purpose is the collection of defaulted debts would be debt collectors regardless of their ownership of the defaulted debt. Those entities whose primary business is not the collection of debts would only be debt collectors when they regularly collected or attempted to collect debts “owed or due another.” See 15 U.S.C. § 1692a(6). The reasoning in the Schlosser or Check Investors cases is not controlling and is not persuasive.
■Defendant urges the Court to follow the Ninth Circuit’s reasoning in the only circuit to address the acquisition of debt by an acquirer not in the business of collecting debt and who is not collecting debt for another—Schlegel v. Wells Fargo Bank, NA,
There does not appear to be any controlling authority in the Eleventh Circuit on the statutory constructing issue presented in this case. There is, however, a well established framework for interpreting statutes. See Burlison,
The Court has also noted that even where a plaintiff alleges that the debt was in default when assigned, the plaintiffs complaint must still contain sufficient factual allegations that a defendant is a “debt collector” under one of the prongs of § 1692a(6). See Anderson v. Deutsche Bank Nat. Trust Co., 1:11-cv-4091,
After a careful review of § 1692a(6) and the cases relied upon by the Magistrate Judge, as well as arguments raised by
III. CONCLUSION
For the foregoing reasons, ■
IT IS HEREBY ORDERED that Defendant’s objections [35] to Magistrate Judge E. Clayton Scofield’s Final Report and Recommendation [32] are SUSTAINED.
IT IS FURTHER ORDERED that Defendant’s Motion to Dismiss [16] is GRANTED.
IT IS FURTHER ORDERED that Defendant’s Motion for Hearing [36] and Motion for Leave to File Reply in Support of Objection [38] are DENIED.
IT IS FURTHER ORDERED that Plaintiffs Motion to Certify Class [41] is DENIED AS MOOT.
Notes
. On June 11, 2013, Plaintiff filed his original complaint [1], asserting FDCPA claims against Defendant, and, on July 12, 2013, Plaintiff filed his first motion to certify class [3] seeking the certification as a class action pursuant to Rule 23 of the Federal Rules of Civil Procedure. On August 29, 2013, Defendant filed its first motion to dismiss [11] on the grounds that Plaintiffs Complaint failed to state a claim upon which relief could be granted. On October 15, 2013, the Magistrate Judge issued a Non-Final Report and Recommendation [22] recommending that that Defendant's first motion to dismiss be denied as moot because of the filing of the Amended Complaint. On February 27, 2014, the Court adopted [40] the Magistrate Judge’s Non-Final Report and Recommendation, denied Defendant’s motion to dismiss as moot and denied without prejudice Plaintiff’s motion to certify class.
. Plaintiff alleges that HSBC brought a suit against Plaintiff to collect on Plaintiff’s credit card account, and that a judgment was entered in favor of HSBC in the sum of $500. (Am. Com. at ¶¶ 21, 23). Plaintiff alleges that the underlying credit card agreement merged into the judgment by operation of law. {Id. at ¶ 24). Plaintiff further alleges that this account was sold by HSBC to Defendant, and that Defendant filed a new suit to collect $1,149.96 on this account, despite the judgment reducing this amount to $500. {Id. at ¶¶ 25-26, 32). Plaintiff does not appear to specifically allege whether he paid or defaulted on the payment of the $500 judgment prior to Defendant’s purchase of the account.
. Plaintiff does not allege that his account was securitized.
. The Magistrate Judge recommended that the Court deny Defendant’s Motion to Dismiss, and recommended providing Plaintiff with twenty (20) days from the date of the Court’s order to renew his previously dismissed motion for class certification based upon the allegations in the Amended Complaint.
. To “owe” something is to need to pay or repay money to someone. See Merriam-Webster, http://www.merriam-webster.com/ dictionary/owe (last visited Aug. 6, 2014).
. It is conceivable that a person collecting debts "owed or due another” will have acquired the debt for the original lender and will, upon successful collection of the debt, remand some or all of the collected debt to the original lender. Plaintiff has not alleged that Defendant will remand any portion of the collected debt to HSBC and, even if he did, the Court does not take a position on whether even under these circumstances Defendant would be a “debt collector” under the FDCPA. The Court notes that Plaintiff alleged that Defendant "acquired credit card portfolios of HSBC” and that Plaintiff's account "was one of those sold by HSBC to [Defendant].” (Am. Com. at ¶¶ 8, 11, 25). Plaintiff does not allege that HSBC or any other transferor of debt retained any ownership or other interest in the delinquent or defaulted debts transferred. Plaintiff also alleges that over 96% of the total debt acquired by Defendant from HSBC was not delinquent or in default, suggesting the credit card accounts and related debts, including Plaintiff’s, were acquired to be owned by Defendant. (See Am. Com. at ¶ 11-13). The Court concludes that Defendant is seeking to collect the debt solely for itself and not on behalf of any other person.
. In enacting the FDCPA, Congress was primarily concerned with independent debt collectors. See S. Rep. 95-382, *3, 1977 U.S.C.C.A.N. 1695, 1697 ("The committee intends the term 'debt collector,' subject to the exclusions discussed below, to cover all third persons who regularly collect debts for others. The primary persons intended to be covered are independent debt collectors.”). Congress noted that “[ujnlike creditors, who generally are restrained by the desire to protect their good will when collecting past due accounts, independent collectors are likely to have no future contact with the consumer
Defendant is not a third-party debt collector. As Plaintiff alleges in the Amended Complaint, Defendant acquired twenty-eight (28) billion dollars of credit card accounts originally held by HSBC. (Am. Com. at ¶¶ 7-8, 11). The Amended Complaint alleges a transfer of ownership and the risk associated with the debt acquired. Plaintiff does not allege the debt was acquired by Defendant to collect it for anyone other than for Defendant. Plaintiff alleges that “over $1 billion of the acquired accounts were ... delinquent or in default at the time of acquisition.” {Id. at ¶ 12). Plaintiff, thus, alleges that Defendant acquired credit card accounts of which approximately 3.57% were delinquent or in default at the time of acquisition, which Plaintiff noted is average for the time period. {See id. at ¶ 13) (noting that, according to S & P/Expe-rian Consumer Credit Default Indices, the default rate on credit cards in December 2012 was 3.53%).
Defendant, who Plaintiff alleges acquired a substantial number of non-defaulted credit card accounts, acts here like a creditor that would generally be restrained in its desire to protect its goodwill when collecting on delinquent accounts, as opposed to a third-party debt collector that will have no future contact with the consumer. The Court interpretation of "debt collector” thus comports with legislative history.
. While Plaintiff did allege sufficient facts to establish that he defaulted on his HSBC credit card account, (Am. Com. at ¶¶ 21, 23), Plaintiff does not allege that he defaulted on the $500 judgment that he claims merged with his credit card account prior to HSBC transferring Plaintiff's account to Defendant. A determination that the debt in this case was not actually in default when it was acquired by Defendant, despite Defendant’s treatment of the debt as if it was defaulted, could potentially be dispositive. See Comer v. J.P. Morgan Chase Bank, N.A., 11-cv-88,
. The cases relied upon by the Magistrate Judge do not concern an entity that acquired debt in default where the acquiring entity was also not a "business the principal purpose of which is the collection of []debts,” thus, requiring an analysis of the second prong of § 1692a(6). The cases all are otherwise distinguishable.
. The argument appears rooted in a concern that a person other than the original creditor could collect a defaulted debt without being subject to the requirements of the FDCPA solely by acquiring the debt from the original creditor. As discussed infra, this concern is misplaced.
. The Magistrate Judge also relied upon Dolan v. Fairbanks Capital Corp., 03-cv-3285,
. The Magistrate Judge also relied upon Monroe v. CitiMortgage, Inc., 8:07-cv-0066,
. The Court further notes that a close reading of Schlosser shows that the decision does not specifically address the issue of the debt not being “owed or due another.” The defendant in Schlosser argued only that because the debt was not in default when acquired it meet the § 1692a(6)(F) exception, despite its mistaken belief that the debt was in default when acquired and its collection activities based upon that belief. The court in Schlosser disagreed, holding that § 1692a(6)(F) did not apply because the defendant attempted to collect on a debt that it asserted to be in default and believed to be in default when acquired. Schlosser,
. The Magistrate Judge relied on Schlosser to distinguish Schlegel. The Magistrate Judge observed that Wells Fargo, after it acquired the loan, in addition to collection activity, also engaged in "creditor” activity by approving a loan modification, and thus was acting as a "creditor,” and not just as a "debt collector” in that particular case. (R & R at 12). The issue here, however, is whether Defendant is or is not a debt collector. If it is, the fact that it may at times have acted as a creditor or engaged in creditor-like activities will not exclude it as a debt collector subject to the requirements of the FDCPA.
. The Humphrey Court noted that the FDCPA applies only to debt collectors and not to creditors or mortgage servicers. Humphrey,
. Plaintiff also asserts that, because many or most of the credit card receivables on accounts issued by Defendant are securitized, they are actually owed by others (securitization trusts), and that the HSBC accounts were also heavily securitized. (Am. Com. at ¶¶ 16-17). Setting aside Plaintiff’s failure to plead that his account was securitized (and thus, under his reasoning, owed to another); Plaintiff’s understanding of securitization is incorrect. The securitization of receivables does not change the relationship between a debtor and creditor. See, e.g., Paulo v. OneWest Bank, FSB, 13-cv-3695,
. Defendant sought permission to file a reply to Plaintiff's Response to the R & R. Defendant asserts that Plaintiff raised new arguments alleging that § 1692a(6) is ambiguous and that many of the cases that address this provision agree with Plaintiff's interpretation. Defendant also requested a hearing on its Objection. Having determined that § 1692a(6) is not ambiguous and that it does not apply to entities that are seeking to collect their own debts—and whose principal business is not debt collection—the Court concludes that no hearing is necessary and that Defendant need not file a reply brief.