Briggs v. U.S., C 07-05760 WHA.

• Decision Date: 07 April 2008
• Docket Number: No. C 07-05760 WHA.,C 07-05760 WHA.
• Citation: 564 F.Supp.2d 1087
• Parties: Julius BRIGGS, on behalf of himself and all others similarly situated, Plaintiff, v. UNITED STATES of America and Army and Air Force Exchange Service, Defendant.
• Court: U.S. District Court — Northern District of California

564 F.Supp.2d 1087

Julius BRIGGS, on behalf of himself and all others similarly situated, Plaintiff, v. UNITED STATES of America and Army and Air Force Exchange Service, Defendant.

No. C 07-05760 WHA.

United States District Court, N.D. California.

April 7, 2008.

Brian Wolfman, Deepak Gupta, Public Citizen Litigation Group, Washington, DC, Marie Noel Appel, Consumer Law Office of Marie Noel Appel, S. Chandler Visher, Law Offices of S. Chandler Visher, San Francisco, CA, for Plaintiff.

Michael J. Quinn, Beth E. Cook, U.S. Department of Justice, Washington, DC, for Defendant.

ORDER GRANTING IN PART AND DENYING IN PART AND DEFENDANTS' MOTION FOR JUDGMENT ON THE PLEADINGS OR FOR PARTIAL DISMISSAL

WILLIAM ALSUP, District Judge.

INTRODUCTION

In this proposed class action, plaintiff Julius Briggs, on the behalf of soldiers and veterans who use credit cards issued by the Army and Air Force Exchange Service ("AAFES"), has sued defendants the United States of America and AAFES for allegedly unlawful debt-collection practices. Count One alleges improper debt-collection and Count Two alleges improper finance charges. Defendants move for judgment on the pleadings, or, in the alternative, for partial dismissal on the grounds that: (i) there is a lack of subject-matter jurisdiction; (ii) jurisdiction is also lacking as to Count Two because no case or controversy exists; (iii) any recovery plaintiff might be able to obtain would be subject to immediate and equal setoff by the United States; and (iv) there is improper venue for all counts. For the reasons stated below, the motion for judgment on the pleadings or for partial dismissal is GRANTED IN PART AND DENIED IN PART.

STATEMENT

This order must take the well-pled allegations in the complaint as true. The AAFES issued credit cards to military personnel to purchase uniforms and other merchandise from post-exchange stores in U.S. military bases. For purposes of this action, the terms of usage were governed by the 1993 AAFES Credit Program Account Agreement. The credit-card plan under the agreement offered two types of purchases: the Uniform Clothing Deferred Payment Plan ("UC") for uniforms and the Deferred Payment Plan ("DPP") for other goods. Card users had the option to pay their balances in full or to pay a minimum monthly payment as shown on their account statements. UC balances were not subject to a finance charge while DPP balances were subject to a periodic finance charge. If card users failed to make monthly payments on time, the agreement allowed AAFES to impose "an administrative fee to cover the cost of processing and handling a delinquent claim," and "a penalty charge at 6 percent annually for failure to pay any part of this amount more than 90 days past due" (First Amd. Compl. Exh. A).

The federal agency referred delinquent debts to the Department of the Treasury, which administered the Treasury Offset Program ("TOP"). TOP collected delinquent debts owed to federal agencies and states pursuant to 26 U.S.C. 6402(d) (collection of debts owed to federal agencies) and 31 U.S.C. 3720A (reduction of tax refund by the amount of debt). When card users failed to repay their credit-card debt, TOP offset the delinquent debt against funds the government owed the debtor, if any, for benefits and tax refunds. The agreement, signed by Plaintiff Julius Briggs, explicitly authorized this referral: "Your debt may be submitted for deduction from any Federal Income Tax refund to which you may be entitled under provisions of the Deficit Reduction Act, 26 U.S.C. 6402(d) and 31 U.S.C. 3720A" (First Amd. Compl. Exh. A). Following the referral to TOP, AAFES continued to accrue interest, penalty and administrative charges ona delinquent account.

Plaintiff Briggs is an army veteran. On November 12,1993, he began using a credit card issued by AAFES. He stopped using the card on December 16, 1993. By that point, he had incurred charges of $348.19 for UC purchases and $1508.89 for DPP purchases. His monthly credit-card statement required him to make a minimum payment of $31 by December 13, 1993. Plaintiff Briggs did not make the minimum payment and made no further payments on the account thereafter.

He received a credit-card statement with a closing date of December 18, 1993, which stated, "Notice: Administrative fees and penalties will be assessed on delinquent accounts as authorized by 31 U.S.C. 3717 [the Debt Collection Act]." In a box labeled, "Overdue Notice," the statement further stated, "Payment of $31.00 from previous statements has not been received. If the amount is not received by 04 Jan. 94, overdue notification will be sent to your unit commander/work supervisor. If payment is not received by 18 Jan. 94, your account (*) will be delinquent and payroll deductions will begin for the account balance. Charge privileges are suspended pending receipt of the overdue amount" (First Amd. Compl. Exh. B).

AAFES continued to send Plaintiff Briggs billing statements between January 1994 and June 1997. AAFES, however, did not take any other action to collect the outstanding balance. In June 1997, AAFES referred the account to the Department of the Treasury. It is unclear from the pleadings whether AAFES sent further notice to Plaintiff Briggs regarding the referral (besides what was stated in the original agreement). TOP did not start offsetting payments until 2003. TOP withheld the following federal payments: $411.84 on April 18, 2003; $818.00 on January 30, 2004; $646.65 on February 18, 2005; $397.00 on February 17, 2006; and $511.30 on May 4, 2007 (First Amd. Compl. Exh. C). Even after these payments, AAFES asserted that Plaintiff Briggs still owed more than $4000.

Plaintiff Briggs corresponded with AAFES about the allegedly improper debt collection prior to filing suit. Attached to the complaint was a letter dated May 24, 2007, from AAFES' general counsel. It appears that Plaintiff Briggs only discussed Count One, the improper debt-collection issue, at that time. The letter' stated, in relevant part (First Amd. Compl. Exh. D):

I am responding to your letter dated May 14, 2007, concerning your client, Julius Briggs, and the debt he owes to the Army and Air Force Exchange Service (AAFES), a non-appropriated fund instrumentality of the United States. Your letter states that Mr. Briggs' debt has been delinquent since December 1993 or January 1994 and that offsets of Mr. Briggs' tax returns occurred outside the 10 year limitation for collection of federal debts. For the reasons stated below, AAFES disagrees.

Plaintiff Briggs commenced this action in November 2007. A first amended complaint was filed in January 2008. He makes two claims: Count One alleges that AAFES unlawfully referred debt that had been outstanding for more than ten years for administrative offset in violation of the Debt Collection Act, 31 U.S.C. 3716(e)(1); and Count Two alleges that AAFES imposed finance charges on debt arising out of UC purchases, without any authority for doing so and in violation of a contractual provision prohibiting such charges. Plaintiff Briggs seeks to sue on behalf of a class of persons subject to TOP collections for debts outstanding for more than ten years (for Count One) and persons subject to TOP collections whose UC debt was improperly charged interest (for the Count Two). He requests that AAFES be enjoined from making referrals to TOP of debts outstanding for more than ten years. Plaintiff Briggs also seeks restitution of all allegedly improper TOP collections and UC finance-charge collections. Defendants now move for judgment on the pleadings and to dismiss the first amended complaint with prejudice, or, in the alternative, to dismiss all claims for relief in the first amended complaint except for Plaintiff Briggs' individual claim against the United States (contained in Count One of the complaint). A case management scheduling order was issued in February 2008.

ANALYSIS

"After the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings." FRCP 12(c). A motion for judgment on the pleadings is evaluated according to virtually the same legal standard as a motion to dismiss under Rule 12(b)(6), in that the pleadings are construed in the light most favorable to the non-moving party. Brennan v. Concord EFS, Inc., 369 F.Supp.2d 1127, 1130-31 (N.D.Cal.2005) (Walker, J.). "Judgment on the pleadings is proper when the moving party clearly establishes on the face of the pleadings that no material issue of fact remains to be resolved and that it is entitled to judgment as a matter of law." Hal Roach Studios, Inc. v. Richard Feiner and Co., 896 F.2d 1542, 1550 (9th Cir.1990).¹

A motion to dismiss under Rule 12(b)(6) tests for the legal sufficiency of the claims alleged in the complaint. See Parks Sch. of Business v. Symington, 51 F.3d 1480, 1484 (9th Cir.1995). All material allegations of the complaint are taken as true and construed in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 339 (9th Cir. 1996). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the `grounds' of his `entitle[ment] to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level." Bell Atlantic Corp. v. Twombly, ___ U.S. ___, 127 S.Ct. 1955, 1964-65, 167 L.Ed.2d 929 (2007).

Defendants also move to dismiss for lack of subject-matter jurisdiction. Defendants do not rely on outside evidence. "Whether subject-matter jurisdiction exists therefore does not depend on resolution of a factual dispute, but rather on the allegations in [the plaintiff's complaint.] We assume [the plaintiff's] allegations to be true and draw all reasonable inferences in his favor."...