Covert v. LVNV Funding, LLC.

• Decision Date: 09 December 2013
• Docket Number: Civil Action No. DKC 13-0698
• Parties: CHRISTOPHER M. COVERT, ET AL. v. LVNV FUNDING, LLC., ET AL.
• Court: U.S. District Court — District of Maryland

CHRISTOPHER M. COVERT, ET AL. v. LVNV FUNDING, LLC., ET AL.

Civil Action No. DKC 13-0698

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

Dated: December 9, 2013

MEMORANDUM OPINION

Presently pending and ready for review is a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) filed by LVNV Funding, LLC. ("LVNV"), Resurgent Capital Services Limited Partnership ("Resurgent"), and Sherman Originator LLC ("Sherman") (collectively "Defendants"). (ECF No. 13). The issues have been fully briefed, and the court now rules, no hearing being deemed necessary. Local Rule 105.6. For the following reasons, the motion to dismiss will be granted.

I. Background¹

Christopher M. Covert, Thomas E. Haworth, Carol J. Haworth, Kifle Ayele, and Dwan L. Brown (collectively "Plaintiffs") are debtors who initiated this putative class action on March 5, 2013, alleging unjust enrichment and violations of federal and state debt collection statutes. Plaintiffs claim that Defendants violated federal and state law when they filed proofsof claim in Plaintiffs' Chapter 13 bankruptcy proceedings without the requisite collection license from the State of Maryland to collect the underlying debts.² Plaintiffs allege the following facts.

LVNV and Sherman are debt buyers "that have acquired from another creditor, and then sought to collect, a 'consumer claim' . . . already in default and owed by each of the Named Plaintiffs." (ECF No. 1 ¶ 9). Plaintiffs allege that at all relevant times, Sherman did not have a license from the State of Maryland to do business as a collection agency. (Id. ¶ 15). Plaintiffs allege that LVNV similarly did not have a Maryland collection license until February 18, 2010, at which point LVNV became "authorized to do business as a collection agency only at its business address [in Nevada]." (Id. ¶ 17). Moreover, Plaintiffs contend that

[b]efore LVNV had the requisite license from the State of Maryland, LVNV acquired from Sherman Originator consumer claims allegedly in default and then filed thousand[s] of lawsuits in courts of the State of Maryland and filed a Proof of Claim in thousands of bankruptcy cases that residents of the State of Maryland had commenced in the UnitedStates Bankruptcy Court for the District of Maryland.

(Id. ¶ 19).³ Plaintiffs assert that "Resurgent subsequently received payments on behalf of LVNV in certain of the Maryland Bankruptcy Cases based on such an invalid and unauthorized Proof of Claim." (Id.). Plaintiffs contend that LVNV continues to collect consumer claims associated with Maryland residents "from LVNV's other places of business in South Carolina and other States and not at its Nevada Place of Business, including the filing of a Proof of Claim in many additional Maryland Bankruptcy Cases." (Id. ¶ 20).

Specifically, Resurgent, on behalf, of LVNV, filed proofs of claim in each Plaintiff's Chapter 13 proceeding on the following dates: (1) November 18, 2008 on Carol Haworth's and Thomas Haworth's accounts (ECF No. 1-2, 1-3, 1-4); (2) December 4, 2008 on Christopher Covert's account (ECF No. 1-1); (3) December 23, 2008 on Kifle Ayele's account (ECF No. 1-5); (4) April 8, 2009 on Dwan Lee Brown's account (ECF No. 1-6). LVNV is listed as the current creditor on the proofs of claim. The proofs of claim further provide that Resurgent services the respective accounts on behalf of the current creditor. The United States Bankruptcy Court for the District of Marylandconfirmed each Chapter 13 repayment plan, including the filed proofs of claim at issue here.⁴ Plaintiffs allege that "[i]n each of the Named-Plaintiffs' Maryland Bankruptcy cases, LVNV has filed a Proof of Claim that was invalid and illegal because Sherman Originator and LVNV did not have the requisite licenses from the State of Maryland to do business as collection agencies at the time that they acquired the consumer claim at issue (i.e., the debt) when the consumer claim was already in default or at the time that Resurgent on behalf of LVNV filed a Proof of Claim to collect on the consumer claim." (ECF No. 1 ¶ 25).

Plaintiffs explain that as a result of Defendants' activities, on October 25, 2011, the Maryland State Collection Agency Licensing Board in the Office of the Commissioner of Financial Regulation issued a Summary Order to Cease and Desist and Summary Suspension of Collection Agency Licenses to LVNV and Resurgent. The state board ordered all Defendants and related entities to "cease and desist from engaging in the debt collection business, including all collection-related litigation activities in Maryland state courts." (Id. ¶ 22). Plaintiffs aver that the Summary Order provides that "LVNV had alreadybrought over 17,160 actions in Maryland State courts prior to the date that it became licensed as a collection agency" . . . and "even after obtaining a collection agency license in February 2010, LVNV has continued to engage in unlicensed collection activities by conducting business as a collection agency in Maryland from a location in Greenville, South Carolina for which LVNV is not licensed." (Id.).⁵ Plaintiffs assert that Defendants entered into a Settlement Agreement with the Maryland Licensing Board on June 28, 2012, "but that settlement does not apply to 'consumer claims that are subject to a pending bankruptcy proceeding or were discharged in bankruptcy.'" (Id. ¶ 23 (quoting Settlement Agreement)). Finally, Plaintiffs aver that "Resurgent on behalf of LVNV . . . continued to receive, even after the Summary order, payments in Maryland Bankruptcy cases, including Named-Plaintiffs cases, based on an invalid and illegal Proof of Claim." (Id. ¶ 25; see also id. ¶¶ 42, 50, 58, 65).⁶

Plaintiffs allege that Defendants violated: (1) the Fair Debt Collections Practices Act ("FDCPA"), 15 U.S.C. §§ 1692, et seq. (Count I); (2) Maryland Consumer Debt Collection Act ("MCDCA"), Md. Code Ann., Com. Law, §§ 14-201, et seq. (Count II); and (3) Maryland Consumer Protection Act ("MCPA"), Md. Code Ann., Com. Law §§ 13-101, et seq. (Count III). Plaintiffs also assert unjust enrichment (Count IV) and object to each proof of claim that LVNV filed in the respective bankruptcy cases (Count V). Finally, Plaintiffs seek attorneys' fees and expenses in obtaining bankruptcy relief pursuant to Rule 2016 of the Federal Rules of Bankruptcy Procedure (Count VI). (See ECF No. 1, at 15-28).⁷ There is jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1334, and supplemental jurisdiction over the remaining state law claims pursuant to 28 U.S.C. § 1367. Defendants suggest that Counts V and VI should be deemed referred to the United States Bankruptcy Court pursuant to Local Rule 402. It may be that all claims are deemed referred pursuant to Local Rule 402. Under the circumstances, however, the reference is withdrawn at thistime. See 28 U.S.C. § 157(d) ("t]he district court may withdraw, in whole or in part, any case or proceeding referred under this section, on its own motion or on timely motion of any part, for cause shown."); In re Grewe, 4 F.3d 299, 304 (4^th Cir. 1993) ("district courts retain the power to withdraw any reference from the bankruptcy court.").

Defendants moved to dismiss the complaint on April 9, 2013 (ECF No. 13), which Plaintiffs opposed on May 6, 2013 (ECF No. 16). Defendants replied on May 17, 2013 (ECF NO. 17).⁸

II. Standard of Review

The purpose of a motion to dismiss under Rule 12(b)(6) is to test the sufficiency of the complaint. Presley v. City of Charlottesville, 464 F.3d 480, 483 (4^th Cir. 2006). A plaintiff's complaint need only satisfy the standard of Rule 8(a), which requires a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). "Rule 8(a)(2) still requires a 'showing,' rather than a blanket assertion, of entitlement to relief." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 n.3 (2007). That showing must consist of more than "a formulaic recitation of the elements of a cause of action" or "naked assertion[s] devoid of furtherfactual enhancement." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal citations omitted).

At this stage, all well-pleaded allegations in a complaint must be considered as true, Albright v. Oliver, 510 U.S. 266, 268 (1994), and all factual allegations must be construed in the light most favorable to the plaintiff. See Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 783 (4^th Cir. 1999) (citing Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4^th Cir. 1993)). In evaluating the complaint, unsupported legal allegations need not be accepted. Revene v. Charles Cnty. Comm'rs, 882 F.2d 870, 873 (4^th Cir. 1989). Legal conclusions couched as factual allegations are insufficient, Iqbal, 556 U.S. at 678, as are conclusory factual allegations devoid of any reference to actual events. United Black Firefighters v. Hirst, 604 F.2d 844, 847 (4^th Cir. 1979).

Defendants assert that the following grounds warrant dismissal of the complaint. (1) Res judicata bars Plaintiffs' claims because the confirmation of each Chapter 13 plan conclusively establishes the validity of the proofs of claim and Defendants' right to receive payments thereunder. (2) Count one should be dismissed because the filing of alleged invalid proofs of claim does not constitute actionable collection activity under the FDCPA. (3) Plaintiffs' federal and state law claims are barred by the statute of limitations. Alternatively,Defendants contend (4) that Plaintiffs' state law claims are preempted by the Bankruptcy Code. Finally, Defendants aver (5) that objections to the proofs of claim and requests for attorneys' fees and expenses are not properly before this court and should have been brought in the United States Bankruptcy Court for the District of Maryland.

Defendants' affirmative defenses, statute of limitations and res judicata, are not typically considered on a motion to dismiss. The statute of limitations is an affirmative defense that a party typically must raise in a pleading...