Diaz v. Portfolio Recovery Assocs., LLC
| Decision Date | 28 February 2012 |
| Docket Number | 10 CV 3920 (ERK) |
| Parties | MICHAEL DIAZ, Plaintiff, v. PORTFOLIO RECOVERY ASSOCIATES, LLC, et al., Defendants. |
| Court | U.S. District Court — Eastern District of New York |
On August 25, 2010, plaintiff Michael Diaz commenced this action under the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. ("FDCPA"), the New York General Business Law § 349, and the New York Judiciary Law § 487, alleging that defendants Malen & Associates (the "Malen Firm") and Portfolio Recovery Associates, LLC ("PRA") intentionally brought a time-barred action to recover a debt in Kings County Civil Court (the "State Action"). (Am. Compl.1 ¶ 22). Plaintiff alleges that the filing of this State Action was part of a policy and practice to intentionally file time-barred claims, "knowing that the vast majority of claims filed will result in default judgments or will be contested by unsophisticated pro-se consumers." (Id.)
By Notice of Motion dated November 24, 2010, the Malen Firm moves to dismiss the Complaint on the grounds that the plaintiff's limitations argument relies on a decision issued by the New York Court of Appeals that was decided six months after the State Action was filed. Defendant argues that the decision dramatically changed the state of the law and therefore should not be retroactively applied. On September 27, 2011, the district court referred the Malen Firm's motion to dismiss to the undersigned to prepare a Report and Recommendation.
According to the Complaint, plaintiff Diaz is a resident of Brooklyn, N.Y., and a consumer as defined by the FDCPA, 15 U.S.C. § 1692a(3). (Am. Compl. ¶¶ 6-7). Defendant, the Malen Firm, is a law firm located in Westbury, N.Y., engaged in the debt collection business, as defined by the FDCPA, 15 U.S.C. § 1692a(6). (Id. ¶¶ 8, 10). Defendant PRA is a New Hampshire corporation, with its principal place of business in Norfolk, Va. (Id. ¶ 12). Plaintiff alleges that PRA buys purportedly past due or defaulted-upon consumer debts from banks, credit card companies, and other debt buyers and then attempts to collect those debts itself or through an agent. (Id. ¶ 11). Plaintiff alleges that PRA is a debt collector as defined by the FDCPA. (Id. ¶ 14).
On November 27, 2009, PRA, represented by the Malen Firm, filed an action in Kings County Civil Court, seeking to recover from plaintiff a debt owed on a Providian credit card account in the amount of $5,394.42, including pre-judgment interest. See Portfolio Recovery Assocs. LLC v. Diaz, Index No. 124815-CV-09. (Am. Compl. ¶¶ 15, 16). In the State Action, defendants asserted that the Providian account had been assigned to PRA for collection, that a default had occurred, and statutory interest of 9% had begun to accrue "on or about 12/30/05." (Id. ¶ 17).
In the State Action, plaintiff, appearing pro se, filed an Answer on May 11, 2010, even though he had not been properly served. (Id. ¶ 32). Thereafter, he obtained counsel, who amended the Answer, seeking to dismiss the complaint on the grounds that: (1) PRA had failed to obtain jurisdiction over Diaz; (2) Diaz did not owe any money to PRA; and (3) pursuant to New York's Civil Practice Law & Rules ("CPLR") § 202, the complaint was time-barred on its face. (Id. ¶ 34). On January 17, 2010, the State Action was dismissed with prejudice pursuant to a Stipulation of Discontinuance. (Id. ¶ 35).
Plaintiff then filed this action, asserting claims under the FDCPA, including: (1) violations of Sections 1692e, 1692e(2), 1692e(5), 1692e(10), 1692f, and 1692f(1), for attempting to collect a time barred debt; (2) violations of Sections 1692e, 1692e(5), 1692e(10), and 1692f, by filing a deceptive and misleading complaint in that it was signed by an attorney who had not conducted a meaningful review; (3) violations of Sections 1692e, 1692e(8), 1692e(10), 1692f, for reporting incorrect information to Experian, TransUnion and others regarding Mr. Diaz's account; and (4) violations of Sections 1692e, 1692e(2), 1692e(5), 1692e(10), 1692f, and 1692f(1), for taking legal action against Mr. Diaz when it knew or should have known that there was no factual basis for its action. (Id. ¶ 42). Plaintiff also alleges violations of the New York General Business Law § 349, for deceptive acts and practices (id. ¶¶ 48-53), and claims against the Malen Firm under Judiciary Law § 487, for perpetrating a deceit and making false representations before the court in the State Action. (Id. ¶¶ 54-62).
The essence of plaintiff's federal case is that defendants have a policy and practice of intentionally filing time-barred claims because they know that "the vast majority" of these claims will result in default judgments or will be contested by unsophisticated pro se consumers who are unaware of CPLR § 202 and its impact on the statute of limitations. (Id. ¶ 22). Plaintiff alleges that defendants intentionally filed the State Action knowing that it was time-barred. (Id.) Specifically, plaintiff claims that the statute of limitations that applied to an action to recoup based on his debt was that of New Hampshire where the original creditor - Providian - is incorporated and headquartered. (Id. ¶ 19). Since New Hampshire has a three-year statute of limitations for breach of contract and account stated claims, PRA's complaint against Mr. Diaz would have to have been filed on or before December 30, 2008 in order for it to be timely in accordance with CPLR § 202. (Id. ¶¶ 20, 21). Since the State Action was not filed until November 17, 2009, plaintiff argues that the State Action was "clearly and unambiguously" time-barred as of the date it was filed. (Id. ¶¶ 15, 18).
According to plaintiff's Complaint, the Malen Firm commenced approximately 10,904 consumer collection actions in New York City's Civil Courts in 2009 alone. (Id. ¶ 24). Plaintiff alleges that Jeffrey Walstein, Esq., of the Malen Firm, who signed all of the pleadings in the State Action, signed more than one-third (1/3) of the 10,904 complaints filed by the Malen Firm in 2009. (Id. ¶ 26). Plaintiff further alleges that the Malen Firm has filed approximately 2,000 additional such complaints in courts throughout New York State and that Mr. Walstein is responsible for signing more than one-third of those complaints as well. (Id. ¶¶ 27, 28).
Plaintiff alleges that Mr. Walstein did not conduct a meaningful review of the complaint and its factual allegations in the State Action prior to its filing, and that this failure to review is "part of the business plan developed by Defendants, who have found that meaningful pre-filing review is not as profitable as submissions of pleadings without review, in light of the fact that the overwhelming majority of consumer collection actions are won on default or against unsophisticated pro se litigants who are, as a practical matter, incapable of meaningfully challenging even the most deficient, boilerplate consumer collection pleading." (Id. ¶ 31).2
The Malen Firm moves to dismiss the Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, on the grounds that plaintiff has failed to adequately allege specific facts necessary to state a plausible claim. (Def.'s Mem.3 at 3-4).
When deciding a motion to dismiss a complaint for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6), the Second Circuit has stated that a court must "accept as true the factual allegations of the complaint, and draw all inferences in favor of the pleader." Mills v. Polar Molecular Corp., 12 F.3d 1170, 1174 (2d Cir. 1993); see also Gorman v. Consol. Edison Corp., 488 F.3d 586, 591-92 (2d Cir. 2007). In addition, the court must give plaintiff's claims "a liberal construction." Johnson v. New York City Transit Auth., 639 F. Supp. 887, 891 (E.D.N.Y. 1986) (citing Haines v. Kerner, 404 U.S. 519, 520-21 (1972)), aff'd in part and vacated in part on other grounds, 823 F.2d 31 (2d Cir. 1987). However, the court is not required to accept the truth of legal conclusions couched as factual allegations. See Papasan v. Aliain, 478 U.S. 265, 286 (1986).
In Bell Atlantic Corporation v. Twombly and Ashcroft v. Iqbal, the Supreme Court clarified the pleading standards under which courts are to evaluate a motion to dismiss, "arguably shift[ing] pleading standards from 'simple notice pleading' to a 'more heightened form of pleading.'" Barbosa v. Continuum Health Partners, Inc., 716 F. Supp. 2d 210, 214 (S.D.N.Y. 2010) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007); Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009)).
Now, when deciding a Rule 12(b)(6) motion to dismiss, the court should consider whether the complaint "contain[s] sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 129 S. Ct. at 1940 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. at 570). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 129 S. Ct. at 1949; see also Hayden v. Paterson, 594 F.3d 150, 160-61 (2d Cir. 2010). Under this heightened pleading standard, labels, conclusions, and mere recitation of the elements of a cause of action will not suffice. Ashcroft v. Iqbal, 129 S. Ct. at 1950; see also Bell Atl. Corp. v. Twombly, 550 U.S. at 545. Instead, a plaintiff must provide enough factual support that, if true, would "raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. at 555. However, "plausibility" does not rise to the level of probability but requires "'more than a sheer possibility that a defendant has acted unlawfully.'" Barbosa v. Continuum Health Partners, Inc., 716 F. Supp. 2d at 215 (quoting Ashcroft v. Iqbal, 129 S. Ct. at 1949). "The issue is not whether a plaintiff will...
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