Engelby v. I.C. Sys., Inc.
| Decision Date | 27 March 2018 |
| Docket Number | Case No. 17-CV-0296 (PJS/FLN) |
| Parties | CHAD D. ENGELBY, Plaintiff, v. I.C. SYSTEM, INC., a Minnesota corporation, Defendant. |
| Court | U.S. District Court — District of Minnesota |
Michael J. Sheridan, ATLAS LAW FIRM, LLC, for plaintiff.
Sean P. Flynn, GORDON & REES LLP, for defendant.
Plaintiff Chad D. Engelby filed a petition for relief under Chapter 7 of the United States Bankruptcy Code. Among the debts that he sought to have discharged was a debt to Molldrem Family Dentistry ("Molldrem"). After Engelby filed his petition, Molldrem hired defendant I.C. System, Inc. ("ICS") to collect Engelby's debt. ICS sent three letters to Engelby—two while his bankruptcy proceedings were pending and one after his debt to Molldrem had been discharged by the bankruptcy court.
Engelby brings this action against ICS, alleging that each of ICS's letters violated the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692 et seq. This matter is before the Court on ICS's motion to dismiss Engelby's amended complaint. ECF No. 24. ICS argues that it cannot be held liable under the FDCPA because it did not know that Engelby had filed for bankruptcy or that his debt had been discharged. ICS further argues that Engelby is judicially estopped from pursuing his FDCPA claims because he did not disclose those claims during the bankruptcy proceedings. For the reasons that follow, the Court finds that both of ICS's arguments are meritless, and therefore denies ICS's motion to dismiss.
Engelby became indebted to Molldrem in the amount of $825.60. ECF No. 16, Am. Compl. ("Compl.") ¶ 6. On April 21, 2016, Engelby filed a Chapter 7 petition in the United States Bankruptcy Court for the District of Minnesota. Id. ¶ 8. Engelby identified Molldrem as one of his creditors. Id. ¶ 9; see also ECF No. 26, Flynn Decl. Ex. 1, Bankr. Pet., Sched. F (listing a debt of $826.00 to Molldrem on account 4500). Three days later, the clerk of the bankruptcy court mailed a Notice of Chapter 7 Bankruptcy Case to Molldrem (and Engelby's other creditors). Compl. Ex. A. That notice informed Molldrem that "[t]he filing of the case imposed an automatic stay against most collection activities." Id. The notice specifically warned Molldrem that it could not "try to collect from [Engelby]" or "demand repayment from [him] by mail, phone, or otherwise." Id.
In July 2016, Molldrem hired ICS to collect the debt from Engelby. Id. ¶ 7; see also ECF No. 25 at 2. Molldrem apparently did not inform ICS that Engelby had filed for bankruptcy or that the automatic stay barred collection activities against him. ICSsent letters to Engelby on July 9, 2016, and July 29, 2016, both demanding that he repay his debt to Molldrem. Compl. ¶ 12; see also id. Ex. B. Engelby did not respond.
The bankruptcy court issued an Order for Discharge on August 11, 2016. Id. ¶ 14; see also Flynn Decl. Ex. 3. On August 12, 2016, ICS sent Engelby yet another letter demanding that he repay his debt to Molldrem. Compl. ¶ 15; see also id. Ex. C. Of course, that debt no longer existed, as it had been discharged the previous day by the bankruptcy court. But ICS was apparently unaware of that fact.
Engelby brings this action against ICS, alleging that ICS violated multiple provisions of the FDCPA when it sent demand letters to him on July 9, July 29, and August 12, 2016. ICS now moves to dismiss Engelby's amended complaint for failure to state a claim.
To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a complaint must "state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Although the factual allegations in the complaint need not be detailed, they must be sufficient to "raise a right to relief above the speculative level." Id. at 555. In assessing the sufficiency of the complaint, the Court may disregard legal conclusions that are couched as factual allegations. See Ashcroft v.Iqbal, 556 U.S. 662, 678-79 (2009). The Court must, however, accept as true all of the factual allegations in the complaint and draw all reasonable inferences in the plaintiff's favor. See id. at 678.
Ordinarily, if the parties present, and the Court considers, matters outside of the pleadings, the motion must be treated as a motion for summary judgment. Fed. R. Civ. P. 12(d). But the Court may consider materials that are necessarily embraced by the complaint, as well as any exhibits attached to the complaint, without converting the motion into one for summary judgment. Mattes v. ABC Plastics, Inc., 323 F.3d 695, 697 n.4 (8th Cir. 2003); see also Kushner v. Beverly Enters., Inc., 317 F.3d 820, 831 (8th Cir. 2003) () (citation omitted).
Engelby alleges that ICS violated the FDCPA when it sent collection letters to him on July 9, July 29, and August 12, 2016. Engelby relies on multiple provisions of the FDCPA, but only one of those provisions needs to be discussed, because the Court must deny ICS's motion if Engelby has pleaded a plausible claim under any provision of the FDCPA.
Under the FDCPA, a "debt collector" may not "use any false, deceptive, or misleading representation or means in connection with the collection of any debt." 15 U.S.C. § 1692e.1 The FDCPA sets forth a non-exclusive list of acts that violate this provision, including the making of a "false representation of the character, amount, or legal status of any debt." 15 U.S.C. § 1692e(2)(A).
Each of the three letters sent to Engelby by ICS asserted that Engelby's debt to Molldrem was due, and each of the letters demanded that Engelby repay that debt. But at the time of the July 9 and July 29 letters, Engelby's debt to Molldrem was not due because of the automatic stay. And at the time of the August 12 letter, Engelby's debt to Molldrem was not due because that debt had been discharged by the bankruptcy court. It seems clear, then, that the three letters misrepresented the legal status of Engelby's debt to Molldrem in violation of § 1692e(2)(A). See Randolph v. IMBS, Inc., 368 F.3d 726, 728 (7th Cir. 2004) ; Eide v. Colltech, Inc., 987 F. Supp. 2d 951, 962-63 (D. Minn. 2013) ().
ICS does not dispute that its letters mischaracterized the legal status of Engelby's debt. ICS argues, however, that it nevertheless cannot be held liable under the FDCPA for two reasons. First, ICS argues that it cannot be held liable under the FDCPA because at the time that it sent the letters it did not know that Engelby had filed for bankruptcy or that his debt had been discharged. Second, ICS argues that Engelby is judicially estopped from pursuing his FDCPA claims because he did not disclose those claims during the Chapter 7 proceedings. The Court will address each defense in turn.
ICS asserts—and Engelby does not dispute—that ICS was not aware of Engelby's bankruptcy proceedings, and thus ICS was not aware of the automatic stay or the eventual discharge of Engelby's debt to Molldrem. ICS further argues that "[d]ue to the lack of notice of the bankruptcy and discharge, ICS could not have willfully and knowingly violated the automatic stay and discharge injunction by communicating with Plaintiff and therefore did not violate the FDCPA." ECF No. 25 at 2. The Court disagrees.
Engelby could have sued ICS under the Bankruptcy Code for violating the automatic stay and could have sought to hold ICS in contempt of court for attempting to collect a discharged debt. See 11 U.S.C. § 362(a)(6) (); 11 U.S.C. § 524(a)(2) (). Had Engelby done so, Engelby could not have collected damages unless he was able to prove that ICS acted willfully. See 11 U.S.C. § 362(k)(1) (); In re Emmons, 349 B.R. 780, 793 (Bankr. W.D. Mo. 2006) ( ). Thus, ICS's lack of knowledge of the bankruptcy proceedings would have been a defense to an action under the Bankruptcy Code.
But Engelby has not sued ICS under the Bankruptcy Code. Instead, he has sued Engelby under the FDCPA. Section 1692e(2)(A) is a strict-liability provision. To recover under § 1692e(2)(A), a plaintiff need establish only that the defendant made a "falserepresentation of the character, amount, or legal status of any debt." A plaintiff is not required to prove that the defendant knew that the representation was false. See Randolph, 368 F.3d at 730 ( ); see also Clark v. Capital Credit & Collection Servs., Inc., ...
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