Hinten v. Midland Funding, LLC
| Decision Date | 22 October 2013 |
| Docket Number | No. 2:13 CV 54 DDN,2:13 CV 54 DDN |
| Parties | MALENA HINTEN and LAUREL MOORE, individually and on behalf of others similarly situated, Plaintiffs, v. MIDLAND FUNDING, LLC, Defendant. |
| Court | U.S. District Court — Eastern District of Missouri |
This action is before the court on the motion of defendant Midland Funding, LLC, to compel arbitration and to dismiss the claims of plaintiffs Malena Hinten, Laurel Moore, and other similarly situated plaintiffs. (Doc. 20.) The parties have consented to the exercise of plenary authority by the undersigned United States Magistrate Judge pursuant to 28 U.S.C. § 636(c). (Doc. 14.) The court heard oral argument on September 26, 2013.
On June 7, 2013, plaintiff Malena Hinten, individually and on behalf of similarly situated Missouri residents, commenced this action against defendant Midland Funding, LLC. (Doc. 1.) On June 17, 2013, plaintiff Hinten amended the complaint to include plaintiff Laurel Moore. (Doc. 10.)
According to the complaint, the following occurred. Plaintiffs, including Hinten and Moore, are Missouri residents subjected to the defendant's debt collection method of filing judicial actions in Missouri courts within the three years preceding the commencement of the instant action. (Id. at ¶¶ 1, 7.) Defendant engages in the collection of debt acquired after default. (Id. at ¶ 4.) Specifically, defendant purchases deeply discounted portfolios of debt that original creditors have ceased their attempts to collect. (Id. at ¶¶ 11-13.) From the original creditors,defendant receives solely a bill of sale and limited information concerning the debtors. (Id. at ¶ 15.)
Plaintiffs allege that when informal means do not result in debt satisfaction, defendant files an action in Missouri state courts with no intention of prosecuting the action and with no intention of obtaining further evidence to establish its claims. (Id. at ¶¶ 18, 19, 24, 27, 29.) Rather, by filing a state court action, defendant seeks to prevail only by settlement or by a default judgment. (Id. at ¶ 26.) Defendant's method includes filing undetailed complaints and filing motions to continue and for default judgment. (Id. at ¶ 28.) Defendant makes no attempt to obtain evidence in support of the claim. (Id. at ¶ 29.) For example, defendant's state court pleadings against plaintiffs indicated only alleged amounts of debt, and defendant took no action, including discovery requests, to verify facts supporting its cause of action and did not provide plaintiffs with such verification. (Id. at ¶¶ 67-68, 73-74.) Further, the terms of the agreement by which defendant purchased the debt against plaintiffs prohibit defendant from seeking information from the previous owner of the debt. (Id. at ¶ 29(g).) Furthermore, defendant files affidavits to authenticate business records knowing that the affiant lacks personal knowledge. (Id. at ¶¶ 35-37.) If the actions come near the trial date in the state court proceedings, defendant attempts to settle, and, if unsuccessful, dismisses the case. (Id. at ¶¶ 42-44.) In most cases, debtors settle or the court orders default judgment. (Id. at ¶ 39.)
Plaintiffs allege under the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692, et seq., that defendant filed Missouri state court judicial collection actions against them as consumers for the sole purpose of obtaining default judgments or inducing settlement with no intention of further prosecuting the claims. (Id. at ¶¶ 94-95.) Plaintiffs allege that such conduct constitutes a false or misleading representation because, by filing a lawsuit, defendant represents it intends to continue to prosecute it. (Id.)
As a separate claim, plaintiffs allege that defendant filed these state court actions without sufficient evidence to support the pleadings, without knowledge of sufficient evidence, or without the intent to investigate further.1 (Id. at ¶¶ 97-98.) Plaintiffs allege that such conduct constitutes a misrepresentation regarding the character, amount, and legal status of the debt andan attempt to collect amounts not expressly authorized by agreement or permitted by law. (Id.) Plaintiffs further allege as Missouri state law claims abuse of process, prima facie tort, and violation of the Missouri Merchandising Practices Act, Mo. Rev. Stat. § 407.020. (Id. at ¶¶ 103-23.)
Plaintiffs request statutory damages in the amount of $500,000.00 under 15 U.S.C. § 1692(a)(2)(A), actual damages under 15 U.S.C. § 1692(a)(1), costs and attorney fees under 15 U.S.C. § 1692(a)(3). Plaintiffs further demand a jury trial. (Id. at 38-39.)
Defendant moves to compel arbitration, alleging that plaintiffs Hinten and Moore signed a credit agreement with an arbitration clause covering claims between debtors and assignees arising from the credit accounts or agreements. Plaintiffs respond that defendant fails to show that plaintiffs' claims are subject to an arbitration clause. (Docs. 21, 28.)
Alternatively, defendant moves to dismiss for failure to state a claim, arguing that the conduct alleged does not constitute false or misleading representations or unfair or unconscionable conduct under the Fair Debt Collection Practices Act, and that abuse of process claims constitute compulsory counterclaims in the underlying state suits. Defendant further argues that Missouri law does not recognize negligence, recklessness, or intentional actions based upon the filing of an action, that plaintiffs fail to articulate facts supporting an abuse of process claim, and that the Missouri Merchandising Practices Act requires a connection to the sale or advertising of merchandise and requires pleading with particularity. (Doc. 21.)
A motion to dismiss under Fed. R. Civ. P. 12(b)(6) challenges the legal sufficiency of the complaint. Carton v. General Motor Acceptance Corp., 611 F.3d 451, 454 (8th Cir. 2010). To survive a 12(b)(6) motion, the complaint must include "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). To meet the plausibility standard, the complaint must contain "more than labels and conclusions." Id. at 555. Rather, the complaint must contain "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
The Federal Arbitration Act provides that contractual provisions for the arbitration of controversies arising from the contract "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. "When a party moves to compel arbitration, our role is to determine whether there is an agreement between those parties which commits the subject matter of the dispute to arbitration." Larry's United Super, Inc. v. Werries, 253 F.3d 1083, 1085 (8th Cir. 2001). "A party seeking to enforce a contract has the burden of establishing the existence of a valid, legally enforceable contract." GGNSC Omaha Oak Grove, LLC v. Payich, 708 F.3d 1024, 1026 (8th Cir. 2013).
To support its motion to compel, defendant proffers the affidavit of Kyle Hannan as the custodian of defendant's records.2 (Doc. 21-1 at 1-4.) The affidavit states that plaintiffs Hinten and Moore entered into credit agreements attached thereto that include arbitration clauses applicable to this action. (Id.) Plaintiffs argue that the purported credit agreements constitute hearsay that falls under no exception, including the business record exception.
The Federal Rules of Evidence provide a hearsay exception for business records:
A record of an act, event, condition, opinion, or diagnosis if:
Plaintiffs argue that the records are inadmissible because Kyle Hannan has no personal knowledge regarding the recordkeeping practices of the original record maker or record keeper. Plaintiffs rely on Missouri law, arguing that under Mo. Rev. Stat. § 490.680, "a document that is prepared by one business cannot qualify for the business records exception merely based on another business's records custodian testifying that it appears in the files of the business that did not create the record." CACH, LLC v. Askew, 358 S.W.3d 58, 63 (Mo. 2012). However, because privilege is not at issue, the Federal Rules of Evidence, not the Missouri state evidentiary rules, apply in this federal action. Fed. R. Evid. 101(a); Fed. R. Evid. 1101.
Plaintiffs do not argue that state evidentiary rules apply, but that the federal and state applications of the business record hearsay rule are identical. The court disagrees. The holdings of the Eighth Circuit sharply contrast with the Supreme Court of Missouri's in Askew. For Fed. R. Evid. 803(6), "a custodian or 'other qualified witness' need not have personal knowledge regarding the creation of the document offered, or personally participate in its creation, or even know who actually recorded the information." Resolution Trust Corp. v. Eason, 17 F.3d 1126, 1132 (8th Cir. 1994). Further, the Eighth Circuit has held that "a record created by a third party and integrated into another entity's records is admissible as the record of the custodian...
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