Johnson v. Brock & Scott, PLLC
| Decision Date | 26 September 2012 |
| Docket Number | No. 5:11-CV-474-F,5:11-CV-474-F |
| Court | U.S. District Court — Eastern District of North Carolina |
| Parties | RENEE JOHNSON, Plaintiff, v. BROCK & SCOTT, PLLC, CHANNEL GROUP, LLC, AND COMPREHENSIVE LEGAL SOLUTIONS, INC., Defendants. |
This matter is before the court on Defendants' Notice of Default [DE-14], Motion to Disqualify Counsel [DE-30], Motion for Partial Judgment Upon the Pleadings [DE-38], and Plaintiff's Motion to Dismiss Defendant's Counterclaim Pursuant to Rule 12(b)(6) [DE-17, DE-33]. These motions have been fully briefed and are ripe for ruling.
Plaintiff Renee Johnson filed a complaint against Defendants Brock & Scott and Channel Group in this court on September 9, 2011, alleging claims for violations of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692 et seq., and the North Carolina Debt Collection Practices Act ("NCDCPA"), N.C. Gen. Stat. § 75-50 et seq. Plaintiff added Comprehensive Legal Solutions as a Defendant on November 8, 2011. In the complaint, Plaintiff states that she defaulted on a monetary obligation to Chase Bank. Chase Bank then sold the obligation to the Defendant Channel Group, LLC on an unspecified date. On September 1, 2009,Defendants Brock & Scott, on behalf of the Channel Group, filed an action in North Carolina state court to collect the debt. Although the parties dispute whether Plaintiff was properly served with notice of the action, Plaintiff notes in the Amended Complaint that judgment was entered against her in the state court action. Amend. Compl. [DE-12] ¶¶ 38-41. On October 23, 2009, Channel Group assigned their collection rights to Defendant Comprehensive Legal Solutions, Inc.
Plaintiff alleges that she first learned of the judgment against her when she obtained her credit report on January 5, 2011. Plaintiff attempted to call Defendant Channel Group to arrange a payment schedule and Channel Group instructed her to contact Defendant Brock & Scott.1 Plaintiff called Brock & Scott on January 27, 2011 to inquire about the judgment and allegedly provided her full name, Amanda R. Johnson, her correct social security number, and the correct state court case number. Plaintiff alleges that Brock & Scott incorrectly informed her that no state court judgment had been entered against her. Plaintiff further alleges that Brock & Scott advised Plaintiff that she did not owe a debt to any of the Defendants and that the credit report entry was possibly a mistake. In addition, Defendant Brock & Scott sent a letter on behalf of itself and Defendant Channel Group dated January 27, 2011, which stated in relevant part "Our records indicate that we do not have a Judgment filed for Amanda R. Johnson, last 4 of SSN# [redacted] for our client with Docket #2009-CVD-01-7475." Amend. Compl. [DE-12] f 47. Defendants allege that the judgment was filed using the Plaintiff's middle name, Renee Johnson, and that the they correctly reported that no judgment had been filed as to Amanda R. Johnson.
Plaintiff provided the letter from Brock & Scott to the three major credit bureaus, and the credit bureaus temporarily removed the entry from her credit report. On or about February 27, 2011, Plaintiff discovered the credit entry had been "verified" and that the credit bureaus reentered the unpaid debt on her credit report. Plaintiff then obtained counsel. On April 6, 2011, Brock & Scott allegedly sent an email to Plaintiff's attorney offering to "clear the judgment" from Plaintiff's credit report in exchange for a "suitable settlement."
Based on the foregoing, Plaintiff filed her complaint, alleging unfair and deceptive collection practices on the part of Defendants. Defendants filed counterclaims seeking a declaratory judgment that the Plaintiff acted in bad faith in prosecuting this lawsuit and attorneys fees under both 15 U.S.C. § 1692k(a)(3) and N.C. Gen. Stat. § 75-16.1(2).
Defendants have filed a number of motions that are now ripe for ruling. On November 11. 2011, the Defendants filed a Notice of Default on Defendants' counterclaims because the Plaintiff did not file a timely response to the counterclaims. Plaintiff filed a response opposing entry of default and filed an (untimely) motion to dismiss the counterclaims. Defendants also move to disqualify counsel and for partial judgment on the pleadings and Plaintiff has timely replied to these motions.
Defendants have submitted a Notice of Default pursuant to Rule 55(a) of the Federal Rules of Civil Procedure based on Plaintiff's failure to timely respond to Defendants' counterclaim. Plaintiff argues in response that (1) an adequate response to the counterclaim was provided in the Amended Complaint [DE-12], or alternatively (2) that a notice of default is not the appropriate sanction for a failure to file a timely response.
Rule 55(a) of the Federal Rules of Civil Procedure provides: "[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk shall enter the party's default." Fed. R. Civ. P. 55(a). When a party seeks to set aside an entry of default, the party must satisfy Rule 55(c)'s "good cause" standard. Fed. R. Civ. P. 55(c) (). Conversely, if a default judgment has been entered, the party must meet the "excusable neglect" standard of Rule 60(b). Fed. R. Civ. P. 60(b) (). Because setting aside a default judgment implicates policy concerns regarding finality of judgments, the Fourth Circuit has held that a motion under Rule 55(c)'s good cause standard is "more forgiving" than the Rule 60(b) excusable neglect standard. Colleton Preparatory Acad., Inc. v. Hoover Universal, 616 F.3d 413, 420 (4th Cir. 2010). Moreover, the Fourth Circuit has made clear that "the clear policy of the [Federal] [R]ules [of Civil Procedure] is to encourage the disposition of claims on their merits, although this policy must be balanced against the interest in preventing the judicial system from becoming overburdened by frivolous cases." United States v. Moradi, 673 F.2d 725, 727-28 (4th Cir. 1982) (citing Reizakis v. Loy, 490 F.2d 1132, 1135 (4th Cir. 1974)).
As discussed above, Defendants allege that the court should enter default against the Plaintiff for her failure to timely respond to Defendants' counterclaims. Plaintiff has filed a response opposing the entry of default, which this court will treat as a Rule 55(c) motion to setaside entry of default. See Meehan v. Snow, 652 F.2d 274, 276 (2d Cir. 1981) ().2 In deciding to set aside an entry of default, the Fourth Circuit has held that "the district court should consider whether the moving party has a meritorious defense, whether it acts with reasonable promptness, the personal responsibility of the defaulting party, the prejudice to the party, whether there is a history of dilatory action, and the availability of sanctions less drastic." Payne ex rel. Estate of Calzada v. Brake, 439 F.3d 198, 204-05 (4th Cir. 2006); Moradi, 673 F.2d at 727-28. The court will consider each of these factors in turn.
Defendants have filed counterclaims seeking a declaratory judgment that Plaintiff acted in bad faith and for the purpose of harassment in initiating this suit, that Plaintiff's complaint was filed and prosecuted both frivolously and maliciously, and for attorneys' fees. Answer and Counterclaim [DE-22] ¶¶ 131-36.
As to the counterclaim for attorneys fees, Plaintiff has a meritorious defense. Defendants allege counterclaims under the FDCPA and the NCDCPA, both of which allow awards for defendants' attorneys fees in cases where defendants show that the plaintiff either proceeded inbad faith or prosecuted the case maliciously and frivolously. 15 U.S.C. § 1692k(a)(3); N.C. Gen. Stat. § 75-16.1(2). Plaintiff has presented the court with numerous cases in which such counterclaims have been dismissed for failure to state a claim upon which relief can be granted. These courts have held that awards for attorneys' fees do not constitute a separate cause of action under the FDCPA and thus may not appropriately be brought via counterclaim. See, e.g., Hardin v. Folger, 704 F. Supp. 355, 356-57 (W.D.N.Y. 1988); Kropf v. TCA, Inc., 752 F. Supp. 2d 797, 800-01 (E.D. Mich 2010); Mirfendereski v. Rakestraw, No. 2:10-CV-306, 2011 WL 3584325, at *3 (S.D. Ohio Aug. 15, 2011). Courts that have dismissed counterclaims for attorneys fees have allowed the prevailing party to bring a motion for attorney's fees at the close of the proceedings. See, e.g., Kirscher v. Messerli & Kramer, PA, No. 05-1901, 2006 WL 145162, at *7 (D. Minn. Jan. 18, 2007) (). Thus, Plaintiff has a meritorious defense as to Defendants' counterclaim for attorneys' fees.
As to both declaratory judgment counterclaims, the court finds that Plaintiff has a meritorious defense. Declaratory judgments may be dismissed where a party seeks a coercive judgment on the exact same legal issue that is presented in the declaratory judgment action. In re Orion Pictures Corp, 4 F.3d 1095, 1100 (2d Cir 1993). In Orion, the Second Circuit reviewed a bankruptcy judgment in which the debtor sought damages under a contract and a declaratory judgment regarding the debtor's rights under the contract. Id. at 1097. The Orion court explained that "[w]here a...
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