Limpert v. Cambridge Credit Counseling Corp.

• Decision Date: 05 August 2004
• Docket Number: No. CV-03-5986.,CV-03-5986.
• Citation: 328 F.Supp.2d 360
• Parties: Christie LIMPERT and Vivian Fonteboa, individually and on behalf of others similarly situated, Plaintiffs, v. CAMBRIDGE CREDIT COUNSELING CORPORATION., et al., Defendants.
• Court: U.S. District Court — Eastern District of New York

328 F.Supp.2d 360

Christie LIMPERT and Vivian Fonteboa, individually and on behalf of others similarly situated, Plaintiffs, v. CAMBRIDGE CREDIT COUNSELING CORPORATION., et al., Defendants.

No. CV-03-5986.

United States District Court, E.D. New York.

August 5, 2004.

G. Oliver Koppell, John F. Duane, Paul E. Kerson, Koppell, Leavitt, Kerson & Duane, LLP, New York City, for Plaintiffs.

Lawrence M. Kraus, Michael J. Tuteur, Epstein, Becker & Green, P.C., Boston, MA, Paul M. Kaplan, David J. Clark, Epstein Becker & Green, P.C., New York City, for Defendants.

MEMORANDUM AND ORDER

PLATT, District Judge.

Defendants the Cambridge Credit Counseling Corporation, et al., move under Federal Rules of Civil Procedure 12(b)(1) and (6) for dismissal of the claims brought against them by class action Plaintiffs Christie Limpert and Vivian Fonteboa. Plaintiffs sued Defendants under the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692 et seq., ["FDCPA"]; the Credit Repair Organization Act, 15 U.S.C. §§ 1679 et seq., ["CROA"]; and the Racketeering Influenced and Corrupt Organization Act, 18 U.S.C. §§ 1961 et seq., ["RICO"]. Oral argument was heard on July 15, 2004.

For the following reasons, Defendants' Rule 12(b)(1) motion is DENIED. Defendants' motion is GRANTED, pursuant to Rule 12(b)(6), as to Plaintiffs' FDCPA claims, and these claims are dismissed WITH PREJUDICE. Defendants' Rule 12(b)(6) motion is GRANTED as to Plaintiffs' CROA claims against Cambridge Brighton and Cambridge Credit Counseling, and these claims are also dismissed WITH PREJUDICE, but Defendants' motion is DENIED as to Plaintiffs' CROA claims against the remaining eight Defendants. Defendants' motion is GRANTED, under Rule 12(b)(6), as to Plaintiffs' RICO claims, yet these are dismissed WITHOUT PREJUDICE and with LEAVE TO RE-FILE.

Background

The class action Plaintiffs in this case are consumers alleged to be enrolled in debt management plans ["DMPs"]. These plans are alleged to have been "created and administered by ... Defendants through unlawful, false, misleading, deceptive and unfair trading practices" in violation of the FDCPA, CROA and RICO. Defendants are eight credit counseling corporations and partnerships owned by individually-named Defendants Robert Henle and John and Richard Puccio. They offer indebted consumers DMPs in which "consumers agree to pay their unsecured debts to Defendants, who then disburse the payments to consumers' creditors." These payments are purportedly disbursed in exchange for sub rosa fees collected from both debtors and creditors, and with chimerical promises offered to debtors of, inter alia, lower credit card balances and interest rates, fewer late fees, and improved credit ratings. Plaintiffs' Memorandum of Law in Opposition to Defendants' Motion to Dismiss at 1-2.

Plaintiffs offer evidence that the credit counseling industry is rife with abuse. They cite the records of congressional hearings held by the Senate's Governmental Affairs and the House of Representatives' Ways and Means Committees, testimony given to these bodies by Federal Trade Commission and Internal Revenue Service officials, and legal action taken by the Attorney General of the Commonwealth of Massachusetts, as illustrative of the problem. Indeed, Congress is presently considering legislation to deal with these problems — specifically, the Debt Counseling, Debt Consolidation, and Debt Settlement Practices Improvement Act of 2003. See id. at 5-6; see also Defendants's Memorandum of Law in Support of their Motion to Dismiss at 6 (citing H.R. 3331, 108th Congress, 1st Sess., available at http:// thomas.loc.gov).

Defendants argue in response to Plaintiffs' 42-page Complaint that two of the three statutes sued upon by Plaintiffs, the FDCPA and CROA, do not apply to credit counselors, as they themselves are neither debt collectors nor credit repairers, and that the predicates of the third statute, RICO, are insufficiently pleaded. See Defendants' Memorandum, passim.

Defendants are mostly correct. Plaintiffs' citation of evidence that legislators and regulators are perhaps justifiably concerned with claimed abuses in the credit counseling industry shows that existing statutory remedies and administrative oversight are insufficient, and that current laws — the laws, such as the FDCPA and CROA, upon which Plaintiffs sue — do not offer relief for the alleged wrongs perpetrated against Plaintiffs by all of the named Defendants. The democratic process may soon provide Plaintiffs with mechanisms through which to address their possibly legitimate grievances against the credit counseling industry. Unless and until the Executive and the Legislature do so, however, Plaintiffs may not shoe-horn the facts of their Complaint into the FDCPA, which deals with debt collection. Plaintiffs may or may not be able to fit their claims against some Defendants within the parameters of the CROA, which deals with debt repair, if Defendants are in fact representing that they offer debt repair services and not solely credit counseling services. Plaintiffs may rely upon the RICO statute, but they must first allege its statutory predicates with sufficient particularity.

Standard of Review

On their motion to dismiss Plaintiffs' Complaint under Rule 12(b)(6), for failure to state a claim upon which relief may be granted, Defendants bear the burden of showing that even if the Complaint's allegations are accepted as true, and all reasonable inferences are drawn in Plaintiffs' favor, Plaintiffs are still not entitled to the relief they seek. Dismissal is proper only if no relief could be granted under any set of facts consistent with Plaintiffs' allegations.¹

Discussion

A. Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692 et seq., addresses abusive dunning conduct. The FDCPA defines a debt collector as any person who collects debts owed to another. See 15 U.S.C. § 1692(a)(6). The FDCPA does not apply to "any nonprofit organization which, at the request of consumers, performs bona fide consumer credit counseling and assists consumers in the liquidation of their debts by receiving payments from such consumers and distributing such amounts to creditors." Id.

The FDCPA intends to restrain collection practices including:

obscene or profane language, threats of violence, telephone calls at unreasonable hours, misrepresentation of a consumer's legal rights, disclosing a consumer's personal affairs to friends neighbors or an employer, obtaining information about a consumer through false pretenses, impersonating public officials and attorneys, and simulating legal process.

S.Rep. No. 95-382, 95th Cong., 1st Sess. at 2, reprinted in 1977 U.S.C.C.A.N.1965, 1696; cited in Defendants's Memorandum at 4-5.

Defendants argue that they are credit counselors, and not debt collectors, and that Plaintiffs' representations to the contrary are "conclusory statements, lacking any factual underpinning." Defendants emphasize that they are not retained by creditors, they are instead retained by debtors. Defendants' Memorandum at 17-18; see also Defendants' Reply Memorandum at 4-5.

Plaintiffs respond that Defendants are, in fact, debt collectors within the meaning of the FDCPA. They point to Section 1692(a)(6)'s definition of a debt collector as any person who collects debts owed to another. Plaintiffs suggest that under the plain language of the statute, Defendants qualify as debt collectors, because they assume the debts of others, and then satisfy their creditors. See Plaintiffs' Memorandum at 14-15.

The available case law regarding this issue is quite thin. Two cases helpfully brought to the Court's attention by both parties — Goldstein v. Hutton, 374 F.3d 56 (2d Cir.2004); and Zimmerman v. Cambridge Credit Counseling Corp, 322 F.Supp.2d 95 (D. Mass.2004) — are instructive, but not decisive.

In Goldstein, the United States Court of Appeals for the Second Circuit considered whether a law firm admittedly involved in debt collection was "regularly" engaged in debt collection within the meaning of Section 1692(a)(6). Id. at 61. Here, the question is whether Defendants were engaged in debt collection at all.

In Zimmerman, the United States District Court for Massachusetts, in a case involving the same lead Defendant as in the case sub judice, dismissed the plaintiff's FDCPA claim, but on the grounds of the expiration of the statute of limitations. See id. at 98-99; cf. n. 1, supra.

The Court finds that while the distinction between credit counseling and debt collection is finely cut, it is nonetheless controlling. No debtor ever retained a debt collector to collect a debt from himself. In the case at bar, Plaintiffs, whether wisely or unwisely, voluntarily retained Defendants to obtain their credit counseling services. While these "counseling" services involve Defendants assuming Plaintiffs' debts, and while Defendants do receive fees from Plaintiffs' creditors, there is no allegation that Defendants unilaterally seek out Plaintiffs to unlawfully harass them into paying their debts, which is the unfortunate practice that the FDCPA seeks to control.

Plaintiffs may well argue upon appeal that the Court is elevating form over substance in its interpretation of Section 1692(a)(6). But Defendants' industry here seems to have stumbled upon a lacuna in the law, one which Congress, recognizing the problem, is contemporaneously working to close. Defendants are not debt collectors as they do not collect debts owed to others; rather, they assume such debts as part of their method, whatever its merits, of credit counseling.

If Defendants subsequently engaged in abusive practices against clients who retained then but then defaulted upon their obligations to Defendants, then, despite their status as credit counselors, they might run afoul the FDCPA. Such facts are, however, dehors the record.

Defendants' Rule 12(b)(6) motion is GRANTED as to Plaintiffs'...