Lutz v. Portfolio Recovery Assocs., LLC

• Decision Date: 19 September 2022
• Docket Number: 21-1656
• Citation: 49 F.4th 323
• Parties: Michael LUTZ, individually and on behalf of all others similarly situated, Appellant v. PORTFOLIO RECOVERY ASSOCIATES, LLC
• Court: U.S. Court of Appeals — Third Circuit

49 F.4th 323

Michael LUTZ, individually and on behalf of all others similarly situated, Appellant
v.
PORTFOLIO RECOVERY ASSOCIATES, LLC

No. 21-1656

United States Court of Appeals, Third Circuit.

Argued: May 4, 2022
Filed: September 19, 2022

Kevin J. Abramowicz [ARGUED], Kevin W. Tucker, East End Trial Group, 6901 Lynn Way, Suite 215, Pittsburgh, PA 15208, Counsel for Michael Lutz

Tammy L. Adkins [ARGUED], Amy Gilbert, David L. Hartsell, McGuireWoods, 77 West Wacker Drive, Suite 4100, Chicago, IL 60601, Jarrod D. Shaw, McGuireWoods, 260 Forbes Avenue, Suite 1800, Pittsburgh, PA 15222, Counsel for Portfolio Recovery Associates, LLC

Stefanie Hamilton, Carlton M. Smith, Commonwealth of Pennsylvania, Department of Banking and Securities, 17 North Second Street, Suite 1300, Harrisburg, PA 17101, Counsel for Amicus Curiae

Before: GREENAWAY, JR., KRAUSE, and PHIPPS, Circuit Judges.

OPINION OF THE COURT

PHIPPS, Circuit Judge.

In this case, a consumer, who seeks to represent a putative class, sues a debt collection firm for attempting to collect an outstanding credit-card debt, which had accrued interest at an annual rate of 22.90%. After the consumer had not paid the balance for several months, the bank canceled the card, ceased charging interest, closed the account, and sold it to the debt-collection firm. The firm did not charge interest on the account balance after purchasing it, but the firm did attempt to collect the outstanding balance inclusive of the previously accrued interest.

In his amended complaint, the consumer claimed that the debt collection firm violated the Fair Debt Collection Practices Act

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by making false statements about the amount of the debt, see 15 U.S.C. § 1692e, and by collecting a debt not permitted by law, see id. § 1692f. Both of those claims rest on the premise that a Pennsylvania statute prohibits the debt collection firm from collecting the interest that had previously accrued at an annual rate greater than 6%. See 7 P.S. § 6203.A; see also 41 P.S. § 201(a).

The debt collection firm moved to dismiss those claims and the others brought by the consumer, all for failure to state a claim upon which relief can be granted. See Fed. R. Civ. P. 12(b)(6). The District Court granted that motion and did not afford the consumer another opportunity to amend the complaint.

Through a timely appeal, the consumer argues that the District Court erred in dismissing the FDCPA claims and that the District Court should have permitted him an opportunity to amend his complaint again. But the consumer does not plausibly allege that Pennsylvania law prohibited the debt collection firm from collecting interest that had previously accrued at greater than 6% annually. Thus, as elaborated below, on de novo review of the motion to dismiss¹ and abuse-of-discretion review of the denial of the motion to amend the pleadings,² we will affirm the judgment of the District Court.

I. FACTUAL BACKGROUND (AS ALLEGED IN THE COMPLAINT)

In July 2014, Michael Lutz received a credit card from Capital One Bank (USA), N.A. The card provided him with a revolving line of credit with which he could make purchases and obtain cash advances. For several months, Lutz made purchases and obtained cash advances with the card for personal, family, and household purposes. Lutz had an obligation to repay Capital One for those purchases and cash advances. By the terms of the credit card agreement, he could do so over time through minimum installment payments. That agreement also permitted Capital One to charge interest at an annual rate up to 22.90% on any unpaid monthly balance.

Lutz failed to make the required monthly installment payments, and Capital One charged interest on the outstanding monthly balance. By July 2015, his account balance was $2,343.76, inclusive of at least $341.67 in interest that had accrued at an annual rate of 22.90%. At that time, Capital One charged off the account: it canceled the card, ceased charging interest, closed the account, and regarded the outstanding balance as a loss.

Capital One sold the charged-off account to Portfolio Recovery Associates, LLC (‘PRA’). PRA is not a bank and cannot issue credit cards, but it does hold a license from the Pennsylvania Department of Banking and Securities to make motor vehicle loans and to charge interest at 18% to 21% on those loans. Despite that license, PRA's sole business involves purchasing defaulted consumer debt at a discount and then attempting to collect the full amount due.

As part of its collection efforts, PRA sued Lutz in a Magisterial District Court in Allegheny County, Pennsylvania in August

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2019 for the outstanding account balance. PRA obtained a default judgment against Lutz. But Lutz timely appealed to the Allegheny County Court of Common Pleas, and before a hearing in that case occurred, PRA discontinued the lawsuit.

II. PROCEDURAL HISTORY

In his original complaint, Lutz sued PRA in the District Court for the Western District of Pennsylvania for violating two provisions of the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692e, 1692f. See 28 U.S.C. § 1331 (conferring federal jurisdiction over "all civil actions arising under" the laws of the United States). Lutz based his FDCPA claims on an alleged underlying violation of Pennsylvania's Consumer Credit Code. See 12 Pa. Cons. Stat. § 6309. Instead of answering the complaint, PRA moved to dismiss it for failure to state a claim upon which relief could be granted. See Fed. R. Civ. P. 12(b)(6). Rather than opposing PRA's motion, Lutz amended his complaint. See Fed R. Civ. P. 15(a)(1) (allowing a party to amend a pleading once as a matter of course within 21 days after service of a Rule 12(b)(6) motion to dismiss).

The amended complaint did more than just attempt to cure the purported pleading deficiencies. It added additional FDCPA claims also under §§ 1692e and 1692f, which were premised on PRA's alleged violations of Pennsylvania's Consumer Discount Company Act, commonly abbreviated as the ‘CDCA.’

PRA moved to dismiss Lutz's amended complaint, again for failure to state a claim for relief. This time, Lutz opposed PRA's motion to dismiss, but as part of his opposition, Lutz requested an opportunity to amend his complaint if the District Court dismissed any or all of his claims.

The District Court granted PRA's motion and dismissed with prejudice Lutz's original claims as well as the claims added in the amended complaint. As part of that order, the District Court denied Lutz's request for leave to amend.

Lutz sought reconsideration of that order. In briefing that issue, Lutz identified another alleged underlying violation of the CDCA by PRA that he had not previously raised. The District Court rejected that attempt to present a new argument and denied his motion.

Through a timely appeal, Lutz invokes this Court's appellate jurisdiction. See 28 U.S.C. § 1291 ; Fed. R. App. P. 4(a). To supplement the briefing provided by the parties, the Pennsylvania Department of Banking and Securities responded to an invitation for an amicus filing on the issues raised in the appeal.³

III. DISCUSSION

Under the plausibility pleading standard, this Circuit uses a three-step process to evaluate a motion to dismiss a complaint for failure to state a claim for relief. See Connelly v. Lane Constr. Corp. , 809 F.3d 780, 787 (3d Cir. 2016) ; see also Burtch v. Milberg Factors, Inc. , 662 F.3d 212, 220–21 (3d Cir. 2011) ; Santiago v. Warminster Twp. , 629 F.3d 121, 130 (3d Cir. 2010). The first step in that process requires an articulation of the elements of the claim. See Connelly , 809 F.3d at 787 (quoting Ashcroft v. Iqbal , 556 U.S. 662, 675, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ); see also Santiago , 629 F.3d at 130 (quoting Iqbal , 556 U.S. at 675, 129 S.Ct. 1937 ). The second step involves reviewing the complaint and disregarding any " ‘formulaic recitation of the elements of a ... claim’ or other legal conclusion,"

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Connelly , 809 F.3d at 789 (alteration in original) (quoting Iqbal , 556 U.S. at 681, 129 S.Ct. 1937 ); see also Burtch , 662 F.3d at 224 ; Santiago , 629 F.3d at 131, as well as allegations that are "so threadbare or speculative that they fail to cross the line between the conclusory and the factual," Connelly , 809 F.3d at 790 (citation omitted); see also Fowler v. UPMC Shadyside , 578 F.3d 203, 210–11 (3d Cir. 2009). The third step evaluates the plausibility of the remaining allegations. That involves assuming their veracity, construing them in the light most favorable to the plaintiff, and drawing all reasonable inferences in the plaintiff's favor. See Connelly , 809 F.3d at 787, 790 ; see also Iqbal , 556 U.S. at 679, 129 S.Ct. 1937 ; Fowler , 578 F.3d at 210–11.

If, after completing this process, the complaint alleges "enough fact[s] to raise a reasonable expectation that discovery will reveal evidence of" the necessary elements of a claim, then it plausibly pleads a claim. Bell Atl. Corp. v. Twombly , 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). But if "a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 (citation and internal quotation marks omitted). In the latter scenario, a district court should generally "permit a curative amendment, unless an amendment would be inequitable or futile." Phillips v. County of Allegheny , 515 F.3d 224, 236 (3d Cir. 2008).

Following those three steps here on de novo review, the District Court's judgment dismissing Lutz's FDCPA claims should be affirmed.

A. The Elements of an FDCPA Claim (Only One of Which Is Disputed)

In this Circuit, a claim under the FDCPA has four elements. See Douglass v. Convergent Outsourcing , 765 F.3d 299, 303 (3d Cir. 2014). The first three involve statutorily defined terms: the plaintiff must be a "consumer," 15 U.S.C. § 1692a(3) ; the defendant must be...