McGlynn v. Credit Store, Inc.
| Decision Date | 21 May 1999 |
| Docket Number | No. CA 98-273ML.,CA 98-273ML. |
| Citation | 234 BR 576 |
| Parties | Thomas McGLYNN and Roger Levesque v. The CREDIT STORE, INC.; Citizens Bank; and First National Bank in Brookings. |
| Court | U.S. District Court — District of Rhode Island |
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Jeffrey Scott Sell, Edelman & Combs, Chicago, IL, Christopher M. Lefebvre, Pawtucket, RI, for plaintiffs.
Deming E. Sherman, Edwards & Angell, Providence, RI, for the Credit Store, Inc. and Bank in Brookings.
R. Daniel Prentiss, Ian Ridlon, McGovern, Noel & Benik, Providence, RI, for Citizens Bank.
Plaintiffs filed suit against the Credit Store, Inc. ("Credit Store"), first National Bank in Brookings ("First National"), and Citizens Bank ("Citizens"). Plaintiffs allege that the defendants violated 11 U.S.C. § 524 and conspired to engage in an unlawful civil conspiracy. Plaintiffs also aver that the defendant Credit Store and First National violated the Fair Debt Collection Practices Act ("FDCPA"). In turn, Defendants filed an array of motions to dismiss, to stay, or in the alternative, to transfer the present matter.
The court referred these motions to Magistrate Judge Robert W. Lovegreen for his preliminary review, findings, and recommended disposition. See 28 U.S.C. § 636(b)(1); D.R.I.Loc.R. 32(c). In his report, the magistrate judge recommended that the Credit Store and First National's motion to dismiss, stay, or transfer the case to the Northern District of Illinois be denied; that Plaintiffs' § 524 and civil conspiracy claims be transferred to the United States Bankruptcy Court for the District of Rhode Island; and, that Citizens' Rule 12(b)(6) motion to dismiss should also be transferred to the bankruptcy court and decided by the Bankruptcy Judge.
The defendants subsequently filed objections to the magistrate judge's report. After reviewing the parties' motions, the report and recommendation, the parties' objections thereto and the relevant law, this court adopts the findings, conclusions and recommendations of Magistrate Judge Lovegreen. Finding that Plaintiffs' FDCPA claim does not "arise under" Title 11, this court retains jurisdiction over Count One and stays proceedings pertaining thereto until Plaintiffs' other claims have been resolved in the bankruptcy court.
SO ORDERED:
REPORT AND RECOMMENDATION
Plaintiffs, Thomas McGlynn and Roger Levesque, have brought a four count, as yet uncertified, class action against defendants, the Credit Store, Inc. ("Credit Store"), First National Bank in Brookings ("First National") and Citizens Bank ("Citizens"). Various other corporate and individual defendants were originally named but they have since been voluntarily dismissed from the case. Plaintiffs claim that defendants used fraudulent and deceptive means to induce consumers who have been discharged in bankruptcy to pay their discharged debts. The contention is that these practices violated the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, (Credit Store and First National) and the Bankruptcy Code, 11 U.S.C. § 524, (all defendants), and constituted a civil conspiracy to collect debts discharged in bankruptcy in violation of 11 U.S.C. § 524(a)(2) (all defendants).
A similar class action, filed nineteen months before this claim, on October 24, 1996, by the attorney representing plaintiffs here, is pending in the United States District Court for the Northern District of Illinois ("Illinois action"). Therefore, the Credit Store has moved to dismiss, stay, or transfer this case to the Northern District of Illinois pursuant to the first-to-file rule or, in the alternative, to transfer the case pursuant to 28 U.S.C. § 1404. Defendant Citizens opposes a stay or transfer and has brought a Rule 12(b)(6) motion to dismiss. Plaintiffs oppose defendants' motion to dismiss, stay, or transfer the case pursuant to the first-to-file rule; oppose a transfer pursuant to § 1404; and oppose Citizens' Rule 12(b)(6) motion to dismiss.
This matter has been referred to me for preliminary review, findings, and recommended disposition. 28 U.S.C. § 636(b)(1)(B); Local Rule of Court 32(c). A hearing was held on November 24, 1998. After examining the memoranda and exhibits submitted, listening to the arguments of counsel, and conducting my own independent research, I recommend that the Credit Store and First National's motion to dismiss, stay, or transfer the case to the Northern District of Illinois be denied and that the claims of violation of 11 U.S.C. § 524 and the conspiracy claim against all defendants be transferred to the United States Bankruptcy Court for the District of Rhode Island where Citizens' Rule 12(b)(6) motion to dismiss should also be decided.
Plaintiffs allege the following: Prior to December 1997, the Credit Store and First National agreed to purchase large amounts of written-off consumer debts from banks and other financial institutions, some or all of which were debts discharged in bankruptcy. Citizens agreed to sell these discharged debts to the Credit Store, knowing that discharged debts had no value for any legitimate purpose and that the acquisition of such debts could only be for attempting to enforce or collect them. After buying the debts, defendants sent solicitation material through the mail to the "debtors" in order to induce them to open credit card accounts, the account balances of which would include the discharged debts. Further, defendants misled, through their advertising, those individuals solicited. Defendants also made repeated telephone calls to individuals to pressure them to apply for the credit card or to repay the discharged debt. Plaintiffs claim that this conduct violated the Fair Debt Collection Practices Act ("FDCPA"), § 524 of the Bankruptcy Code, and constituted a civil conspiracy to collect debts discharged in bankruptcy, in violation of § 524(a)(2) of the Bankruptcy Code.
The first-to-file rule recognizes that where two suits are filed in sister courts, a first-filed action is generally preferred where "prosecution of both would entail duplicative litigation and a waste of judicial resources." S.W. Industries, Inc. v. Aetna Casualty and Surety Co., 653 F.Supp. 631, 634 (D.R.I.1987) citing Small v. Wageman, 291 F.2d 734, 736 (1st Cir. 1961). Preference for the first-filed action is "not a per se rule, but rather a policy governed by equitable considerations: `the forum where an action is first filed is given priority over subsequent actions, unless there is a showing of balance of convenience in favor of the second action, or there are special circumstances which justify giving priority to the second.'" S.W. Industries, 653 F.Supp. at 631 (quoting Gemco Latinoamerica, Inc. v. Seiko Time Corp., 623 F.Supp. 912, 916 (D.P.R.1985)).
Generally, the first-to-file rule is applied where the same parties are attempting to litigate the same issues in sister courts. However, the rule may still be applicable where complete identification of parties is lacking in cases asking for identical declaratory or injunctive relief. See National Health Fed'n v. Weinberger, 518 F.2d 711 (7th Cir.1975). There are no cases where the court has determined that the first-to-file rule should apply: 1) where plaintiffs in the two cases are different and damages are demanded; 2) where only one of several defendants in the second filed action is the same as in the first filed action; and 3) where severance would be required in order to transfer the case because personal jurisdiction over one of the defendants is unlikely in the transferee court.
Plaintiffs' claim that the Credit Store and First National acted to collect a debt in violation of 11 U.S.C. § 524(a)(2) is the foundation for all other claims against all defendants. If they were not acting to collect a debt, plaintiffs' bankruptcy claim will fail (voluntary repayment of discharged debt is allowed under 11 U.S.C. § 524(f)); its FDCPA claim will fail (FDCPA only applies to "debt collectors"); and the conspiracy claim will fail as well (requires assent to illegal enterprise). The issue of whether the Credit Store was acting to collect a debt is now before the Illinois court in the form of the Credit Store's Rule 12(b)(6) motion to dismiss.
In determining whether the Credit Store was acting to collect a debt, the court must first decide two subsidiary issues: 1) whether any inducement by a creditor renders repayment of a discharged debt involuntary and thus in violation of § 524(a)(2) and, 2) if only coercive actions by the creditor render the repayment involuntary, whether defendants' alleged actions were coercive. The factual averments in both cases are similar, but not identical. Only in the Rhode Island case have plaintiffs alleged that defendants made telephone calls pressuring plaintiffs to apply for credit cards that would carry the discharged debts as a balance and only in the Illinois action have plaintiffs averred that they actually opened credit card accounts. These facts may distinguish the Illinois from the Rhode Island action such that different outcomes in the two cases would be rational and reconcilable, therefore relieving this court of serious concern over inconsistent results.
In cases where the first-to-file rule has been applied, the courts have also required that the parties to both actions be the same unless the relief sought is declaratory or injunctive in nature and the prayers for relief are identical. See National Health Fed'n v. Weinberger, 518 F.2d 711 (7th Cir.1975). Here, the named plaintiffs are clearly different and the proposed plaintiff classes are different in a way that may well affect the central issue as to whether defendants were acting to collect a debt or whether plaintiffs were voluntarily repaying their debts. The plaintiff class in the...
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