Myers v. Rogers

• Decision Date: 17 February 2011
• Docket Number: No. 5:10–CV–166–D.,5:10–CV–166–D.
• Citation: 781 F.Supp.2d 264
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: Melissa MYERS, Plaintiff,v.SESSOMS & ROGERS, P.A., et al., Defendants.

781 F.Supp.2d 264

Melissa MYERS, Plaintiff,

v.SESSOMS & ROGERS, P.A., et al., Defendants.

No. 5:10–CV–166–D.

United States District Court, E.D. North Carolina,Western Division.

Feb. 17, 2011.

Angela Orso Martin, Martin, Attorney at Law, PLLC, Sanford, NC, for Plaintiff.Dauna L. Bartley, Ellis & Winters, LLP, Cary, NC, Jeffrey M. Young, Ellis & Winters, LLP, Raleigh, NC, for Defendants.

ORDER

JAMES C. DEVER III, District Judge.

On April 24, 2010, Melissa Myers (“Myers” or “plaintiff”), through attorney Angela O. Martin (“Martin”), filed this action alleging violations of the Fair Debt Collection Practices Act (“FDCPA”) [D.E. 1]. Myers alleged that defendants failed to notify the Cumberland County Clerk of Court that partial payments had been made to defendants as a judgment creditor, and that such failure violated North Carolina law and the FDCPA. On June 11, 2010, defendants filed a motion to dismiss [D.E. 8] and a motion for sanctions pursuant to Federal Rule of Civil Procedure 11(c)(2) [D.E. 6], seeking reimbursement for attorney's fees, costs, and expenses. On July 10, 2010, Myers filed notice of voluntary dismissal without prejudice [D.E. 16]. On August 2, 2010, Myers responded in opposition to the motion for sanctions [D.E. 19]. On August 12, 2010, defendants replied [D.E. 22].

As explained below, Martin violated Federal Rule of Civil Procedure 11(b), and the court grants defendants' motion for sanctions. The court admonishes Martin, directs her to pay $250 into court as a sanction for violating Rule 11, and directs her to serve a copy of this order on her client, Myers, Attorney Carlene McNulty, Attorney Suzanne Begnoche, and Attorney Brenee Orozco.

I.

Myers defaulted on personal credit card debt. Compl. 4. Defendant LVNV Funding, LLC (“LVNV”) acquired the debt and retained Sessoms & Rogers, P.A. (“S & R”) to collect it. Id. S & R initiated a collection action in Cumberland County. Id. Myers executed a confession of judgment and began making partial payments directly to S & R. Id. S & R sent receipts confirming Myers's payments and the outstanding balance directly to Martin. Compl., Ex. 1. Not until after filing the complaint did S & R send notice of the partial payments to the Cumberland County Clerk of Court. Def.'s Mem. Support Mot. Dismiss, Ex. A.

Myers's complaint alleged that S & R's failure to notify the clerk of the partial payments violated N.C. Gen.Stat. § 1–239(c). See Compl. 5. Myers then quoted the “pertinent part” of the statute. Id. She further alleged that S & R's failure to notify the clerk resulted in inaccurate information on the judgment docket. Id. Finally, she alleged that the failure to notify the clerk resulted in “the wrong information being transmitted to the credit reporting agencies.” Id. at 5–6. Myers did not allege she made any request that defendants provide notice of the partial payments to the clerk before filing the complaint. Myers's one-count complaint asserts that defendants failure “to properly credit [Myers's] payments on the judgment” violated the FDCPA. Id. at 6. Specifically, Myers alleged the defendants: (1) “used a false, deceptive [,] or misleading representation or means in connection with the collection of the debt, in violation of 15 U.S.C. § 1692e;” (2) “falsely represented the character, amount, or legal status of the debt, in violation of 15 U.S.C. § 1692e(2)(A);” (3) “communicated to any person credit information which is known or should be known to be false, in violation of 15 U.S.C. § 1692e(8);” and (4) “used a false representation or deceptive means to collect or attempt to collect the debt, in violation of 15 U.S.C. § 1692(e)(10).” Id. at 6–7.

On May 17, 2010, pursuant to Federal Rule of Civil Procedure 11(c)(2), defendants served Martin with their Rule 11 motion and memorandum in support. Def's Mem. Support. Mot. Sanctions, Ex. 3. Defendants demanded voluntary dismissal of the complaint within Rule 11's safe-harbor period. Id. On June 11, 2010, after the safe-harbor period expired, defendants filed the motion for sanctions. On July 10, 2010, Myers filed notice of voluntary dismissal without prejudice.

Notwithstanding the voluntary dismissal, this court retains jurisdiction over the motion for sanctions. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 394–98, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990). In their motion for sanctions, defendants argue that Martin misrepresented the content of N.C. Gen. Stat. § 1–239(c), failed to conduct a reasonable inquiry into the facts and the law before filing the complaint, filed a complaint containing baseless claims and contentions, and filed the complaint with the purpose of harassing defendants and to obtain leverage for disposing of the underlying debt. Id. at 1–2. Myers denies the allegations, arguing her complaint was factually accurate, justified under a good faith extension of existing law, and filed for a proper purpose. Resp. Mot. Sanctions 1–2.

II.

Rule 11 requires an attorney to make a reasonable inquiry to determine that a complaint is well grounded in both fact and law, and not filed for an improper purpose. Fed.R.Civ.P. 11(b). In determining whether a complaint is well grounded in fact, “[a]n objective test is used to determine the reasonableness of a lawyer's prefiling investigation.” In re Kunstler, 914 F.2d 505, 514 (4th Cir.1990) (quotation omitted). A complaint's factual allegations fail to meet the requirements of Rule 11(b)(3) when no corroborating information has been obtained before filing. Morris v. Wachovia Sec., Inc., 448 F.3d 268, 277 (4th Cir.2006). A legal argument violates Rule 11(b)(2) when it has “absolutely no chance of success under the existing precedent.” Hunter v. Earthgrains Co. Bakery, 281 F.3d 144, 153 (4th Cir.2002) (quotation omitted). However, a legal position must be more than unsuccessful to warrant sanctions. Id. at 151. Attorneys must be allowed to seek good faith expansions and changes of the law. Fed.R.Civ.P. 11(b)(2); Blue v. Dep't of Army, 914 F.2d 525, 534 (4th Cir.1990). Only when “a reasonable attorney in like circumstances could not have believed [her] actions to be legally justified” are sanctions warranted. Hunter, 281 F.3d at 153 (quotation omitted). Finally, a complaint violates Rule 11(b)(1) when it is filed without the central and sincere purpose of vindicating rights in court. Kunstler, 914 F.2d at 518. Improper purposes include the filing of suit as leverage in separate proceedings, to obtain discovery for use in those other proceedings, and to embarrass, intimidate, or harass. Id. at 519.

Here, Martin violated Rule 11(b). First, Martin failed to adequately verify the factual support of her claim that the defendants' failure to “credit the judgment resulted in the wrong information being transmitted to the credit reporting agencies as demonstrated on Ms. Myers credit report.” Com pl. 5–6. In fact, the exhibits to the complaint belie this claim. The Equifax credit report accurately reflects the date of the judgment, the amount of the judgment, and the claiming party. Compl., Ex. 3 at 1. The Experian credit report accurately reflects the date of the judgment, the amount of the claim, and the claiming party. Id. at 2. None of the information on the credit reports was false. Although the reports did not list the “status” or the “liability amount” of the debt, they accurately reflected the amount of the original judgment and the fact that the judgment remained unsatisfied.

The court recognizes that “an isolated, inadvertent error does not justify Rule 11 sanctions.” In re Bees, 562 F.3d 284, 288 (4th Cir.2009). Although Martin's factually unsubstantiated claim may have been inadvertent, it was not isolated. Martin also based the complaint on a legally unjustifiable theory with absolutely no chance of success. See Compl. 5 (discussing N.C. Gen. Stat. § 1–239(c)).

Martin's theory of FDCPA liability requires a showing that the defendants violated N.C. Gen.Stat. § 1–239(c). However, North Carolina precedent precludes such a finding. In Friday v. United Dominion Realty Trust, the North Carolina Court of Appeals rejected the conclusion that regular and repeated failures to comply with the notification requirements of N.C. Gen.Stat. § 1–239(c) violated North Carolina's Unfair and Deceptive Trade Practices Act and warranted a damage award for harm to the plaintiff's credit reputation. 155 N.C.App. 671, 682–83, 575 S.E.2d 532, 539–40 (2003). The Court of Appeals held that “[n]othing in [section 1–239(c) ] requires a creditor to file a notice that the judgment has been satisfied until a written demand has been made.” Id. at 683, 575 S.E.2d at 540. Finding no evidence to support a finding that such a written demand was made, the court found the damage award was “not in accordance with law.” Id. at 684, 575 S.E.2d at 540.

Although attorneys may make good faith arguments for the reversal of existing law, such an argument in this case would be frivolous. Federal courts tasked with applying state law must follow the rulings of the state's highest court. See, e.g., Twin City Fire Ins. Co. v. Ben Arnold–Sunbelt Beverage Co., 433 F.3d 365, 369 (4th Cir.2005) (diversity jurisdiction); Iodice v. United States, 289 F.3d 270, 274–75 (4th Cir.2002) (FTCA claim). Furthermore, “[a] federal court can depart from an intermediate court's fully reasoned holding as to state law only if convinced that the state's highest court would not follow that holding.” Assicurazioni Generali, S.p.A. v. Neil, 160 F.3d 997, 1003 (4th Cir.1998) (quotation omitted). Federal courts applying state laws should not create or expand a state's common law or public policy. Time Warner Entm't–Advance/Newhouse P'ship v. Carteret–Craven Elec. Membership Corp., 506 F.3d 304, 314–15 (4th Cir.2007).

Here, the North Carolina Court of Appeals in Friday clearly rejected Martin's understanding of section 1–239(c). Although Friday would not bind this court, nothing indicates that the North...