Ness v. Gurstel Chargo, P.A.

• Decision Date: 21 March 2013
• Docket Number: Civil No. 11–3370 (JNE/JSM).
• Citation: 933 F.Supp.2d 1156
• Parties: Carol M. NESS, Jay Xiong, and Timothy J. Peters, individually, and on behalf of all others similarly situated, Plaintiffs, v. GURSTEL CHARGO, P.A.; TEM Capital, L.L.C.; Todd Gurstel; Mitch Chargo; and John/Jane Does 1–20, Defendants.
• Court: U.S. District Court — District of Minnesota

933 F.Supp.2d 1156

Carol M. NESS, Jay Xiong, and Timothy J. Peters, individually, and on behalf of all others similarly situated, Plaintiffs,

v.GURSTEL CHARGO, P.A.; TEM Capital, L.L.C.; Todd Gurstel; Mitch Chargo; and John/Jane Does 1–20, Defendants.

Civil No. 11–3370 (JNE/JSM).

United States District Court,

D. Minnesota.

March 21, 2013.

Douglas J. Nill, Douglas J. Nill, LLC, Minnesota, MN, for Plaintiff.

Andrew D. Parker, Daniel N. Lovejoy, Mark J. Kiperstin, Parker Rosen LLC, Kenneth L. Jorgensen, Dorsey & Whitney LLP, Minnesota, MN, for Defendant.

ORDER

JOAN N. ERICKSEN, District Judge.

Plaintiffs Carol M. Ness, Jay Xiong, and Timothy J. Peters bring this action on behalf of themselves and a putative class against Defendants Gurstel Chargo, P.A. (“Gurstel Chargo”); TEM Capital, L.L.C. (“TEM”); Todd Gurstel (“Gurstel”); Mitch Chargo (“Chargo”); and John/Jane Does 1–20 alleging violations of the Fair Debt Collection Practices Act (“FDCPA”) and of Minnesota state law. This case is before the Court on Defendants' motion to dismiss Plaintiffs' Second Amended Complaint.¹ For the reasons set forth below, the Court grants Defendants' motion.

I. BACKGROUND

TEM is a business that collects consumer debts. Gurstel Chargo is a law firm that represented TEM in the state-court debt-collection actions at issue in this case. Gurstel and Chargo are attorneys who are shareholders of Gurstel Chargo and owners of TEM.

TEM purchased a pool of consumer debt from Absolute Resolution Corporation (“Absolute”). That pool of debt was originally held by Wells Fargo, and it included Ness's debt. The bills of sale between Wells Fargo and Absolute stated that the pool of consumer debt was “charged-off Accounts as defined in the Flow Agreement ... which Accounts are identified on Exhibit A attached hereto.” (Second Am. Compl. (“SAC”) ¶ 34.) The bill of sale between Absolute and TEM conveyed to TEM “certain Accounts described in Exhibit ‘A.’ ” ( Id. ¶ 37.)

On September 24, 2010, TEM filed a lawsuit against Ness in Minnesota state court to collect the debt. On October 22, 2010, TEM requested entry of default judgment against Ness and filed an Affidavit of No Answer. That same day, Gurstel Chargo received Ness's answer. The request for default judgment was granted, and default judgment was entered against Ness on November 10, 2010. Ness filed a motion to vacate the default judgment on February 25, 2011, and that motion was granted. During discovery, Ness requested that TEM produce a copy of her original credit agreement with Wells Fargo, the Flow Agreement, and Exhibit A. TEM did not produce those documents to Ness. The parties moved for summary judgment. TEM provided the state court with the bills of sale between Wells Fargo and Absolute and between Absolute and TEM. At the hearing in September 2011, counsel for TEM produced a document for the state court that purportedly was the Exhibit A referenced in the bills of sale. The state court declined to receive the document on grounds that it was not adequately authenticated. The state court held that without Exhibit A, TEM could not show that Ness's debt was sold to TEM and granted summary judgment in favor of Ness without prejudice.

TEM also purchased from Absolute the debts of Xiong and Peters, whose debts were originally held by Wells Fargo and U.S. Bank, respectively. In 2011, TEM commenced debt-collection actions in state court against Xiong and Peters. Xiong and Peters did not answer the complaints, and TEM moved for default judgment in both cases. Default judgments were entered against Xiong and Peters, and they are paying the judgments.

Ness, on behalf of herself and all those similarly situated, filed a Class Action Complaint in federal district court on November 17, 2011. She filed an Amended Complaint and then moved for leave to file a Second Amended Complaint. Leave was granted, and Ness, Xiong, and Peters, on behalf of themselves and all others similarly situated, filed the Second Amended Complaint. In the Second Amended Complaint, Plaintiffs bring the following claims against Defendants: (1) violations of the FDCPA, (2) champerty, (3) fraud and/or negligent misrepresentation, (4) unjust enrichment, (5) conspiracy to procure fraudulent judgments, (6) abuse of legal process, (7) malicious prosecution of a civil action, and (8) liability for treble damages under Minn.Stat. §§ 481.07, .071. In the request for relief, Plaintiffs ask for an order granting declaratory and injunctive relief under the FDCPA; statutory damages under the FDCPA; actual and compensatory damages; treble damages under Minn.Stat. §§ 481.07, .071; and “[a]n order directing defendants to take all remedial steps to vacate the default judgments against the class, as the default judgments are void ab initio, ... and were procured through a fraud upon the class and the respective courts.” ( Id. at 33, ¶ 6.) Defendants moved to dismiss the Second Amended Complaint.

II. ANALYSIS

When ruling on a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6), a court must accept the facts alleged in the complaint as true and grant all reasonable inferences in favor of the plaintiff. Mulvenon v. Greenwood, 643 F.3d 653, 656 (8th Cir.2011). Although a complaint is not required to contain detailed factual allegations, “[a] pleading that offers ‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action will not do.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Id. (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.

A. Rooker–Feldman

Before turning to the individual counts in the Second Amended Complaint, the Court will address Defendants' argument that Plaintiffs' claims are barred by the Rooker–Feldman doctrine.

The Rooker–Feldman doctrine divests this Court of subject-matter jurisdiction over an action where a losing party in state court files a suit in federal district court after the conclusion of state proceedings, complains of injuries caused by the state-court judgment, and seeks review and rejection of that judgment. Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 291–92, 125 S.Ct. 1517, 161 L.Ed.2d 454 (2005). But the doctrine does not bar federal district courts from considering claims “attacking an adverse party's actions in obtaining and enforcing that [state-court] decision.” MSK EyEs Ltd. v. Wells Fargo Bank, N.A., 546 F.3d 533, 539 (8th Cir.2008).

If a federal plaintiff asserts as a legal wrong an allegedly erroneous decision by a state court, and seeks relief from a state court judgment based on that decision, Rooker–Feldman bars subject matter jurisdiction in federal district court. If, on the other hand, a federal plaintiff asserts as a legal wrong an allegedly illegal act or omission by an adverse party, Rooker–Feldman does not bar jurisdiction.

Riehm v. Engelking, 538 F.3d 952, 965 (8th Cir.2008) (quotation omitted).

Consequently, Rooker–Feldman does not bar an FDCPA claim challenging only a defendant's debt-collection practices, without challenging the validity of the state-court judgment. See Todd v. Weltman, Weinberg & Reis Co., L.P.A., 434 F.3d 432, 437 (6th Cir.2006) (concluding that Rooker–Feldman did not bar plaintiff's claim that defendant violated the FDCPA by filing a false affidavit in state court); Naranjo v. Universal Sur. of Am., 679 F.Supp.2d 787, 795 (S.D.Tex.2010) (concluding that Rooker–Feldman did not bar suit alleging defendants violated the FDCPA by bringing time-barred collection actions in state court); Druther v. Hamilton, No. C09–5503, 2009 WL 4667376, at *3–4 (W.D.Wash. Dec. 3, 2009) (concluding that Rooker–Feldman did not bar suit alleging that defendants violated the FDCPA by failing to properly serve plaintiff in state court); Jenkins v. Gen. Collection Co., 538 F.Supp.2d 1165, 1171–72 (D.Neb.2008) (concluding that Rooker–Feldman did not bar suit alleging that defendants violated the FDCPA by bringing time-barred collection actions and misrepresentingthe nature and character of the debt in state court). In the Second Amended Complaint, Plaintiffs allege that Defendants violated the FDCPA by procuring default judgments against Plaintiffs “without proof of ownership of the debt,” without “a legal right to collect the debt,” and with deceptive pleadings. (SAC ¶ 120.) These allegations appear to attack Defendants' debt-collection practices rather than the state-court judgments, so for the purposes of deciding this motion, the Court determines that Rooker–Feldman does not bar these FDCPA claims.

However, the Second Amended Complaint does contain two claims in which Plaintiffs complain of injuries caused by the state-court judgments themselves and seek indirect reversal of those judgments; those claims are barred by Rooker–Feldman. The first is Plaintiffs' claim of fraud and/or negligent misrepresentation in Count III of the Second Amended Complaint. In that count, Plaintiffs allege that as a result of Defendants' “deceptive representations and omissions,” they “were harmed through the entry of void ab initio default judgments and collection activities predicated on those judgments.” (Id. ¶ 130.) In the request for relief, Plaintiffs ask this Court to issue an order directing Defendants to “take all remedial steps to vacate the default judgments against the class, as the default judgments are void ab initio ... and were procured through a fraud.” ( Id. at 33, ¶ 6.) Plaintiffs' complained-of injuries are the state-court default...