Sanders v. Smith Debnam Narron Drake Sainsting & Myers, LLP

• Decision Date: 26 August 2020
• Docket Number: Case No. 19-CV-410
• Court: U.S. District Court — Middle District of North Carolina
• Parties: RONNIE LEE SANDERS, Plaintiff, v. SMITH DEBNAM NARRON DRAKE SAINSTING & MYERS, LLP and FIRST TECHNOLOGY FEDERAL CREDIT UNION, Defendants.

RONNIE LEE SANDERS, Plaintiff, v. SMITH DEBNAM NARRON DRAKE SAINSTING & MYERS, LLPand FIRST TECHNOLOGY FEDERAL CREDIT UNION, Defendants.

Case No. 19-CV-410

UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF NORTH CAROLINA

August 26, 2020

MEMORANDUM OPINION AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

This matter comes before the Court on Motions to Dismiss Plaintiff's Amended Complaint filed by Defendant First Technology Federal Credit Union ("First Tech") [Doc. #14] and Defendant Smith Debnam Narron Drake Sainsting & Myers, LLP ("Smith Debnam") [Doc. #17]. As further set out below, it is recommended that the Motions to Dismiss be denied.

I. FACTS, CLAIMS, AND PROCEDURAL HISTORY

Plaintiff's Amended Complaint raises claims under the Fair Debt Collection Practices Act and the North Carolina Debt Collection Act, arising out of Plaintiff's attempted purchase of a vehicle in June 2017 from Vann York Chevrolet, Inc. (Am. Compl. [Doc. #3] at 3-4.) Plaintiff initially purchased a Ford Edge but immediately began having problems with the Edge and ultimately returned the car to the dealership. (Id.) Vann York accepted the Edge and sold Plaintiff a 2016 Nissan Murano in its place. (Id. at 4.) Vann York assigned the loan Plaintiff took out on the Murano to Defendant First Tech. (Id.) Plaintiff alleges that he immediately discovered that the Murano also had transmission and power system problems, and that he called Vann York that day to say he wanted to return the car. He then called First Tech, told them not to send any money to Vann York, and said he was going to cancel his purchase. (Id. at 5.) Plaintiff alleges that he made several calls to this effect to First Tech before ultimately driving the Murano back to Vann York and leaving it in their parking lot. (Id.)

On September 20, 2017, First Tech sent Plaintiff a collection letter stating that his account was "seriously delinquent" and demanding payment. (Id. at 6.) First Tech then took possession of the Murano, presumably from the dealership. On September 28, 2017, First Tech sent Plaintiff a second letter notifying Plaintiff of their intent to sell the vehicle and stating that if the sale realized less than the amount due, he could be liable for the difference. (Id.) Plaintiff alleges that First Tech treated the Murano as collateral it had repossessed under Article 9 of the Uniform Commercial Code, and sold the Murano at a private sale. On November 2, 2017, First Tech sent Plaintiff a third letter stating that he was still liable for a post-sale shortfall of $11,131.23, and threatening "further collection measures." (Id.)

Several months later, in April 2018, First Tech—through its attorneys, Defendant Smith Debnam—filed a debt collection suit in North Carolina state court to collect $11,829.41 plus interest and attorney's fees. (Id.) Plaintiff defended that claim and brought a counterclaim against First Tech under Article 9 of the Uniform Commercial Code, specifically contending that the September 28, 2017 collection letter failed to contain the required information under N.C. Gen. Stat. § 25-9-614 prior to selling vehicles repossessed from consumers. (Id. at 6-7; First Tech's Br., Ex. A [Doc. #16-1] at 5.) First Tech moved to compel arbitration, and inresponse, Plaintiff argued that because he had revoked acceptance of the Murano and terminated the purchase contract, the contract's arbitration clause was not binding on him. At a hearing on the motion to compel arbitration, counsel for First Tech conceded that Plaintiff had revoked acceptance of the Murano, and based on that concession, the trial court dismissed both First Tech's collection action and Plaintiff's Article 9 counterclaims. (Am. Compl. at 7.)

Plaintiff appealed the dismissal of his counterclaims, and the North Carolina Court of Appeals issued a decision affirming the dismissal of the counterclaims. See First Tech. Fed. Credit Union v. Sanders, No. COA19-187, 2019 WL 4168919 (N.C. App. Sept. 3, 2019). In reaching that conclusion, the state court set out the matter as follows:

The Credit Union filed a motion to dismiss Defendant's counterclaims . . . [and at] the hearing, the parties stipulated that the installment agreement was not a valid and binding contract.

On the basis that there existed no valid and binding contract between the parties, the trial court concluded that the Credit Union's complaint for deficiency judgment failed as a matter of law. The trial court also concluded that Defendant's counterclaims failed as a matter of law, in that, absent a valid and binding security agreement, the Credit Union was not a "secured party" subject to enforcement of the UCC's notice provisions. Accordingly, the trial court dismissed with prejudice all claims between the parties. Defendant timely appealed from the trial court's order dismissing his counterclaims.

. . . .

The notice requirements under Article 9 apply only to secured parties. See N.C. Gen. Stat. § 25-9-611(b). [A] plain reading of the applicable definitions quite plainly reveals that there can be no "secured party" in the absence of an enforceable security interest, and where the parties' security agreement is canceled, so too is the security interest that was created thereunder. . . .

Accordingly, in that the parties conceded that the only security agreement between them was no longer valid and enforceable, the trial court correctly concluded that the Credit Union was not a "secured party" subject to liability for its failure to comply with the notice provisions under Article 9. . . .

First Tech. Fed. Credit Union, 2019 WL 4168919, at *1-3.

In April 2019, while the appeal of his Article 9 counterclaims was pending in state court, Plaintiff filed this suit against Smith Debnam. In his original Complaint [Doc. #1], Plaintiff named only Smith Debnam, not First Tech, and asserted a single claim for violation of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692 et seq., based on the filing of the state court complaint. Plaintiff alleged that the state court complaint falsely stated that Plaintiff owed an $11,829.41 debt, was a false representation of the character, amount, and legal status of a debt, was an action that Smith Debnam was not legally permitted to take, and was a false representation and deceptive means of attempting to collect a debt.

Nothing further was filed, and on October 10, 2019, nearly six months after the Complaint was filed, the Clerk's Office sent Plaintiff a letter noting his failure to make timely service pursuant to Federal Rule of Civil Procedure 4(m), and the resultant risk of having his case dismissed [Doc. #2]. On October 24, 2019, Plaintiff responded to this notice by filing a Motion for Extension of Time to make service under Rule 4(m) [Doc. #4]. The Court entered an Order [Doc. #5], granting Plaintiff's motion, and allowing him until November 7, 2019 to make service. Plaintiff also filed an Amended Complaint [Doc. #3] on October 24, 2019, keeping the same FDCPA claim against Smith Debnam, and adding a state law claim for violations of the North Carolina Debt Collection Act, N.C. Gen. Stat. § 75-50 et seq., against First Tech. Specifically, Plaintiff alleges that First Tech's letters were a "fraudulent, deceptive, [and] misleading representation" prohibited by N.C. Gen. Stat. § 75-54 in that the letters stated that Plaintiff owed and was delinquent in payments on a debt that, "as First Tech later admitted, had ceased to exist." (Am. Compl. at 8.) Plaintiff contends that the letters were also an "unconscionable means" of attempting to collect a debt prohibited by § 75-55(2), in that"First Tech was not legally entitled to collect the fake debt on which it was demanding payment," and that the act of sending the letter was also an "unfair threat" prohibited by § 75-51(3), in that the letters threatened "legal action" to "recover a nonexistent debt," and "threatened to make false accusations concerning Mr. Sanders to credit reporting agencies." (Am. Compl. at 8-10.)

Both Defendants now move to dismiss the Amended Complaint. Smith Debnam argues that the claims against it should be dismissed due to insufficient service of process, and that the claims are barred by the statute of limitations based on the date of the filing of the Amended Complaint. First Tech argues that this Court lacks subject matter jurisdiction to hear the state law claims, and that in any event Plaintiff's claim is precluded by the doctrine of res judicata. The Court considers these motions in turn.

II. DISCUSSION

A. Smith Debnam's Motion to Dismiss

Smith Debnam first argues that the claims against it should be dismissed because Mr. Sanders failed to comply with Federal Rule of Civil Procedure 4(m)'s timeline for service. (Smith Debnam's Br. [Doc. #18].) Specifically, Smith Debnam argues that Plaintiff failed to serve the complaint within 90 days as required by Rule 4(m). Smith Debnam acknowledges that this Court granted Plaintiff's request for an extension of time to make service. (Id. at 5 n.2.) It does not argue that Plaintiff failed to comply with that extended deadline. Instead, Smith Debnam argues that the time for serving the complaint should not have been extended because Plaintiff failed to establish good cause. (Id. at 5.) In asking for the Court to reconsider, Smith Debnam suggests that considerations such as "frivolousness," "motivation,""objective unreasonableness," and "the need in particular circumstances to advance consideration of compensation and deterrence" be taken into account prior to granting the motion. (Smith Debnam's Reply [Doc. #24] at 2-3 (quoting Pickens v. Intercmty. Agency, No. CIV. A. 96-8415, 1997 WL 727604, at *7 (E.D. Pa. Nov. 21, 1997)).

In considering this motion, the Court begins with the text of Federal Rule of Civil Procedure 4(m). If a defendant is not served within 90 days, Rule 4(m) lays out a clear procedure for courts to follow. Specifically,

[i]f a defendant is not served within 90 days

...