Walter v. Palisades Collection, LLC

• Decision Date: 28 March 2007
• Docket Number: Civil Action No. 06-378.
• Parties: Douglas C. WALTER, et al., Plaintiffs, v. PALISADES COLLECTION, LLC, et al., Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

480 F.Supp.2d 797

Douglas C. WALTER, et al., Plaintiffs, v. PALISADES COLLECTION, LLC, et al., Defendants.

Civil Action No. 06-378.

United States District Court, E.D. Pennsylvania.

March 28, 2007.

COPYRIGHT MATERIAL OMITTED

Stuart A. Eisenberg, McCullough & Eisenberg PC, Warminster, PA, for Plaintiffs.

Jonathan J. Greystone, Spector Gadon & Rosen, pp, Philadelphia, PA, for Defendants.

MEMORANDUM

EDUARDO C. ROBRENO, District Judge.

Before the Court is the often rehearsed yet unsettled question of whether reliance upon a misrepresentation is required in order to maintain a civil RICO action predicated on mail or wire fraud.

It all started so simply. A debt collector told an individual that she owed a debt; the individual disagreed; the debt collector sued; the individual contested the suit; and the debt collector withdrew the suit. The case is resolved and the individual is vindicated.

Instead, the individual who was sued now seeks to transform this routine backand-forth into a civil RICO action. She alleges that the debt collector knew she wasn't liable on the debt; that it was the debt collector's and its attorney's practice to pursue and sue people for debts they didn't owe; that Defendants' violated the mail and wire fraud statutes by commencing the suits and conducting other litigation-related activities; and that she was injured by Defendants' actions because she was forced to hire an attorney to defend the suit.

Before the Court proceeds down this path, the individual who was sued in state court must show that she has standing to bring this, federal civil RICO action. The specific question before the Court is whether the payment of attorneys' fees to one's own lawyer to contest a "fraudulently" filed lawsuit is in reliance on a misrepresentation and thus satisfies the proximate causation requirement for a fraud predicate for a civil RICO claim. The Court holds that it is not.

Plaintiffs' RICO claim therefore cannot stand, and Defendants' motion to dismiss the claim will be granted.

I. BACKGROUND

Plaintiffs bring this putative class action RICO suit against two collection agencies and the agencies' attorneys, alleging that Defendants violated the mail and wire fraud statutes (and thus performed predicate acts to establish liability under RICO) by filing lawsuits against married couples to collect unpaid debts for which only one of the spouses is liable.

Plaintiffs are two individuals (Douglas Walter and Kathleen Paone) whose respective spouses incurred a credit card debt and who were subsequently sued, along with their spouses, to recover on that debt. Defendants are two collection agencies (Palisades Collection, LLC, and Great Seneca Financial Corp.), the agencies' law firm (Wolpoff & Abramson, LLP ("W & A")), and several individual attorneys employed by W & A.¹

Plaintiffs bring claims under the Fair Debt Collection Practices Act ("FDCPA") (Count I), the Racketeer Influenced and Corrupt Organizations ("RICO") Act (Count II), and the Pennsylvania state law Unfair and Deceptive Trade Practices Act ("UDTPA") (Count IV). (Count III was against a defendant, Washington Mutual, that is no longer in the case.) The Court has already denied Defendants' motion to dismiss Counts I (FDCPA) and IV (UDPA) (doc. no. 44).

The only issue before the Court is whether Plaintiffs' RICO claim should be dismissed.²

A. The Alleged Scheme

The credit card issuer (HBSC and Washington Mutual, both of which have been dismissed from the case) issued a credit card to the signatory of the credit card contract. The signatories relevant here are Jill Walter, the wife of plaintiff Douglas Walter, and Joseph Paone, the husband of plaintiff Kathleen Paone.

When the signatories did not pay the amounts due on the credit card, the credit card issuer sold or assigned the credit card debt to collection agencies (Great Seneca and Palisades). The collection agencies, through their law firm (W & A), sought collection from and ultimately sued both the signatory and the signatory's spouse.³ The signatory's spouse retained (and paid) an attorney to challenge the suits,⁴ and W & A withdrew both suits.

So, the gravamen of the RICO action is that Defendants fraudulently named nonliable spouses in lawsuits filed in an attempt to collect a debt.

B. Specific Factual Allegations⁵

On December 27, 2005, W & A, on behalf of its client Palisades Collection, filed a lawsuit against Jill Walter and Douglas Walter in the Bucks County, Pennsylvania, Court of Common Pleas. RCS at 2; Compl. ex. 3 (the "Walter complaint"). On August 5, 2005, W & A, on behalf of its client Great Seneca, filed a lawsuit against Joseph Paone and Kathleen Paone with a Magisterial District Judge in Montgomery⁶ County, Pennsylvania. RCS at 4; Compl. ex. 4 (the "Paone complaint"). The complaints list W & A's location as Pennsylvania, Palisades's location as New Jersey, and Great Seneca's location as Maryland. Compl. exs. 3, 4. The Walter complaint included the names of nine W & A attorneys; the Paone complaint eight. Compl. exs. 3, 4. Each of these ten attorneys (seven were listed on both complaints, two were listed only on the Douglas complaint, and one was listed only on the Paone complaint) has been named as a defendant in the current action.

Plaintiffs allege that, in connection with both the Walter complaint and the Paone complaint, Palisades, Great Seneca, and W & A caused the interstate mails and wires to be used.⁷ In addition, Plaintiffs allege that Defendants caused the mails to be used because Mr. Walter's counsel filed the matter sub judice by mail and "served Palisades by mail to [W &.A]." RCS at 21.

Plaintiffs allege that Mr. Walter and Ms. Paone suffered damages of $750 and $250, respectively, because they paid these amounts as retainers to their counsel to defend the actions. RCS at 3, 5. Also, both Plaintiffs will have to pay "additional attorneys fees and costs" in the future. RCS at 16. Finally, Plaintiffs allege that the Walters might suffer damages by having trouble securing a mortgage, because the filing or, pendency of the civil suit "is of record with the respective `credit reporting agencies." RCS at 16.

Plaintiffs also allege damages suffered by the putative class:

(1) They paid counsel fees and costs for defense of such an action; (2) They paid all or part of the debt for which they were/are not liable; (3) Judgements have been filed against them which are of record and adversely impact their credit-worthiness, and the like; (4) Credit reporting agencies list the alleged indebtedness which adversely impacts their credit-worthiness[; and] (5) Other damages not set forth above.

RCS 16-17. However, damages suffered by a potential class member are not relevant at this stage; only damages suffered by Plaintiffs themselves are relevant. According to the complaint, the only damages even plausibly suffered by Plaintiffs themselves are that they paid counsel fees and costs to defend the actions and that their credit-worthiness has been adversely impacted. They did not pay the debt (they contested it), and judgments have not been filed against them (the suits have been withdrawn). The Court will disregard their contention that they have suffered "other damages," because RICO liability cannot attach for unspecified damages.

II. DISCUSSION

A. Motion to Dismiss Standard

A motion to dismiss for failure to state a claim brought pursuant to Federal Rule of Civil Procedure 12(b)(6) serves to test the sufficiency of a complaint. Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir.1993). Therefore, the court must accept as true all factual allegations made in the complaint and ail reasonable inferences that can be drawn therefrom. Ransom v. Marrazzo, 848 F.2d 398, 401 (3d Cir.1988). The motion should be granted only if "no relief could be granted under any set of facts which could be proved." Id.⁸

Although RICO claims are generally subject to the notice pleading requirements of Rule 8(a), Rose v. Bartle, 871 F.2d 331, 356 (3d Cir.1989), RICO allegations sounding in fraud are subject to the heightened pleading standards of Rule 9(b), Lum v. Bank of America, 361 F.3d 217, 223-24 (3d Cir.2004). Under Rule 9(b), "in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." "Rule 9(b) requires plaintiffs to plead with particularity the `circumstances' of the alleged fraud in order to place the defendants on notice of the precise misconduct with which they are charged, and to safeguard defendants against spurious charges of immoral and fraudulent behavior." Seville Indus. Mach. Corp. v. Southmost Mach. Corp., 742 F.2d 786, 791 (3d Cir. 1984).

B. The Law of RICO

The RICO statute provides:

Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorneys' fee.

18 U.S.C. § 1964(c). Plaintiffs have brought this RICO action pursuant to 18 U.S.C. § 1962(c), which prohibits racketeering and unlawful debt collection, and 18 U.S.C. § 1962(d), which prohibits conspiring to violate one of the other RICO sections.

Section 1962(c) provides:

It shall be unlawful for any person employed by or associated with the any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.

28 U.S.C. 1962(c). In somewhat of a semantic riddle, Plaintiffs are proceeding under the "pattern of racketeering activity" prong, not the "collection of unlawful debt" prong (even though the gist of the complaint is that Defendants attempted to collect, a debt to which they were not lawfully entitled). (See Doc. No. 42, at 17.)

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