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Barrows v. Chase Manhattan Mortgage Corp.

December 8, 2006

WENDY BARROWS, PLAINTIFF,
v.
CHASE MANHATTAN MORTGAGE CORPORATION, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Hillman, District Judge

OPINION

This matter has come before the Court on Plaintiff's motion to remand and Defendants' motions to dismiss Plaintiff's Complaint pursuant to Federal Civil Procedure Rule 12(b)(1), or, in the alternative, Rule 12(b)(6). For the reasons expressed below, Defendants' motions will be granted in part and denied in part, and Plaintiff's motion will be denied.

I. BACKGROUND AND PROCEDURAL HISTORY

Plaintiff, Wendy Barrows, fell behind on her mortgage in late 2004, which ultimately resulted in Defendant Mortgage Electronic Registration Systems, Inc. ("MERS") filing a foreclosure action against her on March 29, 2005 in the Superior Court of New Jersey, Chancery Division, Burlington County. On June 28, 2005, Plaintiff then filed "a class action companion suit" in the same court. Defendant Chase Manhattan Mortgage Corporation removed Plaintiff's class action complaint to this Court on August 3, 2005. The foreclosure action remained pending in the New Jersey Superior Court until August 24, 2006, when the foreclosure complaint was dismissed after Plaintiff sold her home and satisfied her mortgage.

Plaintiff's class action complaint seeks to certify three classes of plaintiffs for claims arising out of improper collection practices of Defendants MERS, Chase Manhattan Mortgage Corp., Chase Home Finance, LLC (collectively referred to as "Chase"), Hubschman & Roman, PC, and John J. Roman, Jr., Esquire (collectively referred to as "Hubschman").*fn1 Specifically, Plaintiff claims that when Defendants instituted foreclosure proceedings against her and other similarly-situated individuals, they imposed charges for legal fees and costs in excess of what is permitted by law. Against the MERS and Chase Defendants, Plaintiff has asserted claims for "Accounting and Refund" (Count I), consumer fraud pursuant to New Jersey Statute Ann. 56:8-1 et seq. ("Consumer Fraud Act") (Count II), violation of the Truth-in-Consumer Contract, Notice and Warranty Act, New Jersey Statute Ann. 56:12-14 et seq. (Count III), breach of implied covenant of good faith and fair dealing under New Jersey state law (Count IV), and breach of implied statutory cause of action under the Fair Foreclosure Act, New Jersey Statute Ann. 2A:50-53 (Count V). Against the Hubschman Defendants, Plaintiff has asserted claims for fraud under New Jersey state law (Count VI), negligent misrepresentation under state law (Count VII), accounting and refund (Count VIII), consumer fraud under the Consumer Fraud Act (Count IX), violation of the Truth-in-Consumer Contract, Notice and Warranty Act (Count X), tortious interference with contract (Count XI), breach of implied statutory cause of action under the Fair Foreclosure Act (Count XII), and violation of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1962, et seq. (Count XIII). Against all Defendants, Plaintiff has asserted claims for civil offenses involving organized crime and organized crime activities (Racketeering) pursuant to New Jersey Statute Ann. 2C:41 (Count XIV). Plaintiff has also requested injunctive relief (Count XV). Removal was pursuant to 28 U.S.C. § 1331 based on Plaintiff's federal FDCPA claim against the Hubschman Defendants.

Pending before the Court are Plaintiff's motion to remand pursuant to 28 U.S.C. § 1441(c), the Chase, MERS and Hubschman Defendants' motions to dismiss pursuant to Federal Civil Procedure Rule 12(b)(1), and the MERS and Hubschman Defendants' alternative relief pursuant to Rule 12(b)(6).*fn2

II. DEFENDANTS' MOTIONS TO DISMISS

The Defendants' motions to dismiss pursuant to Federal Civil Procedure Rule 12(b)(1) must be addressed first because Defendants are contending that Plaintiff lacks standing to assert her claims, and disputes over constitutional standing for purposes of Article III, Section 2 of the United States Constitution must be addressed before proceeding to the merits of a plaintiff's claims. See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 93-102 (1998).

Defendants contend that Plaintiff lacks standing to pursue her claims because she has not suffered an "injury in fact" as required by the "case and controversy" requirement of Article III. Defendants argue that because Plaintiff never paid the attorneys' fees and costs that she claims are in excess of what is permitted by law, she has not suffered an injury in fact. Without any injury, Defendants argue that all of Plaintiff's claims must be dismissed.

In order to establish an injury in fact, a plaintiff must have suffered an invasion of a legally protected interest which is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992) (citations omitted). Additionally, there must be a causal connection between the injury and the conduct complained of; that is, the injury has to be fairly traceable to the challenged action of the defendant, and not the result of the independent action of some third party not before the court. Id. (citations omitted). It must also be "likely," as opposed to merely "speculative," that the injury will be redressed by a favorable decision. Id. at 561. (citations omitted).

These general principles of standing are applicable to all of Plaintiff's claims, but her statutory claims may contain particular standing requirements. For each claim asserted by Plaintiff, it must be determined whether she has standing to assert the claim, and then, if so, whether the claim survives the Defendants' Rule 12(b)(6) motions to dismiss. Each claim will be addressed in turn, starting with Plaintiff's FDCPA claim against the Hubschman Defendants because that claim is the basis for jurisdiction in this Court and the viability of that claim directly relates to the remand issue.

A. FDCPA (Count XIII against Hubschman Defendants)

In relevant part, the FDCPA provides that a "debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt." 15 U.S.C. § 1692f. It is a violation of the Act to collect "any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law." Id. If a debt collector fails to comply with this provision, a plaintiff may receive actual damages or "such additional damages as the court may allow, but not exceeding $1,000."*fn3 Id. § 1692k(a)(2)(A).

Plaintiff alleges in her Complaint that the Hubschman Defendants violated the FDCPA because Defendants, as debt collectors, demanded collection of sums in excess of what is permitted by law when it sent Plaintiff a letter containing a "breakdown of the monies required in order to reinstate" her loan, including a charge for "Legal Fees and Costs due lender" in the amount of $2,500. (Pl.'s Ex. 6, Def.'s Ex. A.) Defendants argue that Plaintiff's claim under the FDCPA must be dismissed because she lacks standing because she never paid any fees. In the alternative, Defendants argue that Plaintiff's claim should be dismissed for her failure to state a claim because they are not debt collectors and their request was lawful.

Despite the fact that Plaintiff never paid the attorneys' fees and costs requested by Defendants, Plaintiff has suffered an injury in fact for the purposes of standing. The FDCPA prohibits "unfair or unconscionable means to collect or attempt to collect any debt" not permitted by law. Id. at § 1692f (emphasis added). Thus, a debt collector can violate the FDCPA even if he does not actually receive the illegal debt he tried to collect. Additionally, a plaintiff may be entitled to statutory damages for a debt collector's violation even if she has not suffered any actual damages. See id. § 1692k(a)(2)(A). These provisions of the FDCPA defeat Defendants' argument that Plaintiff needed to have paid the attorneys' fees and costs in order to have standing to bring her FDCPA claim against them. See Robey v. Shapiro, Marianos & Cejda, L.L.C., 434 F.3d 1208, 1212 (10th Cir. 2006) (holding that the plaintiff satisfied the "injury in fact" requirement of constitutional standing, and that the plaintiff had been injured under the terms of the FDCPA and could seek legal redress of his claim under the Act, because he claimed that the defendant law firm violated the FDCPA by attempting to collect attorneys' fees that were not permitted under state law); Miller v. Wolpoff & Abramson, L.L.P., 321 F.3d 292, 307 (2d Cir. 2003) (holding that the fact that the plaintiff did not ever pay any attorneys' fees does not necessarily suggest that he was not injured for purposes of his FDCPA claim, if he can show that the law firm attempted to collect money in violation of the FDCPA); Keele v. Wexler, 149 F.3d 589, 594 (7th Cir. 1998) (same); Baker v. G.C. Servs. Corp., 677 F.2d 775, 777 (9th Cir. 1982) (same).

Now that it has been established that Plaintiff has standing to assert her FDCPA claim, Defendants' arguments regarding why Plaintiff's claim fails must be addressed. Defendants make five arguments: 1) Defendants' request for attorneys' fees was expressly "authorized by agreement"; 2) Plaintiff's Complaint merely speculates that Defendants' request for attorneys' fees and costs could not have equaled the requested $2,500; 3) Plaintiff does not and cannot plead that the alleged request for attorneys' fees and costs was "not permitted by law"; 4) disputes over attorneys' fees and costs belong in the foreclosure action; and 5) Defendants are not debt collectors because the letter from Defendants to Plaintiff was not a demand letter.

When considering a motion to dismiss a complaint for failure to state a claim upon which relief can be granted pursuant to Federal Civil Procedure Rule 12(b)(6), a court must accept all well-pleaded allegations in the complaint as true and view them in the light most favorable to the plaintiff. Evancho v. Fisher, 423 F.3d 347, 351 (3d Cir. 2005). A court may not dismiss the complaint for failure to state a claim "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957) (citations omitted). A court, however, need not credit either "bald assertions" or "legal conclusions" in a complaint when deciding a motion to dismiss. In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1429-30 (3d Cir. 1997).

In reviewing a Rule 12(b)(6) motion, a court must only consider the facts alleged in the pleadings, the documents attached thereto as exhibits, and matters of judicial notice. Southern Cross Overseas Agencies, Inc. v. Kwong Shipping Group Ltd., 181 F.3d 410, 426 (3d Cir. 1999). A court may consider, however, "an undisputedly authentic document that a defendant attaches as an exhibit to a motion to dismiss if the plaintiff's claims are based on the document." Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993). If any other matters outside the pleadings are presented to the court, and the court does not exclude those matters, a Rule 12(b)(6) motion will be treated as a summary judgment motion pursuant to Rule 56. Fed. R. Civ. P. 12(b).

As an initial matter, even though the Defendants' letter to Plaintiff was not attached to her Complaint, the Court will consider the letter from Defendants to Plaintiff in deciding Defendants' motion. The motion will not be converted into a summary judgment motion, however, because Plaintiff's claims are based on the document, and there is no contention that it is not authentic.

Plaintiff claims that Defendants "are debt collectors," and demanded "collection of sums in excess of that which is legally permitted" by New Jersey law and/or Court Rules. (Compl. §§ 114-115, 29.) The letter demanded $2,500 due for "legal fees and costs." The FDCPA prohibits debt collectors from collecting or attempting to collect any fees not permitted by agreement or law. See 15 U.S.C. § 1692f. The FDCPA also mandates that the initial correspondence the debt collector sends to the debtor must contain a statement that the "debt collector is attempting to collect a debt and that any information obtained will be used for that purpose." See id. § 1692e(11). Thus, accepting as true Plaintiff's contention that Defendants are debt collectors, that Defendants' letter did not contain the proper warning, and that Defendants' demand for $2,500 for fees and costs violates an agreement or New Jersey law and/or Court Rule, Plaintiff has alleged a viable claim.

The Court, however, does not need to credit either "bald assertions" or "legal conclusions" in a complaint when deciding a motion to dismiss. To prove Plaintiff's claim under FDCPA, Defendants must have been "debt collectors" as defined by FDCPA, and the demand for $2,500 must have violated an agreement or New Jersey law. If either of these two legal conclusions are unsupportable by the statute, then Plaintiff's FDCPA claim must fail. The Court will also address Plaintiff's other argument that the letter must contain a warning, but it is not dispositive to the viability of Plaintiff's FDCPA claim.

1. Whether Hubschman Defendants are "Debt Collectors" Under FDCPA

Following Congress's removal of language in the FDCPA that expressly excluded attorneys from FDCPA liability, the United States Supreme Court clarified the lower courts' disagreement over whether attorneys could be classified as "debt collectors" and be subject to liability under the Act. In Heintz v. Jenkins, 514 U.S. 291, 294-95 (1995), the Court found that the FDCPA "applies to attorneys who 'regularly' engage in consumer-debt-collection activity, even when that activity consists of litigation," for two reasons:

First, the Act defines the "debt collector[s]" to whom it applies as including those who "regularly collec[t] or attemp[t] to collect, directly or indirectly, [consumer] debts owed or due or asserted to be owed or due another." § 1692a(6). In ordinary English, a lawyer who regularly tries to obtain payment of consumer debts through legal proceedings is a lawyer who regularly "attempts" to "collect" those consumer debts. . . .

Second, in 1977, Congress enacted an earlier version of this statute, which contained an express exemption for lawyers. That exemption said that the term "debt collector" did not include "any attorney-at-law collecting a debt as an attorney on behalf of and in the name of a client." Pub.L. 95-109, § 803(6)(F), 91 Stat. 874, 875. In 1986, however, Congress repealed this exemption in its entirety, Pub.L. 99-361, 100 Stat. 768, without creating a narrower, litigation-related, exemption to fill the void. Without more, then, one would think that Congress intended that lawyers be subject to the Act whenever they meet the general "debt collector" definition.

Here, Plaintiff has alleged that the Hubschman Defendants are debt collectors, but Defendants have not asserted that they are not. Defendants merely state that Plaintiff's characterization of them as "debt collectors" is a conclusory allegation. Defendants also analogize themselves to an Eastern District of Michigan case which held that a law firm was not a "debt collector" under the FDCPA because a letter they sent to a debtor containing a reinstatement figure was not for the purposes of collecting a debt, but rather to accommodate the debtor by providing information he requested regarding the reinstatement of the mortgage to avoid foreclosure. See Williams v. Trott, 822 F. Supp. 1266 (E.D. Mich. 1993).

Even though Williams is a somewhat factually similar case, Defendants' use of the Williams case to explain that they are not debt collectors is misplaced because it was decided prior to Heintz and the court did not have the benefit of applying Supreme Court reasoning to the situation before it.*fn4 As it was simply stated in Heintz, Defendants are debt collectors if they are lawyers who regularly try to obtain payment of consumer debts through legal proceedings. Defendants have not shown that they are not lawyers who regularly try to obtain payment of consumer debts through legal proceedings. Thus, the Court cannot conclude that Defendants are not "debt collectors." Consequently, for the purposes of deciding Defendants' motion to dismiss, and construing Plaintiff's allegations as true, Defendants are "debt collectors" under FDCPA.

2. Whether Defendants' Demand for $2,500 for Legal Fees and costs Violated an agreement or New Jersey Law

The basis for Plaintiff's entire case against the Hubschman Defendants is that their demand for "Legal fees and Costs due lender" in the amount of $2,500 violates New Jersey law and New Jersey court rules. Specifically in regard to her FDCPA claim, Plaintiff claims that the figure violates 15 U.S.C. § 1692f(1), which prohibits the collection "of any amount(including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law."

Defendants first argue that the amount is permitted by the mortgage contract. Plaintiff concedes that her note and mortgage provide for the payment of counsel fees. Defendants also argue that the requested sum of $2,500 represented both attorneys' fees and costs, and Plaintiff merely speculates that the request for attorneys' fees and costs could not have equaled $2,500. Defendants further argue that Plaintiff's reliance on New Jersey's Fair Foreclosure Act and New Jersey Rules of Court for the contention that the figure is not "permitted by law" is flawed. Finally, Defendants contend that the court handling the foreclosure is the arbiter of any award of attorneys' fees and costs, and that a mere request for fees and costs as part of a reinstatement quote that allegedly exceeds an amount allowed under state law does not establish a FDCPA claim.

To resolve this issue, the "law" that Plaintiff claims Defendants violated must be established. Plaintiff first cites a New Jersey Court Rule. If a foreclosure action is pending, attorneys' fees are calculated pursuant to a percentage formula promulgated by Rule 4:42-9(4).*fn5 This rule is mandatory, and any provisions for the award of fees in the note or mortgage are not controlling. Coastal State Bank v. Colonial Wood Products, Inc., 411 A.2d 1172, 1174 (N.J. Super. Ct. App. Div. 1980) (citing Alcoa Edgewater No. 1 Federal Credit Union v. Carroll, 210 A.2d 68 (N.J. 1965)); Bank of Commerce v. Markakos, 126 A.2d 346 (N.J. 1956))("[E]ven if a plaintiff in a foreclosure action seeks to recover a fee on a provision in a note from the outset of the litigation, he is limited to the fee allowable under R. 4:42-9(4)."); Bank of Commerce v. Markakos, 122 A.2d 13, 15 (N.J. Ch. Ct. 1956), aff'd, 124 A.2d 605 (App. Div. 1956) (holding that attorneys' fees "in foreclosure proceedings have been regulated by rule of court for the past 50 years" and "the language of the rule is absolute").

New Jersey Rules of Court also govern the award of costs. Rule 4:42-10*fn6 permits the court or the clerk, as a matter of discretion, to tax as part of the taxable costs all legal fees and reasonable charges necessarily paid or incurred in procuring searches relative to the title of the subject premises, provided that the minimum fee shall be $75 and the maximum fee shall be $500. If, however, 1% of ...


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