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Newman v. Encore Capital Group

United States District Court, E.D. Michigan, Southern Division

August 14, 2017

JOANNE NEWMAN, et al., Plaintiffs,
v.
ENCORE CAPITAL GROUP, et al., Defendants.

          OPINION AND ORDER (1) DISMISSING SOME OF PLAINTIFFS' CLAIMS FOR LACK OF SUBJECT-MATTER JURISDICTION; AND (2) GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS (ECF #20)

          MATTHEW F. LEITMAN UNITED STATES DISTRICT JUDGE

         On April 19, 2016, Plaintiffs Joanne Newman and Saundra Ryan filed this action against Defendants Encore Capital Group, Inc., Asset Acceptance Capital Corp., Midland Funding, LLC, Karli Anne Peterson, Elizabeth M. Smith, Andrew Perry, Stephanie Carrington Pettway, and Omar Najor. In Plaintiffs' Amended Complaint, they allege that Defendants violated the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. (the “FDCPA”); the Michigan Regulation of Collection Practices Act, M.C.L. § 445.251 et seq. (the “MRCPA”); and the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. (the “RICO Act”). On July 1, 2016, Defendants moved under Rule 12(b)(6) of the Federal Rules of Civil Procedure to dismiss Plaintiffs' Amended Complaint. For the reasons that follow, some of Plaintiffs' claims are DISMISSED for lack of subject-matter jurisdiction. With respect to the remaining claims, Defendants' motion to dismiss is GRANTED IN PART and DENIED IN PART as set forth below.

         I

         Plaintiffs' Amended Complaint spans 155 paragraphs over 63 pages. (See ECF #13.) It is repetitive, disjointed, and often difficult to follow and understand. In an effort to bring some clarity to the issues in dispute, the Court sets forth in this section (1) the parties, (2) Defendants' alleged collection practices against Michigan consumers, and (3) the manner in which Newman and Ryan allege that Defendants' practices affected them.

         A

         Plaintiffs Newman and Ryan are Michigan residents. (See Am. Compl. at ¶¶ 12-13, ECF #13 at Pg. ID 193.) At some time prior to May 2016, they stopped making payments on debts they owed to Citibank, N.A. (See Newman and Ryan Declarations, ECF #13-12 at Pg. ID 400-01, attached to the Am. Compl.)

         Defendant Encore is a publicly traded company. (See Am. Compl. at ¶3, ECF #13 at Pg. ID 190.) Encore owns subsidiaries that are in the business of purchasing and collecting delinquent consumer debts. (See id.) Defendants Midland and Asset Acceptance are two of those subsidiaries. (See id.) Defendants Smith, Perry, Pettway, and Najor (the “Defendant Attorneys”) are Michigan attorneys employed by Asset Acceptance. (See Id. at ¶¶ 7-10, ECF #13 at Pg. ID 191-92.) They assist Asset Acceptance, Midland, and Encore in the collection of delinquent consumer debts. (See id.) Peterson is a notary public employed by Encore and Midland. (See Id. at ¶71, ECF #13 at Pg. ID 218.)

         B

         Plaintiffs allege that Defendants used a number of unlawful collection practices to secure default judgments in lawsuits against Michigan consumers. (See Id. at ¶2, ECF #13 at Pg. ID 189-90.) Defendants' alleged collection practices are easiest to understand when set forth in chronological order:

1. Midland purchases “portfolios consisting of [the] old and defaulted debt” of Michigan consumers. (Id. at ¶54, ECF #13 at Pg. ID 212.)[1]
2. To begin the collection process against a Michigan consumer, Midland prepares an affidavit stating that Midland owns the consumer's delinquent debt (the “Ownership and Delinquency Affidavit”). (See id. at ¶¶ 53, 58, 66, 81, ECF #13 at Pg. ID 212-14, 216, 224.) The Ownership and Delinquency Affidavit identifies the amount of the debt, the creditor to whom the debt was originally owed, and the last four digits of the consumer's account number with the creditor. (See, e.g., Ownership and Delinquency Affidavit as to Ryan, ECF #13-7 at Pg. ID 278-79, attached to Am. Compl.) Even though no lawsuit is pending against the consumer at the time the Ownership and Delinquency Affidavit is signed, the affidavit nonetheless refers to the debt as “the obligation sued upon.” (Am. Compl. at ¶59, ECF #13 at Pg. ID 214.)
3. An officer of Midland signs the Ownership and Delinquency Affidavit. (See Id. at ¶58, ECF #13 at Pg. ID 213-14.) The officer's signature purports to be notarized by Peterson. (See Id. at ¶¶ 63-73, ECF #13 at Pg. ID 215-22.) However, the signature is not actually notarized by Peterson; instead, Midland “robo-signs” Peterson's signature in the notary block bearing her name. (Id.)
4. Midland sends the fraudulently-notarized Ownership and Delinquency Affidavit to one of the Defendant Attorneys who work for Asset Acceptance. (See Am. Compl. at ¶58, ECF #13 at Pg. ID 213-14.)
5. The Defendant Attorney prepares and files a complaint against the Michigan consumer in state court (the “Collection Complaint”). (See Id. at ¶41, ECF #13 at Pg. ID 206-07.) The Defendant Attorney attaches the fraudulently-notarized Ownership and Delinquency Affidavit to the Collection Complaint. (See Id. at ¶¶ 72, 84, ECF #13 at Pg. ID 218-19, 225.) The Collection Complaint lists Midland as the plaintiff and seeks payment of the debt identified in the Ownership and Delinquency Affidavit. (See Id. at ¶41, ECF #13 at Pg. ID 206-07.)
6. The Defendant Attorney also “verifies” the Collection Complaint by signing his or her name under the following statement (the “Verification Statement”):
I declare under the penalty of contempt of court that to the best of my knowledge, information and believe [sic] that this is good ground to support the contents of this pleading.

(See Am. Compl. at ¶¶ 43, ECF #13 at Pg. ID 208-09.)

7. The Defendant Attorney signs the Verification Statement without actually reading the Collection Complaint and without any actual knowledge of the facts that he or she purports to verify.[2] (See Id. at ¶¶ 42-43, 49, 52, ECF #13 at Pg. ID 207-208, 210-12.) The Defendant Attorney places the words “Verified Complaint Account Stated” in underlined and capital letters at the top of the Collection Complaint. (See Id. at ¶¶ 41, 46, ECF #13 at Pg. ID 206-07, 209.)
8. The Defendant Attorney then serves the Collection Complaint and the fraudulently-notarized Ownership and Delinquency Affidavit on the Michigan consumer. (See Id. at ¶117, ECF #13 at Pg. ID 236.)

         According to Plaintiffs, Defendants' unlawful collection practices have the following effects:

Time is money and a [d]efault [j]udgment is the ultimate goal of Defendants. . . . The use of false verifications and [fraudulent notarization by] robo-signers eliminates the cost of verifying that Defendants truly own the debt and that the debtor owes the amount [indicated by] the [Ownership and Delinquency Affidavit] and [Collection] Complaint. A ‘sworn' affidavit takes the place of the necessary proof and paperwork and eliminates the associated cost of proving [that] the debt is owed to Defendants by class members. The fraud saves time and makes money.

(Id. at ¶¶ 78-79, ECF #13 at Pg. ID 223-24.)

         C

         Plaintiffs Newman and Ryan allege that they were the victims of the above-described collection practices. Ryan contends that in November 2015, Midland filed a Collection Complaint against her in Michigan state court (the “Ryan Collection Complaint”). (See ECF #13-7 at Pg. ID 275-79.) The Ryan Collection Complaint is titled “Verified Complaint Account Stated, ” and it alleges that Ryan owed payments on a credit card account through Citibank, that Midland had purchased Ryan's account from Citibank, and that Midland was now seeking a judgment against Ryan for the $8, 407.11 she allegedly owed. (See id) Defendant Attorney Smith signed the Ryan Collection Complaint. (See id) Attached to the Ryan Collection Complaint was an Ownership and Delinquency Affidavit signed by Midland officer, Jenna Taylor. (See id.) This affidavit stated:

(IMAGE OMITTED)

(Id., pen marks in original.) Taylor's affidavit purported to have been notarized by Peterson. But Ryan alleges that Peterson did not personally sign the affidavit and that instead Peterson's signature was “robo-signed.” (Am. Compl. at ¶135, ECF #13 at Pg. ID 241.) The notarization signature was as follows:

(See ECF #13-7 at Pg. ID 279.)

         Ryan says that she had the following reaction when she received the Collection Complaint and attached Ownership and Delinquency Affidavit:

1. I was sued in the 52-4 District Court . . . by Midland Funding, LLC. They were suing me for a debt from Citibank, N.A. I had previously been unable to pay the debt off.
2. Attached to the lawsuit from Midland was a sworn affidavit saying that they had business records from Citibank and that I owed them money. The affidavit of [sic] was signed by Jenna Taylor and notarized by a Karli Anne Peterson.
3. As the Affidavit was signed and notarized by them I believed them when they said they had the right to sue me on the debt and they had all the records. I did not know how I was going to fight as their affidavit proved I owed the debt to Midland.
4. I believe that Midland could win the lawsuit against me and make me pay them as their affidavit said they could.

(Ryan Declaration, ECF #13-12 at Pg. ID 401.)

         Similarly, Newman alleges that in December 2015, Midland filed a Collection Complaint against her in Michigan state court (the “Newman Collection Complaint”) seeking payment for $6, 525.34 in alleged debt. (See ECF #13-7 at Pg. ID 280-84.) Defendant Attorney Perry signed the Newman Collection Complaint, and the complaint is titled “Verified Complaint Account Stated.” (See id.) Attached to the Newman Collection Complaint was an Ownership and Delinquency Affidavit signed by Midland officer, Donna Dubois. (See id.) This affidavit stated:

(IMAGE OMITTED)

(Id., pen marks in original.) Dubois' affidavit also purported to have been notarized by Peterson. But Newman alleges that Peterson did not personally sign the affidavit and that instead Peterson's signature was “robo-signed.” (Am. Compl. at ¶135, ECF #13 at Pg. ID 241.) The notarization signature was as follows:

(IMAGE OMITTED)

(See ECF #13-7 at Pg. ID 284.)

         Newman says that she had the following reaction when she received the Collection Complaint and attached Ownership and Delinquency Affidavit:

1. I was served a lawsuit by Defendant Midland Funding, LLC from the 52-4 District Court. . . .It appeared to be based upon a debt I had owed to Citibank, N.A. Due to financial hardship, I was unable to pay that debt to Citibank N.A.
2. At the time I was served with the lawsuit, I was not familiar with being sued or legal documents. Midland had an affidavit attached to the lawsuit that stated that they were the owner of the debt based on business records it possessed and that I owed them money.
3. The Affidavit was signed by a [] Midland employee, Donna Dubois and notarized by a Karli Anne Peterson. Because it was a sworn Affidavit, I assumed that Midland did in fact own the debt and had business records from Citibank to prove that I owed the debt to them. It is what they were swearing to.
4. This was the only piece of paper that Midland gave me with the lawsuit that looked official and notarized. Because of that affidavit, it felt as though I had no choice but to believe them and I would lose the lawsuit.

(Newman Declaration, ECF #13-12 at Pg. ID 400.)

         Newman and Ryan retained counsel and filed answers and counterclaims against Midland in the state court collection suits. (See State Court Docket, ECF #20-3.) Ryan also moved to strike the Ownership and Delinquency Affidavit. (See Id. at Pg. ID 489.) She even persuaded the presiding state court judge that Peterson's signature on the notary block had likely been “forged.” (State Court Transcript, ECF #13-2 at Pg. ID 255.) The state court judge therefore granted Ryan a hearing on her challenge to the Ownership and Delinquency Affidavit. But before that hearing could occur, Midland and Ryan agreed to dismiss the state court action without prejudice so that the dispute could be litigated in this Court. (See State Court Docket, ECF #20-3.) Likewise, Midland and Newman agreed to dismiss their state court claims and counterclaims without prejudice so that those claims could be litigated here. (See id.)

         D

         On April 19, 2016, Newman and Ryan filed a proposed class-action lawsuit in this Court against the Defendants. (See ECF #1.) Plaintiffs filed an Amended Complaint on May 24, 2016. (See ECF #13.) Plaintiffs' Amended Complaint nominally contains three counts, but Counts One and Two actually consist of a number of individual claims. (See Am. Compl. at Pg. ID 246-50.) In Count One, Plaintiffs allege that Defendants' collection practices violated various sections of the FDCPA. (See id.) In Count Two, Plaintiffs allege that Defendants' collection practices violated various sub-sections of the MRCPA. (See id.) In Count Three, Plaintiffs allege that Defendants' collection practices violated the RICO Act. (See id.) Plaintiffs seek to sue on behalf of all Michigan consumers that were subject to Defendants' above-described collection practices within the statute of limitations of each respective statute. (See id.at ¶¶ 140-53, ECF #13 at Pg. ID 243-46.)

         E

         On July 1, 2016, Defendants moved under Rule 12(b)(6) to dismiss the Amended Complaint. (See ECF #20.) The Court held a hearing on the motion on October 24, 2016. At the hearing, the Court raised concerns about, among other things, whether Plaintiffs had standing, under Article III of the United States Constitution, to challenge Defendants' collection practices in federal court. Specifically, the Court questioned whether Newman and Ryan had adequately pleaded that they personally had suffered a “concrete” injury due to each of Defendants' allegedly unlawful collection practices. After the hearing, the Court ordered Plaintiffs to show cause why their claims should not be dismissed for lack of standing. (See Order to Show Cause, ECF #34.) Plaintiffs filed their response to the show cause order on March 20, 2017, and Defendants replied on April 10, 2017. (See ECF ## 35, 37.)

         II

         Federal courts are courts of limited jurisdiction. As the United States Court of Appeals for the Sixth Circuit has explained:

The threshold question in every federal case is whether the court has the judicial power to entertain the suit. Article III of the United States Constitution prescribes that federal courts may exercise jurisdiction only where an actual ‘case or controversy' exists. See U.S. Const. art. III, § 2. Courts have explained the ‘case or controversy' requirement through a series of ‘justiciability doctrines, ' including, ‘perhaps the most important, ' that a litigant must have ‘standing' to invoke the jurisdiction of the federal courts.

Parsons v. U.S. Dep't of Justice, 801 F.3d 701, 709 (6th Cir. 2015) (internal quotation marks and citations omitted). Thus, the Court will first consider whether Plaintiffs have Article III standing to bring their claims in this forum.

         `A

         1

         As the party invoking federal jurisdiction, the plaintiff bears the burden of establishing standing. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992). A plaintiff “must have standing for each claim pursued in federal court.” Parsons, 801 F.3d at 710 (citing DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 352 (2006)).

         “To satisfy the ‘irreducible minimum of standing, ' the plaintiff must establish that: (1) he has suffered an injury in fact that is (a) concrete and particularized and (b) actual or imminent rather than conjectural or hypothetical; (2) that there is a causal connection between the injury and the defendant's alleged wrongdoing; and (3) that the injury can likely be redressed.” Lyshe v. Levy, 854 F.3d 855, 857 (6th Cir. 2017) (quoting Lujan, 504 U.S. at 560-61). “Where, as here, a case is at the pleading stage, the plaintiff must clearly … allege facts demonstrating each element [of standing].” Spokeo Inc. v. Robins, 136 S.Ct. 1540, 1547 (2016) (citing Warth v. Seldin, 422 U.S. 490, 518 (1975)) (internal quotation marks omitted).

         Moreover, “[t]hat a suit may be a class action adds nothing to the question of standing, for even named plaintiffs who represent a class must allege and show that they personally have been injured, not that injury has been suffered by other, unidentified members of the class to which they belong.” Id. at 1547 n.6 (citations and internal quotation marks omitted) (emphasis added).

         2

         The component of standing primarily at issue in this case is the requirement that a plaintiff personally suffer a “concrete” injury. To be “concrete, ” a plaintiff's injury “must be ‘de facto'; that is, it ...


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