District Court (Cal.) Says Strike Two on FDCPA Plaintiff’s Contention that a Debt Collector Should Not Have Reported an Account as “Disputed” After the Debtor No Longer Disputed the Debt

We previously reported on this case here:  https://www.severson.com/consumer-finance/district-court-cal-finds-no-fdcpa-claim-based-on-reporting-account-as-disputed-when-debtor-did-not-dispute-the-debt/

Now, again, in Samano v. LVNV Funding, LLC, No. 1:21-cv-01692-SKO, 2022 U.S. Dist. LEXIS 114028, at *4-8 (E.D. Cal. June 27, 2022), Magistrate Oberta again granted a Motion to Dismiss, but again gave leave to amend, on whether credit reporting constituted debt collection activity.

The purposes of the FDCPA are “to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.” 15 U.S.C. § 1692. In addition, it is designed “to provide information that helps consumers to choose intelligently” in dealing with their debts. Donohue v. Quick Collect, Inc., 592 F.3d 1027, 1033 (9th Cir.2010) (quoting Hahn v. Triumph P’ships LLC, 557 F.3d 755, 758 (7th Cir. 2009)). If a violation occurs, “the FDCPA is a strict liability statute that makes debt collectors liable for violations that are not knowing or intentional.” Id. at 1030.  Plaintiff alleges Defendant violated 15 U.S.C. § 1692e when it “willfully communicated credit information which was known or which should have been known to be false, to wit: that Plaintiffs [sic] accounts were disputed when, in fact, they were not.” (Doc. 25 ¶ 28.) Title 15 U.S.C. § 1692e prohibits debt collectors from “using false, deceptive, and misleading representation or means in connection with the collection of a debt,” and Plaintiff’s allegation tracks the language of § 1692e(8), which provides that a debt collector violates the FDCPA by “[c]ommunicating or threatening to communicate to any person credit information which is known or which should be known to be false.” Defendant contends that Plaintiff fails to allege that Defendant made a misrepresentation “in connection with the collection of his debt.” (Doc. 27 at 5-8.)  While neither the FDCPA nor the Ninth Circuit have defined the phrase “in connection with the collection of any debt” under § 1692e, a generally accepted definition derived from other Circuit Courts of Appeals is that “for communication to be in connection with the collection of a debt, an animating purpose of the communication must be to induce payment by the debtor.” Carter v. Richland Holdings, Inc., No. 2:16-cv-02967-RFB-VCF, 2019 WL 4773806, at *4 (D. Nev. Sept. 30, 2019) (citing Grden v. Leikin Ingber & Winters PC, 643 F.3d 169, 173 (6th Cir. 2011)); see also McIvor, 773 F.3d at 914; Gburek v. Litton Loan Servicing LP, 614 F.3d 380, 385-86 (7th Cir. 2010).  After reviewing the Second Amended Complaint, the Court finds Plaintiff still does not allege that an “animating purpose” of the communications at issue was to induce payment. Plaintiff responds that “[t]he fact that Defendant is reporting this debt to the [credit reporting agencies] at all is an animating purpose to induce payment of the debt” (Doc. 31 at 6), but he lacks support by the Ninth Circuit for this position—despite claiming it has been “established” by that Court (id. at 2). Plaintiff cites three cases decided by district courts within the Ninth Circuit in his opposition brief (see id. at 5, 7), but none concerns the application of the phrase “in connection with the collection of any debt” under § 1692e and are therefore not instructive. See Moscona v. California Bus. Bureau, Inc., No. 10-CV-1468 BEN CAB, 2011 WL 5085522, at *5 (S.D. Cal. Oct. 25, 2011) (granting summary judgment on the plaintiff’s claim under § 1692g(b)); Rivera v. Bank One, 145 F.R.D. 614, 623 (D.P.R. 1993) (denying the defendant’s motion to dismiss for lack of personal jurisdiction in diversity action alleging tortious refusal to correct the plaintiff’s credit); Buchannon v. Associated Credit Servs., Inc., No. 3:20-CV-02245-BEN-LL, 2021 WL 5360971, at *6 (S.D. Cal. Nov. 17, 2021) (granting the plaintiff’s motion for default judgment).   In contrast to the authority cited by Plaintiff, at least one Circuit Court of Appeals has considered whether every communication between a debt collector and a credit reporting agency necessarily constitutes collection activity, and has held that it does not. See McIvor v. Credit Control Servs., Inc., 773 F.3d 909, 915 (8th Cir. 2014). In so doing, the Eight Circuit considered the same out-of-circuit legal authority Plaintiff cites in his brief. (Compare McIvor, 773 F.3d at 914 (citing FEDERAL TRADE COMMISSION, STAFF OPINION LETTER, 1997 WL 33791232 at *1 (December 23, 1997) and Edeh v. Midland Credit Management, Inc., 748 F. Supp. 2d 1030 (D. Minn. 2010), aff’d, 413 F. .App’x 925 (8th Cir. 2011)) with Doc. 31 at 5.) As it previously held, (see Doc. 20 at 9), the Court agrees with McIvor.  Not every communication with a credit reporting agency about a debt is made “in connection with the collection of any debt” under § 1692e as a matter of law. There is a recognized distinction, for example, between voluntary reporting of debts and reporting that is made in compliance with procedures required under the Fair Credit Reporting Act. See McIvor, 773 F.3d at 914 (citing Edeh, 748 F. Supp. 2d at 1035-36).

The Magistrate explained why the Plaintiff’s allegations failed to state a claim, but why an additional shot at it ought to be allowed.

Here, Plaintiff pleads no facts from which a collection-related, as opposed to a compliance- related, motivation could be inferred. He does not allege, for example, that by continuing to report the debt as disputed, Defendant is inducing Plaintiff to pay the debt in order to remove the disputed notation from his account. Instead, he merely alleges that Defendant falsely reported his accounts as disputed to credit reporting agencies. That is not enough to state a claim for a violation of § 1692e.  Nevertheless, the Court finds it appropriate to grant Plaintiff one last opportunity to allege conduct “in connection with the collection of any debt” pursuant to 15 U.S.C. § 1692e, as the pleadings can be cured by the allegation of additional facts. Cook, Perkiss and Liehe, Inc., 911 F.2d at 247. See also Katzakian v. Collectibles Mgmt. Res., No. CV F 12-1677 LJO SKO, 2013 WL 57712, at *6 (E.D. Cal. Jan. 4, 2013) (leave to amend § 1692e(8) claim granted). See also Fed. R. Civ. P. 15(a) (“The court should freely give leave when justice so requires.”); Cafasso, U.S. ex rel. v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1058 (9th Cir. 2011). (“[W]hen a viable case may be pled, a district court should freely grant leave to amend.”). Cf. Narog v. Certegy Check Servs., Inc., 759 F. Supp. 2d 1189, 1192 (N.D. Cal. 2011) (“Dismissal of a . . . complaint without leave to amend is proper only if it is absolutely clear that the deficiencies of the complaint could not be cured by amendment.”) (internal quotations and citation omitted) (emphasis added).