Crippen v. Stites et al

1 At the June 6th hearing, Plaintiff’s Counsel expressed an intention to file his own Rule
9011 motion; however, nothing has been filed.
2The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 157(b)(2)(B).
I N THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
I N RE 	:
:
L EVI K. CRIPPEN 	: CASE NO . 05-33327
:
:
L EVI K. CRIPPEN 	:
:
PLAINTIFF 	:
V. 	:
:
:
DONALD J. STITES, J R. AND ELLIOT 	:
GREENLEAF & SIEDZIKOWSKI , P.C. 	:
:
DEFENDANTS 	: ADVERSARY PROCEEDING NO . 06-205
:
O PINION
Introduction
Defendant Elliot Greenleaf & Siedzikowski, P.C. (Elliot) has filed a Motion to Dismiss
Count III of the Debtor’s Complaint and a Motion for Sanctions against the Plaintiff and his
counsel under Bankruptcy Rule 9011. The Plaintiff has filed a Response to the motions. 1
Hearings were held on the Motions on June 6 and 20, 2006. 	For the reasons set forth
below, the Motions will be denied. 2
The Pleading
Count III of the Complaint is directed solely at Elliot. That count alleges a violation
of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq. Specifically,
it is alleged that Elliot falsely represented the character, amount, or legal status of a debt;
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2
and that it unfairly or unconscionably collected an amount not expressly authorized by the
agreement creating the debt or permitted by law. See Complaint ¶ 57.
Legal Standard for
Motion to Dismiss
The Motion to Dismiss is brought under F.R.C.P. Rule 12(b)(6). 	Rule 12(b)(6) –
which is incorporated by Bankruptcy Rule 7012 – provides for dismissal of a complaint for
failure to state a claim upon which relief can be granted. F.R.C.P. 12(b)(6). A claim should
not be dismissed 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, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957); Rocks v.
Philadelphia, 868 F.2d 644, 645 (3d Cir.1989). 	All well-pleaded factual allegations in the
claim must be taken as true. 	Cruz v. Beto, 405 U.S. 319, 322, 92 S.Ct. 1079, 1081, 31
L.Ed.2d 263 (1972); 	Rocks, 868 F.2d at 645. 	The court must draw all reasonable
inferences from the allegations and view them in the light most favorable to the non-moving
party. Rocks, 868 F.2d at 645.
The Parties’ Positions
Elliot argues that the Complaint fails to allege two elements of an FDCPA claim.
First, the Complaint contains insufficient allegations that Elliot is a “debt collector” as
defined by the act. Second, the pleading is equally devoid of facts demonstrating that Elliot
violated the act. 	Motion, 4, 6-7. 	For its part, the Plaintiff identifies two places in the
Complaint where it is sufficiently alleged that Elliot is a debt collector. As to the specific
acts which are alleged to constitute violations of the act, the Debtor points to the allegations
of usury pleaded in the very first count of the Complaint.
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3This appears to be an erroneous cite: the definition is found at § 1692a(6).
3
Does the Complaint Sufficiently
Allege that Elliot is a Debt Collector?
The FDCPA generally applies only to “debt collectors.” 	Pollice v. Capital Asset
Research Corp., Ltd., 225 F.3d 379, 403 (3d Cir.2000). Elliot is characterized as a “debt
collector” twice in the Complaint. 	The first time is in Paragraph 6 where the parties are
described. That paragraph states that Elliot is a “‘debt collector’ pursuant to 11 U.S.C. §
1692(a)(4) [sic] 3 which, using the mails, regularly attempts to collect debts alleged to be
due another.” Such a description does no more than parrot the statutory definition. This
matters because the Third Circuit has explained: “[n]either “bald assertions” nor “vague and
conclusory allegations” are accepted as true for purposes of a Rule 12(b)(6) challenge.
See Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir.1997); In re Burlington
Coat Factory Securities Litig., 114 F.3d 1410, 1429-30 (3d Cir. 1997). 	In and of itself,
Paragraph 6 is no more than a legal conclusion. Therefore, the language in that paragraph
does not sustain this complaint against a challenge on sufficiency grounds. See Garland
v. Enterprise Leasing Co., 1999 WL 1077075 *1 (E.D.Pa.) (rejecting argument that plaintiff
properly pleaded that defendant was “debt collector” when only conclusions of law were
offered); Williams v. Edelman, 408 F.Supp.2d 1261, 1265 (S.D.Fla.2005) (stating that mere
allegation that defendant is a “debt collector” fails to satisfy pleading requirement); see also
Bilal v. Chase Manhattan Mortgage Corp., 2006 WL 1650008 *3 (N.D.Ill) (dismissing count
which identifies defendant as “debt collector” without any factual basis); and see also
Havens-Tobias v. Eagle, 127 F.Supp.2d 889, 896 (S.D.Ohio 2001) (stating in dicta that
legal conclusions regarding defendant’s alleged status as “debt collector” insufficient to
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4The foreclosure complaint is attached to Elliot’s Motion as Ex. “A”.
4
survive motion to dismiss; complaint dismissed for lack of factual allegations of FDCPA
violation).
Elsewhere in the Complaint, it is alleged that Elliot essentially admitted that it is a
“debt collector.” Paragraph 27 reads as follows: “Elliot … filed a Complaint in Mortgage
Foreclosure stating that the firm was a debt collector.” Complaint ¶ 27 (emphasis added).
This paragraph, then, references another pleading — the foreclosure complaint — as the
basis for its assertion that Elliot is a debt collector. 4 Given that a Rule 12(b)(6) challenge
is normally limited to the four corners of the subject complaint, may that other document
be considered?
In this circuit, there exists an exception to the rule that a Rule 12(b)(6)
challenge is confined to the pleading under review:
“As a general matter, a district court ruling on a motion to
dismiss may not consider matters extraneous to the pleadings.
However, an exception to the general rule is that a ‘document
integral to or explicitly relied upon in the complaint’ may be
considered ‘without converting the motion [to dismiss] into one
for summary judgment.’ ” In re Burlington Coat Factory
Securities Litigation, 114 F.3d 1410, 1426 (3d Cir.1997)
(emphasis omitted). Any critical matter raised in plaintiff's
accompanying documents could be characterized in one of two
ways: first it could be characterized as an argument that one
might reasonably infer the critical matter from allegations in
plaintiff's complaint; or, second, if it is impossible to make
such an inference from the four corners of the complaint,
it could be characterized as a matter for which plaintiff
should be granted leave to amend his complaint to cure
any deficiency. [citation omitted]
Bush v. City of Philadelphia, 367 F.Supp.2d 722, 725 (E.D.Pa.2005). Plaintiff’s assertion
that Elliot is a debt collector is based expressly on what Elliot alleged in its foreclosure
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5
complaint. 	Under these circumstances, the Court will consider that other pleading to
determine if Plaintiff has sufficiently pleaded that Elliot is a “debt collector.”
In reviewing Elliot’s foreclosure complaint, the Court finds no express admission that
the firm is a debt collector as defined by the statute. Nowhere in that pleading does Elliot
explicitly state that it is a “debt collector.” 	Respondents do not dispute this. 	What they
argue here is that the admission is made implicitly. The premise of their argument is the
FDCPA’s prohibition against certain false or misleading representations:
A 	debt 	collector 	may 	not 	use 	any 	false, 	deceptive, 	or
misleading representation or means in connection with the
collection of any debt. Without limiting the general application
of the foregoing, the following conduct is a violation of this section:
····
(11) The failure to disclose in the initial written communication
with the consumer··· that the debt collector is attempting to
collect a debt and that any information obtained will be used for
that 	purpose, 	and 	the 	failure 	to 	disclose 	in 	subsequent
communications 	that 	the 	communication 	is 	from 	a 	debt
collector except that this paragraph shall not apply to a formal
proceeding made in connection with a legal action
15 § 1692e(11) (emphasis added). The act thus requires debt collectors to disclose to
consumers whom they contact that they are trying to collect a debt. This warning has been
referred to as a “mini-Miranda” notice alluding to the landmark Supreme Court case. Davis
v. Hutchins, 321 F.3d 641, 643 (6th Cir.2003); Foti v. NCO Financial Systems, Inc., 424
F.Supp.2d 643, 651 (S.D.N.Y.2006). 	Significantly for present purposes, this warning is
generally required only of “debt collectors.” See Prince v. NCO Financial Systems, Inc., 346
F.Supp.2d 744, 747 (E.D.Pa. 2004) (stating that the FDCPA generally applies only to “debt
collectors”). 	Although this warning is exempted from legal pleadings, Elliot specifically
chose to place this precise verbiage at the end of its foreclosure complaint. See Motion,
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5Made applicable to adversary proceedings by B.R. 7008(a).
6
Ex. A. 	From this, 	the Respondents believed it reasonable to infer that Elliot is a “debt
collector.” Debtor’s Response, 6. The Court agrees. That does not mean, of course, that
the issue is settled: Elliot is free to raise the issue later in these proceedings. See Prince,
supra (“Whether a defendant is a “debt collector” as defined by the FDCPA is a question
of law appropriate for resolution on summary judgment.”) But for purposes of this motion,
the Complaint sufficiently pleads that Elliot is a “debt collector” as defined under the
FDCPA.
Does the Complaint Adequately
Explain How Elliot is Supposed
to Have Violated the Act?
Elliot’s next ground for dismissal is that the Complaint fails to allege “the basis and
context for [sic]” the violations of the FDCPA. Motion, 7. Here again, the Plaintiff maintains
that the violation of the act is implicit rather than explicit. According to the Debtor, it may
be inferred from the first count of the Complaint. That count alleges that the Defendant
violated the applicable state usury law. 	Response, 6-7. 	Is that sufficient to survive a
motion to dismiss?
Under Fed. R. Civ. P. 8(a) 5 , a complaint must contain “a short and plain statement
of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). 	A
complaint satisfies the Rule 8(a) pleading requirements if it gives notice and the grounds
upon which a plaintiff's claim rests. See Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514,
122 S.Ct. 992, 152 L.Ed.2d 1 (2002). While a complaint generally need not allege every
element of a plaintiff's claim, it must plead facts sufficient to provide the defendant with “fair
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7
notice of the transaction” and “set[ ] forth the material points necessary to sustain
recovery.” Menkowitz v. Pottsdown Mem'l Med. Ctr., 154 F.3d 113, 124 (3d Cir.1998). A
complaint is sufficient if it contains allegations from which an inference fairly may be drawn
that evidence on these points will be introduced at trial. 5 Wright & Miller, Federal Practice
and Procedure: Civil 3d § 1216. 	And significantly, one court has pointed out that the
heightened pleadings standard for claims involving fraud and other special matters under
Rule 9 does not apply to an FDCPA claim. Burkhalter v. Lindquist & Trudeau, Inc., 2005
WL 1983809 *2 (E.D.Mo.). Does Count III adequately apprise Elliot of how it is supposed
to have violated the FDCPA?
The Court finds that it does. Count III alleges that Elliot violated the act by “falsely
representing the character, amount, or legal status of the debt” and by “unfairly or
unconscionably collecting an amount not permitted by law.” Complaint, ¶ 57 quoting 15
U.S.C. § 1692e(2) and 1692f(1). The preceding paragraphs allege that “Elliot attempted
to collect debt in excess of both Pennsylvania law and the mortgage instrument” and that
such “debt” constitutes usurious interest and fees and costs not provided for under the
mortgage. Id. ¶¶ 55-56. Far from implying any illegal conduct, the Complaint is quite clear
as to how Elliot is supposed to have violated the Act. 	Elliot is alleged to have collected
interest at a rate higher than allowed by law and to have charged fees and costs not
provided for under the parties’ contract. For that reason, the Court rejects Elliot’s claim that
the complaint fails to specify what conduct violates the act. Elliot’s Motion to Dismiss must,
therefore, be denied.
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6The Third Circuit has explained that cases decided pursuant to F.R.C.P. 11 apply to
Bankruptcy Rule 9011. Landon v. Hunt, 977 F.2d 829, 833 n.3 (3d Cir. 1992); Cinema Svs. Corp.,
774 F.2d 584, 586 (3d Cir. 1985). Thus, this Court may rely on Rule 11 case law in deciding on the
Bankruptcy Rule 9011 challenge.
8
Motion for Sanctions
The Court turns now to Elliot’s request for sanctions. That request is premised on
Bankruptcy Rule 9011 which provides:
By 	presenting 	to 	the 	court 	(whether 	by 	signing, 	filing,
submitting, or later advocating) a petition, pleading, written
motion, or other paper, an attorney or unrepresented party is
certifying 	that 	to 	the 	best 	of 	the 	person's 	knowledge,
information, and belief, formed after an inquiry reasonable
under the circumstances,--
…
(3) 	the 	allegations 	and 	other 	factual 	contentions 	have
evidentiary support or, if specifically so identified, are likely to
have evidentiary support after a reasonable opportunity for
further investigation or discovery
B.R. 9011(b)(3). 	The purpose of the rule 6 is deter baseless filings. 	Cooter & Gell v.
Hartmarx Corp., 496 U.S. 384, 393, 110 S.Ct. 2447, 2454, 110 L.Ed.2d 359 (1990). Elliot
insists that the Respondents violated this rule by alleging in the Complaint that Elliot stated
in its foreclosure complaint that it is a debt collector. 	See Motion for Sanctions, 4.
According to Elliot, there is absolutely no basis for such a contention. Transcript June 6
(T 6/6) 4; Transcript June 20 (T 6/20) 2. 	Respondents contend that such allegation is
supported by the FDCPA warning on the foreclosure complaint. T 6/6-4, 5; T 6/20-4.
Before analyzing the merits of the Rule 9011 challenge, the Court will first examine
what effect, if any, the denial of the motion to dismiss might have on the request for
sanctions. At first blush, a ruling that a complaint states a claim might lead one to conclude
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9
that such claim was adequately investigated. See e.g., Gal v. Viacom International, Inc.,
403 F.Supp.2d 294, 308 (S.D.N.Y.2005) (stating that as complaint alleged enough to
survive a Rule 12(b)(6) motion to dismiss, it follows that the claim is not “baseless” for Rule
11 purposes) But that does not necessarily follow. The denial of a motion to dismiss or a
motion for summary judgment does not preclude a subsequent finding that there was no
factual basis for the claim under Rule 11 or even constitute evidence that sanctions should
not 	be 	granted. 	See 	In 	re 	General 	Plastics 	Corp., 	170 	B.R. 	725, 	733 	n.2.
(Bankr.S.D.Fla.1994). This is because the facts on such motions are either accepted as
true or construed in the non-movant's favor. 	Lemaster v. U.S., 891 F.2d 115, 121 (6th
Cir.1989). As the Sixth Circuit in Lemaster explained:
All courts addressing this issue have concluded that mere
survival of a summary judgment motion, in which all facts are
construed in the non-movant's favor, does not insulate the
party from sanctions if it is later determined that all factual
claims were groundless. 	Calloway v. Marvel Entertainment
Group, 854 F.2d 1452 (2d Cir.1988), Rev'd on other grounds
sub nom. Pavelic LeFlore v. Marvel Entertainment Group,---
U.S. ----, 110 S.Ct. 456, 107 L.Ed.2d 438 (1989); Barrios v.
Pelham Marine, Inc., 796 F.2d 128, 132 (5th Cir.1986). 	The
mere fact that a judge declines to dismiss an action or grant
summary judgment on procedural grounds, or allows an issue
to go to the jury for purposes of administrative convenience,
does 	not 	preclude 	the 	imposition 	of 	sanctions 	or 	even
constitute evidence that sanctions should not be granted.
[citation omitted]
Lemaster, 891 F.2d at 121. As a matter of law, then, denial of Elliot’s motion to dismiss is
not dispositive of the sanctions request. 	The question is whether the Respondents
conducted a reasonable investigation of the facts and circumstances behind their claim that
Elliot stated that it was a debt collector. See Garr v. U.S. Healthcare, Inc., 22 F.3d 1274,
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7Made applicable by B.R. 9017.
10
1279 (3d Cir. 1995) (“A signer making an inadequate inquiry into the sufficiency of the facts
and law underlying a document will not be saved from a Rule 11 sanction by the stroke of
luck that the document happened to be justified.”); see also Vista Mfg., Inc. v. Trac-4, Inc.,
131 F.R.D. 134, 138 (N.D.Ind.1990) (“A shot in the dark is a sanctionable event, even if it
somehow hits the mark.”) 	The Court determines the reasonableness of an inquiry by
applying an objective standard under the circumstances. Martin v. Brown, 63 F.3d 1252,
1264 (3d Cir. 1995). 	An attorney is entitled to make reasonable inferences from the
available facts. 10 Collier on Bankruptcy ¶ 9011.04[2][a] (Matthew Bender 15 th ed. Revised
2006).
The investigation which the Respondents undertook was to review the foreclosure
complaint. T 6/6-4; T 6/20-4. That document contained the warning which the act requires
debt collectors to give to consumers when contacting them. And importantly for present
purposes, that warning is required only of debt collectors. 	From that warning, the
Respondent inferred that Elliot must be a debt collector. 	T 6/6-9 	The Court finds that
inference to have been fairly made. Indeed, it appears to the Court to arguably constitute
an admission and, as such, must be accorded some weight. See F.R.E. 801(d)(2)(A) 7 ; see
also Matter of Continental Airlines, Inc., 125 B.R. 415, 417 (Bankr.D.Del. 1991) (allowing
pleading in prior proceeding to be used as admission against debtor); Fidelity & Deposit Co.
v. Hudson United Bank, 653 F.2d 766, 777 (3d Cir.1981) (same). 	So while Elliot may be
correct that, as a literal matter, it never expressly stated that it was a debt collector, its mini-
Miranda warning gave the Respondents the impression that it was. 	Moreover, the
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11
existence of that warning on the foreclosure complaint reveals how unreasonable is the
level of inquiry suggested by Elliot. 	Elliot would require the Respondent to scour every
docket in the “Delaware Valley” to determine if Elliot filed enough collection actions to be
deemed a debt collector. T 6/6-10; T 6/20-6. Admittedly, such a task is made easier by
existence of online docketing; however, Elliot never explains why Respondents need
inquire further than the warning on Elliot’s own pleading. 	Furthermore, Elliot offers no
authority for this novel standard. For these reasons, the Court finds that the Respondents
undertook a reasonable investigation in alleging that Elliot is a debt collector. The request
for sanctions will accordingly be denied.
Summary
Because Count III of the Complaint sufficiently pleads a cause of action under the
Fair Debt Collection Practices Act, the Motion to Dismiss will be denied. The Motion for
Sanctions will be also denied, but without prejudice.
By the Court:
____________________________________
Stephen Raslavich
United States Bankruptcy Judge
Dated: 	July 25, 2006
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I N THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
I N RE 	:
:
L EVI K. CRIPPEN 	: CASE NO . 05-33327
:
:
L EVI K. CRIPPEN 	:
:
PLAINTIFF 	:
V. 	:
:
:
DONALD J. STITES, J R. AND ELLIOT 	:
GREENLEAF & SIEDZIKOWSKI , P.C. 	:
:
DEFENDANTS 	: ADVERSARY PROCEEDING NO . 06-205
:
O RDER
AND NOW upon consideration of the Motions of Elliot Greenleaf & Siedzikowski P.C.
to Dismiss and for Sanctions, the Plaintiff’s and Counsel’s response thereto, after hearings
held June 6 and 20, 2006, and for the reasons set forth in the foregoing Opinion, it is
ORDERED that the Motions are Denied.
By the Court:
____________________________________
Stephen Raslavich
United States Bankruptcy Judge
Dated: 	July 25, 2006
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2
MAILING LIST:
George Conway, Esquire
Office Of The U.S. Trustee
950W Curtis Center
7th & Sansom Streets
Philadelphia PA 19106
Devon E. Sanders, Esquire
COMMUNITY LEGAL SERVICES
LAW CENTER NORTH CENTRAL
3638 Broad Street
Philadelphia, PA 19140
Brian R. Elias, Esquire
ELLIOT GREENLEAF & SIEDZIKOWSKI, PC
Union Meeting Corp. Center V, Suite 300
925 Harvest Drive
Blue Bell, PA 19422
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