Howe et al v. Creditors Interchange Receivable Management LLC et

I N THE U NITED STATES B ANKRUPTCY C OURT
FOR THE E ASTERN DISTRICT OF PENNSYLVANIA
I N RE : 	: CHAPTER 13
:
T HELMA JANE HOWE 	:
D EBTOR( S) 	: B ANKRUPTCY NO. 09-10183 SR
T HELMA JANE HOWE , AND D ONALD J. HOWE 	:
PLAINTIFF ( S) 	:
VS. 	:
CREDITORS I NTERCHANGE RECEIVABLES 	:
MANAGEMENT, L LC, AND 	:
B ANK OF AMERICA, N. A. 	:
D EFENDANT( S) 	: ADVS. NO. 09-0010
OPINION
B Y: STEPHEN RASLAVICH, CHIEF UNITED STATES B ANKRUPTCY JUDGE .
Introduction
Before the Court are two matters: Plaintiffs’ Motion for Permission to
Amend Complaint and Bank of America’s Motion to Dismiss. Both of the motions are
opposed. After a hearing held on April 2, 2009, the Court took the matters under
advisement.
Procedural Background
The Plaintiffs filed a Complaint against Bank of America, N.A., (BOA) and
Creditor Interchange Receivables Management, Inc. (CIRM) The Complaint seeks the
avoidability of a preferential transfer1 and damages for violations of federal and state
consumer protections laws. CIRM filed an Answer to the Complaint and BOA filed a
111 U.S.C. § 547(b)
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Motion to Dismiss. In response, the Plaintiffs filed a Motion for Permission to Amend
their Complaint. Because the Motion to Dismiss may be rendered moot, in part or in
whole, by the disposition of the motion to amend, the latter motion will be taken up
first.
The Proposed Amendment
and the Applicable Rule
The proposed changes amend the complaint in two ways, one factual and the
other legal. The factual change pertains to the preference claim: they would restate
the immediate source of the alleged preferential transfer. Formerly, the payment was
alleged to have been made by the Debtor’s husband to the collection agent (CIRM).
The amendment now states that the husband transferred the funds to the entireties
entity (the Debtor and her husband) who then transferred the money to the collection
agent.
	See ¶¶ 8 and 15 This appears to have been done to establish standing for the
Plaintiffs to press the underlying preference claim.
The other change is solely legal. Paragraph 20 is new and alleges that BOA is
vicariously liable for CIRM’s violation of the Fair Credit Extension Uniformity Act, 73 P.S.
§ 2270.1
et seq.
Applicable Rule
of Procedure
Amendment of pleadings is governed by Fed. R.Bankr.P. 7015, which
incorporates Fed.R.Civ.P. 15. The rule provides, in pertinent part:
(a)
Amendments Before Trial.
(1)
Amending as a Matter of Course. A party may
amend its pleading once as a matter of course:
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(A) before being served with a responsive pleading; or
(B) within 20 days after serving the pleading if a responsive
pleading is not allowed and the action is not yet on the trial
calendar.
(2)
Other Amendments. In all other cases, a party may
amend its pleading only with the opposing party's written
consent
or the court's leave. The court
should freely give
leave when justice so requires.
Fed.R.Civ.P. 15(a)(1),(2) (2007) (emphasis added). The Supreme Court has made it
clear that the application of this presumption is “a mandate to be heeded.”
	Foman v.
Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962). It furthers the
policy of trying cases on their merits.
	Id. It also avoids that possibility of the opposing
party suffering prejudice or surprise. 6 Wright & Miller,
Federal Practice and Procedure,
Civil 2d § 1474. The precise delineation of when leave should be granted or denied is
impossible; therefore, the determination is left to the sound discretion of the trial judge.
NAACP v. Harrison, 907 F.2d 1408, 1417 (3d Cir.1990). This requires the Court to
consider the positions of
both parties and the effect that the request will have on them.
Wright & Miller,
supra at § 1487. For that reason, the court may deny a request to
amend when the moving party has demonstrated undue delay, bad faith or dilatory
motive or where the amendment would prejudice the opposing party.
	See Foman,
supra, id.;
Grayson v. Mayview State Hosp., 293 F.3d 103, 108 (3d Cir.2002). Equally,
an amendment will be denied where it is futile.
	Id.
Futility
BOA argues that the proposed amendments to Counts I and III are futile. An
amendment is futile if it would not survive a motion to dismiss for failure to state a
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claim upon which relief could be granted.
	See In re Burlington Coat Factory Sec. Litig.,
114 F.3d 1410, 1434 (3d Cir.1997) (
citing Glassman v. Computervision Corp., 90 F.3d
617, 623 (1st Cir.1996)). In determining whether the amendment would be futile, the
district court applies the same standard of legal sufficiency as under Fed.R.Civ.P.
12(b)(6).
	See id. A motion to dismiss pursuant to Rule 12(b)(6) may be granted only
if, accepting all well pleaded allegations in the complaint as true, and viewing them in
the light most favorable to plaintiff, plaintiff is not entitled to relief.
	Maio v. Aetna, Inc.,
221 F.3d 472, 481 (3rd Cir. 2000). "The issue is not whether a plaintiff will ultimately
prevail but whether the claimant is entitled to offer evidence to support the claims."
Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974)
overruled on other grounds, 468 U.S. 183, 191, 104 S.Ct. 3012, 3017, 82 L.Ed.2d 139
(1984)
Preference Claim
BOA argues that the preference claim is futile for two reasons: first, as a factual
matter, the transfer sought to be avoided was voluntary; and second, as a legal matter,
Chapter 13 debtors lack standing to raise preference claims.
	See BOA’s Objection to
Plaintiffs’ Motion for Permission to Amend.
Because the standing argument raises a threshold, jurisdictional question, that
issue should be taken up first. 	Subsection (b) of § 547 imbues the
trustee with the
right to avoid and recover a preferential transfer.
	See 11 U.S.C. § 547(b). 	There are
circumstances, however, in which a debtor may avoid and recover a preferential
transfer. Section 522 provides:
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The debtor may avoid a transfer of property of the debtor or
recover a setoff
to the extent that the debtor could have
exempted such property under subsection (g)(1) of this
section if the trustee had avoided such transfer, if--
(1) such transfer is
avoidable by the trustee
under section
544, 545,
547, 548, 549, or 724(a) of this title or
recoverable by the trustee under section 553 of this title;
and
(2) the
trustee does not attempt to avoid such transfer.
11 U.S.C. § 522(h) (emphasis added) This section sets forth two preconditions to a
debtor’s independent right to seek avoidance of a preferential transfer: the property
transferred must be exemptible under § 522(g)(1) and the trustee did not attempt to
avoid the transfer. In this case, the amendment alleges that the trustee “is unlikely to
choose to prosecute” this claim. Amended Complaint, ¶ 15. For present purposes, this
is sufficient, as the trustee to date has made no attempt to avoid the transfer, and as it
would indeed be highly unusual for the Chapter 13 Trustee to do so. That leaves
subsection (g)(1) which provides:
Notwithstanding sections 550 and 551 of this title, the
debtor may exempt under subsection (b) of this section
property that the trustee recovers under section 510(c)(2),
542, 543, 550, 551, or 553 of this title, to the extent that
the debtor could have exempted such property under
subsection (b) of this section if such property had not been
transferred, if–
(1)(A) such transfer was not a voluntary transfer of such
property by the debtor; and
(B) the debtor did not conceal such property; …
11 U.S.C. § 522(g)(1). The amendment states that the property transferred was held
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by the entireties (again, Plaintiffs are husband and wife) and it is their stated intention
to exempt any recovered transfer to the extent allowed. ¶ 15. As to whether the
transfer was voluntary, the amendment clearly allows the inference that the transfer
was coerced.
	See ¶¶ 6-8 (alleging that CIRM engaged in deceit by threatening to have
the Debtor arrested unless payment was made).
In short, the Court finds that the amendment alleges the elements necessary for
the Debtor and her husband to press a preference claim on their own behalf.2
Vicarious Liability
and the FCEUA
BOA’s other assertion of futility pertains to the proposed changes to Count III.
Originally, that claim was directed solely at CIRM and was derivative of the claims
raised in Count II.3 It was alleged therein that by violating the FDCPA (see Count II),
CIRM thereby violated the FCEUA.
See ¶ 19. It now adds BOA to that claim under the
theory of vicariously liability: because it is responsible for the actions of CIRM, the
Plaintiffs’ theory goes, BOA is per se liable under the FCEUA.
	See ¶ 20. BOA disputes
that premise relying on case law holding that vicariously liability is recognized neither
under the federal FDCPA nor the Pennsylvania Uniform Trade Practice and Consumer
Protection Law.
	See 73 P.S. § 201-1
2The case law cited by BOA holds a debtor lacks independent standing to assert an
avoidance claim. That, however, is not what the Plaintiffs are arguing here: their standing as
alleged meets the preconditions of debtor-initiated avoidance(trustee demurral, exemptibility,
and involuntariness of the transfer).
3Count II alleges that CIRM has violated the Fair Debt Collection Practices Act (FDCPA),
15 U.S.C. § 1692a
et seq.
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As far as the FDCPA is concerned, the Court concurs with BOA’s view of the
limited circumstances under which vicariously liability would lie. The statute's
“provisions generally apply only to debt collectors.”
See FTC v. Check Investors, Inc,
502 F.3d 159, 171 (3d Cir.2007)
quoting Pollice v. National Tax Funding, LP, 225 F.3d
379, 403 (3d Cir. 2000). 	“Creditors-as opposed to debt collectors-generally are not
subject to the FDCPA.”
Id. A “debt collector” is broadly defined as one who attempts to
collect debts “owed or due or asserted to be owed or due another”
FTC, supra, id.,
quoting 15 U.S.C. § 1692a(6). A “creditor” is one who “offers or extends to offer credit
creating a debt or to whom a debt is owed.”
Id., quoting 15 U.S.C. § 1692a(4). There
is no vicariously liability as between creditors and debt-collectors.
	See Pollice, supra,
225 F.3d at 404. Only an entity that itself falls within the FDCPA's definition of a "debt
collector" may be found vicariously liable for unlawful collection activities carried out by
another on its behalf.
	Sankowski v. Citibank (South Dakota), N.A., 2006 WL 2037463
*2 (E.D.Pa.) Given that BOA is not described as anything other than a creditor (
see ¶
11) it would not be liable for violations of the FDCPA by CIRM.
Plaintiff’s response is that the FCEUA provides for much broader liability on the
creditor’s part than does the FDCPA. T-10. As to support for that proposition,
however, the Debtor’s counsel offers none. BOA points out that the statute never
mentions vicarious liability, but that is not surprising given that the doctrine comes out
of the common law of agency.
	Id. 4
4 CIRM would weigh in with an explanation that the FCEAU provides for no remedy of its
(continued...)
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The Court’s own review of the FCEUA confirms that Plaintiffs are correct in one
respect: Unlike the federal law, the FCEUA provides that a creditor—and not just a debt
collector—may liable under that act.5 For a creditor, liability arises upon the
commission of any of the independent, affirmative collection acts listed in the statute.
See 73 P.S. § 2270.4(b). This contrasts with the liability of a debt collector under the
FCEUA. A debt collector’s liability is derivative: a violation of the FDCPA is a per se
violation of the FCEUA.
	See 73 P.S. § 2270.4(a). So to that limited extent the Court
would concur with the Plaintiffs that the state law expands the liability of the federal
counterpart.
None of that, however, supports the legal premise upon which Plaintiffs rely to
include BOA in Count III. Proposed ¶ 20 maintains that “BOA is liable for the actions of
CIRM on its behalf.”
See Amended Complaint. In other words, the Plaintiffs’ legal
theory is that BOA is
vicariously liable for CIRM’s
derivative violation of the statute.
This places BOA two steps removed from any independent, affirmative violation of
either the state or federal collection law. Given that (1) a creditor may be liable under
the FCEUA only for specific acts enumerated in the statute, and that (2) the Amended
Complaint describes BOA as a creditor
and nothing other than a creditor, the
amendment does not state an FCEUA claim against BOA. Moreover, the FCEUA
4 (...continued)
own but relies on the Uniform Trade Practices and Consumer Protection Law for damages. T-
14. The question of remedies, however, is not the issue before the Court. Liability—
specifically, whether the FCEUA allows for vicariously liability—is the question.
5 “Creditor” liability under the FDCPA is extremely limited: it involves collecting debts
while using the name of another. See 15 U.S.C. § 1692a(6).
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expressly excludes creditors from the definition of a debt collector so BOA’s role cannot
be conflated with that of CIRM.
	See 73 P.S. § 2270.3 As proposed, Count III does not
allege any independent violation of the act on BOA’s part. Nor is there any case law
interpreting the relationship to give rise to vicarious liability. The analogous authority
interpreting the FDCPA,
supra, holds that any vicarious liability arises
intra debt
collectors. Accordingly, the amendments to Count III do not state a FCEUA claim
against BOA for either direct or vicarious liability. For this reason, the proposed
addition to Count III is futile and leave to amend in that respect will be denied.
Summary
The Motion for Permission to Amend will be granted in part and denied in part.
Proposed Count I states a claim for the avoidance and recovery of a preferential
transfer but Count III fails to state a claim against BOA under the FCEUA.
The effect of granting leave to amend the complaint to the limited extent set
forth necessarily moots the pending motion to dismiss.
	See Demeter v. Buskirk, 2003
WL 22416045 *5 (E.D.Pa.) (concluding that granting leave to amend complaint mooted
pending motion to dismiss).
An appropriate Order follows.
By the Court:
Dated: May 27, 2009 	Stephen Raslavich
Chief U.S. Bankruptcy Judge
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I N THE UNITED S TATES B ANKRUPTCY C OURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
I N RE : 	: CHAPTER 13
:
T HELMA JANE HOWE 	:
D EBTOR( S) 	: B ANKRUPTCY NO. 09-10183 SR
T HELMA JANE HOWE , AND D ONALD J. HOWE 	:
PLAINTIFF ( S) 	:
VS. 	:
CREDITORS I NTERCHANGE RECEIVABLES 	:
MANAGEMENT, L LC, AND 	:
B ANK OF AMERICA, N. A. 	:
D EFENDANT( S) 	: ADVS. NO. 09-0010
ORDER
AND NOW, upon consideration of the Defendant Bank of America, N.A.’s Motion
to Dismiss and the Plaintiffs’ Motion for Permission to Amend Complaint, the responses
thereto, the parties’ briefs, after a hearing held on April 2, 2009, and for the reasons
set forth in the foregoing Opinion, it is hereby
ORDERED that the Plaintiffs’ Motion for Permission to Amend Complaint is
granted in part and denied in part: Count I of the Complaint may be amended as
proposed, but leave to amend Count III as proposed is denied as explained in the
Opinion; and it is
The effect of this ruling renders moot Bank of America’s Motion to Dismiss.
By the Court:
Dated: May 27, 2009 	Stephen Raslavich
Chief U.S. Bankruptcy Judge
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Counsel for Plaintiffs
David A. Scholl, Esquire
6 St. Albans Square
Newtown Square, PA 19073
Counsel for Bank of America, N.A.
William J. Becket, Esquire.
BECKET & LEE LP
16 General Warren Blvd
P.O. Box 3001
Malvern, PA 19355
Counsel for Creditors Interchange
Receivables Management, LLC
Andrew M. Schwartz, Esquire
MARSHALL DENNEHEY WARNER
COLEMAN & GOGGIN
1845 Walnut Street
Philadelphia, PA 19103
George Conway, Esquire
Office of the United States Trustee
833 Chestnut Street
Suite 500
Philadelphia PA 19106
Nancy Mulvehill, Courtroom Deputy to Judge Raslavich
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