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Gagnon v. JPMorgan Chase Bank, N.A.

United States District Court, N.D. Illinois, Eastern Division

January 3, 2017

CHARLES GAGNON, Plaintiff,
v.
JPMORGAN CHASE BANK, N.A., SETERUS, INC., PIERCE & ASSOCIATES, P.C., EQUIFAX INFORMATION SERVICES LLC, and EXPERIAN INFORMATION SOLUTIONS, INC., Defendants.

          MEMORANDUM ORDER AND OPINION

          Robert M. Dow, Jr. United States District Judge

         Plaintiff Charles Gagnon (“Plaintiff”) brings his amended complaint [63] against Defendants JPMorgan Chase Bank, N.A. (“Chase”), Seterus, Inc. (“Seterus”), Pierce & Associates, P.C. (“Pierce”), Equifax Information Services LLC (“Equifax”), and Experian Information Solutions, Inc. (“Experian”) (collectively, “Defendants”) for alleged violations of (1) the Fair Credit Report Act, 15 U.S.C. § 1681 et seq. (“FCRA”); (2) the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. (“FDCPA”); (3) the bankruptcy discharge injunction pursuant to 11 U.S.C. §§ 524 and 105; (4) the bankruptcy automatic stay pursuant to 11 U.S.C. § 362(k)(1); and (5) the Illinois Consumer Fraud and Deceptive Practices Act, 815 ILCS 505/1 et seq. (“ICFA”). Before the Court are the motions of Defendants Seterus [72], Experian [74], Pierce [82], and Chase [83] to dismiss Plaintiff's amended complaint for failure to state a claim and lack of jurisdiction.

         For the reasons explained below, the motions are granted in part and denied in part. Specifically, the Court grants Seterus' motion [72] to dismiss Counts IX and XIII, for violation of the discharge injunction and the ICFA, respectively, and grants in part Seterus' motion to dismiss Count II, for violation of FDCPA §§ 1692e(2), (8) & (10), and 1692f(1). The Court grants Experian's motion [74] to dismiss Count XI, for violation of FCRA § 1681e(b). The Court grants Pierce's motion [82] to dismiss Count VI, for violation of the discharge injunction, and part of Count I, for violation of FDCPA § 1692c(a)(2). The Court grants Chase's motion [83] to dismiss Counts VII, VIII, and XII, for violation of the discharge injunction, the automatic stay, and the ICFA, respectively. The motions to dismiss are denied in all other respects and all other claims remain in the case. Finally, Seterus' request for an extension of time to file an answer is granted, see [72]; Seterus shall have until January 24, 2017 to file its answer to Count V of Plaintiff's amended complaint. This case is set for further status hearing on January 26, 2017 at 9:00 a.m.

         I. Background[1]

         At all times relevant to this complaint, Plaintiff owned and resided at a residential property located in Lockport, Illinois (the “Property”). Equifax and Experian are consumer reporting agencies that compile and maintain files on consumers on a nationwide basis. Chase and Seterus are mortgage servicers authorized to do business in Illinois. Chase and Seterus both furnish information to the major credit reporting agencies (“CRAs”), which include Equifax and Experian. Pierce is a law firm located in Chicago, Illinois and a debt collector that regularly uses the mail and/or telephones to collect delinquent consumer accounts.

         In May 2011, Plaintiff executed a mortgage (“Mortgage Loan”) on the Property in favor of Chase. On July 31, 2013, Plaintiff filed for Chapter 13 bankruptcy in the United States Bankruptcy Court for the Northern District of Illinois (Case No. 13-30722). Schedule D of Plaintiff's bankruptcy petition lists the Mortgage Loan as a secured debt in the amount of $188, 638.00. Equifax and Experian are listed on Schedule F of Plaintiff's bankruptcy petition and received notice of the bankruptcy.

         Plaintiff filed a Chapter 13 bankruptcy plan along with his bankruptcy petition. The plan proposed to treat Chase's claim as follows: “Debtor is surrendering the [Property] to [Chase] and GreenTree Servicing, LLC in full satisfaction of their claims.” [63] at 4. Chase was listed as a creditor of Plaintiff and therefore was served with notice of the bankruptcy petition and the Chapter 13 plan.

         On October 11, 2013, the Bankruptcy Court confirmed Plaintiff's Chapter 13 plan.

         On June 2, 2014, Chase filed a motion for relief from the automatic stay and co-debtor stay that had previously been entered in Plaintiff's bankruptcy case. Chase's motion acknowledged Plaintiff's intent to surrender the Property. On June 20, 2014, the Bankruptcy Court granted Chase relief from the automatic stay. Chase then attempted to collect the subject loan. In particular, on July 16, 2014, Chase sent Plaintiff a mortgage loan statement stating that Plaintiff had defaulted on the Mortgage Loan and owed a reinstatement amount of $19, 809.05. See [63-7] (Plaintiff's Ex. G); [84-2] (Chase's Ex. 2 at 3). The statement showed that a total payment of $19, 795.05 was due August 1, 2014 and included a payment coupon. [84-2] at 1. It also stated in one place that “[t]his communication is an attempt to collect a debt and any information obtained will be used for that purpose, ” but in another place that “[i]f you or your account is subject to pending bankruptcy proceedings, or if you received a bankruptcy discharge, this statement is for informational purposes only and is not an attempt to collect a debt.” Id. at 2.

         On August 4, 2014, the Bankruptcy Court entered on order discharging all of Plaintiff's dischargeable debts, including the Mortgage Loan. The order stated, in part: “The discharge prohibits any attempt to collect from the debtor a debt that has been discharged. For example, a creditor is not permitted to contact a debtor by mail, phone, or otherwise, to file or continue a lawsuit, to attach wages or other property, or to take any other action to collect a discharged debt from the debtor.” [63] at 6.

         On August 14, 2014, Chase sent Plaintiff a notice informing him that servicing rights for the Mortgage Loan would be transferred to Seterus effective September 1, 2014. The notice instructed Plaintiff to “send your mortgage payments to your new servicer.” [63] at 6. At the time that Chase transferred its servicing rights to the Mortgage Loan, it had actual knowledge that the Mortgage Loan had been discharged in bankruptcy.

         On September 15, 2014, Seterus sent Plaintiff a letter informing him that he was in default on the Mortgage Loan in the amount of $15, 002.71 and that payment was due October 20, 2014. On September 17, 2014, Plaintiff's bankruptcy case closed. On October 3, 2014, Seterus sent Plaintiff an escrow account statement stating that his new monthly payment on the Mortgage Loan was $1, 462.50. On January 28, 2015, Seterus sent Plaintiff an account statement showing a principal balance of $188, 636.33 remaining on the Mortgage Loan. On January 29, 2015, Pierce sent Plaintiff a notice demanding payment of the Mortgage Loan in the total amount of $208, 519.20. (These four communications are referred to by the parties and later in this opinion as Seterus' “dunning letters.”)

         At some point after receiving his discharge in bankruptcy, Plaintiff pulled his credit reports and discovered that the CRAs, including Equifax and Experian, were inaccurately reporting the status of the Mortgage Loan. On July 15, 2015, due to the inaccuracy of a credit report from Trans Union, Plaintiff was denied a loan from BMO Harris (“Harris”), for which Plaintiff had applied to help cover the costs of his daughter's college tuition.

         On August 4, 2015, Plaintiff sent credit dispute letters to Equifax and Experian and requested that his credit file be updated to reflect the zero balance and discharged status of all accounts discharged in his bankruptcy. Plaintiff attached to his letters copies of his bankruptcy schedules, confirmed Chapter 13 plan, and discharge order.

         Experian responded to Plaintiff's credit dispute letter on August 17, 2015. Experian stated that it had updated the Chase and Seterus trade lines to reflect the bankruptcy. However, the account history for the Seterus account was still reporting an account balance of $188, 636 and a scheduled payment amount of $988 for April through June 2015. Experian also failed to report that the Seterus trade line was disputed.

         Equifax (which is the only Defendant that has not filed a motion to dismiss) responded to Plaintiff's credit dispute letter on August 23, 2015. While Equifax updated its credit file in part, it did not correct the Chase or Seterus trade lines for the Mortgage Loan. The Chase trade line still reported a scheduled payment amount of $1, 465 per month and did not indicate that the Mortgage Loan had been discharged in bankruptcy. The Seterus trade line still reported a scheduled payment amount of $988 per month and reported that the Mortgage Loan was over 120 days past due. Equifax's credit file also failed to report that the Chase and Seterus trade lines were disputed.

         On October 26, 2015, Plaintiff filed the instant lawsuit. The governing first amended complaint [63] contains thirteen counts, which are discussed in the relevant sections of the Court's analysis below.

         II. Legal Standard

         The four moving Defendants seek dismissal of Plaintiff's amended complaint under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). “For purposes of a motion to dismiss under either Rule 12(b)(1) or Rule 12(b)(6), the court accepts all well-pleaded factual allegations as true and construes all reasonable inferences in the plaintiff's favor.” Mutter, 17 F.Supp.3d at 756. A Rule 12(b)(1) motion challenges federal subject matter jurisdiction. In ruling on the motion, the district court may look beyond the jurisdictional allegations alleged in the complaint and take into consideration whatever evidence has been submitted on the issue to determine if subject matter jurisdiction exists. County of Cook v. HSBC N. Am. Holdings Inc., 136 F.Supp.3d 952, 958 (N.D. Ill. 2015). The burden of proof is on the party asserting that jurisdiction exists. Id. A Rule 12(b)(6) motion challenges the legal sufficiency of the complaint. To survive a motion to dismiss under Rule 12(b)(6), a plaintiff's complaint must allege facts which, when taken as true, “‘plausibly suggest that the plaintiff has a right to relief, raising that possibility above a speculative level.'” Cochran v. Illinois State Toll Highway Auth., 828 F.3d 597, 599 (7th Cir. 2016) (quoting EEOC v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007)). The Court reads the second amended complaint and assesses its plausibility as a whole. See Atkins v. City of Chicago, 631 F.3d 823, 832 (7th Cir. 2011).

         III. Analysis

         A. Seterus' Motion to Dismiss [72][2]

          1. FDCPA claims (Count II)

         a. FDCPA § 1692c(a)(2)

         Plaintiff alleges that Seterus violated FDCPA § 1692c(a)(2) by sending dunning letters directly to Gagnon when it knew, as a matter of public record from Gagnon's Notice of Chapter 13 bankruptcy, that Gagnon was represented by an attorney. See 15 U.S.C. § 1692c(a)(2). Seterus argues that this claim should be dismissed because there are no allegations in the amended complaint that Seterus had actual knowledge of the bankruptcy or of Plaintiff's representation by counsel. See [73] at 10 (citing Dore v. Five Lakes Agency, Inc., 2015 WL 4113203, at *4 (N.D. Ill. July 8, 2015)). Plaintiff responds that this is a fact argument that is inappropriate for a Rule 12(b)(6) motion.

         The Court denies Seterus' motion to dismiss this portion of Plaintiff's FDCPA claim. Section 1691c(a)(2) provides that “a debt collector may not communicate with a consumer in connection with the collection of any debt” if “the debt collector knows the consumer is represented by an attorney with respect to such debt and has knowledge of, or can readily ascertain, such attorney's name and address, unless the attorney fails to respond within a reasonable period of time to a communication from the debt collector or unless the attorney consents to direct communication with the consumer.” 15 U.S.C. § 1692c(a)(2). Plaintiff alleges that Seterus “knew that [Plaintiff] was represented by counsel” when it sent him dunning letters, that Seterus, as a “sophisticated debt collector, . . . should have systems and procedures in place to identify accounts included in bankruptcy, ” and that the identity and contact information of Plaintiff's bankruptcy counsel was a “matter of public record” from the bankruptcy docket. [63] at 15.

         Seterus has not demonstrated that these allegations are insufficient at the pleading stage to plausibly allege that Seterus had actual notice that Plaintiff was represented by counsel. The primary case on which Plaintiff relies, Dore, is inapposite because it was decided at the summary judgment stage, and the plaintiff there failed to “marshal[] any evidence that [the defendant debt collector] knew that she was represented by an attorney.” Dore, 2015 WL 4113203, at *4. Plaintiff is not required to marshal specific evidence of Seterus' knowledge to avoid a motion to dismiss. Such evidence would presumably be in Seterus' hands, and Plaintiff may need discovery to obtain it. The other case on which Plaintiff relies, Randolph v. IMBS, Inc., 368 F.3d 726, 729 (7th Cir. 2004), is also inapplicable, because it addresses only whether a creditor's actual knowledge that a debtor is represented by counsel can be imputed to the debt collector. In this case, Plaintiff's allegations suggest that Seterus itself knew that Plaintiff was represented by counsel, due to its own status as a “sophisticated debt collector” that “should have systems and procedures in place” to identify whether a debt it is attempting to collect is included in a bankruptcy in which the debtor is represented by counsel. While Plaintiff's claim may ultimately be dismissed at the summary judgment stage if Plaintiff fails to come forward with any evidence that Seterus' systems and procedures did, in fact, provide it with actual knowledge that Plaintiff was represented by counsel with respect to the debt it was attempting to collect, Plaintiff's pleadings are sufficient to survive a motion to dismiss.

         b. FDCPA §§ 1692e(2), (8) & (10) and 1692f(1)

         Plaintiff alleges that Seterus violated FDCPA § 1692e(2), by falsely representing that the subject debt was collectable at the time Seterus' dunning letters were sent. See 15 U.S.C. § 1692e(2). Plaintiff also alleges that Seterus violated FDCPA § 1692e(8), by falsely reporting to Experian and Equifax that Plaintiff was obligated to make a monthly payment on the Mortgage Loan and that the Mortgage Loan was past due, and by failing to designate the trade line on the Mortgage Loan as “disputed.” See 15 U.S.C. § 1692e(8). Plaintiff further alleges that Seterus violated FDCPA § 1692e(10) by falsely representing to Plaintiff in the dunning letters that the Mortgage Loan was due, and FDCPA § 1692f(1) by attempting to collect a debt not permitted by law, i.e., the Mortgage Loan after it had been discharged in bankruptcy. See 15 U.S.C. §§ 1692e(10), 1692f(1).

         Seterus argues that these claims should be dismissed for two primary reasons. First, Seterus argues that the dunning letters did not contain any false representations, because the bankruptcy did not extinguish the Mortgage Loan or Seterus' lien on the Property. According to Seterus, a debtor's surrender of collateral property does not satisfy its obligation under a mortgage lien, and the mortgage lien on collateral property passes through bankruptcy unaffected. [73] at 5. Thus, the bankruptcy extinguishes an action against the debtor in personam, but leaves intact an action against the debtor in rem. Id. (citing In re Brisco, 486 B.R. 422, 429 (Bankr. N.D.Ill. 2013)). Seterus explains that the foreclosure on the Property was not completed until September 1, 2015-more than one year after the Discharge ...


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