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Czerniak v. Servis One, Inc.

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

March 31, 2017



          John J. Tharp, Jr. United States District Judge

         Defendants BSI Financial Services and Ventures Trust have moved to dismiss Plaintiff Thomas and Carol Czerniaks' complaint for failure to state a claim under Fed.R.Civ.P. 12(b)(6). They object that the Fair Debt Collection Practices Act does not apply to them, that an element of a Telephone Consumer Protection Act claim has not been adequately pled, and that other causes of action have not been alleged with sufficient specificity. Because the Czerniaks' allegations are sufficient as to all counts, the motion to dismiss is denied.

         BACKGROUND [1]

         Thomas and Carol Czerniak are a married couple living in Chicago, Illinois. Compl. ¶ 4. On April 3, 2006, they obtained a mortgage from Mortgage Electronic Systems, Inc. (“MERS”) on their home in Chicago. Id. at ¶ 8. At some point later, they defaulted on the mortgage (exactly when is unclear) and on September 26, 2013, they filed for bankruptcy. Id. at ¶ 10. On October 15, 2013, MERS assigned the Czerniaks' mortgage to CitiMortgage, Inc., and the Czerniaks listed CitiMortgage as a secured creditor on their Schedule D bankruptcy forms. Id. at ¶ 11-12. CitiMortgage was provided with notice of the Czerniak's bankruptcy but chose not to attend the November 12, 2013 creditor meeting. Id. at ¶ 15-16. The Czerniaks submitted a modified Chapter 13 plan on November 13, 2013, in which they agreed to surrender their home in full satisfaction of their mortgage. Id. at ¶ 17-18. CitiMortgage did not object, and the Czerniak's plan was approved on December 9, 2013. Id. at ¶ 19.

         CitiMortgage moved to be relieved of the automatic bankruptcy stay on February 24, 2014, which was granted the same day. Compl. ¶ 21-22. The motion acknowledged the intent to surrender the property and appears to have been understood as an effort to pursue a quick foreclosure. See Id . at ¶ 21. The order allowed CitiMortgage, “its principals, agents, successors and/or assigns” to “pursue all non bankruptcy [sic] remedies and work out options as to the property commonly known as 6236 W. 64th Street, Chicago, IL.” See In re Czerniak, No. 13-37976, Dkt. 26 (N.D. Ill. Bnkr. Feb. 25, 2014). The Czerniaks “fully performed their duties as set forth in their Confirmed Chapter 13 Plan” and the bankruptcy court entered a discharge order on April 14, 2014. Compl. ¶ 23-24.

         The problems began the following year, when on January 8, 2015, defendant BSI Financial Services sent the Czerniaks a letter informing them that their (former) mortgage loan had been sold to defendant Ventures Trusts on December 18, 2014. Id. at ¶ 32-33. BSI's letter did not identify who the prior creditor had been on the loan. Id. at ¶ 34. On January 28, 2015, the Czerniaks received a statement stating that $14, 096.57 was due in four days, that they owed over $224, 000 in principal, and that they were 484 days delinquent on their home, which could result in foreclosure. Id. at ¶ 35. Two days later, Thomas received at least four calls regarding the mortgage on his cell phone while Carol received at least one on her cell phone. Id. at ¶ 36-37. On February 2, 2015, they received a letter from BSI stating “the servicing of your mortgage loan is being transferred, effective January 20, 2015” and that the new servicer would begin collecting from them. Id. at ¶ 39. The same day, Thomas received at least three calls on his cell phone from BSI regarding the debt. Id. at ¶ 42. Two days later (on February 4), the Czerniaks received another letter, indicating they owed over $252, 000 and that they had thirty days to dispute the validity of their debt. Id. at ¶ 45-46.

         On February 11, Thomas Czerniak did just that, sending a letter disputing the debt and explaining that the mortgage had been discharged in bankruptcy (even going so far as to include a copy of the discharge order from the bankruptcy court). Compl. ¶ 47-48. BSI received the dispute letter, but called Thomas on his cell phone twice on February 19 regarding the debt. Id. at ¶ 49. Without obtaining any debt verification, BSI sent the Czerniaks another letter on February 24, which identified itself as an attempt to collect a debt regarding home insurance. Id. at ¶ 50-51. On February 27, BSI sent a mortgage statement stating the Czerniaks owed $20, 126.98 in two days and had outstanding principal of over $224, 000 which could lead to foreclosure. Id. at ¶ 52. They received a similar statement on March 18. Id. at ¶ 55. BSI also continued to call Thomas, three times on February 27 and once on March 11, April 13, and June 11. Id. at ¶ 53, 54, 56, 57. The Czerniaks, after six months of “emotional distress and mental anguish” and being “led to believe that their bankruptcy had no legal effect and that they were still obligated on the subject debt, ” filed this lawsuit on July 24, 2015 alleging violations of the Fair Debt Collection Practices Act (“FDCPA, ” 15 U.S.C. § 1692), the Telephone Consumer Protection Act (“TCPA, ” 47 U.S.C. § 227), the bankruptcy discharge injunction (11 U.S.C. § 524), and the Illinois Consumer Fraud Act (“ICFA, ” 815 ILCS 505/1(e)). Compl. ¶ 62-63.


         On a motion to dismiss, a plaintiff need only allege the facts that provide “the grounds of his entitlement to relief, ” and does not need “detailed factual allegations.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). The defendants raise a number of arguments as to why this case should be dismissed under Fed.R.Civ.P. 12(b)(6). First, they argue that the FDCPA does not apply to BSI because it is not a debt collector. Second, they argue that the TCPA claims fail because the use of an automatic telephone dialing system (“ATDS”) was not adequately alleged. Third, they argue the claims that the bankruptcy discharge injunction was violated do not provide BSI “fair notice of the grounds upon which the claims against it are based.” Def.'s Mem. at 12-13, ECF No. 12. Similarly, they allege the ICFA claim must be dismissed because it “leaves the Defendant and the court unable to ascertain the nature of Plaintiffs' claims.” Id. at 14. As discussed below, none of these arguments are meritorious, and therefore the motion to dismiss is denied.

         I. The FDCPA Applies to BSI

         Initially, BSI argues that the Czerniak's FDCPA claim must fail because BSI is not a “debt collector” and therefore not subject to the statute at all. A “debt collector” is defined in the statute as “any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another” but does not include “any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity. . . concerns a debt which was not in default at the time it was obtained by such person.” 15 U.S.C. § 1692a(6)(F). BSI asserts that the loan was not “in default” because the bankruptcy court had already discharged personal liability on the debt. See Def.'s Mot. at 8.

         However, the Seventh Circuit has created an exception for the “in default” rule where the “parties to the assignment are mistaken about the true status” of the loan. Schlosser v. Fairbanks Capital Corp., 323 F.3d 534, 539. In that case, a mortgage holder's records indicated that the loan was in default although the debtors were in fact current. See Id . at 535-36. The holder committed various FDCPA violations, but later claimed it could not be held liable for them because the debt was not in fact in default. The Seventh Circuit held such an escape hatch made “little sense” and would create “little incentive to acquire accurate information about the true status of the loan because, in the context of the mistake in this case, its ignorance leaves it free form the statute's requirements.” Id. at 538.

         The situation is the same here. BSI incorrectly treated the Czerniaks' mortgage as in default, even though they no longer owed anything because the debt had been discharged in bankruptcy. To exempt BSI from liability for the actions it took while trying to collect a debt it believed it was owed would encourage unscrupulous behavior such as attempts to collect on discharged mortgages. Not only are these tactics as oppressive and distressing as when they are used on actual debtors, they are perhaps even more so when the alleged debtor has already gone through the crucible of bankruptcy. Another court of this district has already ruled on this same argument by BSI on substantially similar facts and found that BSI is still subject to the FDCPA. See Ananthapadmanabhan v. BSI Fin. Servs., Inc., No. 15 C 5412, 2015 WL 8780579, at *3 (N.D. Ill.Dec. 15, 2015). This Court agrees and finds BSI, by asserting to the Czerniaks that the debt was in default and attempting to collect it, is still subject to the FDCPA as a debt collector despite the actual discharge of the debt in bankruptcy.

         II. Use of an Autodialer or ATDS Has Been ...

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