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Reed v. Select Portfolio Servicing, Inc.

United States District Court, E.D. Tennessee, Chattanooga Division

February 16, 2017

RUTH N. REED, Plaintiff,


          Leon Jordan United States District Judge

         This matter is before the Court on Defendant's Motion to Dismiss [doc. 8], Defendant's Brief in Support of the Motion [doc. 9], Plaintiff's Response in Opposition to the Motion [doc. 12], and Defendant's Reply [doc. 14]. For the reasons herein, the Court will grant in part and deny in part Defendant's motion.

         I. Background

         Plaintiff Ruth N. Reed (“Ms. Reed”) alleges that several years ago she secured a loan by executing a deed of trust, under which she used her property-specifically her home-as collateral. [Am. Compl., doc. 7, ¶ 5]. Ms. Reed claims that AmSouth Bank was the original lender under the deed of trust, [id.], but after Regions Bank eventually purchased AmSouth Bank's assets, she continued to repay her loan by sending her payments to Regions Bank instead of AmSouth Bank, [id. ¶¶ 5-6]. According to Ms. Reed, however, Regions Bank then “transferred the servicing rights to [her] loan” to Defendant Select Portfolio Servicing, Inc. (“Select Portfolio”), [id. ¶ 8], without notifying her of the transfer, [id. ¶ 9]. She maintains that Select Portfolio never notified her of the transfer either. [Id.].[1] Although Ms. Reed alleges that Regions Bank did begin to return her payments, she claims that Select Portfolio did not credit these payments to her account, marked her account as delinquent, and referred her loan for foreclosure-all without informing her or communicating with her in any way. [Id. ¶¶ 10-12]. She asserts that a non-judicial foreclosure of her home then took place. [Id. ¶ 13]. As a result, she now brings this action against Select Portfolio, claiming a violation of the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692(e), (f) (Count I); a violation of 12 C.F.R. § 1024.41 (Count II); and wrongful foreclosure, based on which she requests rescission of her home's foreclosure (Count III). [Id. ¶¶ 18-31]. Select Portfolio now moves the Court to dismiss each of Ms. Reed's claims, arguing that Ms. Reed fails to plead sufficient facts to support them. [Mot. to Dismiss at 1].

         II. Legal Standard

         Under Federal Rule of Civil Procedure 8(a)(2), “[a] pleading that states a claim for relief must contain . . . a short and plain statement of the claim showing that the pleader is entitled to relief.” In determining whether to dismiss a complaint under Federal Rule of Civil Procedure 12(b)(6), a court accepts the factual allegations in the complaint as true and construes them in a light most favorable to the non-moving party. See Mixon v. Ohio, 193 F.3d 389, 400 (6th Cir. 1999). “[T]he tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions, ” however, and “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation omitted). In addition, “[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.

         III. Analysis

         At the outset, Select Portfolio maintains that “[t]his action is an attempt to rescind a lawfully held foreclosure sale of the Plaintiff's former property.” [Def.'s Br. at 1]. To back this contention, Select Portfolio notes that some allegations in the Amended Complaint blatantly contradict the Deed of Trust-a copy of which it filed into the record in support of its Motion to Dismiss. [See Deed of Trust, doc. 8-2, at 1]. For instance, Select Portfolio points out that although Ms. Reed alleges she executed the Deed of Trust on June 1, 2010, the document's actual date of execution is April 11, 2011. [Def.'s Br. at 1 n.1]. In addition, it notes that although Ms. Reed claims her loan totaled $145, 520, the Deed of Trust shows that it really totaled $55, 000. [Id.]. To explain these discrepancies, Select Portfolio infers that “Plaintiff's counsel likely utilized a form complaint to initiate this action.” [Id. at 2 n.1]. Select Portfolio even invites the Court to visit the state's Public Notices' website so it can “take judicial notice that the allegations regarding the publication of foreclosure notice is [sic] absolutely false.” [Id.].

         On a motion to dismiss, the Court ordinarily must confine itself to a review of the allegations that are within a complaint's four corners, not looking beyond them. In re Unumprovident Corp. Secs. Litig., 396 F.Supp.2d 858, 873 (E.D. Tenn. 2005). The Court, however, can depart from this precept and deem a document to be part of a complaint if it is “attached to, incorporated by, or specifically referred to in the complaint.” Id. (citations omitted). In this case, Ms. Reed has not attached the Deed of Trust, or any other document, to her Amended Complaint. Even so, “a document that is not formally incorporated by reference or attached to a complaint may still be considered part of the pleadings” if “[it] is referred to in the complaint and is central to the plaintiff's claim.” Greenberg v. Life Ins. Co. of Va., 177 F.3d 507, 514 (6th Cir. 1999) (citation and quotation omitted).

         Although Ms. Reed has not attached the Deed of Trust to her Amended Complaint, her allegations contain references to it, [see Am. Compl. ¶¶ 5-7], and the Deed of Trust- including the loan that is at the heart of it-is unquestionably integral to at least some of her claims, [see Id. ¶ 21 (maintaining that Select Portfolio violated the FDCPA in part because it “never informed Plaintiff that it was the new servicer on her loan” (emphasis added))]. “In such event, ” that is, when a plaintiff's allegations contain references to an unattached document and that document is central to the plaintiff's claim, “the defendant may submit an authentic copy to the court to be considered on a motion to dismiss.” Greenberg, 177 F.3d at 514 (quotation omitted). Select Portfolio has done exactly that, having filed a copy of what it claims to be the Deed of Trust at issue in this case. Ms. Reed has not disputed this document's authenticity, and the Court will therefore consider it to be part of the Amended Complaint's allegations. See Parks v. Metro. Sec. Servs., Inc., No. 1:14-cv-412, 2014 WL 3784323, at *3 n.2 (E.D. Tenn. July 31, 2014) (considering an unattached document to be part of the amended complaint when the plaintiff referred to it in the amended complaint; the defendant filed it into the record; and the plaintiff did not challenge its authenticity).

         When comparing the Deed of Trust to Ms. Reed's allegations, the Court observes inconsistencies between their respective contents that are indeed conspicuous, and they prompt the Court to wonder whether something is amiss with certain allegations.[2] Even so, the Court does not necessarily have license to respond to these inconsistencies with the measure that Select Portfolio believes is appropriate-dismissal. Rather, the Court must review the Amended Complaint for “any set of facts that could be proved consistent with the allegations.” Hishon v. King & Spalding, 467 U.S. 69, 73 (1984) (emphasis added) (citation omitted); see Neitzke v. Williams, 490 U.S. 319, 327 (1989) (“What Rule 12(b)(6) does not countenance are dismissals based on a judge's disbelief of a complaint's factual allegations. District judges looking to dismiss claims on such grounds must look elsewhere for legal support.” (footnote omitted)). In doing so, the Court is bound to the traditional mandate that it must accept all non-conclusory allegations in the Amended Complaint as true and construe them in a light most favorable to Ms. Reed. See Mixon, 193 F.3d at 400.

         The Court, however, will issue a word of caution to Ms. Reed: she would do well to make sure-if she decides to move ahead with this case-that the factual basis underlying her claims has evidentiary support. Otherwise the specter of sanctions is likely to overshadow this litigation. See Fed. R. Civ. P. 11(b)(3) (“By presenting to the court a pleading . . . an attorney . . . certifies that to the best of the person's knowledge, information, and belief . . . . the factual contentions have evidentiary support or, if specifically so identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery[.]”); see also Bontkowski v. Smith, 305 F.3d 757, 763 (7th Cir. 2002) (“[W]e must reverse [the district court's dismissal of the plaintiff's claims], but we warn [the plaintiff] that if he persists in this litigation and his suit turns out to be frivolous, as we believe highly likely, he is courting sanctions.” (citations omitted)).

         A. Violation of the FDCPA

         The FDCPA's purpose is to protect consumers from debt-collection practices that are misleading and abusive. Bridge v. Ocwen Fed. Bank, FSB, 681 F.3d 355, 356 (6th Cir. 2012). To state a cause of action under the FDCPA, a plaintiff must allege (1) that the money or property subject to collection qualifies as a “debt” under § 1692a(5), [3] (2) that the person carrying out collection qualifies a “debt collector” under § 1692a(6), and (3) that the debt collector violated a provision of the FDCPA. Stamper v. Wilson & Assocs., No. 3:09-cv-270, 2010 WL 1408585, at *3 (E.D. Tenn. Mar. 31, 2010). Select Portfolio argues that Ms. Reed does not plead facts that satisfy the second element-in other words, facts that establish Select Portfolio as a debt collector. [Def.'s Br. at 4]. Select Portfolio also maintains that it is exempt from debt-collector status because, based on certain allegations in the Complaint, it comes within one of the FDCPA's statutory safe-harbor provisions, namely 15 U.S.C. § 1692a(6)(F)(iii). [Id. at 5].

         1. Debt Collector under § 1692a(6)

         The term “debt collector” means “any person[4] 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.” § 1692a(6). Ms. Reed pleads that Select Portfolio satisfies this definition because it “is a debt collector as the term is defined in 15 USC [sic] § 1692(a)(6).” [Am. Compl. ¶ 20]. Select Portfolio argues that this allegation is conclusory and that Ms. Reed's claim warrants dismissal based on the Court's decision in Stamper. [Def.'s Br. at 4-5]. In Stamper, one of the issues before the Court was whether a law firm qualified as a debt collector under the FDCPA when it initiated non-judicial foreclosure under a deed of trust. 2010 WL 1408585 at *5. The Court ultimately dismissed the plaintiffs' claim because the complaint contained a bald assertion that the defendant qualified as a debt collector, without offering supporting allegations as to any collection-related activities that the defendant engaged in: “All plaintiffs have done is make conclusory statements that [the defendant is a] ‘debt collector[].' This is not enough to survive [dismissal].” Id. at *8.

         Unlike the plaintiffs in Stamper, Ms. Reed accompanies the allegation at issue in this case-the allegation that Select Portfolio “is a debt collector as the term is defined” under § 1692a(6)-with factual enhancement. Ms. Reed alleges that Select Portfolio meets the definition of a debt collector because it “received the servicing rights to [her] loan after the loan was in default, ” [Am. Compl. ¶ 20], and this allegation, which the Court accepts as true, opens Select Portfolio to liability as a debt collector, see Bridge, 681 F.3d at 362 (holding that the definition of a debt collector “includes any non-originating debt holder that . . . acquired a debt in default”). Also, Select Portfolio ignores Ms. Reed's allegation that it “threatened eviction” before launching proceedings for non-judicial foreclosure of her residence, [Am. Compl. ¶ 23]-an allegation that presents a factual illustration of the method of debt collection at issue, see Bridge, 681 F.3d at 358 (noting that Congress passed ...

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