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Schilling v. JPMorgan Chase & Co.

United States District Court, W.D. Washington, Seattle

April 25, 2017





         This matter comes before the Court on Defendant JPMorgan Chase's Motion to Dismiss under Federal Rule of Civil Procedure 12(b)(6). Dkt. #16. Defendant seeks to dismiss Plaintiffs' claims under the Federal Credit Reporting Act (“FCRA”) and the Washington Consumer Protection Act (“CPA”). Defendant argues that Plaintiffs' FCRA claim fails as a matter of law because: (1) Plaintiffs cannot claim their debt was settled through a short pay off, and (2) Plaintiffs failed to allege that Defendant received a notice of dispute, a prerequisite for liability under FCRA. Id. Defendant also attacks Plaintiffs' CPA claim, arguing that: (1) FCRA preempts CPA claims, and (2) Plaintiffs' pleadings merely parrot the elements of a state law CPA claim. Dkt. #16 at 13-18.

         Plaintiffs respond that their claims should not be dismissed because: (1) Defendant accepted a payment to settle Plaintiffs' debt, constituting accord and satisfaction, so reporting the debt as “charged off” is inaccurate; (2) the Complaint sufficiently alleges the “notice” element of a FCRA claim; (3) their CPA claim is not preempted because the conduct giving rise to their state law claim is separate from their FCRA claim, and (4) they have adequately pled elements of a CPA claim. Dkt. #23.

         For the reasons set forth below, the Court agrees with Plaintiffs and DENIES Defendant's Motion.


         Prior to the financial crisis, Plaintiffs George and Shu Schilling obtained a second mortgage loan from Washington Mutual for $230, 000. Dkt. #1 at ¶ 10. Defendant JPMorgan Chase acquired the loan after Washington Mutual failed in 2008.[1] Id. After health issues arose, Plaintiffs fell behind on their payments. Dkt. #1 at ¶ 11. In 2015, Defendant initiated negotiations by sending offers to Plaintiffs to settle the balance of the debt for less than they owed. Id. Specifically, on September 23, 2015, Defendant sent Plaintiffs a letter offering to “greatly reduce the remaining balance of $190, 950.89 on your account, so it's easier for you to settle this account once and for all.” Dkt. #1-2 at 49. Defendant's offer listed three figures:

• One-Time Payment of $26, 642.63 (Payoff Dated: October 27, 2015)
• Monthly Payments of $2, 592.00 (Payoff Dated: November 1, 2016)
• Monthly Payments of $992.00 (Payoff Dated: November 1, 2018)

         Defendant's offer further stated: “Once your settlement payoff is complete, we'll release any remaining lien(s) we may hold on the property and notify the credit reporting agencies that the balance has been resolved.” Dkt. #1-2 at 49. Defendant's letter explicitly states that it constituted a “valid offer that ends on October 27, 2015.” Id.

         On October 15, 2015, Plaintiffs' counsel informed Defendant of his representation and faxed Defendant a letter proposing to tender $10, 000.000 in exchange for Defendant's release and conveyance of Plaintiffs' Deed of Trust. Dkts. #1 at ¶ 12 and #1-2 at 15.[2]

         On October 21, 2015, Defendant sent a letter to Plaintiffs' counsel acknowledging that Plaintiffs had retained counsel. Dkt. #1-2 at 83. However, Defendant did not address the counteroffer included in Plaintiffs' October 15, 2015, letter. Id.

         On October 26, 2015, Plaintiffs' counsel submitted a cashier's check in the amount of $10, 000.00. Dkt. #1 at ¶ 12. Counsel expressly specified the payment was made “in consideration for Chase releasing the note and re-conveyance of the Deed of Trust associated with the Loan's account number XXXXX.” Id. and #1-2 at 18. Defendant cashed the check immediately on October 28, 2015, Dkt. #1-2 at 18, and did not provide any additional notation or protest on the face of the check itself. Id.

         The parties do not dispute that Defendant has since reported the debt as “charged off” rather than paid off by a compromised amount. Dkt. #1 at ¶ 17. Plaintiffs' Complaint cites to Experian's website for the definition of “charged off, ” which means “that the original creditor has given up on being repaid according to the original terms of the loan. It considers the remaining balance to be bad debt, but that doesn't mean you no longer owe the amount that has not been repaid.” Dkt. #1 at ¶ 28. Having been “charged off” by the original lender, the account is generally sent to a collection agency, which will then attempt to recover the remaining amount and potentially additional interests and fees. Id.

         After depositing Plaintiffs' check, Defendant continued reporting the debt as “charged off, ” and continued to issue debt collection demands to Plaintiffs, including almost daily collection calls. Dkt. #1 at ¶ ¶ 13 and 17. Over the course of the following months, Plaintiffs sent Defendant multiple letters disputing Defendant's reporting of the debt as “charged off” rather than paid off by settlement, and requesting investigation, which went unanswered by Defendant.[3]Plaintiffs allege at least two of these written disputes were sent to Trans Union, Experian and Equifax, id., the three entities Plaintiffs' Complaint alleges are “credit reporting agencies” within the meaning of FCRA. Id. at ¶ 3, 4 and 5.


         A. Legal Standard

         Rule 12(b)(6) permits a court to dismiss a complaint for failure to state a claim. Fed.R.Civ.P. 12(b)(6). The Rule requires the Court to assume the truth of the Complaint's factual allegations, credit all reasonable inferences arising from those allegations, and resolve doubts in favor of the plaintiff. Sanders v. Brown, 504 F.3d 903, 910 (9th Cir. 2007).

         The plaintiff must point to factual allegations that “state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 568 (2007). A defendant's motion should be denied when there is “any set of facts consistent with the allegations in the complaint” that would entitle the plaintiff to relief, id. at 563; Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009), “even if it strikes a savvy judge that actual proof of those facts is improbable.” Twombly, 550 U.S. at 556.

         A Rule 12(b)(6) motion to dismiss tests the legal sufficiency of the claims alleged in the complaint. Ileto v. Glock, Inc., 349 F.3d 1191, 1199-1200 (9th Cir. 2003). Dismissal of the complaint, or any claim within it, may be based on either a “‘lack of a cognizable legal theory' or ‘the absence of sufficient facts alleged under a cognizable legal theory.'” Johnson v. Riverside Healthcare Sys., LP, 534 F.3d 1116, 1121-22 (9th Cir. 2008) (quoting Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990)). Thus, this Court must determine whether Plaintiffs have stated a plausible legal claim, not whether they will be successful on the merits of such claim. This standard bears repeating because Defendant largely concentrates on the merits of Plaintiffs' claim, rather than focusing on the 12(b)(6) standard. This Court analyzes this motion in a manner consistent with the Rule 12(b)(6) standard.

         As a general rule, the Court may not consider any material beyond the pleadings and attached exhibits. Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001). Because neither party has asked the Court to consider materials beyond the four corners of the Complaint and Exhibits attached thereto, the Court does not depart from the general rule.

         B. Plaintiff's FCRA Claim: Inaccuracy

         As noted above, Defendant admits it is a “furnisher” as defined by FCRA. “Furnishers” are sources that provide credit information to credit reporting agencies. Gorman v. Wolpoff & Abramson, LLP, 584 F.3d 1147, 1153 (9th Cir. 2009). Under FCRA, “furnishers” have the duty to investigate and/or correct inaccurate information, and an individual may bring a private cause of action to sue a furnisher for its failure to fulfill those duties. 15 U.S.C. § 1681s-2(b); Nelson v. Chase Manhattan Mortg. Corp., 282 F.3d 1057, 1060 (9th Cir. 2002). In order to state such a claim under FCRA, Plaintiffs must, “at a minimum, ” allege: (1) factual content showing an inaccuracy in their credit report; and (2) that they communicated their disputes to the credit reporting agencies (“CRAs”). Gorman, 584 F.3d at 1154, 1162.

         With respect to the “inaccuracy” element, Plaintiffs allege that Defendant reported their debt to three CRAs as “charged off” rather than paid off by a compromised amount, and that this reporting is inaccurate as of October 2015 when Plaintiffs satisfied the debt by tendering the short pay off amount of $10, 000.00. Dkt. #1 at ¶ 17. In other words, Plaintiffs assert that their payoff constituted accord and satisfaction of their debt. Thus, if Plaintiffs have plausibly alleged accord and satisfaction under Washington contract law, they have also adequately pled the “inaccuracy” element of their FCRA claim.[4]

         Under Washington law, the doctrine of “accord and satisfaction” recognizes a debtor and creditor's agreement to settle a claim by some performance that differs from that which is claimed due-once the creditor accepts the substituted performance, it amounts to full satisfaction of the claim. Northwest Motors, Ltd. v. James, 118 Wash.2d 294, 303 (1992) (en banc). If the substitute agreement is consummated, it supersedes the original contract. Northwest Motors, 118 Wash.2d 305; Evans v. Columbia Int'l Corp., 3 Wash.App. 955, 957 (1970). The three essential elements for an accord and satisfaction are: (1) the existence of a bona fide dispute; (2) an agreement to settle the dispute; and (3) performance of the agreement. Ward v. Richards & Rossano, Inc., 51 Wash.App. 423, 429 (1988).

         1. Bona Fide Dispute

         Defendant first argues there can be no accord and satisfaction because the amount of debt Plaintiffs owed was never in dispute. Dkt. #16 at 10.[5] Plaintiffs respond that the Defendant's offers to settle the balance of the debt for “pennies on the dollar” rendered the amount owed uncertain, unliquified, or disputed. Dkt. #23 at 9. Specifically, Plaintiffs point out that Defendant's letter - sent only weeks before Plaintiffs made their counteroffer and tendered their check - explicitly offers to reduce the remaining balance on Plaintiffs' account and contains three different amounts. See Dkts. #1 at 3 and #1-2 at 49 (“We're offering to greatly reduce the remaining balance of $190, 950.89 on your account.”). For the reasons discussed herein, the Court agrees with Plaintiffs.

         Where the amount owed is in dispute, acceptance of a lower amount by the creditor constitutes an accord and satisfaction. Field Lumber Co. v. Petty, 9 Wash.App. 378, 379 (1973). However, if the amount owed is not in dispute, then there can be no accord and satisfaction without proof of additional consideration. Id. at 378, 380. Likewise, “[w]hen there is a dispute between the debtor and the creditor as to the amount due, one claiming that a certain sum is due and the other claiming that another sum is the proper amount, the demand is unliquidated, within the meaning of that term as applied to accord and satisfaction.” Paulsen Estate, Inc. v. Naches- Selah Irr. Dist., 190 Wash. 205, 208 (1937).

         Taking all factual allegations as true, the Complaint and attached Exhibits give rise to an inference that there was a bona fide dispute over the amount owed on the debt. At the time Plaintiffs made their counteroffer and then tendered their check, they had been provided three different pay off amounts, all lower than $190, 950.89, the acceptance of any of which would have resolved their debt. At the least, the debt was uncertain.

         Defendant argues that Plaintiffs' Complaint does not actually allege that the amount owed was uncertain. Dkt. # 24 at 6. While it is true that Plaintiffs' Complaint does not use the words “the debt was uncertain, ” the Complaint as written provides adequate notice to the Defendant of Plaintiffs' theory. See Dkt. #1 at ¶ 17 (alleging Defendant reported Plaintiffs' debt as “charged off” rather than paid off by a compromised amount even though Plaintiffs satisfied the debt by tendering the short pay off amount of $10, 000.00).

         Defendant further argues that even if there was a dispute, the parties disputed the amount of the settlement offer, not the amount of the outstanding balance. Dkt. #24 at 6. But Defendant is drawing a distinction without a difference. See First Nat'l Bank v. White-Dulaney Co., 123 Wash. 220, 224 (1923) (internal citations omitted). The Washington Supreme Court has long held that when the parties agree on the amount of debt owed, but the debtor has an offset or claim against the creditor, the debt owed is considered disputed. First Nat'l Bank v. White-Dulaney Co., 123 Wash. 220, 224 (1923). Similarly, when the parties agree on the amount of the debt owed, but there is a dispute about the debtor's right to a set-off or counter claim, the claim as a whole is rendered disputed. Id. The reason for this is simple: “[T] here is no material difference between a dispute directly involving the claim itself and a dispute involving an offset against the claim; that whatever may be the ground of the dispute the fact remains that there is one.” Id.

         Finally, for the first time in its reply brief, Defendant questions Plaintiffs' good faith belief that there was a dispute about any amount. Dkt. #24 at 6. Since “[i]t is well established that new arguments . . . presented for the first time in Reply are waived, ” Docusign, Inc. v. Sertifi, Inc., 468 F.Supp.2d 1305, 1307 (W.D. Wash. 2006), the Court will not address this argument.

         2. The ...

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