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Cox v. Sherman Capital LLC

United States District Court, S.D. Indiana, Indianapolis Division

March 31, 2014

ANDREW COX, LUCINDA COX, STEPHANIE SNYDER Individually and on behalf of others similarly situated, Plaintiffs,
v.
SHERMAN CAPITAL LLC, MEETING STREET PARTNERS II INC., SHERMAN FINANCIAL GROUP LLC, SHERMAN CAPITAL MARKETS LLC, LVNV FUNDING LLC, RESURGENT CAPITAL SERVICES LP, SHERMAN ORIGINATOR III LLC, SHERMAN ACQUISITION LLC, BENJAMIN W. NAVARRO, LESLIE G. GUTIERREZ, SCOTT E. SILVER, KEVIN P. BRANIGAN, ROBERT A. RODERICK, KENNETT KENDALL, JOHN DOES 1-50, and SHERMAN ORIGINATOR LLC, Defendants.

ENTRY ON MOTION TO RECONSIDER

TANYA WALTON PRATT, District Judge.

The dispute in this matter involves Plaintiffs' Andrew Cox, Lucinda Cox, and Stephanie Snyder ("collectively, Plaintiffs") Complaint asserting nine causes of action against numerous defendants for alleged misconduct associated with collecting debts in violation of the Fair Debt Collection Practices Act 15 U.S.C. 1692, et seq. ("FDCPA"). Plaintiffs filed a Motion to Certify Class (Dkt. 5) simultaneously with their Complaint, and the Motion was referred to the Magistrate Judge for issuance of a Report and Recommendation pursuant to 28 U.S.C. § 636(b)(1)(B) (Dkt. 81). Shortly thereafter, Defendants filed a Motion to Dismiss for failure to state a claim, or alternatively, lack of personal jurisdiction (Dkt. 21). This Motion was also referred to the Magistrate Judge for issuance of a Report and Recommendation (Dkt. 150).

This matter is now before the Court on an Objection to the September 30, 2013 Report and Recommendation Regarding Defendants' Motion to Dismiss (Dkt. 151) filed by Defendants Sherman Capital LLC, Meeting Street Partners II Inc., Sherman Financial Group LLC, Sherman Capital Markets LLC, LVNV Funding LLC, Resurgent Capital Services LP, Sherman Originator LLC, Sherman Originator III LLC, and Sherman Acquisition LLC (collectively, the "Entity Defendants"), and Benjamin W. Navarro, Leslie G. Gutierrez, Scott E. Silver, Kevin P. Branigan, Robert A. Roderick, and Kennett Kendall (collectively, the "Individual Defendants")[1] (Dkt. 154). The Objection was filed pursuant to Federal Rule of Civil Procedure 72(b) and 28 U.S.C. § 636(b)(1).

Also before the Court is Defendants' Objections to the July 18, 2013 Report and Recommendation Regarding Class Certification (Dkt. 133), asking the Court not to adopt the Magistrate Judge's recommendation to certify the Plaintiffs' classes (Dkt. 131). This Motion is before the Court pursuant to Federal Rule of Civil Procedure 72(a).

For the reasons set forth below, Defendants' objection to the Magistrate Judge's Report and Recommendation on the Motion to Dismiss is SUSTAINED in part and OVERRULED in part. The Defendants' objection to the Magistrate Judge's Report and Recommendation on the Motion to Certify Class is SUSTAINED.

I. BACKGROUND

The facts of this case are set forth in detail in the Magistrate Judge's Report and Recommendations and thus need not be repeated in detail in this entry. Dkts. 131 at 203; 151 at 2-4. In summary, the Plaintiffs purport to represent a class of plaintiffs, consisting of three subclasses, alleging common law fraud, unjust enrichment, and restitution claims; three counts of FDCPA violations; and three counts of Racketeer Influenced Corrupt Organizations Act ("RICO") violations against all Defendants. Plaintiffs allege that Defendants unlawfully sought collection on consumer debts that they did not own.

Magistrate Judge Mark Dinsmore issued a Report and Recommendation on the Motion to Certify Class on July 18, 2013, recommending that the proposed class and subclasses be certified (Dkt. 131), and issued a Report and Recommendation on the Motion to Dismiss on September 30, 2013, recommending that the Court grant in part and deny in part Defendants' motion (Dkt. 151). Defendants timely filed objections to the Magistrate Judge's order on August 1, 2013 and October 15, 2013, respectively.

II. LEGAL STANDARD

As an initial matter, a district court may assign dispositive motions to a magistrate judge, in which case the magistrate judge may submit to the district judge only a report and recommended disposition, including any proposed findings of fact. Schur v. L.A. Weight Loss Ctrs., Inc., 577 F.3d 752, 760 (7th Cir. 2009). See 28 U.S.C. § 636(b)(1)(B); Fed.R.Civ.P. 72(b). "The magistrate judge's recommendation on a dispositive matter is not a final order, and the district judge makes the ultimate decision to adopt, reject, or modify it." Schur, 577 F.3d at 760. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72(b)(3). After a magistrate judge makes a report and recommendation, either party may object within fourteen days. 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72(a); 72(b)(2). "A judge of the court shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made" with respect to dispositive motions. 28 U.S.C. § 636(b)(1). Further, a judge "may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge." Id. For non-dispositive matters, the Court should set aside any portion of the Magistrate Judge's order that is "clearly erroneous" or "contrary to law." Fed.R.Civ.P. 72(a); 28 U.S.C. § 636(b)(1)(A).

III. DISCUSSION

A. Objection to Report and Recommendation on Motion to Dismiss

Defendants object to the Magistrate Judge's Report and Recommendation on the Motion to Dismiss on a number of grounds, arguing that the Magistrate Judge erred in finding that Plaintiffs met the pleading requirements for all claims in general and with respect to each count, and that Plaintiffs properly alleged personal jurisdiction over all Defendants. The Court reviews the Magistrate Judge's order de novo.

1. Personal Jurisdiction Allegations

The first issue that must be addressed is whether the Court has personal jurisdiction over all of the Defendants. Plaintiffs bear the burden of demonstrating the existence of jurisdiction. Wine & Canvas Dev., LLC v. Weisser, 886 F.Supp.2d 930, 937 (S.D. Ind. 2012). The Court may go outside the pleadings to decide whether personal jurisdiction exists. See Fed.R.Civ.P. 12(b)(2); Purdue Research Found. v. Sanofi-Synthelabo, S.A., 338 F.3d 773, 782-83 (7th Cir. 2003). When the district court rules on a defendant's motion to dismiss based on the submission of written materials, without the benefit of an evidentiary hearing, the plaintiff "need only make out a prima facie case of personal jurisdiction." Id. at 782 (quoting Hyatt Int'l Corp. v. Coco, 302 F.3d 707, 713 (7th Cir. 2002)). "In determining whether the plaintiff has met the prima facie standard, the plaintiff is entitled to a favorable resolution of all disputed relevant facts." uBID, Inc. v. GoDaddy Grp., Inc., 623 F.3d 421, 423-24 (7th Cir. 2010).

Defendants argue that the personal jurisdiction allegations in Plaintiffs' Complaint are insufficient to meet controlling federal standards, and assert that this Court lacks personal jurisdiction over all Defendants, other than Defendants LVNV Funding LLC ("LVNV") and Resurgent Capital Services LP ("Resurgent"), absent a viable RICO claim.[2] Defendants argue that the Magistrate Judge erred by finding that LVNV's and Resurgent's jurisdictional contacts are imputable to the remaining Defendants through an agency or veil-piercing theory. Dkt. 151 at 24. Seventh Circuit case law holds that there must be an "unusually high degree of control" or that the "subsidiary's corporate existence is simply a formality" in order to impute jurisdictional contacts to the parent company. Abelesz v. OTP Bank, 692 F.3d 638, 658 (7th Cir. 2012).

Plaintiffs have not alleged any facts supporting a finding of general or specific jurisdiction over any of the Defendants independently, other than LVNV and Resurgent. Instead, Plaintiffs rely upon the argument that LVNV's jurisdictional contacts should be imputed to the other Entity Defendants. The Magistrate Judge used a theory of veil-piercing to find that this Court has personal jurisdiction over the Defendants. He relied upon the deposition testimony of owners and officers of the various Entity Defendants to conclude that the Entity Defendants lacked observance of corporate formalities, and that holding informal meetings indicated an "unusually high degree of control." Dkt. 151 at 27-28. The Court disagrees with this assessment, and finds that this evidence does not amount to "clear evidence" of an "unusually high degree of control." See IDS Life Ins. Co. v. SunAmerica Life Ins. Co., 136 F.3d 537, 540 (7th Cir. 1998) ("Parents of wholly owned subsidiaries necessarily control, direct, and supervise the subsidiaries to some extent.").

However, Plaintiffs have alleged and provided evidence that LVNV is merely an assetholding vehicle that is essentially a shell company with no employees. See Dkt. 1 at 16, ¶ 54; Dkt. 130-20 at 3 (deposition of Kevin Branigan, president of LVNV, describing LVNV as an "asset-holding vehicle."). This is another means by which the personal contacts of a subsidiary may be imputed to the parent company. Wesleyan Pension Fund, Inc. v. First Albany Corp., 964 F.Supp. 1255, 1262 (S.D. Ind. 1997). Plaintiffs have made a prima facie showing that LVNV's jurisdictional contacts may be imputed to other Defendants.

The inquiry cannot end here, as personal jurisdiction must be determined as to each Defendant; Plaintiffs may not address the jurisdiction of the Defendants collectively. McManaway v. KBR, Inc., 695 F.Supp.2d 883, 895 (S.D. Ind. 2010); Frontier Paper & Packaging, Inc. v. E & S Paper Co., No. 1:06-CV-1485SEBJPG, 2007 WL 1836884, at *6 (S.D. Ind. June 22, 2007). The jurisdictional contacts of LVNV may only be imputed to its parent companies, which consisted of Sherman Originator LLC, Sherman Financial Group LLC, and Sherman Capital LLC at the time of the alleged conduct.[3] Dkt. 130 at 4-5. The remaining Entity Defendants-Sherman Capital Markets LLC, Sherman Acquisition, LLC, and Sherman Originator III, LLC-do not have any ownership interest in, and thus are not parent companies of, LVNV. Id. Plaintiffs have not put forth evidence from which the Court can determine that there are sufficient contacts between Sherman Capital Markets LLC, Sherman Acquisition, LLC, and Sherman Originator III, LLC and the State of Indiana for a finding that this Court has personal jurisdiction over these entities; Plaintiffs only make the conclusory statement that "[t]he interrelationship among LVNV and the other Corporate ...


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