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Kuhn v. Asset Acceptance Capital Corp.

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

March 31, 2015




This matter is before the Court on a Motion to Dismiss filed by Defendants, Asset Acceptance Capital Corp. ("AACC"), Asset Acceptance LLC ("Asset Acceptance"), Asset Acceptance Recovery Services LLC ("AARS"), Legal Recovery Solutions LLC ("LRS"), and Encore Capital Group Inc. ("Encore") (collectively, "Defendants"), pursuant to Federal Rules of Civil Procedure 12(b)(2) for lack of personal jurisdiction and 12(b)(6) for failure to state a claim upon which relief can be granted (Filing No. 61). Plaintiffs Catherine Kuhn ("Ms. Kuhn"), Mychelle Casel ("Ms. Casel"), Bryan Strohm ("Mr. Strohm"), Shaun Booker ("Mr. Booker"), and Lester Rogers ("Mr. Rogers") (collectively, "Plaintiffs") assert claims against Defendants for alleged violations of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. ("FDCPA"), the United States Racketeer Influence and Corrupt Organizations Act, 18 U.S.C. §§ 1961, 1962(c) and (d), and 1964(a) and (c) ("RICO"), and fraud, restitution, and unjust enrichment under Indiana law. For the reasons set forth below, Defendants' Motion is GRANTED in part and DENIED in part.


The following facts are accepted as true for purposes of this Motion to Dismiss. Plaintiffs allege that Defendants have engaged in a scheme to manipulate consumers to pay money on alleged debt obligations that are not owed to Asset Acceptance, and that Asset Acceptance has wrongfully collected from Indiana consumers tens of millions of dollars. Plaintiffs seek to represent themselves and all other similarly situated consumers in this proposed class action.

Asset Acceptance buys data reflecting consumers' past credit card activity and nonpublic personal information. However, Plaintiffs allege that Asset Acceptance does not actually acquire legal ownership of the consumers' debt obligations, but only owns information about these debt obligations. Asset Acceptance purchases data about Indiana charged-off consumer credit card accounts, and Defendants, through Asset Acceptance or its agents, then improperly collect money from Indiana consumers on the information contained in the data for a fee. Plaintiffs allege that Defendants falsely represent that Asset Acceptance has the absolute right to collect money, including pre-purchase interest. This is accomplished through the means of alleged fraudulent collection activities, including pulling credit reports, performing manual and automated outbound dialer calling activity, sending dunning letters, and filing lawsuits against Indiana residents, even though Asset Acceptance has no legal ownership of the underlying debts.

Encore is a Delaware corporation which owns, controls, and employs AACC and its subsidiaries, Asset Acceptance, AARS, and LRS. Encore is primarily engaged in the business of purchasing, and collecting on, data concerning information about Indiana consumer accounts via mail, telephone, internet and civil debt collection lawsuits. Encore has entered into a management and servicing contract with AACC to operate and manage AACC's wholly-owned subsidiaries as a standalone company. Through its ownership, control and employment of its subsidiaries, AACC is primarily engaged in the business of purchasing, and collecting on, data containing information about Indiana consumer accounts. From January 2006 through the end of December 2012, AACC invested approximately $1 billion in the acquisition of charged-off accounts.

Asset Acceptance is a wholly owned subsidiary of AACC. Asset Acceptance serves as the purchasing vehicle of the consumer data, as well as the servicer of the data. AARS is also a whollyowned subsidiary of AACC. AARS's sole purpose is to manage Defendants' network of collection law firms and provide legal collection management services to Asset Acceptance. LRS, another wholly-owned subsidiary of AACC, is the holding vehicle of the data purchased by Asset Acceptance. LRS is a software technology company which manages the data inventory in both traditional collections and litigation. Subcontractors of Defendants, consisting of law firms and collection agencies, enter into Collection Services Agreements with Defendants and assist in performing the collection activities on behalf of the Defendants.

Plaintiffs each allege that they were subjected to Defendants' allegedly fraudulent collection scheme. Ms. Kuhn alleges that she was subjected to Defendants' illegal collection activities concerning an alleged Fifth Third Bank credit card debt. She was sued by Asset Acceptance and was forced to hire legal counsel to contest the collection activity. Ms. Casel was subjected to collection activities concerning an alleged Capital One Bank NA credit card debt. Despite paying off the Capital One account in 2004, Asset Acceptance appears on Ms. Casel's credit report and she had to hire legal counsel to contest the unlawful collection activity. Mr. Strohm alleged he was subjected to collection activities concerning an alleged First USA/Chase Bank NA and a BP/Chase Bank NA credit card account. He received collection letters and telephone calls from Asset Acceptance and its agents, and was forced to hire legal counsel to contest the unlawful collection activity. Mr. Booker was subjected to collection activities by Asset Acceptance and its agents concerning an alleged First USA/Chase Bank USA NA credit card account, and was sued by Asset Acceptance. Mr. Rogers alleges he was subjected to collection activities concerning an alleged HH Gregg/GE Money Bank credit card account and Asset Acceptance appears as the creditor on his credit report.

Plaintiffs allege that the credit card receivables that Defendants sought to collect upon had previously been securitized by the originating banks, charged off, and "insured" by credit enhancements, which thereby eliminated the underlying debt obligations and are not collectable. However, banking and securities regulations do not prohibit the sale of information/data about the defaulted receivables, which is what Defendants allegedly purchase. Plaintiffs assert that the Bill of Sale and Purchase Agreements for the receivable specifically limit the sale to the originating bank's interest in the receivable, which after securitization and credit enhancements is solely the data, not ownership of the receivable. Therefore, Plaintiffs allege, Defendants have no legal right to collect money based upon this information, because the banking regulations would prohibit the originating banks from collecting on these securitized and charged-off receivables.

Plaintiffs also allege that Defendants subsequently added interest to the amounts allegedly owed, despite the originating bank's waiver of the collection of interest. Furthermore, Plaintiffs claim that the amounts of interest allegedly owed to Asset Acceptance, when calculated at the stated interest rates, would necessarily have to be calculated as of a date prior to Asset Acceptance's alleged purchase of the account. Plaintiffs allege that Defendants engaged in mail and wire fraud, interstate transportation of stolen property, and extortion in furtherance of their collection scheme against the alleged debtors.


When reviewing a 12(b)(6) motion, the Court takes all well-pleaded allegations in the complaint as true and draws all inferences in favor of the plaintiff. Bielanski v. Cnty. of Kane, 550 F.3d 632, 633 (7th Cir. 2008) (citations omitted). However, the allegations must "give the defendant fair notice of what the... claim is and the grounds upon which it rests" and the "[f]actual allegations must be enough to raise a right to relief above the speculative level." Pisciotta v. Old Nat'l Bancorp, 499 F.3d 629, 633 (7th Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Stated differently, the complaint must include "enough facts to state a claim to relief that is plausible on its face." Hecker v. Deere & Co., 556 F.3d 575, 580 (7th Cir. 2009) (citations omitted). To be facially plausible, the complaint must allow "the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation omitted).


A. Count I: Failure to Own the Debt in ...

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