United States District Court, D. Idaho
MEMORANDUM DECISION AND ORDER ORDER RE: DKT. 17, 24,
Honorable Candy W. Dale United States Magistrate Judge
the Court are Plaintiff's motion to amend the complaint,
Defendant's motion to stay this matter and to compel
arbitration, and Defendant's motion for protective order.
(Dkt. 17, 24, 33.) The parties filed responsive briefing, and
the Court conducted a hearing on October 17, 2018, during
which the parties appeared and presented their arguments.
Thereafter, the Court provided an opportunity for Defendant
to supplement the record. For the reasons that follow, the Court
will grant Plaintiff's motion to amend, deny
Defendant's motion to stay and compel arbitration, and
deny Defendant's motion for protective order.
claims that Midland Credit Management, Inc., which acted at
the direction of or under the control of Defendant, filed a
collection action against Plaintiff in Canyon County, Idaho,
on May 16, 2017. The state court complaint alleged Defendant
owned a debt incurred by Plaintiff with Citibank, N.A., and
alleged Plaintiff owed Defendant the sum of $1, 074.80.
During discovery in this matter, Plaintiff learned Citibank
originally owned the debt, and had charged off
Plaintiff's account in the amount of $1, 074.80 prior to
selling the debt now owned by Defendant. The parties
negotiated a settlement of the state court collection action,
with Plaintiff paying Defendant 50% of the alleged debt, in
the amount of $537.40. Defendant then dismissed the
collection action with prejudice.
the collection action was dismissed, Plaintiff asserts that
Citibank informed him he had a credit on his account for debt
protection fees and related finance charges previously billed
in error, in the amount of $88.11. Plaintiff alleges that
Midland Credit knew or should have known of Citibank's
error when it filed the collection action, yet it continued
its efforts to recover the entire sum of $1, 074.80 inclusive
of the erroneously billed $88.11. Plaintiff contends that
Midland Credit knew or should have known that the $1, 074.80
incorrectly included the $88.11 because, in July of 2015,
Citibank entered into a Consent Order with the Consumer
Financial Protection Bureau in which Citibank admitted to
overcharging consumers and agreed as part of the order to
credit these amounts. Plaintiff asserts that Midland Credit
and Defendant would have known about these forgiven amounts
as part of the asset purchase agreement it entered into with
Citibank, which occurred in 2016, after entry of the Consent
Order in July of 2015.
further alleges that, despite his settlement agreement with
Defendant for him to pay the amount of $537.40 exclusive of
attorney fees and costs, Defendant issued a 1099-C to the
Internal Revenue Service for $758.40, causing Plaintiff to
pay income tax on an inflated debt forgiveness amount of
$758.40. Plaintiff alleges that the difference between the
settlement amount and the amount reported on the 1099-C
constitutes Midland Funding's court filing fees and
process server fees, which were included wrongfully in the
total amount reported according to the terms of the
parties' settlement agreement.
complaint against Defendant Midland Funding LLC included one
count for misrepresentation under the Fair Debt Collection
Practices Act, 15 U.S.C. § 1692 et. seq., and
one count for abuse of process. Prior to Defendant filing an
answer to the complaint, Plaintiff filed an amended complaint
on February 12, 2018. (Dkt. 4.) The amended complaint
contains three counts of misrepresentation asserted against
Defendant pursuant to the FDCPA, and one count for abuse of
filed its answer on March 6, 2018, and the Court conducted a
scheduling conference with the parties on April 12, 2018.
Pursuant to the Court's case management order, the
deadline to file a motion to join parties and amend pleadings
was July 2, 2018. (Dkt. 14.) Plaintiff filed a motion to
amend the first amended complaint on June 29, 2018. (Dkt.
17.) The proposed second amended complaint does not
materially alter the general allegations asserted against
Defendant as set forth in the first amended complaint.
proposed second amended complaint requests the following
three substantive changes: 1) adding Midland Credit
Management, Inc., as a defendant; 2) proposing this case be
converted from a claim on behalf of an individual into a
class action on behalf of two proposed classes; and 3)
deleting one of the three causes of action for
misrepresentation asserted under the Fair Debt Collection
Practices Act. Defendant does not oppose the addition of
Midland Credit Management, Inc., as a defendant, or the
deletion of one of the three causes of action under the
FDCPA, and concedes amendment is proper under Fed. Rule Civ.
P. 15. However, Defendant argues the proposed amendment to
convert this matter to a class action is made in bad faith
and would be both prejudicial and futile. Accordingly,
Defendant asserts that, regardless of the propriety of the
other two proposed amendments, the motion should be denied
because the request to add class claims is improper under
Defendant filed a motion to compel arbitration. In opposition to
Defendant's motion to compel arbitration, Plaintiff
asserts that Defendant has not established the parties had a
valid, existing agreement to arbitrate; and, even if valid,
Plaintiff claims Defendant waived its right to enforce
arbitration by pursuing litigation in state court and waiting
to assert its right to compel arbitration until late in this
action. According to Plaintiff, Defendant is precluded from
enforcing the arbitration provision of the card agreement
even if it is deemed valid by the Court.
related to the two motions is Defendant's motion for a
protective order. In support of its motion to compel
arbitration, Defendant produced a copy of what it claims is
the governing card agreement containing the arbitration
clause, but Defendant did not provide a copy of the asset
purchase agreement whereby Defendant claims it acquired from
Citibank the right to enforce the underlying card agreement.
Rather than provide the same in response to Plaintiff's
request for production, Defendant filed a motion for
the hearing, however, the Court noted that the terms of the
asset purchase agreement transferring Citibank's accounts
and receivables to Defendant, which accounts and receivables
purportedly included Plaintiff's account, appeared
integral to deciding the motion to compel arbitration. The
Court provided Defendant the option of filing the agreement
under seal with the Court. If not filed, the Court indicated
a ruling on the motion to compel arbitration would be made
based on the record to date. Defendant elected to file the
Purchase and Sale Agreement under seal, together with a
related Assignment and Release attached to Ms. Taylor's
declaration as Exhibit B. (Dkt. 41, 42, 47.) Accordingly, the
motion for protective order (Dkt. 33) will be denied in its
entirety.Below, the Court will analyze the motion to
amend first, followed by the motion to stay and compel
Motion to Amend Complaint
Rule 15 Standard
Rule of Civil Procedure 15(a) provides that, once a
responsive pleading has been served, a party may amend its
pleading “only with the opposing party's written
consent or the court's leave. The court should freely
give leave when justice so requires.” Fed.R.Civ.P.
15(a)(2). The Court of Appeals for the Ninth Circuit
recognizes that “the underlying purpose of Rule 15 [is]
to facilitate [a] decision on the merits, rather than on the
pleadings or technicalities, ” and, therefore,
“Rule 15's policy of favoring amendments to
pleadings should be applied with extreme liberality.”
Chudacoff v. University Med. Cent. of Southern Nev.,
649 F.3d 1143, 1152 (9th Cir. 2011) (quoting United
States v. Webb, 655 F.2d 977, 979 (9th Cir. 1981)).
decision whether to grant or deny a motion to amend under
Rule 15(a) rests in the sole discretion of the trial court.
The factors that are commonly used to determine the propriety
of a motion for leave to amend are: 1) undue delay, bad faith
or dilatory motive on the part of the movant; 2) repeated
failure to cure deficiencies by amendments previously
allowed; 3) undue prejudice to the opposing party by virtue
of allowance of the amendment; and 4) futility of amendment.
C.F. ex rel. Farnan v. Capistrano Unified Sch.
Dist., 654 F.3d 975, 985 n. 5 (9th Cir. 2011) (citing
Foman v. Davis, 371 U.S. 178, 182 (1962)).
“[t]hese factors . . . are not of equal weight in that
delay, by itself, is insufficient to justify denial of leave
to amend.” Webb, 655 F.2d at 979 (“The
mere fact that an amendment is offered late in the case is .
. . not enough to bar it.”); Bowles v. Beade,
198 F.3d 752, 758 (9th Cir. 1999). “Only where
prejudice is shown or the movant acts in bad faith are courts
protecting the judicial system or other litigants when they
deny leave to amend a pleading.” Webb, 655
F.2d at 980 (citation omitted). The Ninth Circuit has held
that, although all these factors are relevant to consider
when ruling on a motion for leave to amend, the
“crucial factor is the resulting prejudice to the
opposing party.” Howey v. United States, 481
F.2d 1187, 1189 (9th Cir. 1973). Prejudice is the touchstone
of the inquiry under Rule 15(a). Eminence Capital, LLC v.
Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003).
Ultimately, “[u]nless undue prejudice to the opposing
party will result, a trial judge should ordinarily permit a
party to amend its complaint.” Howey, 481 F.2d
Undue Delay, Bad Faith, or Dilatory Motive
Defendant contends Plaintiff's representation that the
class claims were not known until certain discovery was
conducted in this case is not true, as the class claims
should have been well known due to the public nature of the
Citibank consent order, and the fact that nothing was learned
during Defendant's deposition that was not already
apparent from that consent order. Accordingly, Defendant
asserts that, because the factual basis for the class claims
should have been known, the filing of the proposed amended
complaint on the eve of the deadline is in bad faith or was
pursued with undue delay.
faced with a similar argument in Willnerd v. Sybase,
Inc., the Court noted that Rule 15(a) is “very
liberal, ” and “all inferences [are] in favor of
granting the motion.” Willnerd, No. CV
09-500-S-BLW, 2010 WL 2643316 at *1 (D. Idaho June 29, 2010)
(citing William O. Gilley Enterprises, Inc. v. Atlantic
Richfield Co., 588 F.3d 659, 669 n.8 (9th Cir. 2009)
(citation omitted)). The Court explained that, for the
factors of bad faith, undue delay, or unfair prejudice, it
“need only look to the agreed Case Management Order
entered following a telephone scheduling conference attended
by both parties.” Willnerd, 2010 WL 2643316,
at *1. Because the plaintiff had filed the motion to amend by
the agreed upon deadline,  the Court found neither bad faith,
unfair prejudice, or undue delay. Id.
Court finds the same here. Plaintiff filed the motion to
amend prior to the agreed upon deadline for doing so. Under
the circumstances, and under Willnerd, the Court
finds neither bad faith nor undue delay.
reliance upon Fidelity Fin. Corp. v. Fed. Home Loan Bank
of San Francisco, 792 F.2d 1432, 1438 (9th Cir. 1986),
for the proposition that the motion should be denied when the
factual bases of the claims were known prior to previous
amendments, is misplaced. There, the plaintiff sought leave
to file a fourth amended complaint after the court had
announced its decision to grant summary judgment for the
defendant. The court denied the motion to amend, finding that
the new claims merely restated earlier claims and that
permitting amendment would be prejudicial. 792 F.2d at 1438.
Upon review, the Court of Appeals for the Ninth Circuit
agreed, finding that the plaintiff was merely
“restating its prior claims under new labels”
when the factual bases of the claims were known to the
plaintiff long before. Id. Further, given the
posture of the case, the court found also that the defendant
would be prejudiced if the motion to amend was granted.
not the case here. First, the posture of this case is quite
different than in Fidelity, because dispositive
motions have not been filed, and Plaintiff filed the motion
to amend prior to the agreed upon and Court imposed deadline.
And second, Defendant's argument that the factual bases
of the claims based upon the consent order cuts both
ways---the consent order and its terms would have been
equally available to Midland Credit and Defendant, and the
complaint alleges also that Defendant should have known of
the amounts Citibank forgave under the terms of the asset
purchase agreement. Last, it appears disingenuous for
Defendant to argue that the proposed addition of Midland
Credit as a defendant is not undertaken in bad faith or with
undue delay, yet the class claims are.
next argues Plaintiff's proposed amendment to assert
class claims is futile. Plaintiff's proposed second
amended complaint defines two classes as follows:
The First Class consists of (a) all individuals in Idaho (b)
to whom Midland Funding or Midland Credit (c) filed a
complaint against (d) which included an amount sought which
included amounts Citibank overcharged the individual (e)
which complaint was filed within the one (1) year period
immediately preceding the filing of this complaint.
The Second Class consists of (a) all individuals in Idaho (b)
to whom Midland Funding or Midland Credit (c) issued a 1099-C
to (d) which included amounts for court costs and service
fees which were not allowed by contract or statute (e) which
1099-C was mailed to the consumer within the one (1) year
period immediately preceding the filing of this complaint.
raises two objections. First, Defendant contends the
allegations related to the classes proposed by Plaintiff do
not provide sufficient information suggesting that a class
actually exists. Second, Defendant asserts the definitions of
the two classes impermissibly require a determination of the
merits prior to ensuring the existence of a class. Defendant
explains that, because the classes are defined as either
individuals whom Defendant or Midland Credit
“impermissibly” sued for amounts charged off by
Citibank, or to whom Defendant or Midland Credit mailed
1099-C's that included costs and service fees not allowed
by contract or statute, the class definitions erroneously
require a finding of liability. Plaintiff argues that the
facts concerning the individuals comprising the two classes
have been adequately pled, and any deficiencies concerning
the class descriptions can be remediated at the time class
certification is sought.
amendment is considered futile if “no set of facts can
be proved under the amendment to the pleadings that would
constitute a valid and sufficient claim or defense.”
Arbon Valley Solar LLC v. Thomas & Betts Corp.,
No. 4:16-CV-00070-DCN, 2017 WL 5613009, at *3 (D. Idaho Nov.
21, 2017) (quoting Missouri ex rel. Koster v.
Harris, 847 F.3d 646, 656 (9th Cir. 2017), in turn
quoting Miller v. Rykoff-Sexton, Inc., 845 F.2d 209,
214 (9th Cir. 1988)). “When a motion to amend is
opposed on the grounds that amendment would be futile, the
standard of review in considering the motion is akin to that
undertaken by a court in determining the sufficiency of a
complaint which is challenged for failure to state a claim
under the Federal Rules of Civil Procedure, Rule
12(b)(6).” Doe v. Nevada, 356 F.Supp.2d 1123,
1125 (D. Nev. 2004). “A Rule 12(b)(6) dismissal may be
based on either a ...