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US District Court : CREDIT - interest rate claim dismissed, but attornies violated FDCPA by alleging fees already due

Douglas Munoz,
v. Civil No. 04-4142 (JNE/SRN)
Pipestone Financial, LLC, and
Messerli & Kramer, P.A.,
Wood R. Foster, Jr., Esq., and Mark Thieroff, Esq., Siegel, Brill, Greupner, Duffy & Foster,
P.A., appeared for Plaintiff Douglas Munoz.
Christopher R. Morris, Esq., appeared for Defendants Pipestone Financial, LLC, and Messerli &
Kramer, P.A.
Douglas Munoz claims that Pipestone Financial, LLC, and Messerli & Kramer, P.A.,
(collectively, Defendants) violated the Fair Debt Collection Practices Act (FDCPA) by
attempting to collect interest at an impermissible rate, misrepresenting their entitlement to
attorney fees, and using envelopes that reveal personal and confidential information about him in
communications with him. The case is before the Court on Munozs and Defendants motions
for partial summary judgment. For the reasons set forth below, the Court grants in part and
denies in part the motions.
In 1995, Munoz opened a credit-card account (Account) with First USA Bank, N.A. 1
After an introductory period, the Cardmember Agreement governing the Account set the finance
charge at an annual percentage rate of 11.99%. The Cardmember Agreement also provided for
1 First USA Bank was later bought by and merged into other banks. The Court refers to
First USA Bank and its successor banks as First USA.
the payment by Munoz of reasonable attorney fees in the event that First USA referred the
Account after a default to an attorney who is not a regularly salaried employee of First USA.
The Cardmember Agreement also provided: [First USA] may at any time assign [the] Account,
any sums due on [the] Account, this Agreement or [First USAs] rights or obligations under this
Agreement. The person(s) to whom [First USA] makes any such assignment shall be entitled to
all of [First USAs] rights under this Agreement, to the extent assigned.
After using the Account for approximately seven years, Munoz defaulted. The Account
was closed in September 2002 with a balance of ,519.13. Later, First USA assigned the
Account to Unifund CCR Partners. In turn, Unifund CCR Partners assigned the Account to
Pipestone. Pipestone is a purchaser of defaulted debt portfolios.
Pipestone retained Messerli & Kramer to collect Munozs debt. Messerli & Kramer sent
a demand letter in the amount of ,660.26 to Munoz on January 5, 2004. This letter was sent in
an envelope with a transparent window. On April 7, 2004, Messerli & Kramer filed suit on
behalf of Pipestone in the Minnesota District Court for the First Judicial District. In the statecourt
complaint, Pipestone sought a total amount due and owing of ,965.68. This amount
comprised the Accounts closing balance; attorney fees in the amount of ,105.35; and accrued
interest totaling ,341.20. Munoz later stipulated to entry of judgment against him in the statecourt
action for ,519.13.
During the pendency of the state-court action, Munoz brought this action under the
FDCPA. The motions before the Court relate to Munozs claims that are based on Defendants
attempt to collect interest and attorney fees.
Summary judgment is proper if the pleadings, depositions, answers to interrogatories,
and admissions on file, together with the affidavits, if any, show that there is no genuine issue as
to any material fact and that the moving party is entitled to a judgment as a matter of law. Fed.
R. Civ. P. 56(c). The moving party bears the initial responsibility of informing the district court
of the basis for its motion, and must identify those portions of [the record] which it believes
demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S.
317, 323 (1986). If the moving party satisfies its burden, Rule 56(e) requires the party opposing
the motion to respond by submitting evidentiary materials that designate specific facts showing
that there is a genuine issue for trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475
U.S. 574, 587 (1986). In determining whether summary judgment is appropriate, a court must
look at the record and any inferences to be drawn from it in the light most favorable to the party
opposing the motion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
A. Interest rate
In Count I of his Complaint, Munoz claims that Defendants violated the FDCPA by
attempting to collect interest at an impermissible rate. The FDCPA provides that [a] debt
collector may not use any false, deceptive, or misleading representation or means in connection
with the collection of any debt. 15 U.S.C. 1692e (2000). A false representation of a debts
character, amount, or legal status violates section 1692e. Id. 1692e(2). The FDCPA also states
that [a] debt collector may not use unfair or unconscionable means to collect or attempt to
collect any debt. Id. 1692f. Violations of section 1692f include [t]he collection of any
amount (including any interest, fee, charge, or expense incidental to the principal obligation)
unless such amount is expressly authorized by the agreement creating the debt or permitted by
law. Id. 1692f(1); see Duffy v. Landberg, 215 F.3d 871, 875 (8th Cir. 2000) (holding letters
seeking interest overstated by less than violated section 1692f). A violation of the FDCPA is
reviewed utilizing the unsophisticated-consumer standard which is designed to protect
consumers of below average sophistication or intelligence without having the standard tied to the
very last rung on the sophistication ladder. Strand v. Diversified Collection Serv., Inc., 380
F.3d 316, 317 (8th Cir. 2004) (quotations omitted).
According to Munoz, Minnesota law prohibits Defendants from collecting interest at a
rate that exceeds eight percent. See Minn. Stat. 334.01 (2006). Defendants contend that they
properly attempted to collect interest at the rate specified in the Cardmember Agreement.
The National Bank Act (NBA), 12 U.S.C. 21216d, authorizes a national bank to
charge interest at the rate allowed by the laws of the state in which the bank is located. Phipps
v. FDIC, 417 F.3d 1006, 1011 (8th Cir. 2005) (quoting Krispin v. May Dept Stores Co., 218
F.3d 919, 922 (8th Cir. 2000)). In this case, it is undisputed that First USA, a national bank
chartered in Delaware, properly charged Munoz interest at an annual percentage rate of 11.99%.
See 12 U.S.C. 85 (2000); 5 Del. C. 943945. Through a series of assignments, Munozs
Account was assigned from First USA to Pipestone. Although Pipestone is not a national bank,
[c]ourts must look at the originating entity (the bank), and not the ongoing assignee . . . in
determining whether the NBA applies. Phipps, 417 F.3d at 1013 (quoting Krispin, 218 F.3d at
924). Thus, Defendants properly attempted to collect interest from Munoz at the rate specified in
the Cardmember Agreement. As to Count I, the Court therefore grants Defendants motion,
denies Munozs motion, and dismisses the claim.2
2 Munoz asserts that Messerli & Kramer also violated the FDCPA by attempting to collect
interest from him on behalf of Northern Financial Systems (Northern). Messerli & Kramer
contends that Munozs allegations are outside the scope of the Complaints allegations. The
B. Attorney fees
In Count II of his Complaint, Munoz alleges that Defendants violated the FDCPA by
misrepresenting their entitlement to attorney fees. He maintains that Defendants violated the
FDCPA by claiming in the state-court complaint that attorney fees were due and owing before
the fees were actually incurred.3 In the state-court complaint, Pipestone alleged that Munoz
owed ,519.13 for goods and services sold and delivered to [him] through and including
March 26, 2004, and that Munoz agreed to pay all reasonable costs of collecting including
reasonable attorneys fees in the Cardmember Agreement. Pipestones complaint contained the
following demand for judgment:
[Pipestone] demands judgment against [Munoz] for the principal sum of
,519.13, plus accrued interest in the amount of ,341.20, plus reasonable
attorneys fees of ,105.35, for a total amount due and owing of ,965.68, plus
continued interest on the outstanding principal balance at the account rate until the
date of entry of judgment and [Pipestones] costs and disbursements herein.
Messerli & Kramer represented Pipestone in the state-court action on a contingency-fee basis.
The amount of attorney fees sought reflects the cont ingency-fee agreement between Messerli &
Kramer and Pipestone. Defendants contend that their request for attorney fees in the state-court
action did not violate the FDCPA. 4
Court agrees. In his Complaint, Munoz alleges that he has been subject to illegal debtcollection
practices on the part of the defendants and that [t]he practices arise out of
Pipestones acquisition of a debt originally owed to First USA Bank, N.A. Thus, the Court
declines to consider Munozs allegations regarding Messerli & Kramers efforts to collect
interest on behalf of Northern. See Rodgers v. City of Des Moines, 435 F.3d 904, 910 (8th Cir.
2006); N. States Power Co. v. Fed. Transit Admin., 358 F.3d 1050, 1057 (8th Cir. 2004).
3 For the reasons set forth in the discussion of Count I, the Court declines to consider
Munozs arguments regarding Messerli & Kramers attempts to collect attorney fees on behalf of
4 During this litigation, Defendants invoked the Rooker-Feldman doctrine to oppose
Munozs claims. See D.C. Court of Appeals v. Feldman, 460 U.S. 462 (1983); Rooker v. Fidelity
Trust Co., 263 U.S. 413 (1923). The doctrine is confined to cases of the kind from which the
Recovery of attorney fees must be based on either a statute or a contract. Schwickert,
Inc. v. Winnebago Seniors, Ltd., 680 N.W.2d 79, 87 (Minn. 2004); see Kallok v. Medtronic, Inc.,
573 N.W.2d 356, 363 (Minn. 1998). In the Cardmember Agreement, Munoz agreed to pay
reasonable attorney fees:
As permitted by applicable law, you agree to pay all collection expenses actually
incurred by us in the collection of amounts you owe under this Agreement
(including court costs and the fees of any collection agency to which we refer
your Account) and, in the event we refer your Account after your default to an
attorney who is not our regularly salaried employee, you agree to pay the
reasonable fees of such attorney.
In support of their motion, Defendants cite cases that hold that a debtor may not assert a claim
under the FDCPA to contest the reasonableness of attorney fees demanded by a debt collector in
a complaint. See, e.g., Bull v. Asset Acceptance, LLC, 444 F. Supp. 2d 946, 949-51 (N.D. Ind.
2006). In contrast to those cases, Munoz is not challenging the reasonableness of the fees sought
by Defendants in the state-court action. Instead, he claims that Defendants violated the FDCPA
by asserting that attorney fees were due and owing when the state-court action began.
Defendants contend that they did not violate the FDCPA by quantifying the amount of
attorney fees in the demand for judgment. In support, they rely on Winn v. Unifund CCR
Partners, Civ. No. 06-447, 2007 WL 974099 (D. Ariz. Feb. 13, 2007). In that case, the
defendants brought an action against the plaintiff in state court to collect a debt. 2007 WL
974099, at *4. In the body of the state court-complaint, the defendants alleged that the plaintiff
owed principal and interest in specified amounts and that the defendants were entitled to
doctrine acquired its name: cases brought by state-court losers complaining of injuries caused by
state-court judgments rendered before the district court proceedings commenced and inviting
district court review and rejection of those judgments. Exxon Mobil Corp. v. Saudi Basic Indus.
Corp., 544 U.S. 280, 284 (2005); see Lance v. Dennis, 546 U.S. 459, 464 (2006) (per curiam)
(emphasizing narrowness of Rooker-Feldman doctrine). Here, Munoz does not complain of
injuries caused by a state-court judgment rendered before he commenced this action. Thus, the
doctrine does not apply.
reasonable attorney fees. Id. The defendants did not specify the amount of attorney fees sought
in the body of the complaint. Id. In the prayer for relief, however, the defendants specified the
amount of attorney fees sought. Id. at *5. In contrast to the case at hand, the defendants in Winn
did not allege that attorney fees were due and owing in the prayer for relief. Id. The district
court, adopting a magistrate judges Report and Recommendation, concluded that the defendants
had not violated the FDCPA by quantifying the amount of attorney fees sought in the prayer for
relief because the prayer for relief was simply a request for a certain amount of attorneys fees:
[The prayer for relief] is a request that the court find an amount not less than
,486.42 to be reasonable. It is not an assertion that this specific amount is
explicitly authorized by the credit agreement.
Id. at *3. The district court relied on the complaints structure to reinforce its reasoning:
This amount [of attorney fees] does not appear in the body of the complaint where
[the plaintiffs] specific obligations under the credit card agreement are listed.
Even the least sophisticated debtor would understand that this amount . . . is not
an explicit part of his agreement. Instead, it is what his creditor would like the
court to conclude is reasonable. He might have to pay it; he might not. The
prayer for relief is not false, deceptive, misleading or unfair. It does not violate
the FDCPA.
Id. (citations omitted). The Court is not persuaded by Defendants reliance on Winn. Unlike that
case, Pipestones demand for judgment asserted that a specific amount, including attorney fees,
was due and owing. Thus, Pipestones demand for judgment did not simply request that the state
court find a certain amount of attorney fees reasonable. Instead, the demand for judgment
represented that attorney fees in the amount of ,105.35 were due and owing from Munoz when
the state-court action began.
Defendants maintain that they had no choice but to allege the relief sought in the statecourt
complaint. However, they cite no rule that required them to represent in a complaint that
attorney fees based on a contingency- fee agreement between a debt collector and its attorney
were due and owing from a debtor. Cf. Wells Fargo Home Mortgage, Inc. v. Newton, 646
N.W.2d 888, 899 (Minn. Ct. App. 2002) (holding complaints request that included demand for
attorney fees as allowed by law in such an amount as the Court shall determine satisfied Minn.
R. Civ. P. 8.01).
Defendants also assert that contingency- fee agreements are routine, see Minn. R. Prof.
Cond. 1.5(c), and that an attorney may request fees based on a contingent- fee agreement, see
Taylor v. Luper, Sheriff & Niedenthal Co., 74 F. Supp. 2d 761 (S.D. Ohio 1999). In Taylor, the
district court addressed a FDCPA claim similar to the one asserted by Munoz:
When the defendant law firm asserted a claim for attorneys fees which
was equal to its one-third contingent fee agreement with the bank, the claim, if
successful, would have resulted in the banks recovery of the fees it would
actually have been obligated to pay to its attorneys. Thus, defendants asserted a
claim which was designed to make the bank whole. Under Ohio law, an award of
reasonable attorneys fees in favor of a successful party may be based upon the
contingent fee agreed upon between the successful party and its attorney.
74 F. Supp. 2d at 767. The Taylor court cited Central Trust Co. v. Warburg, 661 N.E.2d 275,
277 (Ohio Ct. App. 1995) (We cannot say that the trial court abused its discretion when it
awarded attorney fees consistent with the contingent- fee agreement . . . .), to support its view of
Ohio law, but failed to acknowledge a decision of the Ohio Supreme Court that undermines
Warburg, see Landis v. Grange Mut. Ins. Co., 695 N.E.2d 1140, 1142-43 (Ohio 1998) (That the
contingency fee agreement was normal and customary as to [plaintiff] and [his counsel] does not
mean that it can be enforced against a party that did not agree to it.).
More than 100 years ago, the Minnesota Supreme Court noted that many courts had held
stipulations in instruments for the payment of money for attorney fees or costs of collection in
excess of taxable costs absolutely void. Campbell v. Worman, 60 N.W. 668, 668-69 (Minn.
1894). The court, however, held them valid as agreements to indemnify the payees for such
liabilities as they may be necessarily and reasonably compelled to incur for attorneys fees in
case they are compelled, on default of the makers, to collect by suit. Id. at 669. The court
But we have held that the stipulated attorneys fees are no part of the original
debt; that the right to them does not accrue until the payee incurs the liability, and
then only to the extent of the reasonable value of the attorneys services actually
performed or to be performed, which must be proved. It is only upon this theory
that such stipulations can be sustained at all, for, if they are not mere agreements
to indemnify for expenses actually or reasonably made, they would be merely
penal and hence void. The full amount for which the maker is liable on such
stipulations is not really due when suit is brought, for the services of the attorney
are not then fully performed. Hence we hold that a recovery on such stipulations
can only be had upon application to the court, and upon proof of the
reasonableness and value of the attorneys fees; and thereupon the court may fix
the amount to be allowed at such sum, not exceeding the amount stipulated, as it
shall deem reasonable and just, and the amount so fixed may be included in the
judgment, the same as any other disbursement in the action.
Id. (citations omitted).
Defendants argue that Campbell need not be credited due to its antiquity. They say it is
simply outdated. In 2000, however, the United State Court of Appeals for the Eighth Circuit
characterized Campbell as relevant Minnesota law. Kojetin v. C U Recovery, Inc., 212 F.3d
1318, 1318 (8th Cir. 2000) (per curiam). In Kojetin, a credit union referred a note to the
defendant after the note, signed by the plaintiff, went into default. Id. Under the note, the
plaintiff agreed to pay reasonable attorneys fees and costs incident to collection of due and
unpaid installments or of any balance unpaid after maturity. Kojetin v. C U Recovery, Inc., Civ.
No. 97-2273, 1999 WL 1847329, at *1 n.1 (D. Minn. Mar. 29, 1999), affd, 212 F.3d 1318 (8th
Cir. 2000). The plaintiff brought suit under the FDCPA after the defendant added a collection
fee based on a percentage of the principal balance instead of actual collection costs. Kojetin, 212
F.3d at 1318. The Eighth Circuit concluded that the defendant had violated the FDCPA by
charging a collection fee based on a percentage of the principal balance that remained due rather
than the actual cost of collection. Id.
In this case, Pipestone, represented by Messerli & Kramer, alleged that attorney fees were
due and owing at the outset of the state-court action. Defendants contingency-fee agreement
determined the amount of attorney fees sought. Munoz was not a party to that agreement, and he
did not agree in the Cardmember Agreement to subject himself to whatever contingency fee a
debt collector agreed to pay its attorney. Instead, he agreed to pay all collection expenses
actually incurred and reasonable fees of an outside attorney. Having agreed to pay Messerli
& Kramer a percentage of the amount collected, Pipestone had not incurred the attorney fees
sought in the state-court action when Pipestone alleged that the fees were due and owing from
Munoz. See Stall v. First Natl Bank of Buhl, 375 N.W.2d 841, 845 (Minn. Ct. App. 1985)
(Because no amounts have yet been realized on the Roberts file, Stall is not entitled to a
contingent fee at this time. He will be entitled to his contingent fee if and when the bank realizes
an amount on this matter.). Therefore, the Court denies Defendants motion, grants Munozs
motion, and concludes that Defendants are liable under Count II. See Pollice v. Natl Tax
Funding, L.P., 225 F.3d 379, 404 (3d Cir. 2000).
Based on the files, records, and proceedings herein, and for the reasons stated above, IT
1. Defendants motion for partial summary judgment [Docket No. 69] is
2. Munozs motion for partial summary judgment [Docket No. 75] is
3. Count I of the Complaint [Docket No. 1] is DISMISSED WITH
4. Defendants are liable to Munoz under Count II of the Complaint.
Dated: August 30, 2007
s/ Joan N. Ericksen
United States District Judge


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