Goldsmith v. HSW Financial CV-10-324-JL 11/12/10 P UNITED STATES DISTRICT COURT DISTRICT OF NEW HAMPSHIRE

Steven E. Goldsmith and seqNET Technologies, Inc. Civil No. lO-cv-324-JL v. Opinion No.

HSW Financial Recovery, Inc.

MEMORANDUM OPINION

The question in this case is whether defendant HSW Financial

Recovery, Inc. violated the Fair Debt Collection Practices Act,

et seq. ("FDCPA"), or state tort law by

attempting to collect a debt from plaintiffs Steven Goldsmith and

his company segNET Technologies, Inc. that, according to them,

had already been paid in full. HSW has moved to dismiss the case

under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6),

arguing that the FDCPA does not apply because the disputed debt

arises from a commercial transaction and that this court lacks

subject-matter jurisdiction over the remaining state-law claims

because, notwithstanding the parties' diversity of citizenship,

the plaintiffs have not plausibly alleged a sufficient amount in

controversy to satisfy

(a)(1).

The motion is granted in part and denied in part.1 HSW is

correct that the disputed debt arises from a commercial

transaction and that the FDCPA does not apply to such debts. The

1The parties declined this court's offer to hold oral argument, which is its ordinary practice for dispositive motions.

1 FDCPA claim is therefore dismissed. Nevertheless, this court has

diversity jurisdiction over the remaining state-law claims. The

plaintiffs have plausibly alleged that HSW, by reporting the

disputed debt to a credit reporting agency, lowered Goldsmith's

credit score and thereby caused his company segNET to incur extra

financing costs well in excess of $75,000, which is the threshold

for diversity jurisdiction. HSW's other arguments for dismissal

of those state-law claims have no merit.

I. Applicable legal standard

To survive a motion to dismiss under Rule 12(b) (6), the

plaintiffs' complaint must make factual allegations sufficient to

"state a claim to relief that is plausible on its face."

Ashcroft v. Igbal, 129 S. C t . 1937, 1949 (2009) (guoting Bell

Atl. Corp. v. Twombly,

(2007)). "A claim has

facial plausibility when the plaintiff pleads factual content

that allows the court to draw the reasonable inference that the

defendant is liable for the misconduct alleged."

In

deciding such a motion, the court must accept as true all well-

pleaded facts set forth in the complaint and must draw all

reasonable inferences in the plaintiffs' favor. See, e.g.,

Gargano v. Liberty Int'l Underwriters, Inc.,

(1st Cir. 2009). The following background summary is consistent

with that approach.

2 II. Background

In February 1999, segNET agreed to lease certain networking

eguipment from Direct Capital Corporation for a term of 36

months, with an advance payment of $1,813.42 and monthly payments

of $819.21. Direct Capital immediately assigned its interest in

the lease to First Sierra Financial, Inc. By the time the lease

expired in February 2002, segNET had made all of the payments

that it reguired, including any applicable late fees. Neither

Direct Capital nor Sierra Financial has communicated with segNET

since that time, nor sued it for failing to make payment under

the lease.

More than seven years after the lease expired, however,

segNET's owner Goldsmith began receiving telephone calls at his

residence from defendant HSW, a debt collector claiming that he

and segNET still owed $3365.43 under the lease and threatening to

report that unpaid debt to credit reporting agencies. Goldsmith

informed HSW that the lease had been paid in full and that any

further communications should be directed to his attorney.

Nevertheless, HSW continued calling his residence, more than 95

times over the ensuing year. Many of the calls were answered by

his children or other third parties, who were told that Goldsmith

was delinguent in paying a debt.

3 In July 2010, having collected no money from the plaintiffs,

HSW reported to the credit reporting agency Experian that

Goldsmith had an uncollected debt of $2580. That negative report

caused Goldsmith's otherwise strong credit score to drop 150

points. As a result. Goldsmith received less favorable financing

terms for his two children's private school education, which he

anticipates will cost him an extra $30,000 per year for the next

four years. He also claims to have suffered severe personal

trauma and hardship, including loss of sleep, depression, loss of

productivity, loss of consortium, anxiety, and loss of

reputation.

Goldsmith's credit problems also affected segNET, for which

he sometimes serves as a financial guarantor. In particular,

segNET's key credit relationships were delayed for 60 days,

forcing the company to purchase alternative "bridge" financing2

at an extra cost of $650,000 and to forego certain capital-

intensive projects that it anticipates would have earned about

$30,000 per month for the next seven years.

Goldsmith and segNET sued HSW in this court in July 2010,

asserting a federal claim for violations of the FDCPA and state-

law claims for unfair or deceptive trade practices, defamation,

and fraud. They also sought declaratory and injunctive relief.

2Bridge financing is a "loan made to meet a customer's needs until it can raise additional permanent funds." Charles J. Woelful, Encyclopedia of Banking and Finance 153 (10th ed. 1994) .

4 HSW moved to dismiss the case, see Fed. R. Civ. P. 12(b)(1), (6),

arguing that the FDCPA does not apply to the commercial debt at

issue here and that, without that federal claim, this court has

no subject-matter jurisdiction over the plaintiffs' remaining

state-law claims. HSW also argued that the claims for

defamation, fraud, and injunctive relief failed to state a cause

of action.

The plaintiffs responded by amending their complaint, adding

new allegations to support each of their claims (except the fraud

claim, which they voluntarily withdrew, see document no. 28-1, at

3), and then objecting to the motion to dismiss. HSW recently

notified the court that, notwithstanding the plaintiffs' new

allegations, it still wants a ruling on its motion to dismiss.

Both parties have submitted supplemental briefs on that motion,

which largely reiterate the arguments made in their original

briefing.

Ill. Analysis

A. FDCPA claim (count 2)

First, HSW argues that theplaintiffs' FDCPA claim must be

dismissed because the disputed debt arises from a commercial

transaction. This court agrees. The FDCPA is a federal statute

"enacted to protect debtors from abusive debt collection

practices." Chiang v. Verizon New Eng., Inc.,

, 41

5 (1st Cir. 2010) (citing

(e)). To qualify for

FDCPA protection, a debt must be incurred "primarily for

personal, family, or household purposes." 15 U.S.C. § 1692a(5).

It is well established that "actions arising out of commercial

debts are not covered by the protective provisions of the FDCPA."

Goldman v. Cohen,

, 154 n.l (2d Cir. 2006) (citing

First Gibraltar Bank, FSB v. Smith,

(5th Cir.

1995)); see also, e.g., Pollice v. Nat'l Tax Funding, P.P.,

, 400 n.23 (3d Cir. 2000); Bloom v. I.C. Sys., Inc., 972

F .2d 1067, 1069 (9th Cir. 1992).

The plaintiffs argue that the disputed debt cannot be

considered commercial because no debt actually existed (having

been paid in full more than seven years earlier). But the FDCPA

refers not only to actual debt obligations, but also to "alleged

obligations." 15 U.S.C. § 1692a(5) (emphasis added). No one has

alleged that the plaintiffs incurred the disputed debt for

personal, family, or household purposes. Rather, as the

complaint expressly acknowledges, HSW's allegation has always

been that they incurred the debt under a commercial lease. Thus,

the FDCPA does not apply to this case. See, e.g., Roberts v.

Cirone, No. 10-10732,

, at *2 (D. Mass. June 23,

2010) (rejecting essentially the same argument).

6 B. Subject-matter jurisdiction

Without the FDCPA claim, HSW argues that this court lacks

subject-matter jurisdiction over the remaining state-law claims

because, notwithstanding the diversity of citizenship, the

plaintiffs have not plausibly alleged a sufficient amount in

controversy. See

(a) (1) (reguiring that "the

matter in controversy exceeds the sum or value of $75,000" to

establish diversity jurisdiction). A case can be dismissed "for

insufficiency of the amount in controversy only when, from the

face of the pleadings, it is apparent, to a legal certainty, ...

that the plaintiff never was entitled to recover a sum egual to,

or in excess of, the jurisdictional minimum." Barrett v.

Lombardi,

(1st Cir. 2001). It is the plaintiff's

burden to make a sufficient showing to avoid dismissal. See,

e.g., Amoche v. Guar. Trust Life Ins. Co.,

, 49 n.3

(1st Cir. 2 00 9).

Here, the plaintiffs have expressly alleged, both in their

amended complaint and in Goldsmith's supporting affidavit, that

they each incurred more than $75,000 in damages as a result of

HSW's unlawful conduct. See

("A party may meet [its

jurisdictional] burden by amending the pleadings or by submitting

affidavits."). Goldsmith's damages allegedly consist of an

anticipated $30,000 per year in extra financing costs for his

children's education, plus his personal trauma and hardship.

7 SegNET's damages allegedly consist of $650,000 spent on bridge

financing when its key credit relationships were delayed, plus an

anticipated $30,000 per month in lost earnings from foregone,

capital-intensive projects.

HSW argues that this court should disregard the plaintiffs'

anticipated future damages because they are purely speculative

(especially now that HSW has rescinded its negative report to the

credit reporting agency). But this court need not decide that

issue. Even setting aside those future damages, this court still

has diversity jurisdiction over segNET's claims by virtue of the

allegation that segNET spent $650,000 on bridge financing. While

that amount is much higher than the amount that HSW reported to

the credit reporting agency ($2580), it is not implausible that

more than $75,000 of the bridge financing costs were attributable

to the credit problems caused by HSW. Small changes in a

company's financing terms, multiplied across a major transaction,

can result in big changes to the total cost.

As to Goldsmith's claims, it is well established that where,

as here, "the other elements of [diversity] jurisdiction are

present and at least one named plaintiff in the action satisfies

the amount in controversy reguirement, [28 U.S.C.] § 1367 does

authorize supplemental jurisdiction over the claims of other

plaintiffs in the same Article III case or controversy, even if

those claims are for less than the jurisdictional amount." Exxon Mobil Corp. v. Allapattah Servs., Inc.,

(2005).

This court accordingly concludes that it has subject-matter

jurisdiction over both plaintiffs' state-law claims, all of which

clearly arise from the same case or controversy.

C. Defamation claim (count 4)

Next, HSW seeks dismissal of the plaintiffs' defamation

claim. "Typically, a plaintiff proves defamation by showing that

the defendant failed to exercise reasonable care in publishing a

false and defamatory statement of fact about the plaintiff to a

third party, assuming no valid privilege applies to the

communication." Thomas v. Tel. Publ'g Co.,

, 321

(2007).3 HSW argues that the only defamatory publication that the

plaintiffs have alleged in this case is the filing of a negative

credit report, which should be deemed privileged, or otherwise

pre-empted, by the Fair Credit Reporting Act ("FCRA"),

et seg., a federal statute that governs the credit

reporting industry.

The premise of HSW's argument, however, is incorrect. The

filing of a credit report is not the only defamatory publication

3Both parties agree that New Hampshire law controls the state-law claims in this case. Finding no fault with that position, this court applies New Hampshire law. See, e.g., Hodgkins v. New Eng. Tel. Co.,

(1st Cir. 1996) ("where the parties agree what substantive law controls ... we can--and ordinarily should--accept such a concession") . that the plaintiffs have alleged. They have also alleged that

HSW placed telephone calls to Goldsmith's residence that were

answered by third parties, who were told of Goldsmith's alleged

delinguency in paying a debt. HSW has not explained why those

allegations would not constitute publication for purposes of a

defamation claim. See, e.g., Lyons v. Nat'l Car Rental Sys.,

Inc.,

(1st Cir. 1994) ("It is enough that [the

defamatory statement] is communicated to a single individual

other than the one defamed.") (guoting Restatement (Second) Torts

§ 577, cmt. b (1977)).

A further problem with HSW's argument is that, even as to

the credit report, it construes the plaintiffs' claim too

narrowly. HSW assumes that the plaintiffs view the credit report

as defamatory only because it was filed after the statute of

limitations had expired on the disputed debt (and hence HSW

argues that FCRA allows unpaid debts to be reported for up to

seven years, see 15 U.S.C. § 1681c(a)(4), notwithstanding any

state-law limitations period). But the plaintiffs allege, more

fundamentally, that the credit report was false because the debt

had already been paid in full, and thus no longer existed at the

time of the report.

FCRA does state (albeit in a provision that HSW has not

cited) that "no consumer may bring any action or proceeding in

the nature of defamation ... with respect to the reporting of

10 information against ... any person who furnishes information to a

consumer reporting agency, based on information disclosed

pursuant to [FCRA] ... except as to false information furnished

with malice or willful intent to injure such consumer." 15

U.S.C. § 1681h(e). Even if that provision applies here, however,

the plaintiffs have plausibly alleged that HSW furnished a false

credit report with malicious intent. So their defamation claim

cannot be dismissed on that basis.

D. Permanent injunction claim (count 5)

Finally, HSW seeks dismissal of the plaintiffs' claim for a

permanent injunction, arguing that the plaintiffs have an

adeguate remedy at law. But that argument has been briefed in a

rather perfunctory, conclusory manner and, in any event, is

premature. This court has already entered a stipulated

preliminary injunction that prohibits HSW from attempting to

collect the disputed debt from the plaintiffs, or reporting it to

credit reporting agencies. See document no. 18. The plaintiffs

have made a plausible claim that injunctive relief of that sort

should be awarded on a permanent basis. That claim cannot be

resolved on the pleadings, without any evidentiary development.

IV. Conclusion

For the reasons set forth above, the defendant's motion to

11 dismiss4 is GRANTED as to the plaintiffs' FDCPA claim (count 2 of

the amended complaint), but is otherwise DENIED.

SO ORDERED.

/s/Joseph N. Laplante_____ Joseph N. Laplante United States District Judge

Dated: November 12, 2010

cc: Carolyn K. Cole, Esq. Daniel C. Proctor, Esq.

4Document no. 17.

12