Freeman v. Ally Financial, Inc.

Background

Patricia Freeman bought a 2013 Hyundai Elantra for personal, family, or household use and financed the purchase through a retail installment contract that the dealership assigned to Ally Financial Inc. The contract required 60 monthly payments of $227.05 and allowed repossession after late payment. Freeman alleged that she made late, partial, or irregular payments beginning in 2015 and that Ally repeatedly accepted them.

In June 2019, Ally hired Resolvion, LLC, which hired 11th Hour Recovery, Inc. to repossess the vehicle. Freeman alleged that 11th Hour entered the locked parking garage at her apartment complex and took the vehicle. The defendants later refused to release it, and Ally sold the vehicle and kept the sale proceeds.

Freeman filed a putative class action and asserted five claims: a federal Fair Debt Collection Practices Act claim based on repossession without a present legal right to possess the vehicle; a Minnesota wrongful-repossession claim; conversion; breach of the peace; and invasion of privacy. The defendants moved to dismiss the amended complaint for failure to state a legally sufficient claim.

Analysis

Fair Debt Collection Practices Act, Count I

The Fair Debt Collection Practices Act prohibits a debt collector from repossessing collateral when it has no present right to possess it under an enforceable security interest. Whether that right existed depended on Minnesota law.

Minnesota’s Supreme Court had held in Cobb that a creditor that repeatedly accepts late payments may have to notify the debtor that strict compliance with the contract will be required before repossession. The defendants argued that later Minnesota law had eliminated or limited that notice requirement. The court agreed that, under Minnesota’s Credit Agreement Statute and the Minnesota Supreme Court’s decision in Figgins, the repeated acceptance of late payments alleged by Freeman amounted to an informal credit agreement involving a financial accommodation or forbearance.

The statute generally bars an action based on a credit agreement unless the agreement is written, signed, and meets other statutory requirements. The court concluded that Freeman’s federal claim depended on proving an unwritten arrangement under which Ally had agreed to excuse timely payments. Because Minnesota law barred such an action, the court held that the claim was unavailable under the Credit Agreement Statute. The court also concluded that Freeman had not plausibly alleged justifiable reliance on Ally’s acceptance of late payments because the contract and a late-payment notice expressly warned that accepting late payments did not excuse future lateness or prevent repossession.

The motions to dismiss Count I were granted, and the claim was dismissed with prejudice.

Wrongful Repossession and Conversion, Counts II and III

Freeman’s Minnesota wrongful-repossession and conversion claims also depended on the defendants’ alleged failure to provide the same Cobb notice. For the reasons given in addressing Count I, the court concluded that Freeman had not plausibly alleged a duty to provide that notice. The motions to dismiss Counts II and III were granted, and both claims were dismissed with prejudice.

Breach of the Peace, Count IV

Minnesota law permits a secured party to repossess collateral without going to court only if it does so without breaching the peace. The court explained that whether conduct was reasonable depends on fact-intensive considerations, including where the repossession occurred, the debtor’s consent, reactions of third parties, the type of premises entered, and whether the creditor used deception.

Freeman alleged that the defendants gained unauthorized access to a secured and locked residential parking garage through force or deceit. She also alleged that the garage had limited access and that she paid an additional amount for use of a secure personal parking space. The court held that these allegations, if proven, could establish that the repossession was unreasonable and therefore breached the peace. The motions to dismiss Count IV were denied.

Invasion of Privacy, Count V

Freeman alleged that the defendants invaded her privacy by entering the locked garage and repossessing the vehicle through an alleged breach of the peace, as well as by telling third parties that the vehicle could lawfully be repossessed.

The court concluded that the allegations concerning disclosures to credit-reporting agencies were insufficient because Freeman did not explain how those allegations could support a claim despite the Fair Credit Reporting Act’s preemption provisions. But the court held that the allegations about entering the secured garage and taking the vehicle raised factual questions about whether the conduct was an intrusion that would be highly offensive to a reasonable person and whether Freeman had a legitimate expectation of privacy. Those questions could not be resolved at the motion-to-dismiss stage. The motions to dismiss Count V were denied.

Order

Judge Wilhelmina M. Wright granted in part and denied in part the defendants’ motions to dismiss. The motions were granted in part as to Counts I, II, and III, and those claims were dismissed with prejudice. The motions were denied in part as to Counts IV and V.