Stinson v. Houslanger & Associates PLLC

Background

Barbara Stinson sued Houslanger & Associates, PLLC, Todd Houslanger, Matthew Blake, Harry Torres, Bryan Bryks, and Demi, LLC. She alleged violations of the Fair Debt Collection Practices Act (FDCPA) and New York law. Torres did not appear, and the Clerk entered a certificate of default against him. The other defendants answered.

According to the complaint, Demi sued Stinson in 2005 to collect $8,745.12 on an assigned Discovery credit-card debt. Stinson alleged that she never had a Discovery account and was never served with the lawsuit. She further alleged that Torres signed a false affidavit of service, which Houslanger and Demi used to obtain a default judgment in 2006, even though the lawsuit was filed after the applicable limitations period.

Stinson alleged that she learned of the judgment in 2018 when defendants sought to garnish her wages. After she challenged the collection in state court, Houslanger sent her a letter saying that Demi had decided to drop the case and enclosed a proposed stipulation. The stipulation would have vacated the judgment and discontinued the case, but it also required Stinson to release claims relating to the account and collection efforts, including claims under the FDCPA and New York law. Stinson did not sign it. The state court later vacated the judgment.

Motions and legal standards

Houslanger & Associates, Todd Houslanger, Matthew Blake, and Bryan Bryks moved for partial judgment on the pleadings under Federal Rule of Civil Procedure 12(c), arguing that the letter and stipulation were not deceptive. Demi joined that motion and separately sought judgment on the pleadings on all claims against it.

A Rule 12(c) motion may be granted when the pleadings show that no material factual dispute remains and the moving party is entitled to judgment as a matter of law. The court applies the same standard used for a motion claiming that the complaint fails to state a legally sufficient claim: it accepts the nonmoving party’s allegations as true and draws reasonable inferences in that party’s favor.

Claims based on the letter and stipulation

The court held that the FDCPA prohibits false, deceptive, or misleading representations in debt collection. Under the standard applied here, a representation is deceptive if it could reasonably be understood in more than one way and at least one reasonable interpretation is inaccurate. The court also considered New York General Business Law § 349, which prohibits materially deceptive practices that injure consumers, and New York Judiciary Law § 487, which addresses attorney deceit or collusion intended to deceive a court or party.

Stinson argued that the letter was misleading because it suggested she could avoid going to court without explaining that the stipulation would require her to give up nearly all claims against defendants. She also argued that the release was hidden in a dense paragraph of legal language. Defendants argued that the release was clearly stated in the stipulation.

The court concluded that the stipulation was precise and had only one reasonable meaning: signing it would release Demi and Houslanger from claims related to the debt and collection efforts, including FDCPA and New York-law claims. The court found that the letter did not contradict the stipulation and that the stipulation was not ambiguous. Although the court said defendants could have been more forthcoming and described their conduct as potentially improper, it held that the conduct was not actionable under the FDCPA or Section 349.

As to Section 487, the court explained that courts generally require a chronic, extreme pattern of legal delinquency. Stinson presented evidence of similar conduct involving at least two other people, but the court held that the conduct involving three people did not meet that standard. The court also noted that the motion addressed only the letter and stipulation and that Section 487 might be more applicable to other alleged conduct, such as using fraudulent affidavits of service and filing time-barred complaints.

Demi’s separate arguments

Demi argued that it was only a passive debt buyer, that any liability was merely derivative of other defendants’ conduct, and that it did not draft the stipulation or execute the underlying judgment.

The court rejected Demi’s argument that its alleged status as a debt owner prevented FDCPA liability at the pleading stage. The court explained that the FDCPA’s definition of debt collector includes entities whose principal business purpose is collecting debts, even if they use third parties to collect them. Stinson alleged that Demi bought charged-off consumer debts and sought to collect them directly and through collection law firms. The court held that these allegations were sufficient for Stinson’s direct FDCPA claim to proceed.

Disposition

The court granted the Houslanger defendants’ motion for partial judgment on the pleadings. It granted in part and denied in part Demi’s motion: claims against Demi based on the allegedly misleading use of the letter and stipulation were dismissed, while Demi otherwise remained in the case. Stinson’s remaining allegations, including those concerning the time-barred lawsuit, the allegedly false affidavit of service, and defendants’ response to her efforts to vacate the judgment, remained pending.