United States District Court, District of Columbia
P. Mehta United States District Judge.
case is born out of two student loans issued by Defendant
HSBC Bank, one to Plaintiff Dewaine Quick and the other to
Plaintiff Lynn Davis, as co-signer for her niece. Although
the two loans are unrelated, Plaintiffs' stories are much
the same. After each loan went into default, Defendant
EduCap, represented by Defendant Weinstock, Friedman &
Friedman, filed a collection action against each Plaintiff in
D.C. Superior Court. In those cases, EduCap sought the
balance of the loan, unpaid interest, and attorneys'
fees. Quick never appeared, and eventually the D.C. Superior
Court entered a default judgment against him. Davis, on the
other hand, appeared and agreed to entry of a consent
judgment against her.
two years later, Plaintiffs filed this case as a class
action, alleging that EduCap, Weinstock, and HSBC
(collectively, “Defendants”) violated state and
federal law through their joint debt-collection activities.
Plaintiffs' suit centers on a single alleged
transgression: that EduCap falsely misrepresented in the
collection actions that EduCap, as opposed to HSBC, had
entered into the loan agreements with Plaintiffs. That
falsehood, Plaintiffs maintain, enabled EduCap to foreclose
on their defaulted loans when it had no right to do so.
EduCap repeated this unfair debt collection practice,
according to Plaintiffs, in state courts throughout the
matter is before the court on Defendants' motions to
dismiss and Plaintiffs' motion for leave to amend their
complaint. Defendants argue that this suit must be dismissed
for two primary reasons: (1) the Rooker-Feldman
doctrine divests the court of subject-matter jurisdiction;
and (2) the doctrine of res judicata precludes
Plaintiffs' claims. Additionally, Defendants move to
dismiss all causes of action for failure to state a claim and
a subset of them for lack of standing. For the reasons that
follow, Defendants' motions to dismiss are granted, and
Plaintiffs' motion for leave to amend their complaint is
denied as futile.
case arises out of two student loans taken out more than a
decade ago. On July 2, 2007, Plaintiff Lynn Davis co-signed a
student loan issued by Defendant HSBC to her niece.
See Pls.' Mot. for Leave to File Second Am.
Compl., ECF No. 24, Second Am. Class Compl., ECF No. 24-1
[hereinafter Second Am. Compl.], ¶¶ 25-27. The loan
agreement obligated Davis, as cosigner, to repay the amount
of the loan and interest to HSBC, see id.
¶¶ 26-27, and identified Defendant EduCap as the
loan servicer, see id. ¶ 39. See also
Pls.' Mot. for Class Cert., ECF No. 12, Ex. B, ECF No.
12-3 (copy of Verified Complaint against Davis) [hereinafter
Davis Compl.]. Plaintiff Dewaine Quick's story is
similar. Quick took out a student loan from HSBC for $16, 200
on July 30, 2007. Second Am. Compl. ¶¶ 18-20. The
loan agreement obligated Quick to repay the amount of the
loan with interest to HSBC, id. ¶¶ 19-20,
and identified EduCap as the loan servicer, see id.
¶ 39. See also Pls.' Mot. for Class Cert.,
Ex. C, ECF No. 12-4 (copy of Verified Complaint against
Quick) [hereinafter Quick Compl.].
Plaintiffs obtained these loans, EduCap, HSBC, and other
private lenders were part of a “partnership”
created for the purpose of disbursing student loans, which
Plaintiffs refer to as the “L2L” partnership.
Second Am. Compl. ¶ 59. At the same time, EduCap
sponsored a trust entity known as the L2L Education Loan
Trust 2006-1 (“the L2L Trust”), which was an
asset-backed security that held a pool of direct-to-consumer
student loans originated by various private banks. See
id. ¶ 60. The L2L Trust operated in the following
manner: HSBC sold to EduCap student loans that it had
originated, and EduCap in turn conveyed legal title to those
loans to the L2L Trust. Id. ¶ 65. The Trust
then issued securities that were backed by the future
receivables on the underlying student debt. Id. This
arrangement allowed the L2L Trust's creators-which
included HSBC and EduCap-“to convert future receivables
on [student] loans into immediate cash while, at the same
time, insulating HSBC and EduCap from potential risk.”
Id. ¶ 63. Under this arrangement, HSBC would
receive money when it sold its student loans to EduCap,
EduCap would receive money when it transferred title to the
L2L Trust, and the L2L Trust would receive money from
investors, whose return was based on the expected future
stream of student loan repayment. Id. ¶ 67.
financial crisis of 2007, however, changed everything. At
that point, according to Plaintiffs, “the
Defendants' plan began to unravel in a failure of
colossal proportions.” Id. ¶ 68. Market
conditions rendered EduCap “unable” to buy
student loans. Id. ¶ 69. To “avoid
financial collapse, ” HSBC bought some of its loans
back from EduCap, and it retained, sold, or securitized other
loans, “thereby generating millions of dollars to
improve its balance sheet and financial performance
ratios.” See id.
Quick defaulted on his student loan, leading EduCap to file a
debt collection action in D.C. Superior Court. Id.
¶ 21-22. Defendant Weinstock, Friedman & Friedman
(“Weinstock”), the law firm that filed the
complaint, identified “EDUCAP Inc.” as the
plaintiff, id. ¶ 22, even though EduCap was
neither the loan originator nor a party to the promissory
note, see id. ¶¶ 40-41; see also
Quick Compl. The complaint against Quick sought repayment of
the loan balance and pre-judgment interest. Second Am. Compl.
¶ 23; Quick Compl. ¶ 2. It also demanded payment of
an additional $2, 263.01, as a “15% contingency-based
attorney's fee” based on the balance of the loan,
id., even though the terms of Quick's promissory
note did not allow for the collection of such fees,
see Second Am. Compl. ¶ 24.
story is much the same. After the primary borrower defaulted,
Weinstock filed a debt collection action against Davis in
D.C. Superior Court on December 4, 2013. Id. ¶
28-29; see generally Davis Compl. As in the action
against Quick, the Davis lawsuit incorrectly listed
“EDUCAP Inc.” as the plaintiff. Second Am. Compl.
¶ 29; see id. ¶¶ 40-41. And, as with
the debt collection action against Quick, Weinstock's
lawsuit against Davis sought a 15 percent contingency-based
attorney's fee, amounting to $785.50, even though that
fee was not authorized by the terms of the promissory note.
See id. ¶¶ 30-31; Davis Compl. ¶ 2.
allege that these debt collection actions were premised on a
lie: that EduCap had power to bring them. To establish
EduCap's standing, Weinstock attached to both the Quick
and Davis complaints a sworn affidavit from EduCap employee
Marcus Maiorca. The Maiorca Affidavit falsely stated that
Quick and Davis had “entered into a written promissory
note with EduCap, ” when in fact HSBC had
issued the loans and EduCap did not own the loans at the
time. See Second Am. Compl. ¶¶ 35, 40-41;
Quick Compl. at 4; Davis Comp. at 4. This affidavit, filed in
thousands of other debt collection actions brought by EduCap,
was used to “trick courts and consumers across the
country into believing that EduCap [was] the actual creditor,
or ha[d] authority to sue on behalf of HSBC.” Second
Am. Compl. ¶ 55. At the time of the actions against
Quick and Davis, Weinstock “only represented
EduCap”; it had no attorney-client or employment
relationship with HSBC. Id. ¶ 38.
deceitful conduct continued during the pendency of the
collection actions, as Weinstock repeatedly sought to change
the named plaintiff. In 2015, Weinstock moved to change the
plaintiff in the case against Quick from “EduCap”
to “EduCap, Inc. on behalf of HSBC Bank USA,
N.A.” Id. ¶ 42. The Superior Court
entered a default judgment against Quick two weeks later.
Id. ¶ 43. But in 2017 Weinstock once again
asked permission to change the named plaintiff in Quick's
case-this time, to “HSBC Bank, USA, N.A”
Id. ¶ 44. As for Davis, she agreed to entry of
a consent judgment on July 16, 2015, whereby she promised to
pay $5 each month directly to Weinstock. Id. ¶
45. Davis has paid Weinstock $5 a month ever since. See
id. In 2017, Weinstock successfully moved to change the
named plaintiff against Davis to “HSBC Bank USA,
N.A.” Id. ¶ 46.
two years later, this federal action followed. Plaintiffs
filed a class-action complaint on June 26, 2017, which they
amended as of right on July 10, 2017. See Compl.,
ECF No. 1; Am. Compl., ECF No. 6. The Amended Complaint
asserts claims under the federal Racketeer Influenced and
Corrupt Practices Act (“RICO”), 18 U.S.C.
§§ 1962 et seq.; the federal Fair Debt
Collection Practices Act (“FDCPA”), 15 U.S.C.
§§ 1692 et seq.; the District of Columbia
Debt Collection Law, D.C. Code § 28-3814; as well as
common law claims of abuse of process and unjust enrichment.
See generally Am. Compl. Defendants moved to dismiss
the Amended Complaint on August 31, 2017. See
HSBC's Mot. to Dismiss, ECF No. 15 [hereinafter
HSBC's Mot.]; EduCap & Weinstock's Mot. to
Dismiss, ECF No. 17 [EduCap & Weinstock's Mot.].
November 17, 2017, after briefing on Defendants' motions
had concluded, Defendant HSBC sent Plaintiffs a draft Rule 11
sanctions motion, asserting that the “foundational
factual predicate” for Plaintiffs' First Amended
Complaint “was unequivocally false.” Def. HSBC
Bank USA, N.A.'s Opp'n to Pls.' Mot. for Leave to
File Second Am. Compl., ECF No. 26 [hereinafter HSBC's
Opp'n], at 4-5; see Pls.' Mot. for Leave to
file Second Am. Compl., at 1, 3; id., Ex. B., ECF
No. 24-2 [hereinafter HSBC's Draft Rule 11 Mot.]. HSBC
accused Plaintiffs' counsel of possessing “key
facts that refuted his theory that Plaintiffs' loans were
securitized.” HSBC's Draft Rule 11 Mot. at 1. More
specifically, according to HSBC, counsel had learned through
discovery in another case that “Plaintiffs' loans
were owned by HSBC and never securitized.” Id.
HSBC did not, however, file a Rule 11 sanctions motion.
on December 5, 2017, Plaintiffs moved to amend their
complaint a second time, seeking to add “facts and
claims arising from recent admissions by HSBC” in its
draft Rule 11 memorandum. Pls.' Mot. for Leave at 1.
Plaintiffs' motion identifies two such admissions: (1)
that HSBC bought back Davis's loan from EduCap in
December 2008, and (2) that HSBC has held Quick's loan
since it originated. Id. at 5. These statements,
Plaintiffs claim, show that “Defendants engaged in
unlawful debt collection by misrepresenting EduCap as the
actual creditor.” Pls.' Mot. for Leave at 6;
see also id. at 5. Plaintiffs' Second Amended
Complaint thus proposes to add allegations that HSBC owned
Plaintiffs' loans at the time Weinstock filed the D.C.
Superior Court actions. See Second Am. Compl.
¶¶ 53-54; see also EduCap &
Weinstock's Opp'n to Pls.' Mot. for Leave to File
Second Am. Compl., ECF No. 25 [hereinafter EduCap &
Weinstock's Opp'n], Ex. B, ECF No. 25-1 (redlined
copy of Plaintiffs' Second Amended Complaint)
[hereinafter Redlined Second Am. Compl.].
court held a hearing on the pending motions on April 18,
2018, and now turns to the merits.
Dismissal Under Rule 12(b)(1)
court begins with three jurisdictional issues: (1) whether
the court lacks subject-matter jurisdiction over
Plaintiffs' claims under the Rooker-Feldman
doctrine; (2) whether both Plaintiffs lack standing to sue
HSBC; and (3) whether Plaintiff Quick possesses standing to
assert any claims. Under Rule 12(b)(1) of the Federal Rules
of Civil Procedure, the plaintiff bears the burden of
establishing that the court has subject-matter jurisdiction.
See Lujan v. Defenders of Wildlife, 504 U.S. 555,
561 (1992). In deciding a Rule 12(b)(1) motion, the court
“may consider materials outside the pleadings, ”
but “must still accept all of the factual allegations
in the complaint as true.” Jerome Stevens Pharm.,
Inc. v. Food & Drug Admin., 402 F.3d 1249, 1253-54
(D.C. Cir. 2005) (citation and alteration omitted).
“Because subject-matter jurisdiction focuses on the
court's power to hear the plaintiff's claim, a Rule
12(b)(1) motion imposes on the court an affirmative
obligation to ensure that it is acting within the scope of
its jurisdictional authority.” Grand Lodge of
Fraternal Order of Police v. Ashcroft, 185 F.Supp.2d 9,
13 (D.D.C. 2001). Accordingly, “‘the
plaintiff's factual allegations in the complaint will
bear closer scrutiny in resolving a 12(b)(1) motion' than
in resolving a 12(b)(6) motion for failure to state a
claim.” Id. (quoting 5A Charles A. Wright
& Arthur R. Miller, Fed. Prac. & Proc. Civ. 2d §
reasons that follow, the court finds that: (1) it lacks
jurisdiction under the Rooker-Feldman doctrine to
hear Plaintiffs' RICO, unjust enrichment, and abuse of
process claims, but has jurisdiction as to their federal and
District of Columbia unfair debt collection statutory claims;
(2) Plaintiffs lack standing to pursue claims against HSBC;
and (3) Plaintiff Quick has standing to pursue some but not
all of his claims against EduCap and Weinstock.
court begins with Defendants' argument that
Plaintiffs' lawsuit is a de facto challenge to final
state court judgments-the District of Columbia collection
actions-and, as a result, this court lacks subject-matter
jurisdiction under the Rooker-Feldman doctrine.
HSBC's Mot., Mem. in Supp., ECF No. 15-1 [hereinafter
HSBC's Mem.], at 9-13; EduCap & Weinstock's Mot.,
Mem. in Supp., ECF No. 17-1 [hereinafter EduCap &
Weinstock's Mem.], at 10-12; see also EduCap
& Weinstock's Opp'n at 10-11; HSBC Opp'n at
7-8. Because Plaintiffs do not expressly seek as relief the
undoing of the D.C. Superior Court judgments, Defendants
argue that Plaintiffs' current action is
“inextricably intertwined” with the D.C. Superior
Court judgments because the “core” of their
federal claims “is that EduCap did not have standing to
pursue the collection actions.” HSBC's Mem. at
10-11; see also EduCap & Weinstock's Mem. at
7. They believe the suit is tantamount to a request to undo
the D.C. Superior Court judgments because, in order to
succeed on their claims, Plaintiffs “must demonstrate
that the D.C. Superior Court wrongly entered judgments in
favor of EduCap despite EduCap's purported lack of
standing.” HSBC's Mem. at 10-11; EduCap &
Weinstock's Mem. at 7. Plaintiffs counter that
Rooker-Feldman does not apply here because their
challenge is to Defendants' pre-judgment unfair
debt collection practices- namely, the drafting of the false
Maiorca affidavit-rather than the D.C. Superior Court
judgments themselves. See Pls.' Omnibus
Opp'n to Mots. to Dismiss, ECF No. 20, Pls.' Mem. in
Supp., ECF No. 20-1 [hereinafter Pls.' Opp'n], at
9-11; Pls.' Omnibus Reply Br., ECF No. 27 [hereinafter
Pls.' Reply]. Alternatively, Plaintiffs argue that,
because Defendants procured the D.C. Superior Court judgments
by fraud or deception, Rooker-Feldman does not
divest this court of jurisdiction. See Pls.'
Opp'n at 10 n.69.
Rooker-Feldman doctrine hails from the only two
Supreme Court cases in which the Court has applied it:
Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923),
and District of Columbia Court of Appeals v.
Feldman, 460 U.S. 462 (1983). The doctrine is rooted in
28 U.S.C. § 1257, a statute that vests sole authority in
the Supreme Court to review state court judgments. See
Skinner v. Switzer, 562 U.S. 521, 531 (2011). In both
Rooker and Feldman, the plaintiffs
“asked the District Court to overturn the injurious
state-court judgment, ” and in both cases the Court
held that “District Courts lacked subject-matter
jurisdiction over such claims.” Id.
the Rooker and Feldman cases, the Supreme
Court has emphasized that the doctrine occupies a
“narrow ground.” Exxon Mobil Corp. v. Saudi
Basic Indus. Corp., 544 U.S. 280, 284 (2005); see
Croley v. Joint Comm. on Judicial Admin., No. 15-5080,
2018 WL 3320864, at *4 (D.C. Cir. July 6, 2018). In Exxon
Mobil, the Court instructed that the doctrine “is
confined to cases brought by state-court losers complaining
of injuries caused by state-court judgments rendered before
the federal district court proceedings commenced and inviting
district court review and rejection of those
judgments.” 544 U.S. at 284. This limited construction
of Rooker-Feldman means that district courts do not
lack jurisdiction “simply because a party attempts to
litigate in federal court a matter previously litigated in
state court.” Id. at 293. Rather, “[i]f
a federal plaintiff ‘present[s] some independent claim,
albeit one that denies a legal conclusion that a state court
has reached in a case to which he was a party . . ., then
there is jurisdiction and state law determines whether the
defendant prevails under principles ...