Pearl v. Financial Recovery Services, Inc.

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

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JOSEPH CICCONE, individually and

on behalf of all others similarly

situated,

Plaintiff,

MEMORANDUM & ORDER

-against- 21-CV-2428(JS)(JMW)

CAVALRY PORTFOLIO SERVICES, LLC,

and CAVALRY SPV I, LLC,

Defendants.

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MICHAEL PEARL,

Plaintiff,

-against- 21-CV-3764(JS)(AYS)

FINANCIAL RECOVERY SERVICES, INC.,

Defendant.

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APPEARANCES

For Plaintiff

Joseph Ciccone: David M. Barshay, Esq.

Barshay, Rizzo, & Lopez, PLLC

445 Broadhollow Road, Suite CL18

Melville, New York 11747

For Plaintiff

Michael Pearl: Raymond Nardo, Esq.

Raymond Nardo, P.C.

129 Third Street

Mineola, New York 11501

For Defendants

Cavalry Portfolio

Services, LLC &

Cavalry SPV I, LLC: Donald S. Maurice, Jr., Esq.

Thomas R. Dominczyk, Esq.

Maurice Wutscher LLP

5 Walter Foran Boulevard, Suite 2007

Flemington, New Jersey 08822

For Defendant

Financial Recovery

Services, Inc.: Michael Thomas Etmund, Esq.

Moss & Barnett

150 South Fifth Street, Suite 1200

Minneapolis, Minnesota 55402

SEYBERT, District Judge:

The cases addressed in this order invoke the so-called

“mailing vendor” theory of liability under the Fair Debt Collection

Practices Act (“FDCPA”). After the Supreme Court issued its

decision in TransUnion, LLC v. Ramirez, this Court ordered

Plaintiffs in these actions to demonstrate how the allegations in

their respective complaints could establish Article III standing

under TransUnion. Having considered their responses, the Court

concludes that Plaintiffs lack standing in these cases.

Accordingly, for the reasons set forth below, the Complaints are

DISMISSED.

BACKGROUND

I. Facts

Plaintiffs allege that Defendants-debt collectors

violated the FDCPA by using third-party vendors to print and mail

Plaintiffs “dunning” letters to advise them of their debt

obligations. (Pearl v. Fin. Recovery Servs., Inc. (“The Pearl

Action”), No. 21-CV-3764 (E.D.N.Y. 2021); Ciccone v. Cavalry

Portfolio Servs., LLC (“The Ciccone Action”), No. 21-CV-2428

(E.D.N.Y. 2021).) Plaintiffs allege Defendants conveyed “private

information” to third-party vendors -- including Plaintiffs’ names

and addresses; status as debtors; the precise amounts of their

alleged debts; the entities to which Plaintiffs allegedly owed

debts; and information that Plaintiffs defaulted on the debts --

so the vendors could draft and mail collection letters to each

Plaintiff regarding his debt obligations. (The Pearl Action,

Compl., ECF No. 1, ¶¶ 2, 14-15; The Ciccone Action, Compl., ECF

No. 1, ¶¶ 25-27, 29-32.) According to Plaintiffs, Defendants’

conduct violates the FDCPA, which provides that, subject to several

exceptions not relevant here, “a debt collector may not

communicate, in connection with the collection of any debt,” with

anyone other than the consumer “without the prior consent of the

consumer given directly to the debt collector.” 15 U.S.C.

§ 1692c(b). Plaintiffs claim that this “unauthorized disclosure

of such private and sensitive information” harmed them. (The

Ciccone Action, Compl. ¶¶ 46, 62; The Pearl Action, Compl. ¶ 25

(“The communication of this legally protected information about

Plaintiff’s consumer debt to a third party harmed Plaintiff, and

Plaintiff’s reputation, by disclosing information about

Plaintiff’s repayment of debts, truthfulness, solvency, and

trustworthiness.”).)

The Ciccone Action, styled as a class action, also

alleges Defendants there violated a separate provision of the FDCPA

which prohibits the use of any false representation or deceptive

means to collect on a debt. (The Ciccone Action, Compl. ¶¶ 70-84

(alleging Defendants violated 15 U.S.C. § 1692e).) Specifically,

Plaintiff alleges that the collection letter he received failed to

specify which debt-collector entity -- Cavalry Portfolio Services,

LLC or Cavalry SPV I, LLC -- offered him a discount, in violation

of the least sophisticated consumer test. (Id. ¶¶ 75-79.)

Plaintiff alleges no facts to demonstrate how this alleged

statutory violation injured him.

II. Procedure

On October 4, 2021, this Court issued an order directing

the parties to brief the issue of Article III standing in the wake

of the Supreme Court’s decision in Transunion LLC v. Ramirez, 141

S. Ct. 2190 (June 21, 2021). (See Oct. 4, 2021 Order to Show Cause

(following In re FDCPA Mailing Vendor Cases, 2021 WL 3160794

(E.D.N.Y. July 23, 2021) (Brown, J.)).1 The parties in The Pearl

Action and The Ciccone Action complied with the Court’s directive,

filing letter responses addressing the standing issues raised

therein. (See The Pearl Action, Pl. Ltr, ECF No. 11, Defs. Ltr.,

ECF No. 12; The Ciccone Action, Pl. Ltr., ECF No. 20.) Plaintiffs

1 The following six cases were subject to the Order to Show Cause:

Ciccone v. Cavalry Portfolio Services, LLC, No. 21-CV-2428; Ford

v. Client Services, Inc., No. 21-CV-2588; Damian v. Commonwealth

Financial System, Inc., No. 21-CV-3604; Pearl v. Financial

Recovery Services, Inc., No. 21-CV-3764; Corea v. Radius Global

Solutions LLC, No. 21-CV-3765; and Ceron v. Midland Credit

Management, Inc., No. 21-CV-4257.

did not oppose dismissal in the remaining four actions.

DISCUSSION

I. Legal Standard

Article III standing requires the plaintiff to show

“(1) an ‘injury in fact,’ (2) a ‘causal connection’ between that

injury and the conduct at issue, and (3) a likelihood ‘that the

injury will be redressed by a favorable decision.’” Maddox v.

Bank of New York Mellon Trust Co., No. 19-CV-1774, 2021 WL 5347004,

at *3 (2d Cir. Nov. 17, 2021) (quoting Lujan v. Defs. of Wildlife,

504 U.S. 555, 560-61 (1992)). The issue in these cases is whether

Plaintiffs have met the injury-in-fact requirement.

“To demonstrate injury in fact, a plaintiff must show

the invasion of a [1] legally protected interest that is

[2] concrete and [3] particularized and [4] actual or imminent,

not conjectural or hypothetical.” Id. at *3 (quoting Strubel v.

Comenity Bank, 842 F.3d 181, 188 (2d Cir. 2016)). At issue here

is the requirement Plaintiffs show a concrete harm. As the Supreme

Court began in its recent TransUnion decision: “No concrete harm;

no standing.” 141 S. Ct. at 2200.

The plaintiffs in TransUnion consisted of a class of

8,185 individuals who alleged that TransUnion, a credit reporting

agency, violated the Fair Credit Reporting Act (“FCRA”) by failing

to use reasonable procedures to ensure the accuracy of their credit

files, as maintained internally by TransUnion. Id. Specifically,

TransUnion placed an alert on each plaintiffs’ respective credit

file indicating that his or her name was a “potential match” to a

name on the U.S. Treasury Department’s Office of Foreign Assets

Control list of “specially designated nationals” who threaten the

nation’s security, which includes “terrorists, drug traffickers,

or other serious criminals.” Id. at 2201. The plaintiffs also

claimed that TransUnion failed to adhere to the FCRA’s formatting

requirements in the mailings used to inform the plaintiffs about

the potential match. Id.

The Supreme Court first “considered the characteristics

that make a harm ‘concrete’ for purposes of Article III.” Maddox,

2021 WL 5347004, at *4 (quoting TransUnion, 141 S. Ct. at 2204).

To determine whether the plaintiff alleges a concrete harm

sufficient to confer standing, courts should consider “whether the

harm has a ‘close relationship’ to a harm traditionally recognized

as providing a basis for a lawsuit in American courts.”

TransUnion, 141 S. Ct. at 2204 (quoting Spokeo, Inc. v. Robins,

578 U.S. 330, 341 (2016)). “That inquiry asks whether plaintiffs

have identified a close historical or common-law analogue for their

asserted injury.” Id. The Court further observed that Congress’s

view may be “instructive” in determining whether a harm is

sufficiently concrete, although it cautioned that “an injury in

law is not an injury in fact.” Id. at 2204-05 (In the context of

Article III standing, “an important difference exists between

(i) a plaintiff’s statutory cause of action to sue a defendant

over the defendant’s violation of federal law, and (ii) a

plaintiff’s suffering concrete harm because of the defendant’s

violation of federal law.”).

Applying these requirements to the case at hand, the

Supreme Court found that a subset of the plaintiffs sufficiently

alleged standing. Id. at 2208. Specifically, the 1,853 class

members whose credit reports were disseminated to third-party

businesses could demonstrate standing, because they suffered a

harm with a “close relationship” with the reputational harm

associated with the tort of defamation. Id. at 2208-09. However,

for the remaining 6,332 class members whose credit files were

maintained by TransUnion but not provided to any potential

creditors during the class period, the Court held that they could

not establish standing by analogizing to the tort of defamation,

which requires publication of the alleged falsity. Id. at 2209-

10 (“Publication is ‘essential to liability’ in a suit for

defamation.”). Nor could those plaintiffs proceed by asserting

that they were exposed “to a material risk that the information

would be disseminated in the future to third parties and thereby

cause them harm.” Id. at 2210. According to the Court, this risk

would need to have caused the plaintiffs “some other injury” to

furnish Article III standing. Id. at 2211. Last, with respect to

the plaintiffs’ claim that TransUnion violated the FCRA by failing

to provide them with their complete credit files upon request, the

Court found that the plaintiffs failed to “demonstrate that they

suffered any harm at all from the formatting violations.” Id. at

2213 (emphasis in original).

II. Analysis

A. The Mailing-Vendor Theory

As Plaintiffs recognize, the TransUnion decision

“substantially and materially changed” a district court’s analysis

of Article III standing in statutory consumer law cases. (See The

Ciccone Action, Pl. Ltr. at 1.) In fact, sister courts, within

and without the Second Circuit, have dismissed FDCPA actions

invoking the mailing-vendor theory for lack of Article III

standing. See In re FDCPA Mailing Vendor Cases, 2021 WL 3160794,

at *5-6; Shields v. Prof’l Bureau of Collections of Maryland, Inc.,

No. 20-CV-2205, 2021 WL 4806383, at *3 (D. Kan. Oct. 14, 2021).

For substantially the same reasons as those persuasively set forth

in Judge Brown’s omnibus order dismissing several FDCPA cases

pursuing the mailing-vendor theory, the Court similarly concludes

that Plaintiffs in these actions have failed to allege a concrete

injury sufficient to confer Article III standing. Because the

caselaw in this context has developed since Judge Brown’s order,

the Court considers these developments.

First, Plaintiffs point to the Eleventh Circuit’s

decision in Hunstein v. Preferred Collection & Mgmt. Servs., Inc.

(“Hunstein I”), 994 F.3d 1341 (11th Cir. 2021), which sanctioned

the mailing-vendor theory. However, subsequent developments in

Hunstein undermine Plaintiffs’ reliance. Upon petition for

rehearing after the intervening Supreme Court decision in

TransUnion, the Hunstein I panel vacated the opinion on which

Plaintiffs rely. Hunstein v. Preferred Collection & Mgmt. Servs.,

Inc. (“Hunstein II”), No. 19-CV-14434, 2021 WL 4998980, 17 F.4th

1016 (11th Cir.), reh’g en banc granted, opinion vacated, 17 F.4th

1103 (11th Cir. 2021). And while the majority in Hunstein II

concluded that plaintiff’s mailing-vendor allegations could

establish Article III standing, that opinion was vacated pending

rehearing en banc. 17 F.4th 1103 (11th Cir. 2021). However the

Eleventh Circuit eventually rules, its decision does not bind this

Court, and at this juncture, the vacated opinions are of little

persuasive value.

In any event, the Court finds the facts in Hunstein

distinguishable from those alleged in these cases, rendering its

standing analysis inapposite. In Hunstein, the plaintiff incurred

a debt arising out of his minor son’s medical treatment. Hunstein

II, 2021 WL 4998980, at *2. Thus, the debt collector communicated

to the third-party vendor not only the plaintiff’s status as a

debtor and the balance of his debt, but also that the debt

concerned his son’s medical treatment and his son’s name. Id. As

a result, when the Hunstein II majority examined whether the

plaintiff alleged a “close historical or common-law analogue for

[his] asserted injury,” the majority analogized to the common-law

tort of “public disclosure of private facts,” pursuant to which

“[o]ne who gives publicity to a matter concerning the private life

of another is subject to liability to the other for invasion of

his privacy, if the matter publicized is of a kind that (a) would

be highly offensive to a reasonable person, and (b) is not of

legitimate concern to the public.” Id. at *7 (quoting RESTATEMENT

(SECOND) OF TORTS § 652D (1977)). Here, Plaintiffs do not allege

Defendants communicated to the third-party vendors “intensely

private information” like that at issue in Hunstein. Id.

Accordingly, it is “difficult to suggest” that the type of

information Defendants communicated to their third-party vendors,

such as Plaintiff’s name and address; Plaintiff’s status as a

debtor; or the precise amount of the alleged debt, “would be highly

offensive to a reasonable person.” In re FDCPA Mailing Vendor

Cases, 2021 WL 3160794, at *6 (“[I]t would be difficult to suggest,

using the ‘invasion of privacy’ analysis adopted in Hunstein, that

communication of purported non-payment of a relatively de minimis

debt to a mailing vendor constitutes a ‘matter publicized . . . of

a kind that . . . would be highly offensive to a reasonable

person.’”). Put otherwise, Plaintiffs are alleging a different

type of harm than that which would give rise to liability under

the common-law tort of public disclosure of private facts.2

There are additional problems with the Hunstein II

panel’s comparator analysis, as summarized by the dissent in that

case. 2021 WL 4998980, at *17-22 (Tjoflat, J., dissenting). For

example, at common law, the public disclosure of private facts

tort required the information at issue to be “publicized.”

RESTATEMENT (SECOND) OF TORTS § 652D cmt. A. According to the

allegations here, Plaintiffs’ debt-related information was

communicated to a third-party vendor, whose employees presumably

viewed it. But “[c]ommunication of a fact ‘to a small group of

persons is not publicity.’” Id. at *18. Rather, courts analyzing

this privacy tort have required “publicity in the broad, general

sense of the word ‘public.’” Id. (quoting Tureen v. Equifax, Inc.,

571 F.2d 411, 418 (8th Cir. 1978)). As such, the information at

issue here did not attain the requisite level of publicity.

The Court recognizes that TransUnion and Spokeo spoke of

a “close relationship” between the alleged injury and a harm

traditionally recognized as providing grounds for a lawsuit in

American courts, not an “exact duplicate.” TransUnion, 141 S. Ct.

at 2204. In the only Second Circuit decision to follow and apply

2 See RESTATEMENT (SECOND) OF TORTS § 652D cmt. A, illus. 1 (“A, a

creditor, writes a letter to the employer of B, his debtor,

informing him that B owes the debt and will not pay it. This is

not an invasion of B’s privacy under this Section.”).

TransUnion to date, the panel applied this test3 by examining

whether the “type” of harm alleged was “well established as

actionable at common law.” See Maddox, 2021 WL 5347004, at *6

(holding a lender’s delay in recording a mortgage satisfaction,

which “risks creating the false appearance that the borrower has

not paid the underlying debt and is thus more indebted and less

creditworthy,” causes the “type of reputational harm -- i.e., one

that flows from the publication of false information -- [that] is

well established as actionable at common law”); see also Melito v.

Experian Mktg. Sols., Inc., 923 F.3d 85, 93 (2d Cir.), cert. denied

sub nom. Bowes v. Melito, 140 S. Ct. 677 (2019) (“[T]he harms

Congress sought to alleviate through passage of the [Telephone

Communications Protection Act] closely relate to traditional

claims, including claims for ‘invasions of privacy, intrusion upon

seclusion, and nuisance.’”). This approach may involve

consideration of the common-law analogue’s “essential” or “key”

elements to ensure the alleged harm and analogue bear a close

resemblance. See TransUnion, 141 S. Ct. at 2209 (concluding that

plaintiffs’ alleged harm had no historical or common-law analog

3 To date, the Second Circuit has not embraced or otherwise

considered the degree-kind distinction used by other circuit

courts in this context, which asks whether the “alleged injury is

similar in kind to the harm addressed by a common-law cause of

action, not that it is similar in degree.” Hunstein II, 2021 WL

4998980, at *5-7 (summarizing circuit decisions applying the

degree-kind distinction).

where an element essential to liability under the proposed common-

law analog, defamation, was lacking); Maddox, 2021 WL 5347004,

at *6 (concluding the plaintiffs did not allege reputational harm

because they could not demonstrate communication of the harmful

information to a third party, as required to sustain a defamation

claim at common law); Hunstein II, 2021 WL 4998980, at *18-22

(Tjoflat, J., dissenting) (analyzing common-law comparator’s

essential elements); see also Melito, 923 F.3d at 93 (relying on

decisions from sister circuits that did not require the alleged

harm to be actionable at common law to be closely related). Thus,

by looking to the contours of the public disclosure of private

facts tort as it developed under the common law, the Court is not

demanding an exact duplicate, but rather looking for similarities

on which to hang its hat. Plaintiffs provide none.

Plaintiff in The Pearl Action also raises the concern

that the information the debt collector shared with the third party

could be compromised by a data breach. (Pl. Ltr. at 4.) It is

true that “a plaintiff’s knowledge that he or she is exposed to a

risk of future physical, monetary, or reputational harm could cause

its own current emotional or psychological harm.” TransUnion, 141

S. Ct. at 2211 n.7. But Plaintiffs must “plead enough facts to

make it plausible that they did indeed suffer the sort of injury

that would entitle them to relief.” Maddox, 2021 WL 5347004, at 6.

Here, there are no allegations in the Complaint that The Pearl

Action Plaintiff suffered a “separate concrete harm” as a result

of this exposure. TransUnion 141 S. Ct. at 2211.

Last, Plaintiffs argue, and the Court agrees, that the

Court must consider Congress’s view, which is “instructive” in

determining whether a harm is sufficiently concrete. TransUnion,

141 S. Ct. at 2204. Plaintiffs reference the congressional

findings embodied in the FDCPA’s preface, namely, the finding that

abusive debt collection practices contribute to “invasions of

individual privacy.” 15 U.S.C. § 1692(a). In this context, the

Court is hesitant to rely heavily on the congressional findings,

which are written in general, hortatory terms. Cf. National Org.

for Women, Inc. v. Scheidler, 510 U.S. 249, 260 (1994) (“We also

think that the quoted statement of congressional findings is a

rather thin reed upon which to base a requirement.”) This is

especially the case where other, more specific provisions of the

FDCPA condone the use of intermediaries to communicate with

debtors. As Judge Tjoflat reasoned in his dissenting opinion in

Hunstein II, the FDCPA presupposes debt collectors may use

telegrams to communicate with debtors, “even though that means the

contents of the telegram would be transmitted through a telegram

operator.” Hunstein II, 2021 WL 4998980, at *22-23 (Tjoflat, J.,

dissenting).4 Thus, the Court finds the judgment of Congress does

4 In fact, the Bureau of Consumer Financial Protection (“CFPB”)

recently found that “over 85 percent of debt collectors surveyed

not favor Plaintiffs. TransUnion, 141 S. Ct. at 2204-05 (“[U]nder

Article III, an injury in law is not an injury in fact.”).

B. Alleged Deceptive Practices

As noted supra, The Ciccone Action also alleges

Defendants violated a separate provision of the FDCPA by failing

to specify in their collection letter which debt-collector entity,

Cavalry Portfolio Services, LLC or Cavalry SPV I, LLC, offered

Plaintiff a discount, in violation of the least sophisticated

consumer test. However, Plaintiff has not alleged that he suffered

any harm at all from this violation. Plaintiff does not allege

that the wording confused or distressed him, let alone that he

relied on it to his detriment in any way, or that he would have

availed himself to the discount had the wording been clearer. Cf.

TransUnion 141 S. Ct. at 2213. “Without any evidence of harm

caused by the format of the mailings, these are ‘bare procedural

violation[s], divorced from any concrete harm,’” which do not

suffice for Article III standing. Id.

by the Bureau reported using letter vendors.” Thus, as Judge

Tjoflat reasoned, Congress’s view can also be gleaned from the

fact that the CFPB, which has the authority to issue rules under

the authority of the FDCPA, issued new rules that “expressly

contemplate the use of mail vendors in debt collection.” Hunstein

II, 2021 WL 4998980, at *23 n.13 (Tjoflat, J., dissenting) (citing

85 Fed. Reg. 76734, 76738 (Nov. 30, 2020) (to be codified at

12 C.F.R. § 1006), 86 Fed. Reg. 5766, 5845 n.446 (Jan. 19,

2021) (to be codified at 12 C.F.R. § 1006)).

CONCLUSION

For the stated reasons, Plaintiffs in each of these cases

have not sufficiently alleged a concrete injury in fact sufficient

to confer Article III standing. As such, the Court lacks

jurisdiction over these claims, and the cases are DISMISSED WITHOUT

PREJUDICE. The Clerk of the Court is respectfully directed to

terminate the motion pending at ECF No. 19 in The Ciccone Action

as MOOT, and mark these cases CLOSED.

SO ORDERED.

_/s/ JOANNA SEYBERT__________

Joanna Seybert, U.S.D.J.

Dated: November 29 , 2021

Central Islip, New York