E-Alert Case Updates
U.S. District Court Examines Pleading Standard Under FRCP 12(b)(6) and FRCP 9(b)
Lacey Townsend v. Eastern Specialty Finance, Inc.
In Lacey Townsend v. Eastern Specialty Finance, Inc., a case involving a private cause of action under the Delaware Consumer Fraud Act, the United States District Court for the District of Delaware concluded that the factual allegations in the plaintiff’s complaint failed to state a claim upon which relief could be granted under Federal Rules of Civil Procedure 12(b)(6) and 9(b). Thus, Judge Sue L. Robinson granted the Defendant’s Motion to Dismiss.
By way of factual background, on May 28, 2013, Lacey Townsend (“Plaintiff”), borrowed $3,000 from Eastern Specialty Finance, Inc. (“Defendant”). The parties agreed to the loan by signing a three (3) page Installment Loan Agreement (“ILA”). Plaintiff alleged that he did not fully understand the financial or legal terms of the ILA and that he had no knowledge of his legal rights or statutory obligations. On July 16, 2014, Plaintiff filed a complaint in the United States District Court for the District of Delaware alleging that the Defendant violated the Delaware Consumer Fraud Act (“DCFA”) (6 Del. C. § 2513). Section 2513 of Title 6 of the Delaware Code establishes the DCFA and provides in pertinent part:
Subsequently, the Defendant filed a motion to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6). Rule 12(b) states in pertinent part: “Every defense to a claim for relief in any pleading must be asserted in the responsive pleading if one is required. But a party may assert the following defenses by motion: (6) failure to state a claim upon which relief can be granted.” A motion filed under Rule 12(b)(6) tests the sufficiency of a complaint's factual allegations. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). A complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief, in order to give the defendant fair notice of what the ... claim is and the grounds upon which it rests." Twombly, 550 U.S. at 545 (interpreting Fed. R. Civ. P. 8(a)).
In reviewing the Defendant’s Rule 12(b)(6) motion, the court first explained that the United States Supreme Court requires a two part analysis. Ashcroft v. Iqbal, 556 U.S. 662 (2009); Edwards v. A.H. Cornell & Son, Inc., 610 F.3d 217, 219 (3d Cir. 2010). First, “a court should separate the factual and legal elements of a claim, accepting the facts and disregarding the legal conclusions,” and second, “a court should determine whether the remaining well-pled facts sufficiently show that the plaintiff has a 'plausible claim for relief.’” Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009) (quoting Iqbal, 556 U.S. at 679). The court noted that as part of the analysis, “a court must accept all well-pleaded factual allegations in the complaint as true, and view them in the light most favorable to the plaintiff.” Erickson v. Pardus, 551 U.S. 89, 94 (2007); Phillips v. Cnty. of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008). The court explained that the determination to be made is “not whether the non-moving party will ultimately prevail," but whether there are “enough facts to raise a reasonable expectation that discovery will reveal evidence of [the necessary elements]." Phillips, 515 F.3d at 234 (quoting Twombly, 550 U.S. at 556).
The court then stated that claims under the DCFA must be “pled with the heightened pleading standard of particularity under Federal Rule of Civil Procedure 9(b).” Coleman Dupont Homsey v. Vigilant Ins. Co., 496 F. Supp. 2d 433, 439 (D. Del. 2007) (holding that Rule 9(b) applies to private causes of action under the DCFA). Rule 9(b) provides in pertinent part: “In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.”
According to the court, under the well-pled factual allegations in the complaint, Plaintiff had alleged that Defendant’s practices and the ILA were "unconscionable" and that "Defendant advertised and marketed these loans as a 'short term solution and not as a source of ongoing help' and 'a good alternative to ... credit card debt."' The court noted that Plaintiff did not dispute that “the ILA disclosed on the first page and in a larger font size: (1) the amount plaintiff was borrowing; (2) the interest plaintiff would have to pay; (3) the total amount plaintiff would pay pursuant to the schedule of payments; and (4) the annual percentage rate.” Moreover, the court found that Plaintiff had made “no factual averments to show a misrepresentation or omission regarding a material fact made directly to him,” and instead, Plaintiff generally alleged that Defendant’s “business model is to prey on poor and unsophisticated borrowers causing them to become entrapped in ongoing cycles of debt.”
Under these circumstances, the court concluded that the Plaintiff’s complaint failed to allege that the Defendant "misrepresented or lied by omission regarding a material fact in a communication directed to the Plaintiff,” as required to show a violation of the DCFA. Having reached this conclusion, the court granted Defendant’s Rule 16(b)(6) Motion to Dismiss.
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