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Thorpe v. Ertz

United States District Court, D. Alaska

December 22, 2016

Arthur R. Thorpe, Plaintiff,
Ralph V. Ertz, Jr. d/b/a Ralph Ertz Attorney at Law, and Michael Rose Defendants.

          ORDER AND OPINION [Re: Motion at Docket 9]



         At docket 9 defendants Ralph V. Ertz, Jr. d/b/a Ralph Ertz Attorney at Law and Michael Rose (collectively, “Ertz”) move to dismiss the complaint of plaintiff Arthur R. Thorpe (“Thorpe”) pursuant to Federal Rules of Civil Procedure 12(b)(1) and (6). Ertz supports his motion with a memorandum of points and authorities at docket 10. Thorpe opposes the motion at docket 16; Ertz replies at docket 17. Oral argument was not requested and would not assist the court.


         Ertz is the lawyer who represented Valli Vue Estates Property Owners Association (“Valli Vue”) in the state small claims action it filed against Thorpe in 2014 for unpaid homeowner's association dues, late fees, and attorney's fees (“Valli Vue I”).[1]Ertz sought and obtained a $2, 533.61 default judgment, including an award of full attorney's fees ($911.50).[2] The problem with this, according to Thorpe, is that Alaska's small claims court rules prohibit default judgment recipients from recovering attorney's fees that exceed “10% of the judgment or reasonable actual fees, whichever is less.”[3]This 10% rule would cap Ertz's attorney's fees at $152.71. In a motion for relief from judgment filed in 2015, Thorpe asked the small claims court to retroactively apply the 10% cap. The court granted Thorpe's motion and reduced Ertz's attorney's fee award to 10% of the judgment.[4]

         In this action, Thorpe asserts two causes of action under the federal Fair Debt Collection Practices Act (“FDCPA”) and two causes of action under Alaska's Unfair Trade Practices and Consumer Protection Act (“UTPCPA”). Specifically, Thorpe alleges that Ertz's pursuit of excessive attorney's fees violated 15 U.S.C. §§ 1962f (unfair or unconscionable means of attempting to collect a debt) and 1962e (false, deceptive, or misleading representations in connection with the collection of a debt) and AS 45.50.471 (unfair or deceptive acts or practices).


         A. Rule 12(b)(1)

         Under Federal Rule of Civil Procedure 12(b)(1), a party may seek dismissal of an action for lack of subject matter jurisdiction. In order to survive a defendant's motion to dismiss, the plaintiff has the burden of proving jurisdiction.[5]

         “Rule 12(b)(1) jurisdictional attacks can be either facial or factual.”[6] Where the defendant brings a facial attack on the subject matter of the district court, the court assumes the factual allegations in the plaintiff's complaint are true and draws all reasonable inferences in the plaintiff's favor.[7] The court does not, however, accept the truth of legal conclusions cast in the form of factual allegations.[8]

         “With a factual Rule 12(b)(1) attack, however, a court may look beyond the complaint to matters of public record without having to convert the motion into one for summary judgment. It also need not presume the truthfulness of the plaintiffs' allegations.”[9]

         B. Rule 12(b)(6)

         Rule 12(b)(6) tests the legal sufficiency of a plaintiff's claims. In reviewing such a motion, “[a]ll allegations of material fact in the complaint are taken as true and construed in the light most favorable to the nonmoving party.”[10] To be assumed true, the allegations “may not simply recite the elements of a cause of action, but must contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively.”[11] Dismissal for failure to state a claim can be based on either “the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory.”[12] “Conclusory allegations of law . . . are insufficient to defeat a motion to dismiss.”[13]

         To avoid dismissal, a plaintiff must plead facts sufficient to “‘state a claim to relief that is plausible on its face.'”[14] “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”[15] “The plausibility standard is not akin to a ‘probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully.”[16] “Where a complaint pleads facts that are ‘merely consistent with' a defendant's liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.'”[17] “In sum, for a complaint to survive a motion to dismiss, the non-conclusory ‘factual content, ' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief.”[18]

         Ordinarily, if “matters out side the pleadings are ‘presented to and not excluded by the court, '” a Rule 12(b)(6) motion “must be treated as one for summary judgment under Rule 56” and the parties “must be given a reasonable opportunity to present all the material that is pertinent to the motion.”[19] There are two exceptions to this rule, however. “First, a court may consider material which is properly submitted as part of the complaint on a motion to dismiss without converting the motion to dismiss into a motion for summary judgment.”[20] Second, “a court may take judicial notice of ‘matters of public record.'”[21]


         A. Rooker-Feldman

         Congress has vested the United States Supreme Court with exclusive federal jurisdiction over appeals from state-court judgments.[22] “Accordingly, under what has come to be known as the Rooker-Feldman doctrine, lower federal courts are precluded from exercising appellate jurisdiction over final state-court judgments.”[23] The Rooker-Feldman doctrine is narrow; it applies only to “cases brought by state-court losers complaining of injuries caused by state-court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments.”[24]

         “The doctrine bars a district court from exercising jurisdiction not only over an action explicitly styled as a direct appeal, but also over the ‘de facto equivalent' of such an appeal.”[25] To determine whether an action contains a de facto appeal, courts ascertain the allegedly wrongful actor: If the asserted legal wrong was committed by a state court, a de facto appeal exists; if the asserted legal wrong was “an allegedly illegal act or omission by an adverse party, Rooker-Feldman does not bar jurisdiction.”[26]“Thus, even if a plaintiff seeks relief from a state court judgment, such a suit is a forbidden de facto appeal only if the plaintiff also alleges a legal error by the state court.”[27]

         Ertz argues that this court lacks jurisdiction under Rooker-Feldman because Thorpe is asking this court to review a state court judgment. But neither of his two arguments in support of this jurisdictional attack are persuasive. First, citing Feldman, Ertz argues that jurisdiction does not lie because Thorpe's claims in this action are “inextricably intertwined” with determinations made by the small claims court.[28] This argument fails because, as the Ninth Circuit has explained, “[t]he ‘inextricably intertwined' language from Feldman is not a test to determine whether a claim is a de facto appeal, but is rather a second and distinct step in the Rooker-Feldman analysis.[29]If “a federal plaintiff seeks to bring a forbidden de facto appeal, . . . that federal plaintiff may not seek to litigate an issue that is ‘inextricably intertwined' with the state court judicial decision from which the forbidden de facto appeal is brought.”[30] But this step is not triggered unless the court first finds that a de facto appeal exists.[31]

         Second, Ertz cites case law from the Seventh Circuit holding that FDCPA claims are barred by Rooker-Feldman if the allegedly illegal relief sought by the debt collector was awarded by the state court.[32] Ertz's reliance on Seventh Circuit case law is unavailing because this court is bound by contrary Ninth Circuit precedent.[33] Under Ninth Circuit case law, Thorpe's complaint must challenge an error committed by the state court for his action to be barred by Rooker-Feldman. Thorpe is not alleging a legal error by the state court. As Thorpe notes, he already challenged the state court judgment “by filing a motion for relief of judgment and prevailed.”[34] Instead, Thorpe's complaint alleges that Ertz violated the FDCPA and the UTPCPA by attempting to collect an excessive amount of attorney's fees in Valli Vue I. Because the allegedly illegal act was committed by Ertz, not the small claims court, the Rooker-Feldman doctrine is not a bar to this court's jurisdiction.

         B. Res Judicata

         The doctrine of res judicata, which defines the preclusive effect of a judgment, is comprised of two separate doctrines known as claim preclusion and issue preclusion.[35]Claim preclusion bars “successive litigation of the very same claim, whether or not relitigation of the claim raises the same issues as the earlier suit.”[36] Issue preclusion (otherwise known as collateral estoppel) “bars ‘successive litigation of an issue of fact or law actually litigated and resolved in a valid court determination essential to the prior judgment, ' even if the issue recurs in the context of a different claim.”[37] To determine the res judicata effect of a state-court judgment, federal courts apply the law of the state in which the judgment was rendered.[38]

         Ertz argues that Thorpe's action is barred by claim preclusion. Under Alaska law, claim preclusion bars a subsequent action if an earlier action resulted in “(1) a final judgment on the merits, (2) from a court of competent jurisdiction, (3) in a dispute between the same parties (or their privies) about the same cause of action.”[39] The parties do not dispute that Valli Vue I resulted in a final judgment on the merits from a court of competent jurisdiction in a dispute between the same parties or their privies. Thus, the preclusive effect of the Valli Vue I judgment depends on whether that case was “about the same cause of action” as this case.

         To determine whether a plaintiff's claims are about the same cause of action as a previous case in which he was a defendant, Alaska courts apply the approach set out in the Restatement (Second) of Judgments § 22(2), which provides that a defendant will only be barred from bringing a foregone counterclaim as a claim in a subsequent proceeding if:

“(a) The counterclaim is required to be interposed by a compulsory counterclaim statute or rule of court, or
(b) The relationship between the counterclaim and the plaintiff's claim is such that successful prosecution of the second action would nullify the initial judgment or would impair rights established in the initial action.”[40]

         Although preclusion may be found under either § 22(2)(a) or (b), “[u]nder ordinary circumstances, Restatement § 22(2) adds little to the preclusive effect of [Alaska] Civil Rule 13(a)'s compulsory counterclaim provision.”[41]

         1. Under Alaska Civil Rule 13(a), Thorpe's current claims were not compulsory counterclaims in Valli Vue I

         With exceptions that do not apply here, Alaska Rule of Civil Procedure 13(a) defines a compulsory counterclaim as any claim the defendant has against any opposing party “at the time of serving the pleading” that “arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction.”[42] Ertz asserts that Thorpe's UTPCPA claims were compulsory counterclaims in Valli Vue I, but he never applies Rule 13(a) to the facts. Instead, he merely cites the Alaska Superior Court's decision in Mooradian v. Bishop, Marshall & Weibel, P.S.[43]

         Mooradian is unavailing, however, for two reasons. First, Mooradian did not find that the plaintiff's claims were barred because they were compulsory counterclaims in the initial action (the court specifically declined to rule on that issue).[44] Second, this court is bound by the Alaska Supreme Court's application[45] of Rule 13(a) in Andrews v. Wade & De Young, Inc., P.C.[46] The plaintiff in Andrews was a defendant in a previous action filed by its lawyers to collect unpaid attorney's fees. The former client then sued its lawyers for malpractice in a subsequent action. The Alaska Supreme Court held that the malpractice claims were not compulsory counterclaims in the first action because they had not matured until after the client filed its answer.[47] This holding is fatal to Ertz's Rule 13(a) argument.

         If a party does not serve a responsive pleading, the party's compulsory counterclaims are determined as of the date of the default.[48] Here, the allegedly wrongful act occurred when Ertz applied for full attorney's fees, which happened after Thorpe's default. Because Thorpe's claims in this case had not matured as of the date of his default, these after-acquired claims were not compulsory counterclaims.[49]

         2. Thorpe's current claims will neither nullify the Valli Vue I judgment nor impair any rights established in that action

         Ertz next asserts that Thorpe's claims are barred under Restatement § 22(2)(b) because they “may only succeed if they attack the judgment of the Alaska District Court as to the issues of the attorney fee award, prevailing party status, the legal basis for the award[, ] and the quantum awarded.”[50] This argument is essentially the same as Ertz's Rooker-Feldman arguments that the court rejected above. Thorpe is attacking Ertz's ...

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