Court Opinion

ID: 4418883
Source: CourtListenerOpinion
Date Created: 2019-07-22 18:00:26.178056+00
Date Added: 2024-06-11T14:02:02.722522
License: Public Domain

FOR PUBLICATION

    UNITED STATES COURT OF APPEALS
         FOR THE NINTH CIRCUIT

 MICHAEL CUTTS,                                No. 18-15377
          Plaintiff-Appellant,
                                                D.C. No.
                  v.                       2:17-cv-01525-JCM-
                                                   PAL
 RICHLAND HOLDINGS, INC.,
 DBA Acctcorp of Southern                ORDER CERTIFYING
 Nevada; CLIFFORD MOLIN,                  QUESTION TO THE
 DBA Zeeba Sleep Center,                 NEVADA SUPREME
       Defendants-Appellees.                  COURT

                        Filed July 22, 2019

   Before: Ronald M. Gould and Sandra S. Ikuta, Circuit
      Judges, and Benita Y. Pearson,* District Judge.

    *
      The Honorable Benita Y. Pearson, United States District Judge for
the Northern District of Ohio, sitting by designation.
2             CUTTS V. RICHLAND HOLDINGS, INC.

                            SUMMARY**

    Certification of Question to State Supreme Court

   The panel certified the following question to the Nevada
Supreme Court:

         Is a Fair Debt Collection Practices Act claim
         a compulsory counterclaim in an action to
         collect the underlying debt under Rule 13 of
         the Nevada Rules of Civil Procedure?

   The panel addressed other issues in a concurrently filed
memorandum disposition. It stayed the appeal of the district
court’s dismissal of FDCPA claims pending the Nevada
Supreme Court’s resolution of the certified question.

    **
       This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
            CUTTS V. RICHLAND HOLDINGS, INC.                 3

                          ORDER

    We ask the Nevada Supreme Court to resolve an open
question of state law. We need guidance in determining
whether claims against a debt collector under the Fair Debt
Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq.,
are compulsory counterclaims under Rule 13 of the Nevada
Rules of Civil Procedure in an action to collect that debt.
Accordingly, we certify the following question:

       Is an FDCPA claim a compulsory
       counterclaim in an action to collect the
       underlying debt under Rule 13 of the Nevada
       Rules of Civil Procedure?

    Our phrasing of the question should not restrict the
Court’s consideration of the issues involved. The Court may
rephrase the question as it sees fit in order to address the
contentions of the parties. If the Court agrees to decide this
question, we agree to accept its decision. We recognize that
the Court has a substantial caseload, and we submit this
question only because of its significance for actions brought
in Nevada state court to recover debts.

                               I

    The FDCPA regulates the actions debt collectors can take
when attempting to collect consumer debt. See Henson v.
Santander Consumer USA Inc., 137 S. Ct. 1718, 1720 (2017).
Congress intended the Act’s requirements “to eliminate
abusive debt collection practices by debt collectors, to insure
that those debt collectors who refrain from using abusive debt
collection practices are not competitively disadvantaged, and
4           CUTTS V. RICHLAND HOLDINGS, INC.

to promote consistent State action to protect consumers
against debt collection abuses.” 15 U.S.C. § 1692(e).

     Relevant to the claims brought in this case, the FDCPA
prohibits a debt collector from using “any false, deceptive, or
misleading representation or means in connection with the
collection of any debt,” including “[t]he false representation
of the character, amount, or legal status of any debt” and
“[t]he threat to take any action that cannot legally be taken or
that is not intended to be taken.” Id. §§ 1692e(2), (5). It also
prohibits a debt collector from using “unfair or
unconscionable means to collect or attempt to collect any
debt,” including “[t]he collection of any amount (including
any interest, fee, charge, or expense incidental to the principal
obligation) unless such amount is expressly authorized by the
agreement creating the debt or permitted by law.” Id.
§ 1692f(1). Finally, it requires a debt collector, within five
days of its initial communication with a debtor, to send a
letter to the debtor containing the amount of the debt, the
identity of the creditor, and information about certain rights
the debtor has. See id. § 1692g(a).

                               II

    In May 2014, Michael Cutts signed an agreement with
Dr. Clifford Molin for the provision of medical services.
Cutts agreed “to be financially responsible for all charges
incurred regardless of insurance coverage.” Further, Cutts
agreed that “[i]n the event my account is referred to a
collection service due to lack of payment on my part, I agree
to pay all collection/legal fees that may be added to my
account.” By March 2016, Cutts was delinquent on his
payments to Dr. Molin, and had an account balance of
$274.53. After unsuccessfully attempting to collect the debt
            CUTTS V. RICHLAND HOLDINGS, INC.                 5

from Cutts, Dr. Molin assigned the debt to Richland
Holdings, Inc., a debt collection agency, pursuant to an
agreement authorizing Richland to file suit against Cutts on
Dr. Molin’s behalf. Richland added a collection fee of
$137.27 to the debt balance.

    Richland filed suit against Cutts in Nevada state court on
October 3, 2016. Richland’s complaint alleged (1) breach of
contract and (2) “monies due and owing.” Richland alleged
damages in the amount of $411.80, which was the sum of the
original $274.53 debt balance plus the $137.27 collection fee,
and also requested attorneys’ fees and costs.

    Cutts failed to answer or mount a defense to the
complaint, and on December 8, 2016, the Nevada state court
entered a default judgment against him for $1,273.30,
reflecting the requested relief plus $111.50 in costs and $750
in attorneys’ fees. Notice of the default judgment was
entered on December 14, 2016.

    Over five months later, on May 31, 2017, Cutts filed suit
against Richland and Dr. Molin in federal district court for
the District of Nevada. His complaint alleged: (1) violations
of the FDCPA, 15 U.S.C. § 1692 et seq., (2) abuse of process,
(3) violation of Nevada’s deceptive trade practices statutes,
(4) misrepresentation, and (5) civil conspiracy.

    Cutts made three distinct FDCPA claims. First, he
alleged that the defendants violated 15 U.S.C. § 1692f by
adding a collection fee of $137.27 to his debt. Second, he
alleged that an affidavit submitted by Molin in the state court
action misrepresented the amount due on the debt because it
included the collection fee, in violation of 15 U.S.C. § 1692e.
Third, he alleged the defendants failed to provide him “with
6              CUTTS V. RICHLAND HOLDINGS, INC.

a validation of debt letter” in violation of 15 U.S.C. § 1692g,
although the complaint did not make clear whether the
defendants failed to send a validation of debt letter, or merely
sent a non-compliant one.

    The district court dismissed Cutts’s claims as barred by
claim preclusion. The district court reasoned that Cutts’s
claims bore a logical relationship to the transactions
underlying the state court debt collection action, making them
compulsory counterclaims in the state court action. Cutts
timely appealed.1

    In a concurrently filed memorandum disposition, see
Cutts v. Richland Holdings, Inc., __ F. App’x __ (9th Cir.
2019), we affirm the district court’s dismissal of Cutts’s
misrepresentation and civil conspiracy claims and reverse the
district court’s dismissal of Cutts’s abuse of process claim.
We stay Cutts’s appeal of the district court’s dismissal of his
FDCPA claims pending the Nevada Supreme Court’s
resolution of the question we certify here.2

                                    III

    We require the Nevada Supreme Court’s guidance to
resolve the parties’ dispute about whether Cutts’s FDCPA
claims were compulsory counterclaims in the underlying state
court action.

    1
        Cutts abandoned his claim for deceptive trade practices on appeal.
    2
       Cutts’s argument that the FDCPA preempts the application of
Nevada claim preclusion law to his FDCPA claims is waived, because he
did not raise it to the district court. See Smith v. Marsh, 194 F.3d 1045,
1052 (9th Cir. 1999).
            CUTTS V. RICHLAND HOLDINGS, INC.                  7

    Nevada law governs the question whether Cutts’s FDCPA
claims are barred by claim preclusion. “[A] federal court
must give to a state-court judgment the same preclusive effect
as would be given that judgment under the law of the State in
which the judgment was rendered.” Holcombe v. Hosmer,
477 F.3d 1094, 1097 (9th Cir. 2007) (quoting Migra v.
Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75, 81 (1984)).

    Under Nevada law, claim preclusion applies when three
factors are met: “(1) the parties or their privies are the same,
(2) the final judgment is valid, and (3) the subsequent action
is based on the same claims or any part of them that were or
could have been brought in the first case.” Mendenhall v.
Tassinari, 403 P.3d 364, 368 (Nev. 2017) (internal quotation
marks omitted). Under the third prong, a compulsory
counterclaim that was not brought in an earlier action is
subject to claim preclusion, see Mendenhall, 403 P.3d at 370;
Exec. Mgmt., Ltd. v. Ticor Title Ins. Co., 963 P.2d 465, 474
(Nev. 1998) (per curiam), but a permissive counterclaim is
not, see Exec. Mgmt., 963 P.2d at 475.

    Whether a counterclaim is compulsory under Nevada law
is governed by Rule 13 of the Nevada Rules of Civil
Procedure. Rule 13 provides:

       A pleading must state as a counterclaim any
       claim that—at the time of its service—the
       pleader has against an opposing party if the
       claim:

           (A) arises out of the transaction or
           occurrence that is the subject matter of the
           opposing party’s claim; and
8           CUTTS V. RICHLAND HOLDINGS, INC.

            (B) does not require adding another party
            over whom the court cannot acquire
            jurisdiction.

Nev. R. Civ. P. 13(a)(1). Two claims “arise[] out of the same
transaction or occurrence” if “the pertinent facts of the
different claims are so logically related that issues of judicial
economy and fairness mandate that all issues be tried in one
suit.” Mendenhall, 403 P.3d at 370–71.

    The Nevada Supreme Court has not directly addressed
whether FDCPA claims relating to the collection of a debt are
compulsory counterclaims in a prior action to collect that
debt. The Court has, however, given some guidance on this
issue. First, in considering whether a claim arises out of the
same “transaction or occurrence” that is the subject matter of
a suit, the Nevada Supreme Court has indicated that the
phrase “transaction or occurrence” in Rule 13 should be
interpreted broadly. See MacDonald v. Krause, 362 P.2d
724, 729 (Nev. 1961) (“The term ‘transaction,’ as used in the
statute, is obviously broader than the term ‘contract,’ and
authorizes matters to be set up as counterclaims, which could
not be so pleaded as arising upon the contract relied upon by
plaintiff.”).

    Second, the Nevada Supreme Court has observed that
“[f]ederal cases interpreting the Federal Rules of Civil
Procedure are strong persuasive authority because the Nevada
Rules of Civil Procedure are based in large part upon their
federal counterparts.” Exec. Mgmt., Ltd. v. Ticor Title Ins.
Co., 38 P.3d 872, 876 (Nev. 2002) (per curiam) (internal
quotation marks omitted). Rule 13 of the Federal Rules of
Civil Procedure is analogous to Nevada’s Rule 13 and
               CUTTS V. RICHLAND HOLDINGS, INC.                      9

contains the same “transaction or occurrence” language,3 and
federal courts also apply a “logical relationship” test to
determine whether a claim arises out of the same transaction
or occurrence such that it is a compulsory counterclaim. See,
e.g., In re Pinkstaff, 974 F.2d 113, 115 (9th Cir. 1992).
Accordingly, interpretations of Rule 13 of the Federal Rules
of Civil Procedure may provide some guidance regarding
how Nevada’s Rule 13 should be interpreted.

    But federal circuit courts are split on this question. Some
courts have held that FDCPA claims, or similar claims under
the Truth in Lending Act (TILA), 15 U.S.C. § 1601 et seq.,
are not compulsory counterclaims in an action for recovery of
the underlying debt. The Eighth Circuit, applying North
Dakota’s analogous logical relationship test, held that
FDCPA claims are not logically related to the underlying debt
actions because “the circumstances giving rise to the original
debt are separate and distinct from the collection activities

    3
        Rule 13 of the Federal Rules of Civil Procedure provides:

          (a) Compulsory Counterclaim

              (1) In General. A pleading must state as a
              counterclaim any claim that—at the time of its
              service—the pleader has against an opposing party
              if the claim:

                   (A) arises out of the transaction or occurrence
                   that is the subject matter of the opposing
                   party’s claim; and

                   (B) does not require adding another party over
                   whom the court cannot acquire jurisdiction.

Fed. R. Civ. P. 13(a)(1).
10          CUTTS V. RICHLAND HOLDINGS, INC.

undertaken” by the debt collector. Peterson v. United
Accounts, Inc., 638 F.2d 1134, 1137 (8th Cir. 1981). The
Eighth Circuit observed that although an FDCPA claim “may,
in a technical sense, arise from the same loan transaction,”
and there may be some overlapping issues between the
FDCPA action and the underlying action to recover the debt,
there is nevertheless no logical relationship between the two.
Id.; see also Maddox v. Ky. Fin. Co., 736 F.2d 380, 383 (6th
Cir. 1984) (“While the claim and counterclaim do arise out of
the same transaction within the literal terms of Rule 13(a), we
do not believe that they are logically related in such a way as
to make the counterclaim compulsory.”). The Fourth and
Sixth Circuits have reached similar conclusions. See Bauman
v. Bank of Am., N.A., 808 F.3d 1097, 1102 (6th Cir. 2015)
(holding that a foreclosure claim is not logically related to an
FDCPA claim arising out of the underlying debt because the
two claims raise different legal issues and have only some
overlap in the facts necessary for adjudication); Whigham v.
Beneficial Fin. Co. of Fayetteville, Inc., 599 F.2d 1322, 1324
(4th Cir. 1979) (holding that a TILA claim bears no logical
relationship to an action recovering the underlying debt
because the TILA claim “invoke[d] a statutory penalty
designed to enforce federal policy against inadequate
disclosure by lenders,” and did not seek to enforce obligations
created by the loan document).

    By contrast, the Fifth Circuit has held that an action to
recover a debt is a compulsory counterclaim to a TILA claim
arising out of that debt under Federal Rule 13. See Plant v.
Blazer Fin. Servs., Inc., 598 F.2d 1357, 1361 (5th Cir. 1979).
The court relied on “the obvious interrelationship of the
claims and rights of the parties, coupled with the common
factual basis of the claims,” and held that TILA claims and
              CUTTS V. RICHLAND HOLDINGS, INC.                         11

claims to recover the underlying debt are compulsory
counterclaims. Id. at 1364.4

     The defendants argue that Cutts’s FDCPA claims were
compulsory counterclaims under Nevada’s Rule 13 because
there is a common factual basis for Cutts’s FDCPA claims
and defendants’ debt collection action. In order to prevail on
his claims that the defendants misrepresented the character
and amount of the debt and attempted to collect more money
than they were owed under the agreement, defendants argue,
Cutts will have to establish the nature and scope of the debt
agreement. According to defendants, these same facts were
at issue in Richland’s state court action to collect under the
same debt agreement.

    By contrast, Cutts argues that FDCPA claims are not
compulsory counterclaims under Nevada’s Rule 13 because
they are not logically related to the defendants’ action to
recover the debt. According to Cutts, the FDCPA claims
raise distinct questions of law and relate to potential

    4
      The Ninth Circuit has not ruled on this issue, but like the Nevada
Supreme Court, has adopted a “logical relationship test” for determining
whether a claim is a compulsory counterclaim, and has interpreted this test
broadly. Mattel, Inc. v. MGA Entm’t, Inc., 705 F.3d 1108, 1110 (9th Cir.
2013) (quoting In re Pegasus Gold Corp., 394 F.3d 1189, 1196 (9th Cir.
2005)).
12          CUTTS V. RICHLAND HOLDINGS, INC.

collections abuses, rather than relating to a state law right to
recover the debt under the contract.

    Because the Nevada Supreme Court has not directly
addressed the question whether FDCPA claims relating to the
collection of a debt are compulsory counterclaims in a prior
action to collect that debt, and because the federal courts are
split on this issue, we need guidance on whether Cutts’s
FDCPA claims are compulsory counterclaims to Richland’s
state court action to collect the debt. If they are, then claim
preclusion bars Cutts from bringing those claims now. See
Mendenhall, 403 P.3d at 368. On the other hand, if Cutts’s
FDCPA claims were not compulsory counterclaims, they are
not barred by claim preclusion and may proceed. See Exec.
Mgmt., 963 P.2d at 478. The Nevada Supreme Court’s
answer to this question will be dispositive of this issue in the
earlier action, and we will follow its decision in this case.

                               IV

    The Clerk of Court is hereby directed to transmit
forthwith to the Nevada Supreme Court, under official seal of
the Ninth Circuit, a copy of this order and request for
certification and all relevant briefs and excerpts of record.
Submission of this case is withdrawn only as to Cutts’s
FDCPA claims, and the case will be submitted following
receipt of the Nevada Supreme Court’s opinion on the
certified question or notification that it declines to answer the
certified question. The Clerk shall administratively close this
docket only as to Cutts’s FDCPA claims pending a ruling by
the Nevada Supreme Court regarding the certified question.
The panel shall retain jurisdiction over further proceedings in
this court. The parties shall notify the Clerk of this court
within one week after the Nevada Supreme Court accepts or
            CUTTS V. RICHLAND HOLDINGS, INC.                13

rejects certification. In the event the Nevada Supreme Court
grants certification, the parties shall notify the Clerk within
one week after the Court renders its opinion.

QUESTION CERTIFIED; PROCEEDINGS STAYED.

_____________________
Ronald M. Gould
Circuit Judge
14         CUTTS V. RICHLAND HOLDINGS, INC.

                 Supplemental Material

   Pursuant to Rule 5 of the Nevada Rules of Appellate
Procedure, we include here the designation of the parties who
would be the appellant and appellees in the Nevada Supreme
Court, as well as the names and addresses of counsel.

For Appellant Michael Cutts:

Vernon Nelson, Jr.
The Law Office of Vernon Nelson
6787 W. Tropicana Ave.
Suite 103
Las Vegas, Nevada 89103

For Appellees Richland Holdings, Inc., and Clifford Molin:

Chad F. Clement
Marquis Aurbach Coffing
10001 Park Run Drive
Las Vegas, Nevada 89145

Jonathan B. Lee
Marquis Aurbach Coffing
10001 Park Run Drive
Las Vegas, Nevada 89145