Court Opinion

ID: 4668248
Source: CourtListenerOpinion
Date Created: 2021-03-16 17:00:42.394344+00
Date Added: 2024-06-11T08:03:01.804066
License: Public Domain

PRECEDENTIAL

     UNITED STATES COURT OF APPEALS
          FOR THE THIRD CIRCUIT
              _______________

                    No. 19-3703
                  ______________

          TERRY L. KLOTZ, on behalf of
         herself and those similarly situated,
                                      Appellant

                         v.

          CELENTANO STADTMAUER
           AND WALENTOWICZ LLP
              _______________

   On Appeal from the United States District Court
             for the District of New Jersey
       (D.C. Civil Action No. 2-19-cv-00248)
    District Judge: Honorable Susan D. Wigenton
                    ______________

            Argued: September 24, 2020

Before: AMBRO, PORTER, and ROTH, Circuit Judges.

              (Filed: March 16, 2021)
                  ______________
Scott C. Borison [ARGUED]
BORISON FIRM
30 North Gould Street
Sheridan, WY 82801

Yongmoon Kim
KIM LAW FIRM
411 Hackensack Avenue
Hackensack, NJ 07601

             Counsel for Plaintiff-Appellant Terry L. Klotz

Lawrence J. Bartel [ARGUED]
Andrew M. Schwartz
GORDON REES SCULLY MANSUKHANI
Three Logan Square
1717 Arch Street
Philadelphia, PA 19103

             Counsel for Defendant-Appellee Celentano
             Stadtmauer and Walentowicz LLP

                      ______________

                OPINION OF THE COURT
                    ______________

PORTER, Circuit Judge.

       Terry Klotz’s now-deceased husband received medical
services from Hackensack University Medical Center (the
“Hospital”) and incurred a $1,580 debt. Klotz’s husband did
not pay the medical debt before he died, and he left no estate.

                              2
The Hospital retained Celentano, Stadtmauer and
Walentowicz, LLP (“CSW”) to collect the debt, and it mailed
two collection letters to Klotz.

       Klotz claims she is not liable for the debt and asks us to
hold that the Equal Credit Opportunity Act (“ECOA”), 15
U.S.C. § 1691 et seq., preempts New Jersey’s common-law
doctrine of necessaries (where a spouse is jointly liable for nec-
essary expenses incurred by the other spouse). Preemption of
this doctrine would allow her to pursue a case against CSW for
an alleged violation of the Fair Debt Collection Practices Act
(“FDCPA”), 15 U.S.C. § 1692 et seq. We hold that the ECOA
does not preempt New Jersey’s doctrine of necessaries. Klotz
also argues that CSW failed to follow the procedural require-
ments of the doctrine of necessaries and that she should be
allowed to amend her complaint. We reject these additional
arguments and will affirm the District Court’s judgment.

                                I

        Klotz believed that she was not liable for the debt, so
she sued CSW for violating 15 U.S.C. §§ 1692e and 1692f of
the FDCPA because CSW’s collection letters sought payment
of a debt that she did not owe. CSW moved to dismiss the com-
plaint under Federal Rule of Civil Procedure 12(b)(6), arguing
that Klotz owed the debt under New Jersey’s common-law
doctrine of necessaries because her deceased husband incurred
the debt for medical treatment. The District Court agreed with
CSW and dismissed the complaint with prejudice. Klotz
moved under Federal Rule of Civil Procedure 59(e) for recon-
sideration of the District Court’s order and for leave to file an
amended complaint with additional allegations. The District

                                3
Court denied the motion, reasoning that amendment would be
futile. Klotz timely appealed.

                               II

        The District Court had subject-matter jurisdiction under
28 U.S.C. § 1331 and 15 U.S.C. § 1692k(d). We have appel-
late jurisdiction under 28 U.S.C. § 1291.

        We review de novo a district court’s grant of a motion
to dismiss for failure to state a claim under Rule 12(b)(6).
Foglia v. Renal Ventures Mgmt., LLC, 754 F.3d 153, 154 n.1
(3d Cir. 2014). To survive a Rule 12(b)(6) motion, a complaint
must set forth enough factual allegations to “state a claim to
relief that is plausible on its face.” Bell Atl. Corp. v. Twombly,
550 U.S. 544, 570 (2007). A claim is facially plausible “when
the plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the mis-
conduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
When reviewing a Rule 12(b)(6) motion, we accept as true all
factual allegations in the complaint and view those facts in the
light most favorable to the non-moving party. Foglia, 754 F.3d
at 154 n.1.

       We review a district court’s denial of a Rule 59(e)
motion to amend the complaint for abuse of discretion, but we
review the district court’s underlying legal determinations de
novo and factual determinations for clear error. Burtch v.
Milberg Factors, Inc., 662 F.3d 212, 220 (3d Cir. 2011). When
a plaintiff moves to amend her complaint under Rule 59(e), we
apply the same factors as when a party files a motion to amend
a pleading under Federal Rule of Civil Procedure 15(a). See
Adams v. Gould Inc., 739 F.2d 858, 864 (3d Cir. 1984). Those

                                4
factors include whether the amendment would be futile.
Burtch, 662 F.3d at 231. A proposed amendment to a complaint
is futile if the amended complaint would fail to state a claim
for relief under Rule 12(b)(6). See Alvin v. Suzuki, 227 F.3d
107, 121 (3d Cir. 2000).

                             III

       The FDCPA prohibits debt collectors from using false,
misleading, and unfair debt-collection practices by seeking to
collect on a debt that is not authorized by law. See
15 U.S.C. §§ 1692e, 1692f. As noted, Klotz believes that she
does not owe her husband’s medical debt. She argues that
CSW’s debt-collection letters misrepresent “the character,
amount, or legal status of [the] debt” in violation of the
FDCPA. 15 U.S.C. § 1692e(2)(A).

        In response, CSW argues that Klotz had a legal obliga-
tion to pay the debt under New Jersey’s common-law doctrine
of necessaries. In Jersey Shore Medical Center-Fitkin Hospital
v. Estate of Baum, the Supreme Court of New Jersey held that
“both spouses are liable for necessary expenses incurred by
either spouse in the course of the marriage.” 417 A.2d 1003,
1005 (N.J. 1980). Additionally, a non-debtor is liable for the
debts of her spouse only if “the assets of the spouse who
incurred the debt are insufficient.” Id. at 1010. CSW’s argu-
ments prevailed in the District Court.

       Klotz argues the following on appeal: (1) federal law
preempts the doctrine of necessaries, and thus CSW’s collec-
tion effort violated the FDCPA; (2) CSW failed to follow the
doctrine’s procedural requirement that CSW seek repayment
from her husband before seeking repayment from her; and (3)

                              5
she should be permitted to amend her complaint. All three
arguments fail.

                               A

        First, Klotz argues that the ECOA preempts the doctrine
of necessaries. Federal law 1 can preempt state law in three
ways: (1) express preemption; (2) field preemption; or (3) con-
flict preemption. Farina v. Nokia Inc., 625 F.3d 97, 115 (3d
Cir. 2010). Conflict preemption, the only type of preemption
relevant here, “exists where compliance with both state and
federal law is impossible, or where the state law stands as an
obstacle to the accomplishment and execution of the full pur-
poses and objectives of Congress.” Oneok, Inc. v. Learjet, Inc.,
575 U.S. 373, 377 (2015) (internal quotation marks omitted)
(quoting California v. ARC Am. Corp., 490 U.S. 93, 100–01
(1989)).

        Two principles guide a conflict-preemption analysis.
First, “all preemption arguments[] must be grounded in the text
and structure of the [federal] statute at issue.” Kansas v.
Garcia, 140 S. Ct. 791, 804 (2020) (internal quotation marks
omitted) (quoting CSX Transp., Inc. v. Easterwood, 507 U.S.
658, 664 (1993)). Second, “there is a strong presumption
against preemption in areas of the law that States have tradi-
tionally occupied.” Sikkelee v. Precision Airmotive Corp., 822
F.3d 680, 687 (3d Cir. 2016) (citing Medtronic, Inc. v. Lohr,
518 U.S. 470, 485 (1996)).

1
  Federal regulations can also have preemptive effect. See
Fellner v. Tri-Union Seafoods, L.L.C., 539 F.3d 237, 243 (3d
Cir. 2008).

                               6
       The ECOA prohibits “any creditor” from “discrimi-
nat[ing] against any applicant, with respect to any aspect of a
credit transaction[] on the basis of . . . marital status.”
15 U.S.C. § 1691(a)(1). As relevant here, one regulation
implementing the ECOA provides that “a creditor shall not
require the signature of an applicant’s spouse . . . on any credit
instrument if the applicant qualifies under the creditor’s stand-
ards of creditworthiness for the amount and terms of the credit
requested.” 12 C.F.R. § 202.7(d)(1) (2021).

        Klotz argues that the doctrine of necessaries conflicts
with the spousal-signature prohibition found at
12 C.F.R. § 202.7(d)(1). 2 By imposing liability for her
deceased husband’s debt, Klotz argues, the doctrine effectively
treats her as a spousal co-signer on the debt in violation of the
spousal-signature prohibition. This conflict means the spousal-
signature prohibition preempts the doctrine.

        Putting aside questions such as whether CSW is a “cred-
itor” and Klotz an “applicant” under the spousal-signature pro-
hibition, we hold that the ECOA does not preempt the doctrine
of necessaries because the debt is “incidental credit” exempt
from the prohibition. The Federal Reserve Board may exempt
certain categories of transactions from the scope of the ECOA
“after making an express finding that the application of . . . any

2
  We cite to the Federal Reserve Board’s regulations but note
for completeness that much of the rulemaking authority under
the ECOA was transferred to the Consumer Financial
Protection Bureau (“CFPB”) in 2011. The CFPB restated the
Federal Reserve’s regulations at 12 C.F.R. pt. 1002, 76 Fed.
Reg. 79,442 (Dec. 21, 2011); see also Tyson v. Sterling Rental,
Inc., 836 F.3d 571, 578 (6th Cir. 2016).

                                7
provision . . . would not contribute substantially to effecting
the purposes of [the ECOA].” 15 U.S.C. § 1691b(b). The
agency exercised this authority by exempting “incidental
credit” from the § 202.7(d) spousal-signature prohibition. See
12 C.F.R. § 202.3(c)(2)(v) (2021); Equal Credit Opportunity,
68 Fed. Reg. 13,144, 13,145 (March 18, 2003) (to be codified
at 12 C.F.R. pt. 202). “Incidental credit refers to extensions of
consumer credit . . . (i) [t]hat are not made pursuant to the terms
of a credit card account; (ii) [t]hat are not subject to a finance
charge . . . and (iii) [t]hat are not payable by agreement in more
than four installments.” Id. § 202.3(c)(1).

        Klotz’s medical debt qualifies as incidental credit
because it satisfies all three criteria. She does not dispute that
the debt is not related to a credit card account, not subject to a
finance charge, and not subject to installment payments. See
Equal Credit Opportunity, 68 Fed. Reg. at 13,188 (listing med-
ical debt from a hospital or doctor that “allows the client or
customer to defer the payment of a bill” as an example of inci-
dental credit); Mays v. Buckeye Rural Elec. Coop., Inc., 277
F.3d 873, 877–79 (6th Cir. 2002) (holding that money owed to
an electrical utility was incidental credit under
12 C.F.R. § 202.3(c) because the utility “ha[d] no credit card
accounts, d[id] not permit installment payments for electrical
service, and d[id] not impose finance charges”). Because the
medical debt CSW sought to collect is incidental credit exempt
from the spousal-signature prohibition, CSW’s attempt to col-
lect the debt cannot violate the prohibition.

       Given that the spousal-signature prohibition does not
apply, we hold the ECOA and its regulations do not conflict-
preempt the doctrine of necessaries. To succeed on a conflict-
preemption argument, Klotz must demonstrate that the doc-

                                8
trine of necessaries either (1) makes compliance with the
ECOA impossible or (2) “stand[s] as an obstacle to the accom-
plishment and execution of the full purposes” of the ECOA.
Garcia, 140 S. Ct. at 806 (internal quotation marks omitted).
The identification of the purpose “cannot be based on a free-
wheeling judicial inquiry into whether a state statute is in ten-
sion with federal objectives.” Id. at 801 (internal quotation
marks and citation omitted).

       CSW’s use of the doctrine of necessaries complies with
the ECOA because the medical debt is incidental credit exempt
from the spousal-signature prohibition. Further, Klotz’s
attempt to invoke the general objectives of the ECOA fails, as
the statute was focused on ensuring the availability of credit
rather than the allocation of liability between spouses. See
Moran Foods, Inc. v. Mid-Atlantic Mkt. Dev. Co., LLC, 476
F.3d 436, 441 (7th Cir. 2007) (“[I]t is apparent that what the
Act was intended to do was to forbid a creditor to deny credit
to a [married] woman on the basis of a belief that she would
not be a good credit risk.”). Because CSW’s use of the doctrine
of necessaries complies with the ECOA and does not frustrate
the purpose of the ECOA, we hold the ECOA has not
preempted the doctrine. Garcia, 140 S. Ct. at 804.

                               B

       Klotz next argues that CSW failed to comply with the
requirements of the doctrine of necessaries. But she did not
plead adequate facts to support her argument, and her husband

                               9
does not have an estate that could pay the debt, so the argument
fails.

       Before resorting to the doctrine of necessaries, a credi-
tor must “first seek satisfaction from the income and other
property of the spouse who incurred the debt.” Jersey Shore,
417 A.2d at 1005. This step ensures that the doctrine applies
“only where the financial resources of the spouse who incurred
the necessary expense are insufficient.” Id. at 1010. Klotz’s
complaint does not allege that CSW flouted the doctrine’s
requirement that it first seek satisfaction from her deceased
husband. Nor does the complaint allege that her husband’s
estate possessed funds to cover the debt. Public records—
which we may consider when reviewing the grant of a Rule
12(b)(6) motion, see Mayer v. Belichick, 605 F.3d 223, 230 (3d
Cir. 2010)—explain this omission: they show that Klotz’s hus-
band does not have an estate.

       Klotz argues that CSW should have sought administra-
tion of her husband’s estate under N.J. Rev. Stat. § 3B:10-2
(explaining who can seek administration of an estate). Jersey
Shore forecloses this argument. There, the “defendant’s late
husband[] died at the hospital after a long illness which
exhausted his medicaid benefits and left a balance due the hos-
pital of $25,709.50.” Jersey Shore, 417 A.2d at 1004. “[The
husband’s] estate was insolvent, and no one [had] sought let-
ters of administration.” Id. Yet the Supreme Court of New
Jersey permitted the creditor hospital to assert a doctrine-of-
necessaries argument against the surviving wife. See id. at
1006–07. Klotz fails to explain what other action CSW should
have taken to satisfy the requirements of Jersey Shore.

                              10
                               C

       Third, Klotz argues that the District Court abused its
discretion by denying her motion for leave to file an amended
complaint. The District Court denied Klotz’s motion because
the amendment would be futile. We agree.

        A proposed amendment to a complaint is futile if the
complaint, as amended, would fail to state a claim upon which
relief could be granted. See Suzuki, 227 F.3d at 121. Klotz
argues that her proposed amended complaint would not be
futile because it would plead that CSW’s letters sought to col-
lect an amount beyond what the doctrine of necessaries per-
mits. CSW’s letters sought to collect a debt of $1,580. Klotz
pleads that her husband was a Medicare beneficiary with a
Medicare deductible of $1,316, thus implying that some
amount of the debt in the collection letter was not covered by
Medicare. She also pleads that the collection amount “included
copayments, expenses, fees, costs and/or other charges
incurred on additional dates beyond the ‘Date of Service’ spec-
ified in the [collection letters].” App. at 123.

       Even if the debt included a small amount of ancillary
charges beyond the Medicare deductible of Klotz’s husband,
these allegations do not change whether the debt resulted from
the provision of a necessary service. Indeed, necessaries can be
costs that “directly or indirectly are designed to preserve the
assets of [a] marriage or to permit [a debtor spouse] to continue
his normal life, including the ability to make income and sup-
port the family either through employment or providing ser-
vices or emotional well-being in the household.” See DuBois
v. DeLarm, 578 A.2d 1250, 1255 (N.J. Super. Ct. App. Div.
1990) (emphasis added). None of Klotz’s proposed allegations

                               11
challenge whether the debt incurred falls outside the definition
of a necessary under New Jersey law. Her “complaint pleads
facts that are ‘merely consistent with’ [CSW]’s liability” but
“stops short of the line between possibility and plausibility of
entitlement to relief.” Iqbal, 556 U.S. at 678 (internal quotation
marks omitted). The District Court did not abuse its discretion
when it denied Klotz’s request for leave to amend for futility.

                         *      *      *

        The ECOA does not preempt New Jersey’s doctrine of
necessaries, so the doctrine permitted CSW to send its collec-
tion letters to Klotz without violating the FDCPA. Addition-
ally, CSW followed the procedural requirements of the doc-
trine, and Klotz’s filing an amended complaint would be futile.
So we will affirm the District Court’s judgment dismissing
Klotz’s complaint.

                               12