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Calogero v. Shows, Cali & Walsh, LLP

United States District Court, E.D. Louisiana

June 25, 2019

SHOWS, CALI & WALSH, LLP, a Louisiana limited liability partnership; MARY CATHERINE CALI, an individual; and JOHN C. WALSH, an individual

         SECTION M (3)

          ORDER & REASONS


         Before the Court is a motion under Rule 12(b)(6) of the Federal Rules of Civil Procedure by defendants Shows, Cali & Walsh, LLP, Mary Catherine Cali, and John C. Walsh (collectively “Defendants”) to dismiss the individual and class action Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692, et seq., claims of plaintiff Iris Calogero (“Calogero”) for failure to state a claim.[1] Having considered the parties' memoranda and the applicable law, the Court grants the motion, concluding that the money Calogero allegedly owes to the State of Louisiana for overpayment under the Road Home grant program is not a debt as defined by the FDCPA.

         I. BACKGROUND

         In August and September 2005, Hurricanes Katrina and Rita caused widespread property damage in Louisiana and other Gulf Coast states. To aid in disaster relief, Congress appropriated funds that were administered through the Community Development Block Grant Program of the United States Department of Housing and Urban Development (“HUD”) and distributed to state governments. In re Katrina Canal Breaches Consol. Litig., 2009 WL 1046016, at *1 (E.D. La. Apr. 16, 2009); In re Katrina Canal Breaches Consol. Litig., 2011 WL 13205919, at *1 (E.D. La. Oct. 24, 2011). Louisiana created the Road Home program to disburse these funds to homeowners in the form of grants to compensate them up to $150, 000 for structural damages caused by the storms. In re Katrina Canal Breaches Consol. Litig., 2011 WL 13205919, at *1. The Road Home program was administered through the Louisiana Office of Community Development (“OCD”) and the Louisiana Recovery Authority.[2]

         The Road Home program placed certain conditions on the recipients' use of the money and other covenants to run with the land.[3] As explained by the court in In re Katrina Canal Breaches Consolidated Litigation:

Consistent with federal law, the Road Home program prohibits providing any relief funds that would duplicate payments from other sources, and therefore the Road Home program deducts any insurance payments from the federal grants that it receives. Individual recipients of grant money must likewise reimburse the State insofar as they subsequently receive insurance payments or other payments for losses covered by their Road Home grants. To the extent that the State recovers funds pursuant to these Agreements, the State recycles such funds within the Road Home Program. As part of the closing process, the Road Home program requires that individual recipients execute the Road Home Limited Subrogation/Assignment Agreement (“Agreement”) in which the recipient promises to pay back any Road Home funds that are duplicated through other sources, such as through insurance payments for building coverage. The recipient further assigns the right to such duplicate funds to the State, and further agrees to provide notice to the State if he/she chooses to “abandon, dismiss, or release the claims against [his/her] insurance company ... to allow the State to individually pursue recovery of the rights which have been assigned to the State herein.”


         Calogero's home in Slidell, Louisiana, was significantly damaged by the storms.[4] On May 11, 2007, Calogero entered into a contract with the OCD to receive a Road Home grant in the amount of $33, 392.68.[5] “[I]n consideration of receipt of all Grant proceeds as compensation for damages incurred by [Calogero] due to the Hurricanes, ” she agreed to contractual covenants pertaining to alienation and use of the property, maintenance of flood insurance, and other items.[6] Calogero also agreed to repay to the State any additional funds she received from her insurance company or the Federal Emergency Management Agency (“FEMA”) for damage to the property caused by Hurricanes Katrina and/or Rita in the amount by which her Road Home grant would have been reduced if she had received those payments prior to receiving the grant.[7]

         On February 9, 2018, Defendants sent Calogero a letter informing her that they represented the OCD in an effort to retrieve Road Home grant overpayments, and that she owed $4, 598.89 to the State because she received more in total insurance proceeds than the amount used to calculate her grant.[8] On March 5, 2018, Calogero disputed the alleged overpayment.[9]

         On April 10, 2018, Defendants sent a letter to Calogero's counsel explaining that Calogero initially reported to OCD $5, 200 in FEMA payments and $14, 733.29 in homeowners' insurance proceeds for structural damage, which amounts were used to calculate Calogero's Road Home grant. OCD later learned that Calogero actually received $10, 500 from FEMA and $16, 003.14 in structural damage insurance proceeds from her insurer, resulting in variances of FEMA benefits and insurance benefits used to calculate her Road Home grant in the amounts of $5, 300 and $1, 269.85, respectively.[10] As a result, after accounting for a $1, 970.96 credit in the lack-of-flood-insurance penalty, OCD calculated that Calogero's Road Home grant should have been $28, 793.79, rather than the $33, 392.68 she received.[11]

         On July 16, 2018, Calogero filed this action alleging that Defendants violated the FDCPA because the collection letter did not inform her both that the alleged debt is prescribed and thus unenforceable, and that any repayment would restart the statute of limitations.[12] Calogero contends that, by administering the Road Home program to distribute federal funds, the OCD acted as a federal agency and any action to recover overpayments is subject to a six-year statute of limitations under 28 U.S.C. § 2425.[13] Thus, Calogero argues that the overpayment debt is unenforceable and Defendants' collection letter violated the FDCPA by falsely (according to her) implying that OCD could sue her for breach of contract.[14] Calogero also asserts that the letter misrepresented the nature of her alleged debt because it stated that the entire $4, 598.89 Road Home grant overpayment was due to unreported insurance proceeds, when only $1, 269, 85 of that amount was in unreported insurance proceeds, whereas the rest was unreported payments from FEMA.[15]


         Defendants move to dismiss Calogero's individual and class FDCPA claims arguing that the FDCPA is inapplicable because Calogero's obligation to repay the overpayment on her Road Home grant is not a debt as defined by the statute.[16] Defendants argue that the money was disaster compensation intended to help recipients expeditiously rebuild their homes after Hurricanes Katrina and/or Rita, and that it “would never have to be repaid unless: a) the grant recipient was determined to have not been eligible for the Grant; b) the terms of compliance set forth in the contractual agreements were not met; or c) the amount of the Grant was determined to have been calculated in error based on information available at the time of the Grant disbursement.”[17] Defendants point out that there were no contractual interest or late charges, and the obligations assumed by the grant recipients, such as Calogero, were to ensure that the money was used appropriately, not to create either a promise to repay the funds or consumer debt.[18]Thus, the FDCPA is not applicable to Defendants' attempts to collect the $4, 598.89 in Road Home overpayments that Calogero owes.[19] Defendants further argue that it is irrelevant that they included in the collection letter language required by the FDCPA because using such language does not of itself render applicable the FDCPA.[20]

         Calogero counters that her obligation to repay the alleged overpayment is a debt under the FDCPA because it arose from the consumer transaction of her entering into the Road Home contract.[21] As required by the FDCPA, the funds received were meant for “personal, family or household purposes” - in this case, repairs for structural damage to Calogero's home. She analogizes her situation to that of the seller in Oppenheim v. I.C. Sys., Inc., 627 F.3d 833 (11th Cir. 2010), in which the Eleventh Circuit held that a seller's obligation to repay PayPal, under the user agreement, for funds he withdrew from his account on a transaction that PayPal later reversed as fraudulent on the part of the third-party buyer, was a debt under the FDCPA.[22]According to Calogero, Oppenheim stands for the proposition that a contractual obligation to repay is a debt under the FDCPA.[23] Further, Calogero argues that Defendants must have considered themselves subject to the FDCPA by including in the collection letter language required by the statute.[24]

         III. LAW & ANALYSIS

         A. Rule ...

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