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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

JAMES R. WECHSLER,

Plaintiff,

v. Case Number: 07-14582

THE CADLE COMPANY II, INC., an Ohio HON. MARIANNE O. BATTANI

corporation,

Defendant.
/

ORDER GRANTING DEFENDANT'S MOTION FOR DISMISSAL

PURSUANT TO FEDERAL RULE OF CIVIL PROCEDURE 12(B)(1) AND (6)

Before the Court is Defendant's Motion for Dismissal Pursuant to Federal Rule of

Civil Procedure 12(b)(1) and (6) (Doc. No. 2). Defendant asserts that Plaintiff lacks

standing because the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. 1692

et seq., does not apply to the debt at issue.1 The Court heard oral argument on the

motion on February 20, 2008, and at the conclusion of the hearing, informed the parties

that Defendant's motion was GRANTED. The reasoning for the Court's ruling follows.

I. STATEMENT OF FACTS

In 1980 and 1981, Plaintiff James Wechsler invested his personal funds as a

limited partner in two limited partnerships, the Longhorn Developmental Program and

the Longhorn 1981 Private Drilling Program. In December 1985, Wechsler settled two

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In the alternative Defendant asserts that Plaintiff fails to state a claim for which
the law provides a remedy because the complaint fails to assert that the obligation is a
debt under the FDCPA. Specifically, he did not allege in his complaint that the
obligation was incurred primarily for personal, family, or household purposes.
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lawsuits brought by the FDIC against him arising out of his investments in these two

companies. Pl.s Exs. 2, 3. Plaintiff agreed to execute certain promissory notes by

June 30, 1986, to settle the lawsuits.

On September 14, 1986, Wechsler did so in the amount of $150,000, which he

promised to repay in ten equal annual installments, beginning January 1, 1987, and

ending January 1, 1996. Pl.s Ex. 5. This note was assigned to Wilshire Credit

Corporation in October 1992. In December 1996, Wechsler signed a note with Wilshire

Credit Corporation, in the amount of $83,244.33, with monthly payments of $500 and a

balloon payment due December 15, 2016. Wilshires Disbursement Request and

Authorization form for the note states, The primary purpose of his loan is for . .

.Personal, Family, or Household purposes or Personal Investment. Pl.s Ex. B. Just

below the primary purpose, the form adds a Specific Purpose, which reads: The

specific purpose of this loan is: "Rewrite of Existing Loan." Id. The reimbursement

instructions include an amount of $83,244.33 to be paid on Loan #386611, the account

number on the original loan.

After Wechsler defaulted on his payment obligation to Wilshire Credit

Corporation, it assigned its rights in and to the Promissory Note to Defendant Cadle

Company II, Inc. ("Cadle"). Defendant sought collection of the balance owed on the

December 15, 1996 Promissory Note, with the principal amount of $83,224. Def.s Ex.

1. According to Plaintiff, Cadle made a number of deceptive, misleading and fraudulent

representations in connection with its attempts to collect the Wilshire Note.

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II. STANDARD OF REVIEW

Although Defendant characterizes its motion as one for dismissal based on

standing, the gist of its argument is that the debt at issue does not qualify for protection

under the FDCPA. In general, matters outside the pleadings may not be considered in

ruling on a motion to dismiss unless the motion is converted to one for summary

judgment under Fed.R.Civ.P. 56. See Weiner v. Klais & Co., 108 F.3d 86, 88 (6th

Cir.1997). Here, the use of the exhibits is necessary to resolve the issue Defendant

raises in its motion, both parties have presented evidence outside the pleadings, and

the Court therefore converts Defendant's Rule 12(b)(1)/ Rule 12(b)(6) motion to a Rule

56 summary judgment motion.

Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment

may be granted when the pleadings, depositions, answers to interrogatories, and

admissions on file, together with the affidavits, if any, show that there is no genuine

issue as to any material fact and that the moving party is entitled to judgment as a

matter of law. A fact is material and precludes grant of summary judgment if proof of

that fact would have [the] effect of establishing or refuting one of the essential elements

of the cause of action or defense asserted by the parties, and would necessarily affect

[the] application of appropriate principle[s] of law to the rights and obligations of the

parties. Kendall v. Hoover Co., 751 F.2d 171, 174 (6th Cir. 1984) (citation omitted)

(quoting Blacks Law Dictionary 881 (6th ed. 1979)). To create a genuine issue of

material fact, the nonmovant must do more than present some evidence on a disputed

issue.

There is no issue for trial unless there is sufficient evidence favoring the
nonmoving party for a jury to return a verdict for that party. If the

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[nonmovants] evidence is merely colorable, or is not significantly

probative, summary judgment may be granted.

Anderson, 477 U.S. at 249-50. No genuine issue of material fact exists when the

record taken as a whole could not lead a rational trier of fact to find for the non-moving

party. Michigan Paytel Joint Venture v. City of Detroit, 287 F.3d 527, 534 (6th Cir.

2002) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587

(1986)). The mere existence of a scintilla of evidence in support of the non-movant is

not sufficient; there must be sufficient evidence upon which a jury could reasonably find

for the non-movant. Anderson, 477 U.S. at 252.

III. ANALYSIS

The parties dispute the nature of the debt and what information is relevant to that

determination. Defendant contends that the original documents show that the note

represents a debt incurred for business investment purposes. The debt arose out of

Plaintiffs participation as a limited partner in Longhorn Developmental Program Ltd.,

and Longhorn 1981 Private Drilling Program Ltd. Def.s Ex. 2, 3, 4. Plaintiff maintains

that the Note is a new and distinct obligation, and the Court should not consider earlier

transactions in characterizing the nature of the debt.

Section 1692(a)(5) of the FDCPA, defines a debt as any obligation or alleged

obligation of a consumer to pay money arising out of a transaction in which the money,

property, insurance, or services which are the subject of the transaction are primarily for

personal, family, or household purposes, whether or not such obligation has been

reduced to judgment. See Staub v. Harris, 626 F.2d 275, 278 (3rd Cir. 1980) ("There is

nothing in the language or the history of the FDCPA to lead us to believe that Congress

intended to extend the scope of the Act to encompass debtors of any kind other than

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consumer debtors"); Zimmerman v. HBO Affiliate Group, 834 F.2d 1163, 1168-69 (3rd

Cir. 1987) ("We find that the type of transaction which may give rise to a 'debt' as

defined in the FDCPA, is the same type of transaction as is dealt with in all other

subchapters of the Consumer Credit Protection Act, i.e., one involving the offer or

extension of credit to a consumer. Specifically it is a transaction in which a consumer is

offered or extended the right to acquire 'money, property, insurance, or services' which

are 'primarily for household purposes' and to defer payment").

Although case law applying the definition is not abundant, the courts have sought

guidance in the analogous provisions of the Truth in Lending Act. 15 U.S.C. 1601 et

seq. (2000) (TILA). Those cases undermine Plaintiff's position that the underlying

history is immaterial. For example, in Tower v. Moss, 625 F.2d 1161, 1166 (5th Cir.

1980), the circuit court held that the characterization is driven by an examination of the

transaction as a whole and the purpose for which the credit was extended. Accord

Riviere v. Banner Chevrolet, Inc., 184 F.3d 457, 461-63 (5th Cir. 1999) (addressing

whether TILA applied because the extension of credit at issue, involving the purchase of

a truck, was for a commercial purpose, and finding that the resolution of this issue

involves a factual determination of [the plaintiff's] purpose in purchasing the gold truck).

Accordingly, the Court finds the underlying obligation giving rise to the debt is relevant.

Plaintiff asserts that even if the Court considers the history, the evidence shows

that the transaction that gave rise to the Wilshire Note falls within the ambit of the

FDCPA. The loan document states on its face that its purpose is for personal, family or

household purposes or personal investment. This characterization of the Wilshire Note

as a consumer debt is supported by subsequent sales documentation, which includes

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the obligation in the Consumer Loan Portfolio. Def.s Ex. 8, Portfolio Sales

Agreement. Finally, Plaintiff notes that the Wilshire Consumer Receivables Funding

Company, LLC, which identifies itself as a company that deals in consumer

receivables, transferred the Note to Cadle. Id.

This Court is not limited to the face of the loan document, but must look to the

substance of the transaction to determine whether the Wilshire Note falls under the

ambit of consumer protection statutes. Plaintiff's evidence is insufficient as a matter of

law to satisfy his burden. Here, Wechslers obligation arose out of a settlement relating

to a failed business investment. The fact that he was a silent partner, uninvolved in the

running of the business is immaterial. See Munk v. Federal Land Bank of Wichita, 791

F.2d 130, 132 (10th Cir. 1986) (loan taken for agricultural purposes is not a debt as

defined by section 1692(a)(5)); see also Bank of Boston International of Miami v.

Arguello Tefel, 644 F.Supp. 1423, 1430 (E.D.N.Y. 1986) (doubtful that loan taken to

purchase interest in a textile company is a debt as defined by section 1692(a)(5));

National Union Fire Insurance Co. v. Pidala, No. 85 Civ. 4487, slip op. at 6 n. 2

(S.D.N.Y. May 28, 1986) (rejecting the argument that an investor was a consumer,

observing, "He was not buying a washing machine on credit; he was investing $55,000

in a tax-shelter partnership").

The designation of the loan on the Wilshire document likewise does not create a

genuine issue of material fact. The designated purpose shows the note, although

categorized as a consumer loan rather than a business loan for purposes of the lender,

was a rewriting of the existing loan. There is no evidence before this Court showing that

Plaintiff used the funds obtained in the Wilshire Note for any purpose other than paying

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his preexisting debt. The Wilshire Credit Corporation's designation is not surprising,

given the fact that he was extending payments on a preexisting debt, nor is the

characterization sufficient to create a genuine issue of material fact.

There is a clear consensus among courts that have addressed the definition of a

debt within the meaning of the FDCPA, that the statute contemplates that the debt has

arisen as a result of the rendition of a service or purchase of property or other item of

value. Staub v. Harris, 626 F.2d 275, 278 (3d Cir. 1980) (rejecting the argument that

tax obligation is a debt). In Bloom v. I.C. Sys., Inc., 972 F.2d 1067, 1069 (9th Cir.1992)

(noting that neither the informal nature of the debt or the lenders motive were relevant

considerations in defining the loan), the appellate court found that a loan used to invest

capital in a software company did not qualify. The Court holds that Plaintiff's original

investment of money into a limited partnership is not a transaction for a household

purpose.

IV. CONCLUSION

In accordance with the opinion issued above, the Court GRANTS Defendant's

motion.

IT IS SO ORDERED.

s/Marianne O. Battani
MARIANNE O. BATTANI
UNITED STATES DISTRICT JUDGE

Dated: February 22, 2008

CERTIFICATE OF SERVICE

Copies of this Order were mailed to counsel of record on this date by ordinary

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mail and electronic filing.

s/Lisa Ware
Deputy Clerk