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Curtis v. Propel Property Tax Funding, LLC

United States District Court, E.D. Virginia, Richmond Division

August 8, 2017

GARRY CURTIS, Plaintiff,


          John A. Gibney, Jr. United States District Judge

         Garry Curtis was behind on the taxes he owed to the City of Petersburg ("Petersburg"), so he entered into an agreement with Propel Property Tax Funding, LLC ("Propel Tax"), and Propel Financial Services, LLC ("Propel Financial") (collectively, "Propel"). Through this agreement, Propel paid taxes to Petersburg on behalf of Curtis, and then Curtis paid back Propel, with interest. Curtis, on behalf of himself and other similarly situated consumers, has now sued Propel based on the term of this and accompanying agreements, plus the related disclosures. Specifically, Curtis alleges that Propel has violated (I) the Truth in Lending Act ("TILA"); (II) the Electronic Funds Transfer Act (the "EFTA"); and (III) the Virginia Consumer Protection Act (the "VCPA").

         Propel has challenged whether Curtis has standing to proceed on the EFTA claims. Because the harm alleged by Curtis for these claims is the type of harm Congress sought to prevent when it passed the EFTA, the Court finds that Curtis has alleged a concrete injury. Curtis has also demonstrated the other elements of standing, so the Court denies Propel's challenge and finds that Curtis has standing to proceed.

         Propel has also moved to dismiss for failure to state a claim. The Court will deny the motion as to Counts I and II because the tax payment agreements offered by Propel to consumers like Curtis qualify as consumer credit transactions. As to Count III, however, the Court will grant the motion, but will allow Curtis leave to amend his complaint as to this claim.

         I. BACKGROUND

         Propel offers tax payment agreements to residents in Petersburg pursuant to Va. Code Ann. § 58.1-3018. This statute permits localities in Virginia to authorize third parties that want to offer third-party tax payment agreements ("TPAs"). Id. § 58.1-3018(B). Under these TPAs, authorized third parties contract with taxpayers to pay amounts due to the locality on behalf of the taxpayers. Id. § 58.1-3018(A). The TPAs can cover payment of "current taxes, charges, fees and obligations, delinquent taxes, penalties and interests, or any combination of the foregoing, " both related and unrelated to real property. Id. If the taxes paid subject to the agreement are for real property, however, the third party must record a copy of the TPA in the land records. Id. § 58.1-3018(D). The statute regulates the terms of these TPAs, including the maximum repayment period (96 months), the maximum interest rate (16% annual rate), and the maximum origination fee (10% of the amount paid by the third party). Id. § 58.1-3018(B)(2). The treasurer of the locality must approve the interest rate and the origination fee. Id.

         Once the parties execute a TPA, the authorized third party must pay the taxes subject to the agreement to the treasurer of the locality within ten days. Id. § 58.1-3018(B)(1). This payment tolls the enforcement period for the taxes subject to the agreement. Id. § 58.1-3018(E). If the taxes paid subject to the agreement are for real property taxes, this payment from the third party to the locality does not affect the tax lien created by state law.[1] The taxpayer then repays the third party in installments over the set period. Id. § 58.1-3018(B)(2). The third party provides monthly reports to the locality regarding all outstanding TPAs. Id. § 58.1-3018(B)(4).

         If the taxpayer defaults on his payments to the third party, the locality reimburses the third party the amount it paid to the locality, minus all payments received by the third party from the taxpayer, excluding interest and fees charged by the third party under the agreement. Id. § 58.1-3018(C)(1). Once the locality reimburses the third party, the locality reinstates the taxes owed by the taxpayer on its books in the amount of the reimbursement. Id. § 58.1-3018(C)(2).

         For example, say Tim Taxpayer owes Petersburg $10, 000 in real property taxes. Tim enters into a TPA with Propel. Propel pays Petersburg the $10, 000. Tim pays Propel a total of $5, 000 in installments for the first four years of the installment period. Of that $5, 000 paid by Tim, $1, 000 went to Propel for fees and interest. Tim then defaults. Propel seeks reimbursement from Petersburg. Petersburg would reimburse Propel $6, 000. This represents the $10, 000 that Propel originally paid Petersburg, minus $4, 000-the amount paid by Tim to Propel, less interest and fees. Petersburg would then reinstate real property taxes owed by Tim in the amount of $6, 000.

         What is the real world result of the transaction? For the four years before default, Petersburg had the $10, 000 paid by Propel to pay its bills. After the reimbursement, Petersburg keeps $4, 000 and has $6, 000 on its books as taxes owed by Tim. Propel walks away with $11, 000, the $5, 000 paid by Tim and the $6, 000 reimbursed by Petersburg. So Propel makes $1, 000 profit, the amount of Tim's payments that went toward interest and fees. Tim Taxpayer has paid $5, 000 toward his $10, 000 in real property taxes, but still owes $6, 000 to Petersburg. Tim, however, got the benefit of Petersburg not seeking to foreclose on his home during that four-year period.

         In this case, Curtis applied for a TPA with Propel. Propel provided Curtis a disclosure sheet, which included the terms of the agreement, the applicable interest rate, and the costs and fees. (Compl. Ex. B.) This document contained inaccurate and potentially misleading information. At closing, Curtis signed a document titled Memorandum of Tax Payment Agreement (the "Memorandum"), (Compl. Ex. F), a tax payment agreement (the "Curtis TPA"), (Compl. Ex. G), and an agreement authorizing a monthly electronic funds transfer[2] (the "EFT Agreement"), (Compl. Ex. E).[3] Curtis also received an updated payment terms disclosure sheet. (Compl. Ex. H.) This disclosure sheet corrected the statutory inaccuracies from the original disclosure, but listed different dollar values for some figures. Pursuant to these documents, Propel agreed to pay Petersburg $14, 547.65 on Curtis's behalf for real property taxes. The parties agreed to a $1, 454.76 origination fee (10% of the amount of taxes paid), and an interest rate of 10.95%, with no interest accruing in the first six months after payment. The Curtis TPA outlined additional possible fees, including fees for recording or insufficient funds. Under the agreement, the installment payments go first to fees, then to interest, then to the principal. The Curtis TPA made clear that payment by Propel to the locality "is not final and will not extinguish [Curtis's] obligation" to the locality. (Compl. Ex. G, at ¶ 6(A).) The Memorandum reiterated this point. (See Compl. Ex. F.) For its part, the EFT Agreement provided in part that the authorization for the recurring electronic funds transfer shall remain in effect until "Propel receives notification from [Curtis] of termination of this authorization at least 7 business days prior to the Day of Debit." (Compl. Ex. E.)


         Curtis has sued Propel on behalf of himself and other similarly situated individuals. Curtis alleges that Propel violated: (I) TILA; (II) the EFTA; and (III) the VCPA.[4]

         Propel moved to dismiss all three counts for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6).[5] In its briefs in support of its motion to dismiss, however, Propel only addressed one of the two alleged violations of the EFTA. Specifically, the briefs focused on the alleged violation of 15 U.S.C. § 1693k, which, like the TILA claim in Count I, concerns the definition of the term "credit." Propel did not raise any arguments about the alleged violation of § 1693l, nor do the arguments about the term "credit" apply to this claim. At the March 23, 2017 hearing, the Court asked about this discrepancy and, in lieu of argument, permitted both parties to file simultaneous supplemental briefs on the § 1693l claim. In its supplemental brief, Propel raised two entirely new arguments on why the Court should dismiss the § 1693l claim, one merits-based and one jurisdictional, based on standing. The Court will not address the new merits-based argument because Propel failed to raise ...

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