On June 25, a district court judge in the Eastern District of Louisiana granted the defendants’ motion to dismiss under Rule 12(b)(6) for failure to state a claim. The Court held that requiring the plaintiff, Iris Calogero, to repay funds arising from the overpayment of grant monies did not constitute a debt under the Fair Debt Collection Practices Act.
Calogero’s home sustained significant damage during hurricanes Katrina and Rita. Thus, in 2007, under the federal government’s Road Home Program, Calogero entered into a contract with the Louisiana Office of Community Development (“OCD”) to receive funds to compensate her for structural damage caused by the storms. Per the contract, Calogero agreed to reimburse the State of Louisiana for any duplicate funds received from other federal grants and insurance payments, as the State could “recycle” any recovered overpayments within the Road Home Program. After payments from FEMA and her insurer, the OCD determined that Calogero owed $4,598.89.
The State retained the defendants – Shows, Cali & Walsh, LLP; Mary Catherine Cali; and John C. Walsh – to collect this overpayment. The defendants sent a letter to Calogero explaining that she owed money to the State because she received more in total insurance proceeds than the amount used to calculate her grant. In response, she disputed the amount owed and filed a lawsuit under the FDCPA on behalf of herself and others.
Calogero alleged that because the OCD was distributing federal funds, it was subject to the six-year statute of limitation under 28 U.S.C. § 2425. She reasoned that because collection of the debt was allegedly time-barred, the defendants violated the FDCPA by “falsely” claiming that the OCD could sue Calogero for breach of contract. Calogero also alleged that the letter misrepresented the amount owed.
The Court disagreed and, as a threshold issue, determined that Calogero’s “obligation to repay the alleged Road Home overpayment [was] not a ‘debt’ as defined by the FDCPA.” The Court noted that the FDCPA is limited to consumer transactions for goods and services. Thus, requiring a recipient of federal aid to return funds to which “she was never entitled is not such a transaction.” Indeed, the Court stressed the fact that Calogero’s obligation to repay only arose from the overpayment of grant funds to which she was never entitled. The Court likened these facts to the overpayment of a salary, which other courts have held was not a debt under the FDCPA. Accordingly, because the amount in dispute was not a debt under the FDCPA, the Court dismissed all claims with prejudice.