In Dacumos v. Toyota Motor Credit Corporation, 2017 WL 6406137, at *4–5 (W.D.Wash., 2017), Judge Martinez found that dismissal of a state court collection action by itself did not vitiate the debt and require the creditor to report the balance as “0”.
Plaintiff contends that because TMCC dismissed the collection case against her in King County Superior Court, that dismissal acts as a judgment on the merits, and therefore TMCC should be reporting a $0 balance owed to the CRAs. The Ninth Circuit has not addressed this issue. However, in Dawe v. Capital One Bank, 456 F. Supp.2d 236 (D. Mass. 2006), the United States District Court addressed a similar issue, albeit under a different procedural posture. The Court explained:“There remains, finally, the question whether the absence of a judicial remedy operates to extinguish the underlying debt obligation for all purposes. Although the question appears to be one of first impression, courts have considered the analogous context of a debt that is time-barred by a statute of limitations. For example, in Freyermuth v. Credit Bureau Serv., Inc., the Eighth Circuit found no violation of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, where a creditor attempted to collect on a potentially time-barred debt. Freyermuth v. Credit Bureau Servs., 248 F.3d 767, 771 (8th Cir. 2001). A number of other courts have similarly held that while the statute of limitations may eliminate a judicial remedy, it does not extinguish the underlying indebtedness. See, e.g., Walker v. Cash Flow Consultants, Inc., 200 F.R.D. 613, 616 (N.D. Ill. 2001); Wallace v. Capital One Bank, 168 F. Supp. 2d 526, 528 (D. Md. 2001); Shorty v. Capital One Bank, 90 F. Supp. 2d 1330, 1332 (D.N.M. 2000); Johnson v. Capital One Bank, 2000 U.S. Dist. LEXIS 13311, No. Civ. A. SA00CA315EP, 2000 WL 1279661, at *2 (W.D. Tex. May 19, 2000). Applying this reasoning in the present context, the Court holds that the state court dismissal – though it may deprive Capital One of a judicial mechanism for recovering the loan – does not erase Dawe’s underlying indebtedness.” Dawe, 456 F.2d at 242.
That decision is in line with decisions in other District Courts in the Ninth Circuit. For example, the District Court of Nevada has noted:
Moreover, the Court denies leave to amend because Defendants have not provided any authority which states that when a bank charges off a loan the legal obligation to repay the loan is extinguished. The Ninth Circuit case that Defendants cite to does not support their argument. In Santa Monica Mountain Park Co. v. United States, 99 F.2d 450 (9th Cir. 1938), the Ninth Circuit only stated that if a taxpayer considered a debt uncollective [sic] for income tax purposes, the taxpayer could not use the same uncollectible debt as assets for tax purposes. Id. at 455. The Ninth Circuit did not hold that a charge off extinguished legal liability for the debt. In fact other courts who have addressed this issue have found that a charge off does not extinguish liability for the debt. See In re Zilka, 407 B.R. 684, 687 (Bankr. W.D. Pa. 2009) (finding that, as a matter of law, when a lender issues an account statement to its borrower indicating that an outstanding loan balance equals $0.00 because such loan has been charged off, it is not the legal equivalent of forgiving (i.e. discharging liability on) a debt). Accordingly, the Court grants the motion to dismiss counterclaims (#31) without leave to amend.
Plaza Bank v. Green Family Trust, 2011 U.S. Dist. LEXIS 141044, *15-16 (D. Nev. Dec. 7, 2011) (emphasis added). In the instant case, while Plaintiff argues that the Order of Dismissal with prejudice had the effect of extinguishing the underlying debt, Plaintiff provides no controlling authority to support that argument. Thus, the Court is persuaded for the reasons set forth by TMCC that the Order of Dismissal does not preclude it from reporting a charged off debt, and does not require it to report a $0 balance. For those reasons, even accepting all of Plaintiff’s alleged facts as true, Plaintiff’s claim against TMCC must be dismissed with prejudice.
4. Effect of Settlement Agreement Plaintiff also argues that Defendant’s motion must be denied because the intent and effect of a global settlement agreement in the state court actions had the effect of extinguishing her debt. Dkt. #29 at 14-17. The Court does not consider this argument. First, Plaintiff did not raise such a claim in her Complaint. Nowhere does she even mention the Settlement Agreement. See Dkt. #1-1 at ¶ ¶ 4.1-4.23. Further, to consider the argument, the Court would be required to examine documents extrinsic to the Complaint and of which it could not take judicial notice. This would require the Court to convert the motion to one for summary judgment. Because the claim was not raised in the Complaint, the Court finds no basis to convert the motion or consider the documents provided by Plaintiff at this time. . . .However, given Plaintiff’s argument in response to the instant motion regarding the effect of the Settlement Agreement, which is not a basis of the claims set forth in the current Complaint, Plaintiff shall have the opportunity to correct those deficiencies should she believe she can do so, through the filing of an Amended Complaint.