In a unanimous, narrow, decision, the Supreme Court held that an entity merely carrying out nonjudicial foreclosures is not a “debt collector” within the meaning of the FDCPA. Obduskey v. McCarthy & Holthus LLP, 586 U.S. ___, No. 17-1307 (March 20, 2019).
The action arose when the law firm of McCarthy & Holthus, acting as agent for the mortgagee, initiated nonjudicial foreclosure proceedings against Dennis Obduskey. In response to McCarthy’s notice of foreclosure, sent in compliance with Colorado nonjudicial foreclosure law, Mr. Obduskey invoked the FDCPA and sent a letter disputing the debt. When McCarthy went forward with the foreclosure proceedings, Mr. Obduskey filed a complaint in district court alleging violation of the FDCPA’s requirement that, upon notification of a disputed claim, a debt collector must cease collection activities and obtain verification of the debt. The district court found that McCarthy was not a debt collector to which the FDCPA requirements applied. The Tenth Circuit affirmed. Obduskey v. Wells Fargo, 879 F. 3d 1216 (2018).
The Supreme Court agreed. Justice Breyer’s majority opinion relied primarily on textual interpretation. Section 1692(a)(6) of the FDCPA sets forth a two-part definition of “debt collector.” First, a “debt collector” is “any person . . . in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts.” The FDCPA then provides what the Court called a “limited-purpose” definition, stating that “[f]or the purpose of section 1692f(6) . . . [the] term [debt collector] also includes any person . . . in any business the principal purpose of which is the enforcement of security interests.”
The Court found that, in the absence of the “limited-purpose” phrase, an entity carrying out a nonjudicial foreclosure would fall under the FDCPA’s primary definition of debt collector. But Congress’s use of the phrase “also includes,” suggests that entities whose sole purpose is to enforce security interests, would not otherwise be deemed a debt collector. As the text is structured, therefore, the entity against which the FDCPA is being wielded must first be in the business of debt collection and, only if that is the case, have as its principal purpose enforcement of security interests.
In so holding, the Court reasoned that this structure could indicate congressional intent not to interfere with state nonjudicial foreclosure procedures. In fact, the definition appeared to be a legislative compromise between including entities enforcing security interests in the primary definition of “debt collector,” and excluding them from the definition altogether.
The Court went on to address and reject Mr. Obduskey’s counterarguments. First, the Court was unpersuaded that the limited-purpose provision was intended to draw repo-men into the definition of debt collector, finding instead that the text was broadly written to include all security interests, not just personal property. Furthermore, the fact that McCarthy sent letters seeking payment of the debt prior to taking foreclosure action was attributable to state nonjudicial foreclosure requirements rather than an indication that McCarthy was acting as a debt collector. There was no indication that McCarthy engaged in other debt collection activities.
The Court noted that its holding was limited to instances of conduct involving adherence to state nonjudicial foreclosure requirements and that had McCarthy engaged in more extensive, abusive, conduct, it might not have escaped liability under the FDCPA’s primary definition.
In her concurring opinion, Justice Sotomayor emphasized the narrow nature of the Court’s majority opinion as applying to good faith conduct, and voiced her concern that in enacting section 1692(a)(6)’s definition, Congress may not have anticipated the conclusion reached by the Court.
Tags: FDCPA, debt collectors, foreclosure
