On March 20, 2019, the United States Supreme Court issued a unanimous decision in Obduskey v. McCarthy & Holthus LLP, No. 17-1307, finding a business solely engaged in non-judicial foreclosure actions is not a debt collector under the Fair Debt Collection Practices Act, except for the limited purposes of the prohibited actions listed in Section 1692f(6).
As we previously reported, this action originally arose out of non-judicial foreclosure proceedings that a national bank, through Appellee McCarthy & Holthus LLP, initiated against Dennis Obduskey in connection with a home mortgage loan he defaulted on in 2009.
As a part of its foreclosure attempts, McCarthy & Holthus sent Obduskey a letter containing information about the debt as well as certain disclosures, including disclosures regarding McCarthy & Holthus’ status as a debt collector and Obduskey’s rights to dispute the debt or seek validation. Although Obduskey disputed the debt, McCarthy & Holthus failed to provide verification, and instead initiated a non-judicial foreclosure proceeding.
Obduskey filed an action against McCarthy & Holthus and the national bank in the United States District Court for the District of Colorado alleging the defendants violated the FDCPA and Colorado state law. The district court dismissed the FDCPA claims based on what it perceived as the majority view that foreclosure proceedings do not constitute the collection of a debt. On appeal, the Court of Appeals for the Tenth Circuit affirmed the district court and also found that both defendants were not debt collectors under the FDCPA. Obduskey appealed and the Supreme Court granted certiorari on June 28, 2018.
Writing the unanimous opinion for the Court that affirmed the Tenth Circuit’s decision, Justice Breyer focused on the plain language of the FDCPA’s definition of a “debt collector” as found in Section 1692a(6). That Section defines a “debt collector,” as “any person . . . in any business the principal purpose of which is the collection of any debts, or who regularly attempts to collect . . . debts.” However, the definition then goes on to state, “[f]or the purpose of section 1692f(6) . . . such term also includes any person . . . in any business the principal purpose of which is the enforcement of security interests.” Considering this language, the Court queried as to whether an entity exclusively engaged in “the enforcement of security interests” under the latter portion of the definition is considered a “debt collector” with respect to all provisions of the FDCPA, or only a “debt collector” with respect to the prohibited actions listed in Section 1692f(6).
Prior to turning to its analysis of the plain language of Section 1692a(6), the Court found that non-judicial foreclosure proceedings do constitute an attempt to collect a debt under the FDCPA. The Court conceded that if the definition of a debt collector excluded what it called the “limited purpose” definition with respect to Section 1692f(6), McCarthy would then be considered a debt collector, subject to all provisions under the FDCPA. Turning back to the language of Section 1692a(6), the Court highlighted the use of the word “also” in the limited purpose definition as a clear indication that “one who does no more than enforce security interests does not fall within the scope of the general definition.” A contrary interpretation, the Court found, would render the limited purpose definition superfluous.
In support of its interpretation, the Court also cited potential conflicts between the FDCPA and state nonjudicial foreclosure statutes as one reason Congress “may well have chosen to treat security-interest enforcement differently from ordinary debt collection . . . .” For example, the advertising of a foreclosure sale could run afoul of the FDCPA’s prohibition on communications with third parties in connection with collection attempts. Thus, in the Court’s opinion, it made sense that Congress would apply only Section 1692f(6)’s limited prohibitions to entities who solely seek to enforce security interests.
Finally, the Court found further support for its position in the that the legislative history of the FDCPA. In a prior version of the bill, entities tasked with enforcing security interests were subject to all provisions of the Act. The Court noted that a competing version of the bill sought to completely exclude such entities. The resulting language in the FDCPA, the Court noted, “has all the earmarks of a clear compromise: The prohibitions contained in §1692f(6) will cover security-interest enforcers, while the other ‘debt collector’ provisions of the Act will not.”
In a concurring opinion, Justice Sotomayor invited Congress to address the Court’s interpretation of “this complex statute” in subsequent legislation given that the “extent and method” of how States regulate nonjudicial foreclosures “var[ies] widely.” She also noted that “nothing in today’s opinion is ’to suggest that pursuing nonjudicial foreclosure is a license to engage in abusive debt collection practices like repetitive nighttime phone calls; enforcing a security interest does not grant an actor blanket immunity from the Act.”