Obduskey v. McCarthy & Holthus LLP

• Decision Date: 20 March 2019
• Docket Number: No. 17-1307,17-1307
• Citation: 139 S.Ct. 1029,203 L.Ed.2d 390
• Parties: Dennis OBDUSKEY, Petitioner v. MCCARTHY & HOLTHUS LLP
• Court: U.S. Supreme Court

139 S.Ct. 1029

203 L.Ed.2d 390

Dennis OBDUSKEY, Petitioner

v.MCCARTHY & HOLTHUS LLP

No. 17-1307

Supreme Court of the United States.

Argued January 7, 2019

Decided March 20, 2019

Kannon K. Shanmugam, Washington, DC, for Respondent.

Jonathan C. Bond for the United States as amicus curiae, by special leave of the Court, supporting the Respondent.

Daniel L. Geyser, Geyser P.C., Dallas, TX, for Petitioner.

Thomas J. Holthus, Matthew E. Podmenik, McCarthy & Holthus LLP, San Diego, CA, Holly R. Shilliday, McCarthy & Holthus LLP, Centennial, CO, Kannon K. Shanmugam, Masha G. Hansford, Joel S. Johnson, Michael J. Mestitz, Williams & Connolly LLP, Washington, DC, for Respondent.

Justice BREYER delivered the opinion of the Court.

The Fair Debt Collection Practices Act regulates " ‘debt collector[s].’ " 15 U.S.C. § 1692a(6) ; see 91 Stat. 874, 15 U.S.C. § 1692 et seq. A " ‘debt collector,’ " the Act says, 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." § 1692a(6). This definition, however, goes on to say that "[f]or the purpose of section 1692f(6)" (a separate provision of the Act), "[the] term [debt collector] also includes any person ... in any business the principal purpose of which is the enforcement of security interests." Ibid.

The question before us concerns this last sentence. Does it mean that one principally involved in "the enforcement of security interests" is not a debt collector (except "[f]or the purpose of section 1692f(6)")? If so, numerous other provisions of the Act do not apply. Or does it simply reinforce the fact that those principally involved in the enforcement of security interests are subject to § 1692f(6) in addition to the Act’s other provisions?

In our view, the last sentence does (with its § 1692f(6) exception) place those whose "principal purpose ... is the enforcement of security interests" outside the scope of the primary "debt collector" definition, § 1692a(6), where the business is engaged in no more than the kind of security-interest enforcement at issue here—nonjudicial foreclosure proceedings.

I

A

When a person buys a home, he or she usually borrows money from a lending institution, such as a bank. The resulting debt is backed up by a "mortgage"—a security interest in the property designed to protect the creditor’s investment. Restatement (Third) of Property: Mortgages § 1.1 (1996) (Restatement). (In some States, this security interest is known as a "deed of trust," though for present purposes the difference is immaterial. See generally ibid. ) The loan likely requires the homeowner to make monthly payments. And if the homeowner defaults, the mortgage entitles the creditor to pursue foreclosure, which is "the process in which property securing a mortgage is sold to pay off the loan balance due." 2 B. Dunaway, Law of Distressed Real Estate § 15:1 (2018) (Dunaway).

Every State provides some form of judicial foreclosure: a legal action initiated by a creditor in which a court supervises sale of the property and distribution of the proceeds. Id. , § 16:1. These procedures offer various protections for homeowners, such as the right to notice and to protest the amount a creditor says is owed. Id. , §§ 16:17, 16:20; Restatement § 8.2. And in the event that the foreclosure sale does not yield the full amount due, a creditor pursuing a judicial foreclosure may sometimes obtain a deficiency judgment, that is, a judgment against the homeowner for the unpaid balance of a debt. National Consumer Law Center (NCLC), Foreclosures and Mortgage Servicing §§ 12.3.1–2 (5th ed. 2014).

About half the States also provide for what is known as nonjudicial foreclosure, where notice to the parties and sale of the property occur outside court supervision. 2 Dunaway § 17:1. Under Colorado’s form of nonjudicial foreclosure, at issue here, a creditor (or more likely its agent) must first mail the homeowner certain preliminary information, including the telephone number for the Colorado foreclosure hotline. Colo. Rev. Stat. § 38–38–102.5(2) (2018). Thirty days later, the creditor may file a "notice of election and demand" with a state official called a "public trustee." § 38–38–101. The public trustee records this notice and mails a copy, alongside other materials, to the homeowner. §§ 38–38–102, 38–38–103. These materials give the homeowner information about the balance of the loan, the homeowner’s right to cure the default, and the time and place of the foreclosure sale. §§ 38–38–101(4), 38–38–103. Assuming the debtor does not cure the default or declare bankruptcy, the creditor may then seek an order from a state court authorizing the sale. Colo. Rule Civ. Proc. 120 (2018); see Colo. Rev. Stat. § 38–38–105. (Given this measure of court involvement, Colorado’s "nonjudicial" foreclosure process is something of a hybrid, though no party claims these features transform Colorado’s nonjudicial scheme into a judicial one.) In court, the homeowner may contest the creditor’s right to sell the property, and a hearing will be held to determine whether the sale should go forward. Colo. Rules Civ. Proc. 120(c), (d).

If the court gives its approval, the public trustee may then sell the property at a public auction, though a homeowner may avoid a sale altogether by curing the default up until noon on the day before. Colo. Rev. Stat. §§ 38–38–110, 38–38–104(VI)(b). If the sale goes forward and the house sells for more than the amount owed, any profits go first to lienholders and then to the homeowner. § 38–38–111. If the house sells for less than what is owed, the creditor cannot hold the homeowner liable for the balance due unless it files a separate action in court and obtains a deficiency judgment. See § 38–38–106(6); Bank of America v. Kosovich , 878 P.2d 65, 66 (Colo. App. 1994). Other States likewise prevent creditors from obtaining deficiency judgments in nonjudicial foreclosure proceedings. Restatement § 8.2. And in some States, pursuing nonjudicial foreclosure bars or curtails a creditor’s ability to obtain a deficiency judgment altogether. NCLC, Foreclosures and Mortgage Servicing § 12.3.2.

B

In 2007, petitioner Dennis Obduskey bought a home in Colorado with a $ 329,940 loan secured by the property. About two years later, Obduskey defaulted.

In 2014, Wells Fargo Bank, N. A., hired a law firm, McCarthy & Holthus LLP, the respondent here, to act as its agent in carrying out a nonjudicial foreclosure. According to the complaint, McCarthy first mailed Obduskey a letter that said it had been "instructed to commence foreclosure" against the property, disclosed the amount outstanding on the loan, and identified the creditor, Wells Fargo. App. 37–38; see id. , at 23. The letter purported to provide notice "[p]ursuant to, and in compliance with," both the Fair Debt Collection Practices Act (FDCPA) and Colorado law. Id. , at 37. (The parties seem not to dispute that this and other correspondence from McCarthy was required under state law. Because that is a question of Colorado law not briefed by the parties before us nor passed on by the courts below, we proceed along the same assumption.) Obduskey responded with a letter invoking § 1692g(b) of the FDCPA, which provides that if a consumer disputes the amount of a debt, a "debt collector" must "cease collection" until it "obtains verification of the debt" and mails a copy to the debtor.

Yet, Obduskey alleges, McCarthy neither ceased collecting on the debt nor provided verification. App. 22–23. Instead, the firm initiated a nonjudicial foreclosure action by filing a notice of election and demand with the county public trustee. Ibid. ; see id. , at 39–41. The notice stated the amount due and advised that the public trustee would "sell [the] property for the purpose of paying the indebtedness." Id. , at 40.

Obduskey then filed a lawsuit in federal court alleging that the firm had violated the FDCPA by, among other things, failing to comply with the verification procedure. Id. , at 29. The District Court dismissed the suit on the ground that the law firm was not a "debt collector" within the meaning of the Act, so the relevant Act requirements did not apply. Obduskey v. Wells Fargo , 2016 WL 4091174, *3 (D. Colo., July 19, 2016).

On appeal, the Court of Appeals for the Tenth Circuit affirmed the dismissal, concluding that the "mere act of enforcing a security interest through a non-judicial foreclosure proceeding does not fall under" the Act. Obduskey v. Wells Fargo , 879 F.3d 1216, 1223 (2018).

Obduskey then petitioned for certiorari. In light of different views among the Circuits about application of the FDCPA to nonjudicial foreclosure proceedings, we granted the petition. Compare ibid. and Vien-Phuong Thi Ho v. ReconTrust Co., NA , 858 F.3d 568, 573 (C.A.9 2016) (holding that an entity whose only role is the enforcement of security interests is not a debt collector under the Act), with Kaymark v. Bank of America, N. A. , 783 F.3d 168, 179 (C.A.3 2015) (holding that such an entity is a debt collector for the purpose of all the Act’s requirements), Glazer v. Chase Home Fin. LLC , 704 F.3d 453, 461 (C.A.6 2013) (same), and Wilson v. Draper & Goldberg, P. L. L. C. , 443 F.3d 373, 376 (C.A.4 2006) (same).

II

A

The FDCPA’s definitional section, 15 U.S.C. § 1692a, defines a "debt" as:

"any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes." § 1692a(5) (emphasis added).

The Act then sets out the definition of the term "debt collector." § 1692a(6). The first sentence of the relevant paragraph, which we shall call the primary definition, says that the term "debt collector":

"means any person ... in any business the principal purpose of which is the collection of any debts, or who regularly

...