Barnes v. Routh Crabtree Olsen PC

• Decision Date: 30 June 2020
• Docket Number: No. 16-35418,16-35418
• Citation: 963 F.3d 993
• Parties: Timothy BARNES, Plaintiff-Appellant, v. ROUTH CRABTREE OLSEN PC; John Thomas, OSB# 024691; Shayda Z. Le, OSB# 121547; Federal National Mortgage Association; Seterus, Inc.; Janaya Carter, OSB# 032830; John and Jane Does, 1–10, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

963 F.3d 993

Timothy BARNES, Plaintiff-Appellant,

v.ROUTH CRABTREE OLSEN PC; John Thomas, OSB# 024691; Shayda Z. Le, OSB# 121547; Federal National Mortgage Association; Seterus, Inc.; Janaya Carter, OSB# 032830; John and Jane Does, 1–10, Defendants-Appellees.

No. 16-35418

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 14, 2020 Portland, Oregon

Filed June 30, 2020

Matthew A. Carvalho (argued), Yarmuth LLP, Seattle, Washington, to Plaintiff-Appellant.

Janet M. Schroer (argued), Hart Wagner LLP, Portland, Oregon, for Defendants-Appellees Routh Crabtree Olsen PC, John Thomas, Shayda Z. Le, and Janaya Carter.

Lance E. Olsen (argued), McCarthy Holthus LLP, Seattle, Washington, for Defendants-Appellees Federal National Mortgage Association and Seterus, Inc.

Before: Jay S. Bybee and Lawrence J. VanDyke, Circuit Judges, and Vince Chhabria,^* District Judge.

OPINION

CHHABRIA, District Judge:

This case presents a recurring issue: whether and when the enforcement of a security interest in property triggers the prohibitions on unfair debt-collection practices set forth in the Fair Debt Collection Practices Act (FDCPA). This most recent installment centers on a judicial foreclosure proceeding in Oregon.

Although some courts have placed weight on the distinction between judicial and non-judicial foreclosure in deciding whether the FDCPA applies to the enforcement of a security interest in property, we conclude that the Act's applicability turns not on the foreclosure forum but on whether the foreclosure plaintiff seeks to recover any debt beyond the proceeds from the sale of the foreclosed property. For example, if the plaintiff seeks not only to foreclose on the property but also to recover the remainder of the debt through a deficiency judgment, the plaintiff is attempting to collect a debt within the meaning of the FDCPA. But if the plaintiff is simply enforcing a security interest by retaking or forcing a sale of the property, without regard to any additional debt that may be owed, the Act does not apply.

The defendants in this FDCPA case (the foreclosure plaintiff and its attorneys) sought only to force a sheriff's sale at which interested buyers could bid on the foreclosed property. Indeed, any effort to recover money from the debtor would have been fruitless because Oregon law precludes deficiency judgments when a creditor judicially forecloses a residential deed of trust. Therefore, their pursuit of judicial foreclosure was not a form of "debt collection" regulated by the FDCPA.

I

Timothy Barnes, the plaintiff in this case, is a repeat visitor to this court. In 2007, he took out a loan of $378,250 from Chase Bank to satisfy a divorce judgment and to repurchase his home from his ex-wife. See Barnes v. Chase Home Finance, LLC , 934 F.3d 901, 905 (9th Cir. 2019). He also granted Chase Bank a deed of trust on his home as security for the note. In September 2010, Barnes ceased his loan payments and soon after filed a federal lawsuit seeking damages and rescission of the loan under the Truth in Lending Act. The district court rejected Barnes’ claims, a decision that we recently affirmed on appeal. See id. at 909.

Meanwhile, the Federal National Mortgage Association—better known by its more personable nickname, Fannie Mae—acquired the note and the deed of trust from Chase Bank. Fannie Mae subsequently initiated a proceeding in the Circuit Court for the County of Polk to foreclose the deed of trust on Barnes’ home. The state court dismissed the foreclosure action without prejudice, reasoning that the pending Truth in Lending Act action was duplicative. The Oregon Court of Appeals vacated this decision, Federal National Mortgage Ass'n v. United States , 279 Or.App. 411, 380 P.3d 1186, 1190 (2016), but Fannie Mae has not yet renewed its attempt to foreclose the deed of trust.

Not satisfied with merely forestalling the foreclosure action, Barnes went on the offensive again in federal court. He filed a pro se complaint alleging that Fannie Mae pursued judicial foreclosure without lawful authority, neglected in the foreclosure complaint to make consumer disclosures required by the FDCPA, and committed a series of misrepresentations during that proceeding. He also sued Fannie Mae's loan servicer, the law firm that represented Fannie Mae in the foreclosure proceeding, and the firm's attorneys. According to Barnes, the defendants violated the FDCPA and the parallel provision of the Oregon Unlawful Trade Practices Act, Or. Rev. Stat. § 646.639, while engaging in a civil conspiracy to boot.

After affording Barnes an opportunity to amend his complaint, the district court dismissed it with prejudice for failure to state a claim. The FDCPA claim could not proceed, the district court concluded, for a fundamental reason—namely, that none of the defendants had engaged in debt collection by initiating the judicial foreclosure proceeding. The court further held that this defect required dismissal of the state-law claims. Oregon law provides that compliance with the FDCPA constitutes compliance with the Unlawful Trade Practices Act. See Or. Rev. Stat. § 646.643. And under Oregon law, civil conspiracy is a theory of joint liability that depends on an underlying civil violation. Granewich v. Harding , 329 Or. 47, 985 P.2d 788, 792–93 (1999).

We initially affirmed the dismissal of Barnes’ complaint for essentially the same reasons given by district court. 719 F. App'x 700 (9th Cir. 2018). But upon receipt of Barnes’ petition for rehearing, we ordered supplemental briefing to discuss the effect (if any) of the Supreme Court's intervening decision in Obduskey v. McCarthy & Holthus LLP , ––– U.S. ––––, 139 S. Ct. 1029, 203 L.Ed.2d 390 (2019). We also appointed pro bono appellate counsel to represent Barnes.

II

All parties agree that none of Barnes’ claims can proceed unless at least one of the defendants is a "debt collector" as that term is defined by the FDCPA. Most of the Act's prohibitions apply only to debt collectors while collecting or attempting to collect a debt; this general rule holds true for the violations claimed by Barnes. See 15 U.S.C. §§ 1692e –g. As we already mentioned, the defendants sought to foreclose a deed of trust on Barnes’ home in state court. A deed of trust, like a mortgage, grants a creditor (in the event of default) the remedy of foreclosure—the process by which the property is sold and its proceeds distributed. The crux of the parties’ dispute is whether the defendants’ pursuit of judicial foreclosure was a form of debt collection.

A

Our cases explain that a debt collector is a person who engages in "the collection of a money debt" on behalf of a third party. Dowers v. Nationstar Mortgage, LLC , 852 F.3d 964, 970 (9th Cir. 2017). To trace this understanding to the statutory text, start at square one. A "debt" is "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, whether or not such obligation has been reduced to judgment." 15 U.S.C. § 1692a(5). Simplified somewhat, a "debt" is a consumer's obligation to "pay money." See Ho v. ReconTrust Co., NA , 858 F.3d 568, 571 (9th Cir. 2017). The primary definition of a "debt collector," in turn, is "any person who uses any instrumentality of interstate commerce or the mails 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 owed or due or asserted to be owed or due another." 15 U.S.C. § 1692a(6). Because the debt must be owed or due "another," an entity that collects a debt owed itself —even a debt acquired after default—does not qualify under this definition. Henson v. Santander Consumer USA Inc. , ––– U.S. ––––, 137 S. Ct. 1718, 1724, 198 L.Ed.2d 177 (2017).¹

The key takeaway from these statutory definitions is that the FDCPA regulates people or entities whose principal business is collecting, or who regularly collect, money owed by a consumer to a third party. When (as here) a consumer defaults on a home loan, that default opens the door to an action on the note obliging the consumer to pay back the loan. Fannie Mae could have—but did not—take this approach. Only personal liability would be at stake in that hypothetical lawsuit:

Barnes borrowed nearly $400,000 from Chase Bank; he stopped paying years ago; and he owes Chase Bank's successor, Fannie Mae, the balance plus interest (which was more than $530,000 as of 2014). A third party—typically a loan servicer or law firm—that pursues collection on the note is engaged in debt collection, and the FDCPA regulates this activity whether the attempt to collect money is made (for example) by phone call, demand letter, or court complaint. See Heintz v. Jenkins , 514 U.S. 291, 294, 115 S.Ct. 1489, 131 L.Ed.2d 395 (1995).

In contrast to an action on the note, the enforcement of a security interest does not entail an attempt to collect money from the debtor. To be sure, the receipt of a foreclosure complaint can be a strong incentive for a borrower to halt the foreclosure by paying his outstanding debt to the lender. See Or. Rev. Stat. § 88.100 ; see also Ho , 858 F.3d at 572. But courts have long recognized the "very palpable distinction" between security interests and the debts they secure. Woodson v. Murdock , 89 U.S. (22 Wall.) 351, 370, 22 L.Ed. 716 (1874) ; see, e.g. , Long v. Bullard , 117 U.S. 617, 621, 6 S.Ct. 917, 29 L.Ed. 1004 (1886). The respective rights and obligations are related yet distinct. While the deed of trust creates a lien on the property to secure the creditor's right to repayment, the note makes the debtor personally liable for loan. See Brandrup v. ReconTrust Co., N.A. , 353 Or. 668, 303 P.3d 301, 305, 314 (2013). Consider, for instance, the repo man who tows a car subject to a security agreement,...