Bates v. Green Farms Condo. Ass'n

• Decision Date: 04 May 2020
• Docket Number: No. 19-2127,19-2127
• Citation: 958 F.3d 470
• Parties: Todd A. BATES; Marcia C. Bates, Plaintiffs-Appellants, v. GREEN FARMS CONDOMINIUM ASSOCIATION; The Highlander Group MMC, Inc. ; Makower Abbate Guerra Wegner Vollmer, PLLC, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

958 F.3d 470

Todd A. BATES; Marcia C. Bates, Plaintiffs-Appellants,

v.GREEN FARMS CONDOMINIUM ASSOCIATION; The Highlander Group MMC, Inc. ; Makower Abbate Guerra Wegner Vollmer, PLLC, Defendants-Appellees.

No. 19-2127

United States Court of Appeals, Sixth Circuit.

Decided and Filed: May 4, 2020

ON BRIEF: Paul G. Valentino, PAUL G. VALENTINO, J.D., P.C., Bloomfield Hills, Michigan, for Appellants. Sidney A. Klingler, SECREST WARDLE, Troy, Michigan, for Green Farms and Highlander Group Appellees. Kathleen H. Klaus, Jesse L. Roth, MADDIN HAUSER ROTH & HELLER, P.C., Southfield, Michigan for Appellee Makower Abbate Guerra Wegner Vollmer, PLLC.

Before: SUHRHEINRICH, BUSH, and MURPHY, Circuit Judges.

MURPHY, Circuit Judge.

The Fair Debt Collection Practices Act regulates "debt collectors." The Act defines "debt collector" generally to cover parties who operate a "business the principal purpose of which is the collection of any debts" or who "regularly collect[ ] or attempt[ ] to collect" debts owed another. 15 U.S.C. § 1692a(6). But the Act adds a separate debt-collector definition "[f]or the purpose of section 1692f(6)," a subsection regulating the repossession of property. Id. This separate definition also covers parties who operate a "business the principal purpose of which is the enforcement of security interests." Id. The distinction between these two definitions matters greatly: General debt collectors must comply with all of the Act's protections; security-interest enforcers need only comply with § 1692f(6). The Supreme Court recently held that parties who assist creditors with the nonjudicial foreclosure of a home fall within the separate definition, not the general one. Obduskey v. McCarthy & Holthus LLP , ––– U.S. ––––, 139 S. Ct. 1029, 1038, 203 L.Ed.2d 390 (2019). Yet Obduskey left open the possibility that these parties might engage in "other conduct" that would transform them from security-interest enforcers into general debt collectors (and subject them to all of the Act's regulations). Id. at 1040.

In this case, Todd and Marcia Bates lost their condominium through a nonjudicial foreclosure after they fell behind on their condo-association dues. During the foreclosure process, the Bateses claim, the condo complex's management company and its law firm violated various provisions of the Act. But the Bateses do not assert a violation of § 1692f(6), so their complaint needed to allege that the law firm and condo management company acted as general debt collectors, not security-interest enforcers, in the course of this foreclosure. We consider on appeal whether the complaint has identified enough "other conduct" to trigger Obduskey 's reservation and potentially transform these defendants into general debt collectors. Id. The district court thought not and granted judgment on the pleadings to the defendants. We affirm.

I

A

This case concerns the relationship between two statutory regimes that govern the collection of a debt secured by a debtor's home: Michigan's nonjudicial-foreclosure law and the federal Fair Debt Collection Practices Act.

Michigan has long followed a "foreclosure by advertisement scheme." Bank of Am., NA v. First Am. Title Ins. Co. , 499 Mich. 74, 878 N.W.2d 816, 822 (2016). Under this scheme, a lender (the mortgagee) may foreclose on the home securing its loan to a defaulting borrower (the mortgagor) through a public sale of the home without a state court's supervision. Id. ; Mich. Comp. Laws §§ 600.3201 –.3285. This law identifies "the circumstances that must exist before foreclosure by advertisement can occur, the procedure that the mortgagee must follow, and the mortgagor's right of redemption." Bank of Am. , 878 N.W.2d at 822. Before a lender may foreclose, the borrower must have defaulted on "a condition of the mortgage." Mich. Comp. Laws § 600.3204(1)(a). And if a lender chooses to foreclose in this nonjudicial manner, the lender may not simultaneously file a suit to recover the debt. Id. § 600.3204(1)(b). The lender must also periodically publish a notice in a local newspaper "that the mortgage will be foreclosed by a sale of the mortgaged premises," and post the notice in a conspicuous place on the property. Id. § 600.3208. The notice must include basic information about the property and sale. Id. § 600.3212. If the lender successfully sells the property, the defaulting borrower has a last chance to reclaim it by paying a specified amount within a specified time. Id. § 600.3240(1) ; see also Thompson v. Five Bros. Mortg. Co. Servs. & Securing, Inc. , 800 F. App'x. 369, 372-73 (6th Cir. 2020). Michigan law also permits condominium associations to use this nonjudicial-foreclosure process to collect a condo owner's delinquent dues, which become a lien on the owner's condo at the time of their assessment. See Mich. Comp. Laws § 559.208(1) – (2).

The Fair Debt Collection Practices Act, by comparison, governs the debt-collection efforts of statutorily defined "debt collectors." See Obduskey , 139 S. Ct. at 1036. The Act, among other things, regulates communications with debtors, 15 U.S.C. §§ 1692c, 1692g ; stops harassing actions, id. § 1692d ; prohibits false or misleading claims, id. § 1692e ; and limits unfair collection methods, id. § 1692f. The Act has a complex definition of the "debt collectors" it regulates. The definition starts with a general provision: "The term ‘debt collector’ means 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." Id. § 1692a(6). It also lists several individuals or entities that do not qualify as debt collectors and that fall outside the Act. Id. § 1692a(6)(A)–(F). In between, the definition contains a unique provision making a person who enforces a security interest a debt collector but only for a narrow purpose: "For the purpose of section 1692f(6) of this title, such term also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests." Id. (emphasis added). The identified subsection applicable to these security-interest enforcers— § 1692f(6) —regulates a debt collector's ability to "[t]ak[e] or threaten[ ] to take any nonjudicial action to effect dispossession or disablement of property." Id. § 1692f(6).

Mortgages triggering nonjudicial-foreclosure processes like Michigan's are "security interests" protecting a lender from the risk that a borrower will not repay a loan. See Obduskey , 139 S. Ct. at 1033 (citing Restatement (Third) of Property: Mortgages § 1.1 (1996) ). So which of the Act's debt-collector definitions applies to parties (typically lawyers) who help lenders enforce these security interests by proceeding through the nonjudicial-foreclosure process? Before 2019, circuit courts disagreed on this question. Some held that these parties fell within the unique definition for individuals who enforce security interests and so were subject only to § 1692f(6). E.g. , Vien-Phuong Thi Ho v. ReconTrust Co. , 858 F.3d 568, 571–72 (9th Cir. 2017). Others, including our court, held that these parties fell within the general definition of "debt collector" and so were subject to the entire Act. See Glazer v. Chase Home Fin. LLC , 704 F.3d 453, 464–65 (6th Cir. 2013). The Act, for example, requires a debt collector to stop collection efforts if a debtor disputes a debt until the debt collector confirms its validity. 15 U.S.C. § 1692g(b). We had held that this provision applied to a lawyer undertaking a Michigan foreclosure by advertisement, thereby requiring the lawyer to postpone the statutorily required notices until verifying the debt's validity. See Scott v. Trott Law, P.C. , 760 F. App'x 387, 393 (6th Cir. 2019).

The Supreme Court recently resolved this split in a decision rejecting our caselaw. In Obduskey , it held that a lawyer who oversaw a nonjudicial foreclosure fell within the Act's unique definition covering the enforcement of a security interest. 139 S. Ct. at 1036. This conclusion meant that only § 1692f(6), not the entire Act, governed the lawyer's conduct. Id. The debtor had argued that the lawyer took more actions than simply enforcing a security interest because he sent notices to the debtor "that any ordinary homeowner would understand as an attempt to collect a debt backed up by the threat of foreclosure." Id. at 1039. The Court disagreed that these notices transformed the lawyer from a security-interest enforcer into a general debt collector. It assumed that "the notices sent by [the lawyer] were antecedent steps required under state law to enforce" the security interest. Id. Explaining that "he who wills the ends must will the necessary means," the Court read the Act's exclusion for security-interest enforcers to cover all the state-law steps required to undertake such a foreclosure. Id. The Court cautioned, however, that this exclusion did not give those who enforce security interests a blanket license to take actions barred by the Act, such as making abusive late-night calls. Id. But the Court left open "what other conduct (related to, but not required for, enforcement of a security interest) might transform a security-interest enforcer into a debt collector subject to the main coverage of the Act." Id. at 1040.

B

This case implicates the question the Supreme Court reserved. Because the district court dismissed the complaint on the pleadings, we take as true the complaint's well-pleaded factual allegations. See Barany-Snyder v. Weiner , 539 F.3d 327, 332 (6th Cir. 2008).

As far as we can tell from the complaint (which is sparsely populated with facts), Todd and Marcia Bates owned a condominium at the Green Farms Condominium complex in West Bloomfield, Michigan. Highlander Group, MMC, Inc., managed the condo complex. The Bateses paid...