Schlegel v. Wells Fargo Bank

• Decision Date: 03 July 2013
• Docket Number: No. 11–16816.,11–16816.
• Citation: 720 F.3d 1204
• Parties: John SCHLEGEL, on behalf of himself and all others similarly situated; Carol Robin Schlegel, on behalf of herself and all others similarly situated, Plaintiffs–Appellants, v. WELLS FARGO BANK, NA, Defendant–Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

720 F.3d 1204

John SCHLEGEL, on behalf of himself and all others similarly situated; Carol Robin Schlegel, on behalf of herself and all others similarly situated, Plaintiffs–Appellants,

v.WELLS FARGO BANK, NA, Defendant–Appellee.

No. 11–16816.

United States Court of Appeals,Ninth Circuit.

Argued and Submitted March 15, 2013.

Filed July 3, 2013.

S. Chandler Visher, Law Offices of S. Chandler Visher, San Francisco, CA; Daniel M. Harris (argued) and Anthony P. Valach, Jr., The Law Offices of Daniel Harris, Chicago, IL, for Plaintiffs–Appellants.

Jan T. Chilton (argued), Mark D. Lonergan, and Michael J. Steiner, Severson & Werson, San Francisco, CA, for Defendant–Appellee.

Appeal from the United States District Court for the Northern District of California, Charles R. Breyer, District Judge, Presiding. D.C. No. 3:10–cv–05679–CRB.

Before: J. CLIFFORD WALLACE and SANDRA S. IKUTA, Circuit Judges, and MARVIN J. GARBIS, Senior District Judge.^*

OPINION

IKUTA, Circuit Judge:

John and Carol Schlegel appeal the dismissal of their action seeking relief under the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. §§ 1692–1692p (2006), and the Equal Credit Opportunity Act (ECOA), 15 U.S.C. §§ 1691–1691f (2006). We affirm the district court's dismissal of the Schlegels' FDCPA claim, because their complaint did not plausibly allege that Wells Fargo was a “debt collector” for purposes of the Act. We reverse, however, the court's dismissal of the Schlegels' claim that Wells Fargo, in violation of ECOA, failed to give them notice within thirty days after taking an adverse action.

I

In January 2009, John and Carol Robin Schlegel obtained a $157,605 loan from NTFN, Inc., secured by their Las Cruces, New Mexico home.¹ They subsequently fell behind on their mortgage payments, and in March 2010, filed a petition in bankruptcy. As part of the bankruptcy process, they reaffirmed the loan pursuant to 11 U.S.C. § 524. The loan and deed of trust were assigned to Wells Fargo.

On March 27, 2010, Wells Fargo proposed a loan modification agreement that retained the same interest rate but extended the maturity date of the loan from February 2039 to April 2050. The bankruptcy court approved the loan modification agreement, which became effective on July 1, 2010, with payments to begin on August 1, 2010. The Schlegels received a discharge in bankruptcy on July 9, 2010.

On July 19, 2010, Wells Fargo sent the Schlegels a default notice indicating that the Schlegels' loan was “in default for failure to make payments due,” and stating that, unless the Schlegels became current on their loan payments by August 18, 2010, it would “become necessary to require immediate payment in full (also called acceleration) of [their] Mortgage Note and pursue the remedies provided for in [their] Mortgage or Deed of Trust, which include foreclosure.” The Schlegels contacted Wells Fargo, which “told them not to worry, to sit tight and to proceed with the loan modification.” Beginning August 1, 2010, the Schlegels made the monthly payments required under the modification agreement.

Notwithstanding its assurances, Wells Fargo did not correct its records regarding the status of the Schlegels' loan. The Schlegels received a second default notice, dated November 7, 2010, which stated that their mortgage was in default and that, unless they paid the amount due by December 7, 2010, Wells Fargo would proceed with acceleration of the loan and possiblycommence foreclosure proceedings. When the Schlegels again called Wells Fargo on November 13 regarding this notice, Wells Fargo told them that no modification agreement was in effect and that they were in default under their loan. Wells Fargo then sent a third default notice, dated November 14, 2010, stating that the Schlegels were in default and that it would “become necessary ... to accelerate the Mortgage Note and pursue the remedies against the property” unless the past due payments were made by December 14, 2010.

On December 3, 2010, the Schlegels sent a letter to Wells Fargo asking it to explain its failure to acknowledge the loan modification. When Wells Fargo did not respond, the Schlegels filed this lawsuit on December 14, 2010, requesting relief under the FDCPA and ECOA.

Despite the Schlegels' complaint, Wells Fargo sent yet another default notice, dated December 20, this time formally accelerating the loan. The notice stated: “You are hereby notified that, due to the default under the terms of the mortgage or deed of trust, the entire balance is due and payable.” It also stated that the “loan file ha[d] been referred to” the bank's “attorney with instructions to begin foreclosure proceedings.” Two days later, on December 22, Wells Fargo's attorneys sent the Schlegels a fifth default notice, threatening to commence foreclosure proceedings unless full payment was made by January 24, 2011. Only after this fifth default notice did Wells Fargo eventually acknowledge that the July 2010 modification agreement was in effect and that the default notices sent to the Schlegels were incorrect.

According to the Schlegels, this sequence of default notices from Wells Fargo “caused the Schlegels mental anguish,” including worsening the effects of John Schlegel's post-traumatic stress disorder.

The district court dismissed the Schlegels' complaint for failure to state a claim, and the Schlegels timely appealed. We have jurisdiction under 28 U.S.C. § 1291.

II

We review de novo the district court's order dismissing the Schlegels' complaint for failure to state a claim upon which relief can be granted. Brantley v. NBC Universal, Inc., 675 F.3d 1192, 1197 (9th Cir.2012). In so doing, we accept as true all “well-pleaded factual allegations” in the complaint, which we construe “in the light most favorable” to the plaintiffs. Autotel v. Nev. Bell Tel. Co., 697 F.3d 846, 850 (9th Cir.2012). In order to survive a motion to dismiss, the Schlegels' complaint had to allege “sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (internal quotation marks omitted). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.

The Schlegels' complaint raises two claims, one under the FDCPA and the other under ECOA. We address each claim in turn.

A

Congress passed the FDCPA in 1977 with the stated purposes of eliminating “abusive debt collection practices,” ensuring “that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged,” and promoting “consistent State action to protect consumers against debt collection abuses.” 15 U.S.C. § 1692(e). In furtherance of these purposes, the FDCPA bans a variety of debt collection practices and allowsindividuals to sue offending debt collectors.

The Schlegels' complaint alleges that Wells Fargo violated two of the FDCPA's provisions. The first, 15 U.S.C. § 1692e, provides that a “debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt.” The second, 15 U.S.C. § 1692f, provides that a “debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt.” Because these prohibitions apply only to “debt collector[s]” as defined by the FDCPA, the complaint must plead “factual content that allows the court to draw the reasonable inference” that Wells Fargo is a debt collector. Iqbal, 556 U.S. at 678, 129 S.Ct. 1937;see also Dougherty v. City of Covina, 654 F.3d 892, 900–01 (9th Cir.2011) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)).²

The FDCPA defines the phrase “debt collector” to include: (1) “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,” and (2) any person “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).³ On appeal, the Schlegels argue that Wells Fargo meets both definitions.

According to the Schlegels, the amended complaint sufficiently alleges that Wells Fargo meets the first definition of “debt collector” by stating that “Wells Fargo is in the business of collecting debts and uses instrumentalities of interstate commerce in that business.” The Schlegels concede that the complaint does not expressly state that the “principal purpose” of Wells Fargo's business is debt collection, as required by the first definitionin § 1692a(6), but argue that the complaint “invoked” this concept. We disagree. The complaint fails to provide any factual basis from which we could plausibly infer that the principal purpose of Wells Fargo's business is debt collection. Rather, the complaint's factual matter, viewed in the light most favorable to the Schlegels, establishes only that debt collection is some part of Wells Fargo's business, which is insufficient to state a claim under the FDCPA. See Dougherty, 654 F.3d at 900–01.

At oral argument, the Schlegels raised a different argument in support of the proposition that Wells Fargo fits within the first definition of “debt collector.” Noting that this definition requires debt collection to be the “principal purpose” of “any business,” they argue that the word “business” does not mean “company,” but rather any activity of a company. Thus, the Schlegels contend, the question is not whether Wells Fargo's principal business is the collection of debts, but whether Wells Fargo is engaged in any activity which has the principal purpose of collecting debts.

We reject this argument because it is not supported by the statutory text. The Schlegels' proposed definition would expand the term “debt collector”...