Mortgage service companies (and their lawyers) got a big boost on March 20, 2019, when the Supreme Court delivered a unanimous opinion in Obduskey v. McCarthy & Holthus LLP, holding that a business engaged in no more than nonjudicial foreclosure proceedings is not a “debt collector” under the Fair Debt Collection Practices Act (FDCPA or Act), except for the limited purpose of §1692f(6). This decision will prevent needless and unfair litigation by borrowers seeking to stall collection efforts.

The petitioner in the case (who purchased his home in 2007 and defaulted approximately two years later) argued that the law firm hired by the creditor bank to carry out a nonjudicial foreclosure failed to comply with the FDCPA, which requires a debt collector to cease collection efforts until it obtains and delivers verification of the debt to the debtor.

The district court dismissed the creditor’s lawsuit, concluding that the law firm carrying out the foreclosure was not a “debt collector” under the FDCPA, a decision affirmed by the Tenth Circuit. The Supreme Court granted certiorari to resolve the differences among the circuits regarding how the FDCPA should be applied to nonjudicial foreclosures.

The Court noted that the FDCPA sets out two definitions of “debt collector”:  a “primary definition” and a “limited-purpose definition,” the latter applying only to a specific subset of the Act’s prohibitions.

The parties did not dispute that the law firm was, “by virtue of its role enforcing security interests, at least subject to the specific prohibitions contained in §1692f(6)”—the provisions tied to the limited-purpose definition. The Court thus had to determine whether the firm was “subject to the main coverage of the Act” as a primary definition debt collector. The Court concluded that the FDCPA’s language “strongly suggests that one who does no more than enforce security interests”—like the law firm in the case—doesn’t fall under the terms applicable to primary definition debt collectors. After all, the Court reasoned, if such a business did fall under the main coverage of the Act, there would be no reason to set forth the limited-purpose definition.

Further, it is plausible that Congress would have wanted to draw a distinction between the enforcement of security interests and ordinary debt collection, preventing “conflicts with state nonjudicial foreclosure schemes.” The Court also observed that an examination of the FDCPA’s legislative history suggested a compromise, as another version would have “totally excluded from the Act’s coverage” businesses like the law firm in this case.

This case is a great step forward in resolving unsettled law and protecting law firms and their mortgage service clients from needless litigation over nonjudicial foreclosures.

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David T. Biderman

David Biderman, a partner in Perkins Coie’s San Francisco and Los Angeles offices, focuses his practice on mass tort litigation and consumer class actions. He heads the firm’s Mass Tort and Consumer Litigation group. He has represented a wide variety of companies in state and federal courts in California for 30 years.

On consumer class actions, David represents packaged food companies, coffee companies, dairy companies, footwear companies and others whose nutritional or health claims have been challenged. He also has represented search engines and other online companies. He has a record of favorable results for clients. He successfully tried a major consumer fraud class action on behalf of one of the world’s major search engines in a case involving online gambling advertisements. For that same client, he negotiated a favorable settlement of a class action challenging its online advertising pricing. He represented a major coffee retailer in defeating a class action on standing grounds. He also has litigated pre-emption defenses arising out of food labeling and obtained a dismissal for a client whose nutritional statements were challenged.

For fifteen years, David managed the firm’s full-service product liability team responsible for defending over 1,000 toxic tort cases pending in Los Angeles and Northern California state courts. These cases entailed ongoing trial activity at various levels for several trials set each month. The highly experienced and well-coordinated team has handled thousands of asbestos toxic tort cases for a variety of clients, including FORTUNE 500 companies from such industries as consumer products, aerospace manufacturing, household goods, dry cleaning and industries that generate electromagnetic fields, such as electric utilities and operators of wireless communications systems.