Editor's note: This feature originally appeared in the January issue of DS News, out now.
Why is the “meaningful attorney involvement” standard discussed in cases where a law firm collects a debt? In Bock v. Pressler & Pressler, LLP, 30 F. Supp 3d 283 (D. N.J. 2014), the court held that a law firm violated the Fair Debt Collection Practices Act (FDCPA) by making an “implied representation that an attorney was meaningfully involved in the preparation” of a collection complaint. The district court found an FDCPA violation because the attorney who reviewed the collection complaint did not spend enough time doing so. The court held that a collection complaint is “inherently” false and misleading, unless, at the time of signing it, the attorney “1) drafted, or carefully reviewed, the complaint; and 2) conducted an inquiry, reasonable under the circumstances, sufficient to form a good faith belief that the claims and legal contentions in the complaint are supported by fact and warranted by law.”
The FDCPA does not specifically define or use the term “meaningful attorney involvement.” However, section 1692e(3) of the FDCPA contains a simple prohibition that debt collectors may not make any “false representation or implication that any individual is an attorney or that any communication is from an attorney” [15 U.S.C. § 1692e(3)]. Over time, courts broadened the interpretation of section 1692e(3) to require that collection attorneys be “meaningfully involved” in the review of a consumer’s file before sending a collection letter. [See, e.g., Clomon v. Jackson, 988 F.2d 1314, 1320-21 (Second Cir. 1993); Avila v. Rubin, 84 F.3d 222, 228-29 (Seventh Cir. 1996)].
Judicial and administrative decisions interpreting the meaningful involvement standard since Bock slowly stretched the language of section 1692e(3) into new directions [See Consumer Financial Protection Bureau v. Frederick J. Hanna & Assoc, 165 F. Supp 3d 1330 (ND Ga. 2015— CFPB alleged that collection firm attorneys lacked personal knowledge of the facts in the affidavits used in pleadings to collect debts); Mohr v. Security Credit Servs, LLC, 141 F. Supp 3d 179 (NDNY 2015)—collection firm required to provide plaintiff with the names of the employees who prepared collection complaints].
There are many examples of what is not “meaningful involvement” in judicial decisions,
but no ruling provides any definitive standards or procedures that an attorney can follow in order to ensure compliance. Adding to the confusion, some courts have ruled that it is possible to “disclaim” involvement in the preparation of collection letters and pleadings if the disclaimer satisfies certain criteria. [See Gonzales v. Kay 577 F.3d 600 (Fifth Cir. 2009); Jones v. Dufek, 830 F.3d 523 (D.C. Cir. 2016); Powell v. Aldous & Assocs., P.L.L.C., 2018 WL 278736 (D.N.J. 2018)].
At present, some appellate courts have ruled that foreclosing on a secured property interest is not covered by the FDCPA. Other courts reason that the FDCPA applies since the purpose of the foreclosure is to obtain repayment of a loan. In some states, the non-judicial process is an elected remedy that prevents the lender from seeking a deficiency judgment, while a judicial foreclosure allows for a monetary judgment and pursuit of a deficiency. Currently, there is much uncertainty regarding whether a non-judicial foreclosure is properly characterized as debt collection.
To understand those decisions concluding that a non-judicial or quasi-judicial foreclosure is not the collection of a debt, please review Obdusky v. Fargo 879 F.3d (10th Cir. 2018) (attempting to enforce a security interest is not the same as collecting a debt); Ho v. ReconTrust Co. N.A. 858 F.3d 568, 573 (Ninth Cir. 2016) (entity does not become a debt collector if its only role in the debt collection process is the enforcement of a security interest; Speleos v. BAC Home Loan Servicing LP, 824 F. Supp 2d 226, 232-233 (D. Mass. 2011) (foreclosure law firm cannot be held liable under the FDCPA because it is enforcing a security interest); and Jordan v. Kent Recovery Services, 731 F. Supp. 652, (D. Del. 1990).
To understand those decisions concluding that non-judicial and judicial foreclosures are the collection of a debt, please review Glazer v. Chase Homes Fin. LLC, 704 F.3d 453 (Sixth Cir. 2013) (holding that mortgage foreclosure is debt collection under the FDCPA): Reese v. Ellis, Painter, Ratterree & Adams, L.L.P, 687 F.3d 1211 (11th Cir. 2012) (holding that a foreclosure firm qualified as a debt collector because it regularly engaged in the business of collecting debts); Wilson v. Draper & Goldberg, P.L.L.C. 443 F.3d 373 (Fourth Cir. 2006) (holding that the FDCPA applies to lawyers conducting a deed of trust foreclosure); Kaltenbach v. Richards, 464 F. 3d 524 (Fifth Cir. 2006) (holding the FDCPA can apply to a party whose principal business is enforcing a security interest).
Next summer, the U.S. Supreme Court will clarify whether the FDCPA and the “meaningful attorney involvement” standard are applicable to non-judicial foreclosures [see Obduskey v. McCarthy & Holthus LLP U.S., No. 17-1307, June 28, 2018].
Wells Fargo hired the law firm of McCarthy & Holthus LLP to pursue non-judicial foreclosure proceedings against Dennis Obduskey after he defaulted on his mortgage loan. Obduskey sued McCarthy and Wells Fargo, alleging, among other things, a violation of the FDCPA. The district court granted the defendants’ motions to dismiss on all claims and noted disagreement among courts as to whether the FDCPA applied to non-judicial foreclosure proceedings.
Upon Obduskey’s appeal to the U.S. Court of Appeals for the Tenth Circuit, the appellate court held that McCarthy was not a debt collector under the FDCPA because attempting to enforce a security interest was not the same as attempting to collect a money debt.
In reaching this conclusion, the Tenth Circuit joined the Ninth Circuit and ruled in conflict with the outcomes reached on this topic in the Fourth, Fifth, and Sixth Circuits. Law firms serving clients in the default industry must be familiar with the cases addressing “meaningful attorney involvement” when drafting debt collection letters and pleadings. Currently, there are divergent appellate court rulings on whether non-judicial and judicial foreclosures are
attempts to collect debts and therefore subject to the provisions of the FDCPA. Thankfully, the Supreme Court decision in Obduskey v. McCarthy & Holthus will provide clarity on whether law firms initiating non-judicial foreclosures are subject to the provisions of the FDCPA.