The U.S. Supreme Court ruled on the case of Obduskey v. McCarthy & Holthus LLP Wednesday morning, finding that businesses engaged in nonjudicial foreclosure proceedings are not considered "debt collectors" under the Fair Debt Collection Practices Act.
The Justices ruled 9-0 in the case, with Justice Stephen Breyer writing the opinion and Justice Sonia Sotomayor also penning a concurring opinion. You can read the full text of the opinion by clicking here.
The court's opinion called Obduskey's counterarguments "unconvincing." The opinion continued:
First, he suggests that the limited-purpose definition is not superfluous because it was meant to cover 'repo men'—a category of security-interest en-forcers who he says would not otherwise fall within the primary defi-nition of 'debt collector.' The limited-purpose definition, however, speaks broadly of 'the enforcement of security interests,' §1692a(6),not 'the enforcement of security interests in personal property.' Second, Obduskey claims that the Act’s venue provision, §1692i(a), which covers legal actions brought by 'debt collectors' to enforce in-terests in real property, only makes sense if those who enforce security interests in real property are debt collectors subject to all prohibi-tions and requirements that come with that designation. The venue provision, however, does nothing to alter the definition of a debt collector. Third, Obduskey argues that McCarthy engaged in more than security-interest enforcement by sending notices that any ordinary homeowner would understand as an attempt to collect a debt. Here, however, the notices sent by McCarthy were antecedent steps re-quired under state law to enforce a security interest, and the Act’s (partial) exclusion of 'the enforcement of security interests' must also exclude the legal means required to do so. Finally, Obduskey fears that this Court’s decision will permit creditors and their agents toengage in a host of abusive practices forbidden by the Act. But the Court must enforce the statute that Congress enacted, and Congress is free expand the FDCPA’s reach if it wishes.
Responding to the court’s decision, Matthew Podmenik, Managing Partner, McCarthy & Holthus Law Firm said, “I think the biggest takeaway of this case is what can happen when an industry like ours has everyone pulled together and had a common goal. This was a case of great importance and an undecided question for many years. We had the Legal League and 8 other organizations who filed amicus briefs. A total of 19 different parties joined us and all of us came together and this is a real team victory. So, I think that’s largely why this happened.”
“As far as the ramifications of the court’s decision, I think this certainly helps not only our firm but everyone who practices in the industry and will dramatically cut down on the number and the cost of lawsuits, the cost of compliance. Had this decision gone a different direction, I think the cost to do business in this field would’ve skyrocketed. We are excited that the Supreme Court strongly agreed with a 9-0 decision," he added.
"The U.S. Supreme Court’s decision in Obduskey v. McCarthy & Holthus LLP was an important ruling," said Seth Shapiro, Senior Regulatory Counsel, LoanCare. It resolved a circuit split among the U.S. Courts of Appeals, and it provided much needed guidance regarding the applicability of the federal Fair Debt Collection Practices Act to nonjudicial foreclosure activities. Resolving this uncertainty should help consumers and the industry reduce the costs and delays associated with litigating these issues.
David Scheffel, Partner at Dorsey & Whitney and co-chair of the firm's Consumer Financial Practices Group said, "This decision essentially gives law firms and lenders more protection in non-judicial foreclosure states. In these jurisdictions, homeowners and borrowers will no longer be able to file lawsuits under the FDCPA against law firms who are pursuing foreclosures. This essentially eliminates a heavily used practice by plaintiffs' attorneys. Ultimately, this should have the effect of reducing the cost that lenders/servicers bear in terms of getting to a final foreclosure in these states as the FDCPA lawsuits delay this process significantly."
In 2007, Dennis Obduskey obtained a loan for $329,940 to buy a residential property in Bailey, Colorado, and defaulted in 2009. Later in 2014, Wells Fargo hired McCarthy & Holthus, to pursue a non-judicial foreclosure on the property. On 8/12/2015, petitioner filed suit against M&H and multiple Wells Fargo entities in the United States District Court for the District of Colorado. The firm and the Wells Fargo entities moved to dismiss the complaint, and on 7/19/16 the district court granted the motions and denied the Temporary Restraining Order.
On the same day that the district court issued its order, Obduskey filed for Chapter 13 bankruptcy and appealed to the 10th Circuit and on 1/19/18 the court of appeals affirmed the lower court’s ruling, which sought to interpret the congressional intent in passing the FDCPA by analyzing the plain language of the statute and policy considerations. A total of nine Amicus briefs by 19 entities were filed in support of McCarthy & Holthus, LLP.
In February, the Legal League 100 held a webinar that explored the potential outcomes of the Dennis Obduskey vs. McCarthy & Holthus Supreme Court case and the impact of these outcomes on both the mortgage industry and the legal professionals supporting it. The webinar was presented by Matthew Podmenik, Managing Partner, McCarthy & Holthus Law Firm.
Earlier in November 2018, the amicus curiae brief filed by the Legal League in support of McCarthy & Holthus contended that law firms acting on behalf of their mortgage servicer clients by completing the non-judicial foreclosure process in states where permitted are not subject to regulation under the Fair Debt Collection Practices Act (FDCPA). The brief noted that such servicers are not collecting a debt as defined under the plain language of the statute. The brief also stated the possibility of states with carefully crafted foreclosure laws designed to protect borrowers and lenders being compelled to rewrite their laws in order to comply with the FDCPA.