Opinion analysis: An extremely narrow Fair Debt Collection Practices Act ruling

On Wednesday, the Supreme Court unanimously affirmed the U.S. Court of Appeals for the 10th Circuit in Obduskey v. McCarthy & Holthus LLP, holding that parties who enforce security interests are not debt collectors within the meaning of the Fair Debt Collection Practices Act provided that they do no more than the bare minimum required by state law to enforce the security interest. Justice Stephen Breyer’s opinion for the court is short and primarily focused on the text of the statute. After the argument, in which the justices sounded skeptical about the petitioner’s reading of the text, this outcome is hardly surprising. Indeed, the most notable thing about this case is probably Justice Sonia Sotomayor’s concurrence.

For a consumer case, the relevant facts here are simple. After Dennis Obduskey defaulted on his mortgage, McCarthy & Holthus, on behalf of its client Wells Fargo, sent him a notice in 2014 initiating a nonjudicial foreclosure. This notice, which is mandatory under Colorado nonjudicial foreclosure law, listed various details about the underlying mortgage. Obduskey, understanding the notice to be an effort to collect a debt—namely his delinquent mortgage—responded by following the FDCPA’s procedures for disputing a debt. Rather than continuing through the FDCPA process, McCarthy & Holthus initiated a new nonjudicial foreclosure in 2015. Obduskey then brought this FDCPA claim.

The court’s opinion begins with an almost mechanical analysis of the statute. Section 1692a(6) of the FDCPA gives a “primary definition” of “debt collector” as:

any person … 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 owed or asserted to be owed or due another.

Parties meeting this definition are subject to a myriad of limitations aimed at protecting consumers. The statute also provides what the court calls “the limited-purpose definition”:

For the purpose of section 1692f(6) [the] term [debt collector] also includes any person … in any business the principal purpose of which is the enforcement of security interests.

Special rules apply to parties meeting the limited-purpose definition. Because there was no question that McCarthy & Holthus met the limited-purpose definition, the issue in this case was whether a party meeting the limited-purpose definition necessarily also meets the primary definition.

Breyer’s statutory argument proceeds in three parts. First, the only way to avoid surplusage is to read the limited-purpose definition as narrowing the primary definition. Second Congress may have used the limited-purpose definition to narrow the primary definition in order to avoid conflicts with state nonjudicial foreclosure regimes. And finally, the legislative history suggests that the FDCPA represents a compromise between those who would fully include enforcement of security interests under FDCPA protections and those who would exclude it.

Next, the opinion systemically rebuts the petitioner’s arguments. Here the court explains just how narrow the decision is. Obduskey had tried to argue that even if the primary definition of debt collector does not include “simply enforcing a security interest,” what happened here “was more than security-interest enforcement.” Colorado’s nonjudicial foreclosure regime required McCarthy & Holthus to send various notices before it could execute the foreclosure. These mandatory notices theoretically protect consumers by providing them with information about the status of their mortgage. Obduskey argued that whatever their purpose, most homeowners would understand such notices as an attempt to collect a debt. The justices acknowledge that consumers would interpret the threat of foreclosure as an attempt to collect debt, but this does not change their reading of the statute. The opinion explains that “because he who wills the ends must will the necessary means, we think the Act’s (partial) exclusion of ‘the enforcement of security interests’ must also exclude the legal means required to do so.” Because McCarthy & Holthus took only the steps that Colorado required, the court will not read the notices that it sent to Obduskey as an attempt to collect a debt that sits outside the limited-purpose definition.

This brings us to Sotomayor’s concurrence. Although she commends the court’s opinion for “mak[ing] a coherent whole of a thorny section of statutory text,” she writes separately to emphasize that “this is too close a case for me to feel certain that Congress recognized that this complex statute would be interpreted the way that the Court does today.” She invites Congress to clarify the statute “if we have gotten it wrong.”

Justice Sotomayor also uses her concurrence to emphasize the narrowness of the court’s opinion. Specifically, she writes that she “would see as a different case one in which the defendant went around frightening homeowners with the threat of foreclosure without showing any meaningful intention of ever actually following through.”

Given its narrowness, this case will probably do little to stem litigation over whether efforts to execute nonjudicial foreclosures are efforts to collect debts within the scope of the FDCPA. Had McCarthy & Holthus been even a little more aggressive in its collection efforts, this case might well have come out the other way.