Lawyers Duck Debt-Collector Liability at Supreme Court

WASHINGTON (CN) - A law firm tapped by a bank to foreclose on a homeowner does not qualify as a debt collector, the U.S. Supreme Court ruled Wednesday.

Penned by Justice Stephen Breyer for the unanimous court, the 14-page opinion says the language of the Fair Debt Collection Practices Act "strongly suggests that security-interest enforcers do not fall within the scope of the primary definition."

In the underlying appeal, borrower Dennis Obduskey argued that the decision will allow creditors to engage in abusive practices, but the court held that it "must enforce the statute that Congress enacted."

Congress is free to expand the reach of the law should it desire, the opinion notes.

Wells Fargo Bank had hired the law firm McCarthy & Holthus to foreclose on Obduskey in 2014, five years after he defaulted on the loan he obtained to buy a home in Colorado.

Disputing the amount of the debt, Obduskey invoked the FDCPA in an attempt to make the lawyers “cease collection.” He sued when the firm initiated a foreclosure action, but a federal judge dismissed the complaint, and the 10th Circuit affirmed.

The Supreme Court agreed to take up the case to settle a circuit split about how the FDCPA applies to nonjudicial foreclosure proceedings, but it affirmed as well Wednesday.

The opinion notes that Congress appeared intent on differentiating between security-interest enforcers and ordinary debt collectors "to avoid conflicts with state nonjudicial foreclosure schemes."

Breyer also said that the law was likely written specifically to strike a compromise between two competing versions of the bill, one of which would have lumped security-interest enforcers in with ordinary debt collectors and another that would have excluded such enforcement all together.

In a concurring opinion, Justice Sonya Sotomayor called it "a close case." She also urged Congress to clarify the law if the court has "gotten it wrong."

The opinion focuses specifically on the kind of security-interest enforcement raised by the case, Sotomayor said. That does not give license to those pursuing nonjudicial foreclosures to make "repetitive nighttime phone calls." Nor does it grant security-interest enforcers "blanket immunity" from the law, she said.

Obduskey's attorney Daniel Geyser did not immediately respond to an email seeking comment Wednesday. McCarthy attorney Kannon Shanmugam with Paul Weiss likewise declined to comment.

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