Resolving tension between New York and federal law, the U.S. Court of Appeals for the Second Circuit has ruled that a debtor must show that a debt collector's alleged false representation was material for it to be a "false, deceptive, or misleading representation" in violation of the Fair Debt Collection Practices Act (FDCPA). In applying a materiality standard to alleged violations of FDCPA Section 1692e, the Second Circuit joined the U.S. Courts of Appeal for the Third, Fourth, Sixth, Seventh, and Ninth Circuits. The defendant mortgage servicer in the case was represented by Ballard Spahr.

In Cohen v. Rosicki, Rosicki & Associates, P.C., et al., the plaintiff's mortgage servicer, through its law firm, had filed a summons and foreclosure complaint against the plaintiff in New York state court and mailed copies to the plaintiff. Because the mortgage had been assigned to the servicer and the servicer held the note, the summons identified the servicer as "the creditor to whom the debt is owed." Pursuant to a New York rule that requires an attorney filing a foreclosure complaint to attach a certificate containing the attorney's certification (Certificate) that the party initiating the foreclosure action "is currently the creditor entitled to enforce" the mortgage documents, the servicer's attorney certified that the servicer was the creditor so entitled.

Pursuant to another New York rule that requires the party initiating a foreclosure action to file, at the time it files proof of service of the summons and complaint, a request for judicial intervention (RJI) containing "the name of the mortgage servicer," the servicer filed an RJI identifying the action as a mortgage foreclosure and seeking a settlement conference. In response to a qualified written request the plaintiff subsequently submitted to the servicer pursuant to the Real Estate Settlement Procedures Act, the servicer sent a letter to the plaintiff that identified the owner of the mortgage (an entity other than the servicer), indicated when the servicer took over servicing, directed the plaintiff to address all correspondence about the mortgage to the servicer, and described the servicer's authority to act on the owner's behalf.

In his class action complaint, the plaintiff alleged that the servicer and its law firm violated FDCPA Section 1692e, which prohibits a debt collector's use of "any false, deceptive, or misleading representation" to collect a debt, by falsely identifying the servicer as the creditor in the foreclosure complaint, the Certificate, and the RJI. According to the plaintiff, the servicer could not be a creditor under the FDCPA because it had been assigned the servicing rights after the borrower's default. He alleged that the servicer and law firm also violated FDCPA Section 1692g(a), which requires a debt collector to provide the debtor with the name of the "creditor to whom the debt is owed” within five days of an "initial communication with the consumer in connection with the collection of any debt." The plaintiff claimed that the defendants failed to identify the correct creditor, which the plaintiff contended was the owner of the mortgage, in the Certificate and RJI.

In affirming the district court's grant of the defendants' motion to dismiss, the Second Circuit first concluded that the alleged FDCPA violations satisfied the injury-in-fact requirement for Article III standing, and that mortgage foreclosure, under the circumstances presented, constituted debt collection under the FDCPA. Based on New York law that gives mortgagor redemption rights and allows mortgagees to obtain deficiency judgments, the court concluded that the purpose of foreclosure was "to obtain payment on the underlying loan, rather than mere possession of the subject property." The court also was unwilling to exclude a foreclosure proceeding from the FDCPA solely because it is an in rem legal action in equity rather than an in personam action at law. (In June 2018, the U.S. Supreme Court granted a petition for a writ of certiorari to review the judgment of the 10th Circuit in Obduskey v. McCarthy & Holthus LLP, et al., and resolve a circuit split on whether the FDCPA applies to non-judicial foreclosure proceedings.)

Turning to the merits of the plaintiff's FDCPA claims, the court noted tension between the definition of a "creditor" under New York law, which would include a servicer, and the FDCPA "creditor" definition, which might not include a servicer that begins to service a loan after it is in default. The court found it unnecessary to resolve this tension because "even if the defendants' creditor statement was inaccurate, it would not be material and [the plaintiff's] Section 1692e claim therefore fails." Agreeing with the reasoning of the other circuits that have held that statements must be materially false or misleading to be actionable, the Second Circuit concluded that the identification of the servicer as the "creditor" did not satisfy the materiality standard. The court observed that "it is undisputed that the entity to whom [the plaintiff's] payments on his debt were owed in the first instance was [the servicer] and that [the servicer] was also the primary point of contact for any questions [the plaintiff] may have had about his mortgage." The court observed further that, under the facts presented, the allegedly false identification of the servicer as the creditor would not have disadvantaged even a highly unsophisticated consumer and that an accurate statement that the account owner was the creditor would have likely confused the plaintiff by wrongly leading him to believe that his monthly payments should be made to the owner.

The court also found that the plaintiff had failed to state a claim under Section 1692g(a) based on the defendants’ alleged failure to identify the correct creditor in the Certificate and RJI, which the plaintiff characterized as "initial communications" for purposes of Section 1692g(a). Pursuant to Section 1692g(d), an initial communication for purposes of Section 1692g(a) does not include a "communication in the form of a formal pleading in a civil action."

The Second Circuit concluded that the Certificate and RJI were not initial communications because they fell within this pleading exclusion, citing a 2017 Second Circuit case that held that "documents attached to a foreclosure complaint—even a superfluous attachment—are not covered by Section 1692g(d)'s pleading exclusion." According to the court, based on the reasoning of that case, the exclusion was not limited to documents "attached to an initial pleading" but also covered "required filings accompanying a complaint" (such as the Certificate) and "those documents that state law mandates a plaintiff to file shortly thereafter, and in relation to that pleading, to complete the initiation of the case" such as the RJI. (The court noted that the plaintiff did not raise the argument on appeal that the foreclosure complaint violated Section 1692g(a) based on its identification of the servicer as the creditor, but in any event, the complaint "falls squarely within" the pleadings exclusion.)

Attorneys in Ballard Spahr's Consumer Financial Services Group regularly advise clients on compliance with the FDCPA and state debt collection laws and defend clients in FDCPA lawsuits and enforcement matters. The Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance.


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