August 03, 2015

Sixth Circuit Interprets Consumer Protection Statute to Protect Non-Consumers

by Guest Blogger

In 2010, the United States Supreme Court expanded the concept of "corporate personhood" when it held in Citizens United v. FEC, 558 U.S. 310, 130 S. Ct. 876, 175 L. Ed. 2d 753 (2010), that corporations can engage in political speech protected by the First Amendment. The same rationale carried over to the religious context in Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751, 189 L. Ed. 2d 675 (2014), when the Court decided closely-held corporations have religious liberties under the Religious Freedom Restoration Act.

Now it appears legal entities might be entitled to protection under a federal consumer protection statute too, at least in the Sixth Circuit.

Last week, the Sixth Circuit Court of Appeals, in Anarion Invs., LLC v. Carrington Mortg. Servs., 2015 U.S. App. LEXIS 12670 (July 23, 2015), created a new class of plaintiffs entitled to sue under the federal Fair Debt Collection Practices Act, 15 U.S.C. 1692 et seq. (the "FDCPA" or the "Act") when it ruled that a limited liability company qualifies as a "person" entitled to be protected by the Act. This decision may seem surprising considering that the nearly 40-year-old statute has typically been understood as protecting "consumers," defined in the Act as "any natural person obligated or allegedly obligated to pay any debt." 15 U.S.C. § 1692(a)(3).

The facts of the opinion are fairly straightforward. In short, Anarion Investments, LLC ("Anarion") owned an option to purchase a house that was subject to a consumer mortgage debt. When the third-party mortgage servicer, Carrington Mortgage Services, LLC ("Carrington") advertised the home for sale pursuant to a foreclosure proceeding, Anarion brought suit against Carrington for alleged inaccuracies in the foreclosure advertisement. The federal district court dismissed the suit for failure to state a claim, and Anarion appealed.

On appeal, the Sixth Circuit examined Section 1692k(a), which states that "any debt collector who fails to comply with any provision of [the FDCPA] with respect to any person is liable to such person." The question, of course, was whether Anarion qualified as such a "person." According to the Sixth Circuit, the answer lies in the federal Dictionary Act, which provides that "[i]n determining the meaning of any Act of Congress," the word "person" includes artificial entities "unless the context indicates otherwise." 1 U.S.C. § 1. The Sixth Circuit noted that there was "plenty of relevant context," but concluded that the context favored a broad reading of the word "person" to include corporate entities. The basis for this reading lies in the fact that the FDCPA uses the word "person" in numerous instances which might be read to include corporate entities, particularly when using the term to refer to creditors and debt-collectors who are regulated by the Act. Therefore, the opinion concludes, the context does not provide support for an interpretation contrary to the Dictionary Act's directive to include corporate entities as a "person."

The dissenting judge took a more nuanced approach, and found the requisite "context" needed to trump the Dictionary Act in the overall history and purpose of the FDCPA. Citing congressional reports and legislative history, the dissent explains that the FDCPA was specifically enacted to come to the aid of individuals who were being victimized by unscrupulous debt collectors. In the dissent's view, the FDCPA is a consumer protection law meant to protect consumers. In this "context," allowing a corporate entity to bring claims under the Act runs afoul of the very purpose of the FDCPA's enactment in 1977.

Importantly, the Court recognized that an entity's status as a "person" does not necessarily entitle it to FDCPA protection: "[N]othing in our decision today means that Anarion can bring suit under the FDCPA. The district court's opinion answered only one question, and thus so does ours: whether Anarion is a 'person' under the Act." A corporate FDCPA plaintiff would still have to meet other requirements in the Act, including showing that the debt in question was a consumer debt. As the Court noted, "Normally [] businesses will not have any basis to bring an FDCPA claim."

Even though the ruling may not be as harsh to FDCPA defendants as it seems at first blush, it could still have far-reaching effects. These days, when foreclosures and debt collection-related lawsuits often involve numerous other parties beside the original creditor and debtor, it's not difficult to imagine how this decision will provide debtors and their counsel additional opportunities to bring FDCPA claims.