The Ninth Circuit recently broke from other circuit courts across the country and held that a trustee to a security agreement is not a debt collector pursuant to the Fair Debt Collection Practices Act. The case is Vien-Phuong Thi Ho v. Recontrust Co., N.A., No. 10-56884, 2016 U.S. App. LEXIS 18836 (9th Cir. Oct. 19, 2016).
In affirming the lower court’s dismissal of the plaintiff’s FDCPA claims, the Ninth Circuit refused to consider defendant Recontrust Company a “debt collector” liable under the FDCPA for facilitating a non-judicial foreclosure. The Ninth Circuit’s majority opinion held that as trustee, Recontrust Company had complied with California state law regarding non-judicial foreclosures and reasoned that a trustee conducting a non-judicial foreclosure in California is not attempting to collect a debt (that is, money) pursuant to the FDCPA. The opinion was not unanimous, however, and Judge Edward Koran sharply dissented from both the majority’s reasoning and its departure from other circuits.
The Ninth Circuit relied on both the FDCPA’s express statutory language as well as what it perceived to be a potential conflict with California law were a trustee held to be a debt collector subject to the FDCPA. First, the Court reasoned that a “debt” under the FDCPA is synonymous with money, so that a “debt collector” must seek to collect money from a consumer. In contrast, the Court noted that a trustee seeks instead to enforce a security agreement, not to collect money directly from the consumer. The Court reasoned this principle is especially true in California where a creditor cannot obtain a deficiency judgment against the consumer after a foreclosure sale.
In reaching its decision, the Ninth Circuit criticized the Sixth Circuit’s holding in Glazer v. Chase Home Fin. LLC, 704 F.3d 453, 461 (6th Cir. 2013) where the court held a trustee was a debt collector under the FDCPA because the “ultimate” purpose of a foreclosure is the collection of money. It found that the Sixth Circuit’s reasoning was in conflict with the express contractual language of the FDCPA, which defines a debt as an “obligation of a consumer to pay money,” while after a foreclosure, the Court noted, the trustee is not collecting money from the consumer, but from the purchaser of the property. The Ninth Circuit also summarily dismissed the Fourth Circuit’s decision in Wilson v. Draper & Goldberg, P.L.L.C., 443 F.3d 373, 378-79 (4th Cir. 2006), which held a trustee to be a debt collector, and stated that the Fourth Circuit was more concerned with avoiding what it viewed as a “loophole in the Act” than with following the statute’s express language.
Lastly, in support of its holding, the Ninth Circuit’s majority opinion reasoned that if it held a trustee to be a debt collector subject to the FDCPA, then many aspects of California’s non-judicial foreclosure law would be in conflict with federal law. The Court held that when there are two plausible interpretations of a federal statute and one is consistent with state law and one is in conflict, the court should adopt the interpretation that is consistent with state law.
Judge Korman’s dissent attacked virtually every aspect of the majority’s holding. The dissent chastised the majority’s apparent indifference to the numerous other circuit courts across the country that have held trustees to be debt collectors pursuant to the FDCPA. Judge Korman also criticized the majority opinion’s reliance on Hulse v. Ocwen Federal Bank, FSB, 195 F. Supp. 2d 188 (D.Ore. 2002), describing Hulse as a “leading case only in the number of appellate cases that have by name rejected its reasoning.” The dissent largely focused on the fact that the FDCPA describes a debt collector as one who directly or “indirectly” attempts to collect a debt. Judge Korman reasoned that it is undisputed that a foreclosure sale involves the indirect collection of a debt, and he fundamentally disagreed with the majority’s holding that a trustee was merely enforcing a security agreement. The dissent also noted that the particular provisions of the FDCPA at issue did not conflict with California’s non-judicial foreclosure laws, and expressed frustration that the majority relied on any conflict between state and federal law to reach its decision.
The Ninth Circuit’s divergence from established case precedent creates yet another wrinkle in FDCPA compliance – one worth monitoring amidst growing uncertainty surrounding consumer protection laws.