The Sixth Circuit released a decision in Scott v. Trott Law, P.C., No. 18-1051 (6th Cir. Jan. 11, 2019) where the court clarified what it means for a debt collector to “cease collection activity” after receiving a dispute from a consumer. According to the court, it is not enough that the debt collector itself stop whatever it is doing to collect a debt. Ceasing collection activity also requires the debt collector to put a stop to any activities performed by third parties that the debt collector set in motion prior to receiving the dispute.
Editor’s Note: The insideARM Perspective below discusses how this case relates to Obduskey v. Wells Fargo, which is currently under review by the U.S. Supreme Court.
Factual and Procedural Background
Petitioner-plaintiff Scott had a mortgage with Bank of America, which placed the account with Trott Law, P.C. (Trott) to proceed with foreclosure proceedings against the property due to Scott’s non-payment.
On September 20, Trott sent a letter to Scott that included the Fair Debt Collection Practices Act (FDCPA) notice of validation rights as required by section 1692g. On October 5, after sending the letter, Trott arranged a sheriff’s sale of the property for November 8, published notice of the foreclosure in the a local newspaper, and mailed a copy of the Notice of Mortgage Foreclosure Sale to Scott.
After all of this was put into motion, Trott received a dispute letter from Scott on October 11. Trott itself ceased collection activity and began working with Bank of America to verify the debt. However, it did not reach out to the sheriff to stop the foreclosure sale.
Plaintiff petitioned the court for an injunction -- or stop -- to the foreclosure sale, which was successful. Scott then filed a FDCPA lawsuit against Trott alleging that, among other things, Trott did not cease collection activity after receiving the notice of dispute.
District and Appellate Court Decisions
The district court sided with Trott and granted summary judgment, finding that because the firm stopped all of its activity on the debt, it ceased collection activity. Scott appealed this decision.
The Sixth Circuit took issue with and reversed the district court’s opinion. The district court’s interpretation, according to the Sixth Circuit, “would render the [consumer’s dispute] a nullity.” While it may be true that Trott stopped whatever it was doing to collect the debt, “Trott fails to mention that there was nothing else for it to do.” Essentially, due to the processes Trott previously set in motion, the foreclosure sale could go forward without Trott having to lift a finger.
The Sixth Circuit then went on to conduct a statutory interpretation of 1692g. Black’s Law Dictionary defines “cease” as "to stop," "to come to an end," and "to suspend or foreit." Since 1692g applies this verb to the debt collector, the court reasoned that:
[T]he statute imposes on the debt collector to stop the “collection of the debt.” This is more obviously true when the debt collector has been the one to initiate the “collection of the debt.”
The court then went into whether non-foreclosure proceedings constitute the collection of a debt, an issue which is currently being reviewed by the U.S. Supreme Court. Currently, the Sixth Circuit considers foreclosure and non-foreclosure proceedings as collection of debt and, based on this framework (without mentioning Obduskey), the court found that Trott should have put a stop to the foreclosure sale until it sent verification of debt to Scott.
Two things come to mind when reading this decision.
First, this entire decision may become moot pending the U.S. Supreme Court’s decision in Obduskey v. Wells Fargo. Obuskey will decide whether non-judicial foreclosure proceedings constitute the debt collection as defined by the FDCPA and, therefore, whether they are governed its provisions. During oral arguments, the Supreme Court bench seemed divided on the issue in unexpected ways so it’s difficult to tell which side the decision will come down on.
Second, while this decision focuses on foreclosures, it may have broader impacts on debt collection as a whole. What exactly qualifies as debt collection activity? (Obduskey will hopefully clarify at least some of this.) Does this mean that a dispute triggers the responsibility to instruct any third party vendor that may touch the account to stop? What about when the dispute is received after a collection suit is filed -- does the debt collector need to stop the lawsuit? The Eastern District of Virginia says no to the latter in Post v. Hodges Law Office, PLLC, so this might cause yet another jurisdictional split in FDCPA cases, which is the last thing the industry needs.