By Courtney McGahhey, Esq.

Wilson & Associates, PLLC *

USFN Member (AR, MS, TN)

Most attorneys practicing in non-judicial foreclosure states are well aware of the United States Supreme Court decision in Obduskey v. McCarthy & Holthus, LLP, 139 S. Ct. 1029 (2019). In Obduskey¸ the Court held that a law firm that only sends communications to debtors to enforce a security instrument in non-judicial foreclosure proceedings is not a “debt collector” under the Fair Debt Collection Practices Act (“FDCPA”), provided that the notices sent are antecedent steps required under state law to enforce a security instrument.  Id. at 1039.

Recently, the United States District Court for the Western District of Arkansas weighed in on the topic in Reppy v. Cenlar FSB, Inc., No. 5:23-cv-05227, 2024 U.S. Dist. LEXIS 40574 (W.D. Ark. 2024). In this case, the court allowed the plaintiff’s FDCPA claims to survive a motion to dismiss filed by the foreclosing law firm, despite the foreclosing law firm’s arguments in reliance on Obduskey.

Plaintiffs John and Karen Reppy filed suit in November 2023 in state circuit court in Benton County, Arkansas, against Cenlar FSB Inc., Citimortgage, Inc. and Mickel Law Firm, P.A.  The claims against Mickel Law Firm (“Mickel”) were for alleged violations of the Arkansas Statutory Foreclosure Act, the Arkansas Fair Debt Collections Practices Act, and the FDCPA.  With regard to the FDCPA, plaintiffs alleged that the FDCPA notice mailed by Mickel violated the FDCPA. Plaintiffs argued that the mailed notice falsely identified the owner of the debt, falsely identified the successor creditor, falsely identified the deadline for plaintiffs to dispute the debt, and overshadowed the plaintiff’s right to dispute the debt. Plaintiffs also argued the FDCPA notice failed to provide an itemization date; amount of the debt on the itemization date; an itemization of the current amount of the debt reflecting interest, fees, payments, and credits since itemization; and the current amount of the debt.  Reppy v. Cenlar FSB, Inc., No. 04CV-2023-3100 (2023 Ark. Cir.).

The case was subsequently removed to federal court, and in December 2023, Mickel filed a motion to dismiss all claims against it.  Among the arguments made by Mickel included an argument that it was not a debt collector as defined by the FDCPA and therefore not liable to the plaintiffs. Mickel relied upon the ruling in Obduskey, arguing to the court that that it was engaged in no more than non-judicial foreclosure proceedings, and thus not a debt collector under the FDCPA.  However, Mickel also stated in its brief that it sends FDCPA notices “out of an abundance of caution, and because its clients request Mickel to do so, but it is not required to do so…”.

A couple of points are worth noting here. One is that the mailing of a FDCPA notice is not required by the Arkansas Statutory Foreclosure Act. Ark. Code Ann. §§ 18-30-101 to 117. Second, is that Mickel’s brief in support of its motion to dismiss did not include an argument that it should be afforded the safe harbor protections provided by 12 CFR Section 1006.34(d)(2). Collectors can receive a safe harbor for compliance with the validation information content and format requirements contained within the CFPB’s model validation notice found at 12 CFR § 1006 Appendix B.  No argument was made by Mickel that its FDCPA notice was substantially similar to the CFPB’s model notice.

The court in its Memorandum Opinion and Order made note that the ruling in Obduskey does not extend to a law firm who sends communications not required by the Arkansas non-judicial foreclosure law required to be sent to debtors.  The court pointed to Mickel’s own statement that it mailed the FDCPA letter “out of an abundance of caution.”  The court further found that several aspects of Mickel’s FDCPA letter demonstrated an “animating purpose” of inducing payment by the plaintiffs.  Under the animating purpose test, for a communication to be in connection with the collection of a debt, an animating purpose of the communication must be to induce payment by the debtor. Heinz v.  Carrington Mortgage Servs., LLC, 3 F 4^th 1107, 1112 (2021).  The court referenced the fact that the letter explicitly stated “THIS IS A COMMUNICATION FROM A DEBT COLLECTOR. THIS IS AN ATTEMPT TO COLLECT A DEBT AND ANY INFORMATION OBTAINED MAY BE USED FOR THAT PURPOSE.”  The court went on to point out that the letter described ways the plaintiffs could make payments to Mickel in satisfaction of the debt, and that the letter offered the debtor certain check-the-box options, including one stating, “I enclosed this amount: $__________.”

Ultimately, the court found the plaintiffs plausibly alleged that the animating purpose of the FDCPA letter was to induce payment of a debt.  Thus, the plaintiff’s FDCPA claim survived Mickel’s motion to dismiss.  This case is still pending before the U.S. District Court for the Western District of Arkansas, and we recommend closely monitoring the case.

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USFNews - April 17, 2024

* Denotes firm is a 2023 USFN Award of Excellence recipient