3rd Circuit Rules FDCPA Covers Foreclosure Complaints
Law360, New York (April 08, 2015, 2:43 PM ET) — The Third Circuit on Tuesday reversed in part a lower court’s decision in a class action alleging violations of the Fair Debt Collection Practices Act by Bank of America NA and a New Jersey law firm over assessing not yet incurred fees, establishing precedent that FDCPA protections extend to foreclosure complaints.
The three-judge panel ruled that a Pennsylvania homeowner, who became delinquent on home loan payments to BofA, had his rights under the FDCPA violated when Udren Law Offices PC, on behalf of the bank, filed a foreclosure complaint against him and included fees that he had not yet incurred but would within the coming months.
The appellate court ruled that Dale Kaymark sufficiently pled that the disputed fees constituted actionable misrepresentation under the act and reversed the lower court order on the FDCPA-related claims, saying that it is well-established in the the Third Circuit that the FDCPA covers attorneys engaged in debt collection litigation.
“Nowhere does the FDCPA exclude foreclosure actions from its reach. On the contrary, foreclosure meets the broad definition of ‘debt collection’ under the FDCPA,” the panel wrote. “We conclude that a communication cannot be uniquely exempted from the FDCPA because it is a formal pleading or, in particular, a complaint.”
In reaching its conclusion, the Third Circuit cited its 2014 ruling in McLaughlin v. Phelan Hallinan & Schmieg LLP, saying it held that nearly indistinguishable conduct in a debt collection demand letter, rather than a foreclosure complaint, violated the FDCPA. In McLaughlin, similar to Kaymark’s case, the plaintiff sued over being served an itemized notice of debt that included attorneys’ fees and costs that had not actually been incurred as of that date.
“[W]e must view the foreclosure complaint through the lens of the least sophisticated consumer and in the light most favorable to Kaymark,” the opinion said. “In this perspective, the most natural reading is that Udren was not authorized to collect fees for not yet performed legal services and expenses.”
According to the opinion, Kaymark became delinquent on his loan payments to BofA in 2011, after experiencing a drop in income. More than a year later, in September 2012, Udren filed a verified foreclosure complaint against Kaymark on behalf of the bank, which included an itemized list of the total debt, the opinion said.
In addition to dues owed on the unpaid principal balance and unpaid interest, the list also included attorneys’ fees, title report fees and property inspection fees totaling just more than $2,000 that were not actually incurred before the foreclosure action was filed, the opinion said.
Kaymark reacted by filing suit against the bank and the law firm in Pennsylvania state court, but it was removed to Pennsylvania federal court upon the defendants’ request, the opinion said. Kaymark then filed an amended complaint alleging that Udren and BofA, besides violating the FDCPA, had also violated two state laws pertaining to unfair trade practices and consumer protection, as well as breach of contract, the opinion said.
In March of last year, the district court accepted an opinion from a magistrate judge in ruling to dismiss Kaymark’s suit, saying that the FDCPA claims were “rather hypertechnical” and that nowhere do the loan documents or any state or federal law prohibit listing attorneys’ fees and other fixed costs at the time of filing the complaint, the opinion said.
In its ruling, the panel said that although the lower court erred by dismissing Kaymark’s FDCPA claims, it correctly ruled on the other three because Kaymark was never deprived of his property and never paid the disputed fees alleged to have deprived him of his property.
A representative for BofA declined to comment on Wednesday.
Representatives for Kaymark and Udren did not immediately respond to requests for comment on Wednesday.
Kaymark is represented by Michael P. Malakoff and Jonathan R. Burns of Michael P. Malakoff PC.
Udren is represented by Jonathan J. Bart of Wilentz Goldman & Spitzer.
BofA is represented by Thomas L. Allen, Nellie E. Hestin, Marc A. Goldich and Andrew J. Soven of Reed Smith LLP.
The case is Dale Kaymark et al. v. Bank of America and Udren Law Offices PC, case number 14-1816, in the U.S. Court of Appeals for the Third Circuit.
–Editing by Stephen Berg.