Jerry Estep v. Manley Deas Kochalski, LLC , 552 F. App'x 502 ( 2014 )


Menu:
  •                         NOT RECOMMENDED FOR PUBLICATION
    File Name: 14a0041n.06
    No. 13-3635
    UNITED STATES COURT OF APPEALS
    FOR THE SIXTH CIRCUIT                                 FILED
    Jan 16, 2014
    JERRY S. ESTEP; AMBER ESTEP                            )
    DEBORAH S. HUNT, Clerk
    )
    Plaintiffs-Appellants,                          )
    )
    ON APPEAL FROM THE
    v.                                                     )
    UNITED STATES DISTRICT
    )
    COURT FOR THE
    MANLEY DEAS KOCHALSKI, LLC                             )
    SOUTHERN DISTRICT OF
    )
    OHIO
    Defendant-Appellee.                             )
    )
    )
    BEFORE:       SUHRHEINRICH, GIBBONS, and COOK, CIRCUIT JUDGES.
    JULIA SMITH GIBBONS, Circuit Judge. Two homeowners seek to use a consumer-
    protection statute to hold lawyers accountable for their allegedly deceptive conduct in separate
    foreclosure litigation. This case involves one small aspect of Wells Fargo’s effort to repossess
    the home of plaintiffs Jerry and Amber Estep and then to sell their home to the United States
    Department of Housing and Urban Development (HUD), which itself planned to resell the home
    to an undetermined homebuyer. Defendant Manley Deas Kochalski (MDK), Wells Fargo’s law
    firm, filed a state-court foreclosure action against the Esteps on Wells Fargo’s behalf. MDK
    subsequently sent a letter to the Esteps stating that they would be required to vacate the home
    unless they sought and received permission from HUD to remain in the home after its sale. The
    Esteps believed the letter to be inaccurate and misleading, and they filed suit against MDK
    pursuant to the Fair Debt Collection Practices Act. The district court dismissed the Esteps’
    No. 13-3635
    Estep v. Manley Deas Kochalski, LLC
    claims, holding that the statute does not extend to MDK’s letter because that letter was not
    intended to induce payment by the Esteps. For the reasons set forth below, we affirm.
    I.
    Congress has authorized HUD to purchase certain repossessed homes and to resell those
    homes to qualified homebuyers. To facilitate the prompt resale of these homes, HUD generally
    will not purchase a home unless it is unoccupied. See 24 C.F.R. § 203.678. But HUD has
    established certain exceptions to this rule. HUD will sometimes purchase an occupied home if
    the occupant suffers from an illness or injury, for example, or if state laws prohibit the
    foreclosing bank from evicting the occupant. See § 203.670(b). Even these exceptions are
    subject to various conditions, however: The occupant must submit a timely continued-occupancy
    application to HUD, for example, and when HUD agrees to purchase an occupied home, the
    occupant generally may continue to live in the home only temporarily. See § 203.674.
    Although a house is an asset, it is also a source of considerable expense.        Until a
    foreclosing mortgagee is able to sell a repossessed house, the mortgagee absorbs all of the costs
    associated with the house. When HUD purchases a house from a mortgagee, those costs become
    the responsibility of the United States. HUD therefore wants to minimize the time that a
    repossessed house spends on the market, and the agency seeks to resolve occupancy disputes
    during the foreclosure process—before HUD purchases the house from the mortgagee. To that
    end, HUD regulations direct foreclosing mortgagees to inform occupant mortgagors of HUD’s
    continued-occupancy requirements before the foreclosing mortgagee acquires title to the home.
    “At least 60 days, but not more than 90 days, before the date on which the mortgagee reasonably
    expects to acquire title to the property,” the foreclosing mortgagee must notify both the
    mortgagor and the occupant (if they are separate people) that HUD might acquire the property.
    -2-
    No. 13-3635
    Estep v. Manley Deas Kochalski, LLC
    See § 203.675(a). That notice must inform the occupant that HUD will permit the occupant to
    continue to live in the home only if the occupant submits a written request to HUD “within 20
    days of the date of the mortgagee’s notice to the occupant.” § 203.675(b)(3). The mortgagee
    must tell the occupant that “the property must be vacated before the scheduled time of
    acquisition” unless the occupant submits, and HUD approves, a timely request for continued
    occupancy. § 203.675(b)(5).
    ***
    The Esteps owned and lived in a house on Murray Hill Road in Columbus, Ohio. Almost
    three years ago, MDK filed a mortgage foreclosure action related to that house in Ohio state
    court on behalf of their client, Wells Fargo. The Esteps retained counsel and answered Wells
    Fargo’s complaint. Within several months, the parties were engaged in discovery.
    The month after discovery began, MDK sent a letter to the Esteps declaring that the
    mortgage on their home would be foreclosed and that “ownership of the property will be
    transferred to Wells Fargo probably within the next 60 to 90 days.”           Once Wells Fargo
    repossessed the property, the letter stated, ownership likely would be transferred to HUD.
    The letter informed the Esteps that “HUD generally requires that there be no one living in
    properties for which it accepts ownership unless certain conditions are met.” The letter further
    stated that the Esteps must submit a written request to HUD within twenty days if they wished to
    continue to live in the property after HUD assumed ownership. MDK attached to the letter a
    schedule listing HUD’s conditions of continued occupancy, a HUD form entitled “Request for
    Occupied Conveyance,” a Fannie Mae “Request for Verification of Employment,” and a brief
    notice explaining that continued occupancy of HUD properties is only temporary. The letter
    explained how to complete these forms and provided an address to which the forms were to be
    -3-
    No. 13-3635
    Estep v. Manley Deas Kochalski, LLC
    sent. At the bottom of the letter, under the header “IMPORTANT NOTICE,” MDK wrote:
    “YOU MUST REPLY TO THE HUD OFFICE IN WRITING WITHIN 20 DAYS OF THE
    DATE ON THIS LETTER OR YOU WILL BE REQUIRED TO MOVE FROM THE
    PROPERTY.”
    The Esteps filed this action against MDK in federal district court one year later. The
    complaint alleged five violations of the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692–
    1692p: (1) communicating directly with the Esteps despite having knowledge that they were
    represented by counsel, in violation of 15 U.S.C. § 1692c(a)(2); (2) threatening to take action
    that cannot legally be taken or that is not intended to be taken, in violation of 15 U.S.C. §
    1692e(5); (3) falsely representing that ownership of the Esteps’ house would be transferred to
    Wells Fargo within ninety days of the date of the letter, in violation of 15 U.S.C. § 1692e(10);
    (4) falsely representing that the Esteps would be require to vacate their home if they did not
    return the enclosed documents to HUD within twenty days of the date of the letter, in violation of
    15 U.S.C. § 1692e(10); and (5) threatening to take possession of the Esteps’ home despite
    lacking that right, in violation of 15 U.S.C. § 1692f(6)(A). MDK moved to dismiss for failure to
    state a claim, and the district court granted the motion. The Esteps timely appealed.
    II.
    The Fair Debt Collection Practices Act (FDCPA) prohibits debt collectors from using
    unfair practices or making deceptive representations in connection with the collection of a debt.
    See 15 U.S.C. §§ 1692c, 1692e, 1692f. The statutory language imposes two threshold criteria
    that limit its scope: The FDCPA regulates only the conduct of “debt collectors” and only
    -4-
    No. 13-3635
    Estep v. Manley Deas Kochalski, LLC
    communications made “in connection with the collection of any debt.”1 The question posed to
    this court is whether MDK’s letter to the Esteps was sent in connection with MDK’s effort to
    collect the Esteps’ unpaid mortgage debt. Like the district court, we conclude that it was not.
    “The text of § 1692e makes clear that, to be actionable, a communication need not itself
    be a collection attempt; it need only be ‘connect[ed]’ with one.” Grden v. Leikin Ingber &
    Winters PC, 
    643 F.3d 169
    , 173 (6th Cir. 2011) (alteration in original). “But it is just as clear that
    ‘the statute does not apply to every communication between a debt collector and a debtor.’” 
    Id. (quoting Gburek
    v. Litton Loan Servicing LP, 
    614 F.3d 380
    , 384–85 (7th Cir. 2010)). “[F]or 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.” Id.; see also Simon v. FIA Card
    Servs., N.A., 
    732 F.3d 259
    , 266 (3d Cir. 2013) (“Other circuits considering related questions have
    similarly held that the FDCPA applies to litigation-related activities that do not include an
    explicit demand for payment when the general purpose is to collect payment.”). This includes
    communications that aim to make a separate collection attempt—including mortgage foreclosure
    litigation—more likely to succeed. 
    Grden, 643 F.3d at 173
    ; see also Glazer v. Chase Home Fin.
    LLC, 
    704 F.3d 453
    , 464 (6th Cir. 2013) (holding that mortgage foreclosure is debt collection
    under the FDCPA).
    The “animating purposes” of the communication is a question of fact that generally is
    committed to the discretion of the jurors, not the court. Cf. 
    Grden, 643 F.3d at 173
    (“Thus, under
    the circumstances present here, a reasonable jury could not find that an animating purpose of the
    1
    The Esteps assert claims under §§ 1692c, 1692e, and 1692f. Only §§ 1692c and 1692e
    use the phrase “in connection with the collection of any debt.” Section 1692f says “[a] debt
    collector may not use unfair or unconscionable means to collect or attempt to collect any debt.”
    Despite this varying language, however, the meaning is the same: All three statutes apply only
    to conduct undertaken or communications made in connection with the collection of a debt. We
    therefore use one common test to determine whether all three statutes govern MDK’s letter.
    -5-
    No. 13-3635
    Estep v. Manley Deas Kochalski, LLC
    statements was to induce payment by [the debtor].”). Because this case comes before this court
    on a motion to dismiss, we need not determine MDK’s actual purpose when sending the letter.
    Rather, we ask whether it is plausible, based on the facts alleged in the complaint, that one of the
    purposes animating MDK’s decision to send the letter was to induce payment by the Esteps. Cf.
    Ashcroft v. Iqbal, 
    556 U.S. 662
    , 678–79 (2009).
    At the outset, we emphasize that there can be more than one purpose behind a
    communication. It is beyond dispute that the general purpose of MDK’s letter was to inform the
    Esteps of HUD’s continued-occupancy requirements and to comply with the HUD regulations
    that required Wells Fargo to send the letter. Wells Fargo intended to transfer the Esteps’ home to
    HUD after taking possession, and the occupied-conveyance notice was a condition precedent to
    such a transfer. The general purpose of MDK’s letter thus was not to collect any money. But
    that is not the end of our inquiry. MDK and Wells Fargo could have had ancillary motives for
    sending that specific letter at that specific time. We therefore look beyond the letter’s general
    purpose and ask whether it is plausible that any animating purpose of the letter was to induce
    some form of payment by the Esteps.2
    The Esteps’ principal complaint is that MDK failed to comply with the HUD regulations
    that govern the timing and content of occupied-conveyance notices. Failure to comply with
    those regulations, of course, is not itself a legitimate basis for bringing suit under the FDCPA.
    The FDCPA and the HUD occupied-conveyance regulations are two discrete regulatory schemes
    that serve distinct purposes and operate independently of one another. But the extent to which
    2
    Grden and Gburek ask whether an animating purpose of the communication was to
    induce payment by the debtor. The word “payment” should not be interpreted too narrowly. It
    includes both direct payments and payments in kind. Thus, if the letter was intended to induce
    the Esteps to leave their home prematurely, and Wells Fargo would receive some financial
    benefit as a result of that outcome, then the letter would be sent in connection with MDK’s effort
    to collect the debt owed to Wells Fargo.
    -6-
    No. 13-3635
    Estep v. Manley Deas Kochalski, LLC
    the timing and content of MDK’s letter deviated from the HUD requirements might shed light on
    MDK’s animating purposes. We therefore must examine MDK’s letter in the context of the
    HUD regulations to determine whether it is plausible that an animating purpose of the letter was
    to induce payment by the Esteps.
    We begin with the issue of timing. HUD regulations require foreclosing mortgagees to
    send an occupied-conveyance notice not more than ninety days before the mortgagee reasonably
    expects to acquire title to the property. 24 C.F.R. § 203.675(a). The Esteps contend that MDK
    sent the letter more than ninety days before they reasonably expected Wells Fargo to acquire
    title.3 Yet even if that is true, that amounts to a violation of the HUD regulation rather than the
    FDCPA. The Esteps have not explained how MDK’s decision to send the letter prematurely
    could be intended to induce payment. The Esteps argue only that the premature letter might have
    been intended to permit Wells Fargo and MDK “to save the costs and time of obtaining and
    serving a writ of possession to have Appellants leave the property, instead of permitting
    Appellants to reside in the property until the confirmation of sale.” The implication is that MDK
    hoped that if they sent the notice prematurely, the Esteps would just pack up and leave within
    twenty days, saving Wells Fargo the expense of removing them from their home. But it is
    simply implausible that a homeowner locked in foreclosure litigation with her mortgagee would
    pack her belongings and vacate the house upon receipt of the HUD-mandated occupied-
    conveyance notice, and it is concomitantly implausible that MDK sought that result when they
    sent the letter. We therefore cannot accept the suggestion that MDK intentionally sent the letter
    prematurely in an effort to convince the Esteps to leave their home.
    3
    This allegation appears in the Esteps’ brief rather than their complaint.        We will
    overlook that error, which would provide a separate basis for rejecting their argument.
    -7-
    No. 13-3635
    Estep v. Manley Deas Kochalski, LLC
    Nor are we able to conjure up a situation in which a mortgagee (or its agent) would
    manipulate the timing of an occupied-conveyance notice to induce a mortgagor to pay the
    outstanding mortgage debt. At most, a premature occupied-conveyance notice is likely to cause
    the recipient to submit her occupied-conveyance application to HUD prematurely. It is not at all
    clear how that might benefit the mortgagee. It is therefore implausible that the decision to send a
    premature occupied-conveyance notice would be animated by an intent to induce payment of the
    outstanding mortgage debt or to provoke some other action beneficial to the mortgagee, and
    failure to comply with the HUD regulations governing the timing of the occupied-conveyance
    notice thus does not subject a mortgagee or its agents to liability under the FDCPA.
    The Esteps’ timeliness challenge amounts to a quibble with the reasonableness of MDK’s
    assessment of the date on which Wells Fargo would acquire title to their property. But the
    FDCPA is not the proper vehicle for homeowners to challenge the reasonableness of that
    expectation. The HUD regulations commit that decision to the discretion of the foreclosing
    mortgagee and its agents, see 24 C.F.R. § 203.675(a), and any challenge to the reasonableness of
    the mortgagee’s assessment should not be brought under the FDCPA.
    On the other hand, a foreclosing mortgagee—or a law firm acting on the mortgagee’s
    behalf—might include certain content in an occupied-conveyance notice to induce payment of
    the outstanding mortgage debt. The mortgagee might simply add language insisting on payment,
    for example, or offering an incentive to settle the foreclosure litigation. Cf. 
    Gburek, 614 F.3d at 385
    (stating that § 1692e applies to “a communication made specifically to induce the debtor to
    settle her debt”). Or the notice might include more subtle attempts to influence the homeowner’s
    behavior vis-à-vis the mortgagee.
    -8-
    No. 13-3635
    Estep v. Manley Deas Kochalski, LLC
    Nothing in MDK’s letter, however, can be construed as an attempt to induce some sort of
    payment by the Esteps. The Esteps point to two discrepancies between MDK’s letter and the
    form notice provided in HUD Handbook 4330.1 Rev-5, Administration of Insured Home
    Mortgages, § 9-11 & app. 40 (1994), available at http://portal.hud.gov/hudportal/HUD?src=/
    program_offices/administration/hudclips/handbooks/hsgh/4330.1. Both discrepancies consist of
    omissions from rather than additions to the form notice, however, and neither discrepancy
    supports the inference that MDK sought to use the notice to induce payment.
    The HUD Handbook requires foreclosing mortgagees to include the following disclaimer
    at the end of an occupied-conveyance notice:
    YOU MUST REPLY TO THE HUD FIELD OFFICE IN WRITING WITHIN
    THE NEXT 20 DAYS OF THE DATE ON THIS LETTER OR YOU WILL BE
    REQUIRED TO MOVE FROM THE PROPERTY BEFORE HUD BECOMES
    OWNER OF THE PROPERTY.
    See 
    id. MDK’s letter
    to the Esteps omitted the last seven words of the disclaimer as well as the
    words “field” and “the next.”     The Esteps contend that the omissions change the notice’s
    meaning and demonstrate that an animating purpose of the letter was to induce payment. We
    reject that allegation. Although the disclaimer in MDK’s letter did not mirror the language in the
    HUD Handbook, MDK’s omissions do not demonstrate an intent to induce payment by the
    Esteps. The omission of the words “field” and “the next” has no effect whatsoever. MDK’s
    letter still makes clear that the Esteps should return their occupied-conveyance forms to HUD
    within twenty days.4 Nor was the omission of the words “before HUD becomes owner of the
    property” likely to induce some action that the Esteps otherwise would not have taken. That
    omission does not change the letter’s general meaning. With or without the last seven words of
    4
    MDK’s letter provided HUD’s mailing address, and the Esteps do not allege that MDK
    provided the incorrect address.
    -9-
    No. 13-3635
    Estep v. Manley Deas Kochalski, LLC
    the disclaimer, the letter clearly states that HUD will require the Esteps to vacate the home upon
    the transfer of title unless they submit a continued-occupancy application to HUD within twenty
    days. It is therefore implausible that MDK manipulated the language of the disclaimer to
    provoke a desired response.
    MDK notes one other discrepancy. Homeowners are sometimes eligible to remain in
    their homes after HUD takes possession if the homeowner suffers from an illness or injury. The
    form notice provided in the HUD Handbook includes a two-sentence paragraph that explains
    what information an applicant must provide to HUD to be eligible for this relief. See 
    id. MDK’s letter
    included the first sentence of this paragraph but omitted the second. The Esteps suggest
    that MDK omitted that sentence to sabotage the Esteps’ application for relief. We think not.
    The Esteps do not claim to suffer from an illness or injury, so it’s implausible that MDK made a
    calculated decision to omit the sentence in order to harm the Esteps. And in all events, an
    attempt to sabotage a HUD application is not an attempt to induce payment.
    In sum, we reject as implausible the suggestion that an animating purpose of MDK’s
    occupied-conveyance notice was to induce payment by the Esteps. The only purpose that
    plausibly could have animated MDK’s decision to send the notice was to inform the Esteps of
    their obligation to submit a timely application to HUD if they wished to continue to reside in
    their house beyond the date on which ownership transferred to Wells Fargo. Cf. Bailey v. Sec.
    Nat’l Servicing Corp., 
    154 F.3d 384
    , 388–89 (7th Cir. 1998) (holding that the communication
    was not made in connection with the collection of a debt because it merely described the status
    of the debtor’s account and the consequences of missing future payments). Nothing in MDK’s
    occupied-conveyance notice can be interpreted to induce payment, nor can that letter be
    interpreted as an effort to make MDK and Wells Fargo more likely to succeed in the foreclosure
    -10-
    No. 13-3635
    Estep v. Manley Deas Kochalski, LLC
    action. Accordingly, MDK’s occupied-conveyance notice was not sent in connection with the
    collection of a debt, and the FDCPA does not govern the letter’s content.
    III.
    For these reasons, the decision of the district court is affirmed.
    -11-