Schlegel Ex Rel. Schlegel v. Wells Fargo Bank, NA
2013 U.S. App. LEXIS 13595
| 9th Cir. | 2013Background
- John and Carol Schlegel obtained a mortgage in 2009 that was later assigned to Wells Fargo; they reaffirmed the loan in bankruptcy and received a discharge in July 2010.
- Wells Fargo and the Schlegels entered a court‑approved loan modification effective July 1, 2010, with payments beginning August 1, 2010; the Schlegels made the modified payments.
- Despite payments and assurances from Wells Fargo, the bank sent multiple default and acceleration notices between July and December 2010, including a December 20 notice stating the entire balance was due and that the loan had been referred for foreclosure.
- Wells Fargo did not acknowledge that the modification was in effect until after the Schlegels filed suit; the notices allegedly caused emotional distress to the Schlegels.
- The Schlegels sued under the Fair Debt Collection Practices Act (FDCPA) and the Equal Credit Opportunity Act (ECOA); the district court dismissed both claims and the Schlegels appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Wells Fargo is a "debt collector" under the FDCPA (15 U.S.C. §1692a(6)) | Schlegel: Complaint alleges Wells Fargo is in the business of collecting debts, including acquired mortgages, so it is a debt collector under both prongs of the definition | Wells Fargo: It is a creditor (not a debt collector) because it collected debts owed to itself after assignment; also FDCPA creditor exclusion applies | Court: Affirmed dismissal — complaint fails to plausibly allege Wells Fargo’s business has the "principal purpose" of collecting debts, and it does not regularly collect debts "owed or due another." |
| Proper textual scope of "business" in §1692a(6) | Schlegel: "Business" can mean any activity of a company, so an activity whose principal purpose is debt collection could make Wells Fargo a debt collector | Wells Fargo: "Business" means the company’s principal business; FDCPA does not treat creditors as debt collectors | Court: Rejected Schlegel’s expansive reading; adopting it would render the second prong superfluous. |
| Whether acceleration notices revoked the Schlegels’ "credit" (ECOA adverse action) | Schlegel: Notices announcing acceleration and foreclosure revoked their right to defer payment under the modification — a revocation of credit needing an adverse‑action notice under ECOA | Wells Fargo: Notices were mistaken and nonbinding; they did not change loan terms or validly revoke credit, so no adverse action occurred | Court: Reversed dismissal — complaint plausibly alleges Wells Fargo revoked the Schlegels’ right to defer payment (a "revocation of credit") and failed to give the required ECOA adverse‑action notice. |
| Whether ECOA claim survives without a timely notice | Schlegel: ECOA requires a statement of reasons after adverse action; none was given | Wells Fargo: Argued no adverse action occurred, so no notice obligation arose | Court: Because an adverse action was plausibly alleged and no notice was sent, the ECOA claim survives at the pleading stage. |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (legal‑pleading standards for plausibility)
- Brantley v. NBC Universal, Inc., 675 F.3d 1192 (9th Cir. 2012) (standard of review for Rule 12(b)(6) dismissal)
- Autotel v. Nevada Bell Tel. Co., 697 F.3d 846 (9th Cir. 2012) (construing well‑pleaded factual allegations at pleading stage)
- Dougherty v. City of Covina, 654 F.3d 892 (9th Cir. 2011) (interpreting FDCPA §1692a(6) principal‑purpose requirement)
- Hearn v. Western Conference of Teamsters Pension Tr. Fund, 68 F.3d 301 (9th Cir. 1995) (avoidance of statutory superfluity in interpretation)
- McKinney v. Cadleway Props., Inc., 548 F.3d 496 (7th Cir. 2008) (discussed: treating creditors and debt collectors as mutually exclusive)
- Bridge v. Ocwen Fed. Bank, FSB, 681 F.3d 355 (6th Cir. 2012) (discussed: creditor vs. debt collector distinction)
- Oppong v. First Union Mortg. Corp., [citation="215 F. App'x 114"] (3d Cir. 2007) (examined in complaint but court found it insufficient to plead collection "owed or due another")
- Thompson v. Galles Chevrolet Co., 807 F.2d 163 (10th Cir. 1986) (ECOA remedies and adverse‑action principles)