JAMES TEPPER; ALLISON TEPPER v. AMOS FINANCIAL, LLC
No. 17-2851
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
Opinion filed: August 7, 2018
PRECEDENTIAL
Before: AMBRO, JORDAN, and VANASKIE, Circuit Judges
Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Civil Action No. 2-15-cv-05834) District Judge: Honorable J. Curtis Joyner
Argued June 5, 2018
Erik M. Helbing (Argued)
Helbing Law, LLC1328 Second Avenue Berwick, PA 18603
Counsel for Appellant
Michael J. Palumbo Anthony J. Gingo Gingo Palumbo Law Group 4700 Rockside Road, Suite 440 Independence, OH 44131
Matthew R. Rosenkoff Taylor English Duma LLP 1600 Parkwood Circle, Suite 200 Atlanta, GA 30339
Counsel for Amicus Appellant
Gleb Epelbaum John J. Jacko, III (Argued) Fellheimer & Eichen 50 South 16th Street Two Liberty Place, Suite 3401 Philadelphia, PA 19102
Counsel for Appellee
Carlo Sabatini Brett Freeman Sabatini Law Firm 216 North Blakely Street Dunmore, PA 18512
Daniel A. Edelman Francis Greene Edelman, Combs, Latturner & Goodwin LLC 20 S. Clark Street, Suite 1500 Chicago, IL 60603
Counsel for Amicus Appellee
AMBRO, Circuit Judge
Many would gladly pay Tuesday for a hamburger today. Of course, not all of those who fall into debt make payments timely, and debt collection has become a professional trade. The Fair Debt Collection Practices Act (the “FDCPA” or “Act“),
The Act does not apply, however, to all entities who collect debts; only those whose principal purpose is the collection of any debts, and those who regularly collect debts owed another are subject to its proscriptions. Those entities whose principal business is to collect the defaulted debts they purchase seek to avoid the Act‘s reach. We believe such an entity is what it is—a debt collector. If so, the Act applies.
I. Background
A. “Debt Collectors” Under the Fair Debt Collection Practices Act
The FDCPA is a “remedial legislation” aimed, as already noted, “to eliminate abusive debt collection practices by debt collectors.” Kaymark v. Bank of Am., N.A., 783 F.3d 168, 174 (3d Cir. 2015) (quoting
“Creditors—as opposed to ‘debt collectors‘—generally are not subject to the [Act].” Pollice, 225 F.3d at 403. A “creditor” is any person: (1) “who offers or extends credit creating a debt[;] or” (2) “to whom a debt is owed.”
The landscape of debt collection has changed since the FDCPA‘s enactment in 1977, and not all those who collect debt look like the classic “repo man.” The Federal Trade Commission reported in 2009 that “[t]he most significant change in the debt collection business in recent years has been the advent and growth of debt buying.” Federal Trade Commission, Collecting Consumer Debts: The Challenges of Change — A Workshop Report 13 (2009). No longer do creditors simply hire debt collectors to serve their named role; rather, with increased frequency creditors sell debt to purchasers, who may again resell the debt, hire outside debt collectors to undertake collection efforts, or attempt to collect on their own. See Federal Trade Commission, The Structure and Practices of the Debt Buying Industry 1 (2013). Since this shift, courts have had to find new ways to distinguish “debt collectors” from “creditors” to determine whether the FDCPA applies to a particular entity.
In Pollice we followed the “default” test to make that determination. Per that test, “an assignee of an obligation is not a ‘debt collector’ if the obligation is not in default at the time of the assignment; conversely, an assignee may be deemed a ‘debt collector’ if the obligation is already in default when it is assigned.” 225 F.3d at 403. Applying the test to an entity alleged to be a “debt collector,” we held that because “there [was] no dispute that the various claims assigned to [it] were in default prior to their assignment[,] . . . [and] there [was] no question that the ‘principal purpose’ of [its] business [was] the ‘collection
In Federal Trade Commission v. Check Investors, Inc., 502 F.3d 159 (3d Cir. 2007), we applied Pollice to similarly situated entities whose principal business was the collection of debts. Id. at 172. The alleged debt collectors argued they were “creditors” because they collected debts owed to themselves as opposed to “debt collectors” who collect debts owed to another. Id. Because they owned the debt they collected, they claimed they were not subject to the Act. Id. We noted in a dictum that the entities “appear[ed] at first blush to satisfy the statutory definition of a creditor,” yet, “as to a specific debt, one cannot be both a ‘creditor’ and a ‘debt collector,’ as defined in the [Act], because those terms are mutually exclusive.” Id. at 173.
We again followed the “default” test to determine whether the entity was a creditor or instead a debt collector, but pointed out that “focusing on the status of the debt when it was acquired overlooks . . . that the person engaging in the collection activity may actually be owed the debt and is, therefore, at least nominally a creditor.” Id. We justified our use of the “default” test by reasoning that “Congress . . . unambiguously directed our focus to the time the debt was acquired in determining whether one is acting as a creditor or debt collector under the [Act].” Id. We noted that the Act‘s legislative history explained the term “debt collector” as “intended to cover all third persons who regularly collect debts,” id., because independent debt collectors, unlike creditors, are not “restrained by the desire to protect their good will when collecting past due accounts.” Id. (quoting S. Rep. No. 95-382, at 2, 1977 U.S.C.C.A.N. 1695, 1696).
Instead, they likely will have “no future contact with the consumer and often are unconcerned with the consumer‘s opinion of them.” Id.
The Supreme Court, in Henson v. Santander Consumer USA Inc., 137 S. Ct. 1718 (2017), has recently repealed the “default” test we followed. Debtors claimed that Santander Bank, which had purchased their loans already in default and attempted to collect on them, met the second definition of “debt collector,” i.e., one who “regularly collects or attempts to collect . . . debts owed or due . . . another.” Id. at 1721 (quoting
The Supreme Court began “with a careful examination of the statutory text,” in particular the definition‘s limitation to debts “owed . . . another.” Id. It reasoned that “by its plain terms this language seems to focus our attention on third party collection agents working for a debt owner—not on a debt owner seeking to collect debts for itself.” Id. This language does not suggest that “whether the owner originated the debt or came by it only through later purchase” determines if it is a debt collector. Id. “All that matters is whether the target of the lawsuit regularly seeks to collect debts for its own account or does so for ‘another.‘” Id. Hence the Bank, which collected debts for its own account, did not meet the “regularly collects for another” definition. Id. at 1721-22.
The debtors in Henson further argued that the “default” test ought to apply because the statute excludes from the definition of “debt collector” those who obtain debts before default, and therefore those who obtain debts after default must fit the definition. Id. at 1724 (citing
The Court also addressed the suggestion that everyone who attempts to collect debt is either a “debt collector” or a “creditor” with respect to a particular debt, but cannot be both. Id. “[S]potting (without granting) th[at] premise,” it stated that a company such as the Bank, which collects on debt it purchased for its own account, “would hardly seem to be barred from qualifying as a creditor under the statute‘s plain terms.” Id. But excluded from the definition of “creditor” are those who acquire a debt after default when the debt is assigned or transferred ”solely for the purpose of facilitating collection of such debt for another.” Id. (quoting
Only one of our sister circuits has applied Henson thus far in a precedential opinion.2 In Bank of New York Mellon Trust Co. N.A. v. Henderson, 862 F.3d 29 (D.C. Cir. 2017), the D.C. Circuit ruled on whether the Bank of New York, which regularly purchased and collected on defaulted loans, was a “debt collector” or instead a “creditor” under the Act. Id. at 33-34. As there was “no evidence to indicate the Bank‘s ‘principal’ business is debt collection[,] []or [that] the debt the Bank is seeking to collect [is] ‘due another,‘” the Court (following Henson) held the Bank of New York was not a debt collector. Id. No sister circuit has yet opined on Henson‘s applicability to the “principal purpose” definition of “debt collector,” the task before us today.
B. Facts
Appellees James and Allison Tepper, husband and wife, entered into a home equity line of credit with NOVA Bank secured by a mortgage on their Pennsylvania home. Tepper v. Amos Financial, LLC, No. 15-cv-5834, 2017 WL 3446886, at *1 (E.D. Pa. Aug. 11, 2017). The Teppers received periodic statements regarding their loan, and made timely payments, until the Pennsylvania Department of Banking and Securities closed the Bank and the Federal Deposit Insurance Corporation was appointed as receiver. Id. at *2.
The Teppers were notified of the Bank‘s closure, the FDIC‘s role as receiver, and its intention to market and sell all of the Bank‘s assets, including their loan. Id. Though the Teppers stopped receiving periodic statements, they attempted to remit a periodic payment to the FDIC, but it neither cashed nor returned their check. Id. Rather than attempt to make further payments to the FDIC, the couple decided to wait until they received a periodic statement from the loan‘s new servicer. Id.
Some months later, the FDIC declared the loan to be in default and sold it, also assigning the mortgage securing the loan, to Appellant Amos Financial, LLC. Id. at *2–3. It is an Illinois limited liability company that first registered to conduct business
James Tepper reached out to Amos to request loan statements and to resolve the loan‘s default and avoid foreclosure. Id. at *4–5. Nareg Korogluyan, an Amos officer, returned his call. Id. at *5. He refused to give Mr. Tepper any loan statements, said the Teppers’ home belonged to Amos, and warned they could not stop its foreclosure. Id. at *5–6. An attorney, acting on behalf of Amos, then sent Mr. Tepper an email attempting to collect the debt, but at an even higher amount. Id. at *6.
C. Procedural History
The Teppers filed a complaint alleging Amos violated the FDCPA and Amos timely replied. In their pretrial filings, the Teppers argued that Amos was a “debt collector” as defined in
Amos, in its pretrial filings, did not contest its status as a “debt collector” under the Act. Rather, it argued it was not required to register in Pennsylvania as a foreign business entity because its sole business was acquiring and collecting debt. During the one-day bench trial that followed, Korogluyan testified to the same and added that the higher loan amount was calculated using an increased interest rate.
The District Court requested post-trial memoranda from the parties. In their memorandum, the Teppers argued Amos violated the FDCPA because it increased their loan‘s interest rate without first terminating and accelerating the loan, which their credit agreement required. Amos, in its memorandum, again did not challenge its status as a debt collector, and repeated that it was not required to register in the Commonwealth because its sole business was collecting the debt it acquired.
After the trial and the post-trial supplemental briefing, but before the District Court issued a decision, the Supreme Court decided Henson. In response, the District Court ordered additional briefing for the parties to address whether, in light of Henson, Amos qualifies as a debt collector.
Thereafter the Court decided: (1) Amos is a “debt collector” as defined in
Taking heed from Henson, the District Court looked first to the statute‘s text. Id. at *7. It explained there are two ways for a plaintiff to prove a defendant is a debt collector: either (1) its “principal purpose . . . is the collection of any debts,” or (2) it “regularly collects or attempts to collect . . . debts owed or due . . . another.” Id. at *8 (quoting
II. Jurisdiction and Standard of Review
The District Court had jurisdiction under
III. Discussion
Henson did not decide, but nonetheless affects, who fits the “principal purpose” definition of “debt collector.” Whereas, prior to the Supreme Court‘s decision, our precedent in Pollice and Check Investors instructed us to look at whether the debt was in default at the time it was purchased, after Henson the “default” test falls away for a “principal purpose” framework.
We take our cue from the Court to begin by carefully examining the statute‘s text. Henson, 137 S. Ct. at 1721. Both Amos and the Teppers contend the plain text of the statute supports their desired outcome—Amos arguing that it fits the definition of “creditor” and therefore it is not a “debt collector” because the terms are mutually exclusive, and the Teppers arguing it fits the “principal purpose” definition of “debt collector.”
We do not overlook Amos‘s omission of the “principal purpose” definition from its argument. Its admitted sole business is collecting debts it has purchased. It uses the mails and wires for its business. It can be no plainer that Amos “uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts.”
Amos claims that because it also meets the definition of creditor—it is the entity “to whom [the] debt is owed,”
Amos argues as its fallback position that if we do not find it is a creditor (to the exclusion of being a debt collector), we should hold that it is not a debt collector under the definition‘s exclusion for “officer[s] [and] employee[s] of a creditor [who], in the name of the creditor, [are] collecting debts for [the] creditor.”
*
In sum, Amos may be one tough gazookus when it attempts to collect the defaulted debts it has purchased, but when its conduct crosses the lines prescribed by the FDCPA, it opens itself up to the Act‘s penalties. The District Court held that Amos‘s debt-collection attempts with the Teppers crossed those lines, and it must face the statute‘s penalties for its bad behavior. We affirm the portion of the Court‘s opinion Amos has challenged on appeal—that it is a debt collector under the “principal purpose” definition. The Court decided correctly in light of Henson‘s repeal of the “default” test. Whether an entity acquired the debts it collects after they became defaulted does not resolve whether that entity is a debt collector. Instead, we follow the plain text of the statute: an entity whose principal purpose of business is the collection of any debts is a debt collector regardless whether the entity owns the debts it collects.
Thus we affirm.
THOMAS L. AMBRO
UNITED STATES CIRCUIT JUDGE