TODD A. BATES; MARCIA C. BATES, Plаintiffs-Appellants, v. GREEN FARMS CONDOMINIUM ASSOCIATION; THE HIGHLANDER GROUP MMC, INC.; MAKOWER ABBATE GUERRA WEGNER VOLLMER, PLLC, Defendants-Appellees.
No. 19-2127
UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
Decided and Filed: May 4, 2020
RECOMMENDED FOR PUBLICATION Pursuant to Sixth Circuit I.O.P. 32.1(b). File Name: 20a0134p.06. Appeal from the United States District Court for the Eastern District of Michigan at Detroit. No. 2:18-cv-13533—Avern Cohn, District Judge.
Before: SUHRHEINRICH, BUSH, and MURPHY, Circuit Judges.
COUNSEL
ON BRIEF: Paul G. Valentino, PAUL G. VALENTINO, J.D., P.C., Bloomfield Hills, Michigan, for Appellants. Sidney A. Klingler, SECREST WARDLE, Troy, Michigan, for Green Farms and Highlander Group Appellees. Kathleen H. Klaus, Jesse L. Roth, MADDIN HAUSER ROTH & HELLER, P.C., Southfield, Michigan for Appellee Makower Abbate Guerra Wegner Vollmer, PLLC.
MURPHY, Circuit Judge. The Fair Debt Collection Practices Act regulates “debt collectors.” The Act defines “debt collector” generally to cover parties who oрerate a “business the principal purpose of which is the collection of any debts” or who “regularly collect[] or attempt[] to collect” debts owed another.
In this case, Todd and Marcia Bates lost their condominium through a nonjudicial foreclosure after they fell behind on their condo-association dues. During the foreclosure process, the Bateses claim, the condo complex‘s management company and its law firm violated various provisions of the Act. But the Bateses do not assert a violation of
I
A
This case concerns the relationship between two statutory regimes that govern the collection of a debt secured by a debtor‘s home: Michigan‘s nonjudicial-foreclosure law and the federal Fair Debt Collection Practices Act.
Michigan has long followed a “foreclosure by advertisement scheme.” Bank of Am., NA v. First Am. Title Ins. Co., 878 N.W.2d 816, 822 (Mich. 2016). Under this scheme, a lender (thе mortgagee) may foreclose on the home securing its loan to a defaulting borrower (the mortgagor) through a public sale of the home without a state court‘s supervision. Id.;
The Fair Debt Collection Practices Act, by comparison, governs the debt-collection efforts of statutorily defined “debt collectors.” See Obduskey, 139 S. Ct. at 1036. The Act, among other things, regulates communications with debtors,
Mortgages triggering nonjudicial-foreclosure processes like Michigan‘s are “security interests” protecting a lender from the risk that a borrower will not repay a loan. See Obduskey, 139 S. Ct. at 1033 (citing Restatement (Third) of Property: Mоrtgages § 1.1 (1996)). So which of the Act‘s debt-collector definitions applies to parties (typically lawyers) who help lenders enforce these security interests by proceeding through the nonjudicial-foreclosure process? Before 2019, circuit courts disagreed on this question. Some held that these parties fell within the unique definition for individuals who enforce security interests and so were subject only to
The Supreme Court recently resolved this split in a decision rejecting our caselaw. In Obduskey, it held that a lawyer who oversaw a nonjudicial foreclosure fell within the Act‘s unique definition covering the enforcement of a security interest. 139 S. Ct. at 1036. This conclusion meant that only
B
This case implicates the question the Supreme Court reserved. Because the district court dismissed the complaint on the pleadings, we take as true the complaint‘s well-pleaded factual allegations. See Barany-Snyder v. Weiner, 539 F.3d 327, 332 (6th Cir. 2008).
As far as we can tell from the complaint (which is sparsely populated with facts), Todd and Marcia Bates owned a condominium at the Green Farms Condominium
Highlander hired a law firm, Makower Abbate Guerra Wegner Vollmer, PLLC, to undertake a nonjudicial foreclosure of the Bateses’ condo, which allegedly violated the condo bylaws. Highlander and Makower advertised the Bateses’ condo for sale. At a foreclosure sale on about August 28, the highest bidder, Trademark Properties of Michigan, LLC, bought the condo for $37,859.29. This price fell well below the amount at which the Bateses valued their condo—at over $150,000. (The complaint does not say whether the Bateses also had a mortgage on their condominium that would remain valid as against the new purchaser under Michigan law. See
The Bateses sued Green Farms, Makower, and Highlander. They asserted a claim under the Fair Debt Colleсtion Practices Act against Makower and Highlander, alleging that these defendants acted as “debt collectors” when they undertook the foreclosure. The complaint contained two paragraphs describing the conduct that allegedly violated the Act. The first paragraph asserted that Makower and Highlander engaged in conduct “to harass, oppress, or abuse [them] in violation of 15 USC [§ 1692d] when [Makower and Highlander] wrongfully recorded a lien against [their] real estate and foreclosed on the real estate by advertisement in violation of the сondominium by laws.” The second paragraph asserted that Makower and Highlander “falsely represented the character, amount or legal status of [the Bateses‘] condominium association dues, as delinquent, held the [cashier‘s] checks paid by [the Bateses] and overstated and falsely added charges in violation of 15 USC § 1692e(2)(A) and recorded a false lien and foreclosed on the real property in violation of the condominium by laws.” Apart from their claim under the Fair Debt Collection Practices Act, the Bateses added three state-law claims for slander on their title and conversion.
The district court dismissed the Bateses’ complaint on the pleadings under
II
To recap, entities that fall within the Fair Debt Collection Practices Act‘s general definition of debt collector must comply
Before addressing that question, we start with the standards governing our review. A motion for judgment on the pleadings under
Under these standards, the Bateses’ complaint does not plausibly show that Makower and Highlander were “debt collectors” within the meaning of the Act‘s general definition. See id. We start “by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth.” Id. at 679. The complaint alleges that Makower and Highlander “were acting as debt collectors” under
To begin with, the Act‘s general debt-collector definition ties a defendant‘s “debt collector” status not to what the defendant specifically did in a given case,
Start with Makower. The general allegations about this law firm assert only that it is a “professional corporation duly incorporated in the State of Michigan[.]” To be sure, the Act can apply to law firms that engage in debt collection. See Sheriff v. Gillie, 136 S. Ct. 1594, 1600 (2016); Heintz v. Jenkins, 514 U.S. 291, 299 (1995). And some courts havе held that unpaid condo dues can qualify as “debt” under the Act‘s definition (an issue we need not reach). See Ladick v. Van Gemert, 146 F.3d 1205, 1206–07 (10th Cir. 1998). But the complaint nowhere suggests that Makower‘s “principal purpose” is debt collection. And it nowhere suggests that Makower “collects debts as a matter of course for its clients or for some clients, or collects debts as a substantial, but not principal, part of . . . its general law practice.” Schroyer, 197 F.3d at 1176; cf. Goldstein v. Hutton, Ingram, Yuzek, Gainen, Carroll & Bertolotti, 374 F.3d 56, 61–63 (2d Cir. 2004). Indeed, the complaint nowhere asserts any facts about Makower‘s general legal practice, about the types of cases it typicаlly handles, or about the types of clients it usually serves. See Thomas v. US Bank Nat‘l Ass‘n, 675 F. App‘x 892, 898 (11th Cir. 2017). Perhaps Makower is a debt-collection firm. Yet the pleaded facts must be more than “‘merely consistent with’ a defendant‘s liability.” Iqbal, 556 U.S. at 678 (citation omitted).
Turn to Highlander. The general allegations about this company assert that it was “hired by defendant, Green Farms, to manage the condominium project.” The complaint nowhere suggests the portion of Highlander‘s management (if any) that involves collecting debts. Not only that, courts have held that managers of condominium or apartment complexes fall within exceptions to the dеbt-collector definition when acting as agents for the condo or apartment owners. These courts have invoked either an exception covering entities who collect debts “incidental to a bona fide fiduciary obligation” or one covering entities who collect debts that were not in default when the entities “obtained” them.
For the most part, that is all the Bateses claim. As their primary injury, they allege the loss of their condo through Michigan‘s foreclosure-by-advertisement process. And most of their specific allegations reiterate this injury. They repeatedly say that Makower and Highlander violated the Act by “wrongfully record[ing] a lien against [the Bateses‘] real estate and foreclos[ing] on the real estate by advertisement in violation of the condominium by laws.” Under Obduskey, these allegations cannot suffice to show that Makower and Highlander are general debt collectors. Id. at 1038.
The Bateses respond that their complaint alleges more than merely enforcing a security interest and so falls within Obduskey‘s disclaimer that the Court did “not consider what other conduct” might make a security-interest enforcer a general debt collector. Id. at 1040. They identify two factual allegations to distinguish Obduskey. Neither does so.
The Bateses first argue that the complaint аlleges that Makower and Highlander wrongfully created the security interest by recording the lien on their condo. The creation of a security interest, their argument goes, is different from the enforcement of a security interest. This argument misreads Michigan law. Michigan‘s Condominium Act makes clear that the “[s]ums assessed to a co-owner by [a condo] association of co-owners that are unpaid constitute a lien upon the unit or units in the project owned by the co-owner at the time of the assessment[.]”
The Bateses next argue that the complaint alleged that Makower and Highlander violated the Act (and became general debt collectors) when these “defendants” “falsely represented the character, amount or legal status of” the delinquent dues, “held the cashier‘s checks” that the Bateses paid, and wrongly “added charges” to their debt, all in violation of
In sum, the Bateses’ complaint fails to distinguish Obduskey and shows, at most, that Makower and Highlander were only security-interest enforcers. Because they allege violations of provisions other than
III
Apart from the merits, the Bateses raise a procedural argument. They assert that the district court should have converted Makower‘s and Highlander‘s motions for judgment on the pleadings into motions for summary judgment because the Bateses’ opposition brief attached evidenсe outside the pleadings (letters and an email from Makower, receipts for their dues payments, and account summaries). See
To begin with, the argument offers a roadmap to sidestep meritorious motions for judgment on the pleadings under
If plaintiffs believe that they need to supplement their complaint with additional facts to withstand a motion for judgment on the pleadings (or a motion to dismiss), they have a readily available tool: a motion to amend the complaint under
Yes, the Bateses respond, but the district court did not disregard the evidence in this case. Instead, the court twice mentioned the evidence when granting the motions for judgment on the pleadings. And
But this invited error does the Bateses no good. We have recognized that an error like this one can be harmless in two circumstances, depending on how a court has ultimately used the outside evidence. See Max Arnold, 452 F.3d at 504; Yeary v. Goodwill Indus.-Knoxville, Inc., 107 F.3d 443, 445 (6th Cir. 1997). Consider first a case in which the district court‘s ruling on the motion depended on that outside evidence. In that context, we have held that the failure to notify the parties and give them an opportunity to present more evidence “is not reversible error” if that failure did not prejudice the parties because they “had a sufficient opportunity to present pertinent materials.” Max Arnold, 452 F.3d at 504. On appeal, we have reviewed a district court‘s decision that makes this type of error under the standards governing a motion for summary judgment. Id.
Consider next a case in which the district court merely described the evidence in passing (or failed to expressly reject it). In that context, we have held that the failure to convert the motion to a motion for summary judgment is not reversible error if the court‘s “rationale” in no way “hinged on the additional information provided there.” Yeary, 107 F.3d at 445; Song v. City of Elyria, 985 F.2d 840, 842 (6th Cir. 1993). That is, this “error will be treated as harmless if the dismissal can be justified without reference to any extraneous matters.” 5C Wright, supra, § 1364, at 63 (3d ed. Supp. 2019). On appeal, we have reviewed a district court‘s decision that makes this type of error under the normal standards governing a motion to dismiss or for judgment on the pleadings. See Yeary, 107 F.3d at 445; see also Yaldo, 622 F. App‘x at 516.
We find the second course to be the proрer path here. The district court did not use the Bateses’ evidence to find their complaint‘s factual allegations inadequate. As we have explained, their complaint was inadequate “without reference to any extraneous matters.” 5C Wright,
We affirm.