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Unlikely Justice Could Be Swing Vote In Foreclosure Case

Jan. 7, 2019, 10:30 AM

A conservative justice could be a surprise wild card as the Supreme Court gets ready to hear arguments on whether foreclosures unsupervised by courts are subject to federal debt collection laws.

The parties in Obduskey v. McCarthy & Holthus will argue before the high court Jan. 7, after the U.S. Court of Appeals for the Tenth Circuit ruled that law firms and mortgage servicers are not subject to the Fair Debt Collection Practices Act.

The law sets restrictions on when debt collectors can contact debtors and other parts of the collections process.

The high court’s ruling will turn on a reading of the 1977 law and whether trying to foreclose on a home counts as collecting on a debt.

The court’s liberal wing, including Justices Ruth Bader Ginsburg, Sonia Sotomayor, Elena Kagan and Stephen Breyer, are widely expected to conclude that nonjudicial foreclosures are subject to the FDCPA, Brian Frontino, a partner with Stroock & Stroock & Lavan LLP, said.

One of the court’s conservatives, Justice Neil Gorsuch, could be the swing vote. He has said he relies heavily on the plain meaning of the statute’s text. And other circuits have found that the FDCPA is applicable since a foreclosure is just another form of collecting on an unpaid debt. That strict textualist argument could be appealing to Gorsuch, Frontino said.

“That would be a real test of whether he is ideologically aligned with the conservative majority now. It’ll be interesting to see how he handles it, because he is a textualist for sure,” he said said in a Jan. 4 phone interview.

Circuit Split

At the center of the Obduskey case is a homeowner’s attempt to bring claims that McCarthy & Holthus, a San Diego-based debt collection law firm, violated the FDCPA during a nonjudicial foreclosure process in 2009.

The Tenth Circuit said in a January 2018 ruling that the firm was not in violation because it was trying to collect on a secured property, a type of debt not covered by the FDCPA.

The Tenth Circuit’s Jan. 2018 ruling deepened a split on the issue of the FDCPA’s application in nonjudicial foreclosures.

The U.S. Court of Appeals for the Ninth Circuit sides with the Tenth Circuit. The U.S. Courts of Appeal for the Third, Fourth and Sixth Circuits, as well as the supreme courts of Alaska and Colorado, disagree. The Obduskey litigation began in Colorado.

The Third, Fourth and Sixth Circuits all found that at the heart of foreclosures is a failure to repay a loan, and an attempt to collect on some or all of that money that can continue until the home is sold. The FDCPA applies to mortgage servicers and law firms engaging in nonjudicial foreclosures because money is the core issue of the foreclosure dispute, those circuits say.

“Don’t they meet that general definition of debt collector because they generally collect debts that are owed to other people?” Geoff Walsh, a staff attorney with the National Consumer Law Center who wrote an amicus brief supporting the appellants, said in a Jan. 3 phone interview.

It is unlikely that the justices will take on the question of how the FDCPA applies in court-supervised foreclosures, according to Alan Kaplinsky, the co-head of Ballard Spahr LLP and a top voice for the industry defense bar.

“I would expect that there would be a very narrow opinion. One that is not going to apply to judicial foreclosures,” he said in a Jan. 3 phone interview.

Role Reversal

The Justice Department and the Consumer Financial Protection Bureau have in the past argued that the FDCPA applies to nonjudicial foreclosures.

That changed with President Donald Trump’s election and Republicans leading the CFPB. The Justice Department filed a brief in the case supporting the Tenth Circuit’s ruling, reversing the government’s position to support McCarthy & Holthus without much explanation.

Walsh said he hopes to see the justices push for an explanation.

Main Event

The main event will be a window into how justices might resolve the circuit split on the FDCPA’s applicability in nonjudicial foreclosures.

“When a court grants cert it does it to reverse. But in this case, you had such a sharp split in the circuits that it almost had to grant cert,” Kaplinsky told Bloomberg Law.

Obduskey v. McCarthy & Holthus LLP, U.S., 17-1307, 1/7/19

To contact the reporter on this story: Evan Weinberger in New York at

To contact the editor responsible for this story: Michael Ferullo at