Third Circuit Revives Challenge to Firm's Debt Collection Practices

A lawsuit over a law firm's foreclosure practices on behalf of Bank of America has been revived by the Third Circuit. But while the appeals court revived the plaintiff's federal claims, it upheld the dismissal of the state law claims after it predicted how the Pennsylvania Supreme Court would rule on the issue. Kaymark v. Udren Law Offices, No. 14'1816 ().

Dale Kaymark, who refinanced his Pittsburgh-area house for $245,600 in 2006 and fell behind on his mortgage payments in 2011, filed a class action suit against Bank of America and its local law firm, Udren Law Offices, alleging that their foreclosure efforts violated the federal Fair Debt Collection Practices Act (FDCPA) and the state Fair Credit Extension Uniformity Act and Unfair Trade Practices and Consumer Protection Law (UTPCPL).

A federal judge in Pittsburgh had agreed with the defendants and dismissed the case, but the U.S. Court of Appeals for the Third Circuit has reversed that decision on the federal law claims against Udren.

Udren's inclusion of fees that had not yet been incurred in the foreclosure complaint it filed on behalf of Bank of America could constitute an actionable misrepresentation under the FDCPA, Third Circuit Judge D. Michael Fisher said on behalf of the unanimous three-judge panel.

The court ruled that pleadings, like Udren's foreclosure complaint, are covered under the FDCPA.

“The thrust of Udren's argument is that pleadings ' in particular, foreclosure complaints ' cannot be the basis of FDCPA claims,” Fisher said. “However, the statutory text, as well as the case law interpreting the text, renders this argument meritless.”

The judge cited the U.S. Supreme Court's 1995 opinion in Heintz v. Jenkins, 514 U.S. 291 (1995), which established that lawyers who perform debt collection, even if it is part of litigation, are covered by the FDCPA.

“In so holding, the court explained that Congress repealed an express exemption from the definition of 'debt collector' in an earlier version of the statute for 'any attorney-at-law collecting a debt as an attorney on behalf of and in the name of a client,'” Fisher said, quoting from Heintz. “Once Congress amended the law without creating another exemption to fill its void, the court explained, 'Congress intended that lawyers be subject to the [FDCPA] whenever they meet the general “debt collector” definition.'”

Fisher emphasized the understanding that lawyers engaged in debt-collection litigation are covered by the FDCPA has been clearly established in the Third Circuit. He cited specifically to the court's 2005 opinion in Piper v. Portnoff Law Associates, No. 03-4399.

In Kaymark, there is no question that Udren was acting as a debt collector when it filed the foreclosure complaint for Bank of America, Fisher said.

Giving the court's ruling further support, Fisher noted that Congress had amended the statute twice after Heintz and it didn't exempt from the FDCPA's coverage lawyers engaged in debt-collection litigation.

“If Congress had wanted to exclude formal pleadings from the protections of the FDCPA under any of its other provisions, it could have done so,” Fisher said. “It did not.”

Speaking for the court, Fisher said: “We conclude that a communication cannot be uniquely exempted from the FDCPA because it is a formal pleading or, in particular, a complaint. This principle is widely accepted by our sister circuits.”

He cited to the Sixth, Tenth, Ninth and Seventh circuits.

As to the state law claims, Fisher said, the UTPCPL requires the plaintiff to show an “ascertainable loss of money or property.”

“The crux of Kaymark's theory of ascertainable loss is that the 'lien' on his property from the mortgage was inflated by not-yet-performed services, 'resulting in a corresponding, precisely quantifiable, diminishment in his interests in property,'” Fisher said, quoting from Kaymark's brief. “He reasons that, for a period of time before any services were performed, he had to pay $2,050 extra'the total overcharged amount on the debt ' to cure his default and avoid foreclosure. The district court rejected Kaymark's so-called 'lien' theory, concluding that his 'argument is couched in forward-looking speculative terms.'”

The Third Circuit agreed.

The Pennsylvania Supreme Court hasn't squarely addressed what constitutes ascertainable loss under that statute, so the Third Circuit looked to lower state-court opinions to predict how the high court would rule.

The loss can't be speculative, the Third Circuit ruled.

“Overall, it's a fantastic opinion,” said Michael Malakoff of Michael P. Malakoff P.C. in Pittsburgh, referring to the FDCPA holding. Malakoff represented Kaymark.

The ruling will change the way foreclosures are filed, probably in the whole of the Third Circuit, but, at least, in Pennsylvania, Malakoff said, since anticipated fees and costs can't be included in the foreclosure complaint.

Jonathan Bart of Wilentz, Goldman & Spitzer in Philadelphia represented Udren and declined to comment.

Bart also represented the law firm of Phelan Hallinan & Schmieg in a similar case over a debt-collection letter that the Third Circuit decided last year. That case was McLaughlin v. Phelan Hallinan & Schmieg, on which Bart sought certiorari from the U.S. Supreme Court. The High Court denied cert last November.

Saranac Hale Spencer writes for The Legal Intelligencer, the Philadelphia-based ALM sibling of this newsletter. She can be contacted at 215-557-2449 or [email protected]. Follow her on Twitter @SSpencerTLI.

A lawsuit over a law firm's foreclosure practices on behalf of Bank of America has been revived by the Third Circuit. But while the appeals court revived the plaintiff's federal claims, it upheld the dismissal of the state law claims after it predicted how the Pennsylvania Supreme Court would rule on the issue. Kaymark v. Udren Law Offices, No. 14'1816 ().

Dale Kaymark, who refinanced his Pittsburgh-area house for $245,600 in 2006 and fell behind on his mortgage payments in 2011, filed a class action suit against Bank of America and its local law firm, Udren Law Offices, alleging that their foreclosure efforts violated the federal Fair Debt Collection Practices Act (FDCPA) and the state Fair Credit Extension Uniformity Act and Unfair Trade Practices and Consumer Protection Law (UTPCPL).

A federal judge in Pittsburgh had agreed with the defendants and dismissed the case, but the U.S. Court of Appeals for the Third Circuit has reversed that decision on the federal law claims against Udren.

Udren's inclusion of fees that had not yet been incurred in the foreclosure complaint it filed on behalf of Bank of America could constitute an actionable misrepresentation under the FDCPA, Third Circuit Judge D. Michael Fisher said on behalf of the unanimous three-judge panel.

The court ruled that pleadings, like Udren's foreclosure complaint, are covered under the FDCPA.

“The thrust of Udren's argument is that pleadings ' in particular, foreclosure complaints ' cannot be the basis of FDCPA claims,” Fisher said. “However, the statutory text, as well as the case law interpreting the text, renders this argument meritless.”

The judge cited the U.S. Supreme Court's 1995 opinion in Heintz v. Jenkins, 514 U.S. 291 (1995), which established that lawyers who perform debt collection, even if it is part of litigation, are covered by the FDCPA.

“In so holding, the court explained that Congress repealed an express exemption from the definition of 'debt collector' in an earlier version of the statute for 'any attorney-at-law collecting a debt as an attorney on behalf of and in the name of a client,'” Fisher said, quoting from Heintz. “Once Congress amended the law without creating another exemption to fill its void, the court explained, 'Congress intended that lawyers be subject to the [FDCPA] whenever they meet the general “debt collector” definition.'”

Fisher emphasized the understanding that lawyers engaged in debt-collection litigation are covered by the FDCPA has been clearly established in the Third Circuit. He cited specifically to the court's 2005 opinion in Piper v. Portnoff Law Associates, No. 03-4399.

In Kaymark, there is no question that Udren was acting as a debt collector when it filed the foreclosure complaint for Bank of America, Fisher said.

Giving the court's ruling further support, Fisher noted that Congress had amended the statute twice after Heintz and it didn't exempt from the FDCPA's coverage lawyers engaged in debt-collection litigation.

“If Congress had wanted to exclude formal pleadings from the protections of the FDCPA under any of its other provisions, it could have done so,” Fisher said. “It did not.”

Speaking for the court, Fisher said: “We conclude that a communication cannot be uniquely exempted from the FDCPA because it is a formal pleading or, in particular, a complaint. This principle is widely accepted by our sister circuits.”

He cited to the Sixth, Tenth, Ninth and Seventh circuits.

As to the state law claims, Fisher said, the UTPCPL requires the plaintiff to show an “ascertainable loss of money or property.”

“The crux of Kaymark's theory of ascertainable loss is that the 'lien' on his property from the mortgage was inflated by not-yet-performed services, 'resulting in a corresponding, precisely quantifiable, diminishment in his interests in property,'” Fisher said, quoting from Kaymark's brief. “He reasons that, for a period of time before any services were performed, he had to pay $2,050 extra'the total overcharged amount on the debt ' to cure his default and avoid foreclosure. The district court rejected Kaymark's so-called 'lien' theory, concluding that his 'argument is couched in forward-looking speculative terms.'”

The Third Circuit agreed.

The Pennsylvania Supreme Court hasn't squarely addressed what constitutes ascertainable loss under that statute, so the Third Circuit looked to lower state-court opinions to predict how the high court would rule.

The loss can't be speculative, the Third Circuit ruled.

“Overall, it's a fantastic opinion,” said Michael Malakoff of Michael P. Malakoff P.C. in Pittsburgh, referring to the FDCPA holding. Malakoff represented Kaymark.

The ruling will change the way foreclosures are filed, probably in the whole of the Third Circuit, but, at least, in Pennsylvania, Malakoff said, since anticipated fees and costs can't be included in the foreclosure complaint.

Jonathan Bart of Wilentz, Goldman & Spitzer in Philadelphia represented Udren and declined to comment.

Bart also represented the law firm of Phelan Hallinan & Schmieg in a similar case over a debt-collection letter that the Third Circuit decided last year. That case was McLaughlin v. Phelan Hallinan & Schmieg, on which Bart sought certiorari from the U.S. Supreme Court. The High Court denied cert last November.

Saranac Hale Spencer writes for The Legal Intelligencer, the Philadelphia-based ALM sibling of this newsletter. She can be contacted at 215-557-2449 or [email protected]. Follow her on Twitter @SSpencerTLI.