In Bates v Green Farms Condominium Assn, a published opinion from the 6th Circuit Court of Appeals, a condominium association retained a law firm to record and foreclose a condominium lien against the Plaintiffs’ condominium unit. After losing the unit to foreclosure, the Plaintiffs filed suit against the association, its law firm, and its managing agent alleging a violation of the Federal Fair Debt Collection Practices Act. The defendants file a motion to dismiss the complaint for failure to state a claim, which the trial court granted. Dismissal was affirmed on appeal.
The Fair Debt Collection Practices Act has a complex definition of "debt collector.” There are general debt collectors whose primary purpose is to collect debts or which regularly collects the debts of another. There are other persons described who are exempt under the act. And there is unique definition that applies to enforcers of security interests. The United States Supreme Court, in Obduskey v McCarthy & Holthus, LLP, held that law firms that assist in foreclosing mortgages fall within the limited definition, and requirements, of enforcers of security interests.
The complaint alleged that the firm wrongfully recorded a lien against the condominium unit, and that the law firm falsely represented the character, amount, or legal status of their dues. The complaint contained no allegations about the principal business or activities of either the law firm or the managing agent sufficient to bring them within the general definition. Because the factual allegations all pertained to actions taken to foreclose the lien (including recording the lien, which the court found to be part of the statutory process), the law firm fell within the unique definition, and the plaintiffs failed to allege any wrongful conduct pertaining to security interest enforcers.
While a seeming victory for law firms, it would appear that, had the complaint made a few additional factual allegations about the general business of the law firm as a debt collector, the case would have survived the motion to dismiss.