On February 16, 2018, the 6th Circuit, in Hagy v. Demers & Adams (882 F.3d 616 (6th Cir. Feb. 16, 2018)), found that a former borrower did not have standing to assert a claim under the Fair Debt Collection Practices Act (FDCPA) absent a showing of concrete harm. The case is one of the latest decisions to apply the Supreme Court’s Spokeo v. Robins decision (136 S.Ct. 1540 (2016)) in the context of a different statute, to dismiss a case for lack of standing based on a finding that the plaintiff failed to demonstrate sufficient harm.
Defendant Green Tree servicing, LLC (Green Tree) serviced the plaintiffs’ mortgage loan, and commenced foreclosure proceedings against them after they defaulted. To avoid foreclosure, the plaintiffs agreed to provide Green Tree with a deed-in-lieu of foreclosure in exchange for a discharge of the mortgage loan balance. After the plaintiffs executed the deed-in-lieu of foreclosure, Green Tree’s attorneys sent the plaintiffs a letter informing them that Green Tree received the deed, and confirming that Green Tree would not pursue them further for the balance of the loan. Subsequently, however, Green Tree and its attorneys began contacting the plaintiffs through its attorneys to demand payment on the debt that they no longer owed. When one of the plaintiffs protested that he “didn’t have to pay anything else,” Green Tree stopped attempting to collect the debt. Nevertheless, the plaintiffs sued both Green Tree and its attorneys, claiming that the letters and calls relating to the debt violated the FDCPA. Green Tree settled with the plaintiffs, but the district court eventually determined that the letters sent by Green Tree’s attorneys violated the FDCPA, because the letters did not state that they were sent by a debt collector, and awarded damages, costs, and fees to the plaintiffs on that basis.
The district court, which decided the case pre-Spokeo, concluded that Congress created a new injury under the statute—not receiving the disclosures required by the FDCPA. The Sixth Circuit disagreed, finding that the plaintiffs did not actually suffer any harm because of the nature of the letter. If anything, the letter should have provided comfort to the plaintiffs, because it specifically stated that Green Tree would not pursue them for the loan balance. Indeed, the court observed that, toward that end, the plaintiffs actually relied on the letter in resisting Green Tree’s subsequent demands for payment. In so doing, the court drew a distinction, holding that while Congress can elevate certain previously non-actionable conduct into actionable legal status, it cannot “transform something that is not remotely harmful into something that is.” The court also noted that, although Congress has some leeway to define injury, the determination as to whether harm occurred—and therefore whether Article III standing exists—is within the constitutional purview of the courts, and not Congress.
In the wake of Spokeo, the question of Article III standing has been a hot topic. As we reported here, the Ninth Circuit, upon revisiting Spokeo, held that the question of injury can be determined if the statute: (1) was established to protect a concrete interest, rather than a procedural right; and (2) whether the procedural violations alleged presented harm, or material risk of harm, to that interest. The Ninth Circuit observed that not all cases would result in Article III standing, but that the risk of harm was present in Spokeo because the plaintiff alleged that publication about inaccurate information about on his credit report (in violation of the Fair Credit Reporting Act (FCRA)) created an actual risk of harm to his job prospects. The Hagy case may present the other side of that coin. As in Spokeo, the Hagy plaintiffs demonstrated that a statute—the FDCPA rather than the FCRA—had been violated. But unlike Spokeo, the Hagy plaintiffs could not show that a material risk of harm resulted from the procedural violation of the FDCPA. The Hagy letter merely memorialized the agreement between the plaintiffs and Green Tree, rather than presenting any further risk of harm.
It remains to be seen whether this is the distinction that courts will seek to draw in the future. But, as always, LenderLaw Watch will continue to monitor the evolving caselaw in the wake of Spokeo, and bring you updates as they arise.