Sixth Circuit holds Article III jurisdiction lacking for claims under the FDCPA where no cognizable injury was alleged

In Hagy v. Demers & Adams, No. 17-3696, 882 F.3d 616 (Feb. 16, 2018), two borrowers took out a loan for a mobile home on which they subsequently defaulted, prompting the lender to foreclose. The parties resolved the case through a deed in lieu and the lender dismissed the foreclosure. Prior to dismissal, however, the lender’s foreclosure counsel mailed two letters: the first, mailed to the borrowers, stated the lender would waive any deficiency if the borrowers agreed to the deed in lieu and contained a copy of the proposed deed in lieu. The second was mailed the borrowers’ attorney and confirmed receipt of the executed deed in lieu from the borrowers and that the lender would not seek a deficiency. Neither letter disclosed it was being sent by a debt collector.

After dismissal of the foreclosure, the lender called the borrowers to collect the debt. The borrowers pointed to the letters to where the lender agreed it could not collect any money from them. The lender realized its error, agreed it could not collect the deficiency, and stopped calling. The borrowers then sued the lender, the lender’s employee who made the collection calls, the lender’s foreclosure attorney who sent the deed in lieu letters, alleging the phone calls and letters violated the FDCPA and the Ohio Consumer Sales Practices Act.

The district court dismissed the borrowers’ FDCPA claim for the first letter as time-barred. But it denied the motion to dismiss and ultimately granted summary judgment in favor of the borrowers on the state claims for both letters and the federal claims for the second letter, finding both letters failed to disclose they were sent by a debt collector in violation of the FDCPA and that because Ohio law incorporates federal law, the letters also violated the Ohio Consumer Sales Practices Act. The borrowers were awarded $1,800 in statutory damages, $312 in court costs, and $74,196 in attorney’s fees. The lender’s foreclosure counsel appealed.

The Sixth Circuit reversed the lower court and dismissed the complaint, finding that Article III of the U.S. Constitution extended judicial power only to concrete cases and controversies – which require a cognizable injury. The borrowers’ complaint did not allege they suffered an actual injury from the purported violation of the FDCPA. Therefore, they failed to show there was standing.

Consistent with the court’s holding in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), the Court of Appeals held that in order to establish standing, the borrowers needed to point to some harm other than a “bare procedural violation”. The court found that if anything, the letters actually served to benefit the borrowers because they relied upon it in refusing to pay the lender when it began calling the borrowers to collect the deficiency balance. Thus, even though there may have been a procedural violation by the exclusion of a debt validation notice or that the letters were sent to collect a debt, there was no particular and concrete injury that the court could hear. The Court of Appeals said that in enacting the FDCPA, Congress made no effort to show how a letter like the ones sent to the borrowers would create a cognizable injury in fact and they could not see any scenario in which that could be the case.

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