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Corporations Are “Persons” Under Federal Debt Collection Statute, According to One Appellate Court

worried-30148_640.pngThe question of “corporate personhood,” the legal circumstances in which a business entity may be considered a “person,” is a controversial one. Supreme Court decisions like Burwell v. Hobby Lobby Stores, Inc., 573 U.S. ___ (2014), and Citizens United v. Federal Election Comm’n, 558 U.S. ___ (2010), have extended to corporations rights traditionally held by individuals. The default federal definition of “person,” however, actually includes corporations. The Dictionary Act defines “person” to include not only individuals, also known as “natural persons,” but also corporations and other business entities. 1 U.S.C. § 1. The Sixth Circuit Court of Appeals recently expanded the definition by ruling that business entities are “persons” under the Fair Debt Collection Practices Act (FDCPA). Anarion Investments, LLC v. Carrington Mortgage Services, LLC, et al., Nos. 14-5781/5993, slip op. (6th Cir., Jul. 23, 2015); 15 U.S.C. § 1692 et seq.

The dispute is based on a series of real estate transactions that began with an individual borrowing money from a bank to purchase a residence secured by a note and deed. The individual assigned his rights to a trust, which leased the property to another individual. That individual assigned the lease to the plaintiff, a limited liability company (LLC) organized in Delaware. At some point, the purchaser stopped paying the mortgage, and the property went into foreclosure.

The plaintiff filed suit against the mortgage company under the FDCPA, claiming that the mortgage company falsely identified a “substitute trustee” in published foreclosure notices. The defendant challenged the plaintiff’s standing to sue. The district court granted the defendant’s motion to dismiss, finding that the plaintiff was not a “person” within the meaning of the statute. 15 U.S.C. § 1692k, Fed. R. Civ. P. 12(b)(6).

Congress enacted the FDCPA in 1977 for the purpose of protecting consumers against “abusive, deceptive, and unfair debt collection practices.” 15 U.S.C. §§ 1692(a), (e). The statute applies to third-party debt collectors, i.e. individuals or businesses who collect debts for others as a business activity, or who purchase debt from original creditors at a discount. “Debt,” as used by the statute, only applies to financial obligations incurred for “personal, family, or household purposes.” 15 U.S.C. § 1692a(5). The statute expressly limits the definition of “consumer” to “natural persons.” 15 U.S.C. § 1692a(3).

In a 2-1 ruling, the appellate court reversed the district court’s ruling. The majority held that the plaintiff, despite not being a natural person, has standing to bring suit under the FDCPA. Under the Dictionary Act, it held, the word “person” in legislative text has the broadest possible definition, “unless the context indicates otherwise.” Anarion, slip op. at 3. The court noted that the word appears 24 times in the text of the FDCPA. Some uses of the word expressly include business entities, while others, like the definition of “consumer,” expressly exclude them. The court therefore ruled that the word “person” in the text of the FDCPA, without any additional modification, includes business entities like the plaintiff. The dissenting justice looked beyond the text itself to find that “person” should only mean “natural person,” stating that Congress’ intent was “to promote more consistent state action to shield consumers from personal ruin.” Id. at 6 (Donald, J., dissenting).

Business and commercial law attorney James G. Schwartz has represented Bay Area businesses in litigation matters since 1976. We can help you understand your rights in a business dispute, and we can fight to protect your interests in and out of court. To schedule a free and confidential consultation with a skilled and experienced business advocate, contact us today online or at (925) 463-1073.

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