Schlegel Ex Rel. Schlegel v. Wells Fargo Bank, NA

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
JOHN SCHLEGEL, on behalf of No. 11-16816
himself and all others similarly
situated; CAROL ROBIN SCHLEGEL, D.C. No.
on behalf of herself and all others 3:10-cv-05679-
similarly situated, CRB
Plaintiffs-Appellants,
v. OPINION
WELLS FARGO BANK, NA,
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of California
Charles R. Breyer, District Judge, Presiding
Argued and Submitted
March 15, 2013—San Francisco, California
Filed July 3, 2013
Before: J. Clifford Wallace and Sandra S. Ikuta, Circuit
Judges, and Marvin J. Garbis, Senior District Judge.*
Opinion by Judge Ikuta
*
The Honorable Marvin J. Garbis, Senior District Judge for the U.S.
District Court for the District of Maryland, sitting by designation.
2 SCHLEGEL V. WELLS FARGO BANK
SUMMARY**
Foreclosure
The panel affirmed in part and reversed in part the
dismissal of an action seeking relief under the Fair Debt
Collection Practices Act and under the Equal Credit
Opportunity Act, which makes it illegal for a creditor to
discriminate against a credit applicant on the basis of race,
color, religion, national origin, sex or marital status, or age.
The panel held that appellants’ complaint did not
plausibly allege that a bank that sent mortgage default notices
despite the existence of a loan modification agreement was a
“debt collector” under the FDCPA because the complaint did
not allege that the principal purpose of the bank’s business
was debt collection, or that the bank was in the business of
collecting the debts of others. The panel rejected a per se rule
that a creditor cannot meet the definition of a debt collector.
The panel held that the complaint stated a claim under
ECOA’s notice requirement, which provides: “Each
applicant against whom adverse action is taken shall be
entitled to a statement of reasons for such action from the
creditor.” The panel held that the bank’s alleged acceleration
of appellants’ debt constituted a revocation of credit and thus
met the definition of adverse action.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
SCHLEGEL V. WELLS FARGO BANK 3
COUNSEL
S. Chandler Visher, Law Offices of S. Chandler Visher, San
Francisco, California; Daniel M. Harris (argued) and Anthony
P. Valach, Jr., The Law Offices of Daniel Harris, Chicago,
Illinois, for Plaintiffs-Appellants.
Jan T. Chilton (argued), Mark D. Lonergan, and Michael J.
Steiner, Severson & Werson, San Francisco, California, for
Defendant-Appellee.
OPINION
IKUTA, Circuit Judge:
John and Carol Schlegel appeal the dismissal of their
action seeking relief under the Fair Debt Collection Practices
Act (FDCPA), 15 U.S.C. §§ 1692–1692p (2006), and the
Equal Credit Opportunity Act (ECOA), 15 U.S.C.
§§ 1691–1691f (2006). We affirm the district court’s
dismissal of the Schlegels’ FDCPA claim, because their
complaint did not plausibly allege that Wells Fargo was a
“debt collector” for purposes of the Act. We reverse,
however, the court’s dismissal of the Schlegels’ claim that
Wells Fargo, in violation of ECOA, failed to give them notice
within thirty days after taking an adverse action.
I
In January 2009, John and Carol Robin Schlegel obtained
a $157,605 loan from NTFN, Inc., secured by their Las
4 SCHLEGEL V. WELLS FARGO BANK
Cruces, New Mexico home.1 They subsequently fell behind
on their mortgage payments, and in March 2010, filed a
petition in bankruptcy. As part of the bankruptcy process,
they reaffirmed the loan pursuant to 11 U.S.C. § 524. The
loan and deed of trust were assigned to Wells Fargo.
On March 27, 2010, Wells Fargo proposed a loan
modification agreement that retained the same interest rate
but extended the maturity date of the loan from February
2039 to April 2050. The bankruptcy court approved the loan
modification agreement, which became effective on July 1,
2010, with payments to begin on August 1, 2010. The
Schlegels received a discharge in bankruptcy on July 9, 2010.
On July 19, 2010, Wells Fargo sent the Schlegels a
default notice indicating that the Schlegels’ loan was “in
default for failure to make payments due,” and stating that,
unless the Schlegels became current on their loan payments
by August 18, 2010, it would “become necessary to require
immediate payment in full (also called acceleration) of [their]
Mortgage Note and pursue the remedies provided for in
[their] Mortgage or Deed of Trust, which include
foreclosure.” The Schlegels contacted Wells Fargo, which
“told them not to worry, to sit tight and to proceed with the
loan modification.” Beginning August 1, 2010, the Schlegels
made the monthly payments required under the modification
agreement.
Notwithstanding its assurances, Wells Fargo did not
correct its records regarding the status of the Schlegels’ loan.
The Schlegels received a second default notice, dated
November 7, 2010, which stated that their mortgage was in
1
The following facts are taken from the Schlegels’ amended complaint.
SCHLEGEL V. WELLS FARGO BANK 5
default and that, unless they paid the amount due by
December 7, 2010, Wells Fargo would proceed with
acceleration of the loan and possibly commence foreclosure
proceedings. When the Schlegels again called Wells Fargo
on November 13 regarding this notice, Wells Fargo told them
that no modification agreement was in effect and that they
were in default under their loan. Wells Fargo then sent a
third default notice, dated November 14, 2010, stating that the
Schlegels were in default and that it would “become
necessary . . . to accelerate the Mortgage Note and pursue the
remedies against the property” unless the past due payments
were made by December 14, 2010.
On December 3, 2010, the Schlegels sent a letter to Wells
Fargo asking it to explain its failure to acknowledge the loan
modification. When Wells Fargo did not respond, the
Schlegels filed this lawsuit on December 14, 2010, requesting
relief under the FDCPA and ECOA.
Despite the Schlegels’ complaint, Wells Fargo sent yet
another default notice, dated December 20, this time formally
accelerating the loan. The notice stated: “You are hereby
notified that, due to the default under the terms of the
mortgage or deed of trust, the entire balance is due and
payable.” It also stated that the “loan file ha[d] been referred
to” the bank’s “attorney with instructions to begin foreclosure
proceedings.” Two days later, on December 22, Wells
Fargo’s attorneys sent the Schlegels a fifth default notice,
threatening to commence foreclosure proceedings unless full
payment was made by January 24, 2011. Only after this fifth
default notice did Wells Fargo eventually acknowledge that
the July 2010 modification agreement was in effect and that
the default notices sent to the Schlegels were incorrect.
6 SCHLEGEL V. WELLS FARGO BANK
According to the Schlegels, this sequence of default
notices from Wells Fargo “caused the Schlegels mental
anguish,” including worsening the effects of John Schlegel’s
post-traumatic stress disorder.
The district court dismissed the Schlegels’ complaint for
failure to state a claim, and the Schlegels timely appealed.
We have jurisdiction under 28 U.S.C. § 1291.
II
We review de novo the district court’s order dismissing
the Schlegels’ complaint for failure to state a claim upon
which relief can be granted. Brantley v. NBC Universal, Inc.,
675 F.3d 1192, 1197 (9th Cir. 2012). In so doing, we accept
as true all “well-pleaded factual allegations” in the complaint,
which we construe “in the light most favorable” to the
plaintiffs. Autotel v. Nev. Bell Tel. Co., 697 F.3d 846, 850
(9th Cir. 2012). In order to survive a motion to dismiss, the
Schlegels’ complaint had to allege “sufficient factual matter,
accepted as true, to state a claim to relief that is plausible on
its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(internal quotation marks omitted). “A claim has facial
plausibility when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Id.The Schlegels’ complaint raises two claims, one under the
FDCPA and the other under ECOA. We address each claim
in turn.
SCHLEGEL V. WELLS FARGO BANK 7
A
Congress passed the FDCPA in 1977 with the stated
purposes of eliminating “abusive debt collection practices,”
ensuring “that those debt collectors who refrain from using
abusive debt collection practices are not competitively
disadvantaged,” and promoting “consistent State action to
protect consumers against debt collection abuses.” 15 U.S.C.
§ 1692(e). In furtherance of these purposes, the FDCPA bans
a variety of debt collection practices and allows individuals
to sue offending debt collectors.
The Schlegels’ complaint alleges that Wells Fargo
violated two of the FDCPA’s provisions. The first, 15 U.S.C.
§ 1692e, provides that a “debt collector may not use any
false, deceptive, or misleading representation or means in
connection with the collection of any debt.” The second,
15 U.S.C. § 1692f, provides that a “debt collector may not
use unfair or unconscionable means to collect or attempt to
collect any debt.” Because these prohibitions apply only to
“debt collector[s]” as defined by the FDCPA, the complaint
must plead “factual content that allows the court to draw the
reasonable inference” that Wells Fargo is a debt collector.
Iqbal, 556 U.S. at 678; see also Dougherty v. City of Covina,
654 F.3d 892, 900–01 (9th Cir. 2011) (citing Bell Atlantic
Corp. v. Twombly 550 U.S. 544, 570 (2006)).2
2
Wells Fargo argues that it qualifies as a creditor under § 1692a(4), and
therefore cannot be a debt collector. See 15 U.S.C. § 1692a(4) (excluding
from the definition of “creditor” “any person to the extent that he receives
an assignment or transfer of a debt in default solely for the purpose of
facilitating collection of such debt for another”). In making this argument,
Wells Fargo relies on out-of-circuit decisions holding that a person who
meets the FDCPA definition of “creditor” is per se not a “debt collector.”
See, e.g., McKinney v. Cadleway Props., Inc., 548 F.3d 496, 498 (7th Cir.
8 SCHLEGEL V. WELLS FARGO BANK
The FDCPA defines the phrase “debt collector” to
include: (1) “any person who uses any instrumentality of
interstate commerce or the mails in any business the principal
purpose of which is the collection of any debts,” and (2) any
person “who regularly collects or attempts to collect, directly
or indirectly, debts owed or due or asserted to be owed or due
another.” 15 U.S.C. § 1692a(6).3 On appeal, the Schlegels
argue that Wells Fargo meets both definitions.
2008) (“The FDCPA covers debt collectors, not creditors, and these
categories are mutually exclusive.” (internal quotation marks omitted));
Bridge v. Ocwen Fed. Bank, FSB, 681 F.3d 355, 359 (6th Cir. 2012). We
reject this per se rule, which finds no support in the text of the FDCPA,
but nevertheless conclude on other grounds that Wells Fargo does not
meet the statutory definition of debt collector.
3
15 U.S.C. § 1692a(6) states, in relevant part:
The term “debt collector” means any person who uses
any instrumentality of interstate commerce or the mails
in any business the principal purpose of which is the
collection of any debts, or who regularly collects or
attempts to collect, directly or indirectly, debts owed or
due or asserted to be owed or due another.
Notwithstanding the exclusion provided by clause (F)
of the last sentence of this paragraph, the term includes
any creditor who, in the process of collecting his own
debts, uses any name other than his own which would
indicate that a third person is collecting or attempting to
collect such debts. For the purpose of section 1692f (6)
of this title, such term also includes any person who
uses any instrumentality of interstate commerce or the
mails in any business the principal purpose of which is
the enforcement of security interests.
15 U.S.C. § 1692a. The definition expressly excludes six types of persons
or organizations from the definition of “debt collector.” § 1692a(6)
(A)–(F). None of these subsections is relevant to this case.
SCHLEGEL V. WELLS FARGO BANK 9
1
According to the Schlegels, the amended complaint
sufficiently alleges that Wells Fargo meets the first definition
of “debt collector” by stating that “Wells Fargo is in the
business of collecting debts and uses instrumentalities of
interstate commerce in that business.” The Schlegels concede
that the complaint does not expressly state that the “principal
purpose” of Wells Fargo’s business is debt collection, as
required by the first definition in § 1692a(6), but argue that
the complaint “invoked” this concept. We disagree. The
complaint fails to provide any factual basis from which we
could plausibly infer that the principal purpose of Wells
Fargo’s business is debt collection. Rather, the complaint’s
factual matter, viewed in the light most favorable to the
Schlegels, establishes only that debt collection is some part of
Wells Fargo’s business, which is insufficient to state a claim
under the FDCPA. See Dougherty, 654 F.3d at 900–01.
At oral argument, the Schlegels raised a different
argument in support of the proposition that Wells Fargo fits
within the first definition of “debt collector.” Noting that this
definition requires debt collection to be the “principal
purpose” of “any business,” they argue that the word
“business” does not mean “company,” but rather any activity
of a company. Thus, the Schlegels contend, the question is
not whether Wells Fargo’s principal business is the collection
of debts, but whether Wells Fargo is engaged in any activity
which has the principal purpose of collecting debts.
We reject this argument because it is not supported by the
statutory text. The Schlegels’ proposed definition would
expand the term “debt collector” to include any person who
collects a debt in the course of doing business, because such
10 SCHLEGEL V. WELLS FARGO BANK
a person would be engaged in the endeavor of debt collection.
Such an expansive reading would render superfluous the
second definition of “debt collector,” which includes those
“who regularly collect[ ] or attempt[ ] to collect, directly or
indirectly, debts owed or due or asserted to be owed or due
another.” § 1692a(6). Because interpretations that create
superfluity are to be avoided, Hearn v. W. Conf. of Teamsters
Pension Tr. Fund, 68 F.3d 301, 304 (9th Cir. 1995), we
decline to adopt the Schlegels’ strained understanding of the
word “business” in § 1692a(6).
2
The Schlegels next argue that their complaint adequately
alleged that Wells Fargo meets the second definition of debt
collector, which as noted above includes any person who
“regularly collects or attempts to collect, directly or
indirectly, debts owed or due or asserted to be owed or due
another.” § 1692a(6). They contend that Wells Fargo fits this
definition because it is in the business of collecting not only
the debts it originated, but also debts that were originated by
others. In this case, for example, the Schlegels’ debt was
originally owed to NTFN, Inc. before it was assigned to
Wells Fargo.
This argument fails, because it would require us to
overlook the word “another” in the second definition of “debt
collector.” The complaint makes no factual allegations from
which we could plausibly infer that Wells Fargo regularly
collects debts owed to someone other than Wells Fargo.
Because NTFN, Inc. assigned the Schlegels’ loan and deed of
trust to Wells Fargo, Wells Fargo’s collection efforts in this
case relate only to debts owed to itself. The statute is not
SCHLEGEL V. WELLS FARGO BANK 11
susceptible to the Schlegels’ interpretation that “owed or due
another” means “originally owed or due another.”
For this reason, we reject the Schlegels’ argument that the
following language in the complaint adequately alleges that
Wells Fargo collects debts “owed or due another”:
Wells Fargo is in the business of collecting
debts and uses instrumentalities of interstate
commerce in that business. See Oppong v.
First Union Mortg. Corp., 215 Fed.Appx. 114(3d Cir. 2007) (“the District Court was correct
to conclude that Wells Fargo is a debt
collector under the FDCPA” . . . “in a typical
eighteen month period, it appears that Wells
Fargo acquires 534 mortgages in default”).
The quoted language itself does not allege that Wells Fargo
collects the debts of another. Even if the cited opinion were
fully incorporated into the complaint, it would not rectify this
omission, because Oppong fails to differentiate between debts
“owed to another” and debts originally owed to another but
now owed to Wells Fargo. See, e.g., Oppong, 215 F. App’x.
at 119 (relying on evidence that Wells Fargo acquired a large
number of defaulted mortgages and attempted to collect the
debts as support for its conclusion that Wells Fargo collects
debts owed to another).
Because the Schlegels’ complaint does not plausibly
allege that Wells Fargo is a debt collector under § 1692a(6),
12 SCHLEGEL V. WELLS FARGO BANK
we affirm the district court’s dismissal of the Schlegels’
FDCPA claim.4
B
The Schlegels’ complaint also raises a claim under
ECOA, which makes it illegal “for any creditor to
discriminate against any applicant, with respect to any aspect
of a credit transaction . . . on the basis of race, color, religion,
national origin, sex or marital status, or age.” 15 U.S.C.
§ 1691(a)(1). One way that ECOA effectuates this goal is
through its notice requirement, which states: “Each applicant
against whom adverse action is taken shall be entitled to a
statement of reasons for such action from the creditor.” Id.§ 1691(d)(2). ECOA defines an “adverse action” as a:
denial or revocation of credit, a change in the
terms of an existing credit arrangement, or a
refusal to grant credit in substantially the
amount or on substantially the terms
requested. Such term does not include a
refusal to extend additional credit under an
existing credit arrangement where the
4
In passing, the Schlegels suggest that the district court should not have
dismissed without leave to amend. They make no argument in support of
this assertion, however, and we therefore do not address it here. Fed. R.
App. P. 28(a)(5), (8), (9); Kohler v. Inter-Tel Techs., 244 F.3d 1167, 1182
(9th Cir. 2001) (“Issues raised in a brief which are not supported by
argument are deemed abandoned.”).
SCHLEGEL V. WELLS FARGO BANK 13
applicant is delinquent or otherwise in default,
or where such additional credit would exceed
a previously established credit limit.
Id. § 1691(d)(6).
When a creditor takes an adverse action against an
applicant without giving the required notice, the applicant
may sue for a violation of ECOA. Id. § 1691e (“Any creditor
who fails to comply with any requirement imposed under this
subchapter shall be liable to the aggrieved applicant for any
actual damages sustained by such applicant”); see also
Thompson v. Galles Chevrolet Co., 807 F.2d 163, 166 (10th
Cir. 1986) (quoting Sayers v. Gen. Motors Acceptance Corp.,
522 F. Supp. 835, 840 (W.D. Mo. 1981)).
The Schlegels contend that Wells Fargo’s acceleration of
their debt constituted a “revocation of credit” for purposes of
the definition of “adverse action.” ECOA defines “credit” to
mean “the right granted by a creditor to a debtor to defer
payment of debt or to incur debts and defer its payment or to
purchase property or services and defer payment therefor.”
15 U.S.C. § 1691a(d). ECOA does not define “revocation,”
and so we read it as having its plain meaning: “The action of
revoking, rescinding, or annulling; withdrawal.” Oxford
English Dictionary 838 (2d ed. 1989); see also id. (defining
“revoke” as “[t]o annul, repeal, rescind, cancel”); Merriam-
Webster’s Collegiate Dictionary 1068 (11th ed. 2005)
(defining “revoke” to mean: “to annul by recalling or taking
back”). Thus, a lender revokes credit when it annuls, repeals,
rescinds or cancels a right to defer payment of a debt.
Here, the Schlegels’ complaint plausibly alleges that
Wells Fargo annulled, repealed, rescinded, or canceled their
14 SCHLEGEL V. WELLS FARGO BANK
right to defer repayment of their loan. Paragraph 25 of their
complaint alleges that, on December 20, 2010, the Schlegels
received a notice from the bank informing them that, “due to
the default under the terms of the mortgage or deed of trust,
the entire balance is due and payable.” The complaint’s
allegations establish that the Schlegels made diligent efforts
to determine whether Wells Fargo’s default notices were
mere clerical errors or represented Wells Fargo’s termination
of the loan modification agreement. Based on Wells Fargo’s
prolonged non-responsiveness, and its affirmative statements
regarding loan acceleration and default, the facts alleged
plausibly give rise to the claim that Wells Fargo terminated
the loan modification agreement and thereby revoked the
Schlegels’ credit for purposes of § 1691(d)(6).
Wells Fargo argues that its default notices to the
Schlegels did not constitute adverse actions because the
default notices had no binding effect and did not modify the
terms of the Schlegels’ loan or the loan modification
agreement. We disagree. In essence, Wells Fargo is arguing
that because its default notices violated the loan modification
agreement, they could not constitute a revocation of credit.
But neither the text of § 1691 nor its implementing
regulations suggest that a “revocation of credit” must be valid
and enforceable in order to constitute an adverse action.
When Wells Fargo informed the Schlegels that it had
accelerated their loan and was commencing foreclosure
proceedings, its statements communicated the bank’s refusal
to abide by the terms of the loan modification agreement,
which had given the Schlegels a longer period to repay the
loan. On its face, this communication revoked the prior credit
arrangement.
SCHLEGEL V. WELLS FARGO BANK 15
While sending a mistaken default notice would not
necessarily constitute an adverse action, the Schlegels’
complaint describes egregious conduct that goes far beyond
clerical error. In fact, despite the Schlegels’ repeated
inquiries, Wells Fargo did not inform the Schlegels that its
acceleration of their loan was a mistake until after the
Schlegels filed a complaint. While Wells Fargo now claims
that its acceleration of the loan was an unintentional error,
and that the prior loan modification agreement remains in
effect, such assertions do not erase its prior revocation of
credit for purposes of ECOA.
Because the parties agree that Wells Fargo did not send
the Schlegels an adverse action notice, the complaint’s
allegations that Wells Fargo took an adverse action without
complying with ECOA’s notice requirements are enough for
the ECOA claim to survive a motion to dismiss.
Accordingly, we reverse the district court’s dismissal of their
ECOA claim and remand for proceedings consistent with this
opinion. Each party will bear its own costs on appeal.
AFFIRMED IN PART, REVERSED IN PART and
REMANDED.