Stuckey v. Gislason & Hunter LLP

Background

Brian and Rebecca Stuckey obtained a $63,063 home loan through Northwoods Bank in 2014. They filed for bankruptcy in 2018 and listed Northwoods Bank as a creditor with a secured claim related to the mortgage. The Bankruptcy Court entered an order discharging their debts on July 24, 2018, and Northwoods Bank received notice.

In 2019, Mr. Stuckey sued Northwoods Bank under the Fair Credit Reporting Act. Northwoods Bank hired Gislason & Hunter LLP to represent it in that lawsuit and to collect the debt. On February 11, 2020, the law firm sent the Stuckeys a notice of default and a preforeclosure notice as part of a nonjudicial foreclosure.

The notice stated that Northwoods Bank had retained the law firm to collect a $53,847.27 debt. It also stated that the creditor knew the Stuckeys had filed for bankruptcy and might have received a discharge, and that the notice was intended only to satisfy legal requirements before enforcing the mortgage—not to collect the debt as the Stuckeys’ personal liability. The notice also provided the Stuckeys’ contact information to an authorized foreclosure-prevention counseling agency.

Claim and arguments

The amended complaint asserted one claim under the Fair Debt Collection Practices Act, a federal law regulating certain debt-collection conduct. Gislason & Hunter LLP moved to dismiss the claim for failure to state a legally sufficient claim. It argued that its main business purpose was not debt collection and that the Stuckeys had not alleged enough facts to show that it was a limited-purpose debt collector under the provision covering enforcement of security interests.

The Stuckeys argued that the law firm qualified as a general debt collector because the notice allegedly sought more than the amount of the secured claim. They also argued that the notice violated the Act because it was sent directly to them even though Mr. Stuckey had counsel, and because the law firm shared their debt information with a foreclosure-prevention agency without their consent.

Court’s reasoning

The court explained that the Act generally covers a person whose principal business purpose is collecting debts or who regularly collects debts owed to another. It separately covers, for purposes of one provision, people who use the mail in a business principally devoted to enforcing security interests. The Supreme Court has held that entities conducting only nonjudicial foreclosure proceedings are not subject to all of the Act’s debt-collection restrictions. The court said this includes the legal steps required by state nonjudicial-foreclosure law.

The court rejected the Stuckeys’ argument about the amount listed in the notice. The amended complaint gave conflicting amounts for the secured claim, including a statement listing the secured claim as $53,847.27—the same amount stated in the notice. The court therefore found that the pleading did not support the assertion that the law firm sought to collect more than the secured claim.

The court also rejected the arguments concerning direct communication and the foreclosure-prevention agency. The notice stated that it was sent to comply with Minnesota law, copied Mr. Stuckey’s lawyer, acknowledged the bankruptcy, and explained that it was not an attempt to collect personal liability. Minnesota law also required debt collectors to send a homeowner’s name, address, and telephone number to an approved foreclosure-prevention agency. The court concluded that the Stuckeys had not alleged sufficient facts showing that the law firm was a general-purpose debt collector or that it violated the Act in its limited-purpose role.

Disposition

Judge Paul A. Magnuson granted Gislason & Hunter LLP’s motion to dismiss. The court dismissed the amended complaint with prejudice and ordered that judgment be entered. The opinion noted that the Stuckeys had purported to represent a class, but they had not yet moved for class certification.