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Business Entity is a Now a "Person" Under Debt Collection Law

limited liability company (LLC) is a “person” for the purposes of filing a lawsuit under the Fair Debt Collection Practices Act (FDCPA), according to the U.S. Court of Appeals for the Sixth Circuit. This case of first impression paves the way for business entities to bring suit under the Act’s enforcement provision.

Standing to Sue

Plaintiff Anarion Investments, a Delaware LLC, held an option to buy a residential of property in Brentwood, Tennessee in foreclosure. Anarion was assigned the lease and option rights by Nashville attorney Scott D. Johannessen, who chose not to obtain title to the property.

In a handful of foreclosure notices in a local newspaper, Carrington Mortgage Services, LLC made false representations about the status of the property. Carrington misrepresented that Brock & Scott, another Nashville law firm, was the “substitute trustee” for purposes of the bank loan “by an instrument duly recorded.” Anarion alleged there was no such mortgage “instrument” in existence and filed suit.

Anarion hit a road bump in district court because the enforcement provision of the FDCPA provides:

“Any debt collector who fails to comply with any provision of this subchapter with respect to any person is liable to such person.” 15 U.S.C. § 1692k(a).

The Fifth Circuit considered the pressing issue of whether Anarion, a business entity, could be considered a person for the purposes of the Act.

Defining a “Person”

Carrington argued the enforcement provision only refers to natural persons and not artificial business entities. The district court agreed with the defense, holding that certain provisions of the FDCPA would be nonsensical if applied to an LLC. The lower court noted, for example, the Act prohibits the threat or use of violence to harm a person [see § 1692d(1)], and a corporation cannot be physically harmed.

[sws_pullquote_right] See Also: $11.2 Million Verdict in CA Loan Fraud Case [/sws_pullquote_right]

The Sixth Circuit disagreed, first looking to the federal Dictionary Act. The dourt, in deciding the meaning of the federal statute, determined the word “person” includes artificial entities unless the context indicates otherwise.

Citing FDCPA provisions in which the term “person” includes artificial entities, the court also considered the provision authorizing the Federal Trade Commission to enforce compliance “by any person.” Additionally, the Court noted the definition of “debt collector” is “any person” who collects debts.  Looking to the FDCPA definition of “consumer,” which is limited to a “natural person,” the opinion found the Act “strongly suggests that, when Congress meant to refer only to natural persons, it did so expressly.”

After this comparison of terms, the Sixth Circuit concluded that when Congress refers specifically to natural persons – and not business entities – Congress does so expressly.

A fervent dissent by Judge Bernice B. Donald voiced concern that the holding “potentially opens the door to a new class of plaintiffs under the FDCPA and effectively provides a new cause of action in foreclosure appeals.” Judge Donald sought what she deemed a “more context-appropriate interpretation” and would hold artificial entities cannot be considered “persons” with standing to sue under the FDCPA.

The case is Anarion Investments, LLC v. Carrington Mortgage Services, LLC; BROCK Scott, PLLC; Christina Trust, in the U.S. Court of Appeals for the Sixth Circuit. Case No. 14-5781/5993. On appeal from United States District Court for the Middle District of Tennessee at Nashville (Case No. 3:14-cv-00012).

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