Sixth Circuit Holds that a Business Entity Is a "Person" for Purposes of FDCPA's Enforcement Provision

Ballard Spahr LLP

The Sixth Circuit Court of Appeals recently held that a limited liability company (“LLC”) constitutes a “person” within the meaning of the Fair Debt Collection Practices Act (FDCPA or the “Act”), in Anarion Investments LLC v. Carrington Mortgage Services, LLC, et al. This decision could pave the way for artificial entities to bring suit under the Act’s enforcement provision.

In Anarion Investments, a limited liability company plaintiff sued pursuant to the FDCPA’s enforcement provision, which provides that “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 plaintiff alleged that the defendants had made a misrepresentation in a series of foreclosure notices published in a local newspaper, regarding a property that plaintiff had leased with an option to buy.

The defendants argued that the Act’s enforcement provision refers to natural persons, and not artificial business entities. The District Court agreed, stating that certain provisions of the FDCPA would be nonsensical if applied to an LLC. As an example, the Act prohibits the threat or use of violence to harm a person (see § 1692d(1)), and a corporation cannot be physically harmed.

The Sixth Circuit disagreed and reversed, focusing on the Act’s use of the term “person” to include non-natural persons in other contexts. For instance, § 1692 bars debt collectors from communicating with any person other than, among others, a consumer reporting agency. The panel said that a consumer reporting agency, of course, is not a natural person. Furthermore, the terms “creditor” and “debt collector,” while they can apply to natural persons, often are used to apply to corporations.

Additionally, the Act defines a “consumer” as “any natural person obligated or allegedly obligated to pay any debt.” The panel reasoned that because Congress chose to use “natural person” in that context, it is clear that when Congress meant to refer only to natural persons – and not artificial entities – it did so expressly.

The court rejected the defendants’ argument that extending FDCPA protections to artificial entities would be inconsistent with the Act’s purpose for two reasons. First, the Sixth Circuit said that the Act limits “debt” to that incurred primarily for “personal, family or household purposes,” such that one cannot bring suit based on an attempt to collect a debt owed by a business. (This case was unusual because the plaintiff LLC brought suit based on an attempt to collect an individual person’s personal debt.)

Second, the court said that, even though an LLC is a “person” under the Act, “nothing in our decision today means that [the plaintiff] can bring suit under the FDCPA.” This is because it remained unclear whether the defendants’ alleged misrepresentations were made “with respect to” the plaintiff, as required for relief under the Act’s civil enforcement provision.

A spirited dissent accompanied the majority opinion, arguing that the purpose of the FDCPA, as shown by its legislative history, is to protect natural persons from abusive debt collection practices. The judge voiced concern that the court’s 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.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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