Paulsen, Karen v. Blommer Peterman, S.C. et al

Filing 31

OPINION and ORDER that defendants Blommer Peterman, S.C., Dustin McMahon, and Chaz M. Rodriguez's motion to dismiss 7 is GRANTED as to plaintiff's Wisconsin Consumer Act claim and DENIED in all other respects. Signed by District Judge William M. Conley on 3/31/2015. (kwf)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
KAREN PAULSEN,
Plaintiff,

OPINION AND ORDER

v.
14-cv-106-wmc
BLOMMER PETERMAN, S.C., CHAZ
M. RODRIGUEZ, and DUSTIN
MCMAHON,
Defendants.
In this lawsuit, plaintiff Karen Paulsen alleges that defendants Blommer Peterman,
S.C., and two of its attorneys Chaz M. Rodriguez and Dustin McMahon, pursued a
foreclosure action against her despite being provided definitive evidence that no legal
basis existed to do so. Paulsen alleges that this conduct violated both the Fair Debt
Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692 et seq., and the Wisconsin
Consumer Act (“WCA”), Wis. Stat. § 427 et seq. Before the court is defendants’ motion
to dismiss. (Dkt. #7.) The court will grant that motion as to plaintiff’s WCA claim
because that Act expressly exempts consumer transactions over $25,000 and transactions
secured by real estate mortgages. Wis. Stat. § 421.202(6), (7). The court will, however,
deny it as to her FDCPA claim because that Act contains no such exception.

ALLEGATIONS OF FACT1
Plaintiff Karen Paulsen is a resident of Minnesota and a “consumer” as that term
is defined by Section 803(3) of the Fair Debt Collection Practices Act (“FDCPA”), 15
U.S.C. § 1692a(3).

Defendant Blommer Peterman, S.C. is a law firm located in

Brookfield, Wisconsin and a “debt collector” as defined under 15 U.S.C. § 1692a(6).
Defendant Chaz M. Rodriguez and Dustin McMahon are both attorneys employed by
Blommer Peterman, and as such are each “debt collectors” under § 1692a(6) as well.
In August 2007, Paulsen and Michael Tate took out a mortgage for real property
located in Polk County, Wisconsin.

Paulsen alleges that this mortgage constitutes a

“debt” as defined under the FDCPA, 15 U.S.C. § 1692a(5). On March 2, 2011, the
Loan Servicer, Mortgage Electronic Registration Systems, Inc. (“MERS”), executed a
“Release of Liability from the Mortgage Note,” which plaintiff attaches to her complaint.
(Compl., Ex. 1 (dkt. #1-1).)
While Paulsen was released from liability, the document did not release Tate.
(Id.) On March 11, 2011, Paulsen executed a quitclaim deed, transferring all of her
interest in the property to Tate. This deed was then recorded in the Register of Deeds
for Polk County. (Compl., Ex. 2 (dkt. #1-2).) At some later date, the mortgage was
transferred to Nationstar Mortgage, LLC. Also at some unknown later date, Tate failed
to remain current on his mortgage payments.

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The court accepts as true all well-pled factual allegations in the complaint, viewing them
in the light most favorable to the non-movant. See Adams v. City of Indianapolis, 742 F.3d
720, 728 (7th Cir. 2014); Santiago v. Walls, 599 F.3d 749, 756 (7th Cir. 2010) (quoting
Zimmerman v. Tribble, 226 F.3d 568, 571 (7th Cir. 2000)).
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On June 24, 2013, the Blommer Peterman law firm sent Paulsen a letter, which
erroneously identified her as a joint holder of the mortgage (along with Tate) and
notified her that the mortgage had been “referred to [that firm] for foreclosure.” (Compl.
(dkt. #1) ¶ 22.)

On September 27, 2013, Nationstar Mortgage filed a state court

foreclosure action in Polk County Circuit Court against Paulsen, Tate and their unnamed
spouses. Defendant Rodriguez was the attorney of record in the foreclosure action.
On October 18, 2013, Paulsen’s step-father, Steve Sherwood, sent an email to
Rodriguez asking him to remove Paulsen as a defendant based on the MERS’ release and
quitclaim deed, copies of which Sherwood attached to that email.

Sherwood also

followed up with phone calls to confirm his request would be honored.

Eventually,

someone with the Blommer Peterman law firm advised that Paulsen would not be
removed as a party in the foreclosure action. Paulsen subsequently retained an attorney
to represent her in that action. On November 4, 2013, plaintiff’s attorney also sent
defendants an email advising defendants that Paulsen was not a proper defendant in the
foreclosure action, having been released from liability. On or about November 5, 2013,
plaintiff’s counsel spoke with defendant McMahon, who confirmed that Paulsen would
not be removed as a party. Only after plaintiff’s counsel was forced to file a motion to
dismiss, did defendants stipulate to her removal as a party.

OPINION
Plaintiff asserts FDCPA claims for harassment or abuse pursuant to 15 U.S.C.
§1692d; false or misleading representations regarding the character, amount or legal

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status of the debt pursuant to §§ 1692e(1), (10); and unfair practices pursuant to §
1692f, including attempting to collect an amount not expressly authorized by the
agreement creating the debt or permitted by law pursuant to § 1692f(1). Plaintiff also
asserts a claim under the Wisconsin Consumer Act (“WCA”), Wis. Stat. § 427.104(j),
based on defendants’ attempts to enforce a right with knowledge or reason to know that
the right did not exist. Defendants move to dismiss both claims.

I. WCA Claim
The Wisconsin Consumer Act expressly excludes certain transactions from its
protections. Two of those exclusions appear to apply directly to real estate mortgage
debt at issue here:
(6) Consumer credit transactions in which the amount
financed exceeds $25,000, motor vehicle consumer leases in
which the total lease obligation exceeds $25,000 or other
consumer transactions in which the cash price exceeds
$25,000.
(7) Transactions secured by a first lien real estate mortgage or
equivalent security interest.
Wis. Stat. § 421.202.

Despite its apparent application, plaintiff fails to respond to

defendants’ argument that the WCA does not apply to the underlying transaction at
issue here, effectively acknowledging the merits of defendants’ argument. See Alioto v.
Town of Lisbon, 651 F.3d 715, 721 (7th Cir. 2011) (holding that plaintiff’s failure to
present legal arguments or cite relevant authority to substantiate a claim in response to
defendants’ motion to dismiss resulted in a waiver of that claim). Accordingly, the court
will grant defendants’ motion to dismiss plaintiff’s WCA claim.
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II. FDCPA Claim
Defendants also seek to dismiss plaintiff’s FDCPA claim on the grounds that its
initiation of foreclosure proceedings without a claim for deficiency falls outside the
bounds of the “collection of a debt” and, therefore, outside the FDCPA’s protection. In
support of this argument, defendants generally rely on the FDCPA’s definition of “debt
collector,” which provides in relevant part that:
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. . . . 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(6) (emphasis added).
Defendants contend that this general definition of “debt collector” does not apply
to a person attempting to enforce a security interest. If read in isolation, defendants’
position would seem silly. Indeed, the main bolded part of the sentence actually states
the opposite. However, defendants point to 15 U.S.C. § 1692f(6) in the first clause of
the bolded sentence above for support.

Because § 1692f(6) prohibits “taking or

threatening to take nonjudicial action to effect dispossession or disablement of property if”
certain conditions are met, defendants essentially argue by implication that taking or
threatening to take judicial action for foreclosure must be permissible.
There are a number of flaws in this argument. First, the specific prohibition in §
1692f(6) is simply one of eight examples of conduct that violates the general prohibition
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against the “use of unfair or unconscionable means to collect or attempt to collect a
debt.” That one of those examples is taking or threatening foreclosure indicates this is
among the regulated means to collect or attempt to collect a debt. While § 1692f(6)’s
specific reference to “nonjudicial” foreclosure certainly raises a question as to Congress’s
intention with respect to judicial foreclosure actions or threats of such actions, § 1692f
states at the outset that the eight examples provided are not intended to limit its general
prohibition.
Second, the bolded portion of the above quote from 15 U.S.C. § 1692a(6) in no
way limits the general definition of “debt collector.” To interpret it as such, one would
have to read into that bolded portion that “debt collector” includes only persons who use
any instrumentality of interstate commerce or the mails in any business the principal
purpose of which is the enforcement of security interests in a manner expressly prohibited by
§ 1692f(6).

Not only does § 1692a(6) not say that, the structure of that provision

supports a reading that for the purposes of enforcing § 1692f(6), “debt collector” is
expanded to reach other persons (as explained below, repossessors for example) that fall
outside of the definition provided in the first sentence of that provision.

Read as a

whole, therefore, there is nothing about the plain language of this provision that limits
the definition of “debt collector” to individuals not enforcing a security interest.
Third, the Seventh Circuit touched on this very issue in Gburek v. Litton Loan
Servicing LP, 614 F.3d 380 (7th Cir. 2010), holding that a letter threatening foreclosure,
while also offering to discuss foreclosure alternatives, qualified as a communication

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related to debt collection activity within the meaning of § 1692e. Id. at 386. Plaintiff
alleges the same here. (Comp. (dkt. #1) ¶¶ 22, 39.)
In fairness, defendants are not the first to read the definition of “debt collector” to
exclude foreclosure efforts.

Defendants cite to district court cases finding a so-called

secured interest “exclusion” under the FDCPA, which applies to mortgage foreclosure
actions themselves. See, e.g., Boyd v. J.E. Robert Co., No. 05-CV-2455 (KAM)(RER), 2013
WL 5436969, *9-10 (E.D.N.Y. Sept. 27, 2013); Rosada v. Taylor, 324 F. Supp. 2d 917,
925-26 (N.D. Ind. 2004). While the Seventh Circuit has not considered this exact issue,
however, so far all courts of appeals have held that “mortgage foreclosure is debt
collection under the Act. Lawyers who meet the general definition of a ‘debt collector’
must comply with the FDCPA when engaged in mortgage foreclosure. And a lawyer can
satisfy that definition if his principal business purpose is mortgage foreclosure or if he
‘regularly’ performs this function.” Glazer v. Chase Home Fin. LLC, 704 F.3d 453, 464
(6th Cir. 2013); see also Wilson v. Draper & Goldberg, P.L.L.C., 443 F.3d 373, 376 (4th
Cir. 2006) (rejecting argument that a debt ceased to be a debt under the FDCPA once
foreclosure proceedings were commenced and holding that defendant attorney’s “actions
surrounding the foreclosure proceeding were attempts to collect that debt”); Kaltenbach v.
Richards, 464 F.3d 524, 529 (5th Cir. 2006) (subjecting attorney defendant to general
requirements of FDCPA in action involving foreclosure, explaining that “a party who
satisfies § 1692a(6)’s general definition of a ‘debt collector’ is a debt collector for the
purposes of the entire FDCPA even when enforcing security interests”); Reese v. Ellis,
Painter, Ratterree & Adams, LLP, 678 F.3d 1211, 1217 (11th Cir. 2012) (holding that
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non-judicial foreclosure actions fell within the general definition of debt collection under
the FDCPA; “The fact that the letter and documents relate to the enforcement of a
security interest does not prevent them from also relating to the collection of a debt
within the meaning of § 1692e.”); cf. Piper v. Portnoff Law Assocs., Ltd., 396 F.3d 227, 234
(3d Cir. 2005) (finding attorney defendants’ actions of filing suit to enforce a lien on
plaintiff’s property fell within the general definition of debt collection).2
While the court has considered the contrary textual argument advanced by district
courts in the cases cited by defendants, the reasoning in the court of appeals’ cases cited
above are more persuasive for at least two reasons. First, in interpreting a provision of
the FDCPA (as is true for all statutes), the court must consider the Act as a whole. See
Senne v. Vill. of Palatine, Ill., 695 F.3d 597, 601 (7th Cir. 2012) (en banc) (“Interpretation
of a word or phrase depends upon reading the whole statutory text, considering the
purpose and context of the statute.”) (quoting Dolan v. U.S. Postal Serv., 546 U.S. 481,
486 (2006)).

Other provisions of the FDCPA support reading efforts to execute on

secured interests as part of the general definition of debt collection. For example, the
FDCPA defines “debt” very broadly too include “any obligation or alleged obligation of a

2

The Federal Trade Commission has similarly suggested in commentary that the entire
FDCPA applies to parties enforcing security interests as long as they also meet the
general definition of a “debt collector” under § 1692a(6). See Statements of General
Policy or Interpretation Staff Commentary on the Fair Debt Collection Practices Act, 53
Fed. Reg. 50097 (1988) (December 13, 1988) (“Because the FDCPA’s definition of
“debt collection” includes parties whose principal business is enforcing security interests
only for section 808(6) [§ 1692f(6)] purposes, such parties (if they do not otherwise fall
within the definition) are subject only to this provision and not to the rest of the FDCPA.”
(emphasis added)); see also Kaltenbach, 464 F.3d at 528 (deferring to the FTC’s
interpretation).
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consumer to pay money arising out of a transaction in which the money, property,
insurance or services which are the subject of the transaction are primarily for personal,
family, or household purposes.”
1692a(5)).

Glazer, 704 F.3d at 460-61 (quoting 15 U.S.C. §

Importantly, the definition does not turn on “whether the obligation is

secured, but rather upon the purpose for which it was incurred.” Id. at 461; Reese, 678
F.3d 1211 (“A debt is still a ‘debt’ even if it secured.”).

Moreover, debt collection

encompasses a broad array of activities, with no indication that the activities do not
include collection efforts that are legal in nature. Id. (citing Heintz v. Jenkins, 514 U.S.
291, 292 (1995) (holding that “a lawyer who ‘regularly,’ through litigation, tries to collect
consumer debts” is a “debt collector” under the FDCPA (emphasis added)).
Second, contrary to defendants’ argument, the fact that a mortgage foreclosure
proceeding involves execution on property does not alter the fact that its essential
purpose is to obtain payment on an underlying debt.

“[E]very mortgage foreclosure,

judicial or otherwise, is undertaken for the very purpose of obtaining payment on the
underlying debt.” Glazer, 704 F.3d at 461. Indeed, certain provisions of the FDCPA are
directed at foreclosure or enforcement of security interest.

See 15 U.S.C. §1692i

(requiring a debt collector seeking to enforce an interest in real property to file in the
judicial district where the property is located); see also Kaltenbach, 464 F.3d at 528
(rejecting district courts’ opinions holding that § 1692f(6) is the only section that
regulates the enforcement of security interests in part because of those courts’ failure to
“reconcile the fact that § 1692i(a)(1) is directed at persons enforcing security interest”).

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In their reply brief, defendants primarily focus on the fact that at least some of the
cases supporting plaintiff’s reading of the FDCPA involve actions preceding foreclosure,
and therefore are distinguishable from a “pure” mortgage foreclosure. (Defs.’ Reply (dkt.
#12) 4.) In support, defendants primarily rely on a Second Circuit case in which the
court held that the FDCPA does not cover inflated proof of claims in the bankruptcy
context, reasoning that the “claims process is highly regulated and court controlled,” and
provides “remedies for wrongfully filed proofs of claims,” which need not be
supplemented by the FDCPA. Simmons v. Roundup Funding, LLC, 622 F.3d 93, 96 (2d
Cir. 2010). Importantly, the Simmons court was not presented with the issue here -whether a foreclosure proceeding falls outside the protections of the FDCPA. As detailed
in its decision, the focal point for the Second Circuit was the application of the federal
Bankruptcy Code, which protects the debtors from fraudulent and otherwise defective
proofs of claim. Id. In any event, as previously noted in this opinion and ignored in
defendants’ briefing, Paulsen’s complaint does not just seek relief from defendants’ act of
filing a state foreclosure action without a factual basis for doing so, but for repeatedly
refusing to withdraw its claim against Paulsen even after being provided with definitive
proof that no factual or legal basis existed to do so.
Ultimately, defendants have failed to demonstrate that the same protections
available to debtors in bankruptcy exist for a debtor in a judicial foreclosure initiated by a
creditor. Indeed, this case is arguably an example to the contrary, since Paulsen was
seeking to avoid a lawsuit (rather than proceeding with one, as in bankruptcy) and was
forced to bring a motion to dismiss before convincing defendants to do the right thing.
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Even if the bankruptcy context proved a fair analogy to a judicial foreclosure process, the
Seventh Circuit has essentially rejected the holding in Simmons, finding instead that (1)
there is no “irreconcilable conflict” between the bankruptcy code and the FDCPA, and
(2) “[i]t is easy to enforce both statutes, and any debt collector can comply with both
simultaneously.” Randolph v. IMBS, Inc., 368 F.3d 726, 730 (7th Cir. 2004). Of course,
as noted already, plaintiff’s allegations here extend beyond the foreclosure action, to
communications sent before the commencement of that action (Compl. (dkt. #1) ¶ 22),
rendering flawed defendants’ attempts to characterize plaintiff’s challenge to a “pure”
mortgage foreclosure.
Consistent with that of the Courts of Appeals cases cited above, this court finds
the only limit in § 1692a(6) is to “people who engage in the business of repossessing
property, whose business does not primarily involve communicating with debtors in an
effort to secure payment of debts,” for example repossession agencies and their agents.
Glazer, 704 F.3d at 464; see also Nadalin v. Auto. Recovery Bureau, Inc., 169 F.3d 1084,
1085 (7th Cir. 1999) (noting that “repossessors” must comply with § 1692f(6)). To hold
otherwise, “would create a loophole in the FDCPA. A big one.” Reese, 678 F.3d at 121718; Glazer, 704 F.3d at 462 (“[I]f a collector were able to avoid liability under the
FDCPA simply by choosing to proceed in rem rather than in personam, it would undermine
the purposes of the FDCPA.” (quoting Piper, 396 F.3d at 234)).

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ORDER
IT IS ORDERED that defendants Blommer Peterman, S.C., Dustin McMahon,
and Chaz M. Rodriguez’s motion to dismiss (dkt. #7) is GRANTED as to plaintiff’s
Wisconsin Consumer Act claim and DENIED in all other respects.
Entered this 31st day of March, 2015.
BY THE COURT:

/s/
__________________________________
WILLIAM M. CONLEY
District Judge

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