United States District Court, D. Maine
ORDER DENYING MOTION TO DISMISS
A. WOODCOCK, JR. UNITED STATES DISTRICT JUDGE.
case arises out of a series of communications regarding
mortgage loan payments and insurance for property located in
Maine that a debt collector sent to a mortgagor both after a
judgment of foreclosure had been entered on the property and
after the statutory redemption period had expired. The debt
collector moves to dismiss the action, arguing that all of
the communications were lawful and accurate. Because the
Court concludes that the mortgagor has pleaded sufficient
facts to establish that the debt collector violated several
provisions of federal and state debt collection acts by
attempting to collect money not owed by the mortgagor, the
Court denies the motion to dismiss in its entirety.
March 11, 2016, Henry Kowalski filed a complaint against
Seterus, Inc. (Seterus) alleging violations of the Fair Debt
Collection Practices Act (FDCPA), 15 U.S.C. §§ 1692
et seq., the Maine Fair Debt Collection Practices
Act (MFDCPA), 32 M.R.S. §§ 11001 et seq.,
and the Maine Consumer Credit Code (MCCC), 9-A M.R.S.
§§ 1-101 et seq. Compl. (ECF No. 1). On
April 28, 2016, Seterus moved to dismiss the complaint under
Federal Rule of Civil Procedure 12(b)(6) for failure to state
a claim. Def.'s Mot. to Dismiss for Failure to State
a Claim Upon Which Relief May be Granted (ECF No. 8).
Mr. Kowalski subsequently amended his complaint on May 18,
2016, removing his claim that a violation of the MCCC is a
per se violation of the Maine Unfair Trade Practices Act
(UTPA), 5 M.R.S. §§ 205-A et seq. Pl.'s
First Am. Compl. (ECF No. 9) (Am. Compl.). He
objected to Seterus' motion to dismiss the original
complaint on the same day. Pl.'s Obj. to Def.'s
Mot. to Dismiss (ECF No. 10). Seterus then moved to
dismiss the amended complaint on May 27, 2016 and withdrew
its initial motion to dismiss four days later. Def.'s
Mot. to Dismiss Pl.'s Am. Compl. for Failure to State a
Claim Upon Which Relief May be Granted (ECF No. 13)
(Def.'s Mot.); Notice of Withdrawal of
Doc. (ECF No. 14). On June 16, 2016, Mr. Kowalski
objected to the motion to dismiss the amended complaint.
Pl.'s Obj. to Def.'s Mot. to Dismiss Pl.'s
Am. Compl. for Failure to State a Claim Upon Which Relief May
be Granted (ECF No. 15) (Pl.'s Opp'n).
Seterus replied on July 1, 2016. Def. Seterus Inc.'s
Reply Mem. in Further Supp. of its Mot. to Dismiss Pl.'s
Am. Compl. for Failure to State a Claim Upon Which Relief May
be Granted (ECF No. 17) (Def.'s Reply).
Kowalski is an 84-year-old retired military veteran who lives
in New Jersey with his wife Lois. Am. Compl. ¶
12. Seterus, formerly known as Kyanite Financial Business
Services, Inc., is a loan servicing entity incorporated in
Delaware with a principal place of business in North
Carolina. Id. ¶ 4.
about March 9, 2007, Mr. Kowalski executed and delivered to
Aegis Wholesale Corporation (Aegis) a promissory note in the
original principal amount of $408, 750.00. Id.
¶ 13. To secure this note, Mr. Kowalski and his two
sons, John C. Weber and Brad J. Kowalski, executed and
delivered to Mortgage Electronic Registration Systems, Inc.,
acting as nominee for Aegis, a mortgage on Mr. Kowalski's
real property located in Bryant Pond, Oxford County, Maine.
Id. ¶ 14. The mortgage was assigned to OneWest
Bank FSB (OneWest). Id. ¶ 16.
Kowalski originally bought the Bryant Pond property to move
into after retirement. Id. ¶ 17. He and his
wife began living in the property for several months each
year. Id. ¶ 18. In or around 2009, Mr. Kowalski
fell on difficult financial times and entered into a
forbearance plan on the loan. Id. ¶ 19. He
believed that he was still on the forbearance plan when
OneWest initiated a foreclosure action on the property in
October 2009; the action was later dismissed. Id.
of 2013, OneWest filed a second foreclosure action against
Mr. Kowalski and his two sons in the Maine District Court in
South Paris. Id. ¶ 21. After failed attempts to
resolve the foreclosure through the Foreclosure Diversion
Program, Mr. Kowalski and his sons entered into a Stipulated
Judgment of Foreclosure (Stipulated Judgment) on May 26,
2015. Id. ¶¶ 22, 23; id. Attach.
1 Stip. J. of Foreclosure and Order of Sale
(Stip. J.). The Stipulated Judgment provided for a
waiver of any deficiency on the loan and a release of
personal liability on the note. Am. Compl. ¶
22; Stip. J. at 2. The Kowalskis had 90 days to
redeem the mortgage. Am. Compl. ¶ 25; Stip.
J. at 2. They vacated the property in August 2015.
Am. Compl. ¶ 26. On August 24, 2015, the 90-day
redemption period expired; the Kowalskis did not redeem the
property. Id. ¶¶ 27-28.
the Judgment, Mr. Kowalski and his wife were under the
impression that everything was taken care of with respect to
the mortgage debt and Bryant Pond property. Id.
¶ 29. Then, in or around May 2015, Seterus began
delivering to Mr. Kowalski monthly account statements
alleging over $200, 000 due on the loan. Id. ¶
32. The notices that Seterus sent Mr. Kowalski differ from
the types of notices Seterus typically sends customers
advising them of reinstatement figures. Id. ¶
68; id. Attach. 14 Sample Reinstatement
Notice (Sample Notice). Seterus sent Mr.
Kowalski statements dated July 16, 2015, August 17, 2015,
September 16, 2015 and November 16, 2015. Am. Compl.
¶¶ 33, 36-38. Seterus sent the account statements
to Mr. Kowalski's P.O. Box in Sumner, Maine and Mr.
Kowalski's son Brad notified him of the statements each
month. Id. ¶¶ 34, 39.
on or around November 20, 2015, a representative from Seterus
called Mr. Kowalski at his home in New Jersey in an attempt
to collect on the mortgage loan debt. Id. ¶ 40.
Mr. Kowalski explained that he believed the debt had been
taken care of in court and that he had an attorney, but the
Seterus representative claimed there was no attorney on
record. Id. ¶¶ 41-42. The representative
explained that “if Mr. Kowalski did not pay the over
$200, 000 he owed on the loan, Seterus would foreclose on his
home”; Mr. Kowalski feared this meant that Seterus
could take his New Jersey home. Id. ¶¶
severe distress over the potential loss of his New Jersey
home and Seterus' continued attempts to collect on over
$200, 000, Mr. Kowalski contacted his son Brad. Id.
¶ 45. Brad attempted to contact Seterus to understand
what was happening, but Seterus refused to speak with him.
Id. ¶ 46. Mr. Kowalski and his sons were
worried that something had gone wrong at court and the
Stipulated Judgment had not gone through. Id. ¶
47. Brad contacted their foreclosure attorney, Andrew Kull,
and retained him again to deal with Seterus' attempts to
collect on the mortgage loan. Id. ¶ 48.
Attorney Kull delivered a cease and desist letter to Seterus
on November 20, 2015 by facsimile and included a copy of the
Stipulated Judgment; Seterus acknowledged receipt of the
facsimile on the same day. Id. ¶¶ 49, 51.
Mr. Kowalski was relieved and hoped that Attorney Kull's
actions would stop Seterus from trying to collect on the
mortgage loan. Id. ¶ 52.
Seterus sent Mr. Kowalski another account statement dated
December 16, 2015, and Mr. Kowalski again feared that Seterus
“would not stop until the debt was paid, either by him
or by taking his New Jersey home.” Id.
¶¶ 53-54. In a letter dated January 4, 2016 to
Attorney Kull, Seterus stated that it would no longer call
Mr. Kowalski or his sons, or send correspondence to them,
except for those “legally required.” Id.
¶ 56. Seterus asserted in the letter that Mr. Kowalski
and his sons “remain the owners of record for the
collateral property . . . until the foreclosure is complete.
As a result, we will continue to mail certain legal notices
until the foreclosure action is completed.”
Id. Seterus sent another account statement dated
January 18, 2016 and a statement dated January 22, 2016
providing a principal and escrow reconciliation directly to
Mr. Kowalski. Id. ¶¶ 58, 59.
February 2016, Mr. Kowalski retained Andrea Bopp Stark, his
current counsel. Id. ¶ 60. Attorney Stark
delivered a demand letter to Seterus dated February 3, 2016
alleging violations of UTPA, the FDCPA, and the MFDCPA.
Id. ¶ 61. Seterus received the letter on
February 8, 2016 but did not reply. Id. ¶¶
62-63. Seterus sent another account statement to Mr.
Kowalski, c/o Attorney Stark, dated February 16, 2016, and
has continued to send communications regarding the mortgage
loan to Mr. Kowalski, both directly and via his attorney,
since March 11, 2016, the date Mr. Kowalski filed the
complaint in this Court. Id. ¶¶ 64-67.
addition to the account statements, Seterus sent a notice to
Mr. Kowalski, c/o Attorney Stark, dated March 17, 2016
regarding lender placed insurance on the property that stated
“SETERUS IS ATTEMPTING TO COLLECT A DEBT” and
that the cost of the policy, $2, 850.60, was assessed to Mr.
Kowalski. Id. ¶ 69. The property sold at a
foreclosure auction on March 29, 2016. Id. ¶
70. On April 26, 2016, Seterus sent two separate notices
directly to Mr. Kowalski regarding the lender placed
insurance stating that the premium for the policy, $2,
772.71, was charged to Mr. Kowalski. Id. ¶ 71.
result of Seterus' continued attempts to collect on the
mortgage loan, Mr. Kowalski has become severely distressed.
Id. ¶ 72. He and his wife believed that their
New Jersey home was in jeopardy of being lost to foreclosure
and became afraid to answer the door for fear it was the
sheriff telling them to leave. Id. Mr. Kowalski
became very agitated and has a heart condition that causes
his heart to race when he is distressed. Id. ¶
75. He also became very moody and reserved and stopped going
out as much to eat or do yard work. Id. ¶ 76.
He shut down and would sit inside quietly. Id. He
was frustrated, anxious, and confused about why Seterus was
continuing to try to collect the mortgage loan. Id.
Mr. Kowalski and his wife wanted to move to a smaller, more
affordable home in Maine using equity in their New Jersey
home and started making plans to sell the New Jersey house
when the Stipulated Judgment was entered. Id.
¶¶ 30-31, 73. However, when the notices started,
these plans were put on hold. Id. ¶ 74.
THE PARTIES' POSITIONS
The Amended Complaint
Counts I and II of the amended complaint, Mr. Kowalski
alleges violations of identical provisions of the FDCPA and
MFDCPA. Am. Compl. ¶¶ 78-88. Mr. Kowalski
claims that Seterus violated 15 U.S.C. § 1692c(2) and 32
M.R.S. § 11012(1)(B) by communicating with him in
connection with the collection of the mortgage debt when
Seterus knew that he was represented by an attorney and had
knowledge of the attorney's name and address.
Id. ¶¶ 79(a), 85(a). Additionally, Mr.
Kowalski claims that by delivering the notices and calling
him to seek payment of money not owed by him, Seterus (1)
engaged in conduct, the natural consequence of which was to
harass, oppress, or abuse him, in violation of 15 U.S.C.
§ 1692d and 32 M.R.S. § 11013(1), id.
¶¶ 79(b), 85(b); (2) used false, deceptive, or
misleading representations and falsely represented the
character, amount, or legal status of the mortgage debt, in
violation of 15 U.S.C. § 1692e and 32 M.R.S. §
11013(2), id. ¶¶ 79(c)-(d), 85(c)-(d); and
(3) used unfair or unconscionable means to collect or attempt
to collect the mortgage debt, in violation of 15 U.S.C.
§ 1692f and 32 M.R.S. § 11013(3), id.
¶¶ 79(e), 85(e). Mr. Kowalski claims that Seterus
did these acts intentionally, with the purpose of coercing
him to pay the alleged debt, and that the conduct constitutes
a pattern and practice of violations. Id.
¶¶ 80-81, 86. As a result of these alleged
violations, Mr. Kowalski states that Seterus is liable for
declaratory judgment and actual damages, which include
damages for emotional distress, statutory damages, costs, and
attorney's fees. Id. ¶¶ 83, 88.
Count III, Mr. Kowalski alleges a violation of the MCCC.
Id. ¶¶ 89-92. Mr. Kowalski claims that by
attempting to collect on the mortgage debt through its
communications, Seterus attempted to enforce a right that it
had relinquished pursuant to the Stipulated Judgment.
Id. ¶¶ 90-91. As a result of this alleged
violation, Mr. Kowalski states that he is entitled to actual
damages, including emotional distress. Id. ¶
Seterus' Motion to Dismiss
first argument in support of its motion to dismiss is that it
did not violate the FDCPA or the MFDCPA because it sent the
communications in accordance with Maine law. Def.'s
Mot. at 5. According to Seterus, “[a]lthough a
stipulated judgment of foreclosure had entered, [Mr.
Kowalski] retained title to the [Bryant Pond] Property
because the redemption period was extended pursuant to 14
M.R.S. § 6323.” Id. Citing caselaw,
Seterus explains that after the redemption period expires, a
mortgagor's interest in the property is extinguished and
title is vested in the mortgagee. Id. at 5-6. It
argues that although the redemption period is traditionally
90 days, Maine law permits a mortgagee to “extend
unilaterally the redemption period” before a public
sale. Id. at 6.
claims that “every complained-of communication (save
the April 26, 2016 insurance letter) occurred during the
extended redemption period” and that “each of the
seven account statements set forth an amount to redeem the
mortgage and reinstate the loan in order to avoid a
foreclosure sale.” Id. It argues that
“rather than being the ‘unfair' letters
alleged, the letters provided notice to [Mr. Kowalski] that
Seterus was extending his redemption period and that he could
reinstate the loan and retain title to the Property if he
were to make the reinstatement payment.” Id.
at 6-7. Seterus adds that the phone call similarly concerned
the reinstatement amount. Id. at 7 n.5. Seterus
claims that because it is a servicer acting on behalf of the
mortgagee, it has the authority to send these notices.
Id. at 7. Seterus also claims that the Stipulated
Judgment contemplated the extension by incorporating section
6323 and that the Stipulated Judgment conditioned the release
of the debt on the foreclosure sale. Id.
that its analysis under the FDCPA applies equally to the
MFDCPA claims, id. at 7 n.6, Seterus argues that it
did not engage in “conduct the natural consequence of
which is to harass, oppress, or abuse any person in
connection with the collection of a debt” because the
natural consequence of extending the redemption period is to
“temporarily benefit the [borrower] by providing an
opportunity to preserve his equity of redemption . . . and
avoid a foreclosure sale.” Id. at 8-9. Seterus
also argues that it did not mischaracterize the debt or use
false, deceptive, and unconscionable means to collect on the
debt because it was sending notice of the option to redeem,
not seeking monthly payments. Id. at 9.
Additionally, Seterus argues that the phone call did not
violate the FDCPA because Mr. Kowalski's claim that he
feared Seterus would foreclose on his New Jersey home
“does not pass the [FDCPA's] hypothetical
unsophisticated consumer test.” Id. at 11 n.8.
Seterus claims that the account statements cannot violate the
FDCPA because Regulation Z of the Truth in Lending Act
(TILA), 12 C.F.R. §§ 226.1 et seq.,
requires Seterus to send periodic statements as long as Mr.
Kowalski retains title. Id. at 10-11. It maintains
that Mr. Kowalski did retain title when Seterus extended the
redemption period under section 6323 through the equity of
redemption upon the loan. Id. at 10.
Seterus acknowledges that the FDCPA generally
“prohibits direct communications with a debtor if the
debt collector knows the debtor is represented by an
attorney” but claims that the Consumer Financial
Protection Bureau (CFPB) exempts from the FDCPA's scope
any communications sent pursuant to 12 C.F.R. § 1026.41,
which, it claims, includes the account statements.
Id. at 12-13. Seterus also argues that Mr.
Kowalski's claims based on the two insurance letters must
fail because neither letter attempted to collect a debt and
“the FDCPA applies only to communications that are
intended to collect a payment.” Id. at 13-15
(collecting cases). It argues that the FDCPA disclaimer at
the bottom of the letters stating “SETERUS, INC. IS
ATTEMPTING TO COLLECT A DEBT” is legally irrelevant.
Id. at 15-16.
regard to the MCCC claim, Seterus argues that because Maine
law permits Seterus to extend the redemption period, it did
not attempt to enforce a debt “that has been barred by
law or a final order of the Supreme Judicial Court or a court
of the United States.” Id. at 16 (citing 9-A
M.R.S. § 9-403(G)). Further, Seterus acknowledges that
violation of the MCCC is a per se violation of UTPA, but
claims that to plead a violation of UTPA, a plaintiff must
allege “loss of money or property” and Mr.
Kowalski only alleges emotional harm. Id. at 16-17.
Henry Kowalski's Opposition
to Mr. Kowalski, all three of his claims for relief state
plausible legal claims. Pl.'s Opp'n at 3.
First, Mr. Kowalski argues that Seterus misinterprets Maine
law. Id. at 4. Mr. Kowalski claims that 14 M.R.S.
§ 6323 allows a mortgagee, such as Seterus, to permit a
mortgage loan to be reinstated or redeemed after the
redemption period expires, provided that the foreclosure sale
has yet to occur, but that unless the mortgagor does
reinstate or redeem the mortgage, title remains with the
mortgagee having automatically vested upon expiration of the
mandated 90-day redemption period. Id. at 5. He
asserts that “[t]he redemption period is never
extended.” Id. Mr. Kowalski then indicates
that the Stipulated Judgment was entered on May 26, 2015, so
the 90-day redemption period expired on August 24, 2015, and
therefore, as of that date, any interest Mr. Kowalski had in
the property was extinguished. Id. at 6.
Kowalski then turns to Seterus' arguments that the
account statements and call were not abusive, misleading, or
unfair. Id. at 7-11. He compares his case to a
recent case in the United States Bankruptcy Court for the
District of Maine, In re Collins, 474 B.R. 317
(Bankr. D. Me. 2012), in which the court concluded that
notices sent to debtors when the debtor no longer had
personal liability or ownership interests constituted
harassment. Id. at 7-8. Further, Mr. Kowalski argues
that even if the intent behind the communications was in fact
to provide reinstatement quotes, the notices served to
mislead and deceive Mr. Kowalski. Id. at 8-9, 13-14.
He points to language in the notices including “Amount
Due, ” “DELIQUENCY NOTICE, ” “WE ARE
ATTEMPTING TO COLLECT A DEBT, ” and “You are late
on your mortgage payments.” Id. at 8-9. He
asserts that the “small-font sized explanation
regarding the reinstatement amount does little to clarify and
reassure a consumer in Mr. Kowalski's situation that no
monies are actually owed or due, now or ever, unless he wants
to re-obtain the property.” Id. at 9. Mr.
Kowalski also argues that it was reasonable for him to
believe that Seterus might attempt to foreclose on his New
Jersey home, especially considering the fact that he received
the telephone call at his New Jersey home, the only home he
owned at the time. Id. at 10.
Mr. Kowalski argues that the monthly account statements and
telephone call were not protected or required by Regulation Z
of TILA. Id. at 11. He explains that the relevant
provision of Regulation Z provides that the periodic
statements shall be transmitted “to the obligor”
and that he ceased to be an obligor upon the entry of the
Stipulated Judgment, expiration of the redemption period, and
the agreement to waive the obligation. Id. Mr.
Kowalski further argues that because Regulation Z is
inapplicable, Seterus cannot use it as an excuse for
communicating directly him despite its knowledge that he was
represented by counsel. Id. at 12-13.
Kowalski then argues that the insurance notices were attempts
to collect money related to the mortgage and were neither
required nor allowed. Id. at 14. He points out that
the insurance notices contained the language in all caps on
the first page “SETERUS, INC. IS ATTEMPTING TO COLLECT
A DEBT” and that the notices discussed charges to Mr.
Kowalski for the cost of the insurance. Id. at
14-15. He asserts that a reasonable interpretation of the
notices is that Seterus was attempting to collect a debt and
that the true nature of the letters was aimed at collecting a
debt. Id. at 15 (collecting cases). Mr. Kowalski
maintains that because his interest was extinguished, there
was no obligation to purchase insurance and so the notices
were unnecessary, false, deceptive, and misleading.
Id. at 15-16.
the MCCC claim, Mr. Kowalski argues that the fact that
“loss of money or property are not alleged is
immaterial to [his] entitlement to damages for [Seterus']
violation of the [MCCC].” Id. at 17. He
explains that he withdrew his UTPA claim in the amended
complaint and that the MCCC “has its own forms of
relief available for consumers including statutory damages
which is unique from the Maine UTPA.” Id.
reply, Seterus states the Mr. Kowalski concedes that the
communications received before August 24, 2015, before the
90-day redemption period had expired, are not actionable.
Def.'s Reply at 2. Seterus then states that Mr.
Kowalski's new claim that only the communications
received after the redemption period expired are actionable
is “analytically flawed and should be rejected for at
least three reasons.” Id. at 3.
Seterus maintains that even after the expiration period
expires, a mortgagor can redeem at any point until the date
of sale under 14 M.R.S. § 6323, the only difference
being that the mortgagee must agree to it. Id.
Seterus argues that if the communications during the
redemption-period are not illegal, neither are the
communications after the redemption period but before the
sale. Id. Second, Seterus argues that Mr.
Kowalski's claim is “irreconcilable with the plain
language of [section] 6323” which provides that if a
mortgagor does redeem after the redemption period but before
the sale, “all other rights of all other parties
remain as if no foreclosure had been commenced.”
Id. (emphasis by Seterus). It claims that because
one of those rights is the right to redeem, it never really
expires until the sale. Id. Third, it ...