Supreme Court: Party That Buys Defaulted Debt Not A “Debt Collector” Under The Fair Debt Collection Practices Act

by: Peter J. Gallagher (@pjsgallagher) (LinkedIn)

In Henson v. Santander Consumer USA Inc., Justice Gorsuch delivered his first opinion for the Supreme Court, and in doing so, provided an interesting opinion on a relatively boring issue, and subconsciously (I assume) invoked the movie Repo Man, a classic (?) mid-1980's movie starring Emilio Estevez and Harry Dean Stanton, which the website, imdb.com, summarized as follows: "Young punk Otto [Estevez] becomes a repo man after helping to steal a car, and stumbles into a world of wackiness as a result."

Neither the facts nor the law in Henson were wacky. Plaintiffs took out loans from CitiFinancial Auto to buy cars, but later defaulted on those loans. Defendant purchased the defaulted loans and sought to collect the debt from plaintiffs in ways that plaintiffs claimed violated the Fair Debt Collection Practices Act. The Act, which was designed to curtail "[d]isruptive dinnertime calls, downright deceit and more besides" authorizes private lawsuits and "weighty fines" for anyone who engages in "wayward collection practices." But, it only applies to "debt collectors," a term that is defined to include anyone who "regularly collects or attempts to collect . . . debts owed or due . . . another." The question in Henson was whether a party who purchases debts originated by someone else and then seeks to collect those debts for its own account qualifies as a debt collector." Justice Gorsuch framed the issue as follows:

Everyone agrees that the term ["debt collector"] embraces the repo man – someone hired by a creditor to collect an outstanding debt. What if you purchase a debt and then try to collect it for yourself – does that make you a "debt collector" too? That 's the nub of the dispute now before us.

The district court and the U.S. Court of Appeals for the Fourth Circuit sided with defendant, holding that a party that buys defaulted debt and collects it for its own account is not a "debt collector." In doing so, however, the Fourth Circuit acknowledged that other circuit courts had come to the opposite conclusion. The U.S. Supreme Court took the case to clear up this split.

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NJ Supreme Court Keeps Its Priorities Straight: A Later-Filed Mortgage Can Have Priority Over An Earlier-Filed One

by: Peter J. Gallagher (@pjsgallagher) (LinkedIn)

If you are like me, nothing piques your interest more than a case about the priority of liens and mortgages. I am joking of course. I am not (quite) that boring. But, there are occasionally cases that come along on seemingly dry issues that are nonetheless interesting. The New Jersey Supreme Court's decision in Rosenthal & Rosenthal, Inc. v. Benun is one of those cases. I wrote about the Appellate Division's decision in Rosenthal here, and now the Supreme Court has issued its own opinion, affirming the Appellate Division's judgment.

In Rosenthal, plaintiff was a factoring company (factoring is the sale of accounts receivable at a discount price). It entered into two factoring agreements with several entities owned by Jack Benun and his family (the "Benun Companies"). Each of the factoring agreements was personally guaranteed by defendant, Vanessa Benun, Jack Benun's daughter, and each of her personal guarantees was secured by a mortgage on property she owned in Ocean Township. These mortgages were recorded in 2000 and 2005 respectively. Each mortgage contained both a "dragnet clause" — a provision stating that if the borrower ever becomes liable to the lender on any other loan, the mortgage will also secure that loan — and an anti-subordination clause.

In 2007, after both of the above mortgages were recorded, Ms. Benun gave the law firm Riker Danzig a mortgage on the same property in Ocean Township that secured her personal guarantees on the two factoring agreements. The purpose of this mortgage was to secure payment of almost $1.7 million owed to Riker Danzig by Mr. Benun at that time. After the mortgage was recorded, plaintiff's counsel sent an email to Riker Danzig acknowledging the Riker Danzig mortgage. More importantly, plaintiff also continued to make disbursements to the Benun Companies under the factoring agreements after the Riker Danzig mortgage was recorded and acknowledged by plaintiff.

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Federal Judge Strikes Down “Flying Spaghetti Monster” (Or At Least A Prisoner’s Claims About His Ability To Worship The “Flying Spaghetti Monster”)

by: Peter J. Gallagher (@pjsgallagher) (LinkedIn)

When appointments are made to the U.S. Supreme Court there is often much talk about the potential justice’s “paper trail” — the articles, briefs, or, if the candidate is already a judge, opinions he or she has written. If Judge John M. Gerrard of the U.S. District Court for the District of Nebraska is ever fortunate enough to be appointed to the Supreme Court, I hope that someone questions him about his recent opinion in Cavanaugh v. Bartelt. The decision does not provide much insight into his “judicial temperament” or his position on any hot button social issues that might come before the Supreme Court. It is just a well written and — not to sound too geeky — enormously entertaining opinion to read.

Cavanaugh was a lawsuit filed by a prisoner in a Nebraska prison who claimed to be a “‘Pastafarian,’ i.e., a believer in the divine ‘Flying Spaghetti Monster’ who practices the religion of ‘FSMism’.” Plaintiff sued prison officials, claiming they were not accommodating his religious requests. Judge Gerrard concluded that FSMism was not a religion under the law, but was instead “a parody, intended to advance an argument about science, the evolution of life, and the place of religion in public education.” While he acknowledged that these were “important issues and FSMism contains a serious argument,” he held that FSMism was “not entitled to protection as a religion.”

Before addressing the legal issues presented by the complaint, Judge Gerrard provided a brief and entertaining history of FSMism. Because it developed as a response to “intelligent design,” Judge Gerrard traced the debate over teaching evolution in public schools from the adoption of state laws banning the teaching of evolution, to the Supreme Court’s rejection of those laws, to the adoption of state laws requiring that schools teach both evolution and “creation science,” to the Supreme Court’s rejection of “creation science” under the Establishment Clause, to the rise of “intelligent design” as an alternative to evolution. Proponents of “intelligent design” claim that the “Earth’s ecosystem displays complexity suggesting intelligent design by a ‘master intellect.” They try to avoid the Establish Clause issues that brought down “creation science” by not expressly identifying the “master intellect” as a deity.

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Game Over! Video Game Legend’s Lawsuit Against Cartoon Network Dismissed

When I was a kid, cartoons and video games were far simpler than they are now. We watched Tom and Jerry and played Donkey Kong. The cartoons my kids watch today are often bizarre and the video games they play are way too complicated. A recent lawsuit in federal court, Mitchell v. The Cartoon Network, brought the old and new together, however, as a man who once held world records in Pac Man and Donkey Kong sued because his likeness was allegedly misappropriated in one of those new cartoons my kids like, "The Regular Show." (Incidentally, before you think I am just turning into a curmudgeonly old man, check out "The Regular Show" some time. It is hardly "regular".)

Plaintiff in Mitchell was a "well-known figure in the video gaming community." In addition to holding world records in both Pac Man and Donkey Kong at various times, he also competed in international gaming competitions, and even had his own trading card. But, he is perhaps most famous for his role in a documentary called "The King of Kong: A Fistful of Quarters," which "chronicles another gamer's attempt to surpass Plaintiff's world record for the game Donkey Kong." The district court described plaintiff's appearance in that film as follows:

In the film, Plaintiff is portrayed as succesful but arrogant, beloved by fans, and at times, willing to do whatever it takes to maintain his world record. In particular, the film shows Plaintiff attempting to maintain his world record by questioning his opponent's equipment and the authenticity of his opponent's submission of a filmed high score.

Plaintiff claims that defendants misappropriated his image for use in several episodes of "The Regular Show," which the district court noted is a show that "revolves around the adventures of two anthropomorphic animals, a blue jay named Mordecai and a raccoon named Rigby." One episode in the series included a villain named Garrett Bobby Ferguson, who appeared as a "giant floating head from outer space, with long black hair and a black beard, but no body." In the episode, Mordecai and Rigby are trying to break Ferguson's world record in a game called Broken Bonez that they play at their local coffee shop. (Yes, kids, we used to have to leave the house to play our favorite video games.) After they break the world record, the disembodied Ferguson appears to brag that he still holds the "universe record." Mordecai and Rigby then challenge Ferguson to play for that record. They almost beat his record, but then "throw the match when [Ferguson] begs them to let him win, claiming that he [ ] devoted his entire life to the game, that he played so much his wife left him, and that the universe record is all he has." After Mordecai and Rigby lose, however, Ferguson reveals that he was lying about it all. Mordecai and Rigby then go back and beat Ferguson's "universe record," at which point, the "enraged [Ferguson] explodes into goo." (When asked at breakfast if they ever saw this episode, two of my kids said they had, and they loved it.)

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High Priority: Sometimes A Later-Filed Mortgage Can Have Priority Over An Earlier-Filed One

by: Peter J. Gallagher (@pjsgallagher)

Another day, another post about mortgage priority. Last week, I posted about how refinancing a first mortgage impacts its priority — click here if you don't remember — and now comes an even more interesting, and more unique, case about mortgage priorities.

In Rosenthal & Rosenthal, Inc. v. Benun, plaintiff was a factoring company (factoring is the sale of accounts receivable at a discount price). It entered into two factoring agreements with several entities owned by Jack Benun and his family (the "Benun Companies"). Each of the factoring agreements was personally guaranteed by defendant, Vanessa Benun, Jack Benun's daughter, and each of her personal guarantees was secured by a mortgage on property she owned in Ocean Township. These mortgages were recorded in 2000 and 2005 respectively. Each mortgage contained both a "dragnet clause" — a provision stating that if the borrower ever becomes liable to the lender on any other loan, the mortgage will also secure that loan — and an anti-subordination clause.

In 2007, after both of the above mortgages were recorded, Ms. Benun gave the law firm Riker Danzig a mortgage on the same property in Ocean Township that secured her personal guarantees on the two factoring agreements. The purpose of this mortgage was to secure payment of almost $1.7 million owed to Riker Danzig by Mr. Benun at that time. After the mortgage was recorded, plaintiff's counsel sent an email to Riker Danzig acknowledging the Riker Danzig mortgage. More importantly for the purpose of the Appellate Division;s decision, plaintiff also continued to make disbursements to the Benun Companies under the factoring agreements after the Riker Danzig mortgage was recorded and acknowledged by plaintiff.

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