After 'Romea' Attorney Compliance With FDCPA in Landlord/Tenant Cases
REAL ESTATE UPDATE: DEBT COLLECTION
By Arthur Gussaroff and Allison Hertog
New York Law Journal April 29, 1998

In Romea v. Heiberger & Associates,1 Judge Lewis Kaplan held that the defendant, a law firm, violated the federal Fair Debt Collection Practices Act (FDCPA) when it signed a three-day demand notice for rent pursuant to New York Real Property Actions & Proceedings Law 711(2) (RPAPL). The judge found that rent was a "debt" under FDCPA 1692(a)(5), and that the notice was a "communication" under FDCPA 1692(a)(2). Judge Kaplan concluded that the "capacious and unambiguous nature of the statutory definition of 'communication' affords no basis to carve out an exception to the statute's applicability" 2 for attorneys.

A Second Southern District Court Judge, John S. Martin Jr., has recently agreed with Judge Kaplan in Hairston v. Whitehorn & Delman, 97 Civ. 3015 (1998). Judge Martin found that the FDCPA applied to letters sent to tenants by their landlord's attorney advising the tenants to pay back rent within three days or face eviction. Judge Martin held that the firm was collecting debt and not merely following RPAPL eviction procedures.

Romea and Hairston create clear problems for an attorney who regularly represents landlords in rent nonpayment actions because the provisions of the FDCPA conflict with those of New York State landlord-tenant law and an attorney who violates the FDCPA is subject to up to $1,000 in damages, plus payment of a plaintiffs reasonable legal fees. In addition, attorneys representing tenants in housing court may seek to have cases dismissed where such actions were not brought in compliance with the FDCPA.

Judge Kaplan has asked the U.S. Court of Appeals for the Second Circuit to grant an interlocutory appeal of his denial of the defendant's motion to dismiss in Romea before he makes a final decision on the case.

'Debt' Under the FDCPA

The defendant in Romea argued that the unpaid rent was not a "debt" under the FDCPA because no extension of credit was involved. Relying principally on a Third Circuit decision, Zimmerman v. HBO Affiliate Group,3 the defendant argued that because rent is paid in advance it involves no extension of credit. The court ruled against the defendant based on the plain language of the statute which does not limit "debt" to extensions of credit, and on three 1997 decisions of the Seventh and Eleventh circuits.4 However, there is conflicting case law on the subject. There have been three federal district court decisions in New York that have held that debt under the FDCPA is limited to extensions of credit.5 Whlle Judge Kaplan is not bound by the decisions of other district court judges, the fact that there are conflicts leaves Romea and Hairston vulnerable to reversal on appeal.

The issue of whether a litigating attorney is a debt collector under the statute, is a precondition to liability under the FDCPA. The statute was amended in 1986 to remove an express exemption for lawyers from the definition of debt collector. Following that amendment, the Federal Trade Commission published a nonbinding commentary to the FDCPA, stating that a lawyer "whose practice is limited to legal activities (e.g., the filing and prosecution of lawsuits to reduce debts to judgment)" was not covered by the FDCPA.

This commentary was discredited by the Supreme Court in Heintz v. Jenkins,6 which held that any attorney who regularly engages in consumer debt collection litigation activity is subject to the FDCPA. However, courts must still determine whether the attorney in question meets the statutory definition of debt collector. (FDCPA 1692(a)(6).).

Defining 'Debt Collector'

A key question in determining who is a debt collector is what is meant by the term "regularly" collects debts. There has been only one federal district court decision in New York, In re Scrimpsher, 7 which involved a collection agency. In other federal jurisdictions, there is significant ambiguity as to what is meant by "regularly." 8 One line of cases finds that regularly means the consistent collection of consumer debts during a specified period of time.9 Another holds that regularly means that a majority of one's practice is specifically dedicated to debt collection.10

It is not clear which standard a New York court would apply. However, attorneys would not be subject to the FDCPA if a landlord that they represent collects its own debts. There is one decision, Williams v. Trott, that is instructive.11 In Williams, the court held that attorneys who did not send a demand letter to the debtors and "merely accommodated" debtors by providing information they requested, did not act as debt collectors under the FDCPA.12

'Communication' Defined

Judge Kaplan, finding that the RPAPL 711 notice falls within the unambiguous definition of "communication" (FDCPA 1692 a(ll), held that a 711 notice constitutes a communication covered by the FDCPA. However, he left it unclear whether the notice of petition also falls under the definition of communication. If the notice is a communication, and if it is the initial communication between a debt collector and a tenant, under FDCPA l692g the notice of petition would have to give a tenant 30 days to dispute the debt rather than three days.

In this regard, it is important to note that Judge Kaplan concluded that because the three day notice is a precondition to the commencement of a proceeding, and not part of the proceeding itself, the notice would not interfere with creditors' judicial remedies.

The notice of petition, on the other hand, is part of the legal proceeding, and under Judge Kaplan's reasoning would be excluded from coverage by the FDCPA.13 His comments are consistent with the Supreme Court's decision in that courts can interpret 1692c(c) of the FDCPA to include "plausible" exceptions to the rule that the FDCPA applies to litigation activity, and suggest that such interpretations should be consistent with the "statute's apparent objective of preserving creditors' judicial remedies."

Attorney Compliance

In Heintz . Jenkins, a bank's law firm sued a debtor in state court to recover the balance due on an automobile loan. The lawyer sent a letter to the debtor listing the amount owed under the loan agreement and the amount owed to the bank for the purchase of insurance on the car. The debtor then brought suit in federal district court, alleging that the letter violated the FDCPA by trying to collect an amount (i.e. the insurance purchase) not "authorized by the agreement creating the debt," and by making a "false representation of . . . the amount . . . of any debt." 14 The district court dismissed the suit, holding that the FDCPA does not apply to lawyers engaging in litigation. The Court of Appeals reversed.

In a unanimous decision, affirming the Court of Appeals' reversal, the U.S. Supreme Court held that the FDCPA must be read to apply to lawyers engaged in consumer debt collection litigation. Nevertheless, to the extent that compliance with certain "conduct-regulating provisions" of the statute would create anomalies, the Court conceded that some ". . . implicit exception[s] might need to be read into the statute."

The Court explained that the significant "anomalies," which Heintz presented ". . . depend for their persuasive force upon readings that courts seem unlikely to endorse," and provided examples to illustrate its point. In Green v. Hocking,15 the court concluded that 1692k(c) of the statute, protects an attorney who brings and later loses a claim against a debtor, from liability. The court held that a debt collector' may not be held liable if he "shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error."

Although, there is a significant body of law in the lower courts indicating that the 1692k(c) defense applies only to clerical errors16 the Supreme Court seems to be saying that the defense applies to the kind of "mistake" inherent in the nature of litigation, the mistake of filing a claim that is unsuccessful for whatever reason.

The Supreme Court's second analysis of a so-called "anomalous" result involved 1692c, which requires a debt collector not to "communicate further" with a consumer who "notifies" the debt collector that he "refuses to pay" or wishes the debt collector to "cease further communication." The Court endorsed Heintz's argument that, read literally, such a provision would prevent an attorney from filing a suit against a nonconsenting consumer. The Court stated as follows:

Courts can read these exceptions, plausibly, to imply that they authorize the actual invocation of the remedy that the collector "intends to invoke." . . . Moreover, the interpretation is consistent with the statute's apparent objective of preserving creditors' judicial remedies.17

It would appear, therefore, that the Supreme Court is giving lower courts discretion to read "plausible" exceptions into the text of the

FDCPA to preserve creditors' judicial remedies.

Recommendations

An attorney should be able to avoid liability under Romea if the landlord signs the three-day demand notice, and notifies the debtor that the matter will be referred to an attorney if the debt is not paid within the three days. The attorney must, however, make sure that he does not incur liability for engaging in a prohibited practice under other relevant sections of the statute, such as 1692d (harassment or abuse), 1692e (false or misleading representations) and 1692f (unfair practices).

In conclusion, the Romea decision poses a logistical problem rather than a legal problem for law firms. As long as the creditor and not the creditor's attorney signs the three day demand and the lawyer does not engage in other practices prohibited under the FDCPA the lawyer would not be subject to liability for violation of this statue.

Notes

(1) 1997 U.S. Dist. LEXIS 20352 (SDNY, Dec. 23, 1997).

(2) Romea, 1997 U.S. Dist. LEXIS at *10-11.

(3) 834 F2d 1163 (3d Cir. 1987).

(4) Bass v. Stolper, Koitzinsky, Brewster & Neider, S.C., 111 F3d 1322 (7th Cir. 1997); Brown v. Budget Rent-A-Car Systems Inc., 119 F3d 922 (11th Cir. 1997); Newman v. Boehm, Pearlstein & Bright Ltd., 119 F3d 477 (7th Cir. 1997).

(5) National Union Fire Ins. Co. v. Hartel, 741 F.Supp. 1139 (SDNY 1990); National Union Fire Ins. Co. v. Pidala, No. 85 Civ. 4487 (SDNY May 28, 1986; Bank of Boston International of Miami v. Arguello Tefel, 644 F.Supp. 1423, 1430 (EDNY 1986).

(6) 131 L.Ed2d 395 (1995).

(7) Bkrtcy. 17 B.R. 999 (NDNY 1982). However, a recent case, Harrison v. NBD Inc., 968 F.Supp. 837 (EDNY 1997), held that in evaluating whether defendants are "debt collectors," the FDCPA should be liberally construed.

(8) Hilton, supra, note I9 at 200.

(9) See, Hilton, supra, note 19 at 183.

(10) See, Hilton, supra, note 19 at 183-84, citing Fox v. Citicorp Credit Serv. v. Inc., 15 F3d 1507 (9th Cir. 1994); Scott v. Jones, 964 F2d 314 (4th Cir. 1992), see also. Cirkot v. Diversified Fin. Svs. Inc., 839 F.Supp. 941 (D.Conn. 1993).

(11) 822 F.Supp 1266 (E.D. Mich. 1993).

(12) Williams, supra.

(13) Heintz, 131 LED2d at 400.

(14) 15 USC 1692f(1) and 1692e(2)(A), respectively.

(15) 9 F3d 18 (6th Cir. 1993).

(16) See, e.g., Grazaiano v. Harrison, 763 F.Supp 1269 (DNJ 1991), reversed in part, vacated in part 950 F2d 107; Bieder v. Associated Collection Services Inc., 631 F.Supp 1410 (D.Kan. 1986); Smith v. Transword Systems Inc., 953 F2d 1025 (6th Cir. 1992); Adams v. Law Offices & Stuckert & Yales, 926 F.Supp 521 (E.D. Pa 1996).

(17) Heintz, 131 L.Ed. at 400.

Arthur Gussaroff, is a member of Szold & Brandwen, P.C., Allison Hertog is an associate at the firm.