Attorneys under attack over three-day notices
Real Estate Weekly, January 28, 1998

Local tenant lawyers are using a 20-year old Federal consumer statute to attack not only the legality of the three-day notice but owners' attorneys themselves in an effort, they say, to obtain the same rights for renters as other consumers.

At the end of December, a Brooklyn Federal judge agreed with their arguments and ruled in favor of the tenant and against the attorney representing the building owner. The lawyers representing the owner's attorney are requesting permission to appeal.

Owner attorneys and industry groups say the tenant bar's effort is motivated by potentially enormous class action fees as much as it is an effort to encourage renters to continue non-payment conduct under a political agenda.

The tenant's attorneys' theory behind using the Federal Debt Collection Practices Act (FDCPA) of 1977 (15 U.S.C section 1692) is that a communication from some- one other than the creditor themselves must contain certain advisory language, and must give the debtor 30 days to contest the validity of the debt.

"The tenant bar is saying that when the attorney or managing agent signs the three- day notice, which is required by state law to begin the non-payment proceeding, this is a communication from a debt collector and has to be a 30-day notice," explained owner attorney Alan D. Kucker, a partner with Kucker Kraus & Bruh.

"This case has nothing to do with consumer rights, but everything to to with preventing the collection of rent," asserted Dan Margulies, executive director of the Community Housing Improvement Program (CHIP), an owners group.

As if to prove hit point, the tenant plaintiff's attorney, Colleen F. McGuire, told REW. "Our position is that housing is a human right and not a commodity to be bargained over.

Margulies says the tenant's attorneys found a judge "to go along with a strained interpretation of the Federal Statute. On appeal, it's likely the court will find the required three-day notice to begin a non- payment proceeding is service of process, and exempt from Federal law."

Kucker, who has been personally threatened with a similar action, says if the case is upheld by higher Federal Courts and the tenant's attorneys succeed in winning a class action suit, they would be "getting an infusion of cash" from the real estate industry and the owner's attorneys.

"They would like to settle the class action and then get paid handsomely for litigating these issue," Kucker charged. "What is really the case is the legal fees. The tenants attorneys are getting major legal fees for bringing the action, while the actual damages for any debtor is zero, because no one is harmed by getting a three-day notice.

Consumer lawyer Robert Sokolski, co-counsel with McGuire to tenant Jennifer Lynn Romea in the Eastern District Federal court case Jennifer Lynn Romea vs. Heiberger & Associates was eager to relay that while damages under the Federal statute are limited to $1,000, reasonable attorneys fees are permitted and "the Second Circuit has signed off on $215 an hour."

Sokolski also told REW that if they formed and won a class action, then damages are equal to the lesser of $500,000 or one percent of the debt collector's net worth.

There is also a $1,000 fee for each named class representative," he said, which is likely to stir up a list of those who feel they are entitled to take part almost as long as the city's yearly Housing Court docket of about 280,000 non-payment case.

Kucker notes that many owners wait at least 13 days after the rent is due before ordering a process server to serve the three day notice, required to begin an action under section 711 of the state's Real Property and Proceedings Law (RPAPL). "and most tenants are in the second month [of arrears] anyway."

Romea, a Manhattan rent stabilized tenant -- who was apparently an out of work debt collector -- was already several months behind in the rent (and presumably had signed a lease some time earlier stating the rental amount and was receiving a rent bill every 30 days as required under the city's rent laws), when the was served a three-day notice by the legal process server at the end of December 1996.

The process was arranged by attorneys Heiberger & Associates on behalf of building owner, 442 3rd Ave. Realty LLC. The notice requested the payment of $2,800 in past due rent.

Originally, Romea's attorney Colleen McGuire tried to have Manhattan Housing Court Judge Kibbe Payne dismiss the case on the basis of the Federal law, but the motion was denied on grounds that it belonged in Federal Court.

McGuire brought the Federal action after coming up with the attack plan with Sokolski. It was in the Brooklyn Federal Court where Judge Lewis F. Kaplan ruled in their favor at the end of December 1997. Romea had previously told McGuire she wanted to settle and signed a rent settlement with the owner of her building that arranges for her to pay less than the full amount of rent owed.

Kucker disagrees with Judge Kaplan's decision, as do other owner attorneys. Kucker says that the US Supreme Court did rule that attorneys are debt collectors in a case where the lawyer was actually a debt collector. But, he wonders, it this really the same as a landlord/tenant attorney conducting litigation?"

Janice J. DiGennaro, an attorney with Rivkin Radler & Kremer who defended the owner's attorney, Jaime Heiberger, also claims the three-day notice is not a communication to collect a debt within the meaning of the Federal statute.

And since the three-day notice is required by New York law, she too says it should he excluded from the FDCPA's scope, since Congress did not want the act to interfere with creditor's judicial remedies.

Attorneys for the Rent Stabilization Association also appeared on behalf of Heiberger and intend to submit an amicus brief on the appeal.

But Eastern District Justice Kaplan dismissed the arguments by saying the notice is a "pre-condition" to the commencement of the non-payment proceeding," and not part of the proceeding itself."

Tenant attorneys note that Congress also amended the act to include attorneys, although they were originally excepted.

New York attorneys say they are acting as attorneys when they pursue non-payment proceedings according to the rules established by the state court, which is incidental to their legal practice, and are not acting as an agent -- as defined by the Federal Statute -- to collect a consumer debt.

Besides, they say the FDCPA was meant to protect consumers who take home products and are then hounded by debt collectors at all hours and by all means to make payments.

While a remedy for sellers of consumer goods is to have the item returned or to repossess a product, such as a car, for a building owner to obtain the return of an apartment, the attorneys say, New York State law has established clear and specific guidelines that regulate the attorneys' actions and provide more protection for tenants that owe rent than the Federal statute, thus exempting that conduct from Federal scrutiny.

The tenants are even more protected, DiGennaro insists, than the Federally-protected consumers because the RPAPL lays out very specific rules of conduct governing the time periods involved with serving the notice, serving and filing the petition and the subsequent court appearances.

They also point to the potential speedy resolution of the rent cases as a plus for the tenants, which tenant lawyers here say is much too fast because the tenants don't have time to organize their papers.

The owners' attorneys also insist the three-day notice under attack by tenant attorneys is not a "communication" for the purpose of collecting a "debt" within the meaning of the FDCPA, but merely a legal notice required under state law to begin a non-payment proceeding.

But Judge Kaplan ruled against owner attorney Heiberger at the end of December. In his decision, Justice Kaplan writes the FDCPA defines "debt" as "Any obligation or alleged obligation of a 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, whether or to such obligation has been reduced to judgment."

He stated that under the statute, it doesn't matter if the transaction involved the extension of credit or the deferral of payment, two issues which DiGennaro raised as defenses.

The statute defines "communication" as "the conveying of, information regarding a debt directly or indirectly to any person through any medium," and tenant attorneys say that's enough to cover the three-day notice.

Justice Kaplan agreed, since the notice "demanded payment on pain of the commencement of eviction proceedings, there is no colorable argument that it does not satisfy the FDCPA's sweeping definition of communication.

In 1988, the Federal Trade Commission (FTC) staff wrote commentaries on the FDCPA which basically interpreted the act to exclude "a notice that is required by law as a prerequisite to enforcing a contractual obligation between creditor and debtor, by judicial or nonjudicial legal process."

Justice Kaplan stated. "As sensible as such an exclusion may be, however, it cannot be adopted by this Court."

He refers instead to Heintz v. Jenkins, a 1995 U.S. Supreme Court case wherein the defendant wanted to rely on the FTC commentaries to distinguish an attorney engaged in legal activities from one engaged in debt collection activities.

But the U.S. Supreme Court didn't buy that argument and observed the FTC commentaries are not binding, noting too that there is nothing in the Congressional legislative history to indicate such an exception was intended.

In a Brooklyn, 1995 Eastern District case, Traveiso v. Gutman Baker & Sonnenfeldt, Grenadier Realty and Sea Park, the plaintiffs consented to the "speedy" resolution of the landlord/tenant disputes under the state's RPAPL, but wanted the Federal law "to govern false rent bills, baseless summary judgments and unlawful charges."

Judge Jack B. Weinstein relied on Heintz and ruled there were claims against the Gutman firm, as well as Grenadier as a manager/debt collector, and in denying the respondent's motion to dismiss, suggested mediation for the patties.

That case was not cited by Kaplan in the Romea decision.

Weinstein also wrote that "rent clearly fits the definition of debt embodied in the FDCPA," citing Emanuel v. American Credit Exchange, where lawyers merely stipulated, however, that rent fell under the FDCPA.

Since the December ruling by Judge Kaplan, DiGennaro has been getting calls from lawyers all over the country that she says "are horrified by this decision."

"They worry they are going to be subject to suits for simply following the procedures," she says.

Managing agents are also under attack, as McGuire says, "We are also going after managing agents, as well."

One of Kucker's managing agent clients was already contacted and threatened with legal action under the theory that a managing agent is acting on behalf of the creditor, implying that if a managing agent sends out a late notice "you are technically violating the act."

In a 1992 Michigan case, a real estate management firm with similar ownership to that of the property in question, was not acting as a debt collector under the Federal statute, said the Illinois District Court in Kegley and Munson v. Miles Management.

"It is clear that the protection of the FDCPA is available only to a 'consumer' who is dealing with a 'debt collector' as those terms are defined by the statute," wrote the Miles court. "Miles is a real estate property management company, and the management of commercial and residential properties -- not the collecting of debts -- is in fact the principal purpose of its business," that court concluded.

Kucker says he is advising his management clients, and his law firm and others are now scrambling to have the owner clients sign the three-day notices to avoid the tenant attorneys' threat of litigation.

But he also wonders how a court would rule on a document an attorney or managing agent signed based on a power of attorney, incapacitated?

Tenant attorney Sokolski, who insists he doesn't have a political agenda but a "precedent-setting" one, says "It won't be bad" for the owners or the attorneys if they have to put the consumer notices on their documents and provide 30-days notice to the renters.

"Tenants would have 30 days to get their paperwork together, and with 30 days, things can be settled without going to court and things would he faster," he said. "So many things would be better if we gave tenants the same rights as all other consumers. When you are talking about someone's home, they deserve at least as much protection as other consumers."

But in New York City, DiGennaro says owners with one or two small buildings that have one tenant who doesn't pay can "wreck" the economics of the building through a 30-day delay.

Kucker says, "No one wants to willfully disregard this act, since all attorneys want to follow the law. But he insists the Federal statute is not applicable. He also notes that his firm, with himself as one of the named parties, won the right to sign the three-day notice on behalf of clients in an earlier New York Appeals Court case.

The tenant attorneys expect to up their attack in Housing Court, particularly if they find a willing tenant.

McGuire warns, "Housing Court is going to be flooded with these motions to dismiss. I gave Legal Aid my briefs."

The tenant attorneys also plan to attack the validity of the petition, filed with the Housing Court to begin the proceeding, as also requiring 30 days notice.

Meanwhile, DiGennaro has made an interlocutory motion for leave to appeal before Justice Kaplan, which is expected to be granted. McGuire says they won't oppose it, since the tenant attorneys would like the action to be ruled on in their favor by an even higher Federal court.

Once Justice Kaplan grants them permission, DiGennaro has 10 days to file a petition for interlocutory appeal to the Second Circuit, which can then elect to schedule the case.

One thing is sure, the tenant attorneys have the tenacity to try all means to get current systems changed.

Lawyer McGuire is currently responsible for compiling Housing Court abstracts for the New York Law Journal. She recently posted an article she penned about Romea on the Internet's site that concludes:

"Tenants, tenant advocates and tenant attorneys must fight back against this feudal era inherited system called rent by any legal means necessary. The Romea decision gives us a big rock to throw in Goliath's face. Let the legal monkey-wrenchers storm the barricades!"