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

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

Debt collection (pd)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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In Case You Ever Find Yourself Fighting With Your Wife Over Your Ferraris . . .

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

Ferrari (pd)Right. I never do either. But if you do (or think you might in the future) then you might want to know about Durrani v. Wide World of Cars. In that case, plaintiff sued a car dealership and her ex-husband's former lawyers for delivering two Ferraris to her ex-husband, allegedly in violation of an order entered in their divorce action.

As the trial court described it, when plaintiff and her ex-husband were married, they lived an "extravagant lifestyle." Among other things,  they owned "twenty-five luxury cars worth approximately one million dollars, boats and properties." Of these assets, however, plaintiff was only on the title of two cars (and not the Ferraris). Nonetheless, during their divorce proceeding, plaintiff sought "exclusive possession" of the Ferraris, which were titled and registered to her ex-husband and stored at the defendant dealership's facilities. Consistent with this claim, plaintiff's counsel sent a letter to the dealership requesting that it not release or transfer the Ferraris to anyone, including plaintiff's ex-husband, and threatening to hold the dealership liable for damages if it did. At the end of the letter, counsel asked the dealership to agree to abide by the demand and indicated that if it did not agree, plaintiff would "immediately seek to serve [the dealership] with a court order." The dealership did not respond.

Around the same time plaintiff's counsel sent this letter, the family part entered an order in the divorce proceeding preventing either party from dissipating, selling, etc. any assets of the marriage, and specifically identified the Ferraris in a list of assets to which this restraint applied. Plaintiff's counsel sent a copy of the order to the dealership, purportedly placing it on notice of the terms.

 

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A Rare Narrowing Of The Consumer Fraud Act’s Scope: Medical Malpractice Insurance Not Covered

 by:  Peter J. Gallagher (@pjsgallagher)

It is not every day that a New Jersey court limits the scope of the New Jersey Consumer Fraud Act (“CFA”), so when one does, it is worth writing about. Anyone who litigates in New Jersey knows about the CFA and, depending on whether you are on the plaintiff’s side or the defendant’s side, either loves it or hates it. (I am mostly on the defendant’s side, but occasionally find myself representing a plaintiff, so my relationship with the CFA is “complicated.”) Because it is remedial legislation, the CFA is liberally construed to afford the greatest protection to consumers. This philosophy has led courts to apply the CFA (and its treble damages and prevailing party’s attorney fees) to a seemingly ever growing, and very rarely contracting, variety of disputes. In fact, many years ago, the New Jersey Supreme Court observed that: “The history of the Act is one of constant expansion of consumer protection.”

With this in mind, we turn to the Law Division’s published decision in Khan v. Conventus Inter-Insurance Exchange. That case was a putative class action in which plaintiff, a doctor, alleged that defendant violated the CFA in connection with the sale of medical malpractice insurance and the administration of the policy after it was purchased. Plaintiff purchased a policy from defendant and, as part of her initial membership, was required to make a one-time contribution, equal to the first year’s premium, to defendant’s surplus fund. (Defendant is not a traditional insurance carrier, but is instead a “non-profit physician member-owned risk sharing exchange.”) Plaintiff elected to make this contribution in installments over a ten-month period, with the understanding that if she cancelled her policy before the final payment was made, she would still be responsible for the full surplus fund contribution. Plaintiff eventually cancelled her policy before the ten-month period passed and defendant demanded that she immediately pay her entire surplus fund contribution rather than allowing her to pay it off in installments as originally agreed upon by the parties. Plaintiff sued alleging that this attempt to accelerate the surplus fund payment was a breach of contract and a violation of the CFA. She sought to bring her claims as a class action.

Before addressing whether plaintiff could sustain a class action and be appointed class representative, the court first had to decide whether the CFA applied to “transactions involving the purchase and sale of medical malpractice insurance.” Because the court held that it did not, it never had to reach the class certification issues.

 

 

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“Warriors . . . come out to playyyyyy” (or “What Are The Insurance Implications Of Driving Your Mom’s Car To A Street Fight?”)

 by:  Peter J. Gallagher (@pjsgallagher)

 

One of the most ridiculously entertaining movies of the late-1970’s/early-1980’s was “The Warriors.” You need to watch it to fully appreciate how ridiculous and entertaining it was but it involves a running battle between street gangs through a post-apocalyptic-looking New York City. (To give just a glimpse of how ridiculous it was, the members of one of the gangs, the “Hi Hats,” were dressed like mimes.) The quote in the title of this post is one of the two most well-known lines from the movie (bonus points if you know the other one, answer below).

I was reminded of “The Warriors” when I read the opening sentences of the Appellate Division’s recent decision in Cannon v. Palisades Insurance Company:

“This case involves a street fight between two groups of combatants, some of whom were employed as telemarketers with two local companies. Not surprisingly, the challenge to fight, the acceptance of that challenge, and negotiations over the combat site were all done telephonically.”

A gang of telemarketers could have easily fit into “The Warriors.” Regardless, with an opening sentence like that, I had to read the rest of the opinion. Ultimately, the facts of Cannon are unique and not likely to be useful to you in any future matter. But, that doesn't mean you should not read on, and read the decision yourself if you have the time.

 

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