“I’m strong to the fin-ich. Cause I eats me spin-ach. I’m Popeye the . . . debt collector man?”

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

PopeyeFor lawyers, debt collection can be a trap for the unwary. The Fair Debt Collection Practices Act ("FDCPA") governs debt collection by both attorneys and non-attorneys. It generally prohibits debt collectors from using deceptive, abusive, or unfair practices to collect debts. While that sounds straightforward, it is often difficult to figure out whether you are even a debt collector governed by the FDCPA, much less whether what you are trying to collect is a debt under the FDCPA and whether what you are doing to collect that debt is deceptive. And the consequences for running afoul of the FDCPA — statutory damages and attorney's fees — can be significant.

A recent decision from the U.S. Court of Appeals for the Third Circuit, Tepper v. Amos Financial, LLC, offered a good primer on one of these tricky issues — whether a party that buys debt and seeks to collect that debt for its own account qualifies as a debt collector under the FDCPA — but the more interesting aspect of the opinion is the court's frequent references to Popeye (the sailor man, not the fast food restaurant).

The opinion began: "Many would gladly pay Tuesday for a hamburger today." This, of course, is a reference to Wimpy's famous tag-line in Popeye. The court then described the basic purpose of the FDCPA and introduced the issue in the case as follows:

The Act does not apply . . . to all entities who collect debts; only those whose principal purpose is the collection of any debts, and those who regularly collect debts owed another are subject to its proscriptions. Those entities whose principal place business is to collect the defaulted debts they purchase seek to avoid the Act's reach. We believe such an entity is what it is – a debt collector. [Emphasis added.] If so, the Act applies.

Understandably, the court was not willing to go so far as have the defendant declare "I yam what I yam, and that's all that i yam," but you get the point. Popeye references continued throughout the opinion, so keep reading. 

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Appellate Division Quotes Lucinda Williams, Orders Trial Court To Take Closer Look At Whether Debt Was Fully Satisfied

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

Lucinda WilliamsAdd this to the list of things you never want to hear a court say about your performance during a case: "defendants' presentation of evidence certainly gave voice to the song lyric, 'when nothing makes any sense, you have a reason to cry.'" (It is a lyric from a Lucinda Williams song if you were curious.) But this was the Appellate Division's conclusion in Brunswick Bank & Trust v. Heln Management, LLC, a case that was making its second appearance before the Appellate Division (after an earlier remand) and was sent back to the trial court for a third round.

The issue in Brunswick Bank was relatively straightforward. Plaintiff and defendants entered into five loans. The loans were secured by mortgages on several properties owned by defendants. After defendants defaulted on the loans, plaintiff sued and obtained a judgment against defendants. Plaintiff then filed foreclosure actions against defendants, seeking to foreclose on the mortgages it held against defendants' properties. It received final judgments of foreclosure in these cases as well. Some of these properties were then sold, which "provided rolling compensation for [plaintiff] against all defendants' obligations."

At some point during this "rolling" sale of mortgaged properties, defendants moved to stay all pending foreclosure proceedings, arguing that plaintiff was "over-capitalized" – i.e., it was going to collect more than it was entitled to collect under its judgment. Defendants then moved to have the judgment deemed satisfied, arguing that plaintiff had already recovered — through its collection efforts — the full amount of the judgment. The trial court granted the motion but held that two pending foreclosures could proceed. The trial court further acknowledged that it had the power to "prevent a windfall" to plaintiff, but that the record was "too muddled" to decide whether this was the case. 

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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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Words Matter: Language In Retainer Agreement Bars Recovery Of Fees Incurred In Fee Arbitration Proceeding

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

Words (pd)One of my favorite quotes from a judicial decision comes from the New Jersey Supreme Court in Atlantic Northern Airlines v. Schwimmer: "Litigation proceeding from the poverty of language is constant." I have never understood this to be a knock on the drafter. Rather, I understood it to mean that no matter how carefully you choose your words you can never make a contract, agreement, or other document litigation-proof. You see examples of this nearly every day in the daily decisions, including in the Appellate Division's recent decision in The Law Offices of Bruce E. Baldinger, LLC v. Rosen.

Baldinger involved a dispute between a law firm and its former client over attorney's fees. Defendant retained plaintiff to represent him in connection with a dispute with a contractor over work performed at defendant's home. Plaintiff and defendant entered into a retainer agreement that included an initial flat fee of $1,200 followed by hourly billing. The retainer agreement also dictated that interest at the rate of 1% per month would be charged on any unpaid balances after 30 days. The retainer agreement also contained the following provision, which is most important to our story: "If collection and enforcement efforts are required, you agree to pay counsel fees along with costs of suit." This would become important later on.

After about a month, defendant "became dissatisfied with plaintiff's representation and terminated plaintiff's services." Defendant had already paid the $1,200 flat fee, but plaintiff demanded that he also pay an addition $4,308 for work performed by plaintiff up to that point. Defendant refused to pay.

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