“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)

For 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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Arbitration Provision Bounced Again, Even After Kindred Nursing Decision.

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

As readers of this blog know, arbitration provisions in consumer contracts are difficult to enforce in New Jersey. (Click here or here for a refresher.) There was some belief that the U.S. Supreme Court's recent decision in Kindred Nursing Centers Ltd. P'ship v. Clark might change this, but it does not appear, at least not yet, that it has. In a recent case, Defina v. Go Ahead and Jump 1, LLC d/b/a Sky Zone Indoor Trampoline Park, the Appellate Division was asked to revisit, in light of Kindred Nursing, its prior decision refusing to enforce an arbitration provision in a contract between a trampoline park and one of its customers. The Appellate Division did so, but affirmed its prior decision, holding that Kindred Nursing did not require New Jersey courts to change the manner in which they approach arbitration provisions.

I wrote about Defina in its first go-around with the Appellate Division — Bounce Around The (Court)Room: Trampoline Park's Arbitration Provision Deemed Unenforceable. The underlying facts of the case are unfortunate. A child fractured his ankle while playing "Ultimate Dodgeball" at a trampoline park. Before entering the facility, the child's father signed a document entitled, "Participation Agreement, Release and Assumption of Risk." The document contained an arbitration provision, which provided:

If there are any disputes regarding this agreement, I on behalf of myself and/or my child(ren) hereby waive any right I and/or my child(ren) may have to a trial and agree that such dispute shall be brought within one year of the date of this Agreement and will be determined by binding arbitration before one arbitrator to be administered by JAMS pursuant to its Comprehensive Arbitration Rules and Procedures. I further agree that the arbitration will take place solely in the state of Texas and that the substantive law of Texas shall apply.

Notwithstanding this provision, the child's parents sued the trampoline park in state court, alleging tort claims for simple negligence and gross negligence, and statutory claims for alleged violations of the Consumer Fraud Act and the Truth in Consumer Contract, Warranty and Notice Act.

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NJ Supreme Court Narrowly Defines “Aggrieved Consumer.” End Of The Road For One Type Of “No Injury” Class Action?

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

I have written a number of times about New Jersey's Truth in Consumer Contract, Warranty and Notice Act (TCCWNA). (Here, here, and here for example.) This statute, which was largely ignored after it was enacted in 1981, became increasingly popular in recent years as part of so-called no injury class actions. (So-called mostly by defense counsel, not plaintiff's counsel.) Its popularity may now have come to an end, however, because the New Jersey Supreme Court recently issued its opinion in the highly-anticipated case, Spade v. Select Comfort Corp., which answered two questions certified to it by the U.S. Circuit Court of Appeals for the Third Circuit, one of which appears to hamper, at the very least, the ability of plaintiffs to sue for alleged violations of the act.

By way of brief background, the TCCWNA was enacted to prevent deceptive practices in consumer contracts by prohibiting the use of illegal terms or warranties. It provides:

No seller . . . shall in the course of his business offer to any consumer or prospective consumer or enter into any written consumer contract . . . or display any written . . . notice or sign . . . which includes any provision that violates any clearly established legal right of a consumer or responsibility of a seller . . . as established by State or Federal law at the time the offer is made . . . or the . . . notice or sign is given or displayed.

To state a claim under the TCCWNA, a plaintiff must prove four elements: (1) that it is a consumer; (2) that defendant is a seller; (3) that the seller offered a consumer contract containing a provision that violated a legal right of the consumer or a responsibility of the seller; and (4) that it was an "aggrieved consumer." Any party found to have violated the TCCWNA is liable for a civil penalty of not less than $100, actual damages, or both, and reasonable attorneys' fees and court costs.

The questions certified to the Supreme Court in Spade arose out of two cases that had been consolidated by the district court. Each involved plaintiffs who ordered furniture pursuant to contracts that violated certain regulations promulgated by New Jersey's Division of Consumer Affairs. The regulations require, among other things, that furniture sellers deliver furniture to customers by or before the promised delivery date or provide written notice that they will not be able to do so. Sellers must also provide notice to the purchaser that if the delivery is late, the consumer has the option of canceling the order and receiving a full refund, or agreeing to accept delivery at a specified later date. The regulations also prohibit sellers from including certain language in their contracts, such as "all sales final," "no cancellations," and "no refunds." In Spade, plaintiffs alleged that the contracts they entered into with defendants did not contain language required by these regulations, contained language prohibited by these regulations, or both. Notably, however, plaintiffs received their furniture deliveries on time.

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You Can’t Be Compelled To Arbitrate In A Nonexistent Forum

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

This one may seem obvious, but, in MacDonald v. Cashcall, Inc., the U.S. Court of Appeals for the Third Circuit held that a contractual arbitration provision that calls for arbitration in an "illusory forum" is not enforceable. So, if you were thinking about trying to compel arbitration in Wakanda or before the Jedi Council, better think twice.

In MacDonald, plaintiff entered into a loan agreement with a entity known as Western Sky in connection with a $5,000 loan. The loan agreement stated that it was "subject solely to the jurisdiction of the Cheyenne River Sioux Tribe," and "governed by the . . . laws of the Cheyenne River Sioux Tribe." It also contained an arbitration provision requiring that any disputes arising out of the agreement be "conducted by the Cheyenne River Sioux Tribal Nation by an authorized representative in accordance with its consumer dispute rules and the terms of [the agreement]." But the agreement also provided that either party, after demanding arbitration, could select an arbitrator from the American Arbitration Association ("AAA") or Judicial Arbitration and Mediation Services ("JAMS") to administer the arbitration, and, if it did, "the arbitration [would] be governed by the chosen arbitration organization's rules and procedures" to the extent that they did not contradict the "law of the Cheyenne River Sioux Tribe." The agreement also contained a severability clause, providing that, if any provision of the agreement was deemed invalid, the remaining provisions would remain in effect.

Although plaintiff originally borrowed $5,000, "[h]e was charged a $75 origination fee and a 116.73% annual interest rate over the seven-year term of the loan, resulting in a $35,994.28 finance charge." After paying approximately $15,493 on the loan, which included $38.50 in principal, $15,256.65 in interest, and $197.85 in fees, plaintiff filed a putative class action lawsuit against defendants, asserting federal RICO claims and state law claims for usury and consumer fraud. Defendants moved to compel arbitration. The district court denied the motion, holding that the loan agreement's "express disavowal of federal and state law rendered the arbitration agreement invalid as an unenforceable prospective waiver of statutory rights." Defendants appealed.

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Unenforceable Clause In Arbitration Agreement Does Not Void Agreement

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

One of my children's preschool teachers was fond of saying, "you get what you get and you don't get upset." (Not to my little angel, of course, but to other children.) In Curran v. Curran, the Appellate Division basically applied this admonition to the parties to an arbitration agreement, holding that they got what they intended out of the agreement, therefore they could not argue, after the fact, that an unenforceable provision in the agreement voided the entire agreement.

In Curran, plaintiff filed for divorce from defendant. With the advice of counsel, the parties entered into a consent order to refer all issues incident to their divorce to arbitration under the New Jersey Arbitration Act. In the consent order, the parties acknowledged that any arbitration award that was entered could only be set aside or modified by a court under the limited grounds set forth in the Arbitration Act — e.g., the award was procured by fraud, corruption, or undue means, the court found evidence of "evident partiality" by the arbitrator, the arbitrator exceeded his or her powers, etc. But the parties also included a handwritten provision, which provided: "The parties reserve their rights to appeal the arbitrator's award to the appellate division as if the matter was determined by the trial court." This is the provision that would cause all of the problems.

After the arbitrator entered a preliminary award, plaintiff requested reconsideration. The arbitrator then issued a comprehensive award setting forth his findings of fact and conclusions of law. Plaintiff filed a motion in the Law Division for an order modifying the award, citing eight alleged "mistakes of law" made by the arbitrator. Plaintiff also argued that the intent of the handwritten provision was not to allow for direct appeal to the Appellate Division, but was instead was evidence that the parties intended a more searching review of the award that what would normally be allowed under the Arbitration Act. The trial court agreed, holding that the paragraph itself was unenforceable because it purported to "create subject matter jurisdiction by agreement." The trial court noted that "[t]he authority of a court to hear and determine certain classes of cases rests solely with the Constitution and the Legislature." But the trial court agreed with plaintiff that the handwritten provision demonstrated the parties' intent to provide for "a little more review" than what would normally be allowed under the Arbitration Act. Therefore, the trial court "in essence act[ed] as the Appellate Division of the arbitrator." It performed a comprehensive review of the arbitrator's decision and affirmed the award.

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