“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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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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One Minute for Oral Argument? Motion Decided in 60 Seconds Doesn’t Survive Appeal.

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

"We anticipate that the court will engage counsel with more patience on remand."

I assume this is not something a trial court wants to see at the end of an opinion from an appellate court. But, this was precisely how the Appellate Division ended its decision in Midland Funding v. Bordeaux. The case, which involved the enforceability of an arbitration provision, is notable as much for the manner in which it was decided by the trial court as the legal issues at play in the decision.

In Midland Funding, plaintiff sued defendant over $1,018.04 in consumer debt that plaintiff purchased from the original creditor. In response, defendant denied liability and asserted a counterclaim alleging plaintiff violated the Fair Debt Collections Practices Act. During discovery, defendant moved to compel plaintiff to answer interrogatories. Plaintiff responded with a motion to compel arbitration. On the eve of the return date of that motion, defendant moved for summary judgment. Oral argument on these motion was adjourned for approximately 30 days.

When oral argument was eventually held, it did not last long. The Appellate Division noted that the transcript "show[ed] that the oral argument hearing began at 9:10 a.m. and concluded at 9:11 a.m." In the span of a minute, the trial court concluded that defendant's credit card agreement "contain[ed] an arbitration agreement," therefore "[i]t's going to arbitration." The trial court also denied defendant's summary judgment motion without explanation and declared that defendant's motion to compel answers to interrogatories was moot.

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Just In Time For Finals: Court Poses, Then Answers, Law School Exam Question On Fraudulent Conveyances

In Motorworld, Inc. v. Benkendorf, the Appellate Division decided to "put the issue raised in [the] appeal as if it were a law school exam," and then answer the exam question. Here is how it described the case:

A owns all the outstanding stock of DEF and GHI; her husband, B, operates all these and other entities wholly-owned by A. XYZ has done work for some of A and B's entities over the course of many years.

One of XYZ's principals asked B for a loan. B agreed, and A transferred $499,000 to DEF, a moribund entity. DEF then transferred $500,000 to XYZ, which executed a promissory note in DEF's favor; this note became DEF's only asset and its only debt is its unspoken obligation to repay A.

XYZ continued to perform work for GHI, and the note's due date was repeatedly extended; meanwhile, GHI's indebtedness to XYZ rose to approximately $1,000,000. Consequently, DEF executed a release of the note in exchange for XYZ's forgiveness of GHI's debt.

Was DEF's release of the note a fraudulent conveyance?

Believe it or not, this description was actually less complicated than the facts of the case.

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Transfer Can Be Fraudulent Even If It Occurs Before Loan, Default, And Lawsuit Over Default On Loan

A recent Appellate Division decision should serve as a warning to anyone thinking about transferring assets and rendering themselves judgment proof before entering into a business deal. If the deal goes bad, the transfer might be deemed fraudulent and creditors might be able to look to the fraudulently transferred assets to satisfy their judgments.

In Anastasi v. Barmbatsis, defendants, husband and wife, held all of the shares in a single-purpose entity that owned and operated a Stewart's Root Beer in Franklin Park, New Jersey. Shortly before procuring a loan to open a new Stewart's location with a partner, husband transferred his interest in the entity to wife, along with nearly all of his interest in another entity that the two owned. Husband then entered into a deal with plaintiff — verbal, but "apparently sealed with a handshake" — to borrow $50,000 to use to open the new restaurant. Defendants used this money, along with other funds, to open the restaurant.

Husband agreed to repay the loan in five to seven months. This was subsequently extended but husband failed to repay the loan even with the extension. Plaintiff sued and obtained a default judgment against husband for $50,000. In post-judgment discovery, plaintiff learned about the pre-loan transfers from husband to wife. Thereafter, he sued both husband and wife alleging, among other things, that the transfers violated New Jersey's Uniform Fraudulent Transfers Act (the "UFTA"). The trial court ruled in plaintiff's favor. It held that wife was not personally responsible for paying back the loan, but plaintiff could satisfy his judgment with the interests in the two entities that husband had transferred to wife.

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