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

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

Stopwatch (pd)
"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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Back to Basics: Personal Guaranty Not Enforceable Without Consideration

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

Gas pump
Sometimes the most basic things can cause the biggest problems. One of the first lessons learned in the first year of law school is that a valid contract requires consideration – some benefit flowing to each side of the deal. In M. Spiegel & Sons Oil Corp. v. Amiel, the Appellate Division reminded us how failing to satisfy this basic requirement can derail an otherwise seemingly straightforward matter.

In Spiegel, defendants were two individuals who formed an LLC that operated two gas stations. The LLC purchased fuel oil from plaintiff. By March 2012, however, the LLC allegedly owned plaintiff more than $1 million for fuel oil deliveries, therefore plaintiff stopped making deliveries. Shortly thereafter, plaintiff entered into an agreement with the LLC pursuant to which the LLC agreed to make regular monthly payments to plaintiff to resolve its debt. As part of the agreement, the LLC entered into a promissory note with defendants for the full amount of the debt. Defendants were never asked to, and never agreed to, provide a personal guaranty in connection with the promissory note. But, shortly after the promissory note was signed, plaintiff asked defendants to sign a personal guaranty, which they did.  

The LLC eventually defaulted on the promissory note, and plaintiff sued defendants to recover on the personal guaranty. Both sides moved for summary judgment. The only fact issue that either side raised was whether there was adequate consideration for the personal guaranty. Plaintiff asserted that the personal guarantee was provided to induce plaintiff to continue to supply fuel oil to the LLC’s gas stations, therefore there was adequate consideration and the guaranty should be enforced. Defendants countered that, by the time the personal guaranty was presented to them, the LLC had already made arrangements to purchase fuel oil from a new supplier and therefore the personal guaranty was void for lack of consideration.

The trial court granted plaintiff’s motion and denied defendants’ cross-motion, holding that the guaranty was “clear and direct,” and that the “‘forbearance of the plaintiff to forego collection of the full amount’ and to ‘span out a payment plan’” provided adequate consideration. Defendants appealed and the Appellate Division reversed.

 

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