Sixth Circuit Holds Consumer Lacked Standing To Pursue “Meaningful Attorney Involvement” Claim

If a law firm sends a letter seeking to collect the correct amount, from the correct consumer, on behalf of the correct creditor, can the consumer still sue, claiming the firm violated the FDCPA because no attorney was “meaningfully involved” in preparing the letter?  The Sixth Circuit recently held the answer is “no” in Buchholz v. Meyer Njus Tanick,P.A., _F.3d_, 2020 WL 35431  (6th Cir. 2020), because the consumer suffered no “concrete injury” as a result of the letter and therefore lacked standing to pursue the claim in federal court.  The Buchholz decision should provide powerful support for creditors rights attorneys who are fighting against “meaningful involvement” claims.

The plaintiff in Buchholz, a Michigan resident, received two letters from a Minneapolis-based law firm, defendant Meyer Njus Tanick, PA (“MNT”) regarding accounts he owed to Synchrony Bank.  Id. at *1.  Both letters allegedly included a “pre-populated or stock signature” of Karna Harms, who plaintiff claimed was MNT’s only Michigan-based attorney.  Id. Buchholz alleged that given the high volume of letters processed by Harms and the other MNT attorneys, no attorney could engage in a “in a meaningful review of the underlying accounts prior to determining whether to send the collection letters.”  Id.  According to Buchholz, sending the letter on firm letterhead created the impression that an attorney “has reviewed the file and made the professional considered determination to send the letter.”  Id. Importantly, however, Buchholz did not claim these were not his accounts, or that the letters contained in any inaccuracies.

The Sixth Circuit affirmed the district court’s decision to dismiss the complaint for lack of subject matter jurisdiction, because Buchholz lacked standing under Article III of the Constitution.  As the Court noted: “Not all disputes have a home in federal court.  Article III limits the judicial power to resolving actual ‘Cases’ and ‘Controversies,’ not theoretical questions.”  Id. at *2.  Plaintiffs are required to show they suffered a “concrete” injury, i.e., an injury that is “real and not abstract.”  Id.  That injury must also be “fairly traceable” to the challenged conduct of the defendant.  Id.

The Buchholz Court rejected the argument that plaintiff had standing to sue because he allegedly suffered undue “anxiety” that he would be sued if he did not promptly pay.  Id. at *5.  “In other words, Buchholz is anxious about the consequences of his decision to not pay the debts that he does not dispute he owes.”  Id. at *6.  This type of “self-inflicted” injury does not confer standing.  Id.

The Sixth Circuit also rejected the notion that Buchholz had standing to sue based the defendants’ alleged “procedural violation” of failing to conduct a meaningful attorney review before sending the letters.  The Court stated:

"[E]ven assuming MNT violated the statute by misrepresenting that an attorney had reviewed Buchholz’s debts, we find ourselves, like we were in Hagy, unable to identify any harm to come from that violation. Buchholz gives us no reason to believe he did not owe the debts. He does not allege, for example, that the statute of limitations has expired, that res judicata precludes MNT from collecting the debts, or even that MNT miscalculated the amounts he allegedly owes. . . .We are at a loss for how MNT’s letters caused any harm, much less harm that Congress intended to prevent when it enacted the FDCPA."

Id. at *9.  In sum, because Buchholz was unable to show he suffered the type of harm that Congress tried to prevent when it passed the FDCPA, or harm that was cognizable at common law, the Sixth Circuit held the district court had correctly dismissed his complaint for lack of Article III standing. Id. at *10.

The Buchholz decision contains a well-reasoned application of the Supreme Court’s Article III jurisprudence, but perhaps more-importantly, the outcome of the case just makes sense.  The FDCPA does not give a consumer a license to sue the attorney retained by his creditor just because the consumer disagrees with the procedure they think the attorney used when preparing a letter for his client.  If the contents of the letter are accurate, then the FDCPA has not been violated. Well done, Sixth Circuit.  Well done.  

Why Every Lawyer And Client Should Be Fighting To Stop The "Meaningful Attorney Involvement" Doctrine From Spreading

Few things are more fundamental in the law than the principle that a lawyer owes a duty of loyalty to the client, a duty to be vigorous advocate within the bounds of the law, and a duty to maintain the client’s confidences and preserve the attorney-client privilege. Clients expect this of their attorneys, as they should. These core legal principles have slowly been under attack, however, by an amorphous creation called the “meaningful attorney involvement” doctrine.

For the lawyers unfamiliar with this doctrine, imagine a scenario where your client’s adversary could sue you directly, claiming you were not “meaningfully involved” when you were handling a matter for your client. How could this third party possibly have standing to sue you based on the process that you determined was appropriate for representing your client? Would any court tolerate such a claim? If the claim were allowed to proceed, how would you defend against it while still preserving the attorney-client privilege and your client’s confidences?

Although this scenario may sound far-fetched, it is an everyday occurrence for creditors’ rights attorneys, who have been targeted by “meaningful attorney involvement” lawsuits for years. Indeed, the “meaningful attorney involvement” theory has been embraced by the Consumer Financial Protection Bureau (“CFPB”) in its enforcement actions against large creditors’ rights law firms. The CFPB is expected to announce proposed debt collection rules in the near future that may incorporate the theory.

These lawsuits and regulatory actions are a threat to the core principles underlying the attorney-client relationship. All attorneys, and their clients, should be united in fighting against the continued use and expansion of the “meaningful attorney involvement” theory. If this can happen to creditors’ rights attorneys and their clients, might you and your clients be next?

What Is It Like To Be Named In A “Meaningful Attorney Involvement” Suit?

For those lawyers who are unfamiliar with “meaningful attorney involvement” lawsuits, consider for a moment what it would be like to be named as a defendant in one.

Imagine a week in the office that starts off on a positive  note. You land a big new client, who owns a valuable trademark and tells you a competitor has been infringing it. The client provides you with information about the claim. Applying your expertise and years of training, you quickly conclude the client has good faith basis for alleging trademark infringement. You draft a letter to the competitor, stating the facts as you understand them, demanding that the infringement cease and desist, and inviting the competitor to call you to discuss a resolution. All is well.

At the end of that week, however, things go sour. A process server knocks on your office door, and hands you a copy of a summons and a federal court complaint. You are personally named as a defendant. Your law firm is also named a defendant. Your client’s competitor never responded to your demand letter, but the competitor has now sued you and your firm. What is the claim?

The complaint alleges that your demand letter was false and misleading, because you were not “meaningfully involved” in reviewing your client’s files before you sent the letter on your client’s behalf. The competitor does not deny that it infringed your client’s trademark. Rather, the competitor is suing you and your firm because you allegedly determined too quickly that the infringement had occurred. The complaint seeks damages and attorney’s fees. It is served along with discovery requests, asking you to turn over all of your client’s files. A notice of your deposition is served, where your client’s adversary plans to ask you questions about what you did before you sent the letter.

This scenario sounds completely outrageous, right? We can assume this case will get bounced out of federal court immediately, right? No judge would ever seriously entertain such an obvious shakedown, right?

To the contrary, this is a real description of the “meaningful attorney involvement” lawsuits that are currently being litigated in courts across the country.  Welcome to everyday life as a creditors’ rights attorney.

Where Does The “Meaningful Attorney Involvement” Doctrine Come From?

How could the “meaningful attorney involvement” doctrine have ever gotten off the ground? It makes no sense. The communications between the lawyer and the client concerning the basis for the client’s claim are plainly privileged. The nature of review conducted by an attorney before a demand letter is sent is also privileged. The attorney gets to decide, in consultation with the client, and based on the attorney’s professional judgment, what to review and how long to review it before sending a demand letter. There is no viable way for a  third party to file a lawsuit against an attorney based on this process.

How, then, can the adversary of the attorney’s client file an independent federal court action against the attorney, and claim the attorney was not “meaningfully involved” in sending the demand letter? How did everything go wrong for creditors’ rights attorneys?

The “meaningful attorney involvement” doctrine evolved out of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (the “FDCPA”). You can read the entire FDCPA from front to back, however, and you will not find the term “meaningful attorney involvement” defined or even mentioned anywhere in the statute. Instead, you will come across section 1692e(3) of the FDCPA, which contains a simple rule: a debt collector may not make a “false representation or implication that any individual is an attorney or that any communication is from an attorney.” 15 U.S.C. § 1692e(3). In other words, if you are not a lawyer, the FDCPA prohibits you from falsely stating or implying that you are a lawyer. This is a sensible and uncontroversial prohibition.

The early “meaningful attorney involvement” cases did not even involve letters mailed by attorneys. Instead, the letters had been mailed by collection agencies that had used an attorney’s letterhead in a misleading fashion. In Clomon v. Jackson, 988 F.2d 1314 (2d Cir. 1993), a collection agency sent letters to “approximately one million debtors each year” using a computerized mass-mailing system, on letterhead listing “P.D. Jackson, Attorney at Law, General Counsel, NCB Collection Services,” and containing a mechanically-reproduced “signature” of an attorney. Clomon, 988 F.2d at 1316-17. But the attorney “played virtually no day-to-day role in the collection process” – he never reviewed the letters, and never decided whether or when the collection agency should mail them. See id. The Court concluded the letters were not “from” the attorney “in any meaningful sense of the word.” Id. at 1320.

Similarly, in Avila v. Rubin, 84 F.3d 222 (7th Cir. 1996), a collection agency owned by an attorney generated and mailed letters on attorney letterhead “‘signed’ with a mechanically reproduced facsimile” of the attorney’s signature. Avila, 84 F.3d at 225. Nearly 270,000 letters were mailed each year, and the attorney had  not personally prepared, signed, or reviewed any of them. See id. The Court observed that “Rubin has no real involvement in the mailing of dunning letters to debtors,” id. at 228, and that the “true source of the ‘attorney’ letters was a collection agent who pushed a button on the agency’s computer.” Id. at 230.

Clomon and Avila thus did not involve letters “from” an attorney. The letters were mass-produced by collection agencies and designed to appear as if  they came from attorneys. Over time, however, consumer advocates convinced some courts to use the Clomon and Avila decisions to support “meaningful attorney involvement” claims regarding letters that were, in fact, mailed by attorneys.  See, e.g., Nielsen v. Dickerson, 307 F.3d 623, 635 (7th Cir. 2002) (attorney’s letter violated section 1692e(3) where attorney had not “meaningfully involved himself in the decision” to send letter); Lesher v. Law Offices Of Mitchell N. Kay, 650 F.3d 993, 1003 (3d Cir. 2011) (letter from law firm violated section 1692e where it “falsely impl[ied] that an attorney, acting as an attorney, is involved in collecting Lesher's debt.”).

As this disturbing trend in the case law continued, some courts allowed litigants to take invasive discovery regarding the process used by an attorney when evaluating and preparing a demand letter for the client. See, e.g., Miller v. Wolpoff & Abramson, L.L.P., 321 F.3d 292, 307 (reversing summary judgment in favor of attorneys on “meaningful involvement” claim to allow plaintiff to take discovery on “precisely what information the [attorneys] reviewed, how much time was  spent reviewing plaintiff's file, and whether any legal judgment was involved with the decision to send the letters and ultimately to initiate litigation . . .”).

The “meaningful attorney involvement” doctrine subsequently expanded beyond demand letters, and has been applied in cases that challenge the process used to prepare pleadings that were, in fact, filed by attorneys. See, e.g., Bock v. Pressler & Pressler, LLP, 30 F. Supp. 3d 283 (D.N.J. 2014).

Can The Federal Government Target Me And My Clients Using The “Meaningful Attorney Involvement” Doctrine?

Fighting off “meaningful attorney involvement” cases filed by consumer attorneys is incredibly expensive and disruptive. But what would it be like if the federal government targeted you and your clients using this theory? Well you can creditors’ rights attorneys, who are already painfully aware of the answer to this question.

The Consumer Financial Protection Bureau (“CFPB”) has targeted large creditors’ rights law firms using the “meaningful attorney involvement” theory, and beginning in 2016, the CFPB announced a series of consent orders with the firms that imposed specific requirements on the information and documentation those attorneys must review before sending collection letters or filing collection lawsuits on behalf of their clients. See, e.g., Consumer Fin. Prot. Bur. v. Frederick J. Hanna & Assocs, et al., United States District Court, Northern District Of Georgia, Case No., 1:14-cv-02211-AT, Docket 61-1, Stipulated Final Judgment and Order; In the Matter of: Pressler & Pressler, LLP, et al., Administrative Proceeding File No. 2016-CFPB-0009; In the Matter of: Works & Lentz, Inc., et al., Administrative Proceeding File No. 2017-CFPB-0003.

In a rare victory for creditors’ rights attorneys, a law firm recently defeated a “meaningful attorney involvement” action filed by the CFPB following a four-day trial. See Consumer Fin. Pro. Bur. v. Weltman, Weinberg & Reis Co., L.P.A., 2018 WL 3575882 (N.D. Ohio July 25, 2018). The government had not alleged  that the letters sent by the law firm included false statements about the amount that the consumers owed. Instead, the CFPB claimed the letters “falsely imply that an attorney was meaningfully involved in the collection of the debts to which the letters relate.” Id. at *2.

After days of detailed testimony from members of the law firm regarding the procedures they employed for their clients prior to generating and mailing demand letters, the court held the firm had proven that “attorneys were meaningfully and substantially involved in the debt collection process both before and after the issuance of the demand letters.” Id. at *11. When the Weltman firm subsequently sought to recover the attorneys’ fees it had spent defending the case, however, the court denied the motion. See Consumer Fin. Prot. Bur. v. Weltman, Weinberg & Reis Co., L.P.A., 2018 WL 5257602 (N.D. Ohio Oct. 22, 2018).

Why Every Lawyer And Client Should Fight Against The Spread Of The “Attorney Meaningful Involvement” Doctrine

All attorneys, and their clients, should be disturbed by the evolution of the “meaningful attorney involvement” and its implications for the legal profession. Lawyers who do not have a creditors’ rights practice may be tempted to dismiss the theory as an anomaly, a unique risk that was knowingly assumed by a limited group of practitioners who are subject to the FDCPA. But it is important to remember that the phrase "meaningful attorney involvement" is not contained anywhere in the plain language of the FDCPA. Indeed, the “meaningful attorney involvement” doctrine arose from cases that did not even involve letters sent by attorneys.

The FDCPA does not give consumers, federal courts, or federal regulators the power to regulate the private interactions between a creditors’ rights attorney and the client. The judiciary, not Congress, establishes professional standards for the bar and oversees the conduct of attorneys. See Paul E. Iacono Structural Eng'r, Inc. v. Humphrey, 772 F.2d 435, 439 (9th Cir. 1983) (“[T]he regulation of     lawyer conduct is the province of the courts, not Congress.”). This is a point that has been emphatically demonstrated by litigation initiated by the American Bar Association against the Federal Trade Commission. See ABA v. FTC, 430 F.3d 457, 472 (D.C. Cir. 2005) (rejecting argument that Congress gave FTC the power to regulate attorneys under Gramm-Leach Bliley Act: “Congress has not made an intention to regulate the practice of law ‘unmistakably clear’ in the language of the GLBA”) (citations omitted).

All attorneys and their clients should reject the “meaningful attorney involvement” doctrine. It has morphed into an undefined standard of care that gives consumers and federal regulators a license to challenge all aspects of a creditors’ rights attorney’s representation of the client. The FDCPA was not passed by Congress as a means to regulate the practice of law or to dictate the relationship and workflow between a client and an attorney. Clients and lawyers have the right to decide what level of attorney review or “involvement” is appropriate for collection matters. No federal statute, including the FDCPA, should be misinterpreted in a way that so fundamentally interferes with the attorney-client relationship.

Trends In FDCPA Litigation Filed Against HOA Attorneys

Attorneys who regularly engage in collection work for community associations have increasingly become targets for lawsuits filed by professional consumer attorneys under the Fair Debt Collection Practices Act (“FDCPA” or “the Act”), 15 U.S.C. § 1692 et. seq., and analogous state laws. These suits can be costly, distracting, and can create significant tensions between HOA attorneys and the management companies and associations they serve. 

FDCPA litigation in this sector appears to be on the rise, and as more people move into planned communities, it seems unlikely to go away any time soon. For this reason, HOA attorneys who engage in conduct regulated by the FDCPA should stay abreast of the many recent FDCPA decisions and litigation trends that can significantly impact their compliance obligations and litigation risks.  Attorneys should also start an open dialogue on FDCPA risks with the management companies and associations they serve.

The FDCPA has been with us for forty years, and it has yielded thousands of published decisions.  The case law in this area can be very frustrating, as it is riddled with circuit splits, unresolved issues, and unpredictable balancing tests which can turn on disputed facts.  This post is intended to cover some of the basic concepts that bear on any FDCPA claim, and to provide a general overview of litigation trends and risks that may be of special concern to HOA attorneys and their clients.  It was adopted from a presentation given on the subject at the January 2019 CAI Law Seminar.

Are Unpaid HOA Obligations “Debts” Under The FDCPA?

Before exploring litigation risks, let’s start with some of the basics.  Are unpaid homeowner assessments and related charges imposed by HOAs subject to the FDCPA?  This issue can be more nuanced than it might appear at first glance.

The unpaid obligations owed to your HOA clients will not always qualify as a “debt” under the FDCPA.  The Act defines a “debt” as “any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance or services which are the subject of the transaction are primarily for personal, family, or household purposes. . .”  See 15 U.S.C. §1692a(5).  If you or your firm are embroiled in FDCPA litigation, do not concede that a “debt” was incurred without examining the issue closely.

Determining whether a “debt” was incurred by a property owner can fact-intensive.  This threshold issue should not be assumed based upon a reading the CCRs or the paperwork documenting the purchase of the property. See Turner v.Cook, 362 F.3d 1219, 1226-27 (9th Cir. 2004) (proving existence of a “debt” under the FDCPA is a “threshold” issue in every FDCPA action).  To the contrary, the determination of whether a “debt” was incurred may require an examination of “the transaction as a whole, paying particular attention to the purpose for which the credit was extended in order to determine whether [the] transaction was primarily consumer or commercial in nature.”  See Bloom v. I.C. System, Inc., 972 F.2d 1067, 1068 (9th Cir. 1992) (emphasis added, citation and quotation marks omitted) (personal loan from friend used to start software business not a “debt” under the Act: “Neither the lender's motives nor the fashion in which the loan is memorialized are dispositive of this inquiry.”).  This may involve not only a review of documents relating to the transaction itself, but also an evaluation of the debtor’s conduct before and after the obligation was incurred.  See Slenk v. Transworld Sys., Inc., 236 F.3d 1072, 1075 (9th Cir. 2001).

Unpaid HOA assessments relating to rental properties generally do not qualify as “debts” under the FDCPA.  Although assessments on properties used as the obligor’s primary residence likely are “debts” subject to the Act, unpaid obligations imposed on an owner of a rental property are incurred for business purposes and are not subject to the Act.   See, e.g., Lowe v. Maxwell & Morgan, 322 F.R.D. 397 (D. Ariz. 2017) (denying class certification; individualized inquiries re: use of properties by putative class members); Connelly v. Ekimoto & Morris, LLLC, 2018 WL 33129597 (D. Hawaii July 5, 2018) (unpaid assessments for condo where plaintiffs did not reside not a “debt”).  Where the plaintiff contends that a rental property was originally purchased with the intent to reside in it as a primary residence, and the plaintiff did in fact reside in the property for a period of time, the examination is even more complicated.  Compare Sayeed v. Cheatham Farms Master HOA, 2018 WL 4297480 (C.D. Cal. 2018) (analyzing use of property at the time when assessments at issue were incurred) with Haddad v. Alexander, et al 698 F.3d 290 (6th Cir. 2012) (intent of debtor at time of purchase controls).

Most courts have held that fines imposed by HOAs are not “debts” covered by the FDCPA.  See, e.g., Berg v. Ayesh, 2014 WL 2603890 (D. Kansas 2014) (HOA fines not debts under FDCPA); Mlnarik v. Smith, Gardner, Slusky, Lazer, Pohren & Rodgers, LLP, 2014 WL 6657747 (N.D. Cal. Jul. 28, 2014) (fines imposed by HOA did not arise out of “consensual transactions or business dealings, but a unilateral penalty”).  If a fine is not a “debt” than it would follow logically that attorney’s fees and costs incurred while attempting to recover the fine also would not be covered.  At least one court, however, has suggested that an HOA fine may qualify as a “debt” subject to the FDCPA.  See Agrelo v. Affinity Management LLC, 849 F.3d 944 (11th Cir. 2016).

Are You Engaged In “Debt Collection” Under The FDCPA?

Even where a “debt” is involved, there is still the question of whether you or your law firm are engaged in “debt collection” under the FDCPA.  This may turn not only on what you are saying or doing, but the context in which the FDCPA claim arises.  Again, HOA practitioners who are involved in FDCPA litigation should analyze this issue closely.

The Act does not define the term “debt collection” and the courts have come to different conclusions on what it means.  See Glazer v. Chase Home Fin. LLC, 704 F.3d 453, 460 (6th Cir. 2013) (“Unfortunately, the FDCPA does not define ‘debt collection,’ and its definition of ‘debt collector’ sheds little light, for it speaks in terms of debt collection.”) (citations omitted); Gburek v. Litton Loan Serv. LP, 614 F.3d 380, 384 (7th Cir. 2010) (“Neither this circuit nor any other has established a brightline rule for determining whether a communication from a debt collector was made in connection with the collection of any debt.”).  As discussed below, it is possible that the United States Supreme Court may clarify the issue this term.

Must a communication (e.g., a letter, pleading, or phone call) make an express demand for payment of money on a debtor in order to constitute “debt collection” under the FDCPA?  The Ninth and Tenth Circuits have held said “yes” a collector is not engaged in “debt collection” under the FDCPA unless the challenged communication makes a demand for payment of money.  See, e.g., Ho v. ReconTrust Co., NA, 840 F.3d 618, 621-623 (9th Cir. 2016) (mailing notice of default and notice of sale to debtor, which threatened foreclosure, was not attempt to collect money from debtor, and thus was not “debt collection” under FDCPA; “The notices at issue in our case didn’t request payment from Ho.”); Obduskey v. Wells Fargo, 879 F.3d 1216, 1221 (10th Cir.) (following Ho; “Because enforcing a security interest is not an attempt to collect money from the debtor, and the consumer has no “obligation . . . to pay money,” non-judicial foreclosure is not covered under FDCPA) (citations  omitted), pet. for cert. granted, 138 S. Ct. 2710 (2018).  These cases arose in the context of non-judicial foreclosures. 

Other circuit courts, however, have held that a communication may amount to “debt collection” under the FDCPA, even without a demand for payment of money on the debtor.  See, e.g., McCray v. Federal Home Loan Mortg. Corp., 839 F.3d 354, 360 (4th Cir. 2016) (“nothing in [the] language [of the FDCPA] requires that a debt collector’s misrepresentation [or other violative actions] be made as part of an express demand for payment or even as part of an action designed to induce the debtor to pay.”) (citation omitted); Gburek, 614 F.3d at 386 (letter offering to discuss “foreclosure alternatives” was attempt to collect a debt: “Though it did not explicitly ask for payment, it was an offer to discuss Gburek’s repayment options, which qualifies as a communication in connection with an attempt to collect a debt.”); Glazer, 704 F.3d at 461 (FDCPA applied to judicial foreclosure complaint, despite absence of any allegation that it made a demand for payment of money on debtor: “Thus, if  the purpose of an activity taken in relation to a debt is to ‘obtain payment’ of the debt, the activity is properly considered debt collection.”); Kaltenbach v. Richards, 464 F.3d 524, 526-28 (5th Cir. 2006) (attorney who filed foreclosure action may be “debt collector” under FDCPA, despite absence of any allegation that attorney made demand for payment of money).

The Supreme Court may bring some clarity this term when it hears the Obduskey case. The Court is expected to address in Obduskey whether the FDCPA applies to communications made in connection with non-judicial foreclosure proceedings. The decision in Obduskey may also clarify whether communications that do not include a request for payment from the debtor are subject to the FDCPA.

Are You A “Debt Collector” Under The FDCPA?

Even if you are engaged in “debt collection” relating to a “debt” that is subject to the FDCPA, there may be an open issue on whether you or your firm qualify as a “debt collector” under the statute.  Once again, there is no clear test for making this determination.  In the even a suit is filed, this analysis should be done with respect to each named defendant. 

The FDCPA applies to any “debt collector” which the Act defines as “any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.”  15 U.S.C. § 1692a(6) (emphasis added).  There is no question that law firms and attorneys may in certain cases qualify as “debt collectors” under the Act.  See Heintz v. Jenkins, 514 U.S. 291, 294 (1995).

As with many things in FDCPA jurisprudence, the courts have not developed any bright line test for determining what term “principal purpose” or “regularly” means under the Act.  Fox v. Citicorp Credit Servs., Inc., 15 F.3d 1507, 1513 n. 5 (9th Cir. 1994) (“principal purposes” of firm was debt collection when made up 80 percent of firm’s practice); See James v. Wadas, 724 F.3d 1312, 1317-18 (10th Cir. 2013) (discussing factors used to determine whether attorney or law firm “regularly” engages in debt collection such as to qualify as a “debt collector”).  Generally speaking, however, if collection work is a small portion of your own practice, or your firm’s overall practice, then it makes sense to closely analyze whether you qualify as a “debt collector” under the statute.  See Reyes v. Julia Place Condominium HOA, 2017 WL 466359 (E.D. La. 2017) (law firm did not “regularly” collect debts where collection was a small fraction of firm’s work). 

FDCPA Risks Relating To The Balance You Are Collecting 

HOA attorneys face significant FDCPA risks relating to the balances they seek to collect on behalf of their clients.  These risks relate to the way that the balances are described by attorneys, particularly if the balances may change in ways that are difficult for attorneys to predict.  The risks also relate to errors in the data that have been supplied to attorneys by their clients.

You would think that it is safe to accurately list the exact balance due as of the date of a collection letter.   If a balance is going to increase, however, do you need to explain this to the debtor, and if so, how can you do so safely?  Debt collection attorneys have been sued for implying that an increasing balance was static. See Avila v. Riexinger & Associates, LLC, 817 F.3d 72 (2d Cir. 2016) (letter stating the “current balance” as of the date it was mailed falsely implied the balance was static).  The Avila Court held that stating the “current balance” in a letter may be misleading under the FDCPA unless the collector also makes clear to the debtor that the balance will increase.  Id. at 77.

Collectors have also been sued under the FDCPA, however, for failing to disclose that a static balance is not increasing. See Taylor v. Financial Recovery Services, Inc., 886 F.3d 212 (2d Cir. 2018) (collection letter stating “balance due” need not state the balance was static).  Although the Taylor court soundly and persuasively rejected the notion that collector is obligated to disclose when a balance is not going up, other circuits have not yet addressed the issue.

The problem with accurately describing the balance is not new.  The Seventh Circuit in Miller v. McCalla, Raymer, Padrick, Cobb, Nichols, & Clark, L.L.C., 214 F.3d 872 (7th Cir.2000), tried to address the problem when it fashioned “safe harbor” language that can be used in that circuit to describe the “amount of the debt” in circumstances where the account balance varies from day to day. The Miller safe harbor language states: “As of the date of this letter, you owe $ ___ [the exact amount due]. Because of interest, late charges, and other charges that may vary from day to day, the amount due on the day you pay may be greater. Hence, if you pay the amount shown above, an adjustment may be necessary after we receive your check, in which event we will inform you before depositing the check for collection.  For further information, write the undersigned or call 1-800- [phone number].” Id. at 876.

The safety of this “safe harbor” language, however, is now an open question, because collectors have also been sued for using the Miller “safe harbor” language.  See Boucher v. Finance System of Green Bay, Inc., 880 F.3d 362 (7th Cir. 2018) (“debt collectors cannot immunize themselves from FDCPA liability by blindly copying and pasting the Miller safe harbor language without regard for whether that language is accurate under the circumstances.”).  Thus, collection attorneys should not use the Miller language in situations where it would make a letter inaccurate.

               

You cannot accurately describe the balance if your client has provided you with inaccurate data to collect.  Bad balance data puts you and your firm at risk under the FDCPA.  See, e.g., Calleja v. Cannon, 2017 WL 362695 (D. Ariz. 2017) (law firm violated FDCPA where HOA applied payments improperly).  Common FDCPA claims filed against attorneys who have sought to collect an inaccurate balance arise under section 1692e of the FDCPA, which prohibits collectors from using false, deceptive or misleading communications, and section 1692f of the FDCPA, which prohibits any false representation regarding the character, amount or legal status of any debt. 

If the balance information provided by your client is wrong and you get sued, you may be able to invoke the “bona fide error” defense under section 1692k(c) of the FDCPA.  This defense allows you to avoid liability if your firm has procedures in place that are reasonably adapted to avoid errors.  If your client has consistently sent data that you know to be inaccurate, however, this increases your FDCPA risks and casts doubt on any bona fide error defense.  See Reichert v. National Credit Servs., Inc., 531 F.3d 1002 (9th Cir. 2008); see also Reed v. ASAP Collection Services, 2018 WL 3392101 (N.D. Cal. 2018) (“highly unlikely” that BFE defense will prevail in light of number of times balances were misstated). 

When you seek to collect attorney’s fees for your HOA clients, this can also present FDCPA risks, as this is a frequent target for consumer and their attorneys.    Courts have come to different conclusions on whether specific requests for attorney’s fees violate the FDCPA.  See, e.g., Allison v. McCabe Trotter, 2018 WL 3826674 (D.S.C. 2018) (OK to file notice of lien seeking fees that had not been approved by court); McNair v. Maxwell & Morgan, PC, 893 F.3d 680 (9th Cir. 2018) (application for judicial foreclosure writ stating attorney’s fees “are now” due violated FDCPA); Carpenter v. Alessi & Koenig, LLC, 2013 WL 5234253 (D. Nev. 2013) (plaintiff failed to prove attorney’s fees sought by defendant’s notices were unreasonable); Lott v. Vial Fotheringham, LLP, 2017 WL 4558050 (D. Or. 2017) (FDCPA violated where CCRs did not allow interest on attorney’s fees).

Filing Suit In The Correct Venue

Are you suing in the right courthouse?  HOA attorneys also face risk relating to their choice of venue in which to initiate legal actions against consumers. 

The “venue” provisions of the FDCPA says that any collector “who brings any legal action on a debt against any consumer shall – (1) in the case of an action to enforce an interest in real property securing the consumer’s obligation, bring such action only in a judicial district or similar legal entity in which such real property is located; or (2) in the case of an action not described in paragraph (1), bring such action only in the judicial district or similar legal entity – (A) in which such consumer signed the contract sued upon; or (B) in which such consumer resides at the commencement of the action.”  15 U.S.C. § 1692i(a). 

The appropriate “judicial district” to bring a “legal action” is the smallest district recognized by the state court system in which the firm initiates the action.  See Olivia v. Blatt, Hasenmiller, Leibsker & Moore, LLC, 864 F.3d 492 (7th Cir. 2017).  This may differ with the requirements of state venue law, so HOA attorneys must be careful to ensure that their suits also satisfy the FDCPA’s venue statute.

If you are facing a wrong venue claim, consider whether your legal action is “against” the consumer.  Courts have generally held that garnishment actions are “against” the garnishee, not the consumer.  See, e.g., Ray v. McCullough Payne & Haan, LLC, 838 F.3d 1107, 1111 (11th Cir. 2016) (affirming order dismissing claim under section 1692i against law firm; garnishment proceedings not “against” consumer under Georgia law); Jackson v. Blitt & Gaines, P.C., 833 F.3d 860, 864 (7th Cir. 2016) (same result under Illinois law); Hageman v. Barton, 817 F.3d 611, 617-18 (8th Cir. 2016) (same); Smith v. Solomon & Solomon, P.C., 714 F.3d 73, 74-76 (1st Cir. 2013) (same result under Massachusetts law); Randall v. Maxwell & Morgan, P.C., 321 F. Supp. 3d 978, 981-984 (D. Ariz. 2018) (same result under Arizona law); Muhammad v. Reese Law Group, 2017 WL 4557194, at *7 (S.D. Cal. Oct. 12, 2017) (same result under California law).  You should look to your state’s garnishment laws for guidance. 

Overshadowing Risks

The concept of “overshadowing” can be particularly frustrating for HOA practitioners, because it is a judicially-created doctrine that can vary from circuit to circuit.  What exactly is “overshadowing” under the FDCPA?  Broadly speaking, it starts with understanding the notice requirements of section 1692g of the FDCPA, which must be provided by collectors with their initial written communication with consumers.  It is not sufficient for collectors to simply provide the section 1692g notice.  Collectors must also avoid “overshadowing” the notice by stating or doing anything during the 30-day validation period that would tend to contradict the notice or that would confuse a consumer regarding their section 1692g rights. 

Overshadowing can be a huge challenge for HOA attorneys who must also comply with notice obligations required by state law.  Once again, court have reached different results when evaluating overshadowing claims in this context.  Compare Mashiri v. Epsten Grinnell & Howell, 845 F.3d 984 (9th Cir. 2017) (notice stating “Failure to pay your assessment account in full within thirty-five (35) days from the date of this letter will result in a lien being recorded against your property” overshadowed section 1692g notice) with Mahmoud v. De Moss Owners Association, Inc., 865 F.3d 322 (5th Cir. 2017) (no overshadowing; letter stated nonjudicial foreclosure would occur unless payment made “on or before the expiration of thirty (30) days from and after the date hereof”).

The “overshadowing” case law is unpredictable, and can vary widely from situation to situation and from circuit to circuit.  For example, the Ninth Circuit found no overshadowing when an attorney made an implied threat of litigation during the validation period.  See Terran v. Kaplan, 109 F.3d 1428, 1430 (9th Cir. 1997) (attorney letter stating “we may find it necessary to recommend to our client that they proceed with litigation” did not overshadow).  By contrast, the Third Circuit in Caprio v. Healthcare Revenue Recovery Grp., 709 F.3d 142 (3d Cir. 2013), held that a request for a consumer to “please call” the collector overshadowed the section 1692g notice.  Given the wide variety of potential risks, HOA attorneys should closely review the communications they make and collection practices they employ during the 30-day validation period.

Risks Presented By Violation Of State Laws And Compliance With State Laws

HOA attorneys are obligated to be vigorous advocates for their clients, and they must ensure that they perfect their client’s rights under the laws and procedures of the states where they practice.  It would be reasonable for HOA attorneys to believe that they can avoid liability under the FDCPA if they are simply sending notices that are required by state law, but unfortunately this has not always been true.  See, e.g., Salewske v. Trott & Trott P.C., 2017 WL 2888998 (E.D. Mich. Jul. 7, 2017) (FDCPA claims based on notice of foreclosure sale that was required by state law); McDermott v. Marcus, Errico, Emmer & Brooks, P.C., 911 F. Supp. 2d 1, 71 (D. Mass. Nov. 20, 2012) (FDCPA claims based on sending notice to mortgagee required by state law). 

Consumer attorneys will not hesitate to seize on real or imagined violations of state procedural law and try to “make a federal case out of it” under the FDCPA.  See, e.g., Lowe v. Maxwell & Morgan, PC, 2018 WL 4693532 (D. Ariz. Sept. 27, 2018) (rejecting argument that law firm was required to follow state law procedures for posting a bond before proceeding with garnishment).  Even where state law has been violated, however, the mere failure to comply with state law does not by itself always establish an FDCPA violation.  See Wade v. Regional Credit Ass’n, 87 F.3d 1098 (9th Cir. 1996) (sending collection notice without maintaining license required by state law did not violate FDCPA).

Is It “Debt Collection” If You Never Asked For Money?

Can a communication from a collector violate the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et. seq. (the “FDCPA”) if it never asks the debtor to pay any money? What exactly does the term “debt collection” mean in the context of the FDCPA? These seemingly simple questions have divided the circuit courts, and they may soon be resolved by the United States Supreme Court when it decides a case that arose out of a nonjudicial foreclosure proceeding in Colorado. See Obduskey v. Wells Fargo, 138 S. Ct. 2710 (2018).

The FDCPA has been with us for over forty years, and it is likely one of the most heavily-litigated statutes in the country. It prohibits debt collectors from engaging in a broad range of unfair and misleading debt collection practices. See 15 U.S.C. §§ 1692b-1692i. How is it, then, that after all this time and all this litigation, we still do not know exactly what “debt collection” means?

You would think this would be easy, but like most things relating to the FDCPA, it is not. For starters, as courts have observed, although the statute includes a number of definitions, Congress did not define the term “debt collection” anywhere in the Act. See 15 U.S.C. § 1692(a) (referring to “abundant evidence of” improper “debt collection practices” and observing that certain “debt collection practices” can cause undesired effects); § 1692a (defining certain terms, but not defining “debt collection”); see also Glazer v. Chase Home Fin. LLC, 704 F.3d 453, 460 (6th Cir. 2013) (“Unfortunately, the FDCPA does not define ‘debt collection,’ and its definition of ‘debt collector’ sheds little light, for it speaks in terms of debt collection.”) (citations omitted); Gburek v. Litton Loan Serv. LP, 614 F.3d 380, 384 (7th Cir. 2010) (“Neither this circuit nor any other has established a brightline rule for determining whether a communication from a debt collector was made in connection with the collection of any debt.”). To date, the Supreme Court has never defined the term “debt collection,” nor has that Court ever addressed whether a “debt collection” communication must include an explicit demand for payment of money from the debtor.

The circuit courts have reached different conclusions on whether a “debt collection” communication must make a demand on the debtor for payment of money in order to be subject to the FDCPA. Decisions from the Ninth Circuit and the Tenth Circuit have held that a collector is not engaged in “debt collection” under the FDCPA unless the challenged communication makes a demand for payment of money. See, e.g., Ho v. ReconTrust Co., NA, 840 F.3d 618, 621-623 (9th Cir. 2016) (mailing notice of default and notice of sale to debtor, which threatened foreclosure, was not attempt to collect money from debtor, and thus was not “debt collection” under FDCPA; “The notices at issue in our case didn’t request payment from Ho.”); Obduskey v. Wells Fargo, 879 F.3d 1216, 1221 (10th Cir.) (following Ho; “Because enforcing a security interest is not an attempt to collect money from the debtor, and the consumer has no “obligation . . . to pay money,” non-judicial foreclosure is not covered under FDCPA) (citations  omitted), pet. for cert. granted, 138 S. Ct. 2710 (2018).

The approach used by the Ninth Circuit and Tenth Circuit seems simple enough: “debt collection” equals asking the debtor to pay money. Other circuit courts, however, have held that a collector’s communication may amount to “debt collection” under the FDCPA, even if the collector has not made a demand for payment of money on the debtor. See, e.g., McCray v. Federal Home Loan Mortg. Corp., 839 F.3d 354, 360 (4th Cir. 2016) (“nothing in [the] language [of the FDCPA] requires that a debt collector’s misrepresentation [or other violative actions] be made as part of an express demand for payment or even as part of an action designed to induce the debtor to pay.”) (emphasis in original, citation omitted); Gburek, 614 F.3d at 386 (letter offering to discuss “foreclosure alternatives” was attempt to collect a debt: “Though it did not explicitly ask for payment, it was an offer to discuss Gburek’s repayment options, which qualifies as a communication in connection with an attempt to collect a debt.”); Glazer, 704 F.3d at 461 (FDCPA applied to judicial foreclosure complaint, despite absence of any allegation that it made a demand for payment of money on debtor: “Thus, if  the purpose of an activity taken in relation to a debt is to ‘obtain payment’ of the debt, the activity is properly considered debt collection.”); Kaltenbach v. Richards, 464 F.3d 524, 526-28 (5th Cir. 2006) (attorney who filed foreclosure action may be “debt collector” under FDCPA, despite absence of any allegation that attorney made demand for payment of money).

Ok, with the courts going in opposite directions, how do we get an answer to this question? It is possible that the Supreme Court may bring some clarity in the upcoming term when it hears the Obduskey case. The Court is expected to address in Obduskey whether the FDCPA applies to a collector’s communications made in connection with non-judicial foreclosure proceedings. While doing so, it is possible the Court will take the opportunity to opine more generally on whether communications that do not include a request for payment from the debtor are subject to the FDCPA. In the meantime, collectors will have to do their best to adjust their communications based on the law of the circuits where they are located. Stay tuned everyone.