Amicus Curiae Brief — Heintz v. Jenkins

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1) | DEC 15 1994

No. 94-367 [OFFICE OF THe CLERK

IN THE

Supreme Court of the United States

OcTOBER TERM, 1994

GEORGE W. HEINTZ, et ai.,

Petitioners,

Vv.

DARLENE JENKINS,

Respondent.

On Writ of Certiorari to the United States

Court of Appeals for the Seventh Circuit

BRIEF OF THE COMMERCIAL LAW LEAGUE

OF AMERICA, AMICUS CURIAE

IN SUPPORT OF THE PETITIONERS

MANUEL H. NEWBURGER

BARBARA M. BARRON

Counsel for the Commercial

Law League of America,

Amicus Curiae

BARRON & NEWBURGER, P.C.

900 gg we Avenue, Suite 200

Austin, Texas 78701

(512) 476-9103

Telecopier: (512) 476-9253

Midwest Law Printing Co., Chicago 60611, (312) 321-0220

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QUESTION PRESENTED

Whether attorneys engaged solely in the prosecution of

litigation against consumers are regulated by the Fair Debt

Collection Practices Act (15 U.S.C. §§ 1692 - 16920, Pub.L.

90-321, Title VIII, §§ 802 - 817).

Te . ae ee ee ee eee ee me

TABLE OF CONTENTS

PAGE

QUESTION PRESENTED ...........++++5+: i

TABLE OF CONTENTS ..........0-eeeeeeees ii

TABLE OF AUTHORITIES .............++5- iii

OPINIONS BELOW ........ccsccccccccccccees 1

INTEREST OF THE AMICUS CURIAE ..... 2

STATHIGBNT oon ccccccvccecsecestccsscesosss 2

SUMMARY OF ARGUMENT ............+++: 4

ARGUMENT oo cccccccccccccccccesscesssosces 5

Imtrodeaction 2... cc ccccccccccccescccccscccs 5

Special Judicially-Created Rules ........... 6

Lawyers As “Debt Collectors” ............ 7

Validation Of Debts ............-eeeeeeees 11

Overshadowing the Thirty Day Notice .... 13

Demanding Verification .............+++++: 15

The “Miranda Warning” ............-.++++ 15

Communications In General .............-. 17

Acquisition Of Location Information ....... 17

Communication With Third Parties ........ 18

Ceasing Communication .............++++++ 20

False Or Misleading Representations ...... 21

Reverse Forum Abuse ..........++++++005 23

Rule 11 and Its State Court Equivalents .... 24

Privileged Use of Civil Proceedings ....... 25

ion of Liti Activities Is

em ,

CONCLUSION ...ccccccccccccccccccscccccecs 27

iii

TABLE OF AUTHORITIES

Cases PAGE

Baker v. G.C. Services Corp., 677 F.2d 775 (9th

ER Rete hid dn bE de ecccavccencee: 20

Bates v. C&S Adjustors, Inc., 908 F.2d 865 (2d

EEE SESE ETE OE POPP ET PEPE 23

Bentley v. Great Lakes Collection Bureau, Inc.,

6 F.3d 60 (2d Cir. 1998)............ 6, 9, 15, 20, 22

Carroll v. Wolpoff & Abramson, 961 F.2d 459 (4th

Cir. 1992), cert. denied, _._. U.S. ___, 113

S.Ct. 298, 121 L.Ed.2d 222 (1992).......... 5, 16

Clomon v. Jackson, 988 F.2d 1314 (2d Cir. 1993) .

Sstiibadadaheeedeeseséeceoceccces 6, 15, 20, 22

Cooter & Gell v. Hartmarx Corp., 496 U.S. 384,

110 S.Ct. 2447, 110 L.Ed.2d 359 (1990) ..... 24

Emmanuel v. American Credit Exchange, 870

F.2d 805 (2d Cir. 1989) .................. 7, 20, 23

Fox v. Citicorp Credit Services, Inc., 15 F.3d 1507

a NSU odUNa SS sce crcvcsocce ce 8,9

Frey v. Gangwish, 970 F.2d 1516 (6th Cir. 1992) .

etl eaaieaeataaS 5, 6, 11, 12, 16

George A. Fuller Co. v. Carpet Services, Inc.,

S.WSd GOS (Tex. 1908) .......ccccccccccces 12

Graziano v. Harrison, 950 F.2d 107 (3d Cir. 1991) .

EES oes cece cucucccocace 5, 7, 13, 14, 23

Green v. Hocking, 9 F.3d 18 (6th Cir. 1993)...

Licbirhitanaes ehhdhedecdodes 5, 8, 9, 10, 11, 19, 21

Harper v. Better Business Services, Inc., 961 F.2d

Tn noo cccecccccnccenncecs 7

Hollis v. Roberts, 984 F.2d 1159 (11th Cir. 1993) . 7

Jenkins v. Heintz, 25 F.3d 536 (7th Cir. 1994), cert.

granted, __ U.S. ___., 68 U.S.L.W. 3161 (Oc-

| > Perr: pore ery rrr 11

Jeter v. Credit Bureau, Inc., 760 F.2d 1168 (11th

Cie, Sa Bic bc cebc kc ddoe ce ddeReees degectod 6

Masuda v. Thomas Richards & Co., 759 F.Supp.

BABB CCA TAGE vivid ve d cbs iWon cteBer cee 19

Miller v. Payco-General American Credits, Inc.,

943 F.2d 482 (4th Cir. 1991) ............... 13, 14

Paulemon v. Tobin, 30 F.3d 307 (2d Cir. 1994) .. 11

Pipiles v. Credit Bureau of Lockport, Inc., 886

PPO8 BB GE Cir. TRGB) onc cccccccccccccses 7, 16, 23

Scott v. Jones, 964 F.2d 314 (4th Cir. 1992)... 8,9

Smith v. Transworld Systems, Inc., 953 F.2d 1025

ee Se FERRE OTTUTTTTTITTTT TTT Tee 6, 20

Stojanovski v. Strobl & Manoogian, P.C., 783 F.

Supp. 319 (E.D.Mi. 1992) ............-.006: 8

Swanson v. Southern Oregon Credit Service, Inc.,

869 F.2d 1222 (9th Cir. 1988) .............. 13, 14

Constitution, Statutes, and Rules

Fair Debt Collection Practices Act,

15 U.S.C. §§ 1692-16920, Pub.L. 90-321,

Title VIII, §§ 802-817:

Section 802, 15 U.S.C. § 1692 ............. 5

Section 808, 15 U.S.C. § 1692a .......... 5, 7, 8, 26

Section 804, 15 U.S.C. § 1692b ............ 15, 18

Section 805, 15 U.S.C. § 1692c . 13, 17, 19, 20, 21, 23

—————

Section 807, 15 U.S.C. §1692e ..... 9, 10, 16, 22, 23

Section 808, 15 U.S.C. § 1692f............. 3, 4, 10

Section 809, 15 U.S.C. § 1692g ....... 11, 13, 15, 23

Section 811, 15 U.S.C. § 16921 ............. 8, 9, 24

Section 813, 15 U.S.C. § 1692k ............ 20, 22

Pe We TE covecauscbsenscccceceses 9, 24, 25

Py Wie Wh We MIE oc ccd cccdcccccevocccete 4

DB is beuc cadcacencceeceecece 13

, = % 2 leila anes 13

Miscellaneous

H.R. Rep. No. 405, 99th Cong., 2d Sess. 3-7, re-

printed in 1986 U.S.C.C.A.N. 1752, 1754-57 ... 5

S. . No. i

wit USCCAN ite, ‘ae ~ Mar 5, 6

MODEL CODE OF PROFESSIONAL RESPONSIBILITY

ELS. Sndauctusdedsekeenidnmseciocecsss 26

MODEL RULES OF PROFESSIONAL CONDUCT PRE-

SD. ash cb bee ccvoediecéeeedecddeedevces 26

RESTATEMENT (SECOND) OF TorTS § 586 (1977) .. 25

RESTATEMENT (SECOND) OF TorTS § 674 (1977) .. 26

No. 94-367

In THE

Supreme Court of the United States

OCTOBER TERM, 1994

GEORGE W. HEINTZ, et ai.,

Petitioners,

Vv.

DARLENE JENKINS,

Respondent.

On Writ of Certiorari to the United States

Court of Appeals for the Seventh Circuit

BRIEF OF THE COMMERCIAL LAW LEAGUE

OF AMERICA, AMICUS CURIAE

IN SUPPORT OF THE PETITIONERS

Pursuant to Rule 37 of the Rules of this Court, the Com-

mercial Law League of America respectfully submits this

brief as Amicus Curiae, in support of the Petitioners. Peti-

tioners and Respondent have both consented to the filing of

this brief, and true copies of such are filed herewith.

OPINIONS BELOW

The opinion of the Court of Appeals is reported at 25 F.3d

536. The opinion of the district court is not reported.

INTEREST OF THE AMICUS CURIAE

The Commercial Law League of America (CLLA) is a 100-

year-old national organization of attorneys, commercial col-

lection agencies, and other experts in credit and finance

actively engaged in the fields of commercial law and bank-

ruptcy and reorganization. The CLLA is the publisher of

the award-winning Commercial Law Journal and Commer-

cial Law Bulletin. It has long been associated with the

representation of creditor interests, while at the same time

seeking fair, equitable, and efficient administration of com-

mercial and bankruptcy cases for all parties-in-interest. The

League has been firmly committed to policing its own in-

dustry and has regularly provided articles and presenta-

tions to its members on the manner in which attorneys, col-

lection agents, and creditors need to conduct themselves

when engaging in debt collection activities.

Through its representatives, the CLLA has testified

before Congress on numerous occasions, and the League

has provided expert testimony in the fields of collections

and bankruptcy and reorganization. In 1992, the League

provided testimony at the oversight hearings on the Fair

Debt Collection Practices Act. A substantial number of the

attorneys and agencies in the League collect consumer

debts, and the FDCPA has a significant impact on those

members and their clients.

STATEMENT

Respondent Darlene Jenkins borrowed money from

Gainer Bank to purchase a car. The installment contract

between Respondent and the bank required that she keep

insurance on the car until she made her last payment. If

she did not keep insurance, the installment contract

allowed the bank to purchase insurance for the car and

then to charge Jenkins for the cost of the insurance. Speci-

fically, the installment contract provided:

if the Buyer does not pay the taxes on the collateral! [or]

keep it insured against loss or damage, . . . the Creditor

can if it wishes to do so and Buyer will have to reim-

burse the Creditor upon demand, or Creditor at its sole

option, may add said expenses to the Buyer’s unpaid

balance, which shall be payable by the Buyer at the

annual percentage rate then in effect.

Respondent defaulted on her loan. She also stopped buy-

ing insurance for the car. The bank then purchased insur-

ance and hired an attorney (Petitioner George W. Heintz)

and his law firm (Petitioner Bowman, Heintz, Boscia: &

McPhee) to recover the remaining installment payments

and the cost of the insurance. Petitioners sued Respondent

on behalf of the bank, demanding both the installment

payments and a $4,173.00 insurance charge, and then

attempted to settle the matter out of court.

Respondent took issue with the $4,173.00 insurance

demand. She believed that the bank did not buy simple

damage and loss insurance for the car but instead pur-

chased a financial protection policy to insure against the

possibility that she might default on the loan. Her position

was that she was only required to reimburse the bank if it

purchased damage and loss insurance for the car and that

she had no obligation to reimburse the bank for the protec-

tion policy.

their attempts to pass the unauthorized insurance costs on

to her violated the Fair Debt Collection Practices Act. Her

legal theory was two-fold. First, she claimed that the insur-

ance charge was not authorized by the installment contract,

and therefore alleged that Petitioners violated 15 U.S.C.

§ 1692f of the Act by adding an unauthorized amount onto

the debt. Second, she claimed that Petitioners’ attempt to

include the insurance charge on her bill amounted to a

“false representation or deceptive means to collect any debt”

in violation of 15 U.S.C. § 1692e.

Petitioners moved to dismiss under Fed. R. Civ. P.

12(bX6), asserting that Congress simply could not have

intended to regulate normal legal proceedings under the

auspices of the Act. The District Court agreed and dis-

missed the case. Respondent appealed to the United States

Court of Appeals for the Seventh Circuit, which held that

Congress’ deletion of the attorney exemption renders

attorneys subject to the restrictions of the FDCPA even

when they are engaged in purely legal activities.

SUMMARY OF ARGUMENT

Amicus Curiae contends that the wholesale application of

the Fair Debt Collection Practices Act to all activities of

collection attorneys, including those activities that are

purely legal in nature, prevents attorneys from effectively

practicing law and aggressively representing their clients.

These effects were neither envisioned nor intended by Con-

gress in deleting the attorney exemption from the Act in

1986, and they go far beyond the legislative goal of protect-

ing consumers from abusive debt collection practices.

The Court of Appeals’ holding that purely litigation activi-

ties are regulated by the FDCPA results in the Congres-

sional regulation of state court pleadings and procedures.

Furthermore, such regulation could prevent creditors from

ever having their day in court and could impose upon their

attorneys strict liability every time a creditor fails to

prevail on each and every theory of liability and element of

damages sought in a suit.

ARGUMENT

Introduction

The Fair Debt Collection Practices Act, 15 U.S.C. §§ 1

- 16920, Pub.L. 90-321, Title VIII, §§ 802 - 817 emanate

“the Act”), was enacted in 1977, “to eliminate abusive debt

collection practices by debt collectors, to ensure that those

debt collectors who refrain from using abusive debt collec-

tion practices are not competitively disadvantaged, and to

Promote consistent state action to protect consumers

against debt collection abuses.” 15 U.S.C. § 1692(e). Al-

though 15 U.S.C. § 1692a(6\F) originally exempted attor-

neys engaged in debt collection from regulation under the

Act, that exemption was deleted in 1986 in order to elimi-

nate the ability of attorneys to engage in those sorts of

activities prohibited for other debt collectors and to prevent

attorneys from competing unfairly with non-lawyer collec-

tors. See H.R. Rep. No. 405, 99th Cong., 2d Sess. 3-7,

reprinted in 1986 U.S.C.C.AN. 1752, 1754-57; Green v.

Hocking, 9 F.3d 18, 21 (6th Cir. 1993).

Despite the evil that Congress intended to address, the

reported case law indicates that attorneys are being sub-

jected to liability not for the sort of abusive practices that

the Act was intended to regulate, (see S. Rep. No. 382, 95th

Cong., 1st Sess. 2, reprinted in 1977 U.S.C.C.A.N. 1695,

1696), but rather for technical violations of the Act that

have caused little or no injury to the consumer. See, e.g.

Carroll v. Wolpoff & Abramson, 961 F.2d 459 (4th Cir.

1992), cert. denied, _ _U.S.__, 113 S.Ct. 298, 121 L.Ed.2d

222 (1992); Frey v. Gangwish, 970 F.2d 1516 (6th Cir.

1992); Graziano v. Harrison, 950 F.2d 107 (3d Cir. 1991). At

least one appellate judge has suggested that in some

instances, the Act has become a mere profit-generating

mechanism for attorneys who appear to be more interested

in making fees than in stopping abusive collection practices

ufien

or helping consumers. See Frey v. Gangwish, supra, at

1521-1522, (Suhrheinrich, J., dissenting). The CLLA ac-

knowledges that these cases have involved violations of the

technical language of the Act, but they certainly do not evi-

dence the sort of abuse or harassment of consumers that

the FDCPA was designed to address.

The legislative history of the FDCPA indicates that by

deleting the attorney exemption, Congress was attempting

to level the playing field and subject attorneys to the same

sort of restrictions and burdens that were already imposed

upon collection agencies. See 8. Rep. No. 382, 95th Cong.,

ist Sess. 2, reprinted in 1977 U.S.C.C.A.N. 1695, 1696.

Instead, as will be addressed below, the holding of the

Court below serves to go far beyond removing a competitive

disadvantage as it impairs the ability of attorneys to con-

duct any business at all. :

Special Judicially-Created Rules

The earlier case law that has developed under the

FDCPA has resulted in the evolution of a number of “rules”

of application of the Act. The holding of the Court of

Appeals’ in the instant case should be examined in light of

some of these earlier “rules” in order to fully appreciate its

implications. These general doctrines are:

a. The FDCPA is a strict liability statute and the degree

of culpability of a “debt collector” is relevant only on

the issue of damages. Clomon v. Jackson, 988 F.2d

1314, 1320 (2d Cir. 1993); Bentley v. Great Lakes Col-

lection Bureau, Inc., 6 F.3d 60, 63 (2d Cir. 1993).

b. In testing for a violation of the FDCPA, the question

is whether the conduct of a debt collector would tend

to deceive the “least sophisticated consumer.” Clomon

v. Jackson, supra, at 1318; Jeter v. Credit Bureau,

Inc., 760 F.2d 1168 (11th Cir. 1985); Smith v. Trans-

world Systems, Inc., 953 F.2d 1025 (6th Cir. 1992).

c. Upon proof of a violation of the Act, a prevailing con-

sumer will be entitled to an award of attorney's fees,

even if (s)he fails to prove any damages. Emmanuel v.

American Credit Exchange, 870 F.2d 805, 809 (2d Cir.

1989); Pipiles v. Credit Bureau of Lockport, Inc., 886

F.2d 22, 28 (2d Cir. 1989); Graziano v. Harrison,

supra, at 113-114.

d. In awarding fees to a prevailing consumer, a trier of

fact may make such award at prevailing market rates,

even if the attorneys are not themselves paid at

market rates. Hollis v. Roberts, 984 F.2d 1159 (11th

Cir. 1993); Cf. Harper v. Better Business Services, Inc.,

961 F.2d 1561 (11th Cir. 1992). Thus, legal assistance

organizations who have access to vast pools of poten-

tial clients have the ability to bully attorneys into

settlements by the threat of market rate fees in cases

which will otherwise result in no damage awards.

There are additional special doctrines under the Act

which will be addressed below as they apply to the instant

case. In this case, the Court of Appeals has held that Peti-

tioners’ conduct in filing pleadings is a type of collection

activity regulated by the FDCPA. The remainder of this

brief will address the effect of subjecting purely litigation

activities to regulation under the Act.

Lawyers As “Debt Collectors”

In the Fair Debt context, the term “debt” means “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 transac-

tion are primarily for personal, family, or household pur-

poses, whether or not such obligation has been reduced to

judgment.” 15 U.S.C. § 1692a(5). To qualify as a “debt col-

lector,” an attorney must be a “person who uses any instru-

mentality of interstate commerce or the mails in any busi-

atice

ness the principal purpose of which is the collection of

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). Even those

attorneys who only occasionally collect debts for others may

be regulated by the Act since debt collection may be a

“regular” part of one’s practice, even if not a substantial

part. Thus, collection activities amounting to only a small

fraction of a firm’s total activity may be enough to qualify

the firm as a “debt collector.” Stojanovski v. Strobl &

Manoogian, P.C., 783 F.Supp. 319 (E.D.Mi. 1992).

In Scott v. Jones, 964 F.2d 314 (4th Cir. 1992), the Court

of Appeals held that the FDCPA applied to attorneys who

were engaged in purely legal activities, reasoning that the

performance of exclusively legal tasks can be the sort of

“indirect” debt collection subject to the Act. Although Scott

only involved violations of 11 U.S.C. § 1692i (the venue pro-

vision of the Act), the Fourth Circuit did not expressly limit

its holding to violations of that one section and left open the

question of whether the Act regulated all litigation activi-

ties. That gap has been filled with a split in Circuit authori-

ties. The Sixth Circuit held in Green v. Hocking, 9 F.3d 18

(6th Cir. 1993), that “the actions of an attorney while con-

ducting litigation are not covered by the FDCPA” but the

Ninth Circuit in Fox v. Citicorp Credit Services, Inc., 15

F.3d 1507 (9th Cir. 1994) and the Seventh Circuit in the

present case held that such activities are covered by the

Act.

The CLLA does not contend that the result in Scott v.

Jones was erroneous, since 15 U.S.C. § 1692i evidenced a

clear intent by Congress to protect consumers from the

abuse occasioned by the filing of debt collection suits in

distant forums. In few other sections of the Act, however,

did Congress address litigation-related activities, and in

atin

those instances where it did so, it concerned itself with

unauthorized practices of law, falsification of official court

documents, and misrepresentations concerning legal pro-

cess. 15 U.S.C. §§ 1692e(3), (9), (13), and (15). The specific

prohibitions in these areas were enacted prior to the 1986

amendment, and they appear merely to provide restrictions

upon non-lawyers that already would exist under attorney

disciplinary rules and/or Fed. R. Civ. P. 11. Because Fox v.

Citicorp Credit Services, Inc. involved venue violations of 15

U.S.C. § 1692i, the CLLA asserts that it is distinguishable

from the case at bar and does not provide good authority in

support of Respondent’s position.

If this Court chooses to extend the regulation of the

FDCPA to all legal activities and not just those specifically

described in the Act, then the Court will be effectively

ruling that attorneys are to be held strictly liable for viola-

tions allegedly committed in the course of prosecuting suits.

See Bentley v. Great Lakes Collection Bureau at 63. This

may not be an inherently evil result in the area of venue

violations such as those in Scott v. Jones and Fox v. Citi-

such application could prevent a creditor from ever having

its day in court.

In Green v. Hocking, the attorney (Hocking) did not

contact the debtor before filing suit and engaged in none of

the traditional non-litigation collection activities such as

telephoning the debtor or sending dunning letters. The

_=- =

original collection suit that Hocking filed alleged that Green

owed his client a total of $304.83, which included interest

at an erroneous rate. Hocking subsequently filed an

amended complaint, stating that Green owed $239.56

(calculated at the correct interest rate) after Green called to

his attention the interest rate error. After the parties

settled the underlying collection dispute, Green sued Hock-

ing in federal court, alleging that he had violated 15 U.S.C.

§ 1692e(2)\A)' by the falsely representing the amount of a

debt, and 15 U.S.C. § 1692f(1)’ by attempting to collect an

amount, including interest, that was not “expressly autho-

rized by the agreement creating the debt or permitted by

law.” The District Court dismissed the case, ruling that

Hocking was immune from liability under the FDCPA

because he confined his activities to those of a legal nature.

The Sixth Circuit upheld that finding, holding that “the

actions of an attorney while conducting litigation are not

covered by the FDCPA.” Jd. at 22.

The Seventh Circuit reached an opposite result in the

instant case, holding that regardless of the wisdom of its

actions, Congress regulated even litigation-related debt

collection activities when it deleted the attorney exemption.

ait CAO. 0 ites oo 9 eet eset fan weg any

alse, ive, or mi ing representation or means in con-

nection with the scout a debt. 15 U.S.C. § 1692e(2XA)

includes under the heading of “false, deceptive, or

falsely representing the character, amount, or legal status of any

* 15 U.S.C. § 1692f prohibits a debt collector from using unfair

or unconscionable means to collect or attempt to collect any debt.

Pursuant to 15 U.S.C. § 1692f{1) the term “unfair

= =

Jenkins v. Heintz, 25 F.3d 536, 539 (7th Cir. 1994), cert.

granted, __ U.S. ___, 63 U.S.L.W. 3161 (October 31, 1994).

The Second Circuit, while it has not yet ruled on the issue,

has at least indicated in dicta that it would probably be in

accord with the Seventh and Ninth Circuits. See Paulemon

v. Tobin, 30 F.3d 307, 310 (2d Cir. 1994). The Sixth Circuit

noted in Green v. Hocking that this “result would produce

absurd outcomes,” and most of the remainder of this brief

will concentrate on examples of some of the outrageous

situations that could easily result from the Seventh Cir-

cuit’s ruling in the instant case.

Validation Of Debts

Within five (5) days of a debt collector’s initial communi-

cation with the consumer in connection with the collection

of any debt, (s)he must send the consumer the validation of

debt notice required by 15 U.S.C. § 1692g. Some attorneys

(such as Mr. Hocking) have attempted to avoid this require-

ment by limiting their activities to exclusively legal tasks.

They make it their practice to file suit without ever making

written or oral demand on the debtor, thus avoiding engag-

ing in the sort of “traditional” debt collection activities that

able for an attorney to correspond with the judgment debtor

if the judgment is to be enforced.

In Frey v. Gangwish, 970 F.2d 1516 (6th Cir. 1992), the

“debt collector” was an attorney who had filed suit and ulti-

mately negotiated an agreed judgment and payout with the

consumer. More than a year later, the consumer defaulted

on the payment plan and the attorney wrote to her in con-

nection with the judgment debt. The consumer filed suit

against Mr. Gangwish asserting, inter alia, that he had

violated the FDCPA by failing to give to her the validation

afin

of debt notice in his post-judgment communications. The

Court of Appeals reversed a summary judgment in favor of

the attorney, finding that because he had never communi-

cated directly with the debtor prior to judgment, he was

required to give the notice after he wrote directly to Ms.

Frey. Thus, although the consumer had actually appeared

in the suit and had agreed to a judgment, the attorney was

still subjected to liability for failing to furnish her with

information that she already possessed as a result of the

suit, informing her of the right to dispute a debt consisting

of the very judgment to which she had agreed.

The question of whether all litigation activities are “debt

collection” was not before the court in Frey v. Gangwish. If

that is the ruling of the Supreme Court in this case, then

it is possible that in cases where there has been no prior

communication, the validation notice will have to be given

within five days of service of the suit upon the debtor.

Granted, one may argue that: (a) the complaint is directed

to the court and not the debtor;’ and (b) the citation is a

communication from the court and not the attorney.

Neither of those excuses is particularly satisfactory with

regard to discovery, however, since discovery is ordinarily

directed from the attorney to the debtor. The application of

the Act to litigation activities could trigger a duty to send

the validation notice (if not previously given) within five

days of the service of discovery and possibly within five

days of service of the complaint in jurisdictions that permit

service of discovery with the initial complaint. (See, e.g.,

> In A. Fuller Co. v. Carpet Services, Inc., 823 8.W.2d 603

(Tex. 1992), the issue before the Court was whether the filing of

a suit an excessive amount of interest was a “

of interest for the purpose of the Texas usury statute. The

held that it was not, based in part upon the conclusion that

pleadings are directed to the trial court rather than to the oppos-

ing party. Jd. at 605.

= =

Tex. R. Civ. P. 167 and 168.) The establishment of such a

rule of law would undermine the very purpose of the Act as

it only serves to confuse and mislead the consumer who is

told by the attorney that (s)he has thirty days to validate

the debt but is instructed by the Court to answer the suit

in a shorter time.

Overshadowing the Thirty Day Notice

The problems with the validation notice and litigation

activities go far beyond the question of when it must be

sent. In Swanson v. Southern Oregon Credit Service, Inc.,

869 F.2d 1222 (9th Cir. 1988), the Ninth Circuit held that

the validation notice must not be overshadowed or contra-

dicted by other messages or notices appearing in the initial

communication, and that any attempt to require the debtor

to act immediately and not take the full thirty days to

request verification is a violation of § 1692g. Id. at 1225 -

1226. Similar results were reached by the Third Circuit in

Graziano v. Harrison, supra, and the Fourth Circuit in

Miller v. Payco - General American Credits, Inc., 943 F.2d

482 (4th Cir. 1991).

A review of the FDCPA indicates that nowhere does the

Act generally prohibit a debt collector from taking action to

collect the debt during the thirty-day validation period. If

Congress had wanted to include such a prohibition it cer-

tainly could have done so, as it did for the specific situa-

tions in which a debt collector must cease collection activi-

ties because the consumer has made a written request for

verification of the debt or a written demand to cease com-

munications. See 15 U.S.C. §§ 1692g(b) and 1692c(c). In

Graziano v. Harrison, the attorney (Harrison) sent a letter

containing the validation notice, but that letter also threat-

ened legal action if the debt was not paid within ten days.

Relying upon Swanson, the Third Circuit held that in

elites

making that threat Harrison had violated the FDCPA

because the “least sophisticated debtor” might have been

induced to overlook the right to dispute the debt within

thirty days. Thus, as things currently stand, it appears that

it is not a violation of the Act to file suit during the valida-

tion period, but it is a violation to truthfully inform the con-

sumer that the creditor may take such action.

If any and all litigation activities are “debt collection”

then the combination of such a rule with the Swanson

doctrine presents a significant disruption in the practice of

debt collection litigation. If service of the citation and com-

plaint (or a transmittal letter in connection therewith) is a

“communication,” then a citation’s requirement to answer

within a period of less than thirty days may arguably

violate the holdings in Swanson, Graziano, and Miller.

Even if attorneys can escape the problem with regard to

pleadings, one must come back to the question of discovery.

In the common situation in which: (a) the attorney has

never written nor spoken to the debtor; (b) suit has been

filed and the defendant has answered pro se; and (c) a depo-

sition notice is served, directed from the attorney to the

debtor, requiring the debtor to appear in ten days to give a

deposition, a problem may arise under the Act. If the attor-

ney does not give the validation notice at this point (s)he

may be in violation of the FDCPA, and if the validation

notice is given then the deposition notice may overshadow

and contradict the thirty-day period so as to constitute a

violation. Even if the deposition is scheduled for after the

expiration of the thirty-day period, the effect of a subpoena

duces tecum may be that by forcing the consumer to begin

collecting documents, it coerces the debtor to take less than

thirty days to dispute the debt, and that is the result pro-

hibited by Swanson, Graziano, and Miller, supra.

= Ss

Demanding Verification

In addition to the problem of when to send the validation

notice and the “overshadowing” issue, the validation of debt

section of the Act presents an additional complication when

applied to litigation. If the consumer notifies the attorney

in writing within the thirty day period described in 15

U.S.C. § 1692g(a) that the debt or any portion thereof is

disputed or that the consumer requests the name and

address of the original creditor, the attorney will be

prohibited from attempting to collect the debt or any

disputed portion thereof, until (s)he obtains verification of

the debt or a copy of the judgment or the name and address

of the original creditor and a copy of such information is

mailed to the consumer. 15 U.S.C. § 1692g(b). If this

provision of the Act is applied to litigation activities, the

FDCPA gives a debtor the ability to temporarily shut down

the litigation and discovery processes, as the creditor's

attorney can be prevented from continuing to litigate until

verification has been sent. Moreover, if the filing of an

answer in a suit is construed to be written notice to the

attorney that the debt is disputed, the debtor’s mere failure

to default may trigger the attorney’s obligations and restric-

tions under 15 U.S.C. § 1692g(b) in every contested case.

Because of the strict liability holding in Clomon and Bent-

ley, supra, and the mandatory fee award holdings noted

above, this presents significant exposure to the creditors’

bar in the United States.

The “Miranda Warning”

Except for communications made to acquire location infor-

mation under § 1692b, the debt collector must disclose

clearly in all communications made to collect a debt or to

obtain information about a consumer “that the debt collec-

tor is attempting to collect a debt and that any information

= Ss

obtained will be used for that purpose.” 15 U.S.C.

§ 1692e(11). The failure to make such disclosure is a “false,

deceptive, or misleading representation or means” in con-

nection with the collection of a debt. Id. Unlike other por-

tions of the Act that deal with actual abuse of consumers,

this section has been applied against attorneys who neither

abused nor harassed debtors, producing results which are

illogical and do nothing to further the purposes of the Act.

In Frey v. Gangwish, supra, and Carroll v. Wolpoff &

Abramson, supra, attorneys were held liable for failing to

notify debtors in post-judgment communications that they

were attempting to collect debts and that the information

obtained would be used for that purpose. How could the

consumer not know at the post-judgment stage that the

attorney is attempting to collect a debt, and for what other

purpose would any information be used?

If litigation activities are “debt collection,” then the warn-

ing arguably has to be given in all pleadings. Even if this

Court decides that pleadings are not “communications,” the

question remains as to whether the warning will be neces-

sary in discovery documents, transmittal letters, hearings,

depositions, etc. Those communications appear to be clearly

intended for the purpose of collecting the debt and it is

hard to reconcile the holding of the Court below with the

arguments of those who insist that the warning need not be

given in connection with litigation-related communications.

While the apparently unambiguous language of the Act (see

Pipiles v. Credit Bureau of Lockport, Inc., supra at 26-27)

may necessitate a slavish adherence to the letter of the

statute in post-judgment dunning letters and phone calls,

applying the Act to litigation activities and permitting it to

regulate the contents of pleadings is an invitation to open

the floodgates of litigation for plaintiffs who have not

actually suffered any damages.

= =

Communications In General

Unless (s)he has received direct prior consent from the

consumer or express permission from a court of competent

jurisdiction, a debt collector may not communicate with a

consumer in connection with the collection of any debt:

a. at any unusual time or place or a time or place known

or which should be known to be inconvenient to the

consumer; or

b. at the consumer’s place of employment if the debt col-

lector knows or has reason to know that the consum.

er’s employer prohibits the consumer from receiving

such communication. 15 U.S.C. $§ 1692c(aX1) and (3).

If the Act regulates attorneys’ litigation activities, it may

be argued that a debtor cannot be served with citation or

discovery subpoenas at his/her place of employment. A

debtor might even be able to prevent service of citation or

subpoenss completely by notifying the attorney that all

times will be inconvenient. Beyond the possibility that this

section of the Act could impair a creditor's ability to

diligently prosecute a suit against a debtor who is evading

process, a creative debtor’s attorney may be able to find a

Fair Debt claim in every debt collection suit. The clearest

example of this problem is in the area of medical collection

suits against the ill and infirm. Their lawyers could easily

_™

a. state that such consumer owes any debt, 15 U.S.C.

§ 1692b(2); nor

b. communicate with any person other than the consum-

er’s attorney, at any time after the debt collector

knows the consumer is represented by an attorney

with regard to the subject debt and has knowledge of,

or can readily ascertain, such attorney’s name and

address, unless the attorney fails to respond within a

reasonable period of time to communication from the

debt collector. 15 U.S.C. § 1692b(6).

If applied to litigation activities, these sub-sections would

substantially restrict an attorney’s ability to communicate

with process servers and skip-tracers, a result that does not

appear to have been envisioned by Congress in deleting the

attorney exemption. If an attorney cannot skip-trace the

debtor (s)he may be unable to effect personal service.

Admittedly, there may be the option of service by publica-

tion, but leaving collection attorneys with that as their only

option seems to be contrary to the very purposes of the Act.

Furthermore, as is discussed below, applying the Act to

litigation activities presents problems for an attorney seek-

ing to serve by publication.

Communication With Third Parties

Except as provided in 15 U.S.C. § 1692b*, a debt collector

may not communicate in connection with the collection of

a debt with any person other than the consumer, the con-

sumer’s attorney, a consumer reporting agency if otherwise

permitted by law, the creditor, the attorney of the creditor,

or the attorney of the debt collector, without either: (a) the

prior consent of the consumer given directly to the debt

collector; (b) the express permission of a court of competent

* The section dealing with locating the debtor.

alitien

jurisdiction; or (c) as reasonably necessary to effectuate a

post-judgment judicial remedy. 15 U.S.C. § 1692c(b). Apply-

ing this section of the Act under the holding of the Court

below to purely pre-trial litigation activities would mean

that a creditor’s attorney could not (without express prior

approval from the trial court) discuss a case with fact wit-

nesses® or even process servers, as such communications

would be “in connection with” the collection of a debt. The

most literal reading of this section would prohibit the attor-

ney from discussing the suit with the clerk or other person-

nel employed by the trial court, and the Sixth Circuit has

stated its belief that such is the very result of the legal

position taken by Respondent. See Green v. Hocking, supra,

at 21. It would also bar citation by publication without a

specific court order, even if that form of service is expressly

authorized under state law, as such publication would be a

communication with thousands of third parties.® Substi-

tuted service upon other persons at the consumer’s place of

business or abode in situations in which the consumer is

evading service of process will require orders granting

express permission under this section. Thus, the Court of

Appeals’ holding in the instant case will also necessitate a

flood of additional motions and pleadings in all consumer

debt collection suits in which the debtor cannot be served

personally, as attorneys will want to limit their exposure

under the Act.

®° In Masuda v. Thomas Richards & Co., 759 F.Supp. 1456

(C.D.Cal. 1991), the Court found, as a matter of law, that con-

tacting the consumer’s insurance without his consent

violated § 1692c(b). In a disputed over medical bills, for

example, such contact may be essential, especially when a cred-

itor is asserting a medical lien and the consumer received direct

payment from the insurer and spent the money.

ers can publish the names of parties, facts of cases, and results

—20—

The result of applying Section 1692c(b) of the Act to pure-

ly legal activities is a massive chilling effect upon attorneys.

How can attorneys carry out their ethical duty to represent

their clients zealously within the bounds of the law if they

are subject to being second-guessed and sued in connection

with every service of citation or subpoena or public sale of

a debtor’s property under court process, over whether the

public communications made in connection therewith were

“reasonably necessary?” Since the bona fide error defense

set out in 15 U.S.C. § 1692k(c) will not be available if the

attorney commits an error of law, (see Smith v. Transworld

Systems, Inc., 953 F.2d 1025 (6th Cir. 1992), Baker v. G.C.

Services Corp., 677 F.2d 775, 779 (9th Cir. 1982)), the hold-

ings in Clomon, Bentley, and Emmanuel, supra, expose

attorneys to strict liability for guessing wrongly about the

reasonable necessity of third party communications relating

to pending suits or judgments.

Ceasing Communication

If a consumer’ notifies a debt collector in writing that

(s)he refuses to pay a debt or that (s)he wishes the collector

to cease further communication, the debt collector is

prohibited from communicating further with the consumer

except:

a. to advise the consumer that the debt collector’s fur-

ther efforts are being terminated;

b. to notify the consumer that the debt collector or cred-

itor may invoke specified remedies which are ordinari-

ly invoked by such debt collector or creditor; or

" For the purpose of this section, the term “consumer” includes

the consumer's spouse, parent (if the consumer is a minor),

guardian, executor, or administrator. 15 U.S.C. § 1692c(d).

c. where applicable, to notify the consumer that the debt

collector or creditor intends to invoke a specified

remedy. 15 U.S.C. § 1692c(c).

If litigation activities are regulated by the FDCPA, then

arguably a consumer could send written notice to an attor-

ney that (s)he refuses to pay a debt, and the attorney would

be prohibited from pursuing suit since that would necessari-

ly require numerous communications with the consumer.

This very concern was raised by the Sixth Circuit as a

reason to not include litigation activities as debt collection.

Green v. Hocking, supra, at 21. What even that court did

not consider was that the application of Section 1692c(c) to

purely legal activities could also enable a judgment debtor

to prevent an attorney from conducting discovery in aid of

judgment or otherwise enforcing a judgment. Surely that

result deprives creditors of their right to due process under

the Constitution. Furthermore, if creditors cannot adequate-

ly enforce debts that are due to them then consumers will

ultimately be the ones to suffer as there will be a necessary

tightening of credit granting practices.

False Or Misleading Representations

A debt collector may not use any false, deceptive, or mis-

leading representation or means in connection with the col-

lection of any debt. The terms “false, deceptive, or mislead-

ing” include:

a. the false representation of -

(1) the character, amount, or legal status of any debt;

(2) any services rendered or compensation which may

be lawfully received by any debt collector for the

collection of a debt;

b. the threat to take any action that cannot legally be

taken or that is not intended to be taken; and

afin

c. communicating or threatening to communicate to any

person credit information which is known or which

should be known to be false, including the failure to

communicate that a disputed debt is disputed. 15

U.S.C. §§ 1692e(2), (5), and (8).

These sections of the Act were written prior to the 1986

deletion of the attorney exemption. While they make perfect

sense when applied to debt collection activities outside of

litigation (such as demand letters and collection calls), they

present numerous problems when applied to purely legal

activities. With regard to the first two sub-sections set forth

above, they leave attorneys exposed to statutory liability for

any typographical errors in pleadings and for any theory of

recovery on which they are not successful. For example, if

an attorney’s secretary makes a typographical error on the

amount of a debt, the error can be corrected without injury

to the consumer, since: (a) the pleading can be amended;

and (b) the trial court will still presumably allow recovery

only for that which is legally proven at trial. Because the

FDCPA is a strict liability statute, however, (see Clomon v.

Jackson at 1320 and Bentley v. Great Lakes Collection

Bureau at 63), the attorney could still be exposed to statu-

tory damages and attorney’s fees for the innocent error.

While the attorney could, in that instance, invoke the bona

fide error defense under 15 U.S.C. § 1692k(c), (s)he would

still have to incur the substantial expense of defending the

Fair Debt suit and proving that defense.

In addition to exposure for technical violations, an attor-

ney is also exposed to FDCPA liability if (s)he asserts a

cause of action or theory of recovery which is not ultimately

successful, as arguably that would be misrepresenting the

“compensation which may be lawfully received” or a “threat

to take any action that cannot legally be taken.” Thus,

Respondent’s assertion that the Act applies to purely legal

activities has the potential effect of imposing strict statu-

tory liability on attorneys if they should lose on their

theories of liability. The CLLA urges the Court not to

countenance such a result because of its chilling effect on

the practice of law. Even if such a violation produces no

actual damages because the consumer was found to be

liable on an alternate theory of recovery, the award of attor-

ney’s fees for a violation of the Act is still mandatory, and

the attorney could be punished for the client’s inability to

prove even one of its claims. See Emmanuel v. American

Credit Exchange, supra, at 809; Pipiles v. Credit Bureau of

Lockport, Inc., supra, at 28; Graziano v. Harrison, supra, at

113-114.

Yet another problem presented by 15 U.S.C. § 1692e is

that which arises when the consumer has previously

disputed the debt. Assuming that suit can even be filed at

that point,” an attorney’s failure to disclose in the complaint

that the debt is disputed may arguably create liability

under 15 U.S.C. § 1692e(8). Thus, the extension of FDCPA

regulation to purely legal activities results in Congressional

regulation of the content of all collection suit pleadings.

Reverse Forum Abuse

While the FDCPA protects consumers from the burden of

being sued in a distant and inconvenient forum, it has pre-

cisely the opposite effect for debt collectors who are sued

under the Act. The Second Circuit has held that it is the

place where the consumer receives the offending communi-

cation from a debt collector that governs venue in a Fair

Debt suit. Bates v. C & S Adjustors, Inc., 908 F.2d 865 (2d

Cir. 1992). In that case, the collection letter was mailed to

* As noted above, 15 U.S.C. §§ 1692c and 1692g(b) may arguably

prohibit the attorney from filing suit.

ong.

the debtor at his former address in Pennsylvania, but it

was forwarded by the post office to his new address in New

York. Although the collector did not intend to communicate

with the debtor in New York, the receipt of the notice there

was controlling. The Court of Appeals suggested that the

only way to avoid such exposure is to stamp the envelope

“do not forward.” It would therefore appear that an attorney

“debt collector” who properly sues a resident of another

state in full compliance with 15 U.S.C. § 1692i might be

subjected to venue and jurisdiction in that foreign state if

the suit pleadings received by the debtor are alleged to be

violations of the Act.

Rule 11 and Its State Court Equivaler is

As noted by the Court of Appeals in Green v. Hocking,

Fed. R. Civ. P. 11 already insures that an attorney who

signs any document verifies that (s)he has conducted an

investigation, and that, to the best of the attorney’s knowl-

edge, the averments are accurate and grounded in fact. The

decision to impose Rule 11 sanctions, however, rests with

the sound discretion of the trial court. Cooter & Gell v.

Hartmarx Corp., 496 U.S. 384, 405, 110 S.Ct. 2447, 2461,

110 L.Ed.2d 359 (1990). This discretion, integral to Rule 11

because the court knows best how to regulate its forum, is

eliminated and in its place is substituted a system of strict

liability mandating sanctions in the form of attorney’s fees

and statutory damages whenever an attorney makes the

slightest error.

Affirming the Court of Appeals holding in this case will

effectively shift the regulation of attorneys from the judi-

ciary to the Congress. Also, as noted above, the application

of the FDCPA to purely litigation activities means that

Congress will be taking over the regulation of pleadings

and practice in state court lawsuits. The CLLA believes

=~“ ™=

that these are results which should not be permitted and

which are not necessary evils for the protection of consum-

ers. These issues will not be addressed at greater length,

however, as it is the CLLA’s understanding that the Ameri-

can Bar Association will be addressing them in its amicus

curiae brief.

Privileged Use of Civil Proceedings

Outside of Rule 11, the authors of the RESTATEMENT OF

TORTS recognized certain immun’ties for attorneys from

liability arising out of the inst**ution of litigation and the

contents of pleadings. In the area of defamation, the

RESTATEMENT (SECOND) 0% TORTS § 586 (1977) provides:

An attorney at law is absolutely privileged to publish

defamatory matter concerning another in communica-

tions preliminary to a proposed judicia! proceeding, or

in the institution of, or during the course and as 4 part

of, a judicial proceeding in which he participates as

counsel, if it has some re‘ation to the proceeding.

“Comment a” to that secticn explains that “(t]he privilege

stated in this Section is based upon a public policy of

securing to attorneys as officers of the court the utmost

freedom in their efforts to secure justice for their clients.

Therefore the privilege is absolute.”

The authors of the RESTATEMENT also recognized a general

doctrine in favor of providing attorneys immunity from

liability for the wrongful use of civil proceedings.

An attorney who initiates a civil proceeding on behalf of

his client or one who takes any steps in the proceeding

is not liable if he has probable cause for his action (see

§ 675); and even if he has no probable cause and is con-

vinced that his client’s claim is unfounded, he is still

not liable if he acts primarily for the purpose of aiding

his client in obtaining a proper adjudication of his

affiie:

claim. (See § 676). An attorney is not required or

expected to prejudge his client’s claim, and although he

is fully aware that its chances of success are compara-

tively slight, it is his responsibility to present it to the

court for adjudication if his client so insists after he has

explained to the client the nature of his chances. RE-

STATEMENT (SECOND) OF TORTS § 674 comment d (1977).

These sections of the RESTATEMENT make sense as they

enable the attorney to represent the client “zealously within

the bounds of the law.” See MODEL CODE OF PROFESSIONAL

RESPONSIBILITY Canon 7; MODEL RULES OF PROFESSIONAL

CONDUCT Preamble. If the opinion of the Court of Appeals

below is affirmed, however, this Court may be adopting a

rule of law diametrically opposed to that doctrine. The

attorney will become the strictly liable insurer of the

success of the creditor’s assertions, while the creditor itself

will not face such liability. 15 U.S.C. § 1692a(6\A). This

only serves to exacerbate an inherent and unavoidable

conflict between attorney and client, a result which lessens

the effectiveness and integrity of the judicial process.

Furthermore, as the FDCPA only applies to suits to collect

debts, the Court will be singling out a segment of the

nation’s bar who will be subject to strict liability in the

conduct of litigation when attorneys in no other area are

subject to such a standard.

FDCPA Regulation of Litigation

Activities Is Likely to Harm Consumers

Finally, this Amicus Curiae contends that the long-term

effect of regulating litigation activities under the FDCPA is

that consumers, the very group whom the Act was intended

to protect, will suffer. For all of the reasons noted above,

the affirmation of the Court below will have a substantial

chilling effect on the practice of law. That effect will impact

upon credit grantors who will find it more difficult and

more expensive to hire attorneys to sue on consumer debts.

= =

If collecting such debts becomes more difficult (if not impos-

sible), those credit grantors will necessarily require greater

security in order to extend credit, and they will have to

charge higher interest rates to compensate for the increased

costs. These burdens will be borne by the consumers.

CONCLUSION

The judgment of the Court of Appeals, insofar as it

reversed the trial court’s dismissal of Respondent’s suit and

held that the FDCPA regulates attorneys when they are

engaged in purely legal activities should be reversed.

Respectfully submitted,