National Creditors Bar Association 2018 Spring Conference

JW Marriott, Austin, TXMay 16-19, 2018

Collection Letter Litigation Against Attorneys and Their

ClientsPresented By:

Tomio B. Narita, Simmonds & Narita LLP Jeff Pilgrim, Pilgrim Christakis LLP

Tomio B. Narita is a partner with the California law firm, Simmonds & Narita LLP. His practice focuses on the defense of creditors, debt buyers, collection law firms and collection agencies and in consumer litigation, including defending individual actions and class actions arising under the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, the Telephone Consumer Protection Act, and other federal and state laws governing the collection process. Mr. Narita obtained his law degree from the University of California, Hastings College of the Law. He is a member of the Bar of the State of California, and is admitted to practice before the United States Supreme

Court, and the Second, Third and Ninth Circuit Court of Appeals.

Jeff Pilgrim is a partner at Pilgrim Christakis LLP and has represented the financial services industry for nearly 20 years. Jeff and his colleagues represent banks, mortgage lenders, loan servicers, auto finance companies, credit card companies, debt buyers, and debt collectors in individual and class action cases, filed across the country, involving the wide array of consumer lending laws. Jeff was elected to the American College of Consumer Financial Services Lawyers; he is a member of the Governing Committee of the Conference on Consumer Finance Law; and he is a frequent author and speaker on consumer finance and class action topics, regularly presenting at a variety of industry-hosted national conferences.

Legal DisclaimerThis information is not intended to be legal advice and may not be used as legal advice. Legal advice must be tailored to the specific circumstances of each case. Every effort has been made to assure this information is up-to-date. However, it is not intended to be a full and exhaustive explanation of the law in any area, nor should it be used to replace the advice of your own legal counsel.

Collection Letter Issues• Amount of the Debt• Out-of-Statute Disclosures• Attorney Involvement• Identification of Creditor• 1099-C Disclosures

Amount of the Debt

Amount of the Debt: FDCPA• Section 1692g: Requires that validation notice

contain “the amount of the debt”

• Section 1692e: Prohibits false representation of “the character, amount, or legal status of any debt”

Amount of the Debt: Issues• How do you accurately describe a balance that is

increasing?• If you know balance is increasing, can you state the “total

amount due” as of the date of the letter and nothing more?

• Can you use a payoff amount as the amount due?• Do you have to explain that a static balance is static?• Are “safe harbors” always safe?

Amount of the Debt: Variable Balances

• Can’t say that: “Principal balance is $X, which does not include accrued interest and fees.”

– Miller Safe Harbor:“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].”

Miller v. McCalla, Raymer, 214 F.3d 872 (7th Cir. 2000).

Amount of the Debt: Variable Balances• Can say that: “Total amount due is $X. Your account

balance may be periodically increased due to the addition of accrued interest or other charges as provided in your agreement with your creditor.”– Taylor v. Cavalry Inv., L.L.C., 365 F.3d 572 (7th Cir. 2004)

• Or can we?– Balke v. AllianceOne Rec. Mgmt., 2017 WL 2634653 (E.D.N.Y. June 19, 2017)

(holding that Taylor language created plausible Section 1692e and 1692g claims)

Amount of the Debt: Variable Balances• Must say that balance may increase, if stated amount

owed is increasing due to accruing interest and fees.– Avila v. Riexinger & Assocs., LLC, 817 F.3d 72 (2d Cir. 2016):

“Because the statement of an amount due, without notice that the amount is already increasing due to accruing interest or other charges, can mislead the least sophisticated consumer into believing that payment of the amount stated will clear her account, we hold that the FDCPA requires debt collectors, when they notify consumers of their account balance, to disclose that the balance may increase due to interest and fees.”

– But if balance is increasing, is it ok to say it “may increase”?

Amount of the Debt: Variable Balances

• Must disclose that balance may increase (con’t)

– Avila Safe Harbor:

“We hold that a debt collector will not be subject to liability under Section

1692e for failing to disclose that the consumer’s balance may increase due to

interest and fees if the collection notice either accurately informs the

consumer that the amount of the debt stated in the letter will increase over

time, or clearly states that the holder of the debt will accept payment of the

amount set forth in full satisfaction of the debt if payment is made by a

specified date.… Using the language set forth in Miller will qualify for safe-

harbor treatment…. ”

Amount of the Debt: Variable Balances• Can’t use a payoff amount as amount due, if it

includes fees and costs not yet owed.– Carlin v. Davidson Fink, 852 F.3d 207 (2d Cir. 2017):

“[A statement of the amount owed] is incomplete where, as here, it omits information allowing the least sophisticated consumer to determine the minimum amount she owes at the time of the notice, what she will need to pay to resolve the debt at any given moment in the future, and an explanation of any fees and interest that will cause the balance to increase.”

Amount of the Debt: Static Balances

• Don’t have to say that a static “balance due” will not accrue additional charges or fees.– Taylor v. Financial Recovery Servs., Inc., 2018 WL 1526057

(2d Cir. 2018):“Its hard to see how or where the FDCPA imposes a duty on debt collectors to encourage consumers to delay repayment of their debts.”

Amount of the Debt: Static Balances• But will other courts agree?

– For example, is it “material” that the balance is static?• A false or misleading statement is “material” if it “may frustrate a consumer’s

ability to intelligently choose his or her response.” Donohue v. Quick Collect, Inc., 592 F.3d 1027 (9th Cir. 2010).

• If the “least sophisticated debtor” will assume interest is accruing, does it follow that collector must disclose when it is not accruing? Cf. Goodrick v. Cavalry Portfolio Servs., LLC, 2013 WL 4419321 (D. Ariz. 2013) (“Plaintiff had received statements during this time, and even the most unsophisticated debtor in his position would have known that the loan was accruing interest.”).

Amount of the Debt: Safe Harbors• Can’t blindly use safe harbors when, under

circumstances, language is inaccurate or inapplicable.– Boucher v. Finance System of Green Bay, Inc., 880 F.3d 362 (7th Cir.

2018):• Use of Miller’s safe harbor where “late charges and other charges” could

not be legally collected created actionable claims, because letter falsely implied that they could be collected.

• “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.”

Out-of-Statute Disclosures

Out-of-Statute Disclosures

• Why should you care?– Your debt buyer and agency clients may be collecting

time-barred debt, and they must be aware of legal landscape.

– If statute of limitations is calculated incorrectly, then letters have implications.

Out-of-Statute Disclosures

• Collection of time-barred debt, standing alone, does not violate FDCPA.– Majority of courts have held that expiration of statute

of limitations does not eliminate debt, only ability to sue. See e.g., Freyermuth v. Credit Bureau Servs., 248 F.3d 767 (8th Cir. 2001); Huertas v. Galaxy Asset Mgmt., 641 F.3d 28 (3rd Cir. 2011)

Out-of-Statute Disclosures

• But threatening to file (or actually filing) lawsuit to collect time-barred debt is a violation.– Section 1692e(5) (“threat to take action that cannot

legally be taken”)

– Section 1692e(2) (false representation of “legal status” of debt)

Out-of-Statute Disclosures• Unsettled whether FDCPA requires affirmative

disclosure that debt is outside statute of limitations.– FTC’s Asset Acceptance Consent Order:

“The limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it.”

– Some courts have followed.

Out-of-Statute Disclosures• Offering to “settle” debt without disclosing that it is

time-barred may be a violation.– “Because the words ‘settlement’ and ‘settlement offer’ could

connote litigation, the least-sophisticated debtor could be misled into thinking [creditor] could legally enforce the debt.” Tatis v. Allied Interstate, LLC, 882 F.3d 422 (3rd Cir. 2018)

– See also Daugherty v. Convergent Outsourcing, 836 F.3d 507 (5th Cir. 2016); Buchanan v. Northland Group, 776 F.3d 393 (6th Cir. 2015); McMahon v. LVNV Funding, 744 F.3d 1010 (7th Cir. 2014)

Out-of-Statute Disclosures

• Unsettled what disclosure accompanying

“settlement” offer should say:

– Some district courts have held that settlement offer with FTC

Consent Order language (“Because of the age of your debt, we

will not sue you for it”) does not violate FDCPA.

See, e.g., Boedicker v. Midland Credit Mgmt., Inc., 2016 WL 7492465

(D. Kan. Dec. 30, 2016); Olsen v. Cavalry Portfolio Servs., LLC, 2016

WL 4248009 (M.D. Fla. Aug. 11, 2016); Filgueiras v. Portfolio Recovery Assocs., LLC, 2016 WL 1626958 (D.N.J. Apr. 25, 2016)

Out-of-Statute Disclosures• Unsettled what disclosure accompanying

“settlement” offer should say (con’t):– But recently other courts have held that settlement offer with

FTC Consent Order-like language may violate FDCPA:• Seventh Circuit found letter deceptive and misleading because it:

(1) gave impression that collector had “chosen” not to sue, not that it was legally barred from doing so; and (2) failed to warn of danger of waiving statute of limitations by making or agreeing to make payment. Pantoja v. Portfolio Recovery Assocs., 852 F.3d 679 (7th Cir. 2017).

Out-of-Statute Disclosures• Finally, don’t forget about state laws!– Some prohibit collection of out-of-statute debt

altogether.– Some require special disclosures when collecting out-

of-statute debt.

Attorney Involvement

Meaningful Involvement: What is it?• Section 1692e(3) prohibits collectors from making a “false

representation or implication that any individual is an attorney or that any communication is from an attorney.”

• Early cases involved collection agencies mass mailing letters that falsely stated they were “from” an attorney. See, e.g., Clomon v. Jackson, 988 F.2d 1314, 1320-21 (2d Cir. 1993).

• Recent cases have applied concept to pleadings filed by attorneys. See, e.g., Bock v. Pressler & Pressler, LLP, 30 F. Supp. 3d 283 (D.N.J. 2014); CFPB v. Frederick J. Hanna & Assoc., 114 F. Supp. 3d 1342 (N.D. Ga. 2015).

Meaningful Involvement: Can you disclaim it?• Two Circuits have approved MI disclaimers:

– “At this point in time, no attorney with this firm has personally reviewed the particular circumstances of your account.” Greco v. Trauner, Cohen & Thomas, 412 F.3d 360 (2d Cir. 2005);

– “Please be advised that we are acting in our capacity as a debt collector and at this time, no attorney with our law firm has personally reviewed the particular circumstances of your account.” Jones v. Dufek, 830 F.3d 523 (D.C. Cir. 2016).

• CFPB consent order appears to approve MI disclaimer.– In re: Matter of Works & Lentz, Inc., File No. 2017-CFPB-0003

Meaningful Involvement: Can you disclaim it?• But, for disclaimer to be effective, letter should not:– Contain other language that directly contradicts the

disclaimer, see Lesher v. Law Offices of Mitchell N. Kay, P.C., 650 F.3d 993 (3d Cir. 2011);

– Place disclaimer on back or inconspicuous location, see Gonzalez v. Kay, 577 F.3d 600 (5th Cir. 2009); or

– Threaten legal action, see Dunn v. Derrick E. McGavic, P.C., 653 F. Supp. 2d 1109 (D. Ore. 2009).

Meaningful Involvement: Can you

disclaim it?

• Otherwise, district courts tend to like MI disclaimers:

– Powell v. Aldous & Assocs., P.L.L.C., 2018 WL 278736 (D.N.J. 2018) (Grecodisclaimer on front of letter was sufficient to disclaim MI)

– Daniels v. Solomon and Solomon, P.C., 2017 WL 3675400 (E.D. Pa. 2017)

(unsigned letter on firm letterhead; use of mini-Miranda on front of letter was

sufficient disclaimer of any attorney involvement)

– Altieri v. Overton, Russell, 2017 WL 5508372 (N.D.N.Y. 2017) (Greco disclaimer

and mini-Miranda on front of letter)

– Napolitano v. Ragan & Ragan, 2017 WL 3535025 (D.N.J. 2017) (mere

allegation that electronically reproduced signature used not enough to state

MI claim)

Meaningful Involvement: Ethical considerations• New Jersey has suggested disclaimers are not ethical:

– When a law firm sends a collection letter, the recipient has reason to believe “there has been an evaluation by an attorney of the claim asserted with a determination by the attorney that proceedings to enforce collection are warranted.”

– When a lawyer allows staff to send letters the lawyer has not personally reviewed, the lawyer has assisted in UPL and has engaged in deceptive conduct.

See Advisory Comm. on Prof. Ethics Op. 725, 208 N.J.L.J. 58 (2012); see also Thompkev. Fabrizio & Brook, P.C., 261 F. Supp. 3d 798 (E.D. Mich. 2017) (letter on firm letterhead but electronically signed by a non-attorney could mislead debtor; court noted State law prohibits use of “stationery of an attorney … unless the regulated person is an attorney”).

Identification of Creditor

Identification of Creditor: General

• Section 1692g(a)(2) requires initial collection letter to include “the name of the creditor to whom the debt is owed.”

• Requirement usually satisfied if, reading letter as a whole, least-sophisticated consumer would have been aware that name of creditor appears in letter.

Identification of Creditor: Issues• Full name of the creditor

– “American Express” instead of “American Express Centurion Bank” ok. See Leonard v. Zwicker & Assocs., P.C.,713 Fed. Appx. 879 (11th Cir. 2017)• “Debt collector may use the creditor’s full business name, the

name under which the creditor usually transacts business, or commonly used acronym.” Id.

– But “Physicians Associates” instead of “Physicians Associates LLC” not ok. See Lait v. First Fed. Credit Control, Inc., 2017 WL 3601951 (N.D. Ohio Aug. 22, 2017)

Identification of Creditor: Issues• Name with nothing more– Various courts have found violations:

• Single line: “Re: Metro on 19th/Chamberlin & Assoc/G171.” Dix v. National Credit Sys., 2017 WL 4865259 (D. Ariz. Oct. 27, 2017)

• Caption in upper right-hand corner: “Re: ST CATHERINE OF SIENNA.”

McGinty v. Prof. Claims Bur., 2016 WL 6069180 (E.D.N.Y. Oct. 17, 2016)

• Line at top: “Re: John T. Mather Hospital, Balance Due: $636.15.”Datiz v. Int’l Recovery Assocs., 2016 WL 4148330 (E.D.N.Y. Aug 4, 2016)

Identification of Creditor: Issues• Name with nothing more (con’t)– But other courts have criticized these decisions:

• “We note at the outset that Datiz and McGinty are merely persuasive authority on this Court, and not very persuasive at that. We are at pains to understand how even the ‘least sophisticated’ of consumers—consumers definitionally being persons who pay bills (i.e., ‘consume’) at least occasionally—would fail to identify that a bill was being collected on by the Datiz or McGinty letters and that that bill related to the creditor identified by ‘re.’”

Macelus v. Capital Coll. Serv., 2017 WL 5157389 (D.N.J. Nov. 7, 2017)

Identification of Creditor: Issues• Name with nothing more (con’t)

– And courts generally have found no violation where there

is more, even if not expressly labeled as “creditor”

• Creditor listed “after the introduction by the debt collector” and

“after the indication by [collector] that ‘account(s) indicated below

has been placed with our office for collection.’ Thus, the identity of

the only other entity in play—[the collector]—was already made

very clear by the time the consumer reached the line regarding the

debt at [creditor].”

Lait v. Medical Data Sys., 2018 WL 1413388 (M.D. Ala. Mar. 21, 2018)

Identification of Creditor: Issues• Name with nothing more (con’t)– And courts generally have found no violation where there

is more, even if not expressly labeled as “creditor”• Listed creditor in subject line; stated that collector is a debt

collector “engaged by the above creditor,” and only entity identified “above” was creditor; and stated, “[a]s of 04/23/2015 [creditor] has not yet received the past due amount of $51.74.”

Polizois v. Vengroff Williams, 2018 WL 1443875 (E.D.N.Y. Mar. 22, 2018)

Identification of Creditor: Issues• Name with nothing more (con’t)– And courts generally have found no violation where there

is more, even if not expressly labeled as “creditor”• Listed Chase in subject line, and also directed debtor to reference

“CHASE BANK, N.A. Option Letter” when calling collector. Letter also cautioned that, if debt is settled for less than full balance, “Chase may offer less favorable terms or deny applications for future Chase products.”

Taylor v. MRS BPO, LLC, 2017 WL 2861785 (E.D.N.Y. July 5, 2017)

Identification of Creditor: Issues• References to “client” instead of “creditor”– Courts generally have found no violation, if no ambiguity:

• “Our client, BERGEN COMMUNITY COLLEGE, has referred your account to us for collection”

Molina v. AR Resources, Inc., 2018 WL 1027449 (D.N.J. Feb. 22, 2018) (“The fact that Defendant also refers to BCC as ‘our client’ would not confuse the least sophisticated debtor. Read in its entirety, the collection letter identifies BCC by name and provides Plaintiff with her BBC account number and the amount of the debt allegedly owed.”)

Identification of Creditor: Issues• References to “current creditor” and “original

creditor”– Courts generally have found no violation, if no ambiguity:

• “Letter plainly identified the entity to whom debt was owed by using words “Current Creditor” … and identified original creditor with (not surprisingly) the phrase ‘Original Creditor.’ [Plaintiff] asserts that somehow the words “original” and “current” are confusing. They simply are not.”

Zuniga v. Asset Recov. Sols., 2018 WL 1519162 (N.D. Ill. Mar. 28, 2018)

Identification of Creditor: Issues• References to “current creditor” and “original

creditor” (con’t)– Courts generally have found no violation, if no ambiguity:

• Letter identified Comenity as “original creditor” and PayPal Credit as the “client.”

Maximiliano v. Simm Assocs., 2018 WL 783104 (S.D. Fla. Feb. 8, 2018)

• Letter identified, “Our Client: CAVALRY SPV I, LLC,” and “Original Creditor: SYNCHRONY BANK f/k/a GE CAPITAL RETAIL BANK.”

Ramano v. Schachter Portnoy, 2017 WL 2804930 (E.D.N.Y. June 28, 2017)

1099-C Disclosures

1099-C Disclosures: General• IRS regulations require creditors to issue Form 1099-

C when they cancel debt with $600 or more in principal.

• Issue: When offering to settle a debt, should the letter disclose that a 1099-C may be issued?

1099-C Disclosures: Failure to make disclosure• Theory is that telling consumers that they can settle full amount

by paying fraction of debt without disclosing that they may have to pay taxes is deceptive.

• These claims have almost uniformly failed:– Altman v. J.C. Christensen & Assocs., 786 F.3d 191 (2d Cir. 2015); Daugherty v.

Convergent Outsourcing, 2015 WL 3823654 (S.D. Tex. June 18, 2015); Landes v. Cavalry Portfolio Servs., 774 F. Supp. 2d 800 (E.D. Va. 2011).

– But see Michael v. HOVG, LLC, 232 F. Supp. 3d 1229 (S.D. Fla. 2017) (debt collector’s representation that reduced payment would be “settlement in full,” when debtor may owe additional sums for taxes resulting from the settlement, could be misleading).

1099-C Disclosures: Making disclosure• Theory is that mention of tax consequences and possible IRS

involvement is done to pressure consumers to pay debt in full to avoid IRS.

• Claims based on disclosure where $600 in principal would not be waived:– Some courts have allowed claims: Medina v. AllianceOne Rec. Mgmt., 2017 WL

220328 (E.D. Pa. Jan. 19, 2017); Balon v Enhances Rec. Co., Inc., 2016 WL 1730721 (E.D Pa May 2, 2016).

– Other courts have not: Schultz v. Midland Credit Mgmt., 2017 WL 1900727 (D.N.J. May 8, 2017); Remington v. Financial Rec. Servs., 2017 WL 1014994 (D. Conn. Mar. 15, 2017).

1099-C Disclosures: Making disclosure• Claims based on disclosure even where $600 in principal

would be waived:– “[I]t is misleading to state in a collection letter if a consumer agrees to

‘settle’ their debt for less than the full balance there ‘may’ be tax consequences, without stating the limited circumstances under which there will be tax consequences, when a majority of consumers who receive those letter are in financial distress, insolvent, and will never suffer an tax consequences from settlement.”

Dunbar v. Kohn Law Firm SC, Nos. 17-2134, 17-2165, Appellant’s Br. (7th Cir. Sept. 13, 2017), appealing Dunbar, 2017 WL 1906748 (E.D. Wis. May 8, 2017), and Smith v. Weltman, Weinberg & Reis Co., 2017 WL 2345600 (S.D. Ill. May 30, 2017).

1099-C Disclosures: Making disclosure• Claims based on disclosure even where $600 in principal

would be waived:– Plaintiffs’ recommended disclosure:

“Nonpayment of more than $600 principal of debt may result in taxable income, but not if you (1) file bankruptcy, (2) have insufficient funds to pay your debts or (3) have a good faith dispute of the debt. There are also other exceptions. You may have to inform the IRS of the facts when you file your tax return.”

Questions?

Tomio B. Narita Jeff PilgrimSimmonds & Narita LLP Pilgrim Christakis LLPsnllp.com pilgrimchristakis.com