|September 29, 2011|
Previously published on September 27, 2011
In Lesher v. Law Offices of Mitchell N. Kay, PC,[i] the Court of Appeals for the Third Circuit provided guidance on the type of debt collection activity that it deems "false, deceptive, or misleading" and prohibited by the Fair Debt Collection Practices Act (the "FDCPA").[ii] An attorney acting solely as a debt collector but who sends collection notices that identify him as an attorney must clearly and conspicuously explain the limited nature of his role.
Washington Mutual retained the Law Offices of Mitchell N. Kay, PC (the "Law Firm"), a law firm that also serves as a debt collector, to recover Darwin Lesher's ("Lesher") alleged debt. The firm sent two letters to Lesher. The first letter was sent on Law Firm letterhead and offered to settle the debt for a percentage of the debt amount and included a notice on the front instructing Lesher to "see reverse side for important information." The second letter was also printed on the Law Firm's letterhead and offered a repayment plan or settlement offer and again directed Lesher to the back of the letter for "important information." The backs of both letters read, in pertinent part, "[a]t this point in time, no attorney with this firm has personally reviewed the particular circumstances of your account."
Lesher filed suit and alleged violations of Section 1692e of the FDCPA asserting that the letters were misleading and (i) caused him to believe that an attorney was involved in the debt collection and (ii) that an attorney would take legal action against him. The Law Firm argued that the letters were settlement letters and not dunning letters; however the Court rejected the argument as insignificant because "both types of communications must comply with" the FDCPA.[iii] Despite the disclaimers on the backs of the letters, the district court "found that the least sophisticated debtor, upon receiving these letters, would believe that they had been sent by an attorney who might pursue legal action if he did not pay the debt."[iv] The district court granted Lesher's motion for summary judgment and awarded $1,000 in damages. The Third Circuit affirmed the decision.
FDCPA Violation Affirmed on Appeal
Section 1692e of the FDCPA, "prohibit[ing] the use of 'false, deceptive, or misleading representation or means in connection with the collection of any debt'" includes a list of sixteen acts that violate the FDCPA.[v] However, the list is not exhaustive and "a debt collection practice can be a 'false, deceptive, or misleading' practice in violation of section 1692e even if it does not fall within any of the subsections."[vi]
On appeal, the Law Firm argued that it did not violate the enumerated prohibitions, specifically section 1692e(3) (prohibiting communications that falsely represent or imply that the communication is from an attorney) because the letters were indeed from a law firm and 1692e(5) (prohibiting communications that threaten action that is not intended or that cannot legally be taken) because the letters did not threaten legal action. The Law Firm also argued that the letters were not otherwise in violation of the FDCPA.
The Third Circuit did not address the question of whether the Law Firm's letters violated any of the sixteen enumerated acts but instead affirmed the district court's decision because the letters did "violate section 1692e's general prohibition" against deceptive communications.[vii] "In our view, the least sophisticated debtor, upon receiving these letters may reasonably believe that an attorney has reviewed his file and has determined that he is a candidate for legal action."[viii]
The Third Circuit rejected the Law Firm's argument that the notice effectively clarified the Law Firm's role by explaining that no attorney had personally reviewed Lesher's account. The placement of the notice on the backs of the letters appears to have influenced the Court's decision, as it compared the facts of this case to a decision from the Second Circuit, Greco v. Trauner, Cohen & Thomas, LLP. The disclaimer in Greco was printed on the front of the letter, and the Second Circuit held that an attorney, acting as a debt collector, could avoid liability by including a clear and prominent disclaimer in the collection letter.[ix] The Lesher Court also relied on authority from the Fifth Circuit, Gonzalez v. Kay, noting the significance of clear, prominent and conspicuous disclaimers.[x]
The Lesher Court also found that the notice was inconsistent with the sections of the letters explaining that the Law Firm had been retained to collect the debt. Moreover, notice that the communication is from a debt collector is required by statute and "should not be viewed as nullifying any implication that the letter is from an attorney" because, according to the Court, "debt collector" and "attorney" classifications are not mutually exclusive.[xi]
"An unsophisticated consumer, getting a letter from an 'attorney' knows the price of poker has just gone up," and the Court therefore found that the Law Firm engaged in misleading and deceptive practices that "raised the specter of using its law firm title to collect a debt when the firm was not acting in its legal capacity when it sent the letters."[xii] The Third Circuit left open the possibility that an attorney debt-collector may send a collection letter on attorney letterhead under appropriate circumstances, examples of which were not provided by the Court.
The Lesson of Lesher
"Law firms take an extraordinary risk in sending a collection letter, no matter how conciliatory or how plain their prose."[xiii] "An unsophisticated consumer, getting a letter from an attorney, knows the price of poker has just gone up."[xiv] In his dissenting opinion, Judge Jordan commented that the majority opinion failed to state "whether a law firm can ever be clear enough in a disclaimer to overcome the effect of sending out a debt collection notice on law firm letterhead." There are, however, certain steps that attorney debt collectors (and non attorney debt collectors) can take to ensure they do not run afoul of the FDCPA.
A debt collector must be cognizant of the fact that the sixteen acts enumerated in section 1692e of the FDCPA are mere examples of deceptive practices and that a debt collector will violate the FDCPA if he acts deceptively in any way. The bar is heightened for attorneys who serve as debt collectors because "a consumer reacts with far more duress to an attorney's improper threat of legal action than to a debt collection agency committing the same practice."[xv] However, non-attorney debt collectors are also governed by the FDCPA, and communication from a non-attorney debt collector that implies attorney involvement will also be carefully scrutinized.[xvi]
An attorney engaged to collect a debt should confer with his client and confirm the scope of his retention and the remedies that he is authorized to pursue. If, for example, the client is entitled to pursue legal action but has no intention of doing so, counsel's communication to the debtor cannot threaten such action. The attorney debt collector may consider explicitly stating that such action is not currently anticipated. If counsel is acting solely as a debt collector but sends notice to the debtor on his law firm's letterhead then he must take adequate steps to ensure the debtor is not misled by the fact that he happens to be an attorney.
[i] Lesher v. Law Offices of Mitchell N. Kay, PC, No. 10-3194, -- F.3d --, 2011 WL 2450964 (June 21, 2011).
[ii] Fair Debt Collection Practices Act, 15 U.S.C. §1692, et seq.
[iii] Lesher, 2011 WL 2450964, *3, fn. 7.
[iv] Id. at *8.
[v] Id at *3.
[vi] Id. at *3 (citing Clommon v. Jackson, 988 F.2d 1314, 1318 (2d Cir. 1993)).
[vii] Id. at *8.
[viii] Id. at *8.
[ix] Greco v. Trauner, Cohen & Thomas, LLP, 412 F.3d 360 (2d Cir. 2005).
[x] Gonzalez v. Kay, 577 F.3d 600 (5th Cir. 2009).
[xi] Id. at *8.
[xii] Id. at *9 (internal citation omitted).
[xiii] Id. at *12 (Jordan, J., dissenting).
[xiv] Id. at *9 (internal citation omitted).
[xv] Id. at *9 (Jordan, J., dissenting).
[xvi] See e.g., Id. at *4 (citing Rosenau v. Unifund Corp., 539 F.3d 218 (3d Cir. 2008) (notice that was signed by the "Legal Department" of the collection agency violated the FDCPA because none of the employees in the department were lawyers.