IV. THE FDCPA LAWSUIT

A. State and Federal Jurisdiction Over Private Civil Actions Under FDCPA

1. An action to enforce any liability created by the FDCPA may be brought in any appropriate U.S. district court without regard to the amount in controversy, or any other court of competent jurisdiction (i.e. state court). 15 USC § 1692k(d).

2. Action must be in correct VENUE. The FDCPA establishes strict guidelines for where a consumer may be sued for a debt:

a. If real property secures a debt, then action shall be brought in a "judicial district or similar legal entity" in which the property is located;

b. If no real property secures a debt, the action shall be brought in a "judicial district or similar legal entity" in which the consumer signed the contract or in which the consumer resides;15 USC § 1692i(a).

c. "Judicial District" is governed by state law and means county (parish) or state judicial district; Dutton v. Wolhar, 809 F. Supp. 1130 (D. Del. 1992); Crawford v. Collection Servs., 898 F. Supp. 699 (D. S.D. 1995).

d. Counterclaim for underlying debt is not compulsory, but it is permissive. Peterson v. United Accounts, 638 F. 2d 1134 (8th Cir. 1981); Ambromovage v. United Mine Workers of America, 726 F.2d 972 (3rd Cir. 1984).

B. Evaluation of Cases and Formulation of Strategy

1. Review of Facts to Determine Type and Source of Liability

a. Individual statute liability;

b. Agency law; under principles of mandate or agency law in Louisiana, there is joint and several liability; and

c. Strict liability.

2. Determine if Any Defenses are Available and/or Counterclaims

3. Weigh Cost to Defend Versus Statutory Damages ($1,000.00 max)

4. Develop Strategy of Prevention

a. Prepare checklist/manual for all employees;

b. Have legal opinion that form letters conform to statute;

c. Have script for all phone calls and keep call log;

d. Verify debt amount;

e. Have two people independently check each other; and

f. Flag files with cease and desist orders.

C. Debt Collectors Defenses & Counterclaims

1. Compliance

a. Proper warnings and communications;

b. Wait proper periods; and

c. Stop collection actions when notified.

2. Bona Fide Error a/k/a Clerical Defense

a. Error was a result of unintentional error and there are systems in place to avoid violations; 15 USC § 1692k.

b. Burden of proof on debt collector and must prove by preponderance of evidence. Fox v. Citicorp Credit Services, Inc., 15 F. 3d 1507 (9th Cir. 1994).

3. Releases Can Be Valid
Dutton v. Wolpoff and Abramson, 5 F. 3d 649 (3rd Cir. 1993).

4. Prescription/Statute of Limitations

a. Action must be filed within one year. 15 USC § 1692k(d); Maloy v. Phillips, 64 F. 3d 607 (11th Cir. 1995).

5. Waiver and Reliance on Advice of Counsel

a. NOT valid defenses. Hayes v. Logan Furniture Mart, Inc., 503 F. 2d 1161 (7th Cir. 1974); Blakemore v. Pekay, 895 F. Supp. 972 (N.D. Ill. 1995).

D. Class Action Lawsuit

1. Authorized by 15 USC § 1692k

a. Each named plaintiff can recover up to $1,000.00 plus cost and attorneys fees;

b. All other class members, without regard to a minimum recovery, not to exceed the lessor of $500,000.00 or one (1%) percent of the net worth of the debt collector plus cost and attorney fees; 15 USC § 1692k(a)(2)(b).

c. If suit brought in bad faith and to harass, defendant may be awarded attorney fees and cost; 15 USC § 1692k(a)(3).

d. Subject to defenses; and

e. May be filed in any appropriate U.S. district court without regard to amount in controversy or in any other court of competent jurisdiction within one year from the date on which the violation occurs. 15 USC § 1692k(d); See also, Keele, et al v. Norman Paul Waxler, et al, 149 F. 3d 589 (7th Cir. 1998); Bailey, et al v. Security National Servicing Corp., 154 F. 3d 384 (7th Cir. 1998).

V. ETHICAL CONSIDERATIONS AND THE FDCPA

A. Rule 1.5 Fees

1. Fee must be reasonable. Factors included in determining reasonableness include:

a. The time and labor required, the novelty and difficulty of the questions involved, and the skill to perform the legal service properly;

b. The likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;

c. The fee customarily charged in the locality for similar legal services;

d. The amount involved and the results obtained;

e. The time limitations imposed by the client or by the circumstances;

f. The nature and length of the professional relationship with the client;

g. The experience, reputation, and ability of the lawyer or lawyers performing the service; and

h. Whether the fee is fixed or contingent.

2. Contingent fee arrangements

a. Must be in writing;

b. Must state the method by which the fee is to be determined, including percentage or percentages that shall accrue to the lawyer in the event of a settlement, trial or appeal litigation and other expenses to be deducted from the recovery;

c. Whether such expenses are to be deducted before or after the contingent fee is calculated; and

d. Upon conclusion of a contingent fee matter, the lawyer shall provide the client with a written statement stating the outcome of the matter and, if there is a recovery, showing the remittance to the client and the method of its determination.

3. Attorney fees under the FDCPA

a. A consumer is entitled to reasonable attorney fees if he prevails on a FDCPA claim. In order to prevail on a claim for attorney fees, a plaintiff need only show a single "technical" violation of the act.

b. Defendant can only be awarded attorney fees if he prevails on each allegation of the plaintiff's claim.

c. The "lodestar" multiple factor test is utilized by most courts to determine the amount of attorney fees that will be awarded to a successful FDCPA claimant. The factors are very similar to the ones outlined in Rule 1.5.

d. Ethical considerations respecting attorneys fees under the FDCPA

(1) Opponents of the FDCPA's current fee-shifting scheme argue that ethical debt collectors are forced to succumb to arbitrary settlement demands from plaintiffs whose cases are based on minor violations.

It is also argued against the present scheme that legal assistance organizations are facilitated by a pool of potential clients and that the FDCPA provides legal service organizations with the ability to make defendants settle, by threat of market rate fees, in cases that would otherwise result in no damage award.

(2) Proponents note that such a view overlooks practical considerations that guide decisions to settle claims. In addition, it overlooks the mere nominal damage awards for "technical" violations, and the court's willingness to reduce attorney fees incurred after a party failed to settle in good faith. Attorney's will not be allowed to avoid settling technical FDCPA claims while simultaneously generating legal fees based on billable time that need not have been spent.

Proponents also note that damage award are not to punish the debt collector; rather, such awards are intended to protect the public. Moreover, if legal services were awarded fees at less than market rates, it is urged that debt collectors could bully indigent clients into less than favorable clients.

4. Cases

a. Federal; In Altergott v. Modern Collection Techniques, Inc., 864 F. Supp. 778 (N.D. Ill. 1994), the successful plaintiff was awarded $300 in statutory fees, while her attorney were awarded $5,080 in attorney fees. The court presumed the "lodestar" amount determined by the
trial court to be correct. However, it noted that the amount could be adjusted up or down based on the various factors. Furthermore, the court remarked that if a plaintiff's attorney fails to make a reasonable assessment of the value of the plaintiff's case and prolongs the litigation, the debt collector will not have to shoulder the entire financial burden occasioned by the unnecessary litigation.

b. Louisiana; Prohibitions against excessive attorney fees allowed to be recovered under promissory note could not be avoided by fixing an amount to be collected on the note. Therein, an attorney fee award of $10,000 allowed under the terms of a promissory note was excessive in light of counsel's "stipulation" that approximately 25 hours were spent in connection with the matter, as the matter could not be considered as maintaining novel or complex legal issues. The court reduced the attorney fee award to $5,000. Northshore Ins. Agency Inc. v. Farris, 634 So. 2d 867 (La. App. 1st Cir. 1993).

In an action arising from a default of a $350,000 loan and lenders's attempt to collect balance due, in addition to any amount awarded in lump sum, an award of attorney fees 15% of the principal and interest awarded ($398,506.99) was the highest amount that could have been awarded as reasonable based on work done for both the original holder as attorney fees without constituting clear abuse of discretion. First State Bank & Trust Co. of East Baton Rouge Parish v. Seven Gables, Inc., 501 So. 2d 280 (La. App. 1st Cir. 1986), writ denied, 502 So. 2d 103.

Attorney fees in amount of $12,047.58, as 25% of principal balance due on promissory note referred to an attorney for enforcement, was "clearly excessive," despite prior contract for 25% amount in the event enforcement on the note became necessary; other than problems that the attorney encountered in determining enforceability of the note, subsequent procedures were neither novel nor especially difficult. Teche Bank and Trust Co. v. Willis, 631 So. 2d 644 (La. App. 3rd Cir. 1994).

Where an attorney was performing collection work on a contingency fee basis and, with respect to certain accounts, he had collected certain sums and had been paid the agreed percentage thereof, he could not recover further with respect thereto on a quantum merit basis following the termination of the attorney-client relationship by the client. Krebs v. Bailey's Equipment Rentals, Inc., 328 So. 2d 775 (La. App. 1st Cir. 1976).

B. Rule 3.3 Candor With the Tribunal

1. A lawyer shall not knowingly:

a. Make a false statement of material fact or law to a tribunal; See also Fed. R. Civ. P. 11; La. Civ. Code Pro. art. 863.

b. Conceal or knowingly fail to disclose that which he is required by law to reveal; however, if a lawyer discovers that his client has perpetrated a fraud on a tribunal, he shall promptly call on his client to rectify same and, if the client refuses to do so or unable to do so, the lawyer shall reveal the fraud to the affected person or tribunal;

c. Fail to disclose to the tribunal legal authority in the controlling jurisdiction known to the lawyer to be directly adverse to the position of the client and not disclosed by opposing counsel; or

d. Offer evidence that the lawyer knows to be false. If the lawyer has offered material evidence and comes to know of its falsity, the lawyer shall take reasonable remedial measures.

2. The duties in 1(a) and (c) continue to the end of the hearing or proceeding. The duties stated in 1(b) and (d) are unlimited in time and apply, even if compliance requires disclosure of information otherwise protected by Rule 1.6.

3. A lawyer may refuse to offer evidence that the lawyer reasonably believes is false.

4. In an ex parte proceeding, a lawyer shall inform the tribunal of all material facts known to the lawyer which will enable the tribunal to make an informed decision, whether or not the facts are adverse.

5. Sanctions

Attorney's conduct in failing to return unearned portion of fee to client after learning from economist that attorney's fee calculation was too high, and in defending lawsuit by the client to recover fee in a dilatory, harassing, and malicious manner, warranted a three-year suspension, even though baseline sanctions for such egregious misconduct was disbarment, as the attorney had no prior disciplinary record, had cooperated in the disciplinary proceedings, and had already had significant monetary sanctions imposed on him by the district court. In re Boydell, 760 So. 2d 326 (La. 2000).

C. Rule 4.3 Dealing With the Unrepresented Person

1. A lawyer shall assume that an unrepresented person does not understand the lawyer's role in a matter and the lawyer shall carefully explain to the unrepresented person the lawyer's role in the matter.

2. During the course of a lawyer's representation of a client, the lawyer should not give advice to a non-represented person other than the advise to obtain counsel.

3. The "Cease Communication" Requirement under the FDCPA

Section 1692(c) of the FDCPA provides that if a consumer makes a written request that the collector cease collection activity within the validation period, the collector must comply. If the collector cannot provide the five-day verification information to the consumer, the collector should not proceed. The debt collectors must cease to communicate if he has "actual knowledge" that the consumer has obtained counsel. This is important if the debt collector is an attorney, as it may violate Rule 4.3. In addition, the FDCPA imposes strict liability on those who continue communications under either of the aforementioned circumstances.

4. Attorney Independent Review

Creditors or debt collectors will normally hire an attorney to provide dunning letters at some point in the collection process. Because attorneys are presumed to know the law, an attorney assisting in the debt collection process must be cognizant that having a collection agency mail dunning letters on the attorney's letter head, with or without his signature, may imply that the attorney has:

1. Reviewed each debtor's file;

2. Determined when a particular "dunning letter" should be sent;

3. Approved the sending of a letter based upon a client's file; and

4. Reviewed each letter before it was sent.

See, e.g., Martinez v. Albuquerque Collection Serv., Inc. , 867 F. Supp. 1495 (D. N.M. 1994); Clomon v. Jackson, 988 F. Supp. 1314 (2nd Cir. 1993); Anthes v. Tansworld Sys., Inc., 765 F. Supp. 162 (D. Del. 1991); Bundle v. Great Lakes Collection Bureau, 6 F.3d 60 (2nd Cir. 1993).

If such a review has not been conducted by the attorney, the least sophisticated consumer standard had been breached. Though attorneys and debt collection agencies may reap monetary savings operating without having an attorney to perform these tasks, the attorney must be aware that it is he who must render his professional opinion and judgment as to whether a communication is required and when it must be sent, particularly, if it is to be sent on the attorney's letterhead. Another cost-saving measure is to mass-mail dunning letters. However, it is doubtful that any mass-mailing of dunning letters by a debt collection agency on an attorney's letterhead will escape the prohibited conduct specified under section 1692(e).

D. Harassment

1. Harassment of consumers is expressly prohibited under section 1692(d) of the FDCPA.

2. Section 1692(d) expressly proscribes the following conduct:

a. The use or threat of use of violence or other criminal means to harm the physical person, reputation, or property of any person.

b. The use of obscene or profane language or language the natural consequence of which is to abuse the hearer or reader.

c. The publication of a list of consumers who allegedly refuse to pay debts, except to a consumer reporting agency or to other statutorily defined persons.

d. The advertisement for sale of any debt to coerce payment of the debt.

e. Causing a telephone to ring or engaging any person in telephone conversation repeatedly or continuously with intent to annoy, abuse, or harass any person at the called number.

f. Except as provided by law, the placement of telephone calls without meaningful disclosure of the caller's identity.

3. Telephone calls

a. All communication must be conducted in a reasonable time, place, and manner. Furthermore, the communication must not be deceptive.
15 U.S.C. § 1692(c)(1); 15 U.S.C. 1692(f); See, e.g., Juras v. Aman Collection Serv., Inc., 829 F.2d 739 (9th Cir. 1987).

b. Collector providing aliases to consumers, perhaps avoid aggravated consumers, nevertheless will be considered misleading and has the natural tendency to deceive, confuse, and annoy consumers and will result in liability for those engaged in such acts.
Bingham v. Collection Bureau, Inc., 505 F. Supp. 864 (N. N.D. 1981).

c. Calling consumers at inappropriate times, such as weekends or early morning or late evening, is prohibited.
15 U.S.C. § 1692(c)(a)(1).

4. Envelopes

a. Section 1692(f)(8) bars the use of a symbol or language on an envelope that indicates the sender is a debt collector. The purpose of this provision is to eliminate undue harassment, embarrassment, and the abuse of the consumer.
See, e.g., Rutyna v. Collection Accounts Terminal, Inc., 478 F. Supp. 980 (N.D. Ill. 1979).

b. Collectors are permitted to place their name or trade symbol on the exterior of the correspondence provided that name or symbol of the collection agency does not indicate their status as debt collectors.
See, e.g., Rutyna v. Collection Accounts Terminal, Inc., 478 F. Supp. 980 (N.D. Ill. 1979).

c. Solo practitioners and law firms will not violate the FDCPA's "envelope provision" provided the firm or trade name does not indicate that they are engaged in the business of debt collection.
15 U.S.C. § 1692(f).

5. Improper Threats

The repeal of the attorney exemption in the FDCPA was premised upon the notion that abuses by attorney debt collectors were more egregious than those by lay collectors because consumers react with far more duress to an attorney's improper threat of legal action. Attorney's should be wary because courts may be tempted to impose a higher standard and more damages on attorneys who engage in such practices. The following are examples of prohibited deceptive conduct:

a. Referring to the creditor as "plaintiff" and a debt as "costs" when neither litigation nor a judgment has taken place;
Crossley v. Lieberman, 868 F.2d 566 (3rd Cir. 1989).

b. Threatening to sue within a period of time not allowed by state law or overshadowing the thirty-day validation requirement;
Crossley v. Lieberman, 868 F.2d 566 (3rd Cir. 1989).

c. Threatening to make embarrassing contacts with a consumer's employer or other person;
Rutyna v. Collection Accounts Terinal, Inc., 478 F. Supp. 980 (N.D. Ill. 1979).

d. Calling the same consumer again immediately after ending a phone call or continuing to make phone calls in a repetitious manner to the same consumer;
Bingham v. Collection Bureau, Inc., 505 F. Supp. 864 (N. N.D. 1981); Teng v. Metropolitan Retail Recovery Inc., 851 F. Supp. 61 (E.D.N.Y. 1994).

e. Inquiring about personal items of property such as wedding rings or heirlooms, and inferring that such items will be confiscated to satisfy the debt;
Bingham v. Collection Bureau, Inc., 505 F. Supp. 864 (N. N.D. 1981); See generally Teng v. Metropolitan Retail Recovery Inc., 851 F. Supp. 61 (E.D.N.Y. 1994).

f. Sending debt collection correspondence to the consumer's employee;
See, e.g., Sluys v. Hand, 831 F. Supp. 321 (S.D.N.Y. 1993).

g. Telling a consumer that law enforcement is going to forcibly enter his dwelling and remove its contents for purposes of satisfying the debt;
See Teng v. Metropolitan Retail Recovery Inc., 851 F. Supp. 61 (E.D.N.Y. 1994).

* This speech was presented at the National Business Institute "Complying With The Fair Debt Collection Practices Act in Louisiana Seminar" on June 15, 2001 in New Orleans Louisiana

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