Mike Bowers, the former attorney general, represents the Hanna law firm.
Mike Bowers, the former attorney general, represents the Hanna law firm. (John Disney/Staff)

The Consumer Financial Protection Bureau’s lawsuit to claw back millions of dollars in debts collected by Frederick Hanna’s Marietta law firm is a particularly challenging test case for the fledgling federal agency.

The agency has targeted Frederick J. Hanna & Associates as a “lawsuit mill,” claiming it uses illegal tactics to intimidate consumers into paying debts they do not owe. But Hanna already has beaten back similar claims in both state and federal courts in Georgia.

In 2010, the state Supreme Court split 4-3 to hold that attorneys cannot be held liable for violations of the state’s Fair Business Practices Act. The court majority also held that only the Supreme Court has the power to govern the practice of law in Georgia through its administration of the State Bar of Georgia’s Rules of Professional Conduct. The ruling suggested that consumers who accused attorneys of abusive debt collection practices should take their complaints to the state bar or the Federal Trade Commission. The opinion also recognized that attorneys’ debt collection practices “would be subject to investigation” by the FTC as the regulatory body responsible for enforcement of the federal Fair Debt Collection Practices Act.

Despite more than 500 complaints lodged against Hanna and his firm with the Governor’s Office of Consumer Protection over the past five years, Hanna’s law license remains in good standing.

In addition, two federal judges in the Northern District of Georgia have dismissed complaints against Hanna and his firm that were built on allegations that the Consumer Financial Protection Bureau suit has included among its claims. A third judge in Atlanta has eliminated some claims in a pending federal suit against Hanna, using the 2010 state Supreme Court ruling as her justification.

Hanna’s lawyer, former state Attorney General Michael Bowers, contends that the Consumer Financial Protection Act of 2010 (the CFPB’s enabling legislation) exempts attorneys engaged in the practice of law from any enforcement action or oversight by the consumer protection bureau.

“This is a significant case, for it may very well involve some significant constitutional issues about the control and practice of law in this country,” Bowers told the Daily Report. Hanna’s firm, he continued, “is not a mill or a factory. It is truly a law firm. … The Georgia Supreme Court has said that Hanna is engaged in the practice of law. Therefore he should not be subject to this suit.”

Bowers is right: Federal law bars the bureau from exercising “any supervisory or enforcement authority with respect to an activity engaged in by an attorney as part of the practice of law” under the laws of the state in which he or she is licensed.

But a bureau spokeswoman noted that the law also says the lawyer exemption in the enabling legislation “shall not be construed to limit” the bureau’s authority to rein in lawyers whose practices are not exempt from other consumer protection laws—foremost among them the Fair Debt Collection Practices Act—already on the books.

She also said the exemption applies only to attorneys who are providing legal services to consumers harmed by abusive or deceptive practices that the bureau was intended to regulate.

Acccording to the CFPB, Hanna’s firm has sued hundreds of thousands of Georgia consumers as a way of collecting on defaulted credit card, mortgage and other debt. The law firm attempts to collect debts on behalf of credit-card issuers such as JP Morgan Chase, Bank of America, Capital One and Discover as well as companies such as Portfolio Recovery Associates and Midland Funding that buy portfolios of defaulted, unsecured credit card debts, according to the consumer bureau. Hanna also is the CEO of Georgia Receivables Inc., a debt collection firm that shares quarters with his law office.

CFPB attorneys are asking a federal judge to bar the Hanna firm from engaging in debt collection practices that violate federal law and levy civil penalties; order Hanna to pay restitution to consumers harmed by what the agency claims is unlawful conduct by the firm; and disgorge an undetermined amount of “ill-gotten revenues.”

In a written statement, the Hanna firm’s managing partner, Joseph Cooling—a defendant in the suit—called the litigation “a very slippery slope.”

“The federal government is attempting to regulate the practice of law, as well as the process by which lawyers exercise their professional legal judgment, literally down to how many minutes it might take an experienced lawyer to make a legal decision or judgment,” he said. “Yet even more troubling is the fact that the very act which created the CFPB contains an explicit exemption for attorneys like our firm representing clients and engaging in the practice of law which specifically prohibits the bureau from taking the very type of action they are seeking now.

“Our firm is a traditional litigation firm hired by creditors to collect unpaid debts through civil litigation,” he continued. “Prior to initiating any lawsuit, we invest an enormous amount of time, due diligence, and effort to ensure that all actions filed by our firm are legally proper.”

The 2010 Georgia Supreme Court case originated in the Governor’s Office of Consumer Affairs (the precursor to the Governor’s Office of Consumer Protection). Like the CFPB, the governor’s office said Hanna’s firm “bears no resemblance to that of a traditional law firm” and contended that debt collection was handled largely by non-lawyers with little legal oversight. The consumer affairs office also noted that the firm was being sued weekly by consumers alleging violations of the federal debt collection laws and that the State Bar of Georgia had not acted on more than 50 complaints filed against Hanna regarding his law firm’s debt collection activities.

In a 4-3 decision written by then-Justice George Carley, the Supreme Court upheld the dismissal of the case against Hanna, ruling that law firms representing clients who were creditors were rendering professional legal services when they collected on debts and, as such, were exempt from the state Fair Business Practices Act “even if certain services were provided by non-lawyers within the firm.”

Carley suggested that consumers might seek relief by complaining to the state bar or to the U.S. Federal Trade Commission, which at the time was primarily responsible for the enforcement of the Fair Debt Collection Practices Act.

Justice Harold Melton, joined by Justices David Nahmias and Harris Hines, issued a passionate dissent.

“Investigating violations of the law that happen to involve lawyers does not automatically amount to impermissibly ‘regulating’ the practice of law, as a lawyer who violates the law is just as subject to investigation as any other common offender,” he wrote. The Fair Business Practices Act, he said, includes no specific statutory exemption that would prohibit lawyers from being investigated when they are suspected of being involved in unfair business practices.

“A lawyer who punches another person in the face ‘on behalf of a client’ would not be shielded from investigation for criminal battery by claiming that punching people in the face was simply part of the way he practiced law on behalf of clients,” Melton wrote. “Similarly, an attorney cannot abuse members of the public by engaging in unfair and unlawful debt collection practices and then shield himself from investigation under the [Fair Business Practices Act] because he was engaging in such unfair practices ‘on behalf of a client.’ A lawyer can, and must, practice law without punching people in the face. And a lawyer can, and must, practice law without violating the [Fair Business Practices Act] by abusing members of the public.”

In a suit filed in federal court in Atlanta against Hanna and his law firm by a man whom Hanna had sued over a debt that allegedly was too old to be legally enforceable and had been bought from the creditor by a buyer of defaulted debt portfolios, U.S. Magistrate Judge Linda Walker this year dismissed claims that Hanna’s firm violated the state’s Fair Business Practices Act, citing the state high court ruling.

In a 2003 case by a Cobb County woman claiming that a debt Hanna sought to collect stemmed from a credit card for which she never applied, never received and never used, U.S. District Judge Thomas Thrash Jr. ruled in Hanna’s favor and dismissed the suit.

Thrash found that Hanna was not liable for damages under federal debt collection laws if he could show that the violation was not intentional and resulted from genuine error. While acknowledging that mistakes had been made in processing the plaintiff’s supposedly defaulted account, Hanna presented the court with an affidavit asserting that the errors were not intentional and that his firm had procedures in place to check that suits were properly filed and that the debt obligations were accurate.

In dismissing the case, Thrash wrote that the plaintiff “presents no evidence outside of the errors made in the filing of the claim against her to suggest that defendant Hanna did not employ procedures reasonably adapted to avoid such errors.”

In 2005, U.S. District Judge William Duffey tossed out another case against Hanna by a consumer who challenged the law firm on the grounds that its collection letter was prepared and sent “without meaningful review by an attorney,” even though “it suggests an attorney and law firm were involved.” Duffey cited affidavits from Hanna and one of his staff lawyers that a firm lawyer either handled or supervised the review of the plaintiff’s debt—from the initial demand letter to the filing of a debt collection suit against him.

Noting there was “the potential for violation” of the Fair Debt Collection Practices Act in law practices lke Hanna’s, Duffey said that “collection practices by lawyers can be improperly managed by putting into place an initial demand letter process in which lawyers do not meaningfully participate. … When letters are sent under the name of a law firm, the lawyers in that firm are legally obligated to conduct a meaningful review of the accounts before such a letter is sent.”

A failure to do so is a violation of the Fair Debt Collection Practices Act, Duffey wrote. But, he said, the plaintiff in the case before him “has not meaningfully investigated the practices in place in connection with the plaintiff’s debt, and the facts presented here are that [Hanna and his firm] did meaningfully review the claims.”