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A lawyer does not become a “creditor” merely by virtue of providing legal services without requiring immediate payment and therefore cannot be sued by a former client under the Truth in Lending Act or the Equal Credit Opportunity Act, a federal appeals court has ruled. In Riethman v. Berry, the 3rd U.S. Circuit Court of Appeals stopped short of holding that lawyers are never covered by the two laws, but found that Congress seemed not to have such professions in mind. The decision upholds a lower court’s dismissal of a suit against Philadelphia attorneys Isobel Berry and David Culp and their firm, Berry and Culp, that was filed by a former client after the lawyers withdrew from a custody battle when a fee dispute erupted. In the suit, plaintiff Harold Riethman argued that lawyers are covered by the federal credit laws since their business practices routinely put them in the position of extending credit to clients. But 3rd Circuit Judge Dolores K. Sloviter found that such an interpretation of the laws would also “embrace doctors’ fees, dentists’ fees, accountants’ fees, psychologists’ fees and virtually all other professional fees.” Considering the goals Congress had in mind when it passed the laws, Sloviter said, “it seems implausible that Congress intended to cover not only banks and other such financial institutions but also all professions.” Riethman had hired Berry and Culp during his divorce, and his initial fee agreement in February 1995 called for billing on a monthly basis. But in 1998, the fee agreement was modified to allow Riethman to make partial payments. During a custody trial, a fee dispute between the lawyers and Riethman culminated in the firm withdrawing as counsel. Riethman and his new wife responded by filing suit. But U.S. District Judge Eduardo C. Robreno of the Eastern District of Pennsylvania dismissed the claims and held that the lawyers were not “creditors” under either federal law. After reviewing a random cross section of the firm’s billing agreements and invoices, Robreno found that the lawyers often continued to perform legal services even after a client had failed to pay a bill that had become due. Nonetheless, Robreno found that since none of the fee agreements gave the clients the “right” to defer payment, with the exception of Riethman’s 1998 amended agreement, the firm could not be considered a creditor. “It is insufficient to trigger ECOA coverage to show that a debtor failed to pay a debt or that a creditor voluntarily chose to delay collection and continue[d] to perform work on behalf of the debtor,” Robreno wrote. “The key element … is whether, under the agreement between the debtor and the creditor, the debtor has a right to defer payment of existing debt or to incur future debt and defer payment at its sole discretion,” Robreno wrote. In a decision handed down on Friday, Sloviter agreed, saying “even if Berry & Culp failed to strictly enforce their rights against tardy clients, the express terms of their fee agreements plainly manifest their right to prompt and full payments.” Sloviter, who was joined by 3rd Circuit Judge Julio M. Fuentes and visiting Judge Paul R. Michel of the Federal Circuit, found that “the hallmark of ‘credit’ under the ECOA is the right of one party to make deferred payment.” Sloviter said Riethman couldn’t point to any language in the legislative history of the ECOA that suggests that Congress was thinking about payment of legal fees when it enacted the law. “We do not suggest that lawyers are ipso facto exempt from the statute,” Sloviter wrote. But the brief from Riethman’s lawyers, she said, asked the court to adopt a broad interpretation of the term creditor. In the brief, attorneys H. Graham McDonald and Alan A. Turner of Philadelphia’s Turner & McDonald wrote: “It is hard to imagine a lawyer with a litigation-oriented practice who performs work for a client on an hourly basis and who does not regularly extend credit to clients in the form of post-service billing. It is the nature of litigation that the court systems require that an attorney perform tasks on the court’s schedule, not on a schedule designed to fit a client’s budget or cash flow.” As a result, they argued, “an hourly paid litigation lawyer is a lawyer who regularly extends credit, whether by choice or not.” Under the Federal Reserve Board’s Regulation B, they argued, the terms “extending credit” and “extension of credit” are defined as “the continuance of existing credit without any special effort to collect at or after maturity.” McDonald and Turner argued that the regulation shows that Berry and Culp’s leniency toward enforcing their contractual rights subjects them to the ECOA. Sloviter disagreed, saying “this provision of Regulation B presupposes an already existing credit relationship between the parties. Unless the fee agreements themselves are credit transactions, the failure of Berry & Culp to collect after ‘maturity’ cannot be an extension of credit.” Because the fee agreements do not themselves extend credit, Sloviter said, “failure to enforce them was not the continuance of existing credit.” And even if Riethman’s 1998 agreement did extend credit, Sloviter found that it was clear that his 1995 agreement and the agreements with the firm’s other clients did not. As a result, Sloviter said, the firm “cannot be equated with one ‘who regularly extends, renews, or continues credit.’” The same logic also proved fatal to Riethman’s claim under TILA. “Berry & Culp did not grant clients the right to defer payment. It follows that the TILA is inapplicable,” Sloviter wrote. Berry and Culp was represented in the appeal by attorney James W. Christie of Philadelphia-based Christie, Pabarue, Mortensen and Young.

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