A federal law designed to protect consumers is doing the opposite for creditors rights attorneys — stripping them of defenses and heightening their exposure to legal malpractice suits.
The Fair Debt Collection Practices Act aims to combat unfair, abusive and deceptive debt collection practices.
But a series of court decisions against law firms, plus the act’s provision of attorney fees for prevailing plaintiffs — but not prevailing defendants — are creating an unintended consequence: an aggressive plaintiffs bar and a new cottage industry putting attorneys on trial.
“There are a lot more land mines,” said Klein Glasser Park & Lowe partner Richard Jones in Miami, a malpractice defense attorney who’s seen an uptick in litigation. “It’s enough cases where you stand up and take notice.”
Fort Lauderdale-based Tucker & Tighe took notice when it found itself defending three lawsuits by clients of the Ferrer Law Group and the Law Office of Michael T. Ross, which federal court records show represented plaintiffs suing at least three other firms — Tripp Scott, Business Law Group and Dania S. Fernandez & Associates — under the FDCPA.
“The Federal Debt Collection Practices Act kind of changed the world,” J. Randolph Evans, an Atlanta partner at Dentons, said in an interview discussing attorney exposure. “What we know now is that as a debt collector … you’re subject to these enormous restrictions that carry with them pretty severe penalties for violations. And you get no protection for having been an attorney.”
For Tucker & Tighe, the first lawsuit ended with a $2,374 offer of judgment, plus $5,500 in attorney fees for the plaintiff and $553 for his court costs.
Consumer rights attorneys say the suit is an example of efforts to curb unscrupulous debt collection practices. But firms caught in the cross hairs suggest they’re targets of an overzealous plaintiffs bar banking on the law’s provision for prevailing plaintiffs.
“This is their business plan,” Tucker & Tighe counsel Daniel Brennan said. “It’s all about attorney fees.”
No Place To Dabble
Congress enacted the FDCPA to expand existing regulation and combat unfair, abusive and deceptive debt collection practices. It included multiple consumer protection provisions, including a private right of action against debt collectors who break the law. An amendment in 1986 removed a statutory exclusion for attorneys, prompting a trickle of legal malpractice suits that turned into a steady stream in the last two years, supported by a new body of case law.
“More recently we’ve seen the courts continue to expand the cause of action so that now literally any litigation activity … can be a violation of the act,” said Evans, co-chairman of the Georgia Judicial Nominating Commission and co-author of eight books on legal malpractice.
“Attorneys are reaching beyond their expertise,” he continued. “This is a highly specialized area that lawyers who specialize in debt collection should handle. It’s not a place to dabble.”
A landmark 2015 ruling from the U.S. Court of Appeals for the Eleventh Circuit in Miljkovic v. Shafritz and Dunkin drove that point home in a case of first impression. It found attorneys’ filings in debt collection litigation actionable under the FDCPA even if counsel direct these filings to debtors’ attorneys and not consumers. The idea is that attorneys will relay the messages to their clients so the content must comply with the law that sets strict restrictions on communications for debt collection purposes.
“Litigation privilege is under attack, and there are questions about whether communications between lawyers are privileged,” Jones said. “It’s one of those things where the pendulum has really shifted one way, and the question is whether it shifts back the other way.”
A further shift came in 2016 in a class action that pitted Connie Bishop against Stuart-based community association law firm Ross Earle & Bonan and its partner Jacob E. Ensor. The suit stemmed from the firm’s 2014 debt collection letter, in which the attorneys properly informed Bishop she had 30 days to dispute the debt but failed to tell her she had to do so in writing.
Under the FDCPA, collectors must inform consumers of their right to dispute debts in writing within 30 days of a collection attempt. The law requires collectors to provide these notices during the “initial communication” or within five days.
Bishop filed what she hoped would become a class action lawsuit, but the first round of litigation was won by the firm after the district court dismissed her complaint with prejudice for failure to state a claim. She appealed, presenting three issues of first impression to the Eleventh Circuit. First, the court had to determine whether a debt-collection letter sent to a consumer’s attorney could trigger an FDCPA violation. Then it considered whether Ross Earle & Bonan’s failure to tell Bishop about her right to dispute the claim in writing “advances the purpose of the FDCPA” and constituted a false, deceptive or misleading practice under the act.
The judicial panel joined the Third, Fourth and Seventh circuits in holding that a debt-collection notice sent to a consumer’s attorney is an “indirect” communication with the consumer and constituted “initial communication.” It also rejected the law firm’s argument that the law gave “debt collectors discretion to omit the ‘in writing’ requirement or cure improper notice by claiming waiver.”
“We see no basis in the FDCPA to treat false statements made to lawyers differently from false statements made to consumers themselves,” the court ruled. “We conclude, therefore, that this case is not an appropriate vehicle to adopt the ‘competent lawyer’ standard in any form.”
Malpractice defense attorneys sounded the alarm, citing the ruling as the latest potential pitfall.
“There was a time that debt collecting for clients was something first- and second-year attorneys did as part of training. Those days are long gone,” Evans said. “Even for the most experienced attorneys, this is certainly an increase in exposure.”
Tucker & Tighe’s exposure came in a January case stemming from the firm’s attempt to collect nearly $5,300 from Walter Lebeau on behalf of Olivewood Condominium Association Inc. Its demand letter listed $5,145 in past-due condo association assessments and penalties, $125 in attorney fees and about $8 in postage.
But Lebeau’s lawyers say Tucker & Tighe inflated their client’s debt by at least $2,650, improperly billed him for the association’s attorney fees and violated the FDCPA in multiple ways by seeking excess interest and penalties.
“We’re coming in and holding the law firm accountable,” plaintiffs counsel Lourdes Ferrer of the Ferrer Law Group in Weston said. “This is something that lien foreclosure and collections firms have being doing in volume. I understand the communities need to collect … but I do believe there is a checks-and-balances system to hold law firms and other debt collectors accountable.”
Lebeau’s suit described him as agoraphobic and claimed the stress of Tucker & Tighe’s collection efforts and fear of foreclosure exacerbated his condition and forced him to sell his home below market value.
“Debt collectors often mislead consumers as to their rights and their legal authority to collect a debt,” said Lebeau attorney Michael Ross.
In Lebeau’s case, Ross argued the association illegally collected a $3,000 deposit for future assessments but failed to apply those payments to the unit owner’s account.
An investigation into Olivewood’s charges to Lebeau ended with a citation and warning letter from Florida’s Department of Business and Professional Regulation. Plaintiffs attorneys say Olivewood’s failure to post his payments triggered a delinquency that Lebeau tried to explain to Tucker & Tighe, but the firm continued to press for collection.
“I’m not exactly a big fan of these association law firms. … They’re trying to get out collection letters as quickly as possible without verifying whether that information complies with the law,” Ross said. “They don’t want to look at the 100-page contract and figure out what’s actually owed because that takes work.”
Lebeau sought statutory damages under the FDCPA, which caps potential awards at $1,000 per violation, and actual damages for losses on his condo sale.
Tucker & Tighe conceded fault, claiming it missed an error in the association’s accounting ledger.
Lebeau’s attorneys say the misstep reflected a haste to initiate collection and generate bulk business.
But Tucker & Tighe suggests the plaintiffs firm used its admission of error to make it an unwitting target for more FDCPA litigation.
“I think now there’s an unintended consequence of abuse. Certain attorneys search out these violations, and this is how they make their business,” Brennan said. “We recognized there was an inadvertent violation and offered to settle. But then the months that followed was all about attorneys’ fees.”
The case seemed headed to a close within about 40 days with the $2,374 offer “plus reasonable costs and fees.”
But a fresh dispute erupted over what each party considered “reasonable.”
Court records show Lebeau’s attorneys billed $13,729 but reduced the amount to about $12,615. They billed for 13.2 hours for Ferrer at an hourly rate of $450 and 16.8 hours at $350 an hour for Ross. They also billed $185 per hour for a paralegal who worked 3.1 hours and $170 an hour for another who worked 1.3 hours.
U.S. Magistrate Judge Lurana Snow in Fort Lauderdale granted the request and awarded plaintiffs lawyers $5,500 in fees and $553 in court costs.
“There were nine docket entries in this case before the instant motion was filed,” Snow wrote in a report and recommendation issued June 7. “The sub-par manner in which the plaintiff’s motion, reply, supplement and objections were prepared has resulted in the expenditure of more court time on this motion than on the entire case prior to its filing.”
Ross defended the Lebeau team’s billing, saying the charges were within market rates for firms without high-volume customers.
“You get no sympathy from me,” Ross said. “If you follow the law, you don’t get sued. If you do what you’re supposed to, you don’t get sued. The true problem is that these lawyers do not wish to comply with the law that has existed for decades. … They’re not doing their jobs.”