U.S. Court of Appeals 2nd Circuit rules disclaimer shields firm from

(This article originally ran in Lawyers Weekly USA, Boston, MA, another Dolan Media publication.)

A recent 2nd Circuit decision holding that a disclaimer in a law firm's debt collection letter was sufficient to immunize it from liability under the Fair Debt Collection Practices Act could cause more lawyers to adopt safe harbor language.

For collection lawyers, the decision is a nuclear explosion, said Manuel Newburger, an Austin, Texas consumer law specialist. Virtually every collection law firm will consider using the language [in the case], and most will adopt it.

David M. Schultz, a partner at Hinshaw & Culbertson in Chicago who represented the defendant law firm, agreed.

This is going to be copied in other jurisdictions, he predicted.

The debtor in this case received a collection letter on firm letterhead seeking payment for a delinquent account. The letter included a disclaimer stating that no attorney had reviewed the debtor's file.

The debtor sued under the Fair Debt Collection Practices Act, alleging that the letter was misleading.

But the 2nd Circuit affirmed dismissal of the claim, explicitly endorsing the language the law firm used in its letter.

Lawrence Katz, who represented the plaintiff, said the decision does a disservice to consumers.

In other circuits, decisions have said that lawyers need to be materially involved when they send a collection letter, because debtors that receive them are on hyper-alert, he said.

Katz, a partner at Katz & Kleinman in Uniondale, New York, who concentrates in fair debt and consumer rights work, noted that the decision leaves some unanswered questions.

Doesn't sending a lawyer's letter imply that something further is going to happen here? he asked. If the lawyer isn't materially involved in the first letter, at some point, he or she will be. ... It begs the question, what's the next case?

'Least Sophisticated Consumer'

Andrew Greco received a letter from Trauner, Cohen & Thomas, LLP, seeking to collect payment for a delinquent account Greco had with Bank of America.

The letter included a disclaimer which read: At this time, no attorney with this firm has personally reviewed the particular circumstances of your account. However, if you fail to contact this office, our client may consider additional remedies to recover the balance due.

The debtor sued the firm under the Fair Debt Act.

He argued that the letter violated the Act by misleadingly representing the level of attorney involvement - in violation of Sect. 1692(e) - because it was signed by the firm and written on firm stationery, implying that the firm had analyzed the debtor's case and rendered legal advice to the creditor.

But the 2nd Circuit disagreed, affirming dismissal of the complaint.

[The debtor's] claim rests on a misunderstanding of the [Act's] requirements. ... One cannot, consistent with the [Act], mislead the debtor regarding meaningful 'attorney' involvement in the debt collection process. But it does not follow that attorneys may participate in this process only by providing actual legal services. In fact, attorneys can participate in debt collection in any number of ways, without contravening the [Act], so long as their status as attorneys is not misleading. ... [An] attorney can, in fact, send a debt collection letter without being meaningfully involved as an attorney within the collection process, so long as that letter includes disclaimers that should make clear even to the 'least sophisticated consumer' that the law firm or attorney sending the letter is not at the time of the letter's transmission, acting as an attorney, the court said.

Here, the defendants' letter included a clear disclaimer explaining the limited extent of their involvement in the collection of [the debtor's] debt. The defendants state that, although 'this office represents the above named [creditor]' in the collection of [the debtor's] debt, '[a]t this time, no attorney with this firm has personally reviewed the particular circumstances of your account.' Nothing else in the letter confused or contravened this disclaimer of attorney involvement. In light of the disclaimer ... the least sophisticated consumer, upon reading this letter, must be taken to understand that no attorney had yet evaluated his or her case, or made recommendations regarding the validity of the creditor's claims. ...

Accordingly, ... the defendants had not used any 'false, deceptive, or misleading representation or means in connection with the collection of any debt,' 15 U.S.C. Sect. 1692(e), including the 'false representation or implication that any individual is an attorney or that any communication is from an attorney,' 15 U.S.C. Sect. 1692(e)(3), with meaningful involvement as an attorney in the debtor's case.

What Now?

Newburger said the decision could decrease costs for consumers.

With this disclaimer language, lawyers do less work, charge less fees and therefore, less fees are passed on to consumers, he explained.

Katz worries that even with safe harbor language, debtors will still be confused about their rights.

The problem is that debtors receive these lawyer letters and it gets their knees knocking, he said. Even with disclaimer language, consumers assume that simply because a law firm is involved, the debt may be valid.

And just as importantly, Katz said, consumers will wonder: what happens next?

What about the second letter? he asked.

But Newburger believes there will be virtually no impact on consumers.

If a debtor gets a letter, he either pays the money or he doesn't, he said.

Katz pointed out that although the debtor can't sue under the Fair Debt Act, he may be able to pursue an ethical complaint against the firm.

Other cases have established that an attorney can violate state ethics rules without necessarily violating the Act, he said.

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