United States: Risks For Debt Collection Lawyers

Last Updated: December 27 2017
Article by Alanna Clair and Shari L. Klevens

Attorneys often think that an aggressive approach to litigation is part of the duty to act as a zealous advocate for clients. But attorneys who represent debt collectors may face additional risks, because California courts have held that litigation tactics may constitute violations of statutes prohibiting unfair debt collection practices.

In particular, the federal Fair Debt Collection Practices Act (FDCPA) regulates what debt collectors can do in collecting debts. The purpose of the act is to eliminate abusive practices in the collection of consumer debts and to promote fair debt collection. A debt collector under the FDCPA includes any person who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due to another. Prohibited acts include making harassing phone calls, communicating with the consumer at her or his place of employment, and misrepresenting the amount of debt owed.

In recent years, a number of courts around the country have attempted to reconcile the protections afforded to consumers under the FDCPA with the absolute litigation privilege for communications in judicial proceedings. As discussed below, courts in California and elsewhere increasingly hold that the FDCPA prevails over the litigation privilege and that attorneys may face liability for their actions in litigating a debt collection lawsuit on behalf of a client.

The Applicability of the Litigation Privilege to Rosenthal FDCPA Claims

Under California law, a violation of the Rosenthal Fair Debt Collection Practices Act (the "Rosenthal FDCPA") establishes liability for violations of the federal FDCPA. In Komarova v. Nat'l Credit Acceptance, Inc., the California Court of Appeals held that, as a matter of first impression, the litigation privilege could not be used to shield violations of the Rosenthal FDCPA. 175 Cal. App. 4th 324, 339 (Cal. Ct. App. 2009).

In Komarova, the plaintiff asserted Rosenthal FDCPA claims against a debt collector who attempted to collect debts from her even after she established that she was not the debtor, but instead just had a very similar name to the debtor. The offending debt collection practices included the filing of an arbitration against the plaintiff and attempting to confirm an arbitration award without obtaining service of process on the plaintiff.

The court expressed concern that, if it found that the litigation privilege applied to such conduct, debt collectors could avoid liability for acts that would otherwise violate the Rosenthal FDCPA simply by filing a lawsuit against the alleged debtor. The court instead held that an exception to the litigation privilege applied to conduct specifically prohibited under the Rosenthal FDCPA. As such, litigation conduct that violated the Rosenthal FDCPA could lead to liability for the debt collector.

Following the lead of Komarova, other courts in California have held that the litigation privilege cannot shield a debt collector from liability under the FDCPA. See, e.g., People v. Persolve, LLC., 218 Cal. App. 4th 1267, 1277 (Cal. Ct. App. 2013) (holding that the litigation privilege does not apply to violations of California's unfair competition law that are based on violations of the Rosenthal FDCPA). While some federal courts in California have reached the opposite conclusion, those cases appear to be outliers. See Petley v. San Diego Cty. Credit Union, No. 16CV891 JM (RBB), 2017 WL 385742, at *5 (S.D. Cal. Jan. 27, 2017) (surveying California law and observing that the weight of recent authority dictates that the Rosenthal FDCPA prevails over the litigation privilege).

The Application of the FDCPA to Lawyers

Courts in jurisdictions around the country have reached similar conclusions. For example, the Eleventh Circuit (interpreting Florida law) held that representations made by an attorney in court filings during the course of debt-collection litigation are actionable under the FDCPA. See Miljkovic v. Shafritz and Dunkin, 791 F.3d 1291 (11th Cir. 2015).

The decision in Miljkovic is noteworthy because the court further held that the plain language of the FDCPA mandates a finding that its provisions apply to lawyers and law firms who engage in debt-collecting litigation and prohibits abusive conduct even when the debt-collecting activity is directed at someone other than the consumer—such as the debtor's attorney.

According to the Eleventh Circuit, prohibitions of the FDCPA apply to all litigation activities of debt-collecting attorneys except for pleadings, which the law specifically exempts. The Court reasoned that the purpose of the statute is to protect consumers and others from abusive debt-collecting practices, regardless of whether the activity at issue is merely a procedural aspect of the litigation.

However, despite this conclusion, the court in Miljkovic affirmed the dismissal of the plaintiff's complaint because it did not find the defendant's conduct to be abusive, deceptive, or unfair under the FDCPA. Rather, the Eleventh Circuit determined that the defendant was simply following discovery requirements under Florida law when it filed a sworn reply disputing the debtor's right to an exemption from a writ of garnishment, which formed the basis for the plaintiff's FDCPA claim.

The court in Miljkovic relied heavily on a Supreme Court case, Heintz v. Jenkins, in which the Supreme Court expressly held that the FDCPA "applies to the litigating activities of debt collector lawyers." 514 U.S. 291 (1995).  In reaching this decision, the Supreme Court considered a prior version of the FDCPA, which contained an exemption for lawyers. The Supreme Court interpreted the lack of an exemption in the current FDCPA as evidence that Congress intended for lawyers to be subject to the Act whenever they meet the general debt collector definition.

This expansive reading of the term "debt collectors" and the potential inapplicability of the litigation privilege places attorneys and law firms who engage in debt collection squarely in the purview of the FDCPA. While such attorneys do not necessarily need to alter the way they litigate cases, an extra level of vigilance can help avoid incurring unnecessary liability.

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