Sunday, August 28, 2016

Debt Collectors in Action! Know Your Debt Collector.

Last week in Wisconsin 134 civil cases were filed with the case code "Money Judgment." The top filers, going by the attorney listed on the case were:

Attorney Paul Thielhelm, 15 cases filed.

Attorney Gina Ziegelbauer, 5 cases filed.

There were a host of lawyers with three cases filed, too many to list here.

Attorney Paul Thielhelm works at Gurstel Chargo, having joined the firm a year ago. His bio says that when he's not trying to collect debts, he likes baseball and family. He's been a lawyer for 10 years now, and in that time according to online court records, Attorney Thielhelm has been counsel of record in over 2,500 cases filed on behalf of Discover or a Discover-related entity, which is about 250 cases per year.

Gurstel Chargo has offices in 6 different states and employs 32 lawyers according to its website.

Thursday, August 25, 2016

Debt Collectors In Action!

Unifund, CCR, is a debt collector. It says so on its website where it provides information about the federal Fair Debt Collection Practices Act (FDCPA) which applies only to debt collectors.

The FDCPA applies only to people collecting consumer debts -- debts incurred primarily for personal, family, or household purposes.  Unifund knows this, presumably, because its website includes statements notifying customers about rights under the FDCPA.

Unifund in turn knows that the FDCPA applies to it because it says on its website, too that,

Unifund has been a pioneering company in the service of consumer debt. In the more than 25 years since our founding, we have been helping consumers by lowering the cost of credit, resolving accounts at a discount when appropriate, and treating all consumers with respect they deserve during this challenging process.

That's a lot of use of the word "consumer"!

Another place that used the word 'consumer' for Unifund was the Federal Trade Commission, which in 2013 said in a formal report on the debt-buying industry that Unifund was the 5th-largest purchaser of consumer debt in the United States.

Unifund sued a guy in Brown County, Wisconsin, and that guy counterclaimed by asserting that Unifund violated the FDCPA and Wisconsin Consumer Act.

Unifund, represented by the Kohn Law Firm in Milwaukee, responded by filing -- on July 30, 2015, again on October 30, 2015, and again on March 28, 2016, and again on August 23, 2016 (that's four times!) motions to dismiss in which Unifund asserts that nobody can prove it was trying to collect a consumer debt.

Unifund's other arguments in the case include an assertion that the billing statements sent by a prior creditor are actually the 'notice of right to cure default' required by the Wisconsin Consumer Act. This theory was discredited by a federal court ruling last year in Johnson v. LVNV.  

So Unifund's two defenses are: you can't prove that we are what we say we are, and hey, maybe that federal court ruling will be ignored by another judge.

Unifund has also made numerous requests to reschedule the case, resulting in the case now having been around for 19 months. Most recently Unifund has argued to the Court that the defendant it is suing should not be allowed to use the discovery process provided by law to obtain evidence of the debt Unifund claims he owes.

Oh, and by the way: Unifund has several times offered to dismiss its case if the defendant will dismiss his counterclaims.

If you've been sued by Unifund in the past year, call a lawyer.

Monday, August 8, 2016

Debt collection: If you choose not to decide, you still have made a choice.

Not a Rush fan? Doesn't matter, as the title is only to lead into the general topic of how to tell if someone really intends to do something when they say they will do something.

The Fair Debt Collection Practices Act prohibits debt collectors from threatening to take any action they don't actually intend to take, but that raises the question of how do you know if they intend to actually do that thing?  The answer, as always, depends on the circumstances.

Those circumstances arose most recently in Covington v. Franklin Collection Servs., Inc. (D. Kan. 2016), in which a debt collector was originally sued for improperly threatening litigation without actually intending to sue.  The collector put in the letter this statement:


The debtor contended that to be an illegal threat to litigate when the collector didn't actually intend to do so.  The district court disagreed, citing a New Jersey district court opinion approving of that exact language. The debtor had suggested that the Kansas court disregard the New Jersey opinion as 'conclusory,' but the Kansas judge adopted that rule for Kansas, as well, deciding that it was in keeping with most circuits' rulings that indirect threats of litigation aren't threats of litigation.

The debtor then attempted to amend the complaint to allege that the collector's threats (in that same letter) to report the debt to a credit agency were false threats, because in the intervening time between the letter and when the suit was served (about 45 days) the collector hadn't actually done so. The court denied leave to amend on those narrow grounds, holding that simply not having done so in that time wasn't sufficient to create an issue of fact about whether the debt collector had intended when it sent the letter to actually report the debt:

As plaintiff highlights, however, defendant's lack of intent can be established in other ways, including evidence that defendant routinely threatens to report debts but rarely does so regardless of whether suit is filed.

The court allowed leave to amend to make only that claim, if the debtor felt it wanted to do so.

Friday, July 29, 2016

Student Loans: The Debt That Keeps On Giving

Student loans are the debt that will drag America under for the next recession, which is likely to hit in just a few years, as low taxes are associated with boom-and-bust economies and the current market valuation is almost identical to the markets in 1999 and 2008.

But if there were any thoughts that perhaps, just perhaps, student loans might be treated like (most) other debt and that sanity would again reign in the higher-education arena, those thoughts have been dashed by the latest exemption provided student loan creditors: they now don't (really) need to comply with the Telephone Consumer Protection Act.

The TCPA, a law of extremely dubious utility to most debtors and yet somehow a hindrance to most businesses, has become a terrible mishmash of rules and exemptions and loopholes and overlitigation. The November 2015 changes to that law did not help: In November 2015 as part of a budget bill, Congress amended the TCPA to exempt calls that are "solely" for the purpose of collecting debt owed to or guaranteed by the US government.

That 99.9% of the people who will be affected by this law are student debtors seems obvious; that creditors and collectors will rush to take advantage of this loophole is less apparent but understood by all.

In Workman v. Navient Solutions, (SD IN 16 CV 457), the plaintiff alleged that beginning in November 2015, Navient called her "often several [times] per day," and that she had her lawyer write a cease-and-desist letter. Which should be called a "cease letter" but let's not get distracted.

In either case, Navient moved for judgment on the pleadings, citing the November 2015 amendments to the TCPA.

Workman asked the federal court to stay the case, arguing that the FCC was given rulemaking authority to implement the law, and that it was not clear whether or how the FCC would limit the carte blanche Congress handed student loan collectors.  The federal court denied the stay on July 27, 2016, likely meaning Workman's claim will be dismissed.

The FCC was supposed to issue new regulations by August, although the Workman court noted that one FCC commissioner felt the rules would not be completed by then.  It appears that the FCC will limit the authority at least a bit, as the proposed rules would limit the frequency and number of calls, as well as the people who might receive calls.

The bottom line, though, is that if you are a student loan debtor, your debts cannot be discharged in bankruptcy, you can be garnished without a court hearing, there is no statute of limitations applicable to most of the student loans, and now student loan collectors are exempted from a law meant to protect debtors from harassment.

Debtors who owe gambling debts, credit card debts, and loans for risky business ventures are treated better than debtors who borrowed money to go to school, only to have their decision not pay off in the way they hoped -- meaning they ended up in a job that earns less than they had expected (or they were unable to finish school.)

The decision to treat student loans differently has zero to do with smart economic policy or support for lower-income students (the original purpose behind federal student loans.)  70% of all students graduate owing student loans, with the average amount owed being about $29,000.  Student loan debt is growing at twice the rate of inflation.  20% of all student debt is made up of 'private' student loans-- lenders who are not governed by many regulations, but have their debts guaranteed by the US Government and thus are exempted from most consumer protection laws.

Whose decision was it to allow lenders to make loans without considering ability to pay or financial solvency, then to guarantee those debts, and then to exempt those debts from bankruptcy and consumer protections? Probably not your decision.

Student loan companies have spent $44,000,000 or so lobbying the government for changes in the laws in the past 10 years, and contribute about 90% of their campaign money to Republicans. 

Whose decision was it to allow lenders to make loans that have zero risk to the lender, and yet tie debtors down for decades? It was the lenders' decision.

Tuesday, July 26, 2016

Debt Collection: It's not who you know, it's what law you know.

Do lawyers have the luxury of not knowing the law? Increasingly it is becoming clear that to effectively practice law a lawyer has to know more than simply the main area in which they practice. This may not be true for extreme specialities -- patent litigation, for example -- but for anyone practicing law in the consumer areas (family, debt collection, bankruptcy), a failure to know at least the basics of the other related areas can end up hurting your clients.

That shows through in a recent FDCPA opinion, Morgan v. Vogler Law Firm, (ED MO July 2016), in which a pretty-detailed knowledge of how Missouri contract statutes of limitation work helped keep a debt collection suit alive -- and shows why landlord-tenant lawyers, family law lawyers, and others should know about the FDCPA, too.

In Morgan, the plaintiff rented an apartment from Reynolds, and had an agreement that he would do maintenance and repair work in exchange for rent.  This worked well until out of the blue Morgan got a bill for $21,000 for past-due rent, going back to 2007.  Morgan disputed the debt to the law firm that wrote him, saying he'd had an agreement of services in lieu of rent.  The law firm, in response to the dispute, provided Morgan a handwritten ledger that showed rent of about $14,000 due, and which ledger ended nearly 2 years prior to the date on the dunning letter. The second letter from the law office had a different signature for nearly the same name.

The firm filed suit for the rent, and Morgan filed for bankruptcy, as the court says:

because, although he did not owe the debt, he could not afford thousands of dollars it would cost to hire an attorney to defend the suit.

I frequently hear complaints from debt collectors about how I am (supposedly) just running up fees to try to force collectors to settle suits I bring against them. I don't do that (I don't have the time to churn cases, and it wouldn't work anyway) but the fact is, debt collectors are better suited to defend lawsuits than debtors, many of whom default or file bankruptcy because lawyers don't know how debt collection law works, or because there aren't enough consumer protection lawyers out there.

The firm didn't get actual notice of the bankruptcy -- for some reason they apparently weren't listed on the schedules -- and so got a default judgment and then a garnishment against Morgan. The day the garnishment was issued, Morgan's bankruptcy lawyer contacted the Vogler firm to tell them of the bankruptcy, but the firm did nothing for some time and Morgan eventually had to hire a lawyer to undo the damage in the state court.

Morgan got around to filing suit; it's not clear if his claims were listed in his schedules or not, another necessity lawyers need to know about, but it didn't matter for purposes of this opinion, which was issued in response to the defendant's by-now-de-rigeur motion to dismiss the case.

Of Morgan's many claims, only a few were dismissed and the rest were allowed to proceed.  The ones of interest include:

Debt Validation:  Morgan's claims that the debt was not properly validated proceeded because the firm demanded $21,000, then sued for $24,000, but validated only $14,000 of the debt. While validation and verification are mostly meaningless steps in such actions, recognizing when they are not meaningless is important. Here, because the debt collector could only validate 2/3 of the debt, it could not sue on the unvalidated portion.  

Continuing a lawsuit: The Court found it important that although the firm did not know about the bankruptcy when it filed the collection action, it had learned about the filing by July 9, and

The Vogler Firm promised to set the default judgment aside and filed a motion to do so on July 9, but they did not call their motion up for a hearing until October 27, 2015. In the meantime, the default judgment remained a matter of public record and decreased plaintiff's credit score. Plaintiff had to hire another law firm to enter an appearance on his behalf to effectuate the setting aside of the default judgment. The collection lawsuit was dismissed on October 27, 2015, as well.

Recognizing that the mere existence of the suit caused harm to the defendant is a huge step; leaving a lawsuit as a public record when there is no right to continue the suit violates the FDCPA.

Strict liability: The Morgan court also noted that despite everyone agreeing the firm had no actual knowledge of the bankruptcy, that didn't matter for purposes of whether the plaintiff had stated a claim:

Furthermore, defendants do not refute that they failed to promptly correct the default judgment after they did have actual knowledge of the bankruptcy stay. In light of the strict liability imposed by the statute and plaintiff's allegations of damages stemming from that delay (during which plaintiff was forced to obtain counsel to correct the default judgment), the motion to dismiss these claims is denied.

While maybe later the firm would prevail on a bona fide error defense, it's nice to see courts recalling that 'strict liability' means strict liability. Or, put another way: you don't have to know what the speed limit is to get a ticket.

State laws matter, too: Morgan also prevailed on two issues. First, the Court held he stated a claim under a Missouri law that provided compensation for unlawful actions; the plaintiff's bankruptcy resulting from the lawsuit stated a claim for violation of that law.  More importantly, and secondly, the case involved a detailed discussion of the differences in how statutes of limitation are counted for various debts in Missouri, which resulted in the Court finding that the law firm couldn't sue for rent which had been owing more than five years at the time of filing.

The upshot: The sad thing is, had there been more consumer lawyers in Missouri, the plaintiff might not have had to file bankruptcy and then this suit. Since Missouri law apparently barred all debts older than 5 years, that would have eliminated 3 years' worth of debt from the state-court suit, and since Missouri law also allowed a claim against the landlord for seeking that money (it seems) a competent lawyer could have defended the man in court and sought damages. (I don't know if those are fee-shifting laws in Missouri but they would be in Wisconsin.)

At the same time, a lawsuit could have been started against the Vogler firm based on the two dunning letters, before the collection action was filed, and maybe avoided it altogether. Instead, Morgan filed bankruptcy, damaging his credit for about a decade and having to notify everyone he owed money to that he was doing so.  Properly understood, the Vogler firm's actions need not have led to that.

Tuesday, July 19, 2016

Bankruptcy: Lawyers might not be able to discharge malpractice claims.

It seems to go without saying that representing a client one cannot communicate with, and therefore relying on opposing counsel to translate for you, is bad. How bad it is, though, depends a bit on the context. Recently, the 7th Circuit Court of Appeals decided that question in a bankruptcy context, and the answer was "really pretty bad." (Not a direct quote.)

In Cora v. Jahrling, the 7th Circuit upheld a bankruptcy court's determination that such a lawyer's malpractice constituted 'defalcation' ("a word only lawyers and judges could love" the Court noted) under the Bankruptcy Code, and thus created a nondischargeable debt.

The case arose from Jahrling's representation of Cora in a house sale; Cora, who spoke only Polish, was representing by Jahrling in the closing. Jahrling did not speak Polish, so the buyer's counsel translated. Cora had wanted a life estate in the property, but Jahrling did not ensure that the transaction included such language; and the property sold for substantially less than the fair market value.

Jahrling lost his malpractice suit in state court, filed for chapter 7, and then had to defend Cora's adversary action seeking to hold the debt nondischargeable. The bankruptcy court held that Jahrling's conduct, which violated several Illinois ethics rules, was 'defalcation,' and the 7th Circuit upheld. It noted that 'defalcation' required essentially a criminal level of intent, but also held that from the circumstances of the case the Court could infer that such intent had existed at the time.

Much of the opinion was devoted to putting down Jahrling's contentions that the evidence couldn't show that state of mind, which is a subjective issue. The Court shot all such arguments down, noting that either intentional criminal behavior, or recklessness to a criminal level, would warrant a finding of 'defalcation,' and that the state of mind could be inferred (at least in part) from the fact that the error was so obvious.  Don't confuse a state of mind with the manner of proof of that state of mind, the Court noted.

Friday, July 8, 2016

Foreclosure: First the court giveth, then it taketh away.

Borrowers' rights to have lenders actually comply with the law and act in good faith took a step forward this week in Wisconsin, although that step is an unpublished step that will, no doubt, be minimized by bank's lawyers as they work their way through their 3000-billable-hour requirements by processing foreclosure after foreclosure.  Still, it's something.

In KNA Family LLC v. Fazio, the Wisconsin Court of Appeals reversed a summary judgment decision granting a foreclosure judgment, finding there were issues of fact raised by affirmative defenses, as well as a question of whether the court properly exercised its equitable authority.

The defenses were based on a fact situation that has occurred twice now in appellate case law in Wisconsin, and that, combined with the fact that the defense claims essentially lost twice in this case but persisted somehow is why I say bank lawyers won't be bothered by this at all; why bother to pay attention to unpublished law, or even law of the case, when you need to get your billable hours and courts don't do anything about your conduct anyway?

The fact situation boils down to: the borrowers requested a payoff statement on the loan, and had a sale pending on the house. The lender didn't provide the payoff statement, and instead foreclosed. That's a bit of a simplification, but it's the basic framework.

In the foreclosure, the Fazios raised the failure to provide a payoff as a counterclaim under a California statute (the loan apparently originated in California, or had some tie there) and as a breach of the good faith duty of contract. US Bank, the original plaintiff, assigned the note around the time of foreclosure, but remained in the case as a counterclaim defendant. US Bank moved to dismiss the counterclaim, arguing that California law didn't apply. The circuit court agreed, dismissed the counterclaim, and the Fazios appealed. The Court of Appeals reversed, holding that California law applied to a counterclaim for damages despite contractual language that vaguely suggested it might possibly be that maybe it didn't.

Back to circuit court! KNA moved for summary judgment, and argued that the affirmative defenses of breach of good faith and violation of California law didn't bar foreclosure. The circuit court agreed, saying it had already decided California law didn't apply, and that the lender and its predecessors had not engaged in unfair practices.

Keep in mind that in Deutsche Bank v. Pauk, an earlier (but still recent) Wisconsin appellate case, the Court of Appeals had expressly (if unpublishedly) held that failure to provide a payoff is a defense to foreclosure.

The Fazios appealed again, and the Court of Appeals found Pauk persuasive, and ruled in favor of the defendants, holding that they'd stated a defense to foreclosure because they could prove damages from the failure to provide a payoff, and those damages -- at least $300, but maybe more -- affected the redemption amount.

That's an important point in a lot of respects. The key rules here are

1. Affirmative defenses and counterclaims equally can bar foreclosure if the claim might reduce or eliminate the amount for redemption.

2. Lenders cannot avoid the results of their poor conduct by assigning the note -- assignees are subject to the same claims and defenses the assignor would have been.

That's the good news.

The bad news? The court not only made this decision unpublished, but also it's a per curiam decision, so it can't be cited in any court.