Thursday, September 29, 2016

Debt Collection: All that stuff you learned in law school still doesn't amount to a hill of beans, Ilsa.

A new Wisconsin Consumer Act case will no doubt be trotted out to run its paces by debt collectors who get sued for debt collecting in the wrong way, but its impact is really nothing at all.

In Smith v. Capital One Bank USA, Smith sued the credit card company for extraterritorial garnishment. The defendants -- Messerli & Kramer, handling one of the 83 gajillion cases each of their lawyers is expected to oversee -- removed the case to federal court and moved to dismiss.

Smith asserted that Messerli & Capital One's actions have violated his federal civil rights, which he asserted were rights under the "Dormant Commerce Clause" and the Full Faith & Credit Clause. The Dormant Commerce Clause is, like the Rule in Shelley's Case, something I once had to know a lot about but in the past 18 years have used absolutely zero times. I use geometry more than I use the Dormant Commerce Clause. So I won't discuss it here. It doesn't matter.

The Full Faith & Credit Clause is the clause that says states have to respect other state's laws. It also does not come into play in my practice, ever, and I won't discuss that, either.

In each case, the Court was unable to discern how Smith, even at the pleading stage, could prove a violation of these acts, and so the Court dismissed the section 1983 claims the debtor brought.

Smith also had a claim under the Wisconsin Consumer Act, but his claim was time-barred; open-end credit plans have a two-year statute of limitations under the Act, and Smith's claims were brought outside that time period.

So the case stands for this: The Constitution does not prohibit extraterritorial garnishment, and statutes of limitations have meaning. I look forward to reiterating that phrase in literally every brief I file in response to a motion to dismiss for the rest of my career, or at least until a new case that has no impact on anything but seems like it might matter comes out, and debt collectors latch onto that.

Sunday, September 25, 2016

Get To Know A Collector: The Lawyer Who Was Too Busy To Be Bothered With Court Hearings.

Last week in Wisconsin, 1,557 small claims cases coded "31001," or seeking a money judgment under $10,000, were filed.  That's in 5 days, so just over 300 per day, statewide. Among the top filers were:

124 by one form or another of "Capital One" entity,

55 by Midland Funding,

49 by Froedtert Memorial Lutheran Hospital,

45 by Marine Credit Union, and

41 of them were filed by "Agnesian Health Care."

Which makes this week's top filer "Capital One"! Of the 124 suits filed by Capital One, 45 were filed by Attorney Gina Ziegelbauer, of Messerli & Kramer, 39 were filed by Elizabeth Schweiger of Blitt & Gaines, and 22 by James Kachelski of Messerli & Kramer.

Attorney Ziegelbauer is the big filer this week, having filed 45 new small claims lawsuits on behalf of Capital One alone. Attorney Ziegelbauer filed 76 new cases this week alone, though, for a total of fifteen new cases per day.  That's a lot of work!

One of Ms. Ziegelbauer's old cases suffered by comparison, though. In case 16 SC 518, in Ozaukee County (Capital One Bank USA NA v. Matthews), Ms. Ziegelbauer failed to appear at a scheduled hearing.  In that case, Capital One had sued the defendant -- presumably for a credit card debt -- but nobody from Ms. Ziegelbauer's office bothered to show up at the court date.

In Ozaukee County, on the 'return date' for small claims cases, the plaintiff's attorney is allowed to file a letter saying that they will not appear. So it is more accurate to say that Ms. Ziegelbauer did not even bother to send a letter to the Court by the court date.

Capital One's case was dismissed, and a motion to reopen was filed, presumably by Ms. Ziegelbauer. Then, Ms. Ziegelbauer didn't show up for the hearing on the motion to reopen, either.

Luckily for Ms. Ziegelbauer, another lawyer from her office happened to be in court at that time. That lawyer was James Kachelski -- who happened to be in court because he was there representing Bank of America on a different case in which nobody from Messerli had bothered appearing in court.

Mr. Kachelski opted to appear for Ms. Ziegelbauer, but had to have the case adjourned because he wasn't able to answer questions about whether the defendant had been served. When Mr. Kachelski did come back with an answer to that question, he asked to have the case dismissed, again.

But not because nobody really cared about the case, and not because two attempts at showing up in court ought to be enough: Mr. Kachelski said Capital One would likely sue the defendant in another county.

As a public service reminder, the Fair Debt Collection Practices Act makes it illegal for lawyers to handle so many cases that they cannot "meaningfully review" each case. So if you've been sued, you should definitely contact a lawyer, but not one who's too busy filing new cases to show up for the old ones.

Sunday, September 18, 2016

Legal Malpractice: The Courtroom doors got a little narrower just now.

Suing for legal malpractice is already a very very difficult thing to do. A plaintiff has to find a lawyer willing to sue another lawyer. The lawyer they hire then has to hire an expert witness -- yet a third lawyer* -- to provide a professional opinion on how the first lawyer screwed up. (With me so far?)

Then, the allegedly-victimized client and his/her new counsel go up against a well-heeled insurance company, which skews the odds against them further. Now, in a recent case, the difficulty of proving legal malpractice was upped a bit by application of the Daubert rule.

The Daubert rule  began as a rule to help courts keep 'junk science' out of the courtroom. It was adopted in Wisconsin in 2011, as part of the Republicans' so-called 'tort reform' bill. It was praised by "litigation defense attorneys,"  (other parts of the packages limited punitive damages, which means taking power away from regular people, i.e., juries).

In Wisconsin, the old standard was that expert witnesses' credentials were determined by the jury: if an expert worked in the field, the expert could testify, and even if it wasn't that expert's actual line of work, the determination of how much credibility to give the witness was up to the jury. I've seen this in action twice, in two malpractice cases. In one, the insurance company hired a lawyer who didn't actually practice in the area of law in question at all; in another, while the lawyer had done some work in that area, the lawyer wasn't really doing much of it anymore.

In both cases the lawyer was allowed to testify, with the jurors deciding how much to believe that person. That is: if you have a lawyer talking about, say criminal defense, and that lawyer has never practiced criminal defense, the credibility you give to that lawyer might be lower than if you were talking to Clarence Darrow.

In Village of Slinger v. Polk Props. LLC, (Unpublished, Wis. Ct. App. 2016) the Court of Appeals applied Daubert to the malpractice arena, and upheld a circuit court's decision striking an expert witness. The expert in question was a lawyer with ample experience in professional ethics, but he was called upon to give an opinion about the drafting of a development agreement for use of land; the dispute arose when the developer decided not to sell the land he'd intended to develop, but instead rent or otherwise use it for agricultural purposes (which it was no longer zoned for). The developer joined the lawyer who drafted the agreement as a third-party defendant, and retained an expert witness to testify that the development agreement had been negligently drafted.

The expert had drafted some of these types of agreements, but only a scant few and not for a long time. Because of that, the Court held that the expert was not qualified to testify about the duty of care imposed on a lawyer drafting the agreement, and struck the witness.

Entertainingly, the Court noted that merely being smart isn't enough to qualify as an expert on a particular topic:

The fact that Albert Einstein may have once bought a home does not make Einstein qualified to give an expert opinion as to the drafting of an offer to purchase. A jury may love to see and hear Einstein, but the court as gatekeeper must ensure that Einstein only offers opinions in areas that Einstein is in fact an expert.

It's neither right nor wrong to apply a strict standard of expertise to any opinion-giver; in fact in one of those cases I mentioned I had asked the circuit court to deny the testimony of the purported expert. But the fact is,  stricter standards of proof on cases, whether they come as pleading requirements or expert testimony qualifications, make it harder to sue. That is why such measures are championed by people who want no litigation (or, since many of the people who favor these laws are defense lawyers, who want litigation so slanted in their favor that it becomes easy money for them.)

Friday, September 2, 2016

Student Loans: We're shooting the albatross

Further and further down the rabbit hole we go with student loans, which you'll recall are loans made by private banks, or the federal government, with little to no risk on the part of the private bank, because most student loans are federally guaranteed, entitled to faster administrative procedures for collection, and have no statute of limitations.

Student loans are thus the apex predator of debt, and are the reason why we are not climbing out of the Great Recession and in fact will likely be in for worse.  Despite that, the government and creditors continue to insanely insist that every student loan debtor be saddled with debt for the rest of their natural lives, regardless of the circumstances.

The latest outrage/judicial ruling comes from In re Jones, an Eastern District of Michigan Bankruptcy Court decision.  Vicky Jones, a registered nurse, filed bankruptcy. She had monthly expenses -- expenses the bankruptcy court found reasonable -- that were only $2 less than her monthly income, meaning that she was able to save or have discretionary spending of TWO WHOLE DOLLARS per month.

Included in those monthly expenses were a $500 per month payment on her student loans. The student loans were not what forced Vicky into bankruptcy but they were (SPOILER ALERT!) what forced her out of bankruptcy.

No, what forced Vicky into bankruptcy was that another creditor (apparently? it's unclear) had recently gotten a judgment against her and garnished her wages to the tune of $650 or so per month.  If you are keeping track, this now means that Vicky's budget is short $648 per month. Give or take.

Vicky's unsecured debts totaled about $150,000, and of those, $131,000 were student loans. Vicky filed for Chapter 7 bankruptcy, which liquidates any non-exempt assets and then discharges (meaning she doesn't have to pay) any debts -- other than student loans.

So Vicky's bankruptcy plan was essentially to get rid of $19,000 in debt to allow her to keep paying her $131,000 in student loans.

In comes the United States government, in the form of the bankruptcy trustee, who objected to Vicky's filing and said it should be converted to a chapter 13. In that chapter 13, the trustee noted, Vicky would make payments for five years to all unsecured creditors, and the creditors who were owed the $19,000 would realize about 20% of their outstanding debts. To this, Vicky replied that such a plan would actually increase her student loans by about $37,000, as well as making her ineligible for at least some post-bankruptcy repayment options on those loans.

The bankruptcy court first had to consider whether the student loans were 'consumer' debt. This is because if you are a consumer, you can be found to abuse bankruptcy under various circumstances, and thus be denied the right to file bankruptcy. The court determined that the debts were consumer debts because Vicky's first petition had said so.

When you file bankruptcy, you have to note the kind of debt you have, and on that first petition, Vicky (presumably through her lawyer) said they were consumer debts. When the trustee filed its motion, she amended her petition to state they were not consumer debts.

Amending claims and petitions to address perceived deficiencies is relatively common, so common in fact that Wisconsin and federal rules allow a party to amend its pleading at least one time without even seeking permission.  I'm not sure what the rules in bankruptcy are, but I do know that despite the fact that amended pleadings entirely supplant the prior pleading, there is a trend among lawyers to argue that earlier pleadings can be used against you.

This is a strange and sad rule, because often a person pleads something based on what they know at the time, and subsequent investigation might cause them to alter or omit that claim. About 50 years ago, the rules of civil procedure in federal courts were liberalized to get past the formalities of law; the idea was that rather than throw cases out on what seemed mere technicalities, the courts and litigants were to focus on the merits and substance of the case. Over the past five years or so, there has been a retrenchment of that liberalization, with formalities becoming ever more important.

Here, the bankruptcy court determined that Vicky was estopped from claiming her debt was not consumer debt, because of that first petition. The court felt that the amendment, coming right after the trustee filed the motion, demonstrated "gamesmanship" and that thus Vicky could not change her position: the debts were deemed consumer debts, regardless of their actual status.

That, in turn, meant that a provision of the bankruptcy code meant to avoid abuse of bankruptcy by consumer debtors applied to this case, and the Court analyzed whether it should dismiss the case. The Court found that Vicky had a stable source of income, and that because her debts could be repaid at least in part to the other unsecured creditors, it was 'premature' for Vicky to file for bankruptcy:

The Court concludes it is premature for the Debtor to seek either Chapter 7 or Chapter 13 relief at this time. First, she could obtain a temporary stay of proceedings while she attempts to negotiate an installment payment of the judgment that she owes. Second, there is insufficient evidence before the Court that she cannot accomplish a debt restructuring of her student loans at this time.
Essentially, this is a ruling that Vicky must first try to work with the judgment creditor, and her student loan lenders, without the protection of the bankruptcy court rule, or alternatively that she can convert her case to a chapter 13.

Bankruptcy is meant to treat all creditors fairly; it's not a debtor's law at all. (Many, many laws seemingly enacted in favor of debtors are in fact laws that were favored by and provide benefits to, creditors. Any marital property law fits that definition, for example, because it expanded creditors' ability to lend to people who otherwise might not be able to borrow, and collect from people who had not in fact borrowed.)

What this judge here did is send Vicky back out of bankruptcy court, where she would have to try to prefer two specific creditors -- the judgment creditor and the student loan lender -- over the others. But also, while Vicky is negotiating, those other creditors are free to sue her and obtain judgments if they can, and try to collect against her as well.  It is exactly the kind of free-for-all that bankruptcy was intended to avoid.  Alternatively, if Vicky converts to a chapter 13, that extends the delinquency and bad marks on her credit as much as five more years. (Most delinquent credit records stay on your credit report for 7 years. Bankruptcy stays for 10 years after discharge, so a chapter 13 bankruptcy might result in bad credit for 15 years, as opposed to 7.)

Chapter bankruptcies are also more expensive, because lawyers charge more for them, and because debtors have to pay the bankruptcy trustee a portion of the payments of the case (the last I heard, the payment was equal to 10% of their total payments throughout the plan.)

Many bankruptcy trustees are paid only if there are "assets" in the case. That means that chapter 7 bankruptcy trustees make money by finding assets they can sell, and take a cut of, on behalf of creditors. Chapter 13 trustees also make money by the payments from debtors. While bankruptcy trustees are technically employed by the US government, in Wisconsin they are mostly private lawyers who have their own practices, some of which is acting on behalf of the 'official' bankruptcy trustee.

So what appears to have happened here is that a lawyer -- the trustee-- objected to a bankruptcy and wanted it converted to a more expensive form of bankruptcy that would pay fees to the trustee.  The effect of that conversion would be to increase Vicky's student loans (nondischargeable, easily collectible, with no student loans) by some $37,000, while paying other creditors 20% of the amount they were owed. To do this, Vicky will also have to pay her lawyer, and the bankruptcy court more.  Remember: Vicky started this process having only $2 leeway in her monthly budget.

This is America.

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.