Eleventh Circuit’s Mistaken Interpretation Likely to Expose Attorneys to Increased FDCPA Liability

The Eleventh Circuit Court of Appeals recently handed down a decision that went too far in holding that all litigation related activity is subject to the FDCPA. The decision in Miljkovic v. Shafritz & Dinkin, P.A., et al., is available here.

In pursuing their client’s judgment, an attorney and law firm obtained a garnishment against Nedzad Miljkovic. Miljkovic filed a claim for exemption in response, which the creditor, through its attorneys, disputed in a sworn reply. However, the writ was eventually dissolved on the creditor’s attorney’s motion after Miljkovic provided discovery showing that his wages were exempt from garnishment under section 222.11(2), Florida Statutes.

Miljkovic Sues Opposing Counsel

Miljkovic filed suit in federal court, alleging that the creditor’s attorney’s reply was abusive, misleading and unfair under several provision of the FDCPA. The defendant law firm moved to dismiss for failure to state a claim, arguing that the FDCPA does not apply to representations made in court filings by attorneys in the process of collecting a debt and, in addition, the reply was not an actionable communication because it was directed to the court and debtor’s counsel, not the debtor.

The district court agreed with the defendant law firm and dismissed the complaint finding that the FDCPA did not apply to the attorney’s litigation conduct at issue and, even if it did, the complaint failed to state a claim on which relief could be granted. The debtor appealed.

Miljkovic Loses On Appeal

The Eleventh Circuit ultimately rules against Miljkovic, reasoning that the creditor’s attorney’s sworn reply was not misleading or deceptive because it did not misrepresent the writ of garnishment, it correctly stated the amount of the debt, it correctly identified the holder of the debt, and it did not contain “false or deliberately ambiguous threats” of future litigation. Rather, the Eleventh Circuit noted, the court filing at issue simply contained the defendants’ legal position on the debtor’s claim of exemption to garnishment.

That’s a great outcome for the attorneys in this case, but there is some mighty damaging dicta for attorneys in the Eleventh Circuit’s decision.

Eleventh Circuit Missteps in Applying the FDCPA to All Litigation Activity

The threshold issue on appeal was whether the FDCPA applied to debt-collection litigation activities by attorneys. The court rejected the defendant law firm’s argument that the FDCPA does not apply to representations made by debt-collection lawyers in “formulaic procedural filings” that are not directed to the consumer, finding that under Supreme Court precedent of Heintz v. Jenkins and the plain language of the FDCPA, the Act “applies to lawyers and law firms who regularly engage in debt-collection activity, even when that activity involves litigation, and categorically prohibits abusive conduct in the name of debt collection, even when the audience for such conduct is someone other than the consumer.”

So far, the decision has not departed from Heintz v. Jenkins, where the Supreme Court held in 1995 that the FDCPA “applies to the litigating activities of [debt-collector] lawyers.”

But, the Eleventh Circuit went on to rule that the only exception provided under the FDCPA to litigation activity is from the making of a § 1692e(11) disclosure in formal pleadings. Here, the Eleventh Circuit has made a terrible mistake. Not only does the ruling fail to correctly interpret Heintz, it ignores the plain text of the FDCPA and its legislative history.

The Attorney Exemption Was Repealed to Protect Collection Agencies – Not Consumers

In 1986, Congress repealed the attorney exemption, but did not otherwise amend the Act. The exemption for attorneys was not made to benefit consumers, it was repealed because non-attorney collection agencies, led by their national organization, believed the attorney exemption hurt their business interests.  The sponsor of the House Bill repealing the attorney exemption described its purpose as “. . . a fairness bill. It makes certain that all debt collectors operate under the same set of rules, a set of rules which debt collectors themselves have testified are easy to follow and do not restrict the business of ethical debt.” 131 Cong. Rec. 10534 (1985).

The only other remarks made in support of eliminating the exemption noted that “[c]ertainly, a more level playing field would be accomplished for collectors with the passage of H.R. 237, because all those engaging in third-party debt collection would be playing by the same rules.” Id.

Not a single consumer group spoke in favor of repeal of the attorney exemption and the FTC, which was the sole regulator of the FDCPA at the time, opposed a blanket removal of the exemption.

When Congress repealed the FDCPA’s attorney exemption, its repeal did not intend to apply to all litigation activities, only those activities which were on the same “playing field” as non-attorneys. It meant that the FDCPA should extend to the same activities in which non-attorneys engage. Pleadings are not such activity, nor is any activity confined solely to those who are engaged in the practice of law. Heintz did not depart from this view because FDCPA liability was founded on a letter, not a pleading. The attorneys in Heintz sought an exemption for litigating attorneys, not litigation activities.

Eleventh Circuit Misreads Heintz

In reaching its mistaken conclusion that attorney litigation activity is only exempted under § 1692e(11), the Eleventh Circuit focused on Heintz’s rejection of the notion that the FDCPA contained an implied exception for all conduct in which litigating attorneys engage. But the Supreme Court in Heintz also found that the FDCPA contained an implied exception for certain litigation conduct. After all, what triggered the FDCPA in Heintz was not a pleading, but a settlement letter made by the creditor’s attorney to the debtor’s attorney.

Heintz recognized that although the FDCPA originally exempted attorneys, when it was later amended to remove the exemption Congress did not “revisit the wording of the substantive provisions [of the Act].” Because the FDCPA was enacted without consideration of attorney litigation conduct, and the 1986 repeal of the attorney exemption made no change to the Act, when applying the FDCPA to attorney conduct, “. . . some awkwardness is understandable.” This awkwardness was bound to lead to troubling results when applied to attorneys’ litigation activities.

While the Supreme Court believed the “awkwardness” did not warrant a broad exemption for all litigating attorneys, it found a way to harmonize the conduct-regulating provisions of the FDCPA with litigation activities by recognizing the FDCPA contains “implied exceptions” to certain litigation conduct. As an example, the Court considered, in dicta, § 1692c(c) which requires a debt collector to cease further debt collection communications if the debtor provides it with a written notice that he “refuses to pay” or wishes the debt collector to “cease further communication.” In the context of litigation, this could mean that a debtor who invokes § 1692c(c) could stop all further pleadings being directed at him. But the Court found it unnecessary to read § 1692c(c) in such an absurd way. Rather, it reasoned that the section can be read to imply that court related documents can be communicated to the debtor, even though the section expressly allows only a communication concerning remedies the debt collector “may invoke” or “intends to invoke.” As the Court explained:

We need not authoritatively interpret the Act’s conduct-regulating provisions now, however. Rather, we rest our conclusions upon the fact that it is easier to read § 1692c(c) as containing some such additional, implicit, exception than to believe that Congress intended, silently and implicitly, to create a far broader exception, for all litigating attorneys, from the Act itself.

Jerman Followed the Implied Exception Doctrine

Fifteen years following Heintz, the Supreme Court revisited the implied exception doctrine in Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, reiterating that the implied exceptions should be used to avoid “absurd results” when evaluating attorney litigation conduct under the FDCPA. Jerman, likeHeintz, concerned a letter (not a pleading) and a lawyer’s mistaken understanding of the content of a disclosure required to be provided to a consumer under 15 U.S.C. § 1692g(a). Although the FDCPA’s bona fide error defense was not available to the attorney in Jerman for his mistake of law, the Court recognized that the bona fide error defense was not an attorney’s “sole recourse to avoid potential liability.” It noted that Heintz found that the FDCPA’s “conduct regulating provisions” should not be applied in such a way “. . . to compel absurd results when applied to debt collecting attorneys.” Unfortunately for the law firm inJerman, the Court was not persuaded that its imposition of liability upon attorneys for their mistaken interpretation of the FDCPA in a letter produced an absurd result.

Two years following Jerman,  the Eighth Circuit Court of Appeals correctly recognized the existence of the Supreme Court’s implied exception doctrine in Hemmingsen v. Messerli & Kramer, P.A. There, Heather Hemmingsen defeated a collection action against her on the basis that the creditor did not have sufficient evidence to prove her liability for the debt.

Most would be satisfied with this result, but not Heather Hemmingsen. She sued the attorneys representing the creditor alleging they had made “false statements and misrepresentations in a memorandum filed in the state court action.” Simply stated, Hemmingsen believed she was harmed under the FDCPA because the creditor’s attorneys didn’t do a good job in pleading their client’s case against her.

Heather’s FDCPA suit might not have been such a good idea. After she filed her FDCPA complaint, the creditor found a copy of a check made by her from her checking account, payable to the creditor and referencing the account number of the debt she alleged earlier she did not owe. “Ms. Hemmingsen did not recall but acknowledged the check in a subsequent deposition.”

For attorneys who practice in debt collection litigation, this happens every day. Fortunately, the Eighth Circuit Court of Appeals made a careful read of the FDCPA, its legislative history, as well as Heintz  and Jerman. In recognizing that the FDCPA claim was targeting litigation activity, as opposed to activities in which non-attorneys could also engage, it invoked the implied exception doctrine and held:

[T]he diverse situations in which potential FDCPA claims may arise during the course of litigation, and the Supreme Court’s caution in Heintz that careful crafting may be required in applying the statute’s prohibitions to attorneys engaged in litigation, counsel against anything other than a case-by-case approach.

The Eleventh Circuit’s Skewed Reading of the FDCPA’s Legislative History

In concluding that attorneys engaged in litigation activity are only excused from compliance with § 1692e(11) in formal pleadings, the court not only ignored the plain text of the FDCPA, but horribly misconstrued its legislative history.

It is certain, as the court said, that formal pleadings are exempt from the § 1692e(11) disclosure. But this pronouncement is patently incorrect:

After Congress’s amendment, debt-collector attorneys who file a complaint or respond to a complaint need not state that such pleadings are filed by a debt collector. See § 1692e(11). Congress did not otherwise constrain the Act’s general applicability to lawyers using litigation to collect debts.

First, though it is true that Congress amended § 1692e(11) in 1996 to exclude “formal pleading[s]” from the disclosure requirement, the court never mentions that Congress also exempted “legal pleadings” from the requirements of § 1692g by adding § 1692g(d) in 2006. The court’s conclusion that aside from the § 1692e(11) amendment “Congress did not otherwise constrain the Act’s general applicability to lawyers using litigation to collect debts,” is an obvious misread of the Act. Congress has already made two attempts to clean up the mess it made by removing the exemption.

Second, Jerman was decided after both amendments were made and yet the Supreme Court in 2010 still observed the “awkwardness” in the Act’s application to lawyers by referring to the Implied Exceptions Doctrine. So, not only are formal pleadings exempt under § 1692e(11), they are also exempt from § 1692g(a) as “initial communications” and litigation conduct can be exempt when it would “compel absurd results when applied to debt collecting attorneys.”

Stated simply, attorneys are subject to the FDCPA only to the extent non-attorneys are subject. If a collection agency cannot file a pleading, then the pleading is not subject to the FDCPA.

It is Going to Get Very Busy in the Eleventh Circuit

Now that the Eleventh Circuit has ruled that only  § 1692e(11) communications are exempt from the FDCPA, I expect judges there will be dealing with a flood of FDCPA complaints originating from collection litigation. We’ll be seeing claims for failing to provide a  § 1692g(a) notice in a complaint despite the fact that such notices are already exempted. We’ll be re-litigating small claims cases in federal court over whether the proofs submitted to the trial court were “misleading.”

Sure, plenty of decisions now subject attorneys to FDCPA liability for statements made in their pleadings. That doesn’t mean the decisions are correct. These same decisions are often based on the mistaken belief that the FDCPA’s original attorney exemption was repealed to protect consumers, even though the record shows the only reason for the repeal was to protect collection agencies from what they believed was a competitive disadvantage. Unfortunately, this history has been blurred by 30 years of hyperbole and is unlikely to be corrected soon.

If the attorney exemption repeal was made to subject attorneys and collection agencies to the same rules, when the Eleventh Circuit revisits the issue it should make a ruling consistent with the plain language of the statute, the intent of Congress behind the attorney exemption repeal and the Supreme Court’s Implied Exception Doctrine. The conduct subject to FDCPA regulation should be the same as that in which a “non-attorney” can engage to satisfy the “level playing filed” standard behind Congress’ 1986 repeal of the attorney exemption. Pleadings can never be part of that equation.