Wednesday, December 1, 2010

The Availability of Florida's Tenancy by the Entireties Exemption to Nonresidents for Property Located in Florida

Recently, a client who resides in another state inquired into its ability to claim a tenancy by the entireties exemption for property owned jointly by the client and the client's spouse, in order to protect the property from the claim of a creditor of the client individually. The research revealed a paucity of caselaw resolving the question to my satisfaction, thus making for an interesting topic for this blog.  A brief discussion of the questions follows.

Nature of the Entireties Exemption

Property held as a tenancy by the entireties possesses six characteristics: (1) unity of possession (joint ownership and control); (2) unity of interest (the interests in the property must be identical); (3) unity of title (the interests must have originated in the same instrument); (4) unity of time (the interests must have commenced simultaneously); (5) survivorship; and (6) unity of marriage (the parties must have been married at the time the property became titled in their joint names). Beal Bank, SSB v. Almand & Assoc., 780 So. 2d 45, 53 (Fla. 2001). When a married couple holds property as tenants by the entireties, each spouse is said to hold it “per tout,” meaning that each spouse holds the “whole or the entirety, and not a share, moiety, or divisible part.” Bailey v. Smith, 103 So. 833, 834 (Fla. 1925). Thus, property held by husband and wife as tenants by the entireties belongs to neither spouse individually, but each spouse is seized of the whole. Therefore, when property is held as a tenancy by the entireties, only the creditors of both the husband and the wife, jointly, may attach the property; it is not divisible on behalf of one spouse alone, and therefore it cannot be reached to satisfy the obligation of only one spouse. See Winters v. Parks, 91 So. 2d 649, 651 (Fla. 1956).

The tenancy by the entireties form of ownership exists with respect to real property and personal property. With respect to real property, “[a] conveyance to spouses as husband and wife creates an estate by the entirety in the absence of express language showing a contrary intent.” In re Estate of Suggs, 405 So. 2d 1360, 1361 (Fla. 5th DCA 1981). With respect to a bank account, “as between the debtor and a third-party creditor (other than the financial institution into which the deposits have been made), if the signature card of the account does not expressly disclaim the tenancy by the entireties form of ownership, a presumption arises that a bank account titled in the names of both spouses is held as a tenancy by the entireties as long as the account is established by husband and wife in accordance with the unities of possession, interest, title, and time and with right of survivorship.” Beal Bank, SSB, 780 So. 2d at 54. As such, when these elements are satisfied, the burden of proof is on the creditor to prove by a preponderance of the evidence that a tenancy by the entireties does not exist. Id.

All proceeds from the sale or rental of entireties property are also entireties property. Passalino v. Protective Group Sec., Inc., 886 So. 2d 295, 297 (Fla. 4th DCA 2004)

Application of the Entireties Exemption to Nonresidents

The tenancy by the entireties exemption is a creature of common law, not set forth in the Florida Constitution or in the Florida Statutes, and therefore not subject to their limitation to Florida residents. Beal Bank, SSB, 780 So. 2d at 53; In re Cauley, 374 B.R. 311, 316 (Bankr. M.D. Fla. 2007). The Cauley court reasoned:
“[The Florida Statutes do] not apply to tenancy by the entirety property and do[] not therefore preclude a non-resident of Florida from claiming property located in Florida as exempt as tenancy by the entirety. Additionally, the Court has not found any authority to support the proposition that an individual, claiming Florida real property exempt as tenancy by the entireties must be a resident of Florida. The Court finds that no such requirement exists.”
Accord Republic Credit Corp. I v. Upshaw, 10 So. 3d 1103 (Fla. 4th DCA 2009) (finding that judgment debtors could not claim a tenancy by the entireties exemption in Florida litigation for proceeds from the sale of real property located in California, because California law does not recognize such an exemption). This reasoning is consistent with the general principal that with respect to real property, the situs of the property dictates the laws that are applicable to it. See Connor v. Elliott, 85 So. 164 (Fla. 1920) (“So far as real estate or immovable property is concerned, the laws of the state where it is situated furnish the rules which govern its descent, alienation, and transfer, the construction, validity, and effect of conveyances thereof, and the capacity of the parties to such contracts or conveyances, as well as their rights under the same”).

Conversely, with respect to personal property, the domicile of the owners of the property dictates the laws that are applicable to it. See In re Estate of Siegel, 350 So.2d 89 (Fla. 4th DCA 1977). That means that if the proceeds from the sale of entireties property in Florida are removed to a jurisdiction that does not recognize the tenancy by the entireties form of ownership, the proceeds will lose their entireties protection. But it also means that they will not be subject to garnishment in Florida. See APR Energy, LLC v. Pakistan Power Resources, LLC, 2009 WL 425975 (M. D. Fla. Feb. 20, 2009); Skulas v. Loiselle, No. 09-60096-CIV, 2010 WL 1790439 (S.D. Fla. April 9, 2010).


Based upon the foregoing authority, it appears that Florida real property owned by a married couple as tenants by the entireties is not subject to execution to satisfy a debt owed by one spouse, no matter where the couple resides. Furthermore, any proceeds from the sale of said property will likely be protected by the tenancy by the entireties as long as the proceeds are located in Florida, and unreachable through a Florida garnishment once they are removed.

Monday, November 15, 2010

The Life of a Judgment (Lien) in Florida

A recent case decided by the Fifth District Court of Appeals discusses the statutory framework for perfecting and maintaining a judgment lien on real property in Florida. The opinion, Sun Glow Const., Inc. v. Cypress Recovery Corp., --- So. 3d ----, 2010 WL 4536803 (Fla. 5th DCA 2010) is found here.

According to Fla. Stat. § 55.10, a judgment becomes a lien on real property in any county when a certified copy of it is recorded in the official records or judgment lien record of that county and operates as a lien for an initial period of 10 years from the date of the recording; and the judgment creditor may extend the 10 year period by complying with Fla. Stat. § 55.10(2):
"The lien provided for in subsection (1) or an extension of that lien as provided by this subsection may be extended for an additional period of 10 years, subject to the limitation in subsection (3), by rerecording a certified copy of the judgment, order, or decree prior to the expiration of the lien or the expiration of the extended lien and by simultaneously recording an affidavit with the current address of the person who has a lien as a result of the judgment, order, or decree. The extension shall be effective from the date the certified copy of the judgment, order, or decree is rerecorded."
The question presented in the Sun Glow Construction case was whether the judgment creditor could rerecord its judgment after the expiration of the initial 10 year period, and thereby establish a new lien on real property. Because the statute doesn't specifically foreclose this possibility, the court allowed the judgment creditor to do so. According to the court, the only effect of the judgment creditor's failure to rerecord the judgment prior to the expiration of the initial 10 year period was to cause the judgment creditor to lose the priority over subsequent lienholders created by the earlier recording and to establish priority only over liens established after the later recording.

This ruling discusses the ability to maintain a judgment lien on real property for the life of the judgment, but it does not discuss the life of the judgment itself. That matter is contained in a separate statute- Fla. Stat. § 95.11(1), which sets a 20 year statute of limitations on judgment enforcement actions. But the analysis doesn't end there. There is caselaw allowing a judgment creditor to file an action on a judgment prior to its expiration and actually renew the judgment, by way of a new judgment, good for another 20 years. See Petersen v. Whitson, 14 So. 3d 300 (Fla. 2d DCA 2009). And presumably, based on the Petersen court's rationale, when the second judgment is set to lapse, the judgment creditor may file another new suit and obtain a third judgment (and so on).

Based on these statutes and cases, read together, a judgment in Florida can essentially be good forever. Likewise, a judgment lien can be good forever, limited by its recording only in terms of its priority. This analysis applies equally to judgments originating in Florida, judgments entered in other states recorded in Florida pursuant to the Uniform Enforcement of Foreign Judgments Act, see Haigh v. Planning Bd. of Town of Medfield, 940 So. 2d 1230 (Fla. 5th DCA 2006), and judgments entered in foreign countries recorded in Florida pursuant to the Uniform Foreign Money Judgments Recognition Act, see Nadd v. Le Credit Lyonnais, S.A., 804 So. 2d 1226 (Fla. 2001).

Wednesday, November 10, 2010

Upcoming Telephonic Seminar: Judgment and Fair Debt Collection Practices

Jorge Abril is scheduled to speak the afternoon of November 10 at a telephonic seminar sponsored by the Rossdale Group, entitled Judgment and Fair Debt Collection Practices. "This live telephonic seminar describes the laws governing the process [of judgment and debt collection] and outlines the best practices to avoid lawsuits from debtors. Our nationally recognized faculty will cover actions available to consumers and strategies for attorneys representing consumers. Our faculty will also discuss judgment collections, the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, ethical rules, trust account procedures, other regulatory issues, and provide an opportunity for the audience to ask live questions." Jorge's lecture focuses on the following topics:
  • Judgment Liens and Perfection of Liens
  • Execution and Dormancy of Judgments
  • Garnishment of Wages
  • Compliance with Garnishment Laws
  • Bank Accounts
  • Obtaining Other Assets
  • Domesticating Foreign Judgments
A complete agenda, including registration instructions, can be found here. We have prepared a slideshow outlining Jorge's discussion.

Tuesday, October 26, 2010

Recent Florida Appeals Court Decision Construes Assignment for the Benefit of Creditors Statute

In Moffatt & Nichol, Inc. v. BEA International Corp., --- So.3d ---- (Fla. 3d DCA 2010), decided last week, Florida's Third District Court of Appeal held that Florida's Assignment for the Benefit of Creditors statute, Chapter 727, Florida Statutes, precludes a creditor from bringing an action against a third party under the Uniform Fraudulent Transfer Act when an assignment has been filed. The case highlights recent amendments to the assignment statute aligning it with Federal Bankruptcy law. There have been few reported cases discussing the assignment statute, so this case presents a rare opportunity for practitioners to educate themselves on this apparently underutilized tool.

Chapter 727 allows a debtor to assign its assets to an assignee of its choosing for the purposes of liquidating the assets and satisfying the claims of its creditors from the proceeds, similar to Federal Bankruptcy law. A written assignment is executed between the assignor and the assignee in the statutory form, listing all known creditors and describing their claims, and a proceeding is commenced (in State court), where creditor claims, with certain exceptions, must be filed or be forever barred. The proceeding acts as a stay against levy, execution, attachment or the like in respect of any judgment against assets of the estate in the possession, custody, or control of the assignee, similar to the Bankruptcy Code's automatic stay provision, with the exception that unlike the Bankruptcy Code, the assignment statute does not stay foreclosure proceedings based upon a consensual lien. The court before which the assignment is pending is given numerous powers under Fla. Stat. § 727.109, including the power to adjudicate claim priority in accordance with the statute and to hear actions brought by the assignee to require third parties to turn over assets belonging to the estate and to avoid fraudulent conveyances.

Which brings us to the instant case. A judgment creditor of the assignor sought, in a case separate from the assignment action, proceedings supplementary to execution to implead third parties alleged to have received fraudulent transfers from the assignor. Under Chapter 726, Florida Statutes, Florida's Uniform Fraudulent Transfer Act, a debtor may not transfer assets to third parties with the actual intent to hinder, delay, or defraud current or known future creditors or without receiving reasonably equivalent value when the debtor knows it is insolvent or will soon become insolvent.

The creditor in this case argued that it should be allowed to proceed against third parties alleged to have received fraudulent transfers despite the existence of the assignment proceeding, because the assets sought in the third party action were not assets of the estate. The court disagreed. According to amendments to the assignment statute passed in 2007, "asset" as defined under Fla. Stat. § 727.103(1), includes "claims and causes of action, whether arising by contract or in tort, wherever located, and by whomever held at the date of the assignment." The court held based upon this definition that once an assignment proceeding is instituted in which all assets are assigned, only the assignee has standing to pursue fraudulent transfer claims on behalf of the estate. To hold otherwise, reasoned the court, would allow one creditor to improperly 'cut in line', in contravention of the spirit of the assignment statute. Analogy was drawn to Bankruptcy law, under which the trustee has exclusive authority to prosecute avoidance actions on behalf of the estate and its creditors.

In some instances, an assignment for the benefit of creditors provides an economical alternative to business bankruptcy, and businesses considering bankruptcy should explore this and all other options. Similarly, creditor's attorneys should familiarize themselves with their clients' rights under the assignment statute, as reorganization becomes necessary for more and more small businesses in this economy.

Monday, September 20, 2010

Out of Network Provider Payment and Balance Billing under the Patient Protection and Affordable Care Act

Reposted from Healthcare Provider Payment.

One of the most common issues we encounter between providers and payors is how the provider should be paid for treating a patient who is covered by a health plan that doesn't have a contract with the provider. We've previously written about it here, in the context of insurers' controversial use of the Ingenix database to calculate usual and customary rates, and here, in the context of a report issued by the Senate Commerce Committee detailing the affect these underpayments have on consumers who are billed the remaining balance.

This article discusses the issue in the context of the Patient Protection and Affordable Care Act (PPACA), the health care reform legislation signed by President Obama in March of this year. One of the lesser known provisions of this legislation requires Health and Human Services (the "Department") to implement rules addressing the amount to be paid to out of network providers who provide emergency services. The Department proposed its interim final rules in the Federal Register on July 28, 2010. According to the interim rules, which took effect August 27, 2010, health plans must cover emergency services without requiring pre-authorization, and they must reimburse the provider the greater of (a) the median in-network rate, (b) the usual and customary rate, calculated using the plan's formula, or (c) the Medicare rate.

The Problem

This is an important development for healthcare providers, health plans, and patients. In the absence of Federal law on point, the parties were forced to look to state law to determine who should be responsible for reimbursing the provider under these circumstances and how much should be paid. Unfortunately, state laws addressing these circumstances vary greatly, if they exist at all.

Some states have no laws addressing the situation, in which case the health plan will pay nothing, leaving the provider and the patient to fight amongst themselves about how much should be paid. This creates problems for the provider, who must hope that payment is collectable from the individual patient. It also creates problems for the patient, who assumed his or her services would be covered, and who is now stuck with a bill that is usually much higher than the amount the insurer would have paid, and often more than the patient can afford, leading to poor credit and/or Bankruptcy.

Other states have laws addressing how much the health plan should pay the provider. For instance, in Florida the health plan is required to reimburse the provider the lesser of the provider's charges (which are often significantly higher than the amount paid by contracted health plans), the agreed upon rate (which almost never exists), or the usual and customary rate, pursuant to Fla. Stat. § 641.513(5). This does not afford the provider a complete remedy, because the state law in question may be preempted by ERISA with respect to health plans obtained by the patient through his or her employer, and because even if the law is not preempted in a given case, it does not provide a minimum reimbursement amount, leaving the health plan with the option to unilaterally calculate the usual and customary rate in the manner most consistent with its own interests and thereby underpay the provider. [Aside: there is a bevvy of litigation concerning the appropriate method for determining the usual and customary rate, in the context of Workers' Compensation, Personal Injury Protection, and in this scenario; we are in the process of compiling this authority and publishing it separately, but opinions are fashioned faster than we can comment on them. See Baptist Memorial Hospital-Desoto, Inc. v. Crain Automotive, Inc., No. 08-6094 (5th Cir. 2010), which was decided while this article was being drafted. The usual and customary rate calculation was at issue in that case the context of an ERISA-governed plan. The court held that a plan administrator abused his discretion in making a determination of the usual and customary rate without a sufficient factual basis, which should include more than just a comparison to other claims received by the plan.]

However, many states with laws similar to this one don't prohibit balance billing for out-of-network providers, meaning the patient is left to pay the difference after the plan pays according to the statute. See this chart for a list of the many different state laws.

This creates an unacceptable uncertainty of terms between healthcare providers, health plans, and payors. Providers and payors are required to implement state-specific policies with regard to balance billing and payment rates (which can be costly). And patients are required to be intimately familiar with their plan documents, to ensure in advance that all providers from whom they seek treatment are in network, or to obtain the provider's charges in advance of treatment (which is impossible).

The Proposed Solution

The interim final rules propose to eliminate some of the uncertainties discussed above by setting forth a minimum amount that must be paid to an out-of-network provider for emergency services- the Medicare rate, and by providing for additional payment when either the usual and customary rate or the median in-network rate exceeds the Medicare rate. According to the Department, these regulations will significantly increase the amount health plans will be required to pay when their members go to the emergency room at a non-contracted facility, which will reduce the amount the patient is responsible for. The regulations, which do not apply to grandfathered health plans under PPACA (as discussed in this CRS Report), have already taken effect.

Remaining Issues

The interim rules set a minimum payment amount (the Medicare rate), but they do not eliminate the uncertainty associated with the usual and customary rate. First, by the language of the rules, the health plan is still charged with sole discretion to calculate the usual and customary rate, which will upset providers, who have considered themselves victims of underpayments by health insurers (i.e. Ingenix) for quite some time. See this letter filed by the American Hospital Association in opposition to the interim rules, which also argues that by setting a rate, the Department has eliminated the health plan's incentive to contract with providers. Additionally, and most important to consumers, the interim rules do not prohibit balance billing, which will still leave patients unexpectedly footing a substantial bill (albeit a little less than what they would be paying otherwise); and there remains doubt as to whether PPACA's express allowance of balance billing preempts state laws to the contrary. If so, the interim rules represent a step in the wrong direction for patients residing in states like California.

If nothing else, the above shows that without additional guidance, providers, payors, and patients should expect to continue to litigate out-of-network claims on an individual basis, notwithstanding the interim rules. If you are a provider, health plan, or patient, with an opinion relevant to this issue, please feel free to comment below. If you would like to retain the services of an agency or attorney in connection with an issue you are currently facing, please feel free to contact Medical Accounts Systems or Jorge M. Abril, P.A.

Thursday, September 9, 2010

Cases of Interest to Creditors in the October Term of the United States Supreme Court

There are two cases for argument in the United States Supreme Court's October Term that may be of interest to creditors- Ransom v. MBNA America Bank and Chase Bank USA v. McCoy.

The former deals with the construction of 11 U.S.C.A. §707(b)(2)(A)(ii), which sets forth the available deductions from income for purposes of determining if the presumption of abuse arises under Chapter 7 and of calculating disposable income under Chapter 13. The issue is whether, under that section, as incorporated into Chapter 13 by 11 U.S.C.A. § 1325(b)(3), the Bankruptcy court can allow a Chapter 13 debtor with an above-median income to claim an ownership deduction for a vehicle, when the debtor doesn't make payments on the vehicle. The specific statutory language at issues provides, in pertinent part, that "[t]he debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the National Standards and Local Standards," promulgated by the IRS. The debtor claims that he should be able to deduct the standard cost for vehicle ownership even though his vehicle is paid in full. MBNA, an unsecured creditor, disagrees. The United States has filed an Amicus brief in support of MBNA, arguing that where the debtor does not actually make payments on the vehicle, there are no "applicable monthly expense amounts" to deduct. The National Association of Consumer Bankruptcy Attorneys has filed an Amicus brief in support of the debtor, arguing that with the amendments to the Bankruptcy Code enacted in the Bankruptcy Abuse Prevention and Consumer Protections Act of 2005, Congress intended that the focus be shifted away from actual expenses to standardized amounts, and that requiring individual inquiry into the debtor's actual monthly expenses with respect to the debtor's vehicle(s) frustrates that purpose. Both raise compelling policy arguments in their briefs, which can be found here and here, respectively. The lower court's decision, ruling against the debtor, is available at In re Ransom, 577 F.3d 1026 (9th Cir. 2009).

The latter concerns the pre-2009 Regulation Z, 12 C.F.R. § 226.9(c), issued pursuant to the Truth in Lending Act (TILA), 15 U.S.C.A. § 1601 et. seq. The issue in the case is whether the regulation required a creditor to provide a credit card holder with a change-in-terms notice in advance when the creditor increases the credit card rate due to the card holder's default, when the contract provided for the right to increase the rate upon default. I frame the issue in the past tense, because under the current version, the answer would clearly be "yes," since the phrase at issue- "[t]he 15-day timing requirement does not apply...if a periodic rate or other finance charge is increased because of the consumer's delinquency or default,"- has been removed. The case presents an interesting question concerning the deference that should be given to the rulemaking authority's interpretation of a regulation's meaning, as published in the Federal Register in connection with proposed changes to the rule. The United States and the American Bankers Association have filed Amicus briefs in support of the bank, arguing, in part, that the Federal Reserve Board's interpretation should be given deference, and that the lower court, in coming to its conclusion (which can be found at McCoy v. Chase Manhattan Bank USA, 559 F.3d 963 (9th Cir. 2009)), failed to do so.

Expect to read more on these cases on this blog as they progress. A list of all cases scheduled for the October Term 2010 can be found on SCOTUSblog.

Saturday, September 4, 2010

Upcoming Seminar- Protecting the Creditor's Rights During Bankruptcy

Jorge M. Abril, Esq. is scheduled to speak at the National Business Institute's upcoming seminar entitled Protecting the Creditor's Rights During Bankruptcy, which takes place December 6, 2010 at the Hyatt Regency Miami. The program description reads:

Strategic Guide to Bankruptcy From the Creditor's Viewpoint
The debtor who's been dodging repayment for months has just filed for bankruptcy. Are you stuck with an unpaid account or are there ways to continue trying to collect? Join us for an engaging analysis of creditors' rights in bankruptcy and learn how to achieve the best possible result in the proceeding. Register today!
  • Gain real-life strategies for lifting automatic stay in various scenarios.
  • Clarify the priority of claims and determine the creditor's chances of retrieval.
  • Explore creditors' options in every type of bankruptcy.
  • Wisely advise the creditors in Chapter 11 cases on participation in creditors' committees.
  • Gain a clear picture of the debtor's financial situation with skillful use of Rule 2004 exams.
  • Find out what special rights landlords, suppliers, and equipment lessors have in bankruptcy.
  • Find out what 10 questions to ask before getting started on the case.
  • Maintain your impeccable reputation with tips for avoiding misrepresentation and harassment.
  • Learn how to prevent execution/sale and secure post-petition interest.

Jorge will speak on issues relating to the ethical representation of creditors during Bankruptcy.

Friday, September 3, 2010

New Blog Discussing Hospital and Health Care Reimbursement News: Healthcare Provider Payment

The authors of the Florida Collection Law Blog are pleased to announce the creation of Healthcare Provider Payment, a blog discussing news, legislation, and recent case law of interest to health plan administrators, healthcare practitioners, and other medical professionals, including hospital business offices, physician practice groups, and individual providers. Like this blog, Healthcare Provider Payment is authored by the attorneys at Jorge M. Abril, P.A.

Articles relating to healthcare reimbursement that are also relevant to Florida creditors and collection professionals in general will be cross-posted here in the future (and vice versa), but the new blog will have more of a national scope and will deal with broader issues relating to Managed Care, provider payment, and other health law, policy, and regulations, which are not always appropriate for this blog.  We will continue to post content relevant to Florida creditors and collection professionals here. We begin there by reposting all articles from this blog posted under the Healthcare category, dealing with issues relevant to those in the medical profession.

Sunday, August 29, 2010

Florida Bankruptcy Court- Funds Held by Chapter 13 Trustee Are Subject to Garnishment When the Case is Dismissed

A colleague has posted an interesting article on the Bankruptcy Law Network regarding a case decided last month in the United States Bankruptcy Court for the Middle District of Florida. According to the holding, when a Chapter 13 case is dismissed, a creditor may subject the Trustee to a writ of garnishment under Florida law and require the Trustee to turn over to the creditor all postpetition payments made by the Debtor pursuant to a proposed repayment plan. The case, In re Fischer, No. 6:09-bk-07498-KSJ, 2010 WL 2947165 (Bkrtcy. M.D. Fla. July 16, 2010), is available here. The blog article can be accessed here. Comments aren't available on that blog, and the holding should be of interest to Bankruptcy practitioners and creditors in Florida, so I'll discuss it here.

The relevant background is not particularly complicated: the Debtor filed a Chapter 13 Bankruptcy case, and at some point, the case was dismissed because the Debtor could no longer make the plan payments. The court entered an order dismissing the case and requiring the Trustee to return to the debtor the money that the debtor previously paid to the Trustee, as required by 11 U.S.C.A. §1326(a)(2), which provides:
"A payment made under paragraph (1)(A) shall be retained by the trustee until confirmation or denial of confirmation. If a plan is confirmed, the trustee shall distribute any such payment in accordance with the plan as soon as is practicable. If a plan is not confirmed, the trustee shall return any such payments not previously paid and not yet due and owing to creditors pursuant to paragraph (3) to the debtor, after deducting any unpaid claim allowed under section 503(b)."
After the case was dismissed, but before the Trustee got around to finalizing the administration of the estate and returning the money to the Debtor, a Florida judgment creditor ran to state court and obtained a writ of garnishment, requiring the Trustee to turn over the money in its possession belonging to the Debtor to the creditor.

While the Bankruptcy case is pending, obviously that wouldn't work, because any money in the possession of the Trustee at that time would be in custodia legis, and because the automatic stay under §362 of the Bankruptcy Code would prevent the creditor from obtaining the writ of garnishment in the first place. According to the Fischer court, however, the stay is lifted when the dismissal order is entered, and as a result, the Trustee essentially becomes a general debtor of the Debtor at that point, which means it may be subject to garnishment under state law. The court didn't feel compelled to discuss the issue at length, but it did cite a number of cases, some allowing the garnishment and some refusing to allow it.

The courts refusing to allow the garnishment generally looked no further than the plain language of §1326(a)(2) - "the trustee shall return any such payments not previously paid and not yet due and owing to creditors pursuant to paragraph (3) to the debtor, after deducting any unpaid claim allowed under section 503(b)." This language, 'shall return,' appears absolute and qualified only by the requirement to deduct administrative expenses. Some of these courts also ruled on policy grounds, finding that dismissal of the Chapter 13 case is supposed to leave the creditors on equal footing as they were before the Bankruptcy was filed, and promoting a race to the Trustee would not further the policies of encouraging debtors to file Chapter 13 or ensuring orderly and efficient disposition of the Bankruptcy case. Additionally, resort was made to presuming that Congress likely foresaw that creditors would attempt to make claims on funds held by the Trustee under the circumstances at hand, and that through the language requiring the Trustee simply to return the funds to the Debtor, Congress intended to foreclose this possibility. Some courts also held that returning the money to the Debtor does not conflict with state law, because any lien on the funds could follow the funds to the Debtor and be adjudicated in state court subsequent to the Trustee's disbursement. Most of these arguments are compelling, save, in my opinion, for the last. We all know that as soon as the money is returned to the Debtor, it will if at all possible be gone before the creditor can get back to state court, especially where the Debtor knows the creditor will attempt to make a claim. Here are the cases available on Google Scholar: In re Sexton, 397 B.R. 375 (Bkrtcy. M.D. Tenn. 2008); In re Inyamah, 378 B.R. 183 (Bkrtcy. S.D. Ohio 2007); In re Bailey, 330 B.R. 775 (Bkrtcy. D. Ore. 2005); In re Oliver, 222 B.R. 272 (Bkrtcy. E.D. Va. 1998); In re Walter, 199 B.R. 390 (Bkrtcy. C.D. Ill. 1996); In re Clifford, 182 B.R. 229 (Bkrtcy. N.D. Ill. 1995).

The courts allowing the garnishment generally relied on the interplay between §1326(a)(2) on one hand, and the automatic stay, which is lifted immediately upon entry of the dismissal order, and the definition of the estate, which is terminated upon dismissal, on the other. Interestingly, many of these cases dealt with Federal Tax liens, for which the analysis should be different, since there is no question of Supremacy and since the Federal Tax law is very clear: "Notwithstanding any other law of the United States, no property or rights shall be exempt from levy other than the property specifically made exempt by subsection (a). 26 U.S.C.A. §6334(c). The cited cases that are available on Google Scholar can be read at the following links: In re Mischler, 223 B.R. 17 (Bkrtcy. M.D. Fla. 1998); In re Schlapper, 195 B.R. 805 (Bkrtcy. M.D. Fla. 1996); In re Steenstra, 307 B.R. 732 (B.A.P. 1st Cir. 2004); In re Beam, 192 F.3d 941 (9th Cir. 1999); In re Brown, 280 B.R. 231 (Bkrtcy. E.D. Wis. 2001); In re Doherty, 229 B.R. 461 (Bkrtcy. E.D. Wa. 1999).

Whether you agree with the former group of cases or the latter, one thing is clear, especially given that all the Florida cases cited above have allowed the garnishment- the Florida creditor should diligently monitor the progress of the debtor's Bankruptcy case and should seek the advice of counsel with respect to the protection and enforcement of its rights and remedies in and out of Bankruptcy Court to the fullest extent allowable by law.

Friday, August 6, 2010

Pintos v. Pacific Creditors Revisited: Fair Credit Reporting Act Permissible Purposes

Readers of this blog may recall my criticism of the Ninth Circuit's decision in Pintos v. Pacific Creditors Association, No. 04-17485 (April 30, 2009), in which the court held that debt collection does not necessarily constitute a permissible purpose under the Fair Credit Reporting Act (FCRA) to obtain a consumer's credit report from one of the major credit bureaus. The decision came up for en banc review earlier this summer.

Not surprisingly, the court denied the petition for review, but the opinion denying review, as well as the dissents thereto, are particularly noteworthy. The majority added a lengthy footnote to its earlier opinion, clarifying that its analysis is limited to permissible purposes under 15 U.S.C. § 1681b(a)(3)(A), which allows a credit report to be obtained by a person who "intends to use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer." The footnote continues, "we need not determine whether PCA had a permissible purpose under any other §1681b subsection. On remand, Defendants may argue that PCA was authorized to obtain Pintos’s report under a different subsection." This seems to be more than a subtle suggestion that there is another permissible purpose that is applicable to the case at bar, although the majority does not clue us in to any specific provision.

Next to note, the Chief Judge dissented from the majority's denial of en banc review, on several grounds. First, he hearkened back to the dissent to the original opinion, which took issue with the majority's distinction between obtaining a credit report in the process of collecting a judgment (permissible, in the eyes of the majority) and obtaining a credit report in the collection of an account before there was a judgment (not permissible according to the majority). As I previously wrote, the court's prior decisions did not support this distinction, nor did the FTC's commentary (nor common sense, for that matter). Next, the Chief Judge directed the majority's attention to §1681a(m) and §1681b(c). Both of these sections make reference to accessing a credit report in connection with a "credit or insurance transaction that is not initiated by the consumer," and §1681a(m) provides that that phrase does not include a report obtained for the purposes of collecting an account. In other words, debt collection always involves a transaction initiated by the consumer, according to the language of the FCRA. In missing this point, according to the Chief Judge, the majority has "flunk[ed] Statutory Interpretation 101."

Another judge wrote a second dissenting opinion, essentially stating that it's in everyone's best interests- including the consumer's- to allow debt collectors to obtain credit reports in the collection process, because it helps keep costs to collect down, and if the costs are increased, that increase will eventually be passed on to consumers. As a creditor's attorney, I like that argument, but I don't think it sticks. A similar argument can be made against the FDCPA's prohibition on harassing debtors- if collectors were allowed to threaten debtors, collectors would probably have an easier time collecting accounts (at least some), and this would decrease the costs to collect, causing a savings that would sooner or later reach consumers. Actually, similar arguments can be fashioned with respect to most consumer protection statutes reductio ad absurdum- they have some negative effect because they make reaching the consumer more difficult. Of course, this line of reasoning is never employed in construing these statutes; nor should it be.

Musings on statutory interpretation and logical constructs aside, it seems likely that we have not seen the last of this case. According to this post, Ninth Circuit en banc reviews that are denied with a dissenting opinion in which certiorari is granted are overturned by the Supreme Court an astonishing 90% of the time- and this one has two dissents. We'll see.

Saturday, July 31, 2010

Does the FDCPA Allow an Association to Communicate with a Tenant Under the Florida Condominium Act's Recent Amendments?

The Florida Condominium Act, Chapter 718, Florida Statutes, was recently amended to provide that if a unit is occupied by a tenant and the unit owner is delinquent on any monetary obligation to the association, the association may demand in writing that the tenant pay future rents and other monetary obligations of the tenant directly to the association until the association releases the tenant or the tenant vacates the premises, in order to satisfy the unit owner's obligations to the association. At first glance, it would appear that taking such an action on the part of the association would constitute a violation of the Federal Fair Debt Collection Practices Act (FDCPA), particularly 15 U.S.C.A. § 1692c's prohibition on communication with third parties regarding the debt. For several reasons, however, we believe the Condominium Act's amendments are not always inconsistent with the FDCPA.

In order to more fully understand the operation of the amendment, we must review its actual language, which can be found at Chapter 2010-174, Laws of Florida (beginning on page 47). It provides, in pertinent part:

"If the unit is occupied by a tenant and the unit owner is delinquent in paying any monetary obligation due to the association, the association may make a written demand that the tenant pay the future monetary obligations related to the cooperative share to the association and the tenant must make such payment. The demand is continuing in nature, and upon demand, the tenant must pay the monetary obligations to the association until the association releases the tenant or the tenant discontinues tenancy in the unit. The association must mail written notice to the unit owner of the association’s demand that the tenant make payments to the association. The association shall, upon request, provide the tenant with written receipts for payments made. A tenant who acts in good faith in response to a written demand from an association is immune from any claim from the unit owner."

It should first be noted that the provision states that the association "may" elect this remedy, not that it must. Therefore, it cannot be said that this provision is in direct conflict with the FDCPA, because the association can simply choose not to elect this remedy if it fears it will violate the FDCPA in doing so. There is no Morton's Fork involved, and therefore little likelihood that the state law is conflict preempted under the Supremacy Clause (U.S. Const. art. VI, cl 2.) (click here for more information on these doctrines, in the context of the Arizona immigration law).

That being said, one can understand why an association would want to exercise its rights under this provision. In order to determine if it's possible to do that without violating the FDCPA, let's look at the relevant Federal provision. 15 U.S.C.A. § 1692c(b) provides:

"Except as provided in section 1692b of this title [to ascertain the debtor's location information], without the prior consent of the consumer given directly to the debt collector, or the express permission of a court of competent jurisdiction, or as reasonably necessary to effectuate a postjudgment judicial remedy, a debt collector may not communicate, in connection with the collection of any debt, with any person other than the consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector."

For this provision to apply, the communication must concern a debt, it must come from a debt collector, and the communication must not fall within an exception to the provision. Whether these criteria will be met will depend on the facts of each specific case.

Is the communication in connection with the collection of a "debt"?

The FDCPA defines debt as "any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment." 15 U.S.C.A. § 1692a(5). Association dues and assessments are usually considered debts under the FDCPA, but fines assessed by the association for violation of association rules are not. Durso v. Summer Brook Preserve Homeowner's Ass'n, 641 F.Supp. 2d 1256 (M.D. Fla. 2008). The Florida law at issue provides that the tenant may be required to pay rent to the association if the owner is delinquent on "any monetary obligation due to the association." Presumably, this would include both dues and fines.

Is the party attempting to collect the amount owed to the association a "debt collector"?

The FDCPA defines "debt collector" as "any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. Notwithstanding the exclusion provided by clause (F) of the last sentence of this paragraph, the term includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts. For the purpose of section 1692f(6) of this title, such term also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests."

Under this definition, the association itself would not be subject to the FDCPA (unless it uses another name in collecting the debt), since it is a creditor in this scenario, not a debt collector. See generally Madura v. Lakebridge Condominium Association, Inc., 2010 WL 2354140 (11th Cir. 2010). But a management company probably is (see Id.), and a collection agency and an attorney definitely are.

Does the Florida Condominium Act's amendment fall under any exception to § 1692c(b)?

Even if the communication concerns a debt and emanates from a debt collector, the communication will not violate the FDCPA if it falls under one of the exceptions to § 1692c(b). According to its terms, § 1692c(b) does not apply to communications (1) made with the prior consent given directly to the debt collector, (2) made with the express permission of a court of competent jurisdiction, or (3) as reasonably necessary to effectuate a postjudgment judicial remedy. It is likely that the first exception will not be met with respect to existing unit owners, although it should urge all associations to place a written consent into the documents prospective owners must sign in order to avoid liability in the future. It is also likely that the second exception is not met, unless the notice is being sent in litigation and upon the court's order. The third exception does not appear to have any application to the Florida Statute at all.

Additionally, the FTC staff commentary to the FDCPA provides that "an attorney may communicate with a potential witness in connection with a lawsuit he has filed (e.g., in order to establish the existence of a debt), because the section was not intended to prohibit communications by attorneys that are necessary to conduct lawsuits on behalf of their clients." It is not clear where this came from, or if a court would consider this a valid exception (FTC commentary is not binding on the judiciary). However, parallels can be drawn between the need to contact witnesses for the purposes of litigation and the need to contact tenants for the purposes of the Condominium Act amendment. Both involve remedies that need not be elected- just as the Act's amendments provide that the association "may" notify the tenant, in principal a creditor need not elect to file a lawsuit and seek judicial remedy. So if an exception is going to be made to allow the creditor to elect one legal remedy- a lawsuit, why not make an exception to allow the creditor to elect another legal remedy- charging past due amounts to the tenant?


The issue of whether electing remedy under the amendments to the Condominium Act will subject an association or its agent to FDCPA liability has not been litigated. It is likely that this issue will be addresses by a court of competent jurisdiction at some point however, given the state of the economy and of Florida real property in general. Associations should prepare for this battle by amending their association documents to provide for the unit owner's consent to elect the remedy provided in the Condominium Act's amendments, and by being prepared to establish the existence of an exception to § 1692c(b)'s application in the specific circumstances.

Monday, June 28, 2010

Florida Supreme Court Expands Remedies Available Against Judgment Debtors Owning an Interest in a Single Member Limited Liability Company

In a ruling with far-reaching implications for judgment creditors and debtors, on June 24, 2010 the Florida Supreme Court decided the case of Olmstead v. Federal Trade Commission (SC08-1009). The case came to the Supreme Court as a result of a question certified by the Federal Eleventh Circuit in F.T.C. v. Olmstead, 528 F.3d 1310 (11th Cir. 2008): "Whether, pursuant to Fla. Stat. § 608.433(4), a court may order a judgment-debtor to surrender all “right, title, and interest” in the debtor's single-member limited liability company to satisfy an outstanding judgment."

A majority of the Florida Supreme Court answered the question in the affirmative (after rephrasing it). As a result, when a creditor obtains a judgment against an individual debtor who is a member of a single member Limited Liability Company, the judgment creditor may obtain an order from the court requiring the LLC to surrender its assets to satisfy the judgment against the member.

Prior to this ruling, a judgment creditor who wished to levy upon a judgment debtor's interest in a Limited Liability Company had to seek a charging order pursuant to Fla. Stat. § 608.433(4), which provides:

"On application to a court of competent jurisdiction by any judgment creditor of a member, the court may charge the limited liability company membership interest of the member with payment of the unsatisfied amount of the judgment with interest. To the extent so charged, the judgment creditor has only the rights of an assignee of such interest."

According to this statute, a court may order the LLC to apply distributions accruing to the judgment debtor toward satisfaction of the judgment. However, the court may not otherwise allow the judgment creditor to interfere with the operation of the LLC or take part in the decision to make distributions, because pursuant to Fla. Stat. § 608.432(1), a member's right to participate in the management of the LLC's affairs cannot be assigned unless the operating agreement provides for such an assignment and the other members of the LLC consent. This statute greatly limits the usefulness of the charging order as a creditor's remedy, because it leaves the decision to make distributions within the discretion of the members of the LLC, who have no duty to the judgment creditor and no interest in seeing the judgment get paid. A judgment creditor who wants to influence the decisions of the LLC can seek court appointment of a receiver (an extraordinary remedy that should rarely be granted), but otherwise the creditor has no control over the LLC.

After the Olmstead decision, however, the limitations created by § 608.432 no longer exist with respect to single member LLCs, as the charging order is not the only remedy available. When the judgment debtor is the sole member of an LLC, according to Olmstead, the judgment creditor may obtain an order under Chapter 56, Florida Statutes (the chapter generally covering Execution and Final Process), requiring the judgment debtor to surrender all title and interest in the LLC and to turn over the assets of the LLC to the judgment creditor. Thus, the affect of Olmstead is that a single member LLC provides no asset protection whatsoever for the member.

The Court's rationale for drawing a distinction between single member LLCs and multi-member LLCs is that the limitations placed on the assignability of the right to participate in the decisions of the LLC set forth in § 608.432 have no practical application to single member LLCs because there are no other members whose consent would be required in order to assign the right to participate. In other words, while a member's interest in a multi-member LLC is not freely transferable, a member's interest in a single member LLC is.

Obviously this holding should be of interest to judgment creditors and their attorneys. The dissenting opinion should also be of interest, because it discusses the remedies that may be available to judgment creditors in the context of both single member and multi-member LLCs- an order of insolvency of the judgment debtor, an order piercing the corporate veil of the LLC and attaching its property, and an order seeking judicial dissolution of the LLC. And the dissent does not necessarily disagree with the majority's holding that a single member LLC's property may be applied to a judgment against the member, it merely proscribes a procedure for reaching this property that does not require distinguishing between a single member and a multi-member LLC.

Remedies similar to those mentioned above are available to judgment creditors of partners in General Partnerships (Fla. Stat. § 620.8504) and Limited Partnerships (Fla. Stat. § 620.1703), although with respect to these entities, the charging order provides the exclusive remedy. And Chapter 56 sets forth the remedy available against a judgment debtor's shares of a corporation- levy and sale under execution pursuant to Fla. Stat. § 56.061. Jorge M. Abril, P.A.'s main practice areas include enforcing these and other creditor's remedies in state court and in Bankruptcy proceedings.

Wednesday, June 2, 2010

Upcoming Teleconference- Bankruptcy, Debt Collection, & Judgment Enforcement

Jorge Abril will speak at 12:00 Noon today at a Live Teleconference entitled Bankruptcy, Debt Collection, & Judgment Enforcement, presented by the Rossdale Group, LLC. A recording of the teleconference should be available for purchase from the Rossdale Group shortly thereafter. Jorge will speak on topics concerning the collection of assets, including locating assets, utilizing public records, debtor's examination, the ethical concerns of asset collection, the effect of Bankruptcy on recovering assets, "the Creditor's & Debtor's Perspective," pre-judgment remedies, and depositions in aid of execution.

Wednesday, May 26, 2010

United States Bankruptcy Court Reclassifies Secured Claim as Unsecured Based Upon the Date the Creditor Filed the Judgment Lien Certificate Under Florida Law

A recent ruling by the United States Bankruptcy Court for the Southern District of Florida highlights the need for creditors and their counsel to perfect judgment lien interests under Florida law at the earliest possible opportunity. The case, In re Broward Kitchens & Baths, Inc., ___ B.R. ____ (Bankr. S. D. Fla. 2010) (decided May 21, 2009), is available on Westlaw at 2010 WL 2016533. It stands for the proposition that a judgment entered by a Florida court entitles the judgment creditor to a secured claim in a Bankruptcy proceeding only to the extent that the Judgment Lien Certificate has been filed in accordance with Fla. Stat. § 55.203.

The facts of the case are fairly straightforward, and in our experience commonplace. The creditor obtained a judgment in excess of $45,000 against the debtor in Florida state court on February 6, 2006. On May 19, 2006, the judgment creditor filed the Judgment Lien Certificate. Subsequently, in September 2006, the debtor filed its voluntary petition for Bankruptcy under Chapter 7. The judgment creditor then filed its claim with the Bankruptcy Court in December 2006. At some point during the Bankruptcy case, the Trustee brought an adversary proceeding under §§ 548 and 550 of the Bankruptcy Code, alleging that in December 2005 the debtor transferred a substantial portion of its assets to third parties, in exchange for payment in the amount of $215,000, in anticipation of and in order to avoid the impending judgment. These claims were eventually settled for a reduced amount. However, given that the property that would have secured the creditor's claim resided not in the hands of the debtor or of the estate, but in the hands of third parties (as a result of the fraudulent transfer), the Trustee objected to the nature of the creditor's claim. The Trustee's argument, which was adopted by the court, was that the judgment lien never attached to the fraudulently transferred property because the Judgment Lien Certificate was filed after the transfer.

The court reasoned that despite the well settled Florida law that legal title to property cannot pass to a fraudulent transferee of that property, a fraudulent transfer is not per se void, but merely voidable by the Trustee. In this case, the Trustee settled the adversary proceeding before there was an official determination that the transfer was in fact fraudulent, which means that the transfer was never actually voided. As such, the fraudulently transferred assets could not be considered part of the Bankruptcy estate. In fact, the only property comprising the Bankruptcy estate at the time the Judgment Lien Certificate was filed, which is when under Fla. Stat. § 55.202(2) the creditor became a secured creditor, was the remainder of the $215,000 paid in exchange for the fraudulent transfer; and since Fla. Stat. § 55.202(2) provides that a judgment lien does not attach to money, the creditor's claim must therefore be treated as an unsecured claim.

As a result, instead of being paid directly from the sale of collateral, the creditor's claim will be payable only to the extent funds remain available after the payment of all claims with a higher priority under § 507 of the Bankruptcy Code. Obviously this is not good for the creditor- there may in fact be no funds remaining to pay this claim. And while that outcome may have been unavoidable for this creditor, the lesson to be learned by creditors and attorneys from this case is that timely action must be taken after the entry of judgment in order to protect the creditor's interests.

Wednesday, April 28, 2010

Violation of the Florida Consumer Collection Practices Act May Constitute a Violation of the Federal Fair Debt Collection Practices Act

The United States Court of Appeals for the Eleventh Circuit recently decided a case dealing with the interplay between the Federal Fair Debt Collection Practices Act (FDCPA) and its Florida counterpart, the Florida Consumer Collection Practices Act (FCCPA), Fla. Stat. § 559.55 et. seq. The decision, LeBlanc v. Unifund CCR Partners, G.P., --- F.3d ----, 2010 WL 1200691 (11th Cir. 2010), can be found here. According to the Court, even where the FCCPA does not create a private right of action for a violation of its terms, the FDCPA can provide a remedy.

The FDCPA has received an increasing amount of attention in recent years, with the struggling economy and the resultant proliferation of a new legal practice area- consumer debt collection defense. Lawsuits seeking damages for alleged violations of this law are becoming more and more popular. Of significantly lesser renown is the FCCPA, similar legislation enacted by the Florida legislature. In the spirit of the FDCPA, and as a supplement thereto (see Fla. Stat. § 559.552), the FCCPA makes it a violation of state law to engage in certain practices in the collection of consumer debt, including impersonating a law enforcement agency, using or threatening violence or force, disclosing the status of the debt to third parties, failing to disclose that the debt has been disputed, harassing the debtor, etc. The exhaustive list, which can be found at Fla. Stat. § 559.72, should look familiar to FDCPA attorneys.

The FCCPA also provides administrative remedies (Fla. Stat. § 559.730) and civil remedies (Fla. Stat. § 559.77) for violations of § 559.72, each of which is inspired by Federal law (15 U.S.C. §§ 1692(k) and 1692(l)).

In addition to these sections mirroring the FDCPA, the FCCPA requires consumer collection agencies located within the state and consumer collection agencies located outside the state conducting business here to register with the Office of Financial Regulation. Fla. Stat. § 559.553. But while it authorizes administrative actions against a consumer collection agency who fails to register, the FCCPA does not create a private right of action under Florida law for failing to register.

This brings us to the central question addressed by the Eleventh Circuit in Leblanc- whether relief can be provided under the Federal FDCPA for failing to register as a consumer collection agency as required by the Florida FCCPA. The issue came to the court because the Defendant collection agency allegedly sent a letter to a Florida debtor, prior to registering under the FCCPA, which threatened to sue him. The District Court ruled summarily that this violated the FDCPA because the letter contained a threat to take an action that could not legally be taken (i.e. sue the debtor in Florida without registering under § 559.553), and the collection agency appealed. The Eleventh Circuit reversed, holding that not all FCCPA violations amount to an FDCPA violation, and that in this case, based upon the specific language of the letter, a reasonable juror could find that the least sophisticated consumer would view the letter as something other than a threat to sue.

This decision is consistent with prior District Court rulings, and it makes sense. If the letter is a threat to take action that cannot legally be taken, it should be a violation of the FDCPA, § 1692e(5). The source of the law that makes the threatened action illegal, be it Federal consumer protection law, state criminal law, Federal Bankruptcy law, etc., is immaterial. Conversely, if the letter is not a threat to take an action that cannot legally be taken, then no section of the FDCPA can be invoked, and so the fact that a violation of the FCCPA has occurred is of no consequence. As a result, while the ruling should be noted, especially for its in-depth discussion of the least sophisticated consumer standard: "the least sophisticated consumer can be presumed to possess a rudimentary amount of information about the world and a willingness to read a collection notice with some care...however, the test has an objective component in that while protecting naive consumers, the standard also prevents liability for bizarre or idiosyncratic interpretations of collection notices by preserving a quotient of reasonableness,” it should not have a significant effect on the collection agency's policies and procedures.

Wednesday, April 21, 2010

United States Supreme Court Rules Debt Collectors Are Not Entitled to Bona Fide Error Defense for Mistakes of Law

The United States Supreme Court handed down its decision in the case of Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA today, holding, as expected, that the Fair Debt Collection Practices Act's bona fide error defense, discussed previously on this blog here, does not apply to mistakes of law. Justice Sotomayor delivered the opinion of the Court, in which Chief Justice Roberts and Justices Stevens, Thomas, Ginsberg, and Breyer joined (with Justice Breyer also writing a separate concurring opinion). Justice Scalia wrote an opinion concurring in part and concurring in the judgment, and Justice Kennedy dissented, with Justice Alito joining in his opinion.

The majority cites several sources of authority in support of its decision, some compelling and some not so compelling. In the coming weeks, we will explain each argument advanced by the majority and the corresponding arguments made by the concurrences and the dissent. In the meantime, it is important to note the practical effect of the ruling: a debt collector or collection attorney's mistaken belief in the legality of an action under the FDCPA will not excuse him or her from liability. As a result, the only way to completely shield yourself from liability for a mistake of law is under an advisory opinion provided by the Federal Trade Commission.

It should also be noted, however, that according to the majority this decision does not affect the ability of the trial court hearing an FDCPA lawsuit to award actual damages in a de minimis amount (even zero) under § 1692k(a)(1), or as the majority puts it, "to adjust [additional] damages where a violation is based on a good-faith error," under § 1692k(b), which provides:

(b) Factors considered by court
In determining the amount of liability in any action under subsection (a) of this section, the court shall consider, among other relevant factors—
(1) in any individual action under subsection (a)(2)(A) of this section, the frequency and persistence of noncompliance by the debt collector, the nature of such noncompliance, and the extent to which such noncompliance was intentional; or
(2) in any class action under subsection (a)(2)(B) of this section, the frequency and persistence of noncompliance by the debt collector, the nature of such noncompliance, the resources of the debt collector, the number of persons adversely affected, and the extent to which the debt collector’s noncompliance was intentional.
With this in mind, debt collectors and collection attorneys should remain dedicated to keeping abreast of developments in Fair Debt Collection Practices Act law, not only to keep themselves in compliance with the law and thereby avoid liability altogether, but to minimize their exposure to damages in the event they are sued by demonstrating their good faith.

Friday, April 16, 2010

Upcoming Seminar- "Commercial Collections: Legal Strategies from A to Z"

Jorge M. Abril, Esq. is scheduled to speak at the National Business Institute's upcoming seminar entitled Commercial Collections: Legal Strategies from A to Z. The seminar takes place June 21, 2010 at the Hyatt Regency Miami. The program description reads:

Know the Legal Remedies and Procedures for Collecting Commercial Debts- Do you have a firm grasp of the legal procedures for commercial debt collection? Attend this step-by-step, practical seminar to not only gain a better understanding of collection law fundamentals, but also learn the exact procedures for filing your claim and collecting on judgment. Get what's owed to your clients as smoothly and efficiently as possible with these proven collection techniques. Register today!
  • Get business debtors' attention with an effective demand strategy and process.
  • Avoid costly litigation with successful techniques to achieve debt settlement without filing a lawsuit.
  • Confidently proceed with your client's lawsuit – knowing specific procedures for where, how and what to file.
  • Exhaust every avenue for collection with proven strategies for locating debtors and their assets.
  • Discover the best methods to collect post-judgment.
  • Smoothly handle your next commercial collection claim with sample letters, forms, complaints, checklists and other must-have documentation.
  • Recognize and steer clear of unethical collection practices that could result in disciplinary action or disbarment.
Jorge will present sections on the Fair Debt Collection Practices Act (FDCPA), on Prefiling Strategies, and on Ethical Pitfalls in Collections. As an aside, Jorge and I are both perplexed as to why there is a section discussing the Fair Debt Collection Practices Act, given that the seminar addresses commercial collections and that the FDCPA applies only to consumer debt- a testament to the extent to which the FDCPA is misunderstood. Nevertheless, this seminar should be of interest to commercial litigators, collection agencies, and creditors. More information, including registration instructions and tuition costs, can be found here.

Saturday, February 13, 2010

HITECH Act's Changes to HIPAA Privacy Rule Soon Taking Effect

Covered entities and business associates subject to the HIPAA Privacy Rule, including health care providers and revenue cycle vendors, should take note that the amendments to the Rule brought about by the Health Information Technology for Economic and Clinical Health Act, §§13400-13424 of the American Recovery and Reinvestment Act of 2009 (the "HITECH Act"), take effect February 17, 2010.

Previously, business associates' only liability for mishandling Protected Health Information (PHI) arose under the business associate's contract with the health care provider, and the only party responsible for ensuring the existence of a proper Business Associate Agreement was the provider itself. Under the amended regulations, a business associate can now be held directly responsible for improper use of PHI and for the failure to maintain proper policies for its protection.  §13404(a).

The HITECH Act makes the following provisions, previously directed at covered entities only, applicable to business associates:

Additionally, while HIPAA previously required action on breaches only by covered entities, the HITECH Act requires business associates to take action on known breaches of their agreements by the covered entities they serve, including curing the breach themselves, terminating the agreement, and/or notifying the department of the covered entity's breach. §13404(b).

The breach notification requirements affecting covered entities and business associates have also changed. The HITECH Act requires notification by a covered entity to the individual whose PHI has been breached, within a reasonable time, not longer than 60 days. Business associates must notify covered entities of any breach within the same time period. The notice must be sent in writing via first class mail, and in the case where the breach concerns 10 or more individuals and the individuals cannot be located, notice must be posted on the breaching party's website and through public media. Notice regarding the breach must also be provided to the Secretary, immediately in the case of a breach concerning 500 or more individuals, and via an annual log in the case of a breach of fewer than 500 individuals. §13402.

The penalties for failing to comply with these provisions include criminal charges, §13409, and civil sanctions, §13410

From a practical standpoint, this means that agencies should implement their own documented policies for protecting PHI and should immediately ensure that a Business Associate Agreement is executed with the covered entities with which they do business. Covered entities should review the policies of each and every business associate. If an agreement already exists (which it should), it may need to be amended. It must limit the exchange and use of PHI to the minimum amount necessary for the business associate to carry out its function. HHS has a website discussing the recommended contract language, here. Our sample contract is found below. Note: the agreement requires customization based upon the use of PHI contemplated by the parties' business relationship.