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?

Conclusion

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.

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.

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.

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.

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.