On the Lighter Side: Florida Consumer Levies on Assets at Local Bank of America Branch

I've been told that the subjects we usually discuss here are boring to many readers. With that in mind, it's nice to be able to post something funny (ok, it's probably still boring).

I recently read a story on naked capitalism about a Florida consumer levying on the assets of Bank of America to satisfy an attorney's fee award. The bank instituted a foreclosure case that it shouldn't have (hard to believe, I know), because the house they were seeking to foreclosure had actually been purchased cash. The homeowner obtained an attorney's fee award based on the meritless lawsuit, but the bank didn't pay (again, shocking). As a result, the homeowner invoked its rights under Chapter 56, Florida Statutes, which we encourage our creditor clients to consider under certain circumstances, and sent the sheriff to a local bank branch to levy upon the property there. At that point, as I understand it, the bank manager cut a check for the attorney's fees.

The story is funny to me, because it represents a reversal of the roles typically played by consumers and institutions; but there is also a lesson to be learned from it: creditors and debtors alike need to be mindful of their rights and available remedies.

Florida Statutory Health Care Reimbursement Dispute Resolution Process Held Constitutional

CROSS-POSTED FROM HEALTHCARE PROVIDER PAYMENT

Recently, a Florida court considered the constitutionality of the dispute resolution process outlined in Fla. Stat. § 408.757 (2010). That section allows a medical provider or health insurer to submit disputed claims for review and determination by an independent organization appointed by The Agency for Health Care Administration (AHCA).

After Maximus (the organization chosen by AHCA) issued a decision favorable to the healthcare providers and ACHA adopted Maximus's decision, Blue Cross Blue Shield of Florida (BCBS) appealed the decision to the First District Court of Appeals, challenging the statute's constitutionality. The court held that inasmuch as the statute gave BCBS the right to withdraw from the dispute resolution process and file a lawsuit at any time, the statute passed constitutional muster and BCBS would be bound by Maximus's decision. The full opinion can be read here.

Providers and health plans should be aware of their rights should a payment dispute arise. In addition to the legal rights existing under ERISA and the Florida HMO Act (and other state law), alternative dispute resolution may be available, and is often a successful tool in amicably resolving payment disputes, both under contracts between the provider and the payor and under non-contracted provider payment rules.

Florida Court Holds that Creditor, Not Creditor's Attorney, Must Sign Sworn Denial of Garnishment Exemption

A very recent ruling by Florida's Fourth District Court of Appeals discusses the procedure for denying a judgment debtor's head of household exemption to garnishment, and spells trouble for creditor's attorneys, especially attorneys representing major banks and credit card companies. At issue in Caproc Third Ave., LLC v. Donisi Ins., Inc., ___ So. 3d ____ (Fla. 4th DCA June 1, 2011) (pdf), was Fla. Stat. § 222.12, which provides that,

"When such an affidavit [of head of household] is made [by a judgment debtor facing a writ of garnishment], notice of same shall be forthwith given to the party, or her or his attorney, who sued out the process, and if the facts set forth in such affidavit are not denied under oath within 2 business days after the service of said notice, the process shall be returned, and all proceedings under the same shall cease. If the facts stated in the affidavit are denied by the party who sued out the process within the time above set forth and under oath, then the matter shall be tried by the court from which the writ or process issued, in like manner as claims to property levied upon by writ of execution are tried, and the money or thing attached shall remain subject to the process until released by the judgment of the court which shall try the issue."

The creditor's attorney attempted to file an affidavit denying the exemption himself, rather than having his client do so. Most creditors attorneys that we know have in the past done it that way. After this case, however, that practice appears to be no longer viable. The court ruled that the attorney was not "the party who sued out the process," and therefore he could not sign the affidavit of denial. As a result, the writ of garnishment was immediately dissolved without the need for an evidentiary hearing. The court also noted that the affidavit filed by the attorney was insufficient because he himself had no basis for personal knowledge as to the defendant's claim of exemption.

As a practical matter, given the strict time constraints for filing the sworn denial - 2 days - the requirements imposed by this case will make it difficult for the attorney who represents a hard to reach client to defeat a claim of head of household exemption [regardless of the claim's merit].

Florida Legislature Updates Limited Liability Company (LLC) Statute in the Wake of Last Year's Olmstead Decision of the Florida Supreme Court

Asset protection attorney Jonathan Alper, Esq. has posted an article on the Florida Asset Protection Blog reporting that the Florida Legislature has amended the LLC Statute to limit the reach of the holding of the Supreme Court's decision in Olmstead v. Federal Trade Commission, 44 So. 3d 76 (Fla. 2010), which we previously blogged about here.

The holding expanded the remedies available to creditors of the members of an LLC to include the forced sale of the member's interest. The new legislation limits application of the Olmstead remedy to single member LLCs only. It provides that the charging lien is the only remedy available to creditors of a member of a multi-member LLC.

The new legislation can be viewed here. Prior articles discussing Olmstead can be read here, here, and here.

United States Supreme Court Expands Remedies Available to Healthcare Providers and Patients Under ERISA

CROSS-POSTED FROM HEALTHCARE PROVIDER PAYMENT

The United States Supreme Court recently ruled in CIGNA Corp. v. Amara, 563 U.S. ____, 348 Fed. Appx. 627 (May 16, 2011), that a fiduciary of an Employee Benefits Plan (including a Health Plan) can be sued for unpaid benefits under ERISA § 503(a)(3). Previously, courts had been reluctant to order payment of money under this section, which by its terms authorizes "other appropriate equitable relief," on the ground that the payment of money was traditionally a legal remedy, not an equitable one. The Supreme Court has now dismissed that idea, discussing in detail the history of courts of equity, and stating that, "[t]he power to reform contracts (as contrasted with the power to enforce contracts as written) is a traditional power of an equity court, not a court of law," and further, "[e]quity courts possessed the power to provide relief in the form of monetary compensation for a loss resulting from a trustee’s breach of duty, or to prevent the trustee’s unjust enrichment." Therefore, a suit may now be maintained under § 503(a)(3) for reformation of a contract and for the payment of money, among other things.

This holding is of utmost importance to healthcare providers and patients who have been denied payment by a health insurance company. The only recourse for payment of benefits prior to this ruling was a lawsuit under § 503(a)(1)(B) for wrongful denial of benefits. But this lawsuit could only be brought against the Plan itself, and not necessarily against a plan administrator or fiduciary. Now, it would seem, recourse is available against the plan fiduciary as well as the Plain itself.

Healthcare providers, including hospitals, ancillary care providers, physician practice groups, and individual practitioners, are encouraged to carefully follow up on denied claims, and to seek third party review wherever possible. Medical Accounts Systems provides this service on a contingency fee basis (a fee is only owed if recovery is made), and when necessary, Jorge M. Abril, P.A. files suit in Federal Court to recover payment for services provided to ERISA participants and beneficiaries.

New Federal Rule Makes It More Difficult for Judgment Creditors to Garnish Consumer Bank Accounts

Florida is one of the most consumer-friendly States in the Union, when it comes to debtor-creditor relations. Article X Section 4 of the Florida Constitution exempts from forced sale a person's primary residence, without regard to the value (subject only to an acreage limitation that very rarely applies). Separately, Section 222.11 of the Florida Statutes provides protection over and above the Federal Wage Garnishment restrictions, exempting from garnishment 100% of the wages of a head of household, unless that person has agreed to have his wages garnished (a scenario I have yet to come across). And if that weren't enough, the commonlaw tenancy by the entireties form of property ownership protects the property of a married couple from creditors of one spouse. We have blogged about each of these exemptions here, here, and here, respectively.

One exception to this pro-debtor body of law is the Garnishment statute itself. Many states require either notice to the debtor or a specific showing by the creditor of entitlement to would-be-garnished funds - including the lack of any available exemption - prior to garnishing wages or bank account funds (some states may require both). Florida requires neither. The creditor need only show the existence of an outstanding judgment in order to obtain a Writ of Garnishment, and he can obtain the Writ without notice to the debtor. Only after the garnishee (the party possessing the debtor's property to be taken) has been served with the Writ does the debtor receive notice, and it is then up to the debtor to raise his exemptions in a timely fashion and prove them in accordance with the statute or lose the right to the funds. And while this litigation takes place, the funds are frozen in the debtor's bank account and are therefore unavailable to him for some time. As such, a bank account garnishment is an effective creditor's remedy in Florida.

New Federal Regulations becoming effective in May 2011 will lessen its effectiveness, however, at least as it pertains to Social Security payments and other Federal benefits. The interim final rule requires a bank, upon receipt of a Writ of Garnishment, to conduct its own inquiry into the source of the funds in the garnished account, and if it determines that the account contains Federal benefit payments, to release the freeze on two months' worth of payments immediately, without any showing by the debtor.

Both Florida and Federal law have for some time exempted many kinds of Federal benefit payments from garnishment, even after they are deposited into an account, so this interim final rule does not represent a drastic change in the law. But inasmuch as it relieves the debtor of the obligation to prove that the funds are exempt before regaining access to at least a portion of them, its effect will be felt by creditors- many times the debtor is unable to prove that the funds are exempt, has taken an action that would otherwise make the exemption unavailable, or (unfortunately) is simply unaware of or incapable of complying with the procedure for obtaining judicial recognition of the exemption. Additionally, this rule should be of interest to banks, who should be hard at work learning their duties under the regulations and implementing procedures to carry them out.

The interim final rule was published in the Federal Register, and is available, along with comments submitted to the implementing agencies, here.

Update: Florida Supreme Court Answers Certified Question re: Homestead Owner's Ability to Claim the Wildcard Personal Property Exemption in Bankruptcy

Earlier today, we published an article composed last week regarding the ability of a bankruptcy debtor who owns a homestead but does not claim a homestead exemption under the Florida Constitution to claim the enhanced personal property exemption set forth in Fla. Stat. § 222.25. In the article, we referenced a pending case in the Florida Supreme Court regarding the meaning of 'receives the benefits' for the purposes of the personal property exemption statute. This morning, we received news that that case has been decided by the Florida Supreme Court. A link to a pdf of the opinion, Osborne v. Dumoulin, --- So.3d ----, 2011 WL 320986 (Fla. 2011), is available here.

The Court decided that, "if under the facts of the case the article X homestead exemption does not otherwise present an obstacle to the bankruptcy trustee's administration of the estate, then the debtor in bankruptcy is not receiving the benefits of the homestead exemption and is eligible to claim the statutory personal property exemption of section 222.25(4)."

This ruling does not appear to be limited by its wording to the specific facts set forth in Dumoulin, where the debtor chose to surrender his homestead in the bankruptcy, but applies more broadly to any bankruptcy case in which the trustee is not prevented by the homestead exemption from administering the property as part of the estate, including the Iuliano case (pdf), discussed in our previous blog post, where the debtor actually stated an intent to keep the property.

The Supreme Court rephrased the question certified by the Eleventh Circuit in In re Dumoulin, 326 Fed. Appx. 498 (11th Cir. 2009) as follows:

"Whether for the purpose of the statutory personal property exemption in section 222.25(4), a debtor in bankruptcy receives the benefits of Florida's article X, section 4, constitutional homestead exemption where the debtor owns homestead property but does not claim the homestead exemption in bankruptcy and the trustee's administration of the property is not otherwise impeded by the existence of the homestead exemption."

The court answered the rephrased question in the negative.

The Availability of Florida's Wildcard Personal Property Exemption to Debtors Owning Homestead Property and Not Claiming a Homestead Exemption in Bankruptcy

Recently, a Florida Bankruptcy Court discussed whether a debtor in bankruptcy who owns a home worth less than the balance on his mortgage may claim the wildcard personal property exemption found in Fla. Stat. § 222.25 and still keep his homestead in his bankruptcy case. In re Iuliano, 2010 WL 5452726 (Bkrtcy. M.D. Fla. Dec 28, 2010) (pdf).

The facts of the case are unfortunately very common in 2011. The debtor purchased his primary residence several years ago, when the housing market was booming, and established the property as his homestead under Art. X, s. 4(a)(1) of the Florida Constitution, which exempts from forced sale and from judgment lien the primary residence of an individual and his family, and therefore excludes the residence from property of the individual's bankruptcy estate. The debtor mortgaged the property up to the then-current value, but since then, the property value has decreased at a rate much higher than the rate at which the mortgage is being paid down. As a result, the property is 'underwater'- the balance on the mortgage is substantially higher than the current value of the property, and the debtor therefore has no equity in the property.

At some point, the debtor ran into financial difficulties and filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code, seeking a discharge of his debt. In completing his bankruptcy schedules, the debtor did not claim the homestead exemption. If he had, the bankruptcy trustee could make no claim on the debtor's residence under the Florida Constitution. However, if the debtor claimed the homestead exemption on real property, the debtor could only exempt his personal property up to $1,000 in value, under Art. X, s. 4(a)(2) of the Florida Constitution. Choosing not to claim the homestead allows the debtor to exempt personal property up to $4,000 in value, according to Fla. Stat. § 222.25(4) (the "wildcard exemption"), which exempts:

"[a] debtor’s interest in personal property, not to exceed $4,000, if the debtor does not claim or receive the benefits of a homestead exemption under s. 4, Art. X of the State Constitution."

The bankruptcy trustee objected to the debtor's wildcard exemption claim and moved in the alternative for an order directing the debtor to turnover his homestead property, arguing that the debtor can't have his cake and eat it too- he is not entitled to claim the wildcard property exemption and keep his homestead. The debtor countered that he is not "claim[ing] or receiv[ing] the benefits of" the homestead exemption, inasmuch as there is no equity in his property for him to exempt, and he is therefore entitled to the wildcard exemption.

Some time ago, in In re Dumoulin, 326 Fed. Appx. 498 (11th Cir. 2009), the Eleventh Circuit Court of Appeals certified a similar question to the Florida Supreme Court:

"Whether a debtor who elects not to claim a homestead exemption and indicates an intent to surrender the property is entitled to the additional exemptions for personal property under Fla. Stat. § 222.25(4)."

The issue in that case is similar, although not identical. In Dumoulin, the debtor indicated his intent to surrender his residence; in this case, he wants to keep it. The Florida Supreme court has not issued an opinion in Dumoulin, although oral argument has been concluded, and an opinion is therefore expected any time. The docket sheet can be accessed on the Florida Supreme Court's website (Case No. SC09-751), and the briefs, including an Amicus brief filed by the Business Law Section of the Florida Bar arguing that the debtor should be allowed the wildcard exemption under the facts of Dumoulin, can be accessed here.

A resolution of the issue turns on the meaning of 'receives the benefits' in the statute. The trustee argues that this phrase should be construed broadly to mean that anyone who owns a homestead and claims the homestead exemption for tax purposes and for asset protection purposes outside of bankruptcy, or otherwise treats the property as a homestead, has received the benefits of the homestead exemption and is therefore not entitled to the wildcard exemption, without regard to the debtor's intentions in the bankruptcy case. The debtor argues for a narrow construction of the phrase to mean that inasmuch as the debtor does not specifically schedule the property as exempt under the Florida Constitution in his bankruptcy case, the trustee may take it, and therefore the debtor is not receiving the benefits of the homestead exemption. There is a split among Florida bankruptcy courts on this issue, with substantial authority for both arguments. See In re Abbott, 408 B.R. 903 (Bkrtcy. S.D. Fla. 2009) for a brief survey of cases.

The Iuliano court refused to wait for the Florida Supreme Court, noting that the resolution of the certified question in Dumoulin would not be dispositive of the issue in Iuliano, inasmuch as the court's finding that the debtor can claim the wildcard exemption in a case where he is surrendering his homestead would not apply to a debtor who was keeping his homestead. Additionally, the Iuliano court found that the bankruptcy courts could not sit around and wait indefinitely for the Florida Supreme court, suggesting that an opinion in Dumoulin is overdue.

The Court chose to construe the statute narrowly, allowing the debtor to claim the wildcard exemption despite his stated intention to keep his residence. The Court reasoned that in general, exemptions are to be construed liberally in favor of the party claiming the exemption, and that where there is no equity in a property to exempt, the debtor does not receive the benefits of the homestead exemption. Therefore, the trustee's objection to the debtor's wildcard exemption was overruled. Incidentally, the court held that the debtor's declining to claim the homestead exemption subjected the property to the possibility of administration by the trustee as part of the estate, but that the trustee cannot liquidate property when doing so would have no benefit to the estate, and therefore, since the debtor has no equity in the property that would accrue to the estate through a sale of the property, the trustee must abandon the property. The court did give the trustee time to find a buyer for the property that would result in satisfaction of the mortgage and additional proceeds to the estate, but not surprisingly, no such buyer could be found.

Obviously this case has broad implications for debtors, as the circumstances here are all too common. Readers can expect to see more discussion of the issue on this blog to the extent this case, or one similar, is appealed. Furthermore, we await the decision of the Florida Supreme Court in Dumoulin, and will report on it when it is delivered.

Florida Court Rules Commissions are Wages for Purposes of State Garnishment Statute

Florida's Fourth District Court of Appeals recently ruled in Baker v. Storfer, --- So.3d ----, 2011 WL 222324 (Fla. 4th DCA 2011) that commissions are 'wages,' for purposes of Section 77.0305, Florida Statutes, and are therefore subject to a continuing Writ of Garnishment. Baker obtained a judgment against Storfer and attempted to collect the judgment by applying to the court for a Continuing Writ of Garnishment under Section 77.0305, which provides:

"Notwithstanding any other provision of this chapter, if salary or wages are to be garnished to satisfy a judgment, the court shall issue a continuing writ of garnishment to the judgment debtor's employer which provides for the periodic payment of a portion of the salary or wages of the judgment debtor as the salary or wages become due until the judgment is satisfied or until otherwise provided by court order."

The statute is useful to creditors because it requires the garnishee (the Defendant/debtor's employer) to make payments to the Plaintiff/creditor from each future paycheck (up to the maximum allowed by the Federal wage garnishment restrictions found in 15 U.S.C. § 1673), upon the service of a single Writ. The continuing Writ remains in effect until the judgment is paid in full, as opposed to an individual Writ of Garnishment under Section 77.04, Florida Statutes, which only requires that:

"the garnishee...serve an answer to it on plaintiff within 20 days after service stating whether he or she is indebted to defendant at the time of the answer, or was indebted at the time of service of the writ, plus sufficient time not to exceed 1 business day for the garnishee to act expeditiously on the writ, or at any time between such times."

Note the difference: the individual Writ only references amounts due at the time the answer is filed or before; the continuing Writ references amounts due in the future as well. The question in this case was whether the debtor's commissions constituted wages for the purposes of the garnishment statute. If so, Section 77.0305 would require the employer to make future commission payments to the creditor. If not, the employer would only be required to pay to the creditor what was due at the time of the answer for prior commissions. The trial court found that the commissions did not constitute wages, and therefore the garnishment action would not reach future commissions. The appeals court disagreed. It held that while discretionary distributions from closely held corporations, draws, expense reimbursements, and capital account disbursements do not constitute wages, commissions do. The court employed a plain meaning argument, finding that commissions are paid for labor or services and are therefore wages.

On the one hand, this is a victory for creditors. Had the court found that the debtor's commissions were not wages, Section 77.0305 would not have applied, and the creditor would have been forced to serve individual Writs of Garnishment in advance of each and every commission payment due to the debtor. This would be extremely costly, and crafty debtors could likely alter the timing of the commission payments and thereby avoid losing their commissions. On the other hand, since the debtor's commission payments are wages, they are subject to the head of household exemption found in Section 222.11, Florida Statutes. See Refco, Inc. v. Sarimiento, 487 So. 2d 75 (Fla. 3d DCA 1986). The Baker court did not discuss whether the debtor in that case was head of household; if so, the creditor would recover nothing in the garnishment, despite the court's ruling.

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).

Conclusion

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.

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).

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.

Seminar

View more presentations from Jorge M. Abril, P.A..

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.

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.

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.

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.

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.

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.

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.

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.