A New Jersey court has considered whether a law firm is required to comply with the requirements of the federal Fair Debt Collection Practices Act (“FDCPA”) when it collects unpaid rent on behalf of its clients from their tenants through litigation.
Rochelle and Renita Hodges (“Tenants”) leased an apartment from Sasil Corporation (“Landlord”). The Tenants received a Section 8 housing subsidy from the U.S. Department of Housing and Urban Development, and so the amount of rent that the Landlord could charge the Tenant was strictly regulated by federal law, including limits on the amount of rent that the Landlord could charge the Tenant.
From 2003-2005, the Tenants occasionally fell behind in their rent payments, and so the Landlord hired Rosalie Scheckel (“Attorney”) of Feinstein, Raiss, Kalin & Booker (“Law Firm”) to commence eviction proceedings each time. When the Attorney would file lawsuits against the Tenants, she would seek not only payment of past due rent but also late fees, attorneys’ fees, and court costs. All of these charges would be listed as “rent” in the lawsuits. The Law Firm claimed that it was entitled to these additional amounts based on language in the lease, although these additional amounts were not defined as rent under federal law and nonpayment could not serve as a basis for eviction under New Jersey law.
On a number of occasions, the Tenants offered to pay the Landlord the amount of unpaid rent (but not the other claimed amounts) that they owed, but the Law Firm refused to accept that amount and continued with the eviction proceedings. However, when the Tenants obtained legal representation in a 2004 proceeding, the Law Firm amended its lawsuit and dropped all non-rent charges. The lawsuit was then dismissed when the Tenants paid the past-due rent amounts.
Later in 2004, the Attorney filed another lawsuit against the Tenants for past due rent and also sought late fees and legal fees. On the trial date, the Tenants appeared with an attorney and also filed a separate lawsuit against the Law Firm, the Landlord, and the Attorney, alleging violations of the FDCPA and other laws. When the Tenants sought to consolidate the lawsuits, the Law Firm agreed to dismiss all of the other fees it had sought from the Tenant and accepted only the past due rental amounts. The Law Firm then successfully obtained judgment in its favor in the Tenants’ lawsuit, and the Tenants appealed.
The New Jersey Superior Court, Appellate Division, reversed the trial court and sent the case back to the lower court for further proceedings. The FDCPA is designed to prevent a “debt collector” from harassing individuals during the process of collecting a debt. The trial court had ruled that the FDCPA did not apply to the Law Firm because they were not “debt collectors” within the meaning of the statute because they were not regularly engaged in the practice of debt collecting. Instead, the trial court had found that the Law Firm was primarily engaged in the practice of real estate law and also landlord/tenant matters.
The court considered whether a law firm could be covered by the FDCPA. The Supreme Court of the United States has concluded that the FDCPA covers attorneys who “regularly engage in consumer debt collection, even when that activity consists of litigation”. Therefore, the question for the court was whether an action for possession of the property constituted “debt collection”.
The court determined that an action for possession constituted debt collection, as the consumer could avoid losing possession of the leased premises by paying the unpaid rent. Thus, the court ruled that if the Law Firm was engaged in the practice of regularly filing actions for possession, then it would be a debt collector within the meaning of the FDCPA and so would have to meet the notice provisions contained within the FDCPA. Since there was insufficient evidence to make this determination, the court sent the case back to the trial court for further proceedings.
The Law Firm argued that it would be impossible for it to comply with the FDCPA notice provisions because these rules differ from the legal process the Law Firm must undertake on behalf of a landlord to obtain possession of leased premises under state law. Under the FDCPA, a debt collector must notify the consumer within five days of the first communication the amount of the debt being sought for collection and this amount will be presumed to be accurate if the consumer does not object to this amount within thirty days. The Law Firm argued that an action for possession is initiated by the filing of a lawsuit and so the separate FDCPA notice provisions would cause a conflict between the FDCPA and the state law legal process. The court rejected this argument, finding the complaint itself would constitute notice under the FDCPA and the Law Firm could meet the FDCPA requirements during the state law process for obtaining possession of the property.
Hodges v. Feinstein, Raiss, Kelin & Booker, LLC, 893 A.2d 21 (N.J. Super. Ct. App. Div. 2006).
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