1: Introduction; Nonjudicial collection

© Charles Tabb 2010

Give me the money

Our topic

• Money – or more accurately, the lack thereof

• And what happens then in the world of debtors and creditors

Creditor worries?

• What do CREDITORS have to worry about?

• How will they get paid the money they are owed??

1st issue: Creditor vs Debtor

How can this Creditor • collect from this Debtor?

A 2-party issue only

• Like an arm-wrestling match: Cr v Dr

• No one else involved

Problems?

• No money – cupboards are bare

• If the Debtor is broke, they’re broke, and you aren’t going to collect

You can’t eat a decent meal out of this cupboard

Sneaky debtor

• Or the debtor might have money, but they won’t give it up without a fight

2nd issue: Priority fights

• Not just Cr v Dr• Creditor has to compete with other claimants

for Debtor’s insufficient assets – other creditors, purchasers

• Someone may get left out!

What do Debtors worry about?

• Do they have enough money to pay their debts?

• Will they have any $ left?

Debtor worries

• Will they be able to get credit in the future?

2 types of Debtors

Humans

Not humans• Corporations• Partnerships

What are the differences?

• What makes a human debtor different from a non-human debtor?

Human vs non-human DR

• And how does the law take those differences into account?

* exemptions

* protect “human capital” -> garnishment limited-> bankruptcy discharge

Problem 1.1 – Planning ex ante

• Your client (Creditor Inc.) is a supplier of soccer jerseys. Debtor Co., a corporation that operates a chain of retail soccer stores, wants to buy jerseys on credit from Creditor. While Creditor would love to make these sales, as well as more in the years to come, Creditor worries about whether it will get paid.

* What will you advise?

Answering 1.1

In order to give good advice to Creditor, who is thinking of opening a credit relationship:

–What additional information do you want?

–How will you obtain that info?

–How might you structure the transaction?

Problem 1.1 (cont.)

• How would your analysis differ if Creditor were considering selling on credit to a natural person, rather than to a corporation?

Problem 1.2 – defaulting DR

• Creditor Inc. has been selling soccer jerseys on credit to Debtor Co. for nine months, with payment due on account 30 days after invoicing. Debtor Co. has been paying invoices two to four weeks late every month, and currently owes Creditor $10,000, and is 30 days late. Creditor is concerned, and wants to collect some or all of the debt. – What will you advise?

Answering 1.2

–What additional information do you want, and how will you obtain it?

Problem 1.2, cont.

• How would your analysis differ if Debtor were a natural person, rather than a corporation?

Nonjudicial collection

• To what extent can a creditor “persuade” a debtor to pay up “voluntarily”?

Caddyshack

• Illustrated by “collection” scene at end of Caddyshack (possibly greatest movie ever)

Tort law as collection limit?

• What are the legitimate competing interests of the creditor and the debtor?

Possible collection torts

• What are some possible torts that a debtor might be able to assert against a collecting creditor?

Fair Debt Collection Practices Act: ScopeProblem 1.3

•Does the FDCPA apply in the following situations? Do you need any additional information? a. Creditor makes numerous harassing phone calls and sends threatening letters to Debtor, a natural person, to collect $2,000 owed to Creditor for a computer.

Answer to problem 1.3(a)

• Not within scope of Act• definition of “debt collector” subject to the Act

in §803(6) only includes those who regularly collect debts owed to someone else

• that definition excludes from a “debt collector” subject to the Act a creditor trying to collect its own debt from the debtor.

Exception re problem 1.3(a)

• Limitation of the Act’s scope to exclude creditors collecting their own debts has one qualification – the creditor can’t use a false name.

• The creditor would be considered a "debt collector" if it is using a fictitious name

• Definition: “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."

Problem 1.3(b)

• Credit Bureau, Inc., a collection agency, makes numerous harassing phone calls and sends threatening letters to Debtor, a natural person, to collect $2,000 owed to Creditor for a computer.

Answer to problem 1.3(b)

• 1st – now clearly we have a “debt collector” – Credit Bureau Inc is a collection agency, collecting debts due another

• Remaining issue: is this for a “debt” as defined in § 803(5)?

“debt”

• 1st – the debtor must be a “consumer” – which is defined as “natural person” in 803(3), i.e., a human being.

• Here, Debtor qualifies

“debt” – type of debt

• 2nd – the debt must be a consumer debt, i.e., for “personal, family, or household purposes”

• Here, the answer depends on the intended use of the computer -- for personal use or for business? We need more facts

Problem 1.3(c)

• Alice Attorney sends a threatening demand letter to Debtor, a natural person, and then files suit to collect $2,000 owed to Creditor, Alice’s client, for a computer.

• “Debt Collector”?

Answer to Problem 1.3(c)

• The analysis is exactly the same as for 1.3(b) with regard to whether the obligation is a “debt”

• Only issue then is whether Alice Attorney is a “debt collector”?

Attorney as “debt collector”

• In Heintz v. Jenkins, 514 U.S. 291 (1995) – Supreme Court held that an attorney CAN be a debt collector

• i.e., there is not a blanket exclusion

Attorney as “debt collector”

• But that of course doesn’t mean that Alice Attorney, on these facts, necessarily IS a “debt collector”

• Just that she isn’t automatically excluded just because she is an attorney

“debt collector”

• Issue is whether Alice Attorney “regularly” attempts to collect debts owed to another

• Fact-intensive inquiry into nature of Alice’s practice. See Garrett v. Derbes, 110 F.3d 317(5th Cir.1997)

Problem 1.3(d)

• Credit Bureau, Inc., a collection agency, makes numerous harassing phone calls and sends threatening letters to Debtor, Inc., a family-owned small company, to collect $2,000 owed to Creditor for a computer

Answer to Problem 1.3(d)

• Not covered because this is not a “debt” within meaning of § 803(5)– why not?

• Because Debtor, Inc. is not a “consumer” within meaning of § 803(3) is not a “natural person”, i.e., human being

• Corporate debtors (even if a small family-owned business) aren’t protected by FDCPA

Problem 1.4(a)

• In the following situations, do the debt collector’s actions violate the FDCPA? See 15 U.S.C. §§ 1692b-j

a. Debt Collector continues to call Debtor at work, even after Debtor tells Debt Collector that she cannot take personal calls at work.

Answer to Problem 1.4(a)

• Yes, violates § 805(a)(3) [15 USC § 1692c(a)(3)]

• prohibits a debt collector from contacting a consumer “at the consumer's place of employment if the debt collector knows or has reason to know that the consumer's employer prohibits the consumer from receiving such communication.”

1.4(a), cont.

• Here, Debtor already TOLD Debt Collector that she couldn’t take personal calls at work

• This appears to be one of the favorite tactics of unscrupulous debt collectors

Problem 1.4(b)

• Shortly after Debtor (named Amanda) tells Debt Collector not to call her at work, Debt Collector calls again and leaves a message with Debtor’s coworker, Jimmie, asking Jimmie to “tell Amanda to stop being such a [expletive] bitch.”

Answer to Problem 1.4(b)

• Yes, violates § 806(2) [15 USC § 1692d(2)]. • The facts are taken from Horkey v. J.V.D.B. &

Assocs., Inc., 333 F.3d 769 (7th Cir. 2003).

1.4(b), cont.

• The section provides that “the use of obscene or profane language or language the natural consequence of which is to abuse the hearer or reader” is a violation of this section.

• Obviously, calling someone (even if not the hearer), “a [expletive] bitch” is prohibited language

More on 1.4(b)

• Also a violation of § 805(b) [1692c(b)]

• the debt collector communicated with a 3rd person about the debtor’s debt, without the debtor’s prior consent

1.4(b) continued

• And, finally, also violates 805(a)(3) [1692c(a)(3)]

• continued to communicate with her at work even after knew she couldn’t take personal calls there

The court’s reasoning

• The court did not buy Debt collector’s defense that the call was not in connection with the collection of a debt.

Horkey case

• The court observed: “In that context, when he told Horkey (via Scholes) to “stop being such a [expletive] bitch,” Romero was not offering general advice about how Horkey could improve her disposition. He was telling her, crudely but specifically, to be more receptive to his entreaties regarding the debt.”

Other defense?

• What about the fact that the debt collector didn’t speak with the Debtor?

Reject “intermediary” defense

• Court observed that debt collector did intend to communicate with the debtor

• specifically wanted the 3rd person to relay the message to the debtor

Problem 1.4(c)

• Debt Collector calls Debtor at home at midnight.

Answer to problem 1.4(c)

• Yes, this violates § 805(a)(1) [1692c(a)(1)] -- Debt collectors may not contact a debtor at an inconvenient time

1.4(c), cont.

• the statute states a presumption that any time before 8 am or after 9 pm is inconvenient.

• No facts to rebut the presumption, i.e., that

debt collector had knowledge of circumstances to the contrary.

Problem 1.4(d)

• Debt Collector calls Debtor six times in 24 minutes. Debt Collector is very polite each time.

Answer to Problem 1.4(d)

• Yes, this violates § 806(5) [1692d(5)] – “Causing a telephone to ring or engaging any

person in telephone conversation repeatedly or continuously with intent to annoy, abuse, or harass any person at the called number.”

• Facts are taken from Kuhn v. Account Control Tech., Inc., 865 F.Supp. 1443, 1452 (D.Nev.1994).

• This is true even if the content of the calls themselves is not abusive.

Problem 1.4(e)

• Debt Collector calls Debtor at home shortly after work and states that Debtor is in default on a debt, and further states that if satisfactory arrangements for payment are not made within five days, Debt Collector will turn the file over to an attorney with a recommendation that the attorney file suit against Debtor to collect the debt

Answer to Problem 1.4(e)

• Violation under § 809(a) [1692g(a)]

• DC must send a sufficient written “validation notice” within 5 days of initial communication

• Here, the phone call apparently was the

“initial communication” – and no suggestion that a validation letter was forthcoming

Validation notice

• The written notice must (among other things) give Debtor 30 days to dispute the debt and obtain verification

More on Problem 1.4(e)

• Furthermore, can’t even cure phone call’s deficiencies by sending validation notice within 5 days. Why not?

Curing bad notice?

• Under 807(5) [1692e(5)], DC cannot threaten to do what it does not have the legal right to do.

• Here, could not turn file over in 5 days with recommendation for suit – have to give 30-day validation notice

Alternative facts – okay

• However, under alternative facts, with phone call followed by validation notice, Debt Collector has satisfied 809(a)

Another § 807(5) problem

• Debt collector also may violate 807(5) by threatening to do what it does not INTEND to do – even if legal

• Question of fact for a jury what the DC intended

Final comment on 1.4(e)

• If, however, DC made the same sort of “threat” to collect in a sufficient validation notice providing the requisite 30-day dispute period, it would not violate the Act.

• Courts make clear that the mere fact a debtor is exposed to inconvenience or possible embarrassment does not constitute a violation of the Act.

• Creditors have a right to try to get paid.

Bona Fide error defense

• Note that a debt collector is protected from liability if:– The violation was not intentional AND– Happened because of a “bona fide error,”

notwithstanding maintenance of procedures reasonably adapted to prevent such an error

“Repo Man”

• Under Article 9, a secured party has a right after the debtor’s default to “take possession of the collateral.” U.C.C. § 9-609(a)(1).

Secured Cr: Right to Repo

• the secured party may repossess “without judicial process, if it proceeds without breach of the peace.”

• U.C.C. § 9-609(b)(2).

Problem 1.5(a)

• In the following situations, did the “repo man” “breach the peace”?

• Debtor left her home unlocked and ran an errand. Repo Man, who had come to repossess a piano, saw the piano through the front window. He knocked at the door, and, hearing no answer, turned the knob and, finding it unlocked, went in and removed the piano. No one was at home.

Answer to problem 1.5(a)

• Breach of the peace.

Even though no one was home,and no objection was made, and the door was unlocked,

uninvited entry into the debtor’s home is always forbidden. • Problem based on Girard v. Anderson, 219 Iowa 142, 257

N.W. 400 (1934).

Problem 1.5(b)

• Same facts as in Problem 1.5.a, except Debtor was home, and when Repo Man knocked, Debtor answered the door, and Repo Man told her, “I am a deputy sheriff and have come to repossess your piano.” Debtor then stepped aside and let Repo Man take the piano.

Answer to Problem 1.5(b)

• breach of the peace.

• Repo Man’s deception in posing as a law officer vitiates the Debtor’s consent.

Problem 1.5(c)

• Debtor’s car was parked in an open carport, which was connected to the house.

• At 3 a.m., with Debtor and her whole family asleep inside, Repo Man backed a tow truck up to the car and towed it away.

Answer to problem 1.5(c)

• No, this is not a breach of the peace.

– The car was taken from an unrestricted area • Should an open carport be deemed “restricted”?• What about an open garage?

– and no objection was made.• Should debtor have opportunity to object?

Problem 1.5(d)

• Same facts as in Problem 1.5.c., except as Repo Man was starting to back out of the driveway, Debtor’s 16-year old son threw open a window and yelled out,

“hey, jerk, what in the <expletive> do you think you’re doing? Leave our car alone.”

Answer to problem 1.5(d)

• breach of the peace. • Objection by the Debtor’s son suffices– As one student said: “the purpose of the policy

is to prevent an outbreak of violence, and taking an automobile from someone’s property as a family member objects could cause a confrontation.”