NJ federal court forbids law firm for collecting its own purchased debts under its law firm name

Today we report on an interesting decision from the U.S. District Court for the District of New Jersey, Chulsky v. Hudson Law Offices, Civil No. 10-3058 (FLW). The case is a consumer class action in which the plaintiff challenged Hudson’s efforts to collect alleged amounts due on First Bank of Delaware MasterCards.

In her complaint, the name plaintiff, Ms. Chulsky, alleged that the Hudson law offices, which both owned and sought to collect on the alleged debts, violated New Jersey’s Professional Services Corporation Act by operating a debt collection business under the auspices of Hudson Law. The District Court agreed.

The District Court further found that because Hudson Law Offices violated state law by being both a law firm and a debt collector, Hudson’s collections complaints misrepresented the legal status of her debt and therefore violated § 1692e(10) of the FDCPA. The court cited to Campuzano-Burgos v. Midland Credit Mgmt., 550 F3d 294 (3d Cir. 2008), in which the court said, “Debtors react more quickly to an attorney’s communication because they believe that a real lawyer, acting like a lawyer usually acts, directly controlled or supervised the process through which such a letter was sent.” The NJ District Court agreed with the court in Campuzano-Burgos, saying, “That the debt was owned and prosecuted by a law firm could have created in a least sophisticated consumer’s mind an impression of legal validity not typically imputed to a creditor’s actions.”

The decision does not say that law firms cannot be debt purchasers. But, at least in New Jersey, we may be seeing that law firms that purchase and collect debts may now be required to do so through a separate business entity, and under a completely different name. A welcome decision and one we would like to see spread to other states.

More about similar decisions at "Courts increase pressure on debt buyers" at Ballard Spahr LLP.

-Sheril Stanford

Categories: Debt Defense
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