Today we report on an interesting 2011 case from the Southern District of New York against Cohen & Slamowitz and various Midland entities which was before the court on a motion to dismiss. This federal district case[1] stems from a consumer debt allegedly owed by the plaintiff to Citibank. After the plaintiff defaulted, the debt was sold to Encore Capital Group, Inc. ("Encore"). Title to the debt was held in the name of MRC Receivables Corporation ("MRC"), a subsidiary of Encore. Pursuant to the terms of a servicing agreement, Midland Credit Management, Inc. ("MCM," also an Encore subsidiary) was responsible for collection of the debt. MCM's counsel for collection of the debt was Cohen & Slamowitz, LLP ("Cohen"). Plaintiff brought this class action against all four entities, claiming that their collection activities violated the Fair Debt Collection Practices Act ("FDCPA").
Specifically, the plaintiff complained of a letter dated April 1, 2010, sent on letterhead bearing the name "Law Offices of Cohen & Slamowitz, LLP." The letter identified "Midland Credit" as the current creditor, and "Citibank/Associates" as the original creditor. The letter stated as follows:
Tax season is here, and hopefully you will be receiving a big refund check. Our firm is pleased to offer you a savings of 50% off the outstanding balance owed on this account. Your balance due is currently $1,540.48; however, our client will accept the reduced sum of $770.24 if you pay this amount on or before April 27, 2010. Upon receipt and clearance of your payment, your account will be deemed settled in full by our client.
Payments should be forwarded directly to this office with the payment stub below. Our office accepts Western Union, Monygram [sic], Mastercard, Visa, Discover Card and checks via telephone, or visit our website at WWW.CSLAWLLP.COM to make a payment online.
We urge you to take advantage of this special opportunity to settle your account for pennies on the dollar. Kindly note that this offer to settle is void if you are refinancing or selling your house or if we have restrained your bank account.
Very Truly Yours,
Cohen & Slamowitz, LLP
Plaintiff's complaint alleged that by sending the April 1 letter on Cohen & Slamowitz letterhead, the defendants falsely represented or implied that an attorney was involved in the collection process when in fact Cohen had not conducted any meaningful review of the account. She alleged this was a violation of FDCPA § 1692e(3). Citing to Second Circuit cases Clomon v. Jackson[2], Miller v. Wolpoff & Abramson, LLP[3], and Greco v. Trauner, Cohen & Thomas, LLP[4], the court stated that standing alone, a letter sent on attorney letterhead represents only an implied level of attorney involvement, which can be "overcome by including a clear disclaimer explaining the limited extent of attorney involvement of in the collection of the debt." However, no such disclaimer was included here, so the court found that the plaintiff had plausibly alleged a § 1692e(3) violation.
The plaintiff also alleged that by falsely stating the current creditor as "Midland Credit," rather than the entity that held legal title to the debt, MRC, defendants violated § 1692e(10), which prohibits making false representations to collect a debt. The court agreed with the plaintiff, noting both that "Midland Credit" is not an entity licensed to do business in New York, and that Cohen sent a later letter, dated April 29, that correctly identified the current creditor as MRC. Given these facts, the court concluded that the least sophisticated consumer (the standard applied in the Second Circuit) could be confused as to which entity was the creditor.
Next, the plaintiff alleged that the defendants had given her conflicting statements regarding the amount of her debt. In the restraining notice served on her bank, the defendants stated that plaintiff owed $1,127.80. However, the April 1 letter sent to plaintiff stated that she owed $1,540.48. Plaintiff alleged that defendant's thus violated § 1692e(2)(A) by falsely representing the amount of her debt. With little discussion, the court agreed.
Plaintiff also alleged that the April 1 letter was misleading because Cohen sent her a settlement offer, and then restrained her bank account before she had a chance to accept the offer. Plaintiff had contacted Cohen on April 26 to discuss the offer (the deadline to pay as set forth in the letter was "on or before April 27"), but was told it was too late, and that the account restraint process had already begun. Interestingly, the court dismissed this argument, stating:
[t]he April 1 Letter did not represent to plaintiff that her bank account would not be restrained before April 27, 2010; rather, it extended plaintiff a settlement offer that included, as a condition precedent to acceptance, a requirement that her bank account be unrestrained.
As to the plaintiff's other claims, the court found that the use of the name "The Law Offices of Cohen & Slamowitz" in the April 1 letter, in addition to the name Cohen & Slamowitz, LLP, the name under which it is licensed to do business, does not state a claim for relief under § 1692e(14) (which prohibits a debt collector from using any name other than its "true name"). In dismissing this claim, the court stated that the FDCPA's focus is not whether the collector's name is legally correct but whether the consumer would be confused.
The court dismissed all of the plaintiff's claims under § 1692f, which generally prohibits unfair practices by debt collectors, stating that where conduct can be found not to comply with a specific provision, courts will decline to declare that same conduct unlawful under a general provision.
The plaintiff was able to sustain her claims against Midland parent company Encore by alleging the following:
1. that the letters sent to plaintiff were the product of defendants' concerted efforts, and that integrated or shared technologies including computer programs, mailing houses, and electronic databases were used to produce the letters;
2. a theory of vicarious liability;
3. that Encore is a debt collector because the debt was in default when acquired by Encore. ("The FDCPA recognizes that one who acquires a debt merely for collection purposes is acting more like a debt collector than a creditor"); and,
4. a direct claim that Encore informed Cohen that Midland Credit rather than MRC was plaintiff's creditor, and that MCM and Encore exercised material control over each aspect of the collection process pursuant to a Collection Agreement. "Accepting plaintiff's allegations as true, I cannot conclude that the Encore defendants were not involved in drafting the April 1 Letter or the Restraining Notice, or that they cannot be liable under a vicarious liability theory."