New York Business Litigation Lawyer Blog

The United States Court of Appeals for the Second Circuit ruled that that a law-firm (and the individual attorneys) violated the Fair Debt Collection Practices Act (“FDCPA”) by starting a lawsuit to collect a debt during the 30-day validation period allowed to dispute a debt without any explanation of the relationship between the notice validation rights and the lawsuit. In Ellis v. Solomon and Solomon, P.C., the plaintiff Janet Ellis (“Ellis”) owed $17,809.13 to Citibank credit card and Citibank referred the matter to the defendant law firm with “authorization to sue.” As required by the FDCPA, the law firm sent Ellis a letter containing a “validation notice”, setting forth, among other things, the consumer’s right to dispute the debt by notifying the law firm within 30-days. The law firm then started a lawsuit in Connecticut Superior Court to collect the debt and Ellis was personally served with the summons and complaint when there was more than two more weeks to run on the 30-day validation period.

Ellis, in turn, filed a lawsuit against the law firm and the individual attorneys alleging violations of the FDCPA. After both sides moved for summary judgment, the District Court ruled that the defendants violated the FDCPA by serving Ellis with a lawsuit during the validation period. On appeal, the Second Circuit agreed.

The Second Circuit explained that the 30-day validation period is not a “grace period” and debt collectors are largely free to continue collection activities during the validation period provided that the “validation period collection activities and communications must not ‘overshadow’ or ‘contradict’ the validation notice.” And a collection activity or communication “overshadows or contradicts to the validation notice ‘if it would made the least sophisticated consumer uncertain as to her rights.’”

The Second Circuit ruled that there is “still the real potential for confusion when the consumer is served with a lawsuit during the validation period.” Without any kind of an explanation of the relationship between the validation notice and the lawsuit, it “may well appeal to the least sophisticated consumer that being taken to court trumps any other out-of-court rights. . . .”

Stating that “we write principally to explain how debt collectors could avoid running afoul” of the FDCPA in the future, the Second Circuit explained that the law firm had two options.

First, it could have waited until the validation period expired – the Court noted that it was “difficult to discern what tactical advantage was gained” by starting the lawsuit when the validation period had only two weeks to run, especially when the return date of the lawsuit was a full month after the validation period expired.
Second, if the law firm chose not to wait until the end of the validation period to start the litiation, it could have proceeded with the litigation provided it explained the lawsuit’s impact “– or more accurately, lack of impact – on the disclosures made in the validation notice.” The Court explained that this explanation should be set forth either on the validation notice itself or in a notice provided with the summons and complaint with the “best practice” being to provide an explanation in both the validation notice and the summons and complaint. The Second Circuit explained that “[c]larifying that commencement of a lawsuit does not trump the validation notice will come at little or no cost to debt collectors and will ensure that the consumer rights secured under the FDCPA are not overshadowed or contradicted.”

While awarded $1,000 is statutory damages, the Plaintiff was also awarded costs and attorneys’ fees, which no doubt will be more than $1,000.

By Katherine Zalantis

The Appellate Division Second Department has ruled that there was not sufficient “assent” to require a law firm to pay a recruiting firm’s fee when the resume was sent to a partner in the firm’s New York office, but the candidate was independently interviewed and hired by the firm’s Washington D.C. office. In Siven-Tobin Assoc., LLC v. Akin Gump Strauss Hauer & Feld LLP, the plaintiff-recruitment firm sent, via e-mail, a resume of a potential employee specializing in Korean practice to a partner in the defendant-law firm’s New York office. The attached term sheet described the anticipated fee for the attorney placement and further provided that “[t]he interviewing of any attorney submitted to the firm will constitute acceptance of these terms and conditions unless [plaintiff] is notified to the contrary in writing prior to the first interview.” The New York partner had no recollection of receiving the e-mail, but in any event, the resume was of no interest to the partner as the New York office did not have a Korean practice group. Nonetheless, nine days later, a partner in the defendant firm’s Washington D.C. office (which has a Korean practice group) received the same candidate’s resume from another recruitment firm. The Washington D.C. partner was unaware of plaintiff’s e-mail to the New York partner and the Washington D.C. partner, after interviewing and hiring the attorney, paid a placement fee to the other recruitment firm.

Plaintiff started its lawsuit alleging that it was entitled to be paid a placement fee. Plaintiff claimed that there was an “implied-in-fact” agreement between the parties.

The Court did not agree – the Court explained that for there to be an implied contract to pay for personal services, plaintiff must prove that services were performed and accepted with the “understanding on both sides that there was a fee obligation.” The Court focused on the facts that the New York partner did not know that the candidate was being interviewed by the Washington office and the Washington D.C. partner did not know before interviewing the candidate that his resume had been sent to the New York partner. Thus, there was not the required “assent” sufficient to establish an implied contract.

The Court also established that an implied contact could not be inferred based upon the parties’ prior conduct as the law firm never hired any of the 10 candidates referred to it over the course of 10 years. Further, the Court found that the “mere fact that defendant interviewed three of those candidates does not permit an inference that defendant had agreed to pay plaintiff a placement fee even in instances where plaintiff’s efforts played no role in defendant’s decision to interview and hire the candidate.”

By Katherine Zalantis