Federal Debt Law Held to Apply in Rent Case
New York Law Journal December 11, 1998
BY BILL ALDEN
BROADLY construing a federal consumer protection law, a Manhattan federal appeals panel has upheld a lower court's finding that the Fair Debt Collection Practices Act (FDCPA) applies to a three-day demand for rent signed by a landlord's attorney pursuant to New York law.
Weighing in on the closely watched case which could affect thousands of tenants and which drew amicus briefs from national consumer and landlord groups, a three-judge panel of the U.S. Court of Appeals for the Second Circuit agreed with a district judge's ruling that back rent is a "debt" covered by the FDCPA.
In its opinion in Romea v. Heiberger & Associates, No. 98-7259, the panel rejected arguments that the notice should be exempt from the FDCPA since it complied with §711 of the New York Real Property and Proceedings Act which gives tenants a three-day period to respond to a demand for back rent.
The FDCPA, by contrast, requires debt collectors to advise debtors in writing that they have 30 days to contest the validity of the alleged obligation.
Writing for a unanimous court, Circuit Judge Guido Calabresi noted that the FDCPA defines "debt" as an "obligation to pay money arising out of a transaction" that involves "personal, family or household purposes."
Back rent, he reasoned, "is much like the obligation arising out of a dishonored check where a service has been rendered or goods sold on the premise of immediate payment."
Adding that virtually all circuits that have considered the issue have held that dishonored checks fall within the FDCPA's definition of debt, the judge said that using the same rationale "we conclude that back rent is a debt."
In addition, the judges rebuffed further contentions that a three-day notice under the New York law was not a "communication" to collect a debt under the FDCPA and that a notice signed by a lawyer fell within a section of the federal law which exempts "process servers" from its terms.
The §711 letter was "undeniably" a communication as defined by the FDCPA since it "conveyed information regarding a debt" to another person, Judge Calabresi said.
Moreover, noting that a three-day notice is a "prerequisite to, rather than part of, an Article 7 proceeding" and that lawyers were not "messengers" whose involvement ends upon service, the judge concluded that the process server exception did not apply to attorneys.
Circuit Judges Robert Sack and Sonia Sotomayor joined in the panel's ruling which was issued late Wednesday.
The dispute was triggered in late 1996 when the plaintiff, Jennifer Lynn Romea, a tenant in a Manhattan apartment, received notice from the defendant, Heiberger & Associates, her landlord's attorney, advising her that she would face eviction if she did not pay four months back rent within three days.
Ms. Romea responded by suing the law firm in federal court, alleging that the three-day notice had violated the FDCPA.
No 'Absurd' Result
In a ruling issued in January, Southern District Judge Lewis A. Kaplan agreed with Ms. Romea that the FDCPA applied to the notice and denied Heiberger's motion to dismiss. (NYLJ, Jan.8)
A month later, noting that his initial decision had resulted in a "sea change" in landlord-tenant relations, Judge Kaplan took the rare step of certifying his ruling for interlocutory review by the Second Circuit (NYLJ, Feb. 3), which accepted it in early March.
Although conceding the possibility that the combined effect of applying both the New York and federal protections was more than either Congress or New York intended, the panel nevertheless affirmed Judge Kaplan.
The potentially unintended protection "does not empower us to disregard the plain language of the FDCPA unless the result is absurd or directly contravenes the purpose of the statute," Judge Calabresi wrote.
Applying the FDCPA to §711 does not lead to an "absurd result" since a debt collector could send "a §711 notice that complies with New York's requirements but still contravenes the purposes of the FDCPA by using abusive or coercive techniques to convince the tenant to pay the back rent."
Colleen F. McGuire of McGuire & Zekaria, who represented Ms. Romea, said that the panel's ruling "explicitly established" that tenants are consumers and that federal consumer law will now affect landlord-tenant relations.
Evan H. Krinick of Rivkin, Radler & Kremer in Uniondale, who represented Heiberger, said that the ruling will have ramifications beyond New York since it will mean that landlords in other states will not use attorneys to sign rent demand letters.
While adding that his client had not decided whether to appeal, Mr. Krinick predicted the decision will spur an effort to get Congress to modify the FDCPA as to the back rent and dishonored check issues.
In addition to Ms. McGuire, Robert E. Sokolski of McGuire & Zekaria represented Ms. Romea.
Amicus briefs were filed on behalf of the the National Association of Consumer Advocates, the National Multi Housing Council, the National Apartment Association, the Community Housing Improvement Program Inc., the National Association of Home Builders, the National Leased Housing Association, the American Seniors Housing Association, the City-Wide Task Force on Housing Court and Borah, Goldstein, Altschuler & Schwartz.