Please submit an outline of the facts
Default Judgment/ Fair Debt Collection Practices Act/ Unlawful Practice of Law
Our client, Thomas Carroway, defaulted on payments on his bank credit card account in June, 2015. At the time of his default, the account balance was approximately $21,000.
In August, 2015, the bank turned the account over to Debtor Services, Inc., a collection agency. In September and again in October, Debtor Services sent letters to Mr. Carroway. Each letter proposed an offer of compromise and a payment plan. Mr. Carroway did not respond to either letter.
In December, 2015, Debtor Services sent another letter to Mr. Carroway. In this letter, Debtor Services withdrew its offer of compromise, declared its intent to file a lawsuit to collect the full amount of the debt, and threatened to file a lien against Mr. Carroway's home. Unlike the previous letters, this letter was signed by Andrew Hindenberg, Esq.
On January 5, 2016, Debtor Services filed suit against Mr. Carroway. On the face of the summons was the following warning: "If you do not respond to the attached complaint within the applicable time period, a default judgment will be entered against you for the relief demanded in the complaint without any further notice to you."
Our firm hired an investigator to look into the business practices of Debtor Services, Inc. The investigator interviewed the former office manager of the collection agency. The office manager stated that Andrew Hindenberg does no legal work on behalf of Debtor Services. He allows the agency to use his name, letterhead, and signature without actually reviewing the letters or pleadings that bear his signature.
It seems to me that a series of federal statutes known as the Fair Debt Collection Practices Act (U.S.C. §§ 1692 et seq.) may provide a defense for Mr. Carroway. Specifically, I need to know whether the threat contained in the December letter and the default without further notice warning on the summons violated the FDCPA.
In addition, the business relationship between Debtor Services, Inc., and Mr. Hindenberg raises serious ethical issues. I need to know whether that relationship constitutes the unlawful practice of law on the part of the collection agency and, if so, whether we, as a firm, are obligated to report the nature of this relationship to the grievance committee.
My intention is to have this memo present three issues. First, which of the several practices prohibited by the FDCPA are relevant here (answer: a creditor cannot threaten to take actions that cannot legally be taken). Second, were the threats (to file a lien and to obtain a default judgment without further notice) legally tenable? (The lien issue may be too abstract, but the default without further notice threat is clearly impermissible under NY law - CPLR 3215 and, I assume, any NJ analog.) Third, as for the ethical issue, the arrangement between the attorney and the collection agency constitutes the unlawful practice of law (Rules of Professional Conduct 5.5) and the student's firm, having discovered this ethical breach, is obligated to report it to the grievance committee (Rules of Professional Conduct 8.3).