The Free Press - Volume 3, Fall 2006

Report from the Chair

By Robert A. Bernstein, Esq.

It’s hard to believe that a year has passed since I sat down to compose my first message to CRS members as Chair-Elect.  In my first message, I reported that my aim was not to institute new initiatives, but to continue to do that which we have done so well in the past, as well as to make strides to further projects which have been in the planning stage for a while.  I further proposed to take steps to improve relations with other Sections of the League.  I am glad to report that the Section has made strides toward advancing those aims.   Though we may not have brought all of the initiatives to fruition, we have made significant strides in the right direction.

Perhaps the most important thing we offer to our members is the finest in educational opportunities; this year has been no different.  We sponsored nationally renowned educational speaker James McElhaney at the Chicago convention, and we are presenting two programs in New York, which are sure to provide valuable information to our members.  On Friday morning, we are sponsoring Mike Cash, a dynamic trial attorney who will provide tips and techniques for effective litigation skills.  On Saturday morning, we are sponsoring a program on the basics of the Fair Credit Reporting Act.  Whether a novice in the field, or an experienced practitioner, this program is vital for attorneys to keep up with the latest developments in order to keep their clients out of hot water.

Just as in Chicago, we have worked closely with the other Sections so that educational opportunities at the New York convention do not overlap, and CLLA members will be able to take in most of the educational opportunities available, without scheduling conflicts among desirable educational programs.  In addition, the National Association of Credit Management will be providing educational and networking opportunities for our members.

I am glad to also report success in establishing more harmonious relations with other Sections of our great organization.  Jeff Rubin and Mark Sheriff have served as liaisons to the Agency Section of the League, and we have invited Agency Section, Bankruptcy Section and Young Members Section representatives to participate in our Executive Council and general membership meetings.  Furthermore, we have made strides in establishing a listserv on practice groups, which will be a valuable resource for our members in their practices.  Be sure to attend the Practice Groups event in New York to learn how this service can benefit your practice.  Our revenue is up over the past year and our expenses have been trimmed, and we may well operate under a balanced budget for the first time in several years.

Perhaps the best indication of the health of our section is the fact that we have many people seeking to join the ranks of our leadership.  There are contested races for the positions of Secretary and four Executive Council positions in New York.  In addition, there is a bylaw amendment for consideration in New York, which proposes to change the elections for our officers to the National Meeting in Chicago.  The vote on this proposal was extremely close in the Executive Council, and there are good arguments on both sides of the issue to be presented at the General Membership meeting in New York.    Please be sure to attend our general membership meeting on Saturday afternoon in New York to help us make the best informed decisions regarding these issues which are keys to the vitality of our Section.

On a personal note, I must express my gratitude to the current chairs of the various committees.  Some have worked hard and accomplished much, while others, although well intentioned, have not met with as much success.  For those who committed last year to work and followed through, the entire Section extends its thanks.  For those who did not quite accomplish all that we had planned a year ago, I encourage you to redouble your efforts and help our incoming Chair make the coming year our best year ever.

The sage advice of our past Chairs has been invaluable in steering our Section to where we are today, and each deserves our thanks for their continued passion in advising our Section as we go forward.  Our Section is in the hands of very talented and energetic leaders for the coming years.  The members of the current Executive Board have held other leadership positions in other sections of our League, from Regional Chairs to the Presidency of the League.  Their input has been extremely valuable in shaping the direction of our Section, and I am confident that the CRS will continue to lead the way in the very bright future of the Commercial Law League of America.  I greatly appreciate the confidence you have shown me in permitting me to serve as your Chair, and I look forward to continuing to be actively involved in the great work being done by and for our members.

Editor’s Note:  Robert A. Bernstein, Chair of the Creditors’ Rights Section, is a partner in the firm of Bernstein & Bernstein, P.A., in Charleston, SC, where he practices in the areas of commercial collections, creditors’ rights, business litigation and bankruptcy.

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BOARD REPRESENTATIVE REPORT
CRS CANDIDATES FOR 2006- 2007

By:  Jeff E. Rubin, Esq.

In New York City at the Eastern Conference of the CLLA, the Creditor’s Rights Section will be electing this year’s officers and executive council.  I have been appointed chairman of the Nomination Committee.  I am happy to report that we have excellent candidates running for the position of secretary and four (4) executive council positions.

The candidates for Secretary are:
Stuart Blatt    Towson, MD
Marc J. Bressler    Edison, NJ
Nicholas D. Krawec    Pittsburgh, PA

The candidates for Executive Council:
Mark E. Barnett    Mansfield, MA
Douglas S. Evans    Springfield, MO
Arthur Sanders   Spring Valley, NY
Robert M. Singer    Hamden, CT
Curtis E. Smolar    San Francisco, CA
Joseph I. Terkell    White Plains, NY

The voting will take place after the general membership meeting on Saturday at the Eastern Conference of the CLLA.

Editor’s Note: Jeff E. Rubin practices law in Miami, Florida.  He is a partner at the Law Firm of Talianoff Rubin & Rubin. He is immediate past chairman of the Creditor’s Rights Section and currently serves the Board Representative for the Section.  He can be reached at jeff@mialaw.com.

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Chair Elect Report

By:  James "Beau" Hays

The job of chair-elect is a little better than vice-president, because you get the other job eventually.  During my year as chair-elect, my sole task has been to watch what our current chair has been trying to do and figure out who I should ask to do that stuff again in the coming year.  Not too taxing.
 
For those of you not attending the New York meeting (or those planning on opening a book the second I have been sworn in as chair), here’s a Cliff’s Notes version of my initial remarks upon taking the office of chair of CRS:  My goal for the coming term is to make CRS more relevant to our practices and to our clients.  We are asking for $80 in dues from our members and the Section needs to earn that money.  I believe that CRS can be a better resource for our member attorneys.  We already have the basic mechanics of a vibrant and useful Section in place; my predecessors as Chair over the past dozen plus years have created the framework and identified the tools.  Our job now is to move on with those tools - practice groups which provide useful content and useful feedback to our members; a web presence with resources that can provide value to the CRS member; and educational offerings focused on the law and on the trial practice.
 
One benefit of my term as Chair, to the interested CRS member, is that no idea is too far outside the box to be considered.  Every few years we have pulled out a new idea and run with it, and the results have been gratifying – spearheading the League’s web presence, providing the best education from the most qualified speakers, a directory that lets you match faces with names and places with attorneys to whom you can forward your work with confidence.  What is the next good idea we need to try?  If you have it, tell it to me, or to anybody, and let’s give it a try.  The e-mailbox is always open at beau@haysandpotter.com.

Editor’s Note:  Beau Hays, Esq., Chair-elect of the Creditors’ Rights Section, is a partner in the Atlanta, GA law firm of Hays & Potter, P.C., practicing in the areas of creditors’ rights, construction law, bankruptcy, business law, commercial law, collections and civil litigation.
           

Treasurer’s Report: CRS Finances Sound 

by Edward Friedman Esq., Treasurer

As current treasurer of the Creditor Rights Section, I am pleased to report that the section is strong financially, and in a position not only to meet our commitments to our members for this fiscal year, but also for the years to come.  As of July 31, 2006 the Section has net assets of $129,227.  The budget for the period ended May 31, 2007, had been approved and includes expenses for generous funding of educational programs to be done by the section, while still projecting a $4,490 profit for the year.  Remember, these are projections, but your leadership has studied the expenses carefully and is always endeavoring to provide "as much bang for the buck" as possible.
As a CRS dues paying member, you are our most important asset.  The majority of CRS' operating budget comes from dues.  It is vital to the success of the section that you promptly pay your dues.  If you have your dues bill and have yet to pay for this year, please sit down and remit your dues.  For CRS to continue to expand programming for the benefit of our members, we need to have a healthy treasury.  Our goal each year is to have a reserve of $100,000.00 at the end of the fiscal year.  This is a 2-year cushion, and one that allows future planning.  For this year the retention is tracking along at the expected pace, but it would be nice to get the majority of the dues in early.

I look forward to seeing everyone in New York, and remember to mark the time (2:30 p.m.) and date (Saturday, November 11, 2006) of the CRS General Membership Meeting on your calendar so you can participate with us in shaping the CRS Section to better meet the needs of our members.

Editor’s Note: Edward Friedman, Esq. is a partner in the Baltimore, MD, law firm of Weinstock, Friedman & Friedman, P.A., and concentrates his practice in commercial law, collection and debtor creditor law.  He is admitted to practice in Maryland, Virginia and the District of Columbia, and is certified as a Creditors’ Rights Law Specialist.  Mr. Friedman is presently the Treasurer of the Creditors’ Rights Section.

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Secretary's Report

No updates to report to the membership at this time.  Check in with the membership at the CRS meeting in New York where critical voting is taking place.

Mark J. Sheriff, Esq. 

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Letters to the Editor:

We have no letters this issue.  Letters or comments can be sent to nkrawec@bernsteinlaw.com or brendam@kohnlaw.com. 

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Washington Legislative Report

By David P. Goch, Esq.

According to the Administrative Office of the U.S. Courts, bankruptcy filings dropped nearly 67% in the third quarter of 2006 and 9.3% over the last year; the lowest level in 5 years.  There were 155,833 total bankruptcy filings in the third quarter 2006, compared with 467,333 in the third quarter 2005. During the 12-month period that ended June 30, 2006, there were 1,484,570 bankruptcy filings, down from the 1,637,254 for the same period 2005.  Business filings dropped to 31,562 during the 12-month period ending June 30, down 2.6% from the 32,406 filings reported the previous 12-months.  Chapter 11 filings also fell with filings totaling 6,224 as of June 30, 2006, down 7.1% from the 6,703 filings for the 12-month period ending June 30, 2005.  On a related note, according a survey just released by the National Association of  Consumer Bankruptcy Attorneys (NACBA), less than a year after taking effect, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) is neither reducing the number of bankruptcy filings nor yielding higher repayments to creditors and it appears to have created more paperwork demands and greater expenses for cash-poor consumers.  NACBA president, Henry Sommer, stated that the means test of the new bill has, "revealed that the creditors' lobby was dead wrong - virtually none of the people who file chapter 7 cases are able to pay more. Bankruptcy is still very much available and still very much needed, even though consumers now have to pay more and go through more paperwork to get the required help."   NACBA's survey disclosed that 68.5 percent of those surveyed said that their bankruptcy filings are up in the third quarter of 2006, compared with the first half of the year. Over 57% of surveyed bankruptcy attorneys now expect filings to reach their pre-BAPCPA levels by or before the law's second anniversary on Oct. 17, 2007.   Contrary to what proponents of the law predicted, less than one-third of bankruptcy attorneys have experienced an increase in forced Chapter 13 repayment filings.   Also, according to the survey, more than three quarters of bankruptcy attorneys indicated the time involved in preparing a bankruptcy filing has increased by at least 50 percent. Survey respondents estimated the extra preparation time at 50-75 percent (26.5 percent of respondents), 75-100 percent (23.1 percent), and "more than 100 percent in increased time" (27.1 percent).  In other bankruptcy news, CLLA has been active on legislation to increase fees to trustees in bankruptcy cases.  HR 5585 passed the House on Sept. 27 with the provision regarding the fee increases.  On Sept. 30, the Senate passed a version of the bill, but not the same version as the House.  Due to the controversial nature of the fee increases, amendment S 5114, sponsored by Sen. Robert F. Bennett, [R-UT], was passed at the last minute to amend the bill removing the provisions regarding fee increases.  The bill is likely to be debated further when Congress returns November 14th for a lame duck session.  In other news, a more practical, albeit troubling, opinion out of New York may affect your business practices. A New York lawyer who faxed updates on attorney malpractice issues and trends was sued for unsolicited advertisements that violated federal law restricting junk faxes.  Peter M. Stern sued fellow New York attorney Andrew L. Bluestone under the Telephone Consumer Protection Act of 1991 after Bluestone included his contact information in 14 unsolicited faxes to Stern between November 2003 and March 2005.
 
By including his contact information, Mr. Bluestone demonstrated availability of his services and the faxes therefore qualified as advertisements, despite their informational nature.
 
In debt collection news, the Saturday morning before adjournment, the Senate agreed to the language contained in the Financial Services Regulatory Relief Bill (S. 2856), which passed the House 2 days before, sending it to the President.
 
In this legislation there are four FDCPA related amendments:
 
1) Formal pleadings will not constitute an initial communication under the FDCPA, and therefore, will not trigger the need for validation notice disclosures as otherwise required by the Act.
 
2) Notices and forms sent by debt collectors, as required by other federal or state statutes or regulations, but not requesting the payment of a debt, will no longer be considered initial communications under the FDCPA. Specifically, this amendment eliminates conflicts with the FDCPA and sending IRS mandated 1099-C forms, Gramm-Leach-Bliley Act privacy notices, and state or federal data security breach notification requirements.
 
3) The right to collect during the 30-day validation period, in the absence of a consumer dispute, will be codified in the FDCPA statute.

4) An exception for certain bad check enforcement/collection programs operated by private entities

The Commercial Law League of America has consistently sought a litigation exemption for attorneys litigating collection cases and clarification of the ability to collect during the validation period. The amendments above accomplished a portion of CLLA's goal.

Editor's Note:  David P. Goch, Esq., is the CLLA Washington Legislative Counsel.

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Committee Reports:

RETAIL COLLECTIONS COMMITTEE REPORT

By: Stuart R. Blatt, Esq.

A HIGHLY SUCCESSFUL EVENT:  At the last CLLA conference in New York, the Retail Collections Committee educational program featuring a Mock Trial of an FDCPA case received accolades. The committee is proud of the perseverance of its committee members, along with CRS support, to make the presentation possible. Esteemed member, Manny Newburger deserves valued praise for his: a) research, selection and preparation of actors, b) handouts with samples and forms and c) the many hours he devoted to help produce a successful event. Congratulations are extended to all the actors (members) and CLLA support staff who made major contributions to the success of this event.

The program presented, along with questions from those attending, provided the audience in a packed room with a vision of how a case would be presented. They heard the testimony and voir dire of witnesses, instructions by the judge and summation by counsel. The most remarkable part of the presentation was the opportunity to view the jurors by remote video and also to listen in on the jury room discussions. Experienced trial lawyers never have a chance to hear how their arguments, questions and summation impact jury deliberations. In this mock trial event, CLLA members had the opportunity to perceive juror’s interpretations and reactions to the evidence presented and the arguments and presentations of counsel. This proved to be a valuable learning tool for all who attended.

The Retail Collections committee announces that Arthur Sanders has been named as co chairman.  Arthur will be a valuable asset to the committee and will help with our meetings and with developing further educational events.  I have met with the new representatives at the FTC and expect future contact, which I will present in the next newsletter.

The annual IACC conference will take place in Ft Lauderdale, January 18, 2007. The annual DBA International Conference will take place in Las Vegas, February 6, 2007. If you are attending, travel safely.  If not, I will look forward to seeing you in November at the annual CLLA Eastern meeting in New York.  Be sure to be there!

OUTREACH:   In the retail arena, we reach out to other conferences and association events. There are a number in October.  First, the FTC:  the directors have changed at the FTC national office in Washington, D.C. and I have been invited to meet with them and their management teams this fall.  If any of you have a wish list or items that need to be addressed that affect the industry, as a whole, please email me your suggestions, at StuartBlatt@AOL.com.  I will be speaking with Oscar Marquis (former Trans Union General Counsel, now a lobbyist and consultant) on current legislative trends and will chair a bankruptcy presentation update panel, including a bankruptcy judge and other esteemed participants at the annual Credit and Collection Risk conference in Las Vegas.  A week later, one of the largest attended conferences for NARCA will take place in Scottsdale.

Editor’s Note:   Stuart R. Blatt, serves on the Executive Council of the Creditors’ Rights Section and is Co-Chairman of the Retail Collections Committee. He is a partner in the law firm of Margolis, Pritzker, Epstein & Blatt. in Baltimore, Maryland, which specializes in retail and commercial collections and general litigation matters in Maryland, Washington, D.C. and Virginia.  He also currently serves as the President of the Maryland/District of Columbia Creditors Bar Association (MDCBA).

PRACTICE GROUPS COMMITTEE

By Ian Bardin, Esq.

The Practice Group Committee is an ad hoc committee of CRS chaired by Ian Bardin.  Past Chair Jeff Rubin is the officer liaison assigned to the Practice Group Committee.  Check in with the members at the CRS meeting in New York.

Editor’s Note: Ian Bardin, Esquire, Chair of the Practice Groups Committee, is a sole practitioner with offices in Playa del Rey and La Mesa, CA. His practice involves primarily commercial litigation, but also retail claims. He handles claims throughout the state of California.

EDUCATION COMMITTEE REPORT

By Matthew J. Burkinshaw, Esq.

The Education Committee is very pleased with the education programs that are planned for the 86th Annual Eastern Meeting in New York in November.  Our featured program will be a two-hour program on Friday, November 10 presented by Texas “Super-Lawyer” Mike Cash called Litigation-Trial: Tips, Tactics and Tales.  Mr. Cash is a seasoned litigator and veteran presenter and instructor with the Professional Education Group and the National Institute for Trial Advocacy.  The program will feature practical tips and applications for all aspects of trial preparation and advocacy from opening statements to direct and cross-examination and closing arguments.  The CRS is also co-sponsoring a panel discussion on the Fair Credit Reporting Act (FCRA) on Saturday November 11, 2006 featuring attorneys Tomio Narita of Wineberg, Simmonds & Narita and Joann Needleman of Maurice & Needleman, P.C.  Also on Saturday the CRS is co-sponsoring a bankruptcy program with the Bankruptcy Section, the Commercial Collection Agency Association and the National Association of Credit Management which will take a look at bankruptcy from the viewpoints of all parties involved: the trustee, the commercial trade creditor, the creditors’ rights attorney, the bankruptcy practitioner and the adjustment expert.

We are in the planning stages right now for programs for the Spring in Chicago, including a program originally planned for New York on privacy issues facing law firms and collection agencies.  In keeping with the League’s focus on scheduling education programs to allow time for networking and committee meetings, we are stressing quality rather than quantity in our programs.  To that end, the Committee welcomes input on past, present and future education programs from all CRS members. We encourage you to approach us with an idea for a program or to volunteer to speak at an upcoming convention.  Speaking at a convention is a great way to raise your profile in the League which can in turn lead to more business for you and your firm.  Please feel free to contact one of us with your ideas.

Editor’s Note:  Marc J. Bressler, Esquire and Matthew J.Burkinshaw are Co-chairs of the CRS Education Committee.  Marc Bressler is a partner in Bressler-Duyk Law Firm, in Edison, NJ.  The firm handles collection matters throughout the state of New Jersey.  Matthew Burkinshaw, Esq. serves on the Executive Council of the CRS and Co-Chairs the Education Committee.  He is the principal attorney of Burkinshaw Law Offices, P.C. in Milford, MA.  The firm concentrates in handling commercial and retail collection matters throughout Massachusetts.

FORMS COMMITTEE

The Forms Committee of CRS is another ad hoc committee chaired by Tony Picheca and Rick White.  Ed Friedman is the board liaison to the Committee.  No committee updates at this time.  Check in with the committee at the New York meeting.

TECHNOLOGY & INTERNET COMMITTEE

The Technology and Internet Committee is chaired by Rob Morris and Mark Abrams, with Ed Friedman serving as board liaison.

PROMOTION AND MARKETING COMMITTEE

The Promotion and Marketing Committee is chaired by Randy Slovin.  Beau Hays serves as the board liaison to the committee.

MEMBERSHIP COMMITTEE

Joe Terkell, Fred Weinberg and John Guerrini chair the Membership Committee, with Mark Sheriff acting as board liaison.  Membership inquiries or concerns can be addressed to joltingjoe@aol.com, fiw@gordonweinberg.com, or guerrini@ftllp.com.

NEWSLETTER COMMITTEE REPORT

This newsletter is circulated three times per year (Spring, Summer and Fall).  Members are encouraged to submit articles of interest for inclusion along with a short bio for consideration.  The annual Best Feature Article award is noted elsewhere in this issue.  The award and gift will be presented at the CRS meeting in New York.   Current co-editors are Nick Krawec and Brenda Majewski. 

YMS REPORT TO CRS

By:  Matthew J. Richburg, Esq.

The comedy club outing on Friday November 11th at 10:30pm, originally scheduled for Caroline's Comedy Club, has been moved to Gotham Comedy Club at 208 W 23rd, between 7th and 8th Avenues. The headliner is Tom Papa. Tickets were still available as of yesterday.

Editor’s Note:  Matthew J. Richburg is the Litigation Manager for Kohn Law Firm, S.C.in Milwaukee and is a certified Creditor’s Rights Specialist.  He is a member of the YMS Executive Council. 

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RETAIL COLLECTION CONCERNS

By: Stuart R. Blatt, Esq.

Legislation and case law developments remained a prominent concern during this past year, and will remain so for next year. Continued legislation monitoring exists in both the federal and state legislatures where hundreds of bills have been introduced. Federal cases in all the circuits along with state court decisions bear a continued watch as they are filed and decided.

Various industry listserves have proved to be a vital device in alerting the industry. Many Joint Association Summit members strive, through their committees, to make contact with lobbyists or provide other valuable assistance to address important concerns. At a recent conference I was approached by an industry Vice-President who was of the opinion that creditors should be informed, in a manner similar to the Joint Association Summit initiatives.  As a result of our continued dialog, I am looking forward to a fall discussion with many influential representatives in the industry and have been selected to address the group.
LEGISLATION:  In the area of legislation, I would like to apprise you of some developments that bear watching. Privacy and identity theft continue to remain a constant focus of Congress.  Security and/or data breach legislation exist both on the federal level and in over 30 states in the nation.  A continued watch is mandatory for multi-state entities to be aware of each state’s laws and regulations.  Redaction of social security numbers and birth dates on various forms is consistent with the legislative watch.  Private industry, attorneys and courts are affected by compliance with growing legislation in this area. Predatory lending and pay day loans fall into a category watched by the FTC and Attorneys General offices.  Debt mediators and negotiators have come under attack by the FTC, and the IRS is also pursuing investigation into their claimed status as non-profit organizations.  File freeze legislation is now prevalent in half of the states and growing, allowing consumers to “freeze” their credit report file from the view of others. 

Actively being watched in Congress is an amendment to the FDCPA. The House and Senate have agreed on the provisions of a banking bill, S. 285. The bill contains provisions amending the FDCPA. One of the amendments deals with an exemption
for State Attorneys’ Bad Check Enforcement Programs (SEC. 801). The provisions most relevant to collection attorneys are set out below. No effective date is stated in the bill itself, and it has yet to be signed by the President. 

The bill’s provisions read as follows:  

        SEC. 802. OTHER AMENDMENTS.

    (a) Legal Pleadings.—Section 809 of the Fair Debt Collection Practices
Act (15 U.S.C. 1692g) is amended by adding at the end the following new
subsection:

    ``(d) Legal Pleadings.—A communication in the form of a formal pleading
in a civil action shall not be treated as an initial communication for
purposes of subsection (a).’’

    (b) Notice Provisions.—Section 809 of the Fair Debt Collection
Practices Act (15 U.S.C. 1692g) is amended by adding after subsection
(d) (as added by subsection (a) of this section) the following new
subsection:

    ``(e) Notice Provisions.—The sending or delivery of any form or notice
which does not relate to the collection of a debt and is expressly required
by the Internal Revenue Code of 1986, title V of Gramm-Leach-Bliley Act, or
any provision of Federal or State law relating to notice of data security
breach or privacy, or any regulation prescribed under any such provision of
law, shall not be treated as an initial communication in connection with
debt collection for purposes of this section.’’.

    (c) Establishment of Right to Collect Within the First 30 Days.--
Section 809(b) of the Fair Debt Collection Practices Act (15 U.S.C.
1692g(b)) is amended by adding at the end the following new sentences:
``Collection activities and communications that do not otherwise violate
this title may continue during the 30-day period referred to in subsection
(a) unless the consumer has notified the debt collector in writing that the
debt, or any portion of the debt, is disputed or that the consumer requests
the name and address of the original creditor.

          Any collection activities and communication during the 30-day period may not overshadow or be inconsistent with the disclosure of the consumer’s right to dispute the debt or request the name and address of the original creditor.’’

CASE LAW:  Some recent case decisions in the collections arena are set forth below for your review.

  • A federal district court in New Jersey held that under the FDCPA, a debt collector need not send a verification of debt if the collector ceases collection activity.  Therefore, under the FDCPA, failure to submit to debtor a verification of debt after seven days does not by itself amount to an FDCPA violation.  (Bey v. Daimler Chrysler, 2006 U.S. Dist. Lexis 32879 (U.S. Dist., NJ, May 15, 2006)). 
  • The Appellate Court of Illinois held that defendant did not violate the FDCPA when it attempted to collect interest on a debt at the same rate as its bank assignor.  (PRA III, LLC v. Hund, 846 N.E.2d 965, 2006 Ill. App. Lexis 136 (Appellate Court of Illinois, Mar. 3, 2006)). 
  • On July 7, 2006, a federal district court in Indiana held that a communication from a debt collector to the attorney of a debtor is not actionable as a communication to a debtor under the FDCPA. The court held that when an attorney acts as an intermediary between the debt collector and the consumer, the attorney’s role is to protect the consumer from abuse and fraud. Therefore, the FDCPA, which is intended to protect the “unsophisticated consumer” from a debt collector’s fraudulent or harassing behavior, does not apply when an attorney has been retained to serve that purpose. (Captain v. ARS Nation Services Inc., 2006 U.S. Dist. LEXIS 47796 (D. Ind. Jul. 7, 2006)).
  • On March 3rd, 2006, a federal district court in New York held that collection letters sent by a debt collector after a debt has been resolved directly with the original creditor do not violate the FDCPA. In this case, the plaintiff debtor received a debt collection letter from the defendant debt collector that included instructions on how to contact the original creditor to resolve the debt, as well as the statutorily required language stating that the debtor could challenge the validity of the debt with the defendant directly in writing. The plaintiff contacted the creditor and resolved the debt, but the defendant sent two subsequent collection letters stating that the debt was outstanding. The plaintiff argued that the two collection letters sent after the debt had been paid constituted deceptive practices in violation of § 1692e(10) of the FDCPA because they stated that there was still an outstanding debt, when in fact it had been paid. The court held that the letters did not violate the FDCPA because the initial letter contained the statutorily required language advising the plaintiff of his ability to dispute the debt in a written communication with the defendant. Had the plaintiff contacted the debt collector in writing, as prescribed in the letter, he would not have received the second and third collection letters. (Wyler v. Computer Credit, Inc., 2006 U.S. Dist. LEXIS 57766 (E.D.N.Y. March 3, 2006))
  • A federal district court in New York held that a prerecorded telephone message is a “communication” under the Fair Debt Collection Practices Act when the message said, “Good day, we are calling from NCO Financial Services regarding a personal business matter that requires your immediate attention.  Please call back…toll-free…this is not a solicitation.”  The defendant argued that the message did not convey any information regarding a debt because it is framed as a “personal business matter.”  The court disagreed, noting that “the defendant’s voicemail message, while devoid of any specific information about any particular debt, clearly provided some information, even if indirectly, to the intended recipient of the message.  Specifically, the message advised the debtor that the matter required immediate attention, and provided a specific number to call to discuss the matter.  Given that the obvious purpose of the message is to provide the debtor with enough information to entice a return call, it is difficult to imagine how the voicemail message is not a communication under the FDCPA.”  The court also held that the recorded message did not overshadow a previous validation notice issued by NCO because a debt collector is entitled to follow up on debt collection during the validation period, and the mere expression of some time sensitivity does not suggest to the least sophisticated consumer that he or she is no longer entitled to the 30-day validation period.  (Foti v. NCO Financial Systems, Inc., 2006 U.S. Dist. LEXIS 13857, No. 04-CV-707 (KMK) (S.D.N.Y. Mar. 28, 2006))
  • Based on the doctrine of judicial estoppel, a Florida federal district court dismissed a claim against a debt collector under the Fair Debt Collection Practices Act for disclosing a debtor’s indebtedness to a third party without authorization. The plaintiff in this case had made prior statements in her bankruptcy proceeding that no creditor had injured her in a way that would give rise to a lawsuit. Based on the plaintiff’s motive to conceal her cause of action from her creditors, the court precluded her from asserting her rights under the FDCPA and dismissed her claim.  (Helson v. Nuvell Financial Services Corp., 2006 U.S. Dist. LEXIS 43322, No. 8.05-CIV-1788-T-17-MAP (M.D. Fla. June 27, 2006))
  • A federal district court in California has held that a dunning letter did not violate the Fair Debt Collection Practices Act by making a false statement regarding a debt merely because the letter stated that the settlement offer would become void after a certain date.  The court said, “not only would ‘the least sophisticated debtor’ understand that the expiration of a mere ‘offer’ does not necessarily foreclose the possibility of the parties later agreeing to its terms, but the practical consequence of holding offer letters unlawful would be to prohibit settlement offers that are anything but the debt collector's best and final offer.”  The court noted that the letter at issue was followed by another letter, received before the first letter’s offer expired, which offered a more favorable settlement rate than the first offer. The court concluded that it “fails to perceive how AMO breached the FDCPA by offering Johnson a better deal.” (Johnson v. AMO Recoveries, 2005 U.S. Dist. LEXIS 41613, No. C-05-00273 RMW (N.D. Cal. Oct. 19, 2005))
  • A federal district court in Ohio held that a defendant creditor is not responsible for alleged violations of the FDCPA committed by the debt collector it hired.  The court noted that the FDCPA does not apply to creditors, their employees, or their affiliates.  (Frame v. Weltman, 2006 U.S. Dist. Lexis 28926, No. 1:05CV2049 (U.S. Dist. Ohio, May 12, 2006)). 
  • A California federal district court held that the Fair Debt Collection Practices Act does not permit private parties to seek injunctive or declaratory relief.  (Palmer v. Far West Collection Services, Inc., 2006 U.S. Dist. LEXIS 2617, No. C-04-03026 RMW, No. C-04-03027 RMW (N.D. Cal. Jan. 12, 2006).

Editor’s Note:   Stuart R. Blatt, serves on the Executive Council of the Creditors’ Rights Section and is Co-Chairman of the Retail Collections Committee. He is a partner in the law firm of Margolis, Pritzker, Epstein & Blatt. in Baltimore, Maryland, which specializes in retail and commercial collections and general litigation matters in Maryland, Washington, D.C. and Virginia.  He also currently serves as the President of the Maryland/District of Columbia Creditors Bar Association (MDCBA).

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Spotlight on the Winner of the Free Press Annual Best Feature Article Award – Joseph A. Marino, Esq.

Interview by Nicholas D. Krawec, Esq.

Full Name: Joseph A. Marino

Residence/Hometown: Clifton, NJ/Passaic, NJ
                                       
Education: St. Louis University, Bachelor of Science in Commerce, majoring in accounting and economics, 1971; New England School of Law, Juris Doctor, 1976.

Work History: Criminal defense pool attorney for the Office of the Public Defender of Passaic & Essex County, NJ, from September, 1976 – October, 1978; Miller & Platt, Paterson, NJ, Associate, commercial and bankruptcy litigation, 1977-1979; Kleinberg, Moroney, Masterson & Schachter, Millburn, NJ, Senior Associate, commercial and bankruptcy litigation, 1979-1982; Marino & Mayers, LLC, Clifton, NJ, Senior member, engaging in private practice as a commercial and bankruptcy litigator, May, 1982 – present.  Board Certified Creditors’ Rights Specialist since 1994.

Family: Wife, Paula Varsalona;  Daughter, Alexandra, 14 years old.

Areas of practice and specialties:  Complex commercial and bankruptcy litigation, and creditors’ rights claims including general commercial collections; insurance fraud claims; appellate practice; contract & business forms review and drafting; Creditors’ Rights Consulting services and educational seminars.

What year did you join the CLLA?: 1978

What offices or committee chairmanships have you held in the CLLA ?: Attorney Member, Board of Governors; Chair, Creditors’ Rights Section; Chair, Eastern District; Creditors’ Rights Section Representative to the Board of Governors; Recording Secretary, CLLA.

Tell us about your home life away from the office:  Paula and I are involved with our daughter’s high school, Montclair Kimberley Academy, and with various charities: Montville UNICO  and our Church.  I am currently the President of the Montville Unico Foundation.  I am also the Bailli of the New Jersey Chapter of Confrerie de la Chaine des Rotisseurs; a charter member of the Montville Chapter of Unico National, the Largest Italian-American Service Club in the U.S.A.  My wife, Paula Varsalona and I were recently jointly honored as “Persons of the Year”, by Montville Chapter of Unico National on May 12, 2006.

You are the third recipient of The Free Press Annual Best Feature Article Award. What was your reaction when you were informed that the Free Press judges selected your article “Creditor Fraud: A Cause of Action or a Category of Claims?” as the winner?:   I was extremely surprised and honored.

Have you written other articles besides the writing you have done for CLLA?:  Yes.

Have you received other recognition for the writing you have done?: No

What would your advice be to other League members who may be thinking of submitting an article to the Free Press for consideration for the Best Feature Article Award?:  I would encourage them to submit  an article and take pride in their profession.

When you’re not practicing law, or tending to League matters, what do you do for fun and relaxation?:  Make wine; attend wine tasting and gourmet dinners; have fun with friends and family, and travel.
 
If you did not become a lawyer, what do you think would have become your life’s work?:  Real estate and construction

What is your favorite quote or “words to live by?”:  “Time heals all wounds and time wounds all heels.”  Also “He who dies with the most toys, wins.”

Did you have any role models when you were growing up and in your career in practicing law? If so, who are they and why were they your role models?:  F. Lee Bailey.  He was a gifted attorney with great communication skills

If you could have dinner with one famous person in history, and one famous person alive today, who would they be, and why?:  Benjamin Franklin, a brilliant and practical self made man and Jack Nicholson,  a  very unique and interesting artist.

What is your favorite:

Car:  Maybach

Food:    Steak

Vacation spot:  Monte Carlo

Actress/Actor:  Jack Nicholson

Movie:  The Godfather

Holiday:  Christmas

Musical group/Singer:  The Who         

Book:   The Vampire Lestat by Ann Rice

Author:   Robert Ludlum                              

Sports figure:  Dan Marino

Editor’s Note:  Joseph A. Marino’s winning article, “Creditor Fraud: A Cause of Action or a Category of Claims?” appeared in the Spring, 2006 Edition of The Free Press.  The other articles submitted for consideration for the Best Feature Article Award were “A Review of Restatement (2nd) Contracts, Section 90” by Joseph A. Maker, Esq., which appeared in the Fall 2005 Edition, “Marketing Tips From ‘The Lady in Red’ ” by Jacqueline N. Anker, Esq., which appeared in the Fall, 2005 Edition and “Critical Thinking is an Essential Part of Any Business” by Gary Tier, which appeared in the Spring 2006 Edition.  The editorial staff thanks all four authors for their submissions, and also extends sincere thanks to the judges who volunteered to review and vote on the articles:  Anthony Picheca, Esq., Jay Scheinfield, Esq. and Ian Bardin, Esq.

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UNMANAGED ATTRITION OF RECORDS WHEN LITIGATION LIKELY:
           AN EXCEEDINGLY COSTSLY TRAP FOR THE UNWARY

By Charles E. Bobinis, Esquire

In our increasingly litigious society, businesses already face many steep challenges trying to steer clear of expensive and distracting legal "storms."  Among the more subtle, but nonetheless dangerous "reefs" in this ocean of contention, is the common law tort of "spoliation of evidence."

Without any reference at all to the actual merits of a controversy, businesses have suffered the disaster of an adverse verdict of thousands, millions or even BILLIONS of dollars, when a court determines, IN HINDSIGHT, that "relevant" records were destroyed with "culpable intent" after the company had "reason to know" that it may be sued in a particular matter.  Like a hurricane season, these sorts of claims are now "catching-on," as demonstrated by some recent, high profile cases.

Effective December 1, 2006, the magnitude of this risk will increase dramatically for those businesses who ignore the legal requirements imposed upon them by amendments to the Federal Rules of Civil Procedure.  In the works for over 10 years, the rule amendments are INTENDED to "catch up" with the dramatic and far-ranging effects of evolving information technology, and the way businesses communicate and handle electronically stored information ("ESI").  IN PRACTICE, these amendments will focus attention on the possibility of raiding corporate larders, not based on the merits of an actual claim, but based on shortcomings of the architecture and management of modern information systems. This "feeding frenzy" is likely to splash over into litigation in the state courts as well.  If you are ignorant of these developments, you and your business will likely become a victim.

You can and should take steps to manage this risk.

The courts have acknowledged that businesses have a right to purge information from their records, both paper and electronic.  However, deliberate destruction (or even "negligent" purging in some jurisdictions) will not be tolerated once the business "has reason to know" that litigation is likely.  This does not mean receipt of the suit papers, but can go back in time as far as the making of a claim or demand, or occurrence of an event indicating the "likelihood" of litigation.

Once this threshold is reached, a business AND its in-house counsel AND its retained outside counsel all have an AFFIRMATIVE DUTY to communicate a "LITIGATION HOLD" on the destruction of information, to "KEY WITNESSES," "I.T. AND PAPER RECORDS MANAGERS," AND TO OTHERS WHO MAY POSSESS INFORMATION RELEVANT TO THE LITIGATION.  Businesses and their lawyers have suffered reprimands, sanctions and imposition of liability for failure to discharge this duty.  Chillingly, even attorney work product and attorney/client communication privileges can be deemed set-aside by the "crime-fraud" exception, following in camera review by the court.

“Relevance” is broadly defined to include not just admissible evidence, but information that could " ‘reasonably lead’ to discovery of admissible evidence."

You can become subject to this "litigation hold" not only as a prospective party to a lawsuit, but also under amended Fed.R.Civ.P. 45, a nonparty witness (including a business) can suffer the duty when it receives notice to "preserve" information.  For nonparty witnesses, the opportunity to prevent disclosure on the basis of hardship, and/or keeping the (usually) expensive compliance costs on the seeker, is much greater.

While "back-up tapes" and "disaster archives," of a party which are "not readily accessible" might shift the costs of retrieval and burden of persuasion to the party seeking them, evidence of deletion of relevant information from operating systems, or operating accessibility to these archival information pools, has been cited as sufficient reason to compel the production and/or shift the cost of retrieval to the respondent.  "Sampling" has also been allowed, which frequently permutates into a foot-in-the-door progression of retrieval and disclosure, increasingly at the responding party's expense.

In the context of litigation, it is important for respondent's counsel to be "in front" of the opposition, seeking a protective order and/or skillfully negotiating a "MAD" understanding with opposing counsel.

So what can YOU do to counsel your business clients, on what to do to protect themselves from this exposure?

First, they should have a disciplined, well-defined information storage, management AND DESTRUCTION policy.  So long as the information is purged routinely, pursuant to such a system, and without "reason to know" litigation is likely, they are within their rights in purging information.

Second, they should have a documented "litigation hold" procedure in place, and make sure it is broadly construed by management and employees so that they can demonstrate to the court that nothing has intentionally been left outside the "spotlight."  They should make sure key witnesses, I.T. and Document Storage personnel are officially noticed, and that the hold is in fact observed (perhaps through the issuance of “reminders” of the hold from time to time).

We do not want our clients to become victims of this coming fad, nor do we want to become victims ourselves.

Editor’s Note:  Charles E. Bobinis, Esquire, is the senior litigation counsel at Bernstein Law Firm, P.C., where he handles complex creditors’ rights litigation for the firm’s clients, in state, federal district court and federal bankruptcy court.  Mr. Bobinis has been certified as a Creditors’ Rights Law Specialist by the American Board of Certification.  He is licensed to practice in Pennsylvania and West Virginia.

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WHEN ARE LEGAL FEES NOT ATTORNEY FEES? IN ACTIONS FOR CONVERSION.

By IanBardin, Esq.

It may come as a shock to some of you, but appellate holdings don't always mean what they say.  I am handling a case involving a claim for conversion.  I always understood that attorney’s fees were recoverable in a conversion action.  In a recent hearing in my case, the issue of the extent of damages came up and opposing counsel handed me a memorandum of points and authorities citing language in a case that: "It has long been held that such [attorney] fees are not within the rule of damages provided for by that section [citations]."1 Boy, long been held!!  Have I long been wrong?

      
After trying to fake my way through the hearing and convincing the judge to take the matter under submission, I rushed back to my office to look up the Haines case to see what it really held.  To my chagrin, it held exactly what the attorney represented.  But, being the conscientious skeptic/attorney that I am, I wanted to find out if the case really meant what it said.

By way of background:

The damages recoverable in actions for conversion are:

“The detriment caused by the wrongful conversion of personal property is presumed to be:

“First--The value of the property at the time of the conversion, with the interest from that time, or, an amount sufficient to indemnify the party injured for the loss which is the natural, reasonable and proximate result of the wrongful act complained of and which a proper degree of prudence on his part would not have averted; and

“Second--A fair compensation for the time and money properly expended in pursuit of the property” 2

The general rule in California is that attorney’s fees are not recoverable as damages unless they are provided for by statute or a contract between the parties. 3   And, when attorney’s fees are allowed, they are claimed as costs. 4 In California, “costs” are not an element to be proved.  Rather, after a judgment or verdict is rendered, the party entitled to costs submits a Memorandum of Costs listing recoverable costs being claimed.  If “attorney’s fees” are being claimed, the prevailing party will submit an application to have the court determine the amount of fees to be included as “costs” to the judgment.

A review of the case law shows that monies paid to an attorney are recoverable in a conversion action, provided the plaintiff pleads and can establish that the monies were spent as a reasonable and necessary expenditure in the pursuit of property.

In the early case of McDonald v. McConkey, 5 the California Supreme Court found that the plaintiff plead the language of Civ. Code §3336 ( for damages for conversion), but used the words “attorney fees.”  The Court held that the words “attorney fees” could be considered surplusage and the judgment could properly include those expenditures.  But the court also allowed the defendant a new trial because the record did not clearly reflect what was included in the verdict.

Then along came Greenbaum v. Martinez. 6   In that case, the California Supreme Court addressed the McDonald case.  The facts were similar except the record was clear that the plaintiff in Greenbaum did expend money for legal fees.  The allegation in Greenbaum was that:

“‘That plaintiff has properly and necessarily expended the sum of one hundred ($100) dollars, gold coin, for attorney's fee in pursuit of said property.’ (at Pg. 462).

The court, following McDonald held that the words “attorney’s fee” was “surplusage” and that the plaintiff was entitled to damages in the amount of $100 which was necessarily and properly expended in pursuit of the property.

Thus, there is a difference between “attorney fees” (not allowed as damages under Civ. Code, §3336) and money paid to an attorney that is necessarily and reasonable in pursuit of the property (which are allowed as damages under Civ. Code, §3336).  If you try a conversion case, be sure to allege the language of Sec. 3336, “Plaintiff properly expended $*** in pursuit of the property.”  You can then introduce evidence of the payments to you. Do not rely on claiming the attorney fees as costs.

Editor’s Note: Ian Bardin, Esquire, Chair of the Practice Groups Committee, is a sole practitioner with offices in Playa del Rey and La Mesa, CA. His practice involves primarily commercial litigation, but also retail claims. He handles claims throughout the state of California.

1 Haines v. Parra, (1987) 193 Cal App. 1553, 1559

2 Calif. Civil Code, §3336

3 Calif. Civil Code, §2021; see also, Russell v. United Pacific Ins. Co., (1963) 214 Cal. App. 2d 78. 91.

4 Calif. Code of Civil Procedure, §1033.5(10)

5 57 Cal. 325 (1881)

6 86 Cal. 459 (1890)

TAKE THIS POWER AND …

By Lanhi Saldana

Recently I read that according to the U.S. Department of Labor, the unemployment rate for July, 2006 was 4.8%.  This translates into about 7 million people in our country who were unemployed up through July of this year. This bit of information caused great confusion for me because lately, all I have been hearing from collection attorneys is how good help is SO hard to find.  Aren’t there qualified people mixed in among those 7 million unemployed bodies?  Some would answer that question in the affirmative, but that’s because they aren’t trying to manage and grow the collection department in their law firm.

Where should growing law offices seeking qualified and dedicated professionals look?  These individuals are seemingly as elusive as Superman was when Lois Lane was trying to find her lifesaving hero.  In our real world of collections, the heroes are the loyal employees we can’t seem to find or…maybe keep.  Perhaps, though, we aren’t looking in the right place or doing the right things.

In the commercial collection business, what truly separates one firm from another is service level.  Speak to your reliable law list representative or a long established agency and the shared sentiment will be that service makes all the difference between a successful firm and a firm that is losing its footing in the industry.  The level of service you provide is not only attributed to your staff, but it is also a reflection of your leadership skills or lack thereof.  If you are having a difficult time holding on to employees in key positions there’s obviously a problem within your office and it is time to review not only your human resources policies, but also your style…leadership style that is.  Are you viewing your staffer in the proper light such that the staffer’s motivation to aid in your success hasn’t run dry?  If you still think of your key employee by title rather than by name, you may end up spending the money you are making training a new employee.

Just as the collection business is no longer the same as it was in years past, neither are the employees working for the collection law firms.  This is a highly competitive industry and the workplace, generally, lacks employee loyalty.  Employees are definitely more savvy about what they can and can’t ask for in salary and benefits.  Gone are the days of Glidden typewriters and personal secretaries.  You now have para-professionals and technology that makes finding a new job just a click away.  Can your office compete in a bidding war for the few motivated and loyal employees out there?  Or, more importantly, can your office afford to continually go through the hiring and training process because you can’t compete?  What I mean is that times are ever-changing and employers need to give their current, already trained employees incentive beyond money to stick around.  Aside from considering flexible schedules and other obvious benefits, you may be a benefit in and of yourself and just don’t know it yet.

The authors of Management of Organizational Behavior: Leading Human Resources describe two ways in which employees are motivated: Position Power and Personal Power.  Position Power is very easy to understand. You have Position Power if you’ve been given…well…a position that comes with power such as: I can fire you.  This is usually a fear/respect relationship and the followers will be compliant because of the position.  The second kind of power is Personal Power or, as the book explains, "Influence Potential."  The authors define Personal Power as . . . "the extent to which followers respect, feel good about, and are committed to their leader, and see their own goals as being satisfied by the goals of their leader."  I realize that this sounds sort of sci-fi and out-of-this-world, but don’t just look at the words, listen to the message.  The origins of these two powers are key.  Position Power comes from above, in other words it is given to the leader from someone higher up in the organization.  Personal Power, on the other hand, comes from below, that is, from the followers.  The ideal leadership position is one in which both influences are present.  Employees do things because they respect your position of authority and they like you.  Many attorneys don’t realize that they are leaders and, therefore, don’t recognize the importance of Power.  As a result, they don’t know how to create and maintain a symbiotic relationship between themselves and their key employees.  This is crucial in fostering loyalty within important support staff.  That loyalty is what will keep them in your office when the next recruiter dials your office and offers them more money elsewhere.

As a law student, I am taught to identify issues, but as a law clerk, I am taught how to address the issues.  I offer you this suggestion, not from the myriad of literature available to you, but from personal experience.  Give your key employee ownership of his/her job.  Your employee needs to feel a personal responsibility to your clients, not simply completing a task delegated to them through your Position Power.  Your staff already knows you are in charge and have the power to fire them.  Your most important and greatest challenge is to get them to believe in what it is you are trying to achieve.  You want to give them ownership in their jobs such that they feel personally connected to your business.  To this end, make your key employee a member of the League, send them to a conference or two, and allow them the opportunity to feel a part of this process.  Your support staff is charged with the very important job of keeping client, agencies, and even debtors happy.  They are representatives of your business.  You have obviously had enough faith in them to hand over this enormous responsibility, so why wouldn’t you trust that they can handle face to face meetings with these very same clients?  By giving them an opportunity to be in the field, you in turn are creating Personal Power over your key employee, which will result in better retention, motivated employees, and greater success all around.

I could go on for pages with personal anecdotes and the like, but the truth is that this is not new information.  There are attorneys out there, your competition, who have already learned how to take their power and…use it wisely.  Case in point-this past April at the Chicago CLLA conference, I had the wonderful opportunity to meet more “of my kind,” non-lawyers that is.  For the first time since I have been a member, I saw real activity in getting support staff involved.  Many in our industry have said that this past Chicago conference was likely the most successful in recent time.  I am sure there are many reasons why, but can it be mere coincidence that support staff happened to be in attendance?  So, bravo to those attorneys in our industry who are ahead of the pack and acting like leaders.  And for those who are just learning about Power, I hope to see your key employee at the next meeting.

And, by the way, none of the above stuff is meant to replace that long overdue raise your employee deserves.

Editor’s Note:  Lanhi Saldaña is a law clerk for the law firm of Salon Marrow Dyckman Newman & Broudy, LLP in New York City.  She currently attends Seton Hall University School of Law in New Jersey. Lanhi began her career in the commercial collection industry in 2000,  where she worked as a paralegal for a commercial collection law firm in Dallas, Texas. Lanhi has been with Salon Marrow since August of 2005. She is a member of the Creditor's Right Section and Young Member's Section of the Commercial Law League. Lanhi can be reached at: lsaldana@salonmarrow.com or by telephone at (646) 843-1937.

COLLECTING THE DIFFICULT TEXAS JUDGMENT

By:  Matt Garcia, Esq.

What do you think of when I say the word Texas?  While some of you may associate the word Texas with thoughts such as hot sauce, BBQ, cowboys or cowgirls, there were a lot of people at the Chicago CLLA convention that had trouble associating the word Texas with collectible judgments.  Most people I spoke to were surprised you could make a living collecting debt in Texas.  Who can blame them?  After all, Texas is a state that not only provides a homestead exemption but goes as far as protecting assets such as cattle, horses, birds and guns from being levied upon to satisfy a judgment.

While many people are familiar with bank garnishments and writs that allow deputies to sell a debtor’s property for the benefit of a judgment creditor, there are not many people familiar with receiverships.  Post Judgment receiverships are governed by Tex. Civ. Prac. & Rem. Code Ann. § 31.002, et. seq. and they can be an effective tool in collecting a difficult judgment.

What is a Receivership?

When you ask a court to place a debtor into a post-judgment receivership and combine it with a turnover order, you are asking the Court to assign a third party to “take over” the debtor’s assets for the benefit of a judgment creditor.  Unlike some of Texas’ post-judgment remedies that require judgment creditors to lose valuable time by waiting thirty (30) days for a judgment to become final, a post-judgment receivership can be requested immediately. 

What can a Receiver do? 

Most of the Receiver’s powers come from a well-drafted order.  Examples of some of the powers you may want to consider including in your order are:

Redirect, Levy and Open Mail.  Ever wonder where the debtor banks, what jobs the debtor is working on or whether the debtor is receiving payments from his or her customers?  Allowing a Receiver to redirect, levy and open mail is an excellent tool to use in collecting a judgment.

Garnish Bank Accounts.  In Texas, a bank garnishment can be expensive because it requires a judgment creditor to file a garnishment proceeding against the party who you believe is holding the property of the debtor.  A bank garnishment requires filing and service fees and exposes the judgment creditor to potential liability for the garnishee’s attorney fees.  By the time a garnishment is filed and served, a judgment creditor can lose valuable time thereby allowing a debtor to transfer funds in the interim.  A receiver can garnish a bank account simply by typing and delivering a letter.  When you couple levying a debtor’s mail with a bank garnishment, you have a powerful tool for reaching the debtor’s cash quickly.

Deposit Checks made payable to Debtor.  You know the debtor is getting monthly payments but a TRO or PI is a pain or takes too long.  A receiver can deposit any monies received by the Debtor and re-direct them to pay the judgment.

What does a Receivership cost? 

Aside from a cash bond that is refundable to the client at the close of a receivership, a receivership does not cost the judgment creditor anything because the Receiver is paid from the assets of the debtor’s estate.  However, if the debtor has insufficient assets to satisfy the judgment and the Receiver’s time and expenses, the Receiver usually receives a percentage of any amounts recovered on behalf of the judgment creditor.  Note, however, that the judgment is only reduced for the amount paid to the judgment creditor NOT the amount paid the judgment creditor and the Receiver.  For example:  Judgment awarded: $100,000.  Receiver collects:  $80,000.  Receiver receives 25% or $20,000; Judgment Creditor receives 75% or $60,000.  After disbursement, the amount left due and owing on the Judgment is $40,000.

Conclusion

Whether collecting a thousand dollar or a million dollar judgment, a receivership can be an extremely powerful tool to collect a judgment.  If the debtor is in business and you’ve exhausted all traditional means to collect your judgment, it may be worth the time and effort to explore this option.  Even if you are unsuccessful, you will have assured your client that you have fully investigated every crevice, nook, and cranny because as we all know, obtaining a judgment doesn’t win you the war, getting the money does.

Editor’s Note:  Matt Garcia is the principal shareholder of Barnett & Garcia, PLLC.  Barnett & Garcia, PLLC is located in Austin, Texas.  In addition to aiding creditors collect unpaid balances throughout Texas, Mr. Garcia also serves as counsel to several Special Deputy Receivers of insolvent insurers appointed by the Texas Commissioner of Insurance.

CLLA members met in Asheville, North Carolina for the annual meeting in July.  A highlight was dinner at the Biltmore Estate grounds.   Plan now to attend some of the upcoming calendar events.

Calendar of Events

October 26, 2006  

Lunch that Packs a Punch  Chicago, IL .  Grab a Bite - Mix & Mingle - Listen & Learn ...as CLLA Member and Chicago-Area practitioner Walid Tamari of Tamari & Blumenthal, LLC walks through the life of a commercial collection claim. From claim intake, to pre-litigation settlement to the litigation proceedings. You'll get hands on new thoughts ideas and information on how to effectuate collection all in line with the ever looming ETHICAL CONSIDERATIONS that go hand in hand in hand with each step of the process.   Register online at www.clla.org, under events.  Noon – 1:00.  Price $5.00.

November 1, 2006 - November 4, 2006 

CLLA Breakfast and The Honorable Frank W. Koger Memorial CLLA Education Program, National Conference of Bankruptcy Judges, San Francisco Marriott, 55 Fourth Street, San Francisco, CA 94103

November 9, 2006 - November 12, 2006

86th New York Meeting:  Sheraton New York Hotel & Towers

April 19, 2007 - April 22, 2007

77th Chicago Meeting:  Westin Michigan Avenue Hotel, Chicago, IL

 

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