Message From The Chair

Words of Wisdom from the Great Bob Morris

By Jeff E. Rubin, Esq.

When I first started attending CLLA meetings some 14 years ago, I was following in the tradition of my grandfather who started attending meetings...well let’s just say, many, many years ago. I never knew where these trips to New York and Chicago would take me. Little did I know that I would be here today as your Chairman writing this article for the Free Press.

It all started when I was in the hospitality lounge because that is where I was told to "hang out" and meet people. Back then, you could really exchange business cards and speak with new agencies about getting business. But I knew there was more. I then befriended the late Bob Morris, who was a friend of my grandfather. Bob told me, "Jeff, you have to hit the road." And he was right! I soon found that getting new business at CLLA meetings was getting more and more difficult, but not impossible.

In my grandfather’s day, he never had to travel for business. Going to CLLA meetings was good enough. His largest client, Dun and Bradstreet, gave him a prodigious amount of work to keep his collection business thriving. Now in my day, "hitting the road" is essential. For those members who are new to the League and CRS, I recommend that you heed the words of Bob Morris. I soon found that it was not the business you picked up at CLLA meetings, but rather the business that you could obtain between meetings that would enhance your practice. The best place to start is with your Law Lists. They gladly will give you Lists of agencies in popular cities where you can visit and meet new clients. Atlanta, Dallas, Buffalo and New York are just a few cities that I have visited. Grab a partner from another law firm who lives outside your area or state. You can meet him or her at the airport at your destination and hit the road in your rental car. You can drive and your partner can navigate or you can just make the trip alone. Plan your trip by calling the agencies you want to visit in advance. Make sure you meet with the person who does the legal forwarding. A typical meeting takes about five to 10 minutes. You don’t want to overstay your welcome, but you want to meet long enough to let them know who you are and where you practice. I found that the agencies really will start sending you business. Just follow-up and stay in touch with your new client. Keep them posted on the cases you are handling and remind them often that you are hungry for more. New clients will usually send you a few cases in the beginning in order to see how you perform.

Next, go to CLLA meetings. Although meeting new agencies is difficult at meetings, it is not impossible. Get involved and become known by other lawyers. If it were not for my visit to the hospitality lounge 14 years ago, I would have never been chairman of this Section. I had the fortunate experience of running into David Gamache, a good friend and mentor. I didn’t know then how lucky I was to meet him. He encouraged me to get involved in League committees. I developed a certain fondness to the Creditors’ Rights Section. It was a great match. Soon I found that I was making new friends and not feeling uncomfortable when I walked into an educational conference or meeting. After a few years, I got to know many lawyers from around the country, who to this day are some of my dearest friends. The point I am trying to make is that over the years, League meetings created a new and different way to get business. The lawyers you meet at League meetings will have clients in their neck of the woods that need representation in your back yard. I do not want to diminish the fact that you can develop new collection agency relationships from members at League meetings, but I have found that face-to-face meetings in an agency’s office can be far more fruitful.

The moral of the story is: do what you can at League meetings to meet new agencies, but equally important, meet new attorneys and get involved. The new friends you meet will be an excellent source for referral work from around the country. Spend time traveling between League conferences to meet new clients. You can meet six to 10 agencies in a day and be home in two days with just one overnight stay.

I urge you to speak with any CRS member who has been around the block a few times. Any one of us will be happy to help you with your new adventures.

I think it’s about time that I, too, listen to Bob’s advice again. Whoops, gotta go. They are calling my flight. I’m off to New York for a quick trip. Thanks Bob Morris — great advice.

Editor’s Note: Jeff E. Rubin, Esq., Chairman of the Creditors’ Rights Section, is a partner at the Law Firm of Talianoff, Rubin & Rubin, and he practices law in Miami, FL. You can email him at jeff@mailaw.com

Washington Legislative Report

By David P. Goch, Esq.

On April 20, President Bush signed into law the Bankruptcy Reform Act (Pub. Law 109-8). The new law, which was supported in large part by Democrats, is the first major revision of the bankruptcy laws since 1978. In an attempt to address the perception that in recent times bankruptcy laws favored debtors, in 1997 the National Bankruptcy Review Commission submitted suggested changes to Congress that were intended to prevent what was perceived by many in the business community to be abuses of the bankruptcy process. It took the next eight years for Congress to enact legislation.

Perhaps the most significant change resulting from the new law is not found in any specific provision of the Act, but rather in the change in attitude toward debtors. In the past, consumers who filed bankruptcy were viewed as being in need of relief from the burden of debt, and were usually treated with empathy. The Bankruptcy Reform Act changes that view, so that debtors are critically viewed and considered as responsible for their plight, to varying degrees.

Generally, the law takes effect 180 days after being signed.

Despite the passage of the "comprehensive" bill, introduction of bankruptcy-related bills did not cease. Since its passage, the following bills have been introduced:

a) On April 26, Reps. Rohrabacher, R-Calif., and Jones, R-N.C., introduced H.R. 1860, a bill to amend the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 to exempt from the means testing, for a limited period, bankruptcy cases filed by qualifying reserve-component members who, after September 11, 2001, are called to active duty, or to perform a homeland defense activity for not less than 60 days.

b) On May 3, Rep. Rohrabacher introduced H.R. 2060, to amend the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 to exempt from the means test, for a limited period, bankruptcy cases filed by qualifying reserve-component members who, after September 11, 2001, are called to active duty or to perform a homeland defense activity for not less than 60 days.

c) On May 6, Rep. Ruppersberger, D-Md., introduced H.R. 2201, to amend Chapter 7 of Title 11 of the U.S. Code, to exclude medically distressed debtors from the application of the means test, to amend the Truth in Lending Act to require certain disclosures in connection with credit card applications and solicitations, and for other purposes. This bill was jointly referred to the Judiciary and Financial Services Committees.

d) Also in May, Rep. Miller, D-Calif., ranking member of the House Education and the Workforce Committee, and Rep. Schakowsky, D-Ill., introduced H.R. 2327 to forestall future pension plan transfers to the Pension Benefit Guaranty Corporation from bankrupt companies. The bill imposes a six-month moratorium on corporate terminations of pension plans in cases in which reorganization of contributing sponsors is sought in bankruptcy or insolvency proceedings.

e) Also, Sen. Cornyn, R-Tex., is back in the news touting his proposal to amend the venue options of the Bankruptcy Code to eliminate forum shopping.

f) Finally, it has been rumored that the quick, un-amended, final passage of the Bankruptcy Reform Bill resulted in many technical glitches in the Code requiring a technical amendments bill. CLLA has been working on developing an education piece to address the identified issues resulting from the new law.

In other news, in mid-April, the Civil Rules Advisory Committee of the U.S. Judicial Conference approved amendments to the Federal Rules of Civil Procedure that would, for the first time, address how electronically stored information should be handled in the early stages of litigation. Approval of the "E-Discovery Rules" is a major step forward on their journey to final implementation. But before becoming final, they still must pass the judiciary's Standing Rules Committee, the full Judicial Conference, the U.S. Supreme Court and Congress. Some of the amendments include:

(1) A proposed amendment to Rule 26(b)(2), in which a two-tier approach to obtaining electronic information would be created detailing when a party would need to obtain a court order before gaining access to electronic information "that is not reasonably accessible to the responding party." (The rule states a party need not provide discovery of electronically stored information from sources that are not reasonably accessible "because of undue burden or cost.")

(2) A proposed amendment to Fed. R. Civ. P. 26(b)(5) would address inadvertent production of privileged information in discovery, and would allow parties to retrieve information that was provided to other parties unintentionally during discovery. If the receiving party believed it was entitled to the information, it would have the burden of making its case to the court.

(3) An amendment to Rule 34(a) would add a specific category of "electronically stored information" that would be included as information expressly subject to production in discovery along with "documents," which would remain as a separate category.

(4) Another amendment to Rule 34(d) would allow a requesting party to specify the form in which electronic data must be produced. Absent any specification, the information must be produced in the form in which it is "ordinarily maintained," or a form "which is reasonably useful by the requesting party."

However, the Advisory Committee voted to hold a controversial amendment to Fed. R. Civ. P. 37 that provides litigants a "safe harbor" from judicial sanctions for electronic data inadvertently destroyed through routine operation of a party's computer system. Nevertheless, District Court Judge Rosenthal (S.D. TX), who chairs the Advisory Committee, said the Committee still intends to include the "safe harbor" rule with the package of proposed amendments that will go to the Standing Committee at its meeting in Boston June 15-16. The earliest the rules could go into effect would be December 2006.

In a related matter, the Advisory Committee approved for submission to the Standing Committee a proposed amendment to Fed. R. Civ. P. 5(e), allowing federal courts to establish local rules requiring electronic filing of pleadings. The local rules must allow an exception, however, for indigents or pro se litigants.

The proposed amendments are available for review at http://www.uscourts.gov/rules/index.html

Finally, information access continues to be a major issue on the Hill. Access to information (including Social Security numbers), and the obligations as a result of a breach of data security are front and center in the debate with dozens of related bills being introduced. Merely as an example of the level of the debate, on May 11, a hearing of the House Energy and Commerce Committee's Subcommittee on Commerce, Trade and Consumer Protection was called to consider what, if any, action Congress should take in response to recent consumer database breaches. A group of consumer data information providers and credit card company representatives said they had no disagreement with a list of general data-broker reform principles cited during a House hearing on consumer protection and identity theft.

After witnesses completed their opening statements, Subcommittee Chairman Stearns, R-Fla., listed several measures gleaned from the individual testimony that it appeared should be considered for inclusion in any congressional action to address consumer privacy protection, including:

a) Creating uniform national notification standards for breaches of unencrypted consumer information;

b) Ensuring federal pre-emption of state breach notification laws;

c) Authorizing or creating, a single federal agency to have primary authority for overseeing privacy matters related to data providers;

d) Allowing consumer inspection of electronic records and giving them an opportunity to seek correction of contested information;

e) Having company security officers certify that a company has taken adequate data security measures;

f) Creating standard credentialing procedures for customers of data information providers; and

g) Moving away from the use of Social Security numbers as a means of customer identification and access to information.

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

Retail Collections Committee

By Stuart R. Blatt, Esq.

The Retail Collections Committee was proud to be a part of the 75th (Diamond) Anniversary of the spring Chicago meeting, which was hosted by the Midwest Region Chair Randy T. Slovin. Our Committee met and discussed an agenda involving:

a) Federal and state legislation,

b) Lobbying on current issues before Congress,

c) Court Opinions affecting our industry,

d) The use and filing of Amicus Briefs,

e) Outreach with other Associations,

f) Continuity between Committee meetings, and

g) Educational programs.

Legislation

Discussions focused on the passage of the Bankruptcy Reform Act and its impact on Retail Collections. At the spring Collections and Credit Risk Conference, League member Wanda Borges and I presented an informative discussion on the impact of the Act on Commercial and Retail Collections. Highlights of my retail presentation were discussed at our meeting and we anticipate presenting it to the League in the future. It appears there will be continuing new cases interpreting decisions of the Bankruptcy Courts, which will bear watching over succeeding years.

Another topic involved the IRS and the mandatory reporting requirements of settled debt. Settlements of debt over $600 require applicable entities to report the discharge of the remaining debt annually to the IRS. The IRS added more bite to the existing regulations by including entities that acquire legal title to a debt from the originator, or acquire legal title following acquisition of the originator.

It should be noted that there might be an FDCPA violation if a collection organization attempts collection on a debt already reported on a 1099-C.

I suggest that any contract to collect debt should contain a provision, or be revised to contain a provision, that the debts assigned have not been reported to the IRS on a 1099-C.

An ancillary question arises as to whether there is any obligation to inform the consumer of the consequences of settling a debt, and that the balance will be reported to the IRS. Obviously once the cancelled debt is reported to the IRS, it may become non-dischargeable in a bankruptcy proceeding.

The American Jobs Creation Act of 2004 (H.R. 4520), which was signed by President Bush on Oct. 22, 2004, authorized the IRS to contract with Private Collection Agencies (called thereafter, PCAs) to collect delinquent taxes. The IRS planned to award contracts in June 2005 and begin a roll out of accounts to PCAs in January 2006.

However, Reps. Rob Simmons, R–Conn., and Chris Van Hollen, D–Md., have sponsored H.R. 1621, which would disallow the IRS from contracting with PCAs to cure its astounding backlog of tax cases.

Lobbying and Outreach

In connection with the 1099-C reporting requirements mentioned above, lobbying efforts have begun with other Joint Association Summit (JAS) members. Our League President and Executive Director are aware of other association efforts and will take appropriate CLLA action. A spring-summer meeting is anticipated with the IRS to discuss issues addressing clarification of requirements.

Court Opinions

At our fall meeting in New York City, Retail Committee member Art Saunders will present recent decisions he has been informed of and involved in.

Manny Newburger offered the following interesting decision. Lester E. Cox Medical Center d/b/a Ozark Professional Collections, v. Joe Huntsman; Cary Huntsman, No. 04-1797. Appeal from the District Court for the Western District of Missouri.

A debt collector violates the FDCPA when it uses "any business, company, or organization name other than the true name of the debt collector's business, company, or organization." The district court found Cox did just that by using the name "Ozark Professional Collections" to collect its debts. The evidence shows that Cox owns and controls Ozark. Cox is the registered owner and user of the d/b/a "Ozark Professional Collections." Ozark is an unincorporated division of Cox. Approximately 90 percent of the debt collected by Ozark is for Cox and 10 percent is for other creditors. All of Ozark’s workers are paid and employed by Cox.

To be eligible for statutory damages, the Huntsmans had to establish that the Act had been violated, Peters v. Gen. Serv. Bureau, Inc., 277 F.3d 1051, 1054–55 (8th Cir. 2002), which the Huntsmans did. But that did not end the inquiry.

In assessing statutory damages, a district court considers: (1) the frequency and persistence of non-compliance; (2) the nature of such non-compliance; and (3) the extent to which the non-compliance was intentional. 15 U.S.C. § 1692k(b)(1).

The district court found Cox's noncompliance with the Act to be "not frequent, persistent or intentional and minor in nature." For de minimis or technical violations, some courts refuse to award statutory damages. See Pipiles v. Credit Bureau of Lockport, Inc., 886 F.2d 22, 28 (2d Cir. 1989) (determining that the nature of defendant's noncompliance did not warrant statutory damages); Fasten v. Zager, 49 F. Supp. 2d 144, 150 (E.D.N.Y. 1999) (holding the defendant's noncompliance was minor and plaintiff was not entitled to statutory damages).

The district court reviewed the evidence and awarded the Huntsmans nominal damages of $1. In applying § 1692k(b)(1), we cannot say the district court abused its discretion.

Amicus Briefs

It was announced that NARCA and DBA programs will assist involved attorneys and/or firms in defending actions that concern national import to our industry. If you or your firm desires assistance (financial or written), contact Herb Rosenthal through NARCA or Stuart R. Blatt through the DBA.

Continuity

Future Retail Collections Committee meetings between conferences may be conducted via video conferencing. Meetings and discussions are ongoing with regard to this new process. As all committee chairmen are aware, it is sometimes hard to carry out initiatives discussed between CLLA annual meetings. This new model may help to further committee objectives.

Educational Programs

The League anticipates retail collection consequences of the new bankruptcy legislation. However, this Committee will review efforts and in New York consider whether it should undertake a program on retail issues.

On behalf of the Retail Collections Committee educational programming, our esteemed Committee member Manny Newburger will provide the key program for the New York conference. The program will be a Mock Trial of an FDCPA court case. This program follows the successful two-part FDCPA program Manny presented previously at successive League conferences.

Miscellaneous

The following items are from a United Consumers Advocacy Network press release.

The United Consumers Advocacy Network (UCAN) and Partners for Fair Debt Collections (PFDC) announced their agreement to combine forces and form the largest consumer advocacy organization aimed at protecting clients of debt relief companies from abusive collections practices of creditors and collection agencies.

Washington Mutual Inc. agreed to acquire Providian Financial Corp. for cash and stock that will combine the two financial services companies.

Collection entity Encore Capital announced that it will buy more than $2 billion of bad credit card debt and take over a 120-employee debt collection center in Minnesota from Jefferson Capital. This is an example of how recent high prices for purchasing debt have caused entities to buy another company to maintain additional accounts for continued business flow.

Nieman Marcus Group Inc. announced that HSBC Retail Services will purchase its private label credit card accounts and related assets for more than $600 million.

Have a great summer, and I look forward to seeing you in New York City this fall, and seeing you at our Retail Collections Committee meeting.

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, P.A. in Baltimore, MD, which specializes in retail and commercial collections and general litigation matters in Maryland and Washington, D.C. He also currently serves as the President of the Maryland/District of Columbia Creditors’ Bar Association (MDCBA).

Education Committee

By Marc J. Bressler, Esq.

The response to the CRS Education programs in Chicago was overwhelming. We want to continue these fine programs in New York and into the future. Our Committee met in Chicago, and with recommendations for future programs, I met with Beau Hayes, the CLLA Education Committee Chair, and Sue Dickerson to plan the education programs for New York and Chicago in 2006. We have some exciting and interesting ideas. However, our ideas are limited by the time we have available at the conventions.

To give you an idea of our plans, we are looking to present an educational program entitled "U.S. Creditors’ Rights Under Canadian Bankruptcy." Not only are our practices becoming more international, but also with Canadian commerce as integrated as it is with the United States, many of us have clients who need this information.

Not only are our clients more diverse, we also are relying more and more on technology, both in and out of the legal field. Therefore, we are scheduling a program entitled "Gear and Tech" for a look at the most advanced and helpful equipment and systems available.

We will have "Forms II," a follow up to last year’s "Forms, Forms and More Forms." We are planning a mock trial on the FDCPA, and a practical program on "Tips and Tricks" in your everyday practice.

Ideas we are working on for future programs include: lender liability, piercing the corporate veil in LLC’s as well as corporations; an ethical program on who is the client; and domesticating a foreign arbitration award and its enforcement.

We would be glad to hear from you if you have any suggestions for programs.

Editor’s Note: Marc J. Bressler, Esq., co-chair of the CRS Education Committee, is a partner in BresslerDuyk Law Firm, in Edison, N.J. The firm handles collection matters throughout New Jersey.

Internet And Technology Committee

By John P. Plovie, Esq.

The Internet and Technology Committee has made an impact on the CLLA Web site over the past several years. You can now search for a member in other cities, scan past issues of the Free Press and register for meetings. While we are proud of our accomplishments for the CLLA, many members struggle with how to design a Web site for their own law firm or practice.

Creating a Web site is a daunting task for many lawyers. Web sites are all around us and they are immensely useful in our everyday practice of law, but how do we create our own? If you have the budget, you can have it done by a professional. Cost estimates I have seen range from $1,000 to $15,000. You also can try to do it yourself if you are comfortable with the technology and have the time. Some lawyers have had one of their sons or daughters put a Web site together. Another option is a company called SpinSite, Inc., which has very user-friendly software that guides you through the process and hosts your Web site on the Internet for a nominal fee.

SpinSite was founded by Linda Miksch, who created her first Web site in 1996. It was a Jewish community site that included chat rooms and other features that were novel at the time. SpinSite is an Internet "Web page designer," which allows the user to create and design each Web page. You can paint the screens and add rows, columns, images and text. You can also upload files and password-protect your site. It even hosts discussion forum pages and threaded newsgroups.

The cost for the SpinSite service, which includes hosting for three months, Instant Setup, two e-mail accounts, 25 megabytes document and image storage space, and five Web pages, is $49. Other packages also are available. This service might work for some firms that are trying to get started with a Web site, but are reluctant to spend thousands of dollars.

Larger law firms may want to contract with a professional Web site design firm. If you want a checklist for issues in developing a Web site and contracting with a Web site developer, please go to OzNetLaw at www.oznetlaw.net and click on "Business and Start-ups" then "Web site Development." Note that this site is based in Australia, but the issues discussed are useful in the U.S. as well.

Content of the Web site is a major issue for debt collection law firms. Unlike most businesses, a collection law firm has multiple audiences. If we could limit our audience to clients and prospective clients, it would be easy to tailor our message. However, once the website is on the Internet, it is there for everyone to see — even debtors and opposing counsel. Do you want your Web site content advertising that you are a specialist in creditors’ rights to show up in the opposing counsel’s responsive pleading? Do you want the court to know that you take collection cases at "low, low, low, contingent fee rates"? How is your Web site content going to be used against you if you are sued for an FDCPA violation?

Indeed such things do happen and they can shift the spotlight from the merits of your case to the type of practice you conduct and the level of expertise that you have.

The Web site should mesh with the firm’s vision and mission statement. If you are not interested in litigating child support collection cases, maybe you should state that you only handle certain kinds of cases such as commercial debt collection cases.

Think about what kinds of phone calls take up the time of you and your staff. If you often have to give driving directions to your office, then maybe devote a page to driving directions with a link to a map. If you spend a lot of time explaining to employers how a garnishment works, then maybe a page on Garnishment FAQ’s.

Don’t think that your Web page has to have lots of bells and whistles. Fancy graphics take time to download and distract from your content. Take time to plan. Ask who is going to use your Web site and what they want to know. Office hours and contact information are musts on every Web site.

Law firms in the collection business need to start thinking about the Web site as a collection tool. Just as we all purchase products over the Internet, the Web site can be an entry portal for any debtor who wants to make an offer for settlement or wants to set up electronic credit card payments or electronic check processing. Debtors may be reluctant to phone your office and deal with your collection staff. By allowing access through the Internet, they can reach your office anytime day or night. (Don’t forget to include FDCPA notices!)

If you think debtors aren’t computer literate or don’t have access to the Internet, think again! In 2000, the Census Bureau reported more than 2 in 5 households had access to the Internet. Of households in the U.S., more than 60 percent have computers available to the occupants. All one has to do is look at the proliferation of Internet debt avoidance scams — phony arbitration services, bogus UCC defenses, and Web-based "experts" on avoiding debt collectors — to know that the Internet is a favorite resource for debtors. Why not try to use it to your advantage?

Finally, promote your Web site at every opportunity. Use your domain name everywhere: letterhead, business cards, brochures, law lists and newsletters are a few examples. There are services that will promote your Web site. Talk to them and see what they can do for you. Most will say that linking your Web site to others will help as most search engines tally visits to the Web site and present them in the order of most frequently visited. There are also a host of services that will promote your Web site for a fee.

Finally, take a few minutes to visit some Web sites hosted by League members. You may see some ideas that will inspire you to create your own Web site. You also may want to send them some business in appreciation!

Editor’s Note: John Plovie, Esq., is an attorney practicing with the Plovie Law Firm, in Redmond, WA. He is co-chair of the CRS Internet and Technology Committee.

Overview Of Collection Industry In Japan

By Steven Gan

Konichiwa. My name is Steven Gan and I am the former president of Advance & Associates Co. Ltd., which was a full-scale credit risk management company located in Tokyo. It is my pleasure to tell you a little bit about the collection industry in Japan.

I returned to the United States last April after spending 15 years in Japan. How I got over there and ended up establishing a collection agency would certainly take a book to explain. In short, one opportunity led to another, and in September 1992, I established Japan’s first foreign-owned and operated collection agency.

Article 72 of the Attorney’s Law

Collections in Japan, for at least the last century, have had a very negative image, and until about the mid 1980s, they were primarily performed by the Japanese mafia. As you can imagine, their collection techniques were not always so professional. Basically, if you didn’t pay, a creditor would ask the mafia to collect the money from you. You were then threatened, beaten and rolled up as sushi until you paid.

About 100 years ago when Japan was modernizing, many of the country’s laws came from France, Germany and the United Kingdom. One law from France became codified as Article 72 of the Attorney’s Law, which basically states that only an attorney is allowed to represent a third party in an agent’s capacity for compensation. The major interpretation of this law is that only an attorney can represent a creditor for the collection of his claim. A violation of this law is a criminal act. I suppose its counterpart here in the U.S. is the prohibition against the unauthorized practice of law.

Although Article 72 was implemented, the business community at large does not know of this law, and in fact, most lawyers are also not very familiar with this law. However, it was only when the lawyers’ territory had been infringed upon that this law became a sensitive issue. Many legal scholars have challenged the law on many fronts, asserting that the law should not be a criminal act and that as long as a credit is not disputed by the debtor (the debtor has the will to pay or to resolve the debt in a fashion that does not require judicial proceedings), then a non-attorney has the right to collect the debt on behalf of a creditor.

The reality is that almost all Japanese attorneys are terrible collectors. They initially charge the client a handling fee, which is usually about 10 percent of the claim value. Then they send a letter to the debtor, but if there is no response, they proceed with a lawsuit. Assuming that they receive a judgment — and many receive default judgments — they will charge the creditor another 10 percent as a success fee, whether or not they have collected anything. Not a bad business. Although most lawyers are generalists, and are performing collections on a sporadic basis, a few actually perform it as a specialized business.

Partnership-Based Collection Agencies

In 1975, the first partnership-based collection agency was established to circumvent Article 72. According to one interpretation of Article 12 of the civil law regarding voluntary partnerships, since two or more partners in a partnership can act as each other’s agent, partner A could collect on behalf of partner B and vice versa. In this way it was reasoned that Article 72 would not be violated.

In a more concrete example, let’s say that creditor B needs to have his claim collected, so he joins a voluntary partnership called XYZ. Creditor A, who is already a partner, looks at B’s claim and says he can collect it. Since they are both partners in this partnership, it is reasoned that A can represent B for the collection of B’s claim. Subsequently, as the number of partners in the partnership increases, exchanging claims and representing each other becomes complicated, and it therefore becomes more efficient to designate one partner (the administrator) to execute all of the collection activities on behalf of all the partners. Through this formation, it was reasoned that an XYZ partnership could perform collection activities on behalf of all its partnered creditors without violating Article 72.

The first partnership-based collection agency became very successful — in about five years, it had more than 4,000 customers who had become partners. At the same time, this agency also was perceived to be infringing on lawyers’ territory.

In 1983, the three bar associations of Tokyo, as well as the Osaka Bar Association, sued the first partnership-based collection agency for being in violation of Article 72, which is a criminal act. However, since there was no victim, proof of the existence of a criminal act could not be sustained and the case was suspended. As a result, partnership-based agencies were slowly established, and by the time I came on the scene, there were about 100 of them throughout the country. Almost all of these agencies, including my own, collect accounts receivable that are not disputed. In other words, if a debtor did not have the will or volition to pay, the claim is closed and handed back to the creditor.

The Servicer Law and Servicers

The 1980s were a time of tremendous economic growth and excitement in Japan.

Then came the 1990’s, when Japan’s economic bubble burst and what was unthinkable just a couple of years earlier became a frightful reality. Thousands and thousand of companies went bankrupt, which in turn led to the insolvency of some of Japan’s most well known financial institutions. With the financial collapse of hundreds of thousands of individuals and businesses, the financial institutions were saddled with non-performing loans that not only impacted the economy, but also turned the society upside down. From the end of WWII until the end of the 1980s, a person joined a company and stayed until retirement. Rather than ability and performance, loyalty to the company was the key characteristic that companies emphasized and valued. However, with so many companies going out of business, and working at one place until retirement was no longer guaranteed, the Japanese people found themselves having to change their way of thinking. Headhunting and career counseling companies proliferated. Furthermore, the new entrepreneurs were being encouraged to create their own destiny.

From a collection point of view too, the big problem at hand was how to clean up the hundreds of thousands of outstanding loans that were held by the financial institutions. In February 1999, the Servicer Law was passed as an exception to Article 72, to allow a non-attorney to collect. A Servicer is a licensed collection agency that is allowed to perform collection under several restrictions.

In order to become a Servicer there are three basic requirements.

1) 500 million yen (about 4.5 million dollars) in capital is required because a company that is categorized as a "major corporation" (Dai-Kigyo) needs to undergo periodic audits by the government to insure that the operation of the company is transparent and correct.

2) An attorney must be a paid director. I suppose if we are going to make an exception to the Attorneys’ Law, we have to give the attorney a job in return. Another interpretation of this is that under the eyes of an attorney, it is presumed that the collection activities will be professional and ethical.

3) The Ministries of Finance and Justice and Police must grant approval.

Once these three requirements are met, a company is allowed to receive a Servicer license. The goal of the Servicer law not only was to support the financial institutions, but also to prevent the Japanese mafia from getting involved in the Servicer business.

One major problem of becoming a Servicer is that since 1999 they have only been allowed to collect financial institution-related credits and credit card debts related to loans. The low collection potential of the financial institution-related debt does not support the operating overhead that goes along with borrowing 500 million yen.

Servicers are not allowed to collect delinquent accounts receivable against individuals or companies. However, as a result of pressure by the Japan Servicer Association, it appears that Servicers will be allowed to start collecting accounts receivable, sometime next year.

Assuming that this will come to pass, I believe that the partnership-based collection agencies will become very questionable. Therefore, for my own business, I decided that instead of investing 4.5 million dollars to become a Servicer, it was better for me to sell my customers to a couple of law firms, let them lease my computer system, and return to the U.S.

In summary, the three entities that are providing collection in Japan are:

1) Attorneys – Approximately 20,000

2) Partnership Based collection agencies – Approximately 200

3) Servicers – Approximately 100

In my opinion, the Servicer Law was not a rational way to deal with the collection of loans or other related credits. I think training and educational requirements should have been implemented, which would have given companies and their employees the skills to understand how collection fits into a full-scale credit risk management system.

Collection opportunities from Japan

There are many exporters who have collection problems overseas, but from my experience there were not too many cases in the US. Most of the cases that I received were in China, other parts of Asia and the Middle East. It seems that most American importers pay. On a monthly basis, I was forwarding about 10 cases to the US. This is such a very small number considering that Japan is the number 2 or 3 trading partner with the US. In saying the latter, I believe that there could be opportunities to receive cases through the Japanese export associations, as most of these organizations are not familiar with the worldwide collection industry. While I was in Japan I contacted some of these export organizations and received some cases from their members. If you are willing to really exert consistent efforts to contact these organizations, educate them and offer collection support in the U.S. or North America, I believe that cases would be forthcoming. For me, 99 percent of my collection work was domestic collection business.

A couple of last words

Having operated an accounts receivable management and debt collection company in Japan for 12 years, I learned a great deal about Japanese business culture and the credit risk management needs of the Japanese business community. Now that I’m back in the U.S., I am studying about the credit risk management trends, developments, products and services here with the goal of bringing these concepts back to Japan sometime in the future.

I hope this article has been enlightening. Please feel free to contact me if you have any questions. Sayonara for now.

Editor’s Note: Steven Gan is the former president of Advance & Associates Co. Ltd., a full-scale credit risk management company in Tokyo. He is the author of a book entitled "The Blue Eyed Debt Collector, His Struggle," which has sold 20,000 copies.

Tips, Tricks And Techniques For Making The Most Of Your Collection Practice

Compliments of The American Lawyers Quarterly

Handle Files Professionally

Acknowledge new claims promptly. When they come from a new business source, include a special thank you.

Send new forwarders information on your firm and collection practice. For example:

  • Provide staff information - who to contact if you are not there
  • Describe the geographical territory covered by your firm
  • Attach business cards
  • Highlight your firm's collection specialties:
    consumer/retail collections
    insurance collections
    subrogation collections
    mechanics lien collections
    transportation collections

If for any reason the claim is not acceptable (conflict, amount, rates or otherwise), return the claim and all documents immediately. Always carefully review the proposed fee arrangement before acknowledging a claim.

Contact the debtor ASAP, and send a follow-up letter advising results of that contact with your recommendations. Your report should advise:

  • Prospects of collection and whether there is any dispute on the claim.
  • When the next report should be expected.

If the claim has been forwarded with instructions for "immediate suit," advise promptly of any needed documentation. Proceed promptly!

Close uncollectible claims as soon as possible.

Often, clients will accept a settlement in lieu of the time and expense associated with litigation. See if a settlement offer can be evoked early in the file's life at your office. This is also a good way to isolate any disputes involved in the account.

Review the "Operative Guides For Forwarders and Receivers Adopted By The Commercial Law League of America" regularly.

Review the "Introduction to Handling Commercial Claims" published by the Commercial Law League periodically.

Note that it is the usual practice that creditors request that all correspondence and contact by the attorney be through the forwarder because, while the forwarding agencies are aware that the creditor is the client of the attorney as well, they forward claims as agent of the creditor with express authorization to handle the claim on the creditor's behalf as a service and a convenience.

Use the forwarder's file number on all correspondence if it is provided.

Report any developments on the collection of the claim and give a realistic follow-up date, i.e., 30 days. Save time by using form letters for routine status situations, such as "file out for service" or "debtor served, awaiting court date", but provide detailed reports when warranted. Be mindful that the forwarder will expect a report at the time that you have specified.

Use a standard remittance form that provides clear accounting of all funds received.

The "Schmooze" Factor

Support staff can "make or break" a business relationship. Train them well!

Make periodic goodwill calls to existing clients. People do business with people they know and like.

"Grandstand" on good collections! Highlight your efforts and successes.

Attend Commercial Law League and other trade group meetings regularly to participate in discussion of collection procedures and to meet forwarders.

Update the forwarder with information on your firm and collection practice by sending periodic announcements and newsletters.

During a trial, or in those rare situations where a law firm is in contact with the creditor, there are ways to make the agency-forwarder look good. This action solidifies an agency-attorney relationship.

Utilize Your Law Lists

Ask them to refer your firm, and remind them periodically. Provide them with complete and up-to-date information on your firm for reference in making referrals.

Ask them to provide lists of business prospects, and use the law list company as a reference.

Ask them to introduce you to potential clients at conferences.

Ask them for advice on setting up appointments for visits with both existing and potential sources of business.

Ask them for ideas on how to promote your firm.

Develop New Business

Network at CLLA, NARCA, IACC, ACA, DBA, NASP conventions:

  • Attend frequently
  • Volunteer to serve on committees
  • Participate in educational programs
  • Offer to speak or write articles

If you have business to forward, seek out reciprocal business — be aware of other law firms who also have business to forward. If you have a claim in their area, encourage reciprocal forwarding.

Follow up with new contacts in writing or by phone. Provide information on your law firm and collection practice, and determine if there is a service that you could provide, which they are not getting now, i.e.:

  • Extend service to a larger geographic area
  • Offer to visit debtors on larger claims
  • Offer "letter demand" service
  • Offer skip tracing
  • Offer to handle estate claims
  • Offer to handle small balance files
  • Offer to handle mechanics lien and foreclosure
  • Offer lower rates?

Partner with attorney friends from other cities when making calls or entertaining forwarders -- they can provide you with introductions to those you don’t know, and vice-versa.

Seek advice from attorneys in other cities in your region as to who they find to be worthwhile business sources (forwarders and lists) -- ask if they will make an introduction.

Keep Records And Evaluate The Profitability of Those with Whom You Do Business

Create a new client file for each forwarder and keep track of their claims.

Evaluate the forwarder by:

  • Total dollars earned
  • Average fee per file
  • Aggravation factor

Editor’s Note: Contributed by Nancy Hamilton of The American Lawyers Quarterly

Spotlight On Jerry T. Myers, CLLA President-Elect

Interview By Nicholas D. Krawec, Esq.

Jerry T. MeyersFull Name: Jerry Talmadge Myers
Residence/Hometown: I was born in Monroe, NC. I have lived in Raleigh, NC since 1984.
Education: 1980, B.S. Business from Wake Forest University; 1984, J.D. from Wake Forest University School of Law.
Work History: I joined Smith Debnam as an associate in 1984 and have been here ever since.
Family: A son, William, age 15, and a daughter, Charlotte, age 13.
Areas of practice and specialties: Debt collection, commercial litigation. Certified by ABC as a specialist in Creditors’ Rights law.

What year did you join CLLA? 1986

What other offices have you held in the CLLA? All of the offices in the Young Members Section; Executive Council, Southern Region; Recording Secretary; Member, Board of Governors; and Chair of several committees.

Tell us about your life activities away from the office: I try to start each day with exercise, either running through my neighborhood or swimming at the "Y." My children’s activities keep me pretty busy after school and on the weekends. I often teach Sunday School and try to make sure we get to church every week. I also squeeze in a round of golf when I can find the time.

Tell us about the path you followed within the League that helped to get you to this position: As has been true of many League presidents, I began my real involvement with the League by serving on the YMS Executive Council. I was fortunate enough to hold all of the elected offices in the YMS, which really helped me understand how the League works.

What qualities do you feel that you will bring to the job of CLLA President? I think I understand how the League can deliver the greatest value to its members. I am also a pretty good consensus builder. There are certain things the League does well, such as providing top-notch educational programs and networking opportunities at our conferences. I want to build consensus for an agenda that I feel will bring real growth opportunities to the League and its members.

What goals would you like to achieve for the League during your term in office? First, I would like to see our membership begin to grow again. It appears that our numbers have stabilized, and that growth has once again become a real possibility.

As membership grows, business opportunities for members increase. Next, I want us to take full advantage of the opportunities for member service afforded by our conferences and publications. Surveys have shown that the members who have attended one or more of our conferences are most satisfied with the organization. I want to bring new networking and business opportunities to our members by partnering with other creditors’ rights associations. I also want to see us promote our conferences more effectively, allowing us to bring greater value to our existing members and increase our membership rolls.

What advice would you give to young attorneys who join the League, and who aspire to a leadership role such as yours? In a nutshell – get involved. The only way to really understand our organization and get the most value for your membership dues is to dive in and help run the League. Participate in the Young Members Section activities. Join a committee. Attend our two major annual conferences in New York and Chicago.

When you’re not practicing law or tending to League matters, what do you do for fun and relaxation? I play golf as often as time and weather permit. I also enjoy working out, and I try to either run or hit the gym four to five times a week. A really nice feature of my "Y" membership is that it includes a weekly massage, which I try to take advantage of regularly.

If you did not become a lawyer, what do you think would have become your life’s work? I probably would have gone into banking or some type of financial services career.

What one thing do you think we would be surprised to know about you that most people don’t already know? Most native southerners today are only one or two generations removed from the farm. My father, at age 80, still farms, although his tending a few beef cattle is more of a hobby than a career. Among his other business ventures and during most of my school years, my father owned and operated a commercial dairy farm. I learned a great deal during those years about what people who do not wear a suit to work do for a living. If this "law thing" does not work out, I can always fall back on my skills as a cowboy, truck driver or heavy equipment operator!

What is your favorite quote or "words to live by?" Treat others as you would like to be treated.

Did you have any role models when you were growing up and in your law career thus far? If so, who are they and why were they your role models? My father and mother were, and still are, great role models for me. I admire my father’s entrepreneurial spirit and his broad range of skills and knowledge. I admire my mother’s care and concern for others.

If you could have dinner with one famous person in history and one famous person alive today, who would they be and why? I would love to dine with Benjamin Franklin. Reading about the early days of our country, I have marveled about the breadth of Franklin’s interests and the depth of his influence in world affairs. I wonder how he viewed himself? I would also enjoy dining with Nelson Mandela. I would love to hear firsthand his story of conviction, faith and perseverance.

What is your favorite…

Car: 1987-88 Porsche 911

Food: Italian

Vacation spot: North Carolina because we have great beaches, fabulous golf resorts and beautiful mountains!

Actress/Actor: Jimmy Stewart

Movie: "Gone With the Wind"

Holiday: Easter

Sports figure: Tim Duncan

Anthony F. Picheca JR. Receives Professional Lawyer Of The Year Award

Anthony F. Picheca, Jr., an attorney from Far Hills, N.J., recently was named the 2004 Professional Lawyer of the Year by the New Jersey Commission on Professionalism in the Law. He was honored during a luncheon at the New Jersey Law Center in New Brunswick.

The Professional Lawyer of the Year Award is given annually to those attorneys who have demonstrated an extraordinary commitment to professionalism throughout their careers in law and to those lawyers who, by virtue of their conduct, competence and demeanor, set a positive example for others in the profession.

The Hon. John W. Bissell, Chief Judge of the U.S. District Court for the District of New Jersey, and the Hon. Barry T. Albin, Justice of the Supreme Court of New Jersey, presented the award at the luncheon, which was chaired by Richard J. Badolato, Esq., immediate past president of the New Jersey State Bar Association. The Hon. Katherine S. Hayden, of the U.S. District Court for the District of New Jersey, was the featured speaker. Judge Hayden spoke about the importance and impact of lawyers conducting themselves in a professional manner and as role models for the legal profession to follow.

Picheca is a lifelong resident of Far Hills, N.J., and has conducted his practice in the Professional Corporation of Anthony F. Picheca Jr., P.C., in Far Hills since 1978. He is a magna cum laude graduate of Seton Hall University (1973) and Western New England College School of Law (1976). He was admitted to the New Jersey Bar and the U.S. District Court in 1976, and the United States Supreme Court in 1980. After graduating law school and serving a Judicial Law Clerkship with the Hon. Robert E. Gaynor at the Somerset County Courthouse, Picheca began his practice focusing on banking law, commercial litigation, commercial and business transactions, creditors’ rights, personal injury matters, real estate; wills, trusts and estates, probate and election law.

Picheca is the past president of the Somerset County Bar Association (2000) and current President of the Somerset County Bar Foundation. He also is a member of the American Bar Association and the New Jersey State Bar Association. He has served as Chair of the New Jersey State Bar Association's Special Civil Part Committee and has been reappointed three times to serve on New Jersey Supreme Court Special Civil Part Practice Committee. In 2002, he was appointed by the New Jersey Supreme Court to serve on the Statewide Implementation Committee to oversee the implementation of "Best Practices" in the Special Civil Part in all counties of New Jersey. Also in 2002, he was appointed to serve on the Special Civil Part Advisory Committee for Vicinage 13 ( Somerset, Hunterdon and Warren counties). He has participated as a panelist for the New Jersey Judicial Conference on Special Civil Part Practice and has on a number of occasions been a moderator and panelist for the Institute of Continuing Legal Education.

Picheca has served on numerous committees of the Somerset County Bar Association and was recently appointed for the fourth continuous year as Co-Chair of the Bar's Civil Practice Committee. His responsibilities in this position include acting as liaison between the Bar, the Judiciary, and Court administration in Somerset County to advance the interests of the lawyers that try cases in the county; coordinate seminars for the Bar on topics timely to the civil practice area; and interface with the New Jersey State Bar Association on topics, issues and concerns that affect the civil practice lawyer. Picheca was recognized this summer as a 25-year member of the Commercial Law League of America.

While holding a number of positions in this organization, he is currently Chair of the League’s Eastern Region, representing the states of New Jersey, New York, Connecticut, Delaware, Maryland, Pennsylvania, as well as the District of Columbia and Ontario, Canada.

In his local area, Picheca serves or has served on many community and charitable boards such as the Somerset County Business Partnership, PeopleCare, Somerville-Bridgewater Rotary Club, United Way, Alternatives Inc, American Cancer Society, American Heart Association, N.J. Association of the Deaf-Blind, and former council member of the Borough of Far Hills. He also has received numerous community, business and service awards, including Outstanding Business Person of the Year in 1991 by the Somerset County Chamber of Commerce, and a Paul Harris Fellow by the Rotary Club of Somerville and Bridgewater.

The New Jersey Commission on Professionalism is a cooperative venture of the New Jersey State Bar Association, the state judiciary and the three New Jersey law schools. The commission's goal is to enhance the spirit of professionalism among the lawyers of New Jersey, stress the traditional values of the Bar and promote public confidence in the Bar and the Justice System.

To Be Or Not To Be A Litigant In A Commercial Trial

By Louis Figueroa

This is a view on the agencies’ attempts to educate creditors to properly support creditors’ rights attorneys’ litigation efforts in collection cases.

When an account is placed for collection, every creditor hopes for a swift and successful resolution. The situation is clear; the money is owed. Sometimes, however, the avenues of pursuit are blocked or exhausted and the account becomes static or mired in contention.

As time wears on, it becomes clear: - the only way to extract the balance owed is to file suit. Once the gears of the judicial process are set in motion, the credit manager embarks on a legal journey. Many of the signposts are in Latin, and the itinerary requires an investment in time and money. The path is often frustrating for a creditor whose discipline is in finance and credit, not law.

We thought it might be of value to chronicle the evolution of a typical suit, ticking off the possibilities for detours or resolution as each move is made, and offering a few thoughts on the final step – the creditor’s day in court. Often compared to a chess match, the entire process is formal and fascinating. Filing suit should, if the creditor is familiar with the course and demands of a legal proceeding, prove a positive move when all other efforts have failed and he or she is confident of the company’s position.

Variations in terminology, requirements and case law may be found from state to state, but the basic principles and rules apply. Like a chess match, the first few moves are usually predictable, but every move is critical. Once the court costs are forwarded, the match begins.

We would like to thank Attorney Charles Litow, of Cedar Rapids, IA, for reviewing our scenario, and William Shakespeare, for the excerpts from Hamlet’s soliloquy on decision-making.

The scene is set

The commercial attorney has attempted to collect the debt amicably. The debtor has refused to cooperate and the attorney recommends that suit be filed.

Accept a bad debt or file suit?

The creditor knows the money is due, but now faces the possibility of having to appear in a court of law. He or she has to be ready to prove that: the company received the order from the debtor; there was a price for the goods or services stated and agreed upon by the party responsible for payment; the goods or services were received; the terms of payment were understood and agreed upon; demand for payment was made; payment was not made.

Before the first move, the creditor has to check the pieces on his side of the board. His arsenal should include the physical evidence of a good faith transaction: credit application (helpful, but not required); purchase order(s); invoice(s); proof(s) of delivery(ies); and Statement of Account. If they exist, letters or memoranda proving, at some point in time, the debtor’s acceptance of responsibility or defining a dispute and its resolution.

A paper trail, however, even if complete and precise, can’t be questioned or cross-examined. If the case goes to trial, the attorney cannot swear to the truth and accuracy of the books and records he is submitting as evidence. That must be accomplished by the custodian of the records or someone genuinely familiar with transactions of the company; one who, under oath, can attest to their mode of preparation and authenticity. It may also be that the paper trail is incomplete. Perhaps the order was verbal, and there is no proof of delivery. If that is common in the creditor’s industry, it could be considered "a practice of the trade" and testimony will be critical to the case.

So the final pieces are the witnesses such as the credit manager and, if necessary, the sales person or company representative who prepared or has personal knowledge of the documents and their preparation. If the sales representative did enter a verbal agreement for an exception to standard terms, it may be considered an oral contract, which is just as enforceable, but more difficult to prove. His or her testimony may ultimately torpedo or substantiate the creditor’s position.

The arsenal inventoried and the pieces in place, the creditor authorizes suit, forwards court costs, an Affidavit of Claim, possibly a suit fee and whatever else is required in the particular jurisdiction. The first move has been made.

The attorney files the complaint, stating the facts and reasons for the action. A summons is issued to notify the debtor that: he is being sued; he may appear on a specific date to file an answer if he wishes to plead a defense and; if he fails to respond, a judgment will be rendered against him.

Perchance to dream

It’s now the debtor’s move. He might have stalled and procrastinated, buying time with every excuse and broken promise, but he is not willing to risk suit so he pays in full. The creditor has won in one move. Or the debtor may not answer, and judgment may be gained by default. Although necessitating a second move (the petition for, and filing of a Default Judgment), the creditor may be awarded reimbursement of court costs expended, pre-judgment interest and/or post-judgment interest (accrued from the date the judgment is filed). This also is a victory for the creditor, although whether it is moral or substantive depends on the ultimate collection of funds. If the debtor does not voluntarily honor the decree, the creditor does have post-judgment remedies available.

If the debtor lacks the immediate capacity to pay, the creditor has a lien on assets and leverage for the future. He may offer an equitable settlement prior to the deadline for filing an answer. The creditor weighs the credibility of the debtor’s argument for compromise against the potential cost of going to trial and the strength of his or her case, and may accept. Ostensibly a draw, and true "justice" aside, the credit manager may have made the best business decision, maximized return and cut losses. In essence, the creditor has won. The creditor may refuse the offer, decline the opportunity to negotiate and force the debtor to file an answer or suffer a default judgment.

Slings and arrows

The debtor may also file an answer and contest the action. If he is sincere in his objection, he will rally his forces, count the evidentiary pieces on his side of the board and, most likely, hire an attorney. He’s ready to defend, and by filing the denial, he is forcing the creditor to prove the allegations cited in the original complaint. If the debtor is posturing — employing the answer as a delaying tactic — his bluff must still be called. He may file a countersuit (or cross-complaint) in addition to the formal denial. This pro-active and extremely aggressive response to the creditor’s move is a separate lawsuit filed against the creditor, who is now both plaintiff and defendant. (The creditor cannot ignore the suit against him, even if he regards it as spurious; he must answer and defend or risk default judgment.)

Take arms

If the debtor simply files a denial and wishes to defend, the creditor usually has a strategic advantage. His attorney, aside from a possible non-contingent retainer, is representing the company on contingency. His or her fee is dependent on collection. However, the debtor, in a defending position, traditionally hires an attorney on an hourly fee basis. (If creditors have noticed an increase in contested claims, it may be due to the increasing number of attorneys representing debtors on a flat fee basis or a percentage of what they ultimately save the debtor.)

Regardless of the debtor/defendant’s arrangement with his attorney, if he has engaged one, the creditor/plaintiff is now in an aggressive posture, forcing the debtor to spend time and, hopefully, hourly fees responding to the demands of "discovery." Served with the instruments of discovery – an Interrogatory or Demand to Admit or Deny – the debtor/defendant must, within a specified time, formally answer the questions, or respond to the facts posed in the documents. If the documents are submitted with a Request for Production, the debtor is required to submit documentation supporting his position and response.

The creditor/plaintiff may serve the debtor/defendant with an Interrogatory (a list of questions), which he must complete. In responding to this rather thorough examination, the debtor may see his defense wither as his costs rise, and he may offer a settlement. The creditor is now in an excellent negotiating position. Again weighing the pros and cons of a counteroffer or acceptance versus his day in court, he will make the best business decision. The creditor has won either way. By understanding his opponent’s stance, if he goes to trial, he certainly has a chance to fortify his position as plaintiff.

If in the Demand to Admit or Deny, the debtor agrees to the truth of the facts of the case as set forth by the plaintiff, those issues are considered resolved. If the admission of facts is compelling and no factual issues remain in dispute, the creditor/plaintiff may have just proven his case. The attorney can file a Motion for Summary Judgment. If the judge agrees, by virtue of the debtor’s admission to the facts, that the debtor has no supportable defense, the creditor has won. There is no trial.

The information generated by these pre-trial procedures, even if a settlement offer doesn’t materialize, reveals the position of the debtor and serves as a guide for trial preparation. What documents will be necessary to thwart the debtor’s defense? Who will be needed as a witness? Are depositions necessary?

It should be noted that court costs, including the filing, service of summons, marshal’s or sheriff’s costs, entry of judgment, etc., are funds requested prior to the initial filing and held in trust by the attorney. They are fees levied by the court, and any unused portion is returned to the creditor at the conclusion of the case. The attorney will include in his pleading a request for reimbursement of court costs incurred. Success is dependent upon the ultimate ruling and sympathy of the court. But...

There’s the rub

Of course, the debtor/defendant is not without resources and tactics with which to counter the offense. He is accorded the right to demand the creditor/ plaintiff prove his case, and in exercising that privilege, his attorney may, in some jurisdictions, present the creditor with a Bill of Particulars or a document of similar name. The creditor is now operating under the same strict time requirements and must answer the questions put forth before the deadline set by the court. It is the opposing force’s defensive weapon, and an instrument that will reveal the creditor’s position, guiding the debtor in his strategy.

If the debtor/defendant has countered with a cross complaint, the creditor is now a plaintiff in one action and a defendant in another. The creditor’s attorney will probably charge an hourly fee for the defense, which means the costs are increasing and the stakes are high. Both sides can become embroiled in an expensive and contentious battle, each petitioning for pre-trial procedures, each in jeopardy of severe sanctions, including the loss of the case and penalties if the requirements for response are not met.

If the pre-trial discovery process fails to clarify liability and stimulate productive negotiation, the opponents become polarized and firmly entrenched in their respective positions. They have exchanged pieces on the board, but there is no victory. If the court does not mandate arbitration or another alternative method of dispute resolution, the case will go to trial.

Creditor’s day in court

Sometimes it is more a day "at" court than "in" court. An 11th hour compromise may be orchestrated, literally or figuratively, on the courthouse steps. Perhaps the court schedule is packed; a courtroom is simply not available. Can the creditor or debtor afford to wait on the court’s convenience? Perhaps it is a question of ultimate collectibility or efficiency in obtaining an immediate satisfaction. However protracted the deliberation may seem, or how spontaneous the decision may appear, the offer and acceptance are usually governed by practicality.

If there is no direct negotiation or if it fails, the judge may request a closed meeting with the opposing attorneys in his chambers before the trial begins. Briefly familiarizing himself or herself with the facts of the case and assessing the potential for compromise, the judge may offer recommendations and pilot a final attempt at reconciliation. Even at this late juncture, a resolution without trial is possible, especially if an attorney senses his client is vulnerable to an adverse decision and may win more by concession.

If no agreement can be reached, the trial is held.

The end game of a contested claim is the appearance before judge or jury. Both sides are prepared to present the most compelling case. Many creditors consider the actual appearance of a witness a mechanical function. They contend a witness is necessary perhaps, but not pivotal. If the attorney has all the evidence in hand and the case is just, a favorable ruling is inevitable.

However, nothing could be further from the truth. Many a good case has been lost and the investment in the suit forfeited, because the plaintiff underestimated the power or ineffectiveness of the personal testimony.

A new or inexperienced staff member may be more dispensable, his or her absence from the office of little consequence, but the opposing attorney can destroy the witness and the plaintiff’s case if the representative has little or no first hand knowledge of the transaction.

If properly petitioned, and offered justification for a credible substitute, the court may accept the testimony of someone not immediately involved, but the selection and preparation of the witness should be made far in advance, and the rehearsal should result in testimony that is honest, confident, knowledgeable and articulate.

There is the presentation of the plaintiff’s opening (the submission of evidence, the direct examination of the witness(es), cross examination by the opposing counsel and, if necessary, redirect examination by the creditor’s counsel to clarify points diffused, or reverse an impression created, by the cross examination). The plaintiff "rests" his case.

The opposing attorney then exercises the right of defense using the same tools and following the same order as in the presentation of the plaintiff’s case. The defense rests.

The plaintiff may offer rebuttal, limited to new issues raised by the defense, the defense is then allowed to respond and the plaintiff may rebut again. Although, theoretically, the court may allow the evidentiary sparring to continue, the case usually progresses, without further argument, to the final stage: the closing.

The plaintiff’s case is summarized, the debtor’s defense is summarized and the plaintiff’s attorney may rise again to re-summarize and close. The court’s decision is rendered either immediately or after taking the matter under submission, shortly thereafter. The chess match is over. In some jurisdictions, the entire process is timely and efficient. In other more urban areas where court calendars are jammed and judges over-scheduled, it can take months, sometimes longer, to see a case through to the end.

The decision to file suit is not always an easy one. The third party agent and the attorney may have excellent recommendations based on experience, but the creditor makes the final determination. Risk and reward, investment and restitution, all must be considered. To be or not to be a litigant in a commercial claim is a quandary faced every day by creditors across the country. Armed, at least, with a broad view of the process, the credit manager can shift from simply knowing that the money is owed to determining the most successful strategy for capturing the cash.

Editor’s Note: Louis Figueroa is president of Credit Decisions International Ltd., a commercial collection agency with an office in Park Ridge, IL.

In A Perfect World

By Vicki De Jonge

There is a well known drug store chain whose advertising campaign seeks to bring us to a place where everything is seen as perfect — where the kids never get tired or dirty, the weather is always nice, you can eat all you want without worrying about your health, and of course, money is never an issue. They then remind us that since that world doesn’t exist, they are the ones that can still meet our every need.

While such advertising promotions allow us to briefly escape, we are always forced to return to a more realistic world. One of fatigue, dirt, rain, illness and ultimately a lack of ready cash, which is where we, in the collection business, fit in the picture. As part of that picture, many see "bad debt" as our job security.

Although the current economy shows signs of vast improvement, the past several years have seen massive job losses, shut downs or drastic moves by major companies and a severe nationwide health care crisis. As such, the majority of our country’s industries have been required to be more creative, to find new initiatives and to redefine their goals and mission statements just to remain competitive. Our industry is no exception and job security is best identified by the overall collectability of any outstanding account. Outsourcing and Networking are the "buzz words" that have become part of our business vocabulary.

So we all find ourselves searching for the best marketing tools or that one main feature that we can offer our clients that sets us apart from everyone else. For our agency, it has been the triadic system approach that has worked the best from both an internal and external basis. It provides the resources that allow us to provide the best service to our clients from a collection standpoint, and it enables us to reinforce their educational foundation as well. As the more seasoned and well- versed credit managers retire and are not being replaced because of the need to restructure, many companies now find their credit departments staffed with people who are more familiar with credit granting than they are with collection practices.

Even though there may not be a direct correlation between increased placements and the education process, the best analogy for me is that of providing both self-serve and full service options. Some people are independent and prefer a direct "hands on" approach while others like the special attention and feel more secure being walked through a process at least until they become more comfortable with a new situation. We believe that the more knowledgeable our clients become, the better equipped they will be to make well -informed decisions, especially when it comes to the expense of litigation. It is often the education process that assists us in reducing their anxiety levels as well as lowering any unrealistic expectations.

Unfortunately, when the economy forces the "tightening of the purse strings," there also is a tendency for expectations to increase. All of sudden a company’s past due accounts take on the same urgency as any current receivable.

Subsequent to the above, one may ask how our agency’s approach translates in regard to working with the CLLA collection attorneys? As I stated recently at the Chicago meeting, our agency and its legal department have been taught to appreciate and respect the collection attorneys with whom we work.

We value their opinions and there has been many an occasion when they have risen above and beyond for us as well as our clients. In an attempt to address questions or concerns that any of the attorneys have as to our agency’s requirements, I will try to best express those of our department.

Again, we do not seek perfection, but we do work hard to keep expectations as realistic as possible, both for our clients and ourselves.

Given our past experience, we have learned that at times must accept the small collection claims in order to obtain the larger ones as well. Therefore, it is helpful for us to know the minimum amount that any law firm is willing to consider as well as acceptable collection rates.

We strive to make sure that the accounts we forward are as well documented as possible and try to place them on a timely basis. Once an account has been placed for collection, it is important that we receive timely updates throughout the entire process — from the prompt acknow-ledgement of a claim to each step of the legal process, (i.e. filing of suit, service effected, judgment entered, trial scheduled, witnesses required, etc.).

We do not look forward to prompting for status reports any more than an attorney enjoys receiving those requests. While we understand that a firm is actively working an account and the "reporting requirements" are often seen as tedious to say the least, we have an obligation to our clients to keep them informed throughout the collection process. We feel it is better to express an extended report date than to continually have the reports and prompts merely cross each other. Whenever a voice message is left and an attorney is not readily available, we are more than willing to discuss the account with an associate as long as that person is authorized to speak on behalf of the firm. Of course, we understand that in the hectic pace of any office, calls do get missed and time gets beyond us, but a prompt call back is greatly appreciated.

Needless to say we are grateful when remittances are uniform in breaking down the amount collected, i.e. principal, interest, return of either advanced or unexpended costs. If a check has failed to clear, that information is valuable as well. In addition, whenever further costs are required on an account, we need prior approval. We cannot guarantee the reimbursement of any unauthorized costs because of the agreement with our clients. However, we understand there are always going to be the occasional exceptions especially when an attorney continues efforts to expedite cases. When those situations arise a call is probably the best remedy. It is also important that correspondence reflect both our file number and as often as possible be directed to the person handling the particular account.

We require concise yet thorough reports even though it may appear that there have been few changes or no new developments at all. Again that is why realistic diary dates are so important, especially where the litigation process is concerned. Most of all, our clients have been requesting copies of Complaints, Answers, Counterclaims, Interrogatories and/or any Discovery pleadings as well as copies of all Judgments. We realize that request is unusual as we continue to strive for a "paperless" environment, but nonetheless it appears that those document copies remain crucial. Of even more critical importance is the notification of an upcoming trial date and the need for a physical witness. We find that either e-mails or faxes are the most efficient way of relaying that need, especially when short notice has been received, whether it is a turn around time of 48 hours or three weeks.

We realize that when the number of players in any case increases, the potential for frustration may increase as well. It is not our desire to be judgmental or overly demanding, but we do seek to be as candid and honest as possible. For us, besides the always important collectability, the bottom line is customer service. We as consumers want good service, no matter what arena we are in. Our clients are no different and expect no less. Therefore, as that is an area in which we strive to excel, what we ask most from our attorneys is a diligent desire to continue working with us to achieve that goal, even as we continue to exist together in a less than perfect world.

Vicki De Jonge has been a member of the Voss, Michaels Lee and Associates team for 20 years and has been the Legal Claims department manager for the last about five years. Her total collection experience encompasses more than 30 years. She holds a Bachelor’s Degree in Psychology from Wayne State University in Detroit, M.I., and a Master’s Degree in Paralegal Studies from Davenport University in Grand Rapids, M.I.

Professor James J. White Accepts First CRS Award Of Excellence

By Robert A. Bernstein, Esq.

On April 9, 2005, Pro-fessor James J. White was awarded the First Annual CRS Award of Excellence at our Midwestern Conference in Chicago. For several years, the Creditors’ Rights Section considered granting an award recognizing excellence in the field of law providing protection of creditors’ rights. Though the concept of the award had been established, great care was taken to ensure that the initial recipient was a figure worthy of the stature of the award from the Commercial Law League of America, the nation’s oldest organization of attorneys and other experts engaged in the field of commercial law, bankruptcy and reorganization, dedicated to the promotion of high standards of professionalism, integrity and excellence in the commercial practice of law. This award is to be presented to that lawyer, judge, teacher or legislator who exemplifies the best in scholarship, advocacy, judicial administration or legislative activities in the field of creditors’ rights. The Creditor’s Rights Section is proud that a pre-eminent authority in the field of commercial law, Professor James J. White, is the initial recipient of the CRS Award of Excellence.

Many of us are familiar with Professor White though our own studies when attending law school. Professor White has published, with Robert Summers, the most widely recognized treatise regarding the Uniform Commercial Code. Professor White has also authored several casebooks on commercial, bankruptcy and banking law. Currently serving as the Robert A. Sullivan Professor of Law at the University of Michigan, Professor White also served as the official reporter for the Revision of Article 5 of the Uniform Commercial Code, and has been instrumental in the drafting of Articles 1, 2 and 2A of the Uniform Commercial Code. Professor White is a member of the National Conference of Commissioners on Uniform State Laws, serving on numerous committees dealing with revision to the Uniform Commercial Code. Professor White has served in several similar positions with the American Law Institute. In addition to the CRS Award of Excellence, Professor White has been honored with the L. Hart Wright Award for Excellence in Teaching and the Homer Kripke Achievement Award given by the American College of Commercial Finance Lawyers. In addition to the contributions to American jurisprudence, Professor White has taught courses on commercial law in several foreign countries.

Professor White earned his B.A. from Amherst College, graduating magna cum laude and having been inducted into Phi Beta Kappa National Honor Society. Professor White received his Juris Doctor degree from the University of Michigan Law School, where he was a member of the Order of the Coif.

The bar has been set high by the recognition of Professor White with the CRS Award of Excellence. It is the goal of the CRS to ensure that future recipients of the Award of Excellence exemplify the highest standards and make the most significant contributions in scholarship, advocacy, judicial administration and legislative activities in the field of creditors’ rights.

Editor’s Note: Robert A. Bernstein, Esq. is a partner in Bernstein & Bernstein, P.A., in Charleston, S.C., and is the chair-elect of the Creditors’ Rights Section.

Practice Groups

By Ian Bardin, Esq.

The Practice Group concept is moving forward, thanks to your input. But like a good wine, we don't want to uncork it before its time. We are looking at refining the practice group areas. Your replies to our earlier survey suggested a lot more practice areas than we had come up with, many of which could be sub-areas. For example, hospital/medical collections and student loans could be sub-areas of the Retail Practice Group. A member could designate a specialty within a group. We want to get more of your input on this, and we are in the process of setting up an information-gathering mechanism for New York. We should have some good ideas since Beau is researching the matter in France.

In the last survey, several members indicated that they would like to see articles and educational programs specific to the various practice groups. Once we define the practice areas, we will invite members to be liaisons, or sort of sub-chairs, for each area. They would be responsible for keeping the members apprised of developments in their specific area, either by writing articles, posting on a bulletin board or suggesting topics for educational programs. Any volunteers?

I look forward to seeing you in Toronto and/or New York. Hope you have a great summer and may the winds be at your back.

Editor’s note: Ian Bardin, Esq., 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 throughout California.

Nominating Committee

By Christine Hayes Hickey, Esq.

The Creditors’ Rights Section is seeking nominations for four Executive Council Member positions, which will become vacant in November. Each of the elected members shall serve a three-year term. You must have been a CRS member for at least one year prior to being nominated, for a non-officer position.

In addition, anyone interested in submitting his or her name for an officer position may be considered for candidacy subject to the CRS Bylaws, which require that candidates for officer positions be current or former members of the CRS Executive Council.  

We encourage you to get involved in the Section and seek candidacy. If you are interested in running, you have until August 31 to submit your name and the position that you are seeking. Fax the information to me, Nominating Committee chair, at 317/263-9411 or e-mail it to ch@rubin-levin.net. The Nominating Committee will present the slate of candidates by September 1. Elections will be held at the New York meeting in November. 

Editor’s Note: Christine Hayes Hickey, Esq., immediate past chair of the Creditors’ Rights Section and chair of the Nominating Committee, is a partner in the law firm of Ribin & Levin, P.C., in Indianapolis, IN. She specializes in the areas of commercial collections and creditors’ rights law.

Calendar of 2005 Events

July 13-17
111th National Convention
Four Seasons Hotel
Toronto, Ontario, CAN

Sept. 15-18
44th Southern Meeting
Hilton Suites, Nashville, TN
Sponsored by the Southern Region

Nov. 10-13
85th New York Meeting
Sheraton New York Hotel & Towers
New York, NY
Sponsored by the Eastern Region

CRS 2005 Award of Excellence Nomination Form

 

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