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Wednesday, July 24, 2024 | Back issues
Courthouse News Service Courthouse News Service

Debt-Collector Rules Put to NY’s High Court

MANHATTAN (CN) - The 2nd Circuit wants New York's high court to determine whether a regulation of debt-collection agencies strays into state oversight of lawyers.

New York City began licensing debt-collection agencies in 1984. In 2009, concerned about a big run-up in collection activities, it amended a local law to add asset buyers and debt-collection law firms to the list of regulated entities.

The intent of the ordinance was to counter the "minority of unscrupulous collection agencies in operation that practice abusive tactics such as threatening delinquent debtors or calling such people at outrageous times of the night," according to the statute.

Local Law 15 specifies that attorneys and law firms collecting debt on behalf of a client through typical litigation are not affected. They are, however, subject to the ordinance if the law firm or lawyer "regularly engages in activities traditionally performed by debt collectors," including contacting debtors through the mail or by phone.

Two law firms falling into the latter category, Eric M. Berman PC and Lacy Katzen LLP, sued the city over the rules. U.S. District Judge Eric Vitaliano in Brooklyn sided with the complaining law firms in 2012, finding that the ordinance clashed with the state's authority to license and regulate attorneys.

The city appealed the ruling to the 2nd Circuit, joined by the City Council and the Department of Consumer Affairs, which is responsible for licensing debt collectors.

On Wednesday, the federal appellate panel turned to New York's Court of Appeals for help, sending two questions to Albany "because the case raises unresolved and significant issues concerning the scope of New York State's regulatory authority over attorneys."

One certified questions asks whether Local Law 15, "insofar as it regulates attorney conduct," encroaches on state authority to do the same under judiciary law, which governs the licensing and disciplining of lawyers. The other asks whether the City Charter, in granting the Department of Consumer Affairs power to approve or withhold licenses, steps on the state's licensing authority over lawyers.

The high court has not taken a stand on the issue and lower-court rulings offer little guidance in what position the Court of Appeals might take, creating the need for guidance, according to the Wednesday opinion.

"At a high level of generality, this case requires a determination of what types of activities, when performed by an attorney who is subject to the state's regulation of attorneys, can permissibly be regulated by a local government," Judge Rosemary Pooler wrote for a three-judge panel.

Laws regulating who can drive a taxi or operate a fruit stand would not encroach on state authority if an attorney happened to be the driver or operator, she said. However, Local Law 15 looks to regulate attorney conduct when it is similar to "conduct traditionally performed by debt collectors," according to the ruling.

"The issue is whether the regulation of that attorney conduct constitutes the regulation of the practice of law, or whether it is more like subjecting an attorney who runs a fruit stand to regulations governing fruit stands," Pooler wrote.

She said the second question posed, on the city's approving or withholding licenses, needed to be answered only if the Court of Appeals determined that the state's authority over lawyers did not pre-empt the local law.

The 2nd Circuit will hold the city's appeal in abeyance pending the high court's response to the certified questions, Pooler said.

She said the Court of Appeals also was free to reformulate or expand the questions as it saw fit.

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