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Justices Grapple With Debt-Collection Tactics

WASHINGTON (CN) - The use of attorney general letterhead in a state's contracted-out debt-collection cases made for feisty U.S. Supreme Court arguments Tuesday.

The case emerges from an Ohio law that lets the state attorney general use independent contractors, or "special counsel," to collect its debts owed - a Buckeye State tradition that dates back to the Great Depression, Ohio state solicitor Eric Murphy told the court.

With an eye toward protecting consumers from predatory practices, however, federal law bars misleading, abusive and deceptive representation to collect debts.

Using any name other than the true name of the debt collector is one such practice the law forecloses, but federal law does offer an exemption for state officers and employees if they act as debt collectors within their official duties.

Justice Sonia Sotomayor noted that under federal law this applies only to tax collection and not other debts.

Undeterred, Murphy argued that the law's umbrella should cover the broadest definition of officer because it is intended to "protect government operations." Fourteen other states with practices similar to that of Ohio filed an amicus brief in support of this position.

With only 15 assistant attorneys general to collect billions in debt owed to Ohio across 88 counties, Murphy told the court the matter is one of fiscal significance.

"The office necessarily must rely on special counsel to be the frontline lawyers to collect these debts," Murphy told the justices.

Sotomayor called it a "novel" proposition, however, to argue that government exemption need not define whether a state's debt-collector is an officer or employee of the state, or an outside collector.

"I don't know that I've ever seen an officer defined by a contract," she said.

Justice Elena Kagan lingered on the question of defining on officer, which she noted "includes any person authorized by law to perform the duties of the office," according to the parameters of the Dictionary Act.

"What is the office there?" she inquired.

"I would call it the office of special counsel," Murphy said, noting that the attorney general holds the special counsel to standards that comply with federal debt-collection law.

Ohio has intervened as a defendant in the case two women, Pamela Gillie and Hazel Meadows, filed against the private law firms that sent them collection notices on behalf of the state.

The Sixth Circuit said Gillie and Meadows could have a case under the Fair Debt Collection Practices Act, and attorney E. Joshua Rosenkranz, with the Manhattan law firm Orrick, Herrington & Sutcliffe, urged the justices Tuesday to affirm.

"When the consumer sees letterhead that says 'Office of the Attorney General,' she thinks the letter comes from within that office, not from a professional debt collector with a personal financial stake in the outcome of the ensuing conversation," he said. "Congress saw the distinction."

Several justices seemed baffled by the argument that the special counsel were being deceptive in using the attorney general's letterhead, but Rosenkranz emphasized the law's language prohibiting debt collectors from using any name but their own.

Justice Samuel Alito said the state might lose on this technicality, but pressed Rosenkranz to explain why this matters.

Rosenkranz responded that Congress made the distinction between in-house and outside creditors because the latter were often guilty of the "worst abuses."

Kagan meanwhile called this a compelling reason for the special counsel to use the attorney general's letterhead.

"The Ohio Attorney General is going to be more vigilant in policing the actions of that debt collector," she asserted. "You should want that."

Justice Stephen Breyer agreed that special counsel need to distinguish themselves from less principled debt collectos.

"What worries me is when you don't have the letterhead," Breyer said. "Then it, it could be some scam. You see? But when you do have the letterhead, they're really getting themselves into trouble if it's a scam. And this isn't a scam."

Rosenkranz gently reminded the court why Congress wrote the law the way it is.

"The Congress wanted individuals who are unsophisticated to know who they were dealing with, especially when they were dealing with a professional debt collector who gets a cut of the proceeds," he said.

Still, the justices appeared unconvinced, and Justice Breyer seemed particularly agitated by the arguments in the face of truly harrowing and abusive debt-collection practices.

"The reason that's underlying disturbing me," Breyer said, "is there is a pretty well-known scam where people get phone calls from a person who identifies himself as somehow connected with the IRS, and you better send them $300 or $3,000 immediately to a certain post-office box or you might find yourself in jail. OK? Now, that's a scam."

Saying he sees nothing misleading about the use of the attorney general's letterhead, Breyer said it serves the purpose of letting wary individuals, who have perhaps experienced debt-collector abuse in the past, know that the attempt to collect the debt is not a scam.

Breyer became incensed as Assistant U.S. Solicitor General Sarah Harrington insisted that the use of the letterhead violates the federal law as Congress intended it.

"My goodness ... I think that might lead to more scams rather than fewer," the judge said.

Supporting the position of Gillie and Meadows, Harrington said "a debt collector has to be clear that he is not the creditor."

"And so when they use the creditor's letterhead, that gives a false impression," she added, noting that a separate letter from the attorney general indicating that the office has authorized the special counsel to collect the debt could resolve the issue.

Breyer retorted that the letterhead accomplishes the same goal.

The case before the eight-member court is the first in a decade that will require it to interpret liability standards under federal debt-collection law.

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