8 4 J S 2 6. Ethical Debt Collection 10/29/2014. ACA Fall Forum November 5-7, 2014 Hyatt Regency San Francisco. For webcast viewers in all states:

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1 MLM Practice Management Webcast Series Attorney Debt Collection: Avoiding hazards and pitfalls & collecting debts ethically Michael A. Klutho Bassford Remele P.A. Minneapolis, MN Jessica Klander Bassford Remele P.A. Minneapolis, MN Todd C. Scott VP Risk Management Minnesota Lawyers Mutual For webcast viewers in all states: 1. Write down this code and save it. 2. At end of program, you will get an from MLM. 3. Use the code to complete the Attestation Form in the J S 2 6 Ethical Debt Collection ACA Fall Forum November 5-7, 2014 Hyatt Regency San Francisco Michael A. Klutho Jessica L. Klander BASSFORD REMELE A Professional Association mklutho@bassford.com jklander@bassford.com 1

2 Debt Collection Procedures (adopted in 1977 and repealed in 2002 as duplicative of FDCPA) Since the opinion was adopted in 1977, federal and state consumer protection laws, including most notably the Fair Debt Collection Practices Act (FDCPA), have encompassed and far exceeded the regulation of collection activities proscribed by the Lawyers Board opinion. Kenneth L. Jorgenson, Director, Minnesota Office of Lawyers Professional Responsibility, Lawyers Board Repeals Four Opinions (Dec. 2, 2002). To prevent the possibility of (a) misleading the public, or (b) abusing debtors, violations of the following guidelines by attorneys in connection with debt collection work may constitute grounds for discipline: An attorney who both practices law and debt collection: (a) shall not identify himself/herself as a lawyer on any building office sign of the debt collection agency. (b) shall not have the same telephone number as the debt collection agency. 2

3 Continued... (c) may perform legal services for the debt collection agency but must use separate letterhead. (d) All advertising by the debt collection agency which identifies the attorney as a lawyer is subject to the MRPC governing advertising. An outside attorney who represents or performs legal work for a debt collection agency: Shall not have the same telephone number, office address or the same letterhead as the collection agency. An attorney who is employed by a debt collection agency as in-house counsel: may use the same telephone number and office address as the debt collection agency. may use the same letterhead but any communication must include the attorney's name and/or title. 3

4 An attorney who represents, or performs legal work for, a debt collection agency shall exercise reasonable care to insure that confidences and secrets of the attorney s clients are not disclosed by employees of the debt collection agency to any person not authorized by the client to receive such information. An attorney who represents, or performs legal work for, a debt collection agency shall be responsible for all acts of the attorney s own lay employees, and the attorney may not permit, expressly, by implication or by non-action, lay employees to engage in conduct which, if engaged in by an attorney, would be in violation of the [Minnesota] Rules of Professional Conduct. Form letters, pleadings, or other legal documents shall be signed by an attorney who represents or performs legal work for a debt collection agency in the completed form in whichtheyaretobesent,servedordelivered. 4

5 Except for effecting service of process: No attorney shall permit any correspondence, pleadings, garnishment summonses, executions, or other documents which bear his/her signature to be used by persons who are not exclusively employed by the attorney's office. An attorney shall not allow the following to be used by anyone except those exclusively employed by the attorney for demand letters, original pleadings, or other documents: (a) Rubber stamp signatures; (b) Reproduced signatures; (c) Mechanized signatures; (d) Other facsimile signatures of the attorney; (e) Lawyer's stationery; or (f) In the case of in-house counsel, debt collection agency letterhead bearing the attorney's name and/or title. An attorney shall not aid, abet or assist any debt collection agency in prohibited practices of debt collection or any other state or federal laws, rules or regulations. 5

6 Rule 4.3: Dealing with Unrepresented Persons [A] lawyer shall not state or imply that the lawyerisdisinterested.... The lawyer shall not give legal advice to an unrepresented person, other than the advice to secure counsel, if the lawyer knows or reasonably should know that the interests of such a person are or have a reasonable possibility of being in conflict with the interests of the client. Rule 4.2: Communication with Person Represented by Counsel [A] lawyer shall not communicate about the subject of the representation with a person the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the consent of the other lawyer or is authorized to dosobylaworacourtorder. Fair Debt Collection Practices Act 15 U.S.C. 1692c(a)(2): [A] debt collector may not communicate with a consumer in connection with the collection of any debt * * * (2) if the debt collector knows the consumer is represented by an attorney... Isham, 738 F. Supp. 2d 986, 1000 (D. Ariz. 2010) (law firm violated the FDCPA because it failed to cease communication with the consumer after she gave the firm verbal and written notice that she was represented by an attorney). 6

7 Rule 4.1: Truthfulness in Statements to Others [A] lawyer shall not knowingly: (a) make a false statement of material fact or law to a third person; or (b) fail to disclose a material fact to a third person when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by Rule 1.6. Fair Debt Collection Practices Act 15 U.S.C. 1692e A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Clomon, 988 F.2d 1314(2d Cir. 1993) (court awarded $1,000 in additional [FDCPA] damages against attorney for false or misleading representations because the attorney did not review the letter or file of the consumer to whom letters were sent, although they bore his signature). McCollough, 637 F.3d 939, 952 (9th Cir. 2011) (holding that the attorney s service of false requests for admission violated the FDCPA as a matter of law ). Rule 4.4: Respect to Rights of Third Persons In representing a client, a lawyer shall not use means that have no substantial purpose other than to embarrass, delay, or burden a third person or use methods of obtaining evidence thatviolatethelegalrightsofsuchaperson. 7

8 Fair Debt Collection Practices Act 15 U.S.C. 1692d A debt collector may not engage in any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt. Horkey, 179 F. Supp. 2d 861, 868 (N.D. Ill. 2002) aff'd, 333 F.3d 769 (7th Cir. 2003) (law firm violated the FDCPA due to employee s use of profane language in telling a co-worker to tell the consumer to quit being such a fucking bitch ). Fair Debt Collection Practices Act 15 U.S.C. 1692f A debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. Knighten, 721 F. Supp. 2d 1261, 1271(S.D. Fla. 2010) clarified on denial of reconsideration, 09-CIV-20051, 2011 WL (S.D. Fla. Mar. 4, 2011) (law firm used unconscionable means to collect a debt when it filed and maintained a time-barred lawsuit for a party that lacked standing. ). Fair Debt Collection Practices Act A basic tenetof the Act is that all consumers, even those who have mismanaged their financial affairs resulting in default on their debt, deserve the right tobetreatedinareasonableandcivilmanner. Bass, 111 F.3d 1322 (7th Cir. 1997) (debt collector violated the FDCPA by falsely threatening legal action and failing to inform that consumer could dispute the debt). 8

9 Rule 5.1: Responsibilities of a Partner or Supervisory Lawyer (a) shall make reasonable efforts to ensure that the firm has effective measures to ensure all lawyers conform to the Rules. (b) shall make reasonable efforts to ensure that the subordinate lawyers conform to the Rules. (c) A lawyer shall be responsible for another lawyer s violation of the Rules if: (1) the lawyer orders or, with knowledge of the specific conduct, ratifies the conduct involved; or (2) the lawyer knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action. Consumer Financial Protection Bureau CFPB v. Frederick J. Hanna & Assocs. July 14, 2014: CFPB files suit against debt collection lawsuit mill, alleging the: Georgia Firm Relies on Deceptive Court Filings and Faulty Evidence to Churn Out Lawsuits. See Rule 5.2: Responsibilities of a Subordinate Lawyer (a) A lawyer is bound by the Rules of notwithstanding that the lawyer acted at the direction of another person. (b) A subordinate lawyer does not violate the Rules if that lawyer acts in accordance with a supervisory lawyer s reasonable resolution of an arguable question of professional duty. 9

10 Rule 5.3: Responsibilities Regarding Nonlawyer Assistance (a) shall make reasonable efforts to ensure that the firm has effect measures to ensure the person's conduct is compatible with the professional obligations of the lawyer; (b) shall make reasonable efforts to ensure that the person's conduct is compatible with the professional obligations of the lawyer; and (c) a lawyer shall be responsible for conduct of such a person that would be a violation of the Rules if: (1) orders or, with the knowledge of the specific conduct, ratifies the conduct involved; or (2) knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action. Nonlawyer Supervision Law firm violated the FDCPA for letter written and signed by nonlawyer employee that advised that she drafted and filed lawsuits in collections matters, and thatshe would holdofftakinganyaction for7days if the consumer made arrangements to pay. Bass, 111 F.3d 1322, 1323 (7th Cir. 1997) Rule 8.3: Reporting Professional Misconduct A lawyer who knows that another lawyer has committed a violation of the Rules of Professional Conduct that raises a substantial question as to that lawyer s honesty, trustworthiness or fitness as a lawyer in other respects, shall inform the appropriate professional authority. 10

11 Thank You! QUESTIONS? Michael A. Klutho Jessica L. Klander BASSFORD REMELE A Professional Association mklutho@bassford.com jklander@bassford.com For webcast viewers in all states: 1. Write down this code and save it. 2. At end of program, you will get an from MLM. 3. Use the code to complete the Attestation Form in the J S