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From Banking and Finance Law Daily, June 5, 2015

Personal jurisdiction results from debt collector’s use of mail, telephone

By Richard A. Roth, J.D.

A debt collecting law firm that mailed a demand letter and a summons to New York consumers, and made one telephone call to one of them, transacted enough business in the state to be subject to the personal jurisdiction of a New York federal district court. According to the U.S. Court of Appeals for the Second Circuit, that was enough to satisfy New York’s “long arm” statute even though no one from the firm ever was present in New York in connection with the debt. Constitutional due process requirements also were satisfied, the court said (Eades v. Kennedy, PC Law Offices, June 4, 2015, Lohier, R.).

According to the consumers, a father and his daughter, the debt in question was an $8,000 bill for care that was provided to their wife and mother, respectively, by a Pennsylvania nursing home. The father had signed an admission agreement saying he was responsible for the bill and promising to use his wife’s assets to pay. When the bill went unpaid, the nursing home retained Kennedy, PC Law Offices, a Pennsylvania law firm, to collect it.

Collection efforts. Kennedy first sent a demand letter to the daughter in New York, asserting that she could be liable for the bill under Pennsylvania’s indigent support law. In a later telephone conversation with the daughter, an employee of the firm threatened to put a lien on the father’s home and garnish the daughter’s wages.

Five months after the demand letter, the law firm filed a collection suit in Pennsylvania state court and mailed the summons and complaint to the father and daughter at their New York homes.

FDCPA suit. The consumers responded to the collection suit by suing Kennedy in New York federal court, claiming violations of the Fair Debt Collection Practices Act. They argued that the law firm had engaged in misrepresentations, threatened to take actions it could not legally take, and attempted to collect money it had no legal or contractual authority to collect. Their arguments were based on assertions that the Pennsylvania indigent support law did not support the payment demand, that the law was preempted by the federal Nursing Home Reform Act, and that the firm had no evidence to support its allegations.

The federal district court judge in New York agreed with Kennedy that the court did not have personal jurisdiction over the firm. Alternatively, the judge said that the nursing home care bill did not constitute a debt under the FDCPA and, if it was a debt, the FDCPA had not been violated.

Personal jurisdiction. The appellate court began by noting that whether there was personal jurisdiction over Kennedy depended on the application of both the New York long arm statute and the U.S. Constitution’s due process clause.

New York state law, which also applies to federal courts sitting in New York, says that there is personal jurisdiction over any person who “transacts any business within the state” (N.Y. C.P.L.R. §302(a)(1)). Also, the claim being asserted must arise from that business. A single business transaction can be enough, even if the person being sued never entered the state, as long as the person’s actions in New York were “purposeful,” the court pointed out.

Based on those criteria, the Pennsylvania law firm was subject to New York jurisdiction, the appellate court said. Debt collection appeared to be a major part of the law firm’s business, and the firm initiated efforts to collect a debt from New York residents.

Constitutional due process requirements were satisfied, the appellate court then determined. Kennedy’s three intentional contacts with residents in New York established the required minimum contacts with the state, and the other relevant factors—the ability of the firm to defend itself in New York, New York’s interest in protecting its residents’ rights, the consumers’ interest in using their home state courts, the efficient resolution of the controversy in either New York or Pennsylvania, and the states’ interest in allowing their citizens to litigate in their home states—offered no reason to deny the New York court personal jurisdiction over the firm.

Bill is a debt. The district court judge also was in error in deciding that the nursing care bill was not a debt, the appellate court said. Under the FDCPA, a debt is a consumer’s obligation to pay arising out of a transaction that was primarily for persona, family, or household purposes. The nursing care services were primarily for personal or family services, and the bill arose from a consumer transaction in which the services were provided in exchange for a promise to pay, the court decided.

The appellate court rejected Kennedy’s effort to analogize the nursing care bill to child support, which some courts have decided is not a debt under the FDCPA. It was irrelevant that the obligation to pay was imposed by Pennsylvania state law, the court said. What mattered was that the obligation arose from an exchange of the services for an obligation to pay.

FDCPA violations. At this point, though, the consumers encountered problems, as the appellate court decided that most of the actions they were complaining about did not violate the FDCPA.

To begin with, the nursing home’s admission agreement did not violate the federal nursing home law, the court said. The federal law generally said that nursing homes could not require third-party payment guarantees. However, the agreement only imposed on the father a duty to pay for the mother’s care from her resources, which was permissible. The agreement did not impose any personal liability on him.

The federal Nursing Home Reform Act did not preempt the Pennsylvania indigent support law, the appellate court continued. There was no conflict between the two laws because nothing in the federal law was intended to shield patients’ family members from financial responsibility, and nothing in the state law conditioned a patient’s care on a family member’s financial responsibility.

The broad claim that Kennedy violated the FDCPA by filing a suit without adequate evidence to support the allegations was rejected by the court. There was no claim that the collection suit was frivolous, baseless, of filed in bad faith. The simple assertion that the firm did not have enough evidence did not rise to the level of claiming the suit constituted a misrepresentation to collect a debt.

The consumers also asserted that Kennedy’s allegation that the mother’s property had been transferred fraudulently was false and violated the FDCPA. However, there was no indication beyond a “naked assertion” that the allegation was false, the court observed. Therefore, there was no FDCPA violation.

The court continued to shoot down the consumers’ claims by determining that the law firm’s demand letter did not misrepresent the daughter’s potential liability for the bill. The letter asserted that the daughter could be liable under the indigent care law, but it did not set out various factors that the law said could relieve her of that liability. While the consumers claimed this amounted to a misrepresentation, the appellate court said that “even an unsophisticated consumer could not reasonably interpret Kennedy’s collection letter as purporting to recite all relevant defenses and considerations.” After all, the letter described the daughter’s liability in a conditional manner and said explicitly that it was quoting Pennsylvania law only in part.

One last chance. The appellate court did, however, decide it was not in the best position to consider two violations claimed by the consumers. According to the consumers, Kennedy violated the FDCPA in the single telephone conversation by threatening to take actions it could not legally take—garnishing the daughter’s wages and putting a lien on the father’s home in advance of any judgment.

The district court judge had not considered these claims, the appellate court said, and they had not been fully briefed on appeal. As a result, they were returned to the district court for an initial decision.

The case is No. 14-104-cv.

Attorneys: Brian L. Bromberg (Bromberg Law Office, PC) for Joni Eades and Levere C. Pike Jr. S. Dwight Stephens (Melito & Adolfsen P.C.) for Kennedy, PC Law Offices.

Companies: Kennedy, PC Law Offices

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