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New York Law Journal: Win for Consumers: Second Circuit Reverses Debt Collection Suit

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By Colby Hamilton

Attorneys for the plaintiffs in a debt collection suit lauded a decision Monday by the U.S. Court of Appeals for the Second Circuit, calling it a major victory for low-income people facing aggressive and potentially illegal collection practices.

In Arias v. Gutman, Mintz, Baker & Sonnenfeldt, 16‐2165‐cv, the panel of Circuit Judges Guido Calabresi and Raymond Lohier Jr., along with U.S. District Judge Katherine Forrest of the Southern District of New York, sitting by designation, vacated the motion for judgment on the pleadings by U.S. District Judge George Daniels for the Southern District of New York in a suit against Gutman, Mintz, Baker & Sonnenfeldt for violations of the Fair Debt Collection Practices Act. The panel remanded the case for further proceedings.

According to plaintiff Franklin Arias’ co-counsel on appeal, National Center for Law and Economic Justice staff attorney Claudia Wilner, the order is a watershed decision by the appellate court in addressing unfair actions under the FDCPA.

“We’ve never had a court ruling that looks at these practices before,” Wilner said. “To have a court say so clearly that the representations are deceptive, that the conduct is unfair, really is just so important.”

The federal suit was initiated by the plaintiff after he won an initial state court action against GMBS. In 2014, the firm was brought in by the owners of a property that Arias had rented. Years earlier, Arias had allowed his daughter to move in. After she missed two months’ rent, a default judgment was secured by the landlord against Arias.

GMBS attempted to collect the debt by placing a restraint notice on Arias’ Bank of America account. Arias repeatedly alerted GMBS to the fact his only source of income into the account were protected Social Security funds. GMBS told Arias it would release the restraint if he made a payment, which he said he could not do. That matter was then litigated, with Arias appearing pro se. It wasn’t until an attorney for the firm was presented with the same evidence of the protected and ungarnishable funds during a hearing that the firm finally dropped its actions.

Arias then proceeded to sue the firm under the FDCPA, as well as under New York state law meant to protect consumers from overly aggressive debt collection practices. Daniels dismissed Arias’ FDCPA claims, finding the firm had not misrepresented the plaintiff’s burden of proof, nor about a failure to produce certain documents. Further, as Arias was able to dispute the claims in state court, and GMBS complied with state procedural law, the claim was dismissed.

The panel’s review focused on two specific, overlapping sections of the FDCPA—1692e, which prohibits false, deceptive, or misleading representations; and 1692f, which prohibits the unfair or unconscionable attempt to collect a debt.

The panel dismissed GMBS’ allegations that Arias failed to show that there was no commingled funds with his Social Security payment because he didn’t provide a bank statement that began at zero. State law doesn’t require that level of detail, the panel said, and the statements that were provided showed that “[t]he entire balance was clearly exempt.” Arias’ claims, therefore, under 1692e that GMBS was attempting to discourage him from availing himself of his legal rights is plausible.

The panel also found that GMBS’ continued refusal to release the restraint on his account, despite proof the funds were exempt, and the attempt to pressure him into paying with the exempt funds to get the hold removed were enough to support claims of conduct that was “shockingly unjust or unfair” under 1692f.

GMBS’ actions forced Arias “to prepare needlessly for a hearing that GMBS knew was frivolous and that was intended primarily to harass Arias, frustrate his exemption claim, and erect procedural and substantive challenges that Arias, pro se, was ill‐equipped to handle. Attending a hearing can be expensive, forcing consumers to take unpaid leave from work, incur additional dependent care expenses, and so on, without access to critical SSRI funds,” according to the panel.

New Economy Project legal director Susan Shin, who was co-counsel for the plaintiff, said she hoped the panel’s “clear, strong decision” sends a message to debt collectors and debt-collection law firms about these kinds of practices.

“Hopefully, it does deter them from continuing to engage in this,” she said.

Rivkin Radler partner Kenneth Novikoff represented GMBS on appeal. As spokeswoman from the firm declined to comment.

An attempt to reach a GMBS representative was unsuccessful.