Third Circuit Holds Communications Between Lawyers Are Actionable Under FDCPA, Undermines Litigation Privilege In FDCPA Actions Involving Debt Collecting Attorneys 

By: Matthew S. Marrone

            Ruling on an issue that has splintered the United States Circuit Courts of Appeal, the Third Circuit has ruled that communications between lawyers may be actionable under the Fair Debt Collection Practices Act if the information conveyed is false. 

            In Allen v. LaSalle Bank et al (No. 09-1466), the plaintiff defaulted on her mortgage and the lender hired a law firm to foreclose.  At the request of the debtor’s attorney, the law firm sent a letter stating the principal amount of the debt, plus service charges, attorney’s fees and costs allegedly due.  A class action alleging FDCPA violations followed.

            The law firm moved to dismiss, arguing that communications between lawyers are not actionable under the FDCPA.  The United States District Court for the District of New Jersey noted the Circuit Courts of Appeal are divided on this issue.  The Fourth Circuit has held such communications are actionable, whereas the Second and Ninth Circuits have held they are not.  The Seventh Circuit has taken the middle ground, holding they may be actionable, but must be viewed from the perspective of a competent attorney (as opposed to an unsophisticated debtor).  The District Court adopted the Seventh Circuit’s approach, found the debtor’s attorney easily could have spotted the alleged overcharges, and dismissed the FDCPA claims.

            The Third Circuit reversed, sided with the Fourth Circuit, and specifically noted the FDCPA is a strict liability statute.  Thus, communications to a debtor’s attorney should be treated no differently than communications to the debtor, herself.  The Third Circuit further held New Jersey’s litigation privilege is essentially meaningless, since the FDCPA contains no exemptions for common law privileges. 

            The Allen decision is a significant blow to the defense of debt collecting attorneys throughout the Third Circuit (both Pennsylvania and New Jersey).  Not only does this expand the substantive area of FDCPA liability, it very well may serve to toll the FDCPA’s one-year statute of limitations in many cases where the debt collector first communicates with the debtor, and subsequently with the debtor’s attorney.  FDCPA defense lawyers who were closely monitoring this appeal were hopeful the Third Circuit would adopt the view of the Fourth Circuit, or least uphold the moderate view of the District Court (and Seventh Circuit).  This was the worst possible outcome.  We have discussed this case with the attorneys who represented the debt collecting attorneys.  The United States Supreme Court has granted them until May 12, 2011 to file a petition for writ of certiorari, which they intend to do.  They may also line up several amici filers.  We will report any further developments.