Saturday, February 26, 2011

FYI: 2nd Cir Says FDCPA "Judicial District" May Not Mean "County," and Liability Possible Even for Consensual Dismissal of Lawsuit

The United States Court of Appeals for the Second Circuit recently held that:  (1) the term "judicial district" in the FDCPA's venue provision, as applied to state-court debt collection actions, must be defined in accordance with the judicial system of the state in which the debt collection action is brought; and (2) even the consensual dismissal of an debt collection action filed in the incorrect venue may give rise to FDCPA liability.  A copy of the opinion is attached.

Debt collector Cohen & Slamowitz LLP ("C&S") brought a debt collection action against the consumer in Syracuse City Court.  Although the consumer resided in the same county as the City of Syracuse, the consumer obtained the dismissal of that action pursuant to Section 213 of New York's Uniform City Court Act ("Section 213") on the basis that he did not reside in the City of Syracuse or a town contiguous thereto.

The consumer filed suit in federal court against C&S, alleging that C&S violated the FDCPA's venue provisions by suing him in a judicial district in which he did not reside.  The district court granted C&S's motion to dismiss because, among other reasons, that court interpreted "judicial district" under the FDCPA to mean "county."  The consumer appealed and the Second Circuit vacated and remanded the case.

As you may recall, the FDCPA's venue provision requires that debt collection actions be brought "only in the judicial district or similar legal entity . . . in which [the] consumer resides at the commencement of the action." 15 U.S.C. § 1692i(a)(2)(B). 

Relying on the definition of "judicial district" "at the time the FDCPA was enacted," and the Congressional intent behind the FDCPA, the Second Circuit concluded "that the term 'judicial district,' as applied to state-court debt collection actions, must be defined in accordance with the judicial system of the state in which the debt collection action is brought."

In this case, the city court "of which C&S availed itself is governed by laws that limit the territorial extent of those courts based on a defendant's contacts with the forum" and, accordingly, "those laws delimit the 'judicial district' by which compliance with the FDCPA's venue provisions must be measured."  

Therefore, the "FDCPA's term 'judicial district,' as applied to a case where a debt collector sues a consumer in one of New York State's city courts, extends no farther than the boundaries of the city containing that court and the towns within the same county that are contiguous by land thereto.  And, because the proper 'judicial district' in this case did not include the town where [the consumer] resided, the district court erred in dismissing [the consumer's] complaint."

The Court rejected C&S's arguments that "judicial district" should encompass the entire county of the consumer's residence even when a consumer is sued in a city court.  First, C&S argued "that the dismissal of its lawsuit, on consent, does not give rise to a violation of the FDCPA's venue provisions because Section 213 is addressed to the issue of jurisdiction, which C&S contends is irrelevant to the FDCPA's venue analysis." 

However, the Court held that where, as here, "a state law outlines the required nexus between the residence or activities of the consumer and the location of the court, such a law sets forth the appropriate 'judicial district' for purposes of the FDCPA with respect to debt collection actions brought in that court, regardless of whether that provision is styled as jurisdictional or otherwise."

The Court also rejected C&S's argument that the "dismissal here should not give rise to a FDCPA violation because Section 213 provides that actions dismissed thereunder may be refiled in the appropriate court."  The Court reasoned that "it is irrelevant to the FDCPA whether state law sets forth a procedure for refiling actions that are dismissed based on defective venue."  In addition, the ability of the debt collector to refile the suit in fact contributes to the threat of 'forum abuse' that inspired Congress to enact 15 U.S.C. § 1692i." 

Finally, the Court rejected the lower court's reasoning for dismissing the consumer's complaint.  First, the district court stated that dismissal was warranted because it "had difficulty concluding" that C&S's act of bringing suit in Syracuse City Court was "intended to be unfair, harassing, and deceptive."  However, "this is an affirmative defense" and "[t]o recover damages under the FDCPA, a consumer does not need to show intentional conduct on the part of the debt collector."

The Court also rejected the lower court's interpretation of "judicial district" to mean "county."  Distinguishing the district cases relied upon by the lower court, the Court stated that the standard it had adopted "enables debt collectors to predict with accuracy and ease whether suing a consumer in a given forum would violate the FDCPA's venue provisions."  In addition, the Court noted "that the conclusion we reach today is consistent with that of the only of our sister Circuits that has devoted extended consideration to the meaning of this statutory phrase."  See Newsom v. Friedman, 76 F.3d 813 (7th Cir. 1996). 


Ralph T. Wutscher
Kahrl Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois  60602
Direct:  (312) 551-9320 
Fax:  (312) 284-4751
Mobile:  (312) 493-0874

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