The fate of a New York City law governing debt collections is headed to New York's highest court to answer questions resulting from Berman v. City of New York, a lawsuit brought five years ago by a collection law firm challenging the city's statute regulating collection attorney activities.
The key matter at hand is whether Local Law 15, which regulates debt collection and was passed in 2007, is void when applying to law firms that happen to collect debts.
The collection industry is closely watching the issue, concerned by the prevalence of nefarious so-called collection agencies and firms that practice abusive tactics. The fear is the court will be compelled to essentially punish the entire industry for the problems created by a minority.
The challenge to Local Law 15 originated five years ago when Long Island, N.Y. attorney Eric Berman, who died in 2010, and 21-member Lacy Katzen LLP of Rochester, N.Y., raised the issue of whether the law should be void with regard to law firms who happen to pursue delinquencies.
District Court Judge Eric Vitaliano held in 2013 that the law does not apply to plaintiff law firms attempting to collect debts. That ruling also stated the law violates a provision of the city's charter because it purports to grant the city the authority to grant or withhold licenses to practice law.
But the matter didn't die with that ruling and the Second Circuit appeals court last week certified two questions to the New York Court of Appeals, the state's highest court.
1. Does Local Law 15, insofar as it regulates attorney conduct, constitute an unlawful encroachment on the states authority to regulate attorneys, and is there a conflict between Local Law 15 and Sections 53 and 90 of the New York Judiciary Law?
2. If Local Law 15s regulation of attorney conduct is not preempted, does Local Law 15, as applied to attorneys, violate the New York City Charter?
Judges Rosemary Pooler, Barrington Parker and Denny Chin heard oral arguments late last year when the city's legal department asked the court to reverse Vitaliano. Pooler wrote the court's opinion.
Attorneys' regular activities that resemble those traditionally performed by debt collectors are subject to regulation, she wrote, so "The issue is whether the regulation of that attorney conduct constitutes the regulation of the practice of law, or whether it is more like subjecting an attorney who runs a fruit stand to regulations governing fruit stands."
She wrote that the law does not "appear to regulate an attorney who is collecting a debt in her representative capacity as a licensed attorney, in the name of a client and through activities that only a licensed attorney can perform. However, the law does apply to certain attorney conduct."
That's because the law defines a collection agency as including an attorney "who regularly engages in activities traditionally performed by debt collectors" such as "contacting a debtor through the mail or via telephone with the purpose of collecting a debt."
Pooler said the discord between the two provisions need should not be decided by the Second Circuit because the issue essentially is whether the law is preempted by the state's authority to regulate attorneys - and the circuit court cannot predict how the New York Court of Appeals would resolve the issue. It's not yet clear when the higher court might take up the case.
