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Sarah Goldstein v. Hutton, Ingram, Yuzek, Gainen, Carroll & Bertolotti

Court of Appeals for the Second Circuit
2004 U.S. App. LEXIS 13629, 374 F.3d 56, 2004 WL 1472678 (2004)
ELI5:

Rule of Law:

Whether a law firm or attorney "regularly" collects debts under the Fair Debt Collection Practices Act (FDCPA) is determined by a case-by-case, multi-factor analysis focused on the volume, frequency, and nature of the collection activity, rather than simply the percentage of revenue the activity generates for the firm.


Facts:

  • Sarah Goldstein leased a Manhattan apartment from Stahl York Avenue Co. ('Stahl') in 1992.
  • Beginning in 1996, disputes arose between Goldstein and Stahl concerning rent arrears.
  • The law firm Hutton, Ingram, Yuzek, Gainen, Carroll & Bertolotti ('Hutton') represented Stahl in its landlord-tenant matters.
  • In 1997, Hutton prepared and served Goldstein with a 'three-day notice,' demanding she pay outstanding rent within three days or relinquish the apartment, and threatening dispossession proceedings.
  • Over a one-year period, Hutton sent 145 such three-day notices to various tenants, primarily for Stahl-affiliated entities.
  • The revenue Hutton derived from these notices in that year was $5,000, which amounted to only 0.05% of the firm's total revenue of $10,000,000.
  • Hutton used an outside computer service to generate the notices and assigned a paralegal to review them before they were sent to a process server.

Procedural Posture:

  • Sarah Goldstein filed a class action complaint against the law firm Hutton, Ingram, Yuzek, Gainen, Carroll & Bertolotti ('Hutton') in the U.S. District Court for the Southern District of New York.
  • Hutton's pre-answer motion to dismiss the complaint was denied.
  • Following two years of discovery, Hutton moved for summary judgment, arguing it was not a 'debt collector' under the FDCPA.
  • The district court (a court of first instance) granted summary judgment in favor of Hutton.
  • Goldstein, as appellant, appealed the district court's judgment to the United States Court of Appeals for the Second Circuit, with Hutton as appellee.

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Issue:

Does a law firm that sends a high volume of debt collection notices on a consistent monthly basis 'regularly' collect debts so as to be classified as a 'debt collector' under the FDCPA, even if the revenue from these activities constitutes a very small percentage of the firm's total income?


Opinions:

Majority - Swain, District Judge

Yes, a law firm can 'regularly' collect debts under the FDCPA based on the volume and pattern of its collection activities, irrespective of the low percentage of revenue generated. The district court erred by focusing primarily on the proportion of Hutton's revenue derived from debt collection, a factor more relevant to the FDCPA's 'principal purpose' prong than its 'regularly collects' prong. The correct analysis requires a case-by-case assessment of factors related to the regularity of the activity itself, such as the absolute number of collection communications, the frequency and patterns of such activity, and whether systems and personnel are in place to facilitate it. Here, Hutton's issuance of 145 notices in one year, with notices sent every month in a repetitive pattern for an ongoing client, and its established system for generating and reviewing these notices, is sufficient evidence for a reasonable jury to find it was a 'debt collector' under the statute.



Analysis:

This decision significantly clarifies the 'regularly' prong of the FDCPA's 'debt collector' definition as it applies to attorneys and law firms. It shifts the legal analysis away from a simple, and potentially misleading, percentage-of-revenue test toward a more holistic, fact-based inquiry into the nature and volume of the collection activities. By establishing a multi-factor test, the court makes it more difficult for firms that engage in a high volume of collection activities to evade FDCPA coverage by arguing that the work is merely 'incidental' to their broader practice. This precedent broadens the FDCPA's reach, ensuring that entities engaging in consistent, patterned collection efforts are subject to its consumer protection requirements.

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