Berman v. City of New York

OPINION OP THE COURT Chief Judge Lippman. Plaintiffs, law firms involved in debt collection, commenced this action in federal district court to challenge certain amendments to the New York City Administrative Code (Local Law No. 15 [2009] of City of NY) pertaining to debt collection activities. The Second Circuit certified for our review the issue of whether the local law is preempted by the State’s statutory authority to regulate the conduct of attorneys. We conclude that the local law is not preempted. In 1984, the City Council enacted Local Law No. 65 (1984) of City of New York, a previous version of the provision at issue here, which imposed a licensing requirement on debt collection agencies. The accompanying legislative declaration pointed out that a licensing requirement was warranted, in part, because “there is a minority of unscrupulous collection agencies in — 688 — operation that practice abusive tactics such as threatening delinquent debtors, or calling such people at outrageous times of the night. These actions constitute tactics which would shock the conscience of ordinary people” (Administrative Code of City of NY § 20-488, formerly § B32-97.0). The legislation required those acting as debt collection agencies to obtain a license, which was valid for a two-year period at an annual fee of $75 (see Administrative Code of City of NY § 20-491, formerly § B32-99.0). As initially enacted, a “debt collection agency” was defined as “a person engaged in business the principal purpose of which is to regularly collect or attempt to collect debts owed or due or asserted to be owed or due to another” (Administrative Code of City of NY § 20-489 [a], formerly § B32-97.1 [c]). The provision included a specific exclusion for “any attorney-at-law collecting a debt as an attorney on behalf of and in the name of a client” (Administrative Code of City of NY § 20-489 [a] [5], formerly § B32-97.1 [c] [5]). The debt collection industry, however, continued to grow and the existing licensing requirement was no longer adequate to address the problems presented. Most strikingly, consumer debt was being purchased at a steep discount by third parties who would then use other entities, including debt collection law firms that were exempt from the licensing requirement, to pursue their claims. Indeed, about 90% of the 300,000 consumer credit actions filed annually in Civil Court were brought by these debt bundlers (rather than the originating creditor). The City Council heard testimony that a significant portion of the collection actions were not supported by valid evidence, but that they went largely unchallenged because the debtors either failed to appear or were unrepresented. Local Law 15, enacted in 2009, amended the debt collection legislation in several ways. Significantly, it expanded the definition of “debt collection agency” to “include a buyer of delinquent debt who seeks to collect such debt either directly or through the services of another by, including but not limited to, initiating or using legal processes or other means to collect or attempt to collect such debt” (Administrative Code of City of NY § 20-489 [a]). The amendments continued a limited exemption for attorneys or law firms that were “collecting a debt in such capacity on behalf of and in the name of a client solely through activities that may only be performed by a licensed attorney” (Administrative Code of City of NY § 20-489 [a] [5]). — 689 — The exemption, however, did not cover “any attorney-at-law or law firm or part thereof who regularly engages in activities traditionally performed by debt collectors, including, but not limited to, contacting a debtor through the mail or via telephone with the purpose of collecting a debt or other activities as determined by rule of the commissioner” (Administrative Code of City of NY § 20-489 [a] [5]). Local Law 15 also introduced certain required practices for debt collection agencies. For instance, “[i]n any permitted communication with the consumer,” the agency is required to provide: (1) a call-back number to a phone that is answered by an actual person; (2) the agency’s name; (3) the name of the original creditor; and (4) the amount of the outstanding debt (see Administrative Code of City of NY § 20-493.1 [a]). The local law prohibits debt collection agencies from attempting to collect, or contacting a consumer regarding a debt after the consumer requests verification of the amount owed, until the agency provides written documentation setting forth the original creditor and the amount remaining due (see Administrative Code of City of NY § 20-493.2 [a]). Additional penalties of $100 are imposed for each contact made with a consumer in violation of the license requirement of section 20-490 (see Administrative Code of City of NY § 20-494 [a]). Plaintiffs commenced this action in federal district court raising several causes of action and seeking to invalidate Local Law 15. The district court granted plaintiffs’ motion for summary judgment in part, holding that the local law was in direct conflict with the Judiciary Law and invalid to the extent that it purported to regulate the conduct of attorneys (see 895 F Supp 2d 453, 469 [ED NY 2012]). Similarly, the court determined that the local law violated the City Charter insofar as it gave the New York City Department of Consumer Affairs Commissioner authority to license or regulate attorneys (see 895 F Supp 2d at 470). The court denied both sides summary judgment on plaintiffs’ Commerce Clause claim, concluding that issues of fact existed, but granted the City’s motion for summary judgment as to the remaining causes of action. The Second Circuit, observing that there were significant policy concerns implicated by Local Law 15, certified two questions for our review: “1. Does Local Law 15, insofar as it regulates attorney conduct, constitute an unlawful encroach — 690 — ment on the State’s 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 15’s regulation of attorney conduct is not preempted, does Local Law 15, as applied to attorneys, violate Section 2203(c) of the New York City Charter?” (770 F3d 1002, 1009-1010 [2d Cir 2014]). We accepted certification (24 NY3d 1029 [2014]). Municipalities generally have the authority to adopt local laws to the extent that they are not inconsistent with either the State Constitution or any general law (see DJL Rest. Corp. v City of New York, 96 NY2d 91, 94 [2001]; NY Const, art EX, § 2 [c] [ii]; Municipal Home Rule Law § 10 [1]). A local law will be preempted either where there is a direct conflict with a state statute (conflict preemption) or where the legislature has indicated its intent to occupy the particular field (field preemption) (see DJL Rest., 96 NY2d at 95). “We have held that a local law is inconsistent ‘where local laws prohibit what would be permissible under State law, or impose prerequisite additional restrictions on rights under State law, so as to inhibit the operation of the State’s general laws’ ” (Zakrzewska v New School, 14 NY3d 469, 480 [2010] [citation omitted]). The Judiciary Law confers broad authority upon the courts to regulate the practice of law. Under section 53, this Court has the power to adopt rules concerning the admission of attorneys to practice in this state. In addition, “[t]he supreme court shall have power and control over attorneys and counsellors-at-law . . . and the appellate division of the supreme court in each department is authorized to censure, suspend from practice or remove from office any attorney and counsellor-at-law admitted to practice who is guilty of professional misconduct, malpractice, fraud, deceit, crime or misdemeanor, or any conduct prejudicial to the administration of justice” (Judiciary Law § 90 [2]). Plaintiffs assert both conflict and field preemption in connection with the argument that Local Law 15 is preempted by the Judiciary Law. The local law, by its terms, governs the conduct of debt collection agencies. Although attorneys that are acting in a debt collecting capacity may fall within its penumbra, it — 691 — does not purport to regulate attorneys as such. In fact, it clearly states that it does not pertain to attorneys who are engaged in the practice of law on behalf of a particular client. There is no express conflict between the broad authority accorded to the courts to regulate attorneys under the Judiciary Law and the licensing of individuals as attorneys who are engaged in debt collection activity falling outside of the practice of law and, thus, the local law does not impose an additional requirement for attorneys to practice law. Rather, the regulatory schemes can be seen as complementary to, and compatible with, one another. There is some concern that the local law, in distinguishing between the practice of law and debt collection, potentially encompasses some activity that lawyers may also engage in while representing clients — e.g., “contacting a debtor through the mail or via telephone with the purpose of collecting a debt or other activities.” In that respect, it presents a somewhat closer question than a case where an attorney is subject to regulation for conduct that is plainly nonlegal or outside the practice of law (see Aponte v Raychuk, 160 AD2d 636 [1st Dept 1990]). However, an attorney who is retained by a client who is a creditor may make phone calls or send letters in the course of that representation in an attempt to recover specific amounts due to that client without being subject to regulation under Local Law 15. There is a significant and meaningful distinction between such conduct and conduct that is typical of a debt collection agency — making high volume collection calls at off-hours and sending boilerplate “dunning” letters demanding payment without details of the source of the debt or the actual amount due. It may be more difficult, in certain cases, to determine where to draw the line between debt collection and the practice of law. In those instances, federal case law under the Fair Debt Collection Practices Act (FDCPA) (15 USC § 1692 et seq.) will provide some guidance. Although the issue in the federal context is somewhat different — whether a particular communication is “from an attorney” (15 USC § 1692e [3]) — the concept is similar. For instance, the circuit courts have established that the transmission of mass-produced, debt-collection mailings on attorney letterhead, where the attorney did not personally prepare, review or sign the letters is considered debt collection (see e.g. Lesher v Law Offs. of Mitchell N. Kay, P.C., 650 F3d 993, 999 [3d Cir 2011]; Miller v Wol — 692 — poff & Abramson, L.L.P., 321 F3d 292, 301 [2d Cir 2003] [“some degree of attorney involvement is required before a letter will be considered ‘from an attorney’ within the meaning of the FD-CPA”]; Avila v Rubin, 84 F3d 222, 229 [7th Cir 1996] [“The attorney letter implies that the attorney has reached a considered, professional judgment that the debtor is delinquent and is a candidate for legal action”]). Similarly, where attorneys or law firms seek to recover debt on behalf of passive debt buyers, without exercising any professional judgment as to the validity of the debt or the amount owed, it falls outside the practice of law and would, instead, qualify as “regular! ] engage[ment] in activit[y] traditionally performed by debt collectors.” Moreover, the courts’ authority to regulate attorney conduct does not evince an intent to preempt the field of regulating nonlegal services rendered by attorneys. “Intent to preempt the field may ‘be implied from the nature of the subject matter being regulated and the purpose and scope of the State legislative scheme, including the need for State-wide uniformity in a given area’ ” (People v Diack, 24 NY3d 674, 679 [2015] [citations omitted]). Although the courts may have preempted the field of regulating attorney misconduct, that authority does not extend to all nonlegal aspects of attorney behavior, which can be governed by both civil and criminal law, including regulatory proscriptions. To the extent that the courts have exercised some authority over nonlegal services provided by attorneys {see Rules of Professional Conduct [22 NYCRR 1200.0] rule 5.7), the regulation in that area is not “so detailed and comprehensive as to imply that” the field has been preempted (see e.g. Matter of Casado v Markus, 16 NY3d 329, 337 [2011]). We decline to reach the second question, which we reformulate in accordance with the City’s request to read as follows: “If Local Law 15’s regulation of attorney conduct is preempted, does Local Law 15, as applied to attorneys, also violate Section 2203 (c) of the New York City Charter?” In sum, we conclude that there is no conflict between Local Law 15 and the State’s authority to regulate attorneys and, in the absence of such conflict, the City should not be prevented from taking permissible steps to curb abusive debt collection practices. Accordingly, the first certified question should be answered in the negative and the second certified question, as reformulated, should be answered in accordance with this opinion.