Liens For Municipal Water And Sewer Charges Not Debts For the Purposes of the FDCPA

On August 27, 2014, the Second Circuit entered a decision in Boyd v. J.E. Robert Co., 12‐4422-CV, affirming a decision by the EDNY holding that water and sewer service liens were not debts for the purposes of the Fair Debt Collection Practices Act.

In Boyd, the EDNY dismissed the plaintiffs’ putative class action alleging “that defendants obtained unauthorized attorneys’ fees and costs in connection with actions to foreclose liens on plaintiffs’ properties arising out of unpaid municipal property taxes and water and sewer charges” in violation of the FDCPA, holding that the liens involved “did not involve a ‘debt’ as defined by the FDCPA.” The Second Circuit affirmed, explaining:

In order to maintain an FDCPA action, the allegedly unlawful behavior must occur in connection with collection of a “debt.” The FDCPA defines “debt” as “any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.” 15 U.S.C. § 1692a(5) (emphasis supplied).

We have not addressed the question of whether New York City’s mandatory water and sewer charges involve “debt” within the meaning of the FDCPA. In Beggs v. Rossi, we held that municipal taxes levied automatically in connection with ownership of personal property do not involve a “transaction” as that term is understood under the FDCPA and, accordingly, are not “debt” for purposes of the FDCPA. 145 F.3d 511, 512 (2d Cir. 1998). We now conclude that the New York City water and sewer charges also do not involve “debt” under the FDCPA. Rather, the relationship between plaintiffs and the City with respect to such charges is akin to “taxpayer and taxing authority,” and “does not encompass that type of pro tanto exchange which the statutory definition envisages.” Beggs, 145 F.3d at 512.

Like property taxes, New York City water and sewer charges are levied, in some amount, as an incident to property ownership in New York. In addition, the actions to foreclose the liens in question were instituted pursuant to New York law governing “tax liens.” Further, the city ordinance governing foreclosure of water and sewer liens requires that they be conducted “in the same manner as a lien for [] taxes.” N.Y. Pub. Auth. L. § 1045‐j(5). In light of the foregoing, the charges at issue are best treated as akin to the municipal property taxes discussed in Beggs and, accordingly, outside the scope of the FDCPA.

“Least Sophisticated Consumer” Rule of FDCPA Does Not Necessarily Help Sophisticated Consumer

On June 19, 2014, the Second Circuit issued a decision in Nicholson v. Forster & Garbus LLP, Docket No. 13-2394, interpreting the “least sophisticated consumer” rule of the FDCPA.

In Nicholson, the Second Circuit affirmed the EDNY’s grant of summary judgment to the defendant law firm–Forster & Garbus–on the plaintiff class’s Fair Debt Collection Practices Act (“FDCPA”) claims. One issue on summary judgment was whether the defendant had violated § 1692e of the FDCPA by using a “false, deceptive, or misleading representation or means in connection with the collection of any debt.” As the Second Circuit explained:

To determine whether a communication violates § 1692e, this Court applies an objective standard based on the “least sophisticated consumer.” Under this standard, collection notices can be deceptive if they are open to more than one reasonable interpretation, at least one of which is inaccurate.

(Internal quotations and citations omitted). The Second Circuit rejected the argument that the even though an unsophisticaed investor might not have known that the calls were being made on behalf of a law firm, the plaintiff in this action did:

Nor was the statement misleading or deceptive under the least-sophisticated-consumer test. The least sophisticated consumer, if the standard is to be taken literally, would not even know what “Forster & Garbus” is. The terms “law,” “lawyer,” “attorney,” “legal,” etc., were never used, and the phrase “settle this account,” in context, did not suggest that the caller was a lawyer. Moreover, not every sequence of names with an ampersand is a law firm.

Nicholson likely knew that Forster & Garbus was a law firm because his lawyer was in negotiations with that firm. But the least sophisticated consumer test pays no attention
to the circumstances of the particular debtor in question
.

(Internal quotations and citations omitted) (emphasis added).