Daniel A. Edelman

“The issue before the Court is whether otherwise illegal conduct by one who regularly collects consumer debts is outside the scope of the Fair Debt Collection Practices Act because that person is acting as a lawyer.” Daniel A. Edelman put the question to the Supreme Court in those words on February 21, 1995, at the start of his argument for the respondent in Heintz v. Jenkins. His client, Darlene Jenkins, had defaulted on a car loan from Gainer Bank. The bank’s law firm sued her in state court, and one of its lawyers, George W. Heintz, wrote to her lawyer to settle the case, listing among the amounts she owed $4,173 for insurance the bank had bought after she stopped insuring the car. Jenkins said the policy protected the bank against a risk her loan contract did not require her to cover, and she sued Heintz and his firm under the federal statute that governs debt collectors.

Heintz asked the Court to hold that the Act does not reach lawyers who are prosecuting collection suits, and the American Bar Association filed a brief on his side. On April 18, 1995, a unanimous Court affirmed the Seventh Circuit’s ruling for Jenkins. “The Act does apply to lawyers engaged in litigation,” Justice Breyer wrote. Since that day a lawyer who regularly sues consumers over their debts has been bound by the Act’s prohibitions on false representations and unauthorized charges, the same rules that bind a collection agency.

Gainer Bank’s $4,173 Insurance Charge

Jenkins had borrowed from Gainer Bank to buy the car; she signed the retail installment contract in July 1987. The contract required her to keep the car insured “against loss or damage” until her last payment and allowed the bank, if she did not, to buy insurance and charge her for it. She made 35 of the 48 payments due, and she stopped insuring the car. The bank declared the loan in default, repossessed the car and sold it, and the sale did not cover what she owed. The bank had bought a policy, and it hired Heintz and his firm, Bowman, Heintz, Boscia & McPhee, to recover the remaining installments and the premium. On June 13, 1992, the lawyers sued her in Illinois state court on the bank’s behalf, demanding the installments and a $4,173 insurance charge.

Jenkins did not let the suit go by default. She answered, pleaded affirmative defenses and filed a counterclaim, contending that the balance included unauthorized charges for force-placed insurance, coverage a lender buys and charges to a borrower who has not kept the insurance her contract requires. She said she had never authorized the coverage the bank bought, and she pointed to her own copy of the loan agreement. On July 9, 1992, shortly after the suit was filed, Heintz wrote to her lawyer on his firm’s letterhead, seeking to “amicably resolve this matter.” The letter asked for $4,173 in insurance premiums, about $3,000 left on the loan’s principal, and some $1,000 in penalties. The insurance was roughly half the total.

Jenkins believed the policy the bank bought also insured the bank against her default—in the Seventh Circuit’s words, “a financial protection policy to insure against the possibility that she might default on the loan.” She alleged that demanding the premium for that policy was an attempt to collect an amount the loan agreement did not authorize and a false representation of the amount of her debt. The Act forbids both to anyone who meets its definition of a debt collector.

Heintz and his firm moved to dismiss, arguing that attorneys who file suit to collect debts are not covered by the Act. The district court agreed and dismissed the case. Edelman, whose firm was then Edelman & Combs, took the appeal with Cathleen M. Combs and other lawyers from his office and with Joanne Faulkner of New Haven, Connecticut. Hinshaw & Culbertson of Chicago represented Heintz.

The Seventh Circuit Reads the Definition

Edelman argued the appeal on January 4, 1994, before Judges Fairchild, Manion, and Kanne. Judge Manion’s opinion, issued May 27, rested on the statutory definition. A debt collector is anyone whose principal business is collecting debts, or who “regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” The court found nothing in those words that excluded a lawyer. “Under the Act as presently written,” Judge Manion wrote, “lawyers can be debt collectors, as long as they engage in the business of debt collection.”

The Act had once said otherwise. As Congress passed it in 1977, it excluded “any attorney-at-law collecting a debt as an attorney on behalf of and in the name of a client.” Judge Manion recounted what some lawyers did with that exclusion: they advertised to creditors that they could still make the late-night calls to consumers, the calls to employers, and the disclosures to third parties that collection agencies no longer could. “In 1986, Congress acted to close this loophole; it amended the Act to remove the attorney exemption.” The court held that Jenkins had stated claims under both provisions she invoked, and it reversed the dismissal.

The Sixth Circuit had gone the other way. In Green v. Hocking it concluded that the Act “was not intended to govern attorneys engaged solely in the practice of law.” The Seventh Circuit declined to follow that reading: “Unlike the Sixth Circuit, however, our analysis of the statute ends with its language; we do not reach the legislative history.” The Supreme Court granted certiorari “to resolve this conflict.”

Heintz’s Case for an Implied Courtroom Exemption

George W. Spellmire of Chicago argued for Heintz and his firm. His first sentence stated their position: the Act “should not be read to regulate the conduct of lawyers engaged in the prosecution of litigation even if that litigation is against the consumer for the collection of a debt.” Read as a whole, he argued, the statute showed that Congress did not mean to regulate attorneys “when they are performing acts which are uniquely capable of performance by attorneys by reason of their licensure,” and a literal reading of the definition “would result in absurd outcomes.”

The Justices went to the repeal almost at once. “Well, Congress certainly did drop the exception that used to be in there for lawyers, didn’t it?” one asked. “Yes, it did, Your Honor,” Spellmire answered. “It did drop that exception.” He proposed to shield lawyers only when they performed functions peculiar to their license, and a Justice told him, “I think you’ve just repealed the repealer.” “No, Your Honor, we are not asking that,” he replied.

Spellmire drew his line at the filing of the complaint, and he argued that correspondence with opposing counsel in a pending case fell on the protected side, because only a lawyer can do that work. Heintz’s letter had gone to Jenkins’s lawyer. “Why should correspondence with opposing counsel be not covered, but a letter to the potential defendant covered?” a Justice asked. The questioning turned to § 1692c(b), which expressly allows communication with the debtor’s attorney; as a Justice put it, the statute seemed to contemplate “that yes, lawyers, when acting as debt collectors, can communicate with the debtor’s attorney.” “They certainly can, Your Honor,” Spellmire answered.

Heintz pointed to specific provisions. The Act requires a debt collector to stop communicating with a consumer who says she refuses to pay; applied to lawyers, that seemed to let a defendant halt the ordinary exchanges of a lawsuit. It forbids threats to take action that cannot legally be taken; applied to lawyers, that seemed to make every lost collection suit a violation. Heintz also relied on a statement by Representative Frank Annunzio, a sponsor of the 1986 amendment, that the Act “regulates debt collection, not the practice of law,” and that Congress had repealed the exemption “not because of attorney[s’] conduct in the courtroom, but because of their conduct in the backroom.” And he cited Federal Trade Commission staff commentary under which lawyers who send dunning letters and make collection calls are covered, “but those whose practice is limited to legal activities are not covered.”

Three organizations of lawyers filed briefs urging reversal: the American Bar Association, the Commercial Law League of America, and the National Association of Retail Collection Attorneys. The National Consumer Law Center and others filed a brief urging affirmance. Joanne S. Faulkner and Richard J. Rubin joined Edelman on the respondent’s brief.

Litigation Already Written Into the 1977 Act

Edelman answered with the statute Congress wrote in 1977. At that time, he told the Court, a collection agency in a number of states, California among them, could take an assignment of a debt and sue on it, often without a lawyer, and so the original Act regulated litigation even while it exempted attorneys. Its venue provision, § 1692i, applies to anyone who fits the definition of debt collector and bars suits in inconvenient forums that state law would otherwise allow. Its exemption for process servers covers serving legal process “in connection with the judicial enforcement of any debt,” a phrase that, he argued, would mean nothing unless judicial enforcement were part of collecting a debt. And § 1692c(b) permits communications with third parties reasonably necessary to carry out a post-judgment judicial remedy.

The Justices tested what coverage would do to ordinary practice. Justice Kennedy described § 1692c(b) as barring communications with third parties about a debt “except with the prior consent of the consumer or the express permission of the court,” and suggested that a collection lawyer could not even notice a deposition without a judge’s leave. Edelman replied that a court rule of general application could supply express permission, and that nothing stopped a lawyer from moving for leave; in Illinois, he said, depositions could not be taken by notice when the debt was up to $2,500, so a motion would be required in any event. Another Justice pointed out that the provision governs communications with third parties and leaves the consumer herself outside it, and Edelman agreed that the restriction would reach only third-party witnesses.

A Justice then put the case of a lawyer who regularly sues on home mortgages and wants to depose a borrower who has said he will not pay, in the face of the provision that requires a collector to stop communicating with a consumer who refuses to pay. Edelman said that posed no real difficulty. Asked why, he said the provision “contains an express exemption for telling the consumer that we’re going to invoke specified remedies.” The Justice supplied the notice, “I’m going to sue you,” and Edelman finished the sequence: “And you sue.” Nothing would then prevent the deposition, he said. When a Justice noted that nothing in the statute expressly addressed communications during a lawsuit, Edelman said the exemption had been written to let a consumer bring the matter to a head by in effect demanding that the collector sue, and added: “I don’t think it’s too much of an implication to say that notification that one is going to invoke a specified remedy would include, for example, notifying the consumer’s deposition.”

The Lawyers Congress Had in View

Other Justices probed where coverage stopped. When one asked how a lawyer would know whether he collected debts regularly enough to be covered, Edelman allowed that there might be some room for debate at the lower end of the spectrum and described the lawyers Congress had in view: “Basically, there are law firms and attorneys that specialize in the collection of consumer debts. One of those attorneys would not have any question in his mind as to whether he’s covered, and if there is a question in his mind, he can of course always comply in any event.” When a Justice raised the ABA’s warning that coverage would push clients toward inexperienced lawyers who did not yet collect regularly, he answered that those lawyers would be covered too once they began to regularly enforce consumer debts. A bank’s lawyer suing automobile dealers on floor-plan financing would not be covered at all, he said, because the Act reaches only debts of natural persons arising from transactions primarily for personal, family, or household purposes.

He then gave the history of the repeal. Between 1978 and 1986, he said, “the Federal Trade Commission received some 1,400 complaints about law firms engaged in collection activities, and the number of law firms that were engaged in collection activities increased dramatically. Some of them were actually advertising that they were not subject to the restrictions that lay debt collection agencies had.” He started to give an example, and a Justice supplied one: “On billboards.” After the laughter, Edelman said, “That’s correct.” The chief complaint about lawyers among the 1,400, he said later in the argument, concerned their conduct as litigants: “Namely, attorneys filing suit in improper or prohibited venues.” Congress, he told the Court, had deleted the exemption outright and refused substitute exemptions proposed by the Commercial Law League, the ABA, and Representative Hiler.

He answered the petitioners’ list of anomalies from the lower courts’ decisions. No court, he said, had ever held that a lawyer who files a collection suit and loses has thereby violated the Act’s prohibition on threatening action that cannot lawfully be taken. “So that the parade of horribles that was suggested by petitioners and appears to have been suggested by the Sixth Circuit in the one decision supporting their position, Green, is simply not there if the act is construed carefully and in a reasonable manner.”

He took the petitioners’ outside authorities one at a time. The Annunzio statement had never been spoken on the House floor: “It was inserted pursuant to privilege in the Congressional Record one night 3 months afterwards. It’s not permissible legislative history.” A Justice asked whether Annunzio could have been prosecuted under 18 U.S.C. § 1001, the federal false-statements law. “I won’t comment on that,” Edelman said. “I don’t know enough about 1001, Your Honor.” The staff commentary came from FTC staff who had supported an attorney exemption in 1986, under a statute that, he told the Court, gave the Commission itself no rulemaking authority. “An administrative agency, much less its staff, cannot create statutory exemptions without some basis in the congressional enactment that purports to authorize it.” The commentary would not have helped Heintz in any event, he added, because the petitioners conceded that they regularly sent consumers dunning letters.

Default Judgments and Unauthorized Charges

Near the end of his argument, a Justice asked: “What is your answer specifically to the argument that this will chill full adversarial zeal, the best representation of the client, because the attorney will be intimidated by the prospect of liability, so will hold back arguments that might be tenable, but that ultimately fail?” Edelman answered from the issue before the Court, the addition of charges to debts that are not expressly authorized. For that, he said, Congress had intentionally set a strict standard that applied to lawyers and other debt collectors alike: “A consumer cannot be subjected to any charge that someone might be able to dream up a nonfrivolous argument in support of.”

Then he explained why. “Congress was careful about this, because it realized that the vast majority of collection lawsuits go by way of default judgment. There is no one there to argue against the lawyer, and accordingly, it made the standard one of whether the debt is expressly authorized, or whether the charge is expressly authorized by the instrument creating the debt, or permitted by law.”

The standard was fair, he argued, because most collection lawyers enforce printed form contracts. “It’s very easy for the creditor to solve the problem by simply providing for the charge,” he said. A collection agency could not demand such a charge before a suit or during one, he said, and the same restraint bound a lawyer: “That problem, or that restraint, has nothing to do with the attorney’s status as attorney.” In the seventeen years the Act had applied to collection agencies, he told the Court, its restrictions had not been found to unduly burden the collection of consumer debts or the extension of consumer credit. “I think the judgment of Congress as expressed in the act should be respected. That judgment does not permit of an attorney litigation exemption.”

His last point concerned his own profession. “What the petitioner’s argument, I think, really boils down to is an appeal to the reluctance of attorneys to impose liability on other attorneys,” he said. Congress, he went on, had imposed exactly that liability after an eight-year trial of the exemption, and specific provisions of the Act dealt with litigation conduct. “There is simply no textual basis for a continued attorney exemption, whether limited to litigation or otherwise.”

Ordinary English and the 1986 Repeal

The Court decided the case on April 18, 1995, on the two grounds Edelman had pressed. The first was the ordinary meaning of the definition: “In ordinary English, a lawyer who regularly tries to obtain payment of consumer debts through legal proceedings is a lawyer who regularly ‘attempts’ to ‘collect’ those consumer debts.” The second was the repeal. Congress had exempted lawyers in 1977; “[i]n 1986, however, Congress repealed this exemption in its entirety,” and it did so “without creating a narrower, litigation-related, exemption to fill the void.” Without more, the Court reasoned, one would think that Congress intended lawyers to be subject to the Act whenever they met the general definition of a debt collector.

Justice Breyer then took up Heintz’s list of anomalies. The Court agreed “that it would be odd if the Act empowered a debt-owing consumer to stop the ‘communications’ inherent in an ordinary lawsuit and thereby cause an ordinary debt-collecting lawsuit to grind to a halt,” but it said the provision need not be read that way, pointing to the same exceptions Edelman had cited, for notice that a collector “may invoke” or “intends to invoke” a “specified remedy.” As for the lawyer who loses a collection suit, the Act excuses a debt collector who shows that a violation was unintentional and resulted from a bona fide error, and the Court would not find the result “so absurd as to warrant implying an exemption for litigating lawyers.” “Many of Heintz’s ‘anomalies’ are not particularly anomalous,” the opinion said, and it left the conduct rules for later cases: “We need not authoritatively interpret the Act’s conduct-regulating provisions now, however.”

Heintz’s outside sources did not persuade the Court. Annunzio had made his statement after the amendment became law, and the statute itself said nothing about keeping an exemption for litigation. The staff commentary described itself as “not binding on the Commission or the public,” and the Court found “nothing either in the Act or elsewhere indicating that Congress intended to authorize the FTC to create this exception from the Act’s coverage”—an exception that, it said, fell outside the range of reasonable interpretations of the Act’s language. The Court concluded that “the Seventh Circuit is correct” and affirmed its judgment.

From Kirkland & Ellis to Private Enforcement

Edelman came to consumer work from the defense side. He graduated from the University of Chicago Law School in 1976 and spent the next five years as an associate in the Chicago office of Kirkland & Ellis, heavily involved in defending consumer class actions, among them the General Motors Engine Interchange cases. In 1981 he joined Reuben & Proctor, a medium-sized firm formed by former Kirkland & Ellis lawyers, and he became a partner there in 1982. At the end of 1985 he went into private practice in downtown Chicago. Virtually all of his practice is litigation on behalf of consumers. He co-wrote the second, third, and fourth editions of the National Consumer Law Center’s Consumer Class Action Manual, and he has testified for consumers before the Federal Trade Commission and the Illinois legislature.

Edelman wrote about the decision the following year, in a survey of fair-debt-collection law for the Loyola Consumer Law Review. Heintz, he wrote, “held that litigation conduct of attorneys in collecting consumer debts is not exempt from the FDCPA and rejected the arguments of the collection bar to the contrary.” A year earlier, he and O. Randolph Bragg, then a lawyer at his firm, had written that the FTC “has brought few cases to enforce the statute.” His 1996 survey closed on enforcement: “In the absence of effective governmental enforcement, vigorous enforcement by private practitioners, particularly through class actions, is essential to ensure that debt collectors comply with this important consumer protection measure.”

In their 1995 article he and Bragg had written: “In essence, debt collectors have refused to voluntarily comply with the law.” The 1996 survey named the practices. He listed among the violations he called typical “the imposition of attorney’s fees where no contract or statute authorizes them” and “the addition of unauthorized insurance charges,” the kind of charge Jenkins had contested. On the question a Justice had pressed at argument, how much collecting makes a lawyer a collector, he wrote: “The amount of collection activity necessary to make a lawyer a ‘debt collector’ is minimal.” He described mass mailings of collection letters sent under a lawyer’s name and wrote, “The clear implication of any attorney letter is a threat of suit.” He also recorded a rule his practice would come back to: “Filing suit on obviously time-barred debts has been held to violate the FDCPA.”

Jodi Fields and a $388.54 Account Balance

In 2004 Edelman took a collection law firm’s letter back to the Seventh Circuit in Fields v. Wilber Law Firm. On March 16, 2002, Jodi Fields incurred $122.06 in charges at Kruger Animal Hospital in Bloomington, Illinois. On November 6 a dunning letter signed by Donald Wilber of the Wilber Law Firm stated an “ACCOUNT BALANCE” of $388.54. The figure combined the original $122.06, interest and service charges under the contract she had signed, and $250 in attorneys’ fees for the firm’s collection work. The contract provided: “I understand that if collection action should become necessary for recovery of any monies due under this contract, I agree to pay any and all collection costs and attorney fees.”

Three more letters followed, on December 11 and December 27, 2002, and February 7, 2003, each showing a slightly higher balance as interest accrued: $391.34, then $392.30, then $395.30. “The collection letters did not itemize the expenses or explain the amount of the debt in any way,” the Seventh Circuit later wrote. The district court dismissed her suit and held the $250 fee reasonable as a matter of law.

Edelman argued her appeal on May 27, 2004. Hinshaw & Culbertson, the firm that had represented Heintz, represented the Wilber defendants, and Judges Manion and Kanne from the Jenkins panel sat again. Judge Kanne’s opinion reinstated her claims under §§ 1692e and 1692f. An unsophisticated consumer, the court wrote, “could reasonably wonder why her bill was now $388.54,” even if she had saved the contract, and would find it difficult “to understand how a relatively modest fee for services rendered had tripled in size.” A consumer who had lost the bill, the court reasoned, “might logically assume that she simply incurred nearly $400 in charges.”

“It is unfair to consumers under the FDCPA to hide the true character of the debt,” the court held. It ruled that a contract clause and a reasonable fee did not settle the question: “Even if attorneys’ fees are authorized by contract, as in this case, and even if the fees are reasonable, debt collectors must still clearly and fairly communicate information about the amount of the debt to debtors.” And it named the cure: “One simple way to comply with § 1692e and § 1692f in this regard would be to itemize the various charges that comprise the total amount of the debt.”

Service on Strangers and Judgments by Default

On August 5, 2009, the Federal Trade Commission held a roundtable on debt collection litigation at Northwestern University’s law school in Chicago. Edelman introduced himself and his firm’s work: “We represent consumers in both affirmative lawsuits, including fair debt lawsuits, and in defending collection cases in Cook County and elsewhere.”

Fourteen years earlier he had told the Supreme Court that most collection suits end in default judgments, with no one there to argue against the lawyer. In Chicago he described one way a default happens. Illinois, he said, allows service on a member of the debtor’s household over 13, followed by mailing, and he had seen the result many times: “somebody is served. That person has nothing to do with the defendant.” Sometimes the papers were left where the consumer had lived years before, sometimes with a person who had a similar name, and a return of service was filed anyway. Some of the people served called the plaintiff’s lawyer or the creditor: “Hey, I got this. I’m not this person. I’ve never had a debt like this.” The answer, as he told it, was “Oh, forget it.” A judgment followed, and more often than not the actual debtor first learned of the case when a wage deduction reached his employer.

He asked that process servers be required to keep daily logs of who was served, when, where and for whom, filed with a court or a state official so that anomalies could be found, and that a plaintiff’s lawyer relying on substitute service explain how the address connected to the defendant. Some of the fault, he said, lay with the debt collectors and creditors. Such cases, he told the roundtable, were much less likely to come to court: “The person was not served. The garnishment or citation was issued. The person thinks they have no defense. No lawyer is going to go to the trouble of vacating the judgment if there’s nothing there.”

The Commission’s July 2010 report on the roundtables recorded that panelists from around the country estimated that “sixty percent to ninety-five percent of consumer debt collection lawsuits result in defaults,” most of them putting their own jurisdictions close to ninety percent. “Some process servers may simply not serve the consumer but falsely assert that they have done so,” the Commission wrote.

Asset Acceptance and Illinois’s Four-Year Limit

In a paper on debt-buyer litigation dated January 2, 2013, Edelman wrote that without an account stated “it is difficult for the collection plaintiff, particularly a bad debt buyer, to prove anything is due,” and that “Debt buyers rarely possess the basic legal documentation required to make out a prima facie case.”

In Phillips v. Asset Acceptance, the violation alleged was the collection suit itself. Asset Acceptance, a debt collector, had sued Gwendolyn Phillips over a debt for natural gas she bought for household use, and she charged in turn that it had sued her after the statute of limitations on the creditor’s claim had run. “If this is true,” Judge Posner later wrote, “Asset Acceptance’s suit violated the Fair Debt Collection Practices Act.” The class she sought to certify had 793 members, 343 of them in Illinois. The district court denied certification. Edelman, her counsel on appeal, petitioned the Seventh Circuit for leave to appeal, and the appeal was argued on November 8, 2013.

Judge Posner’s opinion of December 2, 2013, turned on the Uniform Commercial Code. The Code defines natural gas as a good, so Illinois’s four-year limitations period for sales of goods applied instead of the five-year period for unwritten contracts, and the court concluded: “all 343 Illinois residents appear to be proper class members, adequately represented by plaintiff Phillips because the applicable statute of limitations is four years, so that all the debt collection suits against the class members were time barred and hence violated the Fair Debt Collection Practices Act.” The denial of certification was reversed.

Pleadings, Legal Mistakes, and the Balance Left to Congress

After Heintz, Congress changed how two of the Act’s notice requirements apply to court papers and left the definition alone. A 1996 amendment provided that the requirement to disclose that a communication comes from a debt collector “shall not apply to a formal pleading made in connection with a legal action.” A 2006 amendment provided that “[a] communication in the form of a formal pleading in a civil action shall not be treated as an initial communication” for purposes of the Act’s validation notice. The definition of debt collector, stripped of its attorney clause in 1986, lists six exclusions today, and none of them covers lawyers.

The Supreme Court returned to Heintz in 2010. The law firm Carlisle, McNellie, Rini, Kramer & Ulrich had filed a foreclosure complaint in Ohio state court for Countrywide Home Loans against Karen Jerman, with a notice stating that the mortgage debt would be assumed valid unless she disputed it in writing. Her lawyer disputed the debt, Countrywide acknowledged that she had already paid it in full, and the firm withdrew the suit. Jerman then sued the firm under the Act over the in-writing requirement, and the firm invoked the bona fide error defense for its mistaken reading of the statute.

Justice Sotomayor’s opinion for the Court held that the defense does not cover a debt collector’s mistaken interpretation of the Act’s legal requirements, and it restated Heintz: “We held in that case that the FDCPA’s definition of ‘debt collector’ includes lawyers who regularly, through litigation, attempt to collect consumer debts.” The firm, its amici, and the dissent raised the concern that the ruling would have unworkable practical consequences for lawyers who collect debts. The Court answered that “[t]o the extent the FDCPA imposes some constraints on a lawyer’s advocacy on behalf of a client, it is hardly unique in our law,” and that they had not shown the result would be “so absurd as to warrant” disregarding the text, a test it took from Heintz. “Absent such a showing,” the Court wrote, arguments that the statute “strikes an undesirable balance in assigning the risks of legal misinterpretation are properly addressed to Congress.”