Ohio Debt Collectors Seem to Win Day at SCOTUS

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By Patrick Gregory

March 29 — Outside attorneys retained by states to collect government debts may be breathing a sigh of relief after oral argument before the U.S. Supreme Court March 29.

The justices didn't seem likely to find that Ohio-retained attorneys misled debtors by using state letterhead in their collection efforts.

Justices Stephen G. Breyer and Anthony M. Kennedy suggested it was actually less misleading for the attorneys to use state letterhead than not to use it.

A decision adhering to that suggestion could weaken “essentially the only protection vulnerable consumers have” against abusive debt collectors in the Fair Debt Collection Practices Act, according to an amicus brief filed by the AARP in support of the debtor-respondents here.

On the other hand, a decision in favor of the plaintiffs could affect the ability of states to use outside counsel to collect debts—a practice employed by many states.

State Sent Claims to Firms

The debtors here sued Ohio-retained attorneys after they received student loan and medical debt collection letters, arguing that the use of letterhead from the Ohio attorney general's office was misleading.

The attorneys, retained by Ohio as “special counsel” to collect debts, aren't state “officers” exempt from the FDCPA, 15 U.S.C. §1692 et seq., the U.S. Court of Appeals for the Sixth Circuit held in Gillie v. Law Office of Eric A. Jones, LLC, 785 F.3d 1091 (6th Cir. 2015) .

It was therefore up to a jury to decide whether the attorneys' use of official state letterhead was a deceptive practice violating the FDCPA, the appeals court held. The case was stayed pending Ohio's petition for certiorari.

But several justices in addition to Breyer and Kennedy seemed to have their mind made up that no wrongdoing occurred.

Chief Justice John G. Roberts Jr. suggested that the attorneys were exempt officers because Ohio authorized them to use the state seal.

Justices Elena Kagan and Samuel A. Alito Jr. repeatedly asked E. Joshua Rosenkranz of New York, arguing for the debtors, to distinguish a state-authorized letter that uses state letterhead from one that doesn't.

Neither justice seemed satisfied with Murphy's attempts to distinguish the two scenarios.

Officers or Contractors?

Even if the justices weren't convinced the attorneys did anything wrong, several seemed receptive to arguments that the attorneys aren't “officers” exempt from the FDCPA.

Ohio State Solicitor Eric E. Murphy of Columbus, Ohio, arguing for the state, said the definition of “officer” should be given “the broadest conceivable definition.”

That's because the exemption provision “is designed to protect government operations,” Murphy said.

But Justice Ruth Bader Ginsburg questioned this assertion, saying “the general structure of the act” seemed to indicate that in-house collectors were exempt, but that “outside collectors” fell under the act, whether retained by private or government creditors.

Kagan asked why Congress wasn't more explicit in saying state-retained outside counsel are exempt.

“I mean, that's a big thing that you're saying, that the state debt collectors really ought to be treated very differently,” Kagan said.

On the face of the FDCPA, “the private and the state really are treated in exactly the same way,” Kagan said.

Justice Sonia Sotomayor questioned whether the state-retained attorneys, described by Ohio as “special counsel,” could be considered officers, given that they purportedly acted as independent contractors.

Murphy responded that Ohio Rev. Code §109.08 clearly indicates that “the attorney general can delegate his sovereign duties” to special counsel.

Sarah E. Harrington of the Department of Justice, Washington, representing the federal government as amicus curiae supporting the debtors, argued that the special counsel aren't exempt.

That's because Ohio has chosen not to treat those attorneys as employees of the state, as reflected in the state's retention agreement, she said.

But Roberts said the state's authorization of the use of its seal by special counsel “does suggest a connection with the individual doing the debt collection work and the attorney general.”

“I can't imagine anything they could do more dramatically” to show such a connection, Roberts said.

Kagan, Alito Skeptical

Ginsburg asked Rosenkranz whether special counsel could legally send a letter—without state letterhead—saying it was authorized by the attorney general to collect a debt.

Rosenkranz said such a letter wouldn't violate the FDCPA.

Here, special counsel violated the act because sending a letter on state letterhead constituted “using the true name of the attorney general as their own true name,” Rosenkranz said.

Alito was unconvinced, saying he didn't “really see the difference between those two situations.”

Rosenkranz said the difference was that state letterhead would make a recipient think the letter came “from someone within the attorney general's office.”

Kagan was also skeptical, saying she wasn't “sure what difference it makes.”

Both letters say that a debt is owed to the state and that the signatory “is acting as an agent of the state,” Kagan said.

Debtors' Argument Flipped

Justices Breyer and Kennedy went further, suggesting that the use of letterhead is actually less misleading to debtors.

A letter without such letterhead could indicate a debt collection scam, Breyer said.

Breyer cited a current scam of IRS impersonators demanding payment for tax debts.

But if the sender uses official letterhead, “they're really getting themselves into trouble if it's a scam,” Breyer said.

Looking at special counsel's letters, “I see nothing here misleading,” Breyer said.

A recipient who sees official letterhead “is more likely, not less likely, to understand what's happening,” Breyer said.

Similarly, Kennedy said not using the letterhead would be “almost misleading” itself.

Rosenkranz argued that receiving a letter on official letterhead would make debtors more concerned than they should be, Kennedy said.

But they “ought to be concerned” because Ohio has garnishment powers to collect money owed to it, Kennedy said.

To contact the reporter on this story: Patrick L. Gregory in Washington at pgregory@bna.com

To contact the editor responsible for this story: Jeffrey D. Koelemay at jkoelemay@bna.com

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Transcript available at http://src.bna.com/dGG.

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