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Media Alerts - Arias v. Gutman, Mintz, Baker & Sonnenfeldt LLP
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November 15, 2017
  Arias v. Gutman, Mintz, Baker & Sonnenfeldt LLP
Headline: Second Circuit Reinstates Suit Against Law Firm for Violating the Fair Debt Collection Practices Act

Area of Law: Civil Procedure - Enforcement of Judgment

Issue Presented: Whether Defendants committed abusive debt collection practices after filing an objection to Plaintiff's exemption claim even after Defendants had access to Plaintiff's bank account statements.

Brief Summary: Franklin Arias's bank account was restrained after a default judgment was entered against him for failing to pay rent on his apartment. Gutman, Mintz, Baker & Sonnenfeldt LPP ("GMBS") was the law firm to represent Arias's landlord and subsequently took on the role of debt collector. In an attempt to collect the default judgment, GMBS issued a restraining notice on Bank of America, where Arias had a checking account. Arias responded by claiming that all of the money in his account was Social Security Retirement Income (SSRI), which is exempt from restraint and garnishment under federal law. He repeatedly informed GMBS about this, and provided supporting documentation, but GMBS stated that his only recourse would be to go to court. In the subsequent court proceeding, Arias represented himself and presented the same documents that he had previously sent to GMBS, at which point GMBS agreed to release the funds. Arias then sued GMBS in the United States District Court for the Southern District of New York, alleging that GMBS's tactics had violated several laws, including the Fair Debt Collection Practices Act (FDCPA). The district court dismissed his lawsuit, but the Second Circuit held that his case could go forward.

Extended Summary: In 2006, Arias rented a Bronx apartment owned by 1700 Inc. During that same year, Arias moved out and allowed his daughter to take over the lease in his absence. Arias's daughter, however, missed two months of rent and soon after 1700 Inc. retained GMBS to sue Arias for breaching his lease. Because Arias failed to file an answer, GMBS obtained a default judgment against him.

In December 2014, 1700 Inc. attempted to collect on the default judgment through GMBS by issuing a notice on Bank of America, where Arias had his checking account. Bank of America then informed Arias that after receiving the notice of restraint, it determined that out of the $3,919.62 he had in his account, only $1,294.62 was subject to restraint and removal since the rest had been identified as protected Social Security retirement income (SSRI). That same month, Arias tried to explain to GMBS that in fact all of the money in his account was SSRI and was therefore exempt from restraint and garnishment under federal law. Arias also had Bank of America send GMBS his bank statements for the period February through December 2014, which showed that all of the deposits were exclusively SSRI. Even with these statements, GMBS replied that it would only release Arias's funds if he first made a payment. Arias then mailed GMBS an Exemption Claim Form.

The matter went to state court, where Arias represented himself and prevailed. A GMBS attorney reviewed the bank statements Arias had with him - the same ones he had sent GMBS before - and subsequently withdrew the objection and agreed to release the funds.

After the hearing, Arias filed suit in the Southern District of New York alleging that GMBS violated § 1692e and § 1692f of the FDCPA as well as a New York law known as the Exempt Income Protection Act (EIPA). The district court dismissed Arias's claims, and Arias timely appealed.

Under federal law, Social Security benefits are exempt from garnishment and restraint. New York also enacted the EIPA in 2008 to better protect exempt funds from forcible collection, by "remed[ying] an imbalance in the prior law which unfairly placed the burden on debtors to show that their funds were exempt, at a time when they were being deprived access to those funds." After beginning a restraint or garnishment process by filing a notice with the debtor's bank, a debtor may file an exemption claim form, as Arias did here. Regardless of whatever documents the debtor provides with this form form, the bank must release the funds eight days after receiving the claim unless the creditor files an objection in court during that same time. Should a creditor choose to file an objection, it must accompany it with an affirmation stating a reasonable belief that the debtor's account does not contain any exempt funds within it. A creditor, however, will be liable for the debtor's costs, reasonable attorney's fees, actual damages, and an amount not over $1,000, if he or she objects in bad faith.

The FDCPA is a strict liability statute and therefore does not require that a plaintiff to show that the debt collector acted intentionally. § 1692e of the FDCPA prohibits false, deceptive, or misleading representations and § 1692f prohibits unfair or unconscionable means used to collect a debt. When faced with a FCPA claim, a court must analyze the reasonableness of an interpretation from the outlook of the least sophisticated consumer. GMBS claimed that Arias's funds were not exempt since he commingled his funds with personal deposits. New York's EIPA, however, does not require a plaintiff to disprove commingling of his or her funds in order to have them be exempt from debt collection. Additionally, Arias's bank statements, which he had sent to GMBS twice before the hearing in State court, from February through December 2014 only show that the deposits made during that time were only SSRI. Because of this, GMBS violated both sections of the statute by: 1) falsely suggesting Arias's funds were no longer exempt because they were commingled with his personal funds; 2) having documentary proof Arias's funds were exempt but still refused to release them until he made a payment he could not afford; and 3) forcing him to attend an unnecessary court hearing. The Court subsequently held that a debt collector engages in unfair or unconscionable litigation conduction in violation of § 1692f when it in bad faith unduly prolongs legal proceedings or requires a consumer to appear at an unnecessary hearing. Lastly, because one may violate both the FDCPA and state law when it comes to abusive debt collection practices, a plaintiff like Arias may be able to collect remedies for both violations.

To read the full opinion, please visit:

Panel: Circuit Judges Cabranes and Lohier; District Judge Forrest

Argument Date: 4/27/2017

Argument Location: New York, NY

Date of Issued Opinion: 11/14/2017

Docket Number: No. 16-2165-cv

Decided: Vacated and Remanded

Case Alert Author: Ollia Pappas

Counsel: Claudia Wilner (Marc Cohan, National Center for Law and Economic Justice, New York, NY; Susan Shin, New Economy Project, New York, NY; Ahmad Keshavarz, Brooklyn, NY, on the brief); National Center for Law and Economic Justice, New York, NY for Plaintiff-Appellant; Kenneth A. Novikoff, Rivkin Radler LLP, Uniondale, NY for Defendants-Appellees.

Author of Opinion: Judge Lohier

Case Alert Circuit Supervisor: Emily Gold Waldman

    Posted By: Emily Waldman @ 11/15/2017 09:33 PM     2nd Circuit  

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