Challenge to New York City Debt Collection Law Moves to High Court

The U.S. Court of Appeals for the Second Circuit this week ruled that New York’s highest court will need to resolve the legal questions in a case brought by a debt collection law firm challenging a New York City statute that regulates certain activities of collection attorneys.

The long-running case, Berman v. City of New York, asks the fundamental question: is New York City’s Local Law 15 — which regulates debt collection agencies – void with regard to law firms who happen to collect debts?

A District judge in 2012 said that the law did not cover law firms, even if their primary business is debt collection. New York City appealed that decision and the Second Circuit heard oral arguments in December 2013. This week’s decision certifies two questions to the New York Court of Appeals, the highest court in the state.

The collection law firm of Eric M. Berman, P.C., general business firm Lacy Katzen, LLP, and debt buyer DBA Asset Holdings filed a lawsuit challenging Local Law 15 in 2009. Eric Berman was a key figure in the National Association of Retail Collection Attorneys (NARCA), serving on NARCA’s Board of Directors, and was President of the Commercial Lawyers Conference of New York. He passed away in 2010.

District Judge Eric Vitaliano initially ruled that the law does not apply to law firms that attempt to collect debts through the courts. He also said that it violates a provision of the New York City Charter because it gives New York City the authority to grant or withhold licenses to practice law.

The three-judge Circuit panel largely agreed with the reasoning, writing that “Local Law 15 does not, on its face, appear to regulate an attorney who is collecting a debt in her representative capacity as a licensed attorney, in the name of a client, and through activities that only a licensed attorney can perform. However, the law does apply to certain attorney conduct.”

But the Circuit judges said that the final resolution of the case was a question for the Court of Appeals.

The judges gave respect to the notion that the law was passed primarily to protect consumers from abusive collection tactics. “Given those policy considerations, as well as the policy judgments that are involved in determining the scope of attorney regulation by the State, we believe that the New York Court of Appeals should have the opportunity to address in the first instance whether Local Law 15 is preempted insofar as it regulates attorney conduct,” the panel wrote.

With that, the panel certified two questions to be considered by the Court of Appeals:

1. Does Local Law 15, insofar as it regulates attorney conduct, constitute an unlawful encroachment 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?

The New York Court of Appeals still must certify the case and hear it. If it opts not to, the Second Circuit will resume consideration and most likely rule definitively either way.