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Current Developments in the US District Court for the
Eastern District of New York
Posted: October 26, 2015

Arguments Not Raised in District Court Could Not be Raised on Appeal

On October 19, 2015, the Second Circuit issued a decision in In re: Fiorano Tile Imports, Inc., 14-3915, holding that arguments not raised in the EDNY could not be raised on appeal even though controlling circuit precedent would have precluded the court from accepting them, explaining:

It is a well-established general rule that an appellate court will not consider an issue raised for the first time on appeal. This court has discretion to consider arguments waived below, and will exercise that discretion where necessary to avoid a manifest injustice. However, the circumstances normally do not militate in favor of an exercise of discretion to address new arguments on appeal where those arguments were available to the parties below and they proffer no reason for their failure to raise the arguments below.

In the district court, [the appellant] argued only that the case was not equitably moot because the Plan had not been substantially consummated. In this Court, [the appellant] . . . primarily argues that equitable mootness should not apply because of the debtor’s lack of good faith or unclean hands. Because those arguments were not raised below, they have been forfeited.

Nor do we find it necessary to consider those arguments to prevent manifest injustice. [The appellant] argues that it could not have raised the arguments below because In re Chateaugay Corp., 10 F.3d 944 (2d Cir. 1993) made these arguments unavailable, as a matter of law, in the district court. [The appellant], however, could have argued to the district court that Chateaugay should be distinguished, or that equitable mootness should not apply for the reasons it presses on its appeal. To the extent that [the appellant] contends that the arguments would have failed in the district court because Chateaugay controls this case, the same precedent is equally binding on a panel of this Court. . . . To the extent [the appellant] seeks to preserve any argument that Chateaugay should be overruled, it could and should have presented that argument below, as it does here, in order to preserve it for review before this Court sitting en banc or before the Supreme Court.

(Internal quotations and citations omitted).

Posted: October 13, 2015

Action Dismissed on Rooker Feldman Grounds

On October 1, 2015, the Second Circuit issued a decision in Riley v. Commissioner of Finance, 14-4541-CV, affirming the EDNY’s dismissal of an action pursuant to the Rooker-Feldman doctrine.

In Riley, the plaintiff brought a “quiet-title action which sought a declaration of ownership of property despite a tax-foreclosure judgment already entered . . . in New York state court.” The EDNY dismissed the action pursuant to the Rooker-Feldman doctrine. The Second Circuit affirmed, explaining:

Federal appellate jurisdiction to reverse or modify a state-court judgment is lodged exclusively in the Supreme Court. On that principle, the Rooker-Feldman doctrine bars a party who has already had a judgment entered against her in state court from initiating a federal action complaining of injuries caused by the state-court judgment and inviting federal review and rejection of that judgment.

The district court here correctly dismissed Riley’s action pursuant to Rooker-Feldman. The complaint sought to remove six alleged clouds on Riley’s claimed title to a Brooklyn property, as well as a declaratory judgment of free-and-clear ownership. Riley’s claimed ownership of the property, however, was already fully adjudicated and rejected in the prior state-court proceedings.

(Internal quotations and citations omitted).

Posted: October 7, 2015

Appeal Dismissed As Untimely Despite Appellant’s Observance of District Court Rules

On September 16, 2015, the Second Circuit issued a decision in Weitzner v. Cynosure, Inc., 14-723-CV, dismissing an appeal that was untimely only because the appellant followed the district judge’s rules regarding when to file a motion for reconsideration.

In Weitzner, the appellants “moved for reconsideration” of the EDNY’s decision dismissing their complaint, “but, in deference to the judge’s individual calendar rule prohibiting the filing of motions until the completion of briefing, did not file the motion until after passage of the 28-day time limit prescribed by Fed. R. App. P. 4(a)(4)(A)(vi) for the motion to toll the time for filing a notice of appeal.” Rather, the appellants filed their notice of appeal when the motion for reconsideration was denied.

The respondent argued that the appeal should be dismissed because of the failure timely to file the notice of appeal. The Second Circuit agreed and dismissed the appeal, explaining that the question it had to resolve was whether the appellants’:

failure to file within 28 days be equitably excused because the motion would have been filed within 28 days had they not delayed filing so as to comply with the district judge’s Individual Rule 3(d), requiring that filing be deferred until the motion is fully briefed. We are not at liberty, however, to grant plaintiffs equitable relief from the 28-day filing requirement unless that requirement should be deemed a “claim-processing” rule rather than a “jurisdictional” rule under the terminology adopted by the Supreme Court in Bowles v. Russell, 551 U.S. 205, 213 (2007). The Supreme Court ruled in Bowles that the 30-day time limit for the filing of a notice of appeal under FRAP Rule 4(a)(1)(A) is “jurisdictional” and therefore may not be waived for equitable reasons. Bowles explained that the litmus test for a “jurisdictional” rule is its institutional provenance: time limits that are mandated by statute (as opposed to those resulting from judicial recommendation with congressional acquiescence under 28 U.S.C. § 2074) are “jurisdictional,” meaning that they are not subject to waiver or equitable exception. . . . .

The very reasoning that led the Supreme Court in Bowles to the conclusion that the 30 days allowed under FRAP Rule 4(a)(1)(A) for a notice of appeal is “jurisdictional,” and thus not subject to waiver or equitable exception, suggests that the 28 days allowed for tolling under FRAP Rule 4(a)(4)(A)(vi) should be deemed not “jurisdictional.” It follows from the reasoning of Bowles that the 28-day time limit of FRAP Rule 4(a)(4)(A)(vi), which was adopted in a federal rule but not dictated by act of Congress, should be considered a “claim-processing rule,” which is subject to equitable exception or waiver.

Having ruled that the 28-day time limit could be equitably excused, one would think that the appellants’ appeal would then be found to have been timely. But no. The Second Circuit went on to dismiss the appeal, holding:

Nevertheless, considering a number of the factual circumstances, we conclude that Plaintiffs do not qualify for such an exception. It is true that, were it not for the district judge’s Individual Rule, Plaintiffs would in all likelihood have filed their Rule 60(b) motion within 28 days following judgment, and would therefore have qualified for tolling of their time to file notice of appeal. First, however, Plaintiffs had abundant opportunity to ask leave of the court to file the motion, and did not do so. Upon serving the motion, counsel filed a letter advising the court of the motion. The letter included no request to be allowed to file the motion promptly. Following the letter, and well within the allowable 28 days, counsel met with the judge to schedule the briefing and filing of the motion for reconsideration. Plaintiffs again had ample opportunity at that conference to ask the district judge to be excused from delaying the filing until the briefing of the motion was complete, so that the judge’s individual rule would not cause Plaintiffs to forfeit their right of appeal. Instead of making such a request, Plaintiffs consented to a scheduling order under which the motion for reconsideration would not be filed until after the passage of 28 days. Furthermore, Plaintiffs delayed their briefing and filing by several months after the date recited in the scheduling order without asking for leave to do so. Because Plaintiffs did not take any reasonable measures to preserve their rights, no unique circumstance exists to justify application of an exception to the filing requirements of Appellate Rule 4(a).

The court went on to try to explain why compliance with the trial court’s rule did not warrant a different result:

The possibility that a party might forfeit a meritorious appeal because the district judge announced a personal rule prohibiting the filing of motions is deeply troubling. As discussed above, it is not so troubling in the present case, first, because counsel had every opportunity to request relief from the district judge’s prohibition and failed to do so, and, second, because this appeal appears in any event to be without merit. Nonetheless, the capacity of such a rule to result in the forfeiture of a meritorious appeal is obvious.

An individual judge’s rule prohibiting the filing of a motion until the completion of briefing seems of doubtful consistency with the requirement of Fed. R. Civ. P. 5(d)(1) that any paper after the complaint that is required to be served must be filed within a reasonable time after service. Furthermore, because important litigating rights can be forfeited by the failure to file a motion within a specified number of days, it seems clear that a judge’s adoption of a rule that prohibits reasonably prompt filing runs the risk of causing litigants to lose important litigating rights, including the right to seek on appeal to overturn an erroneous judgment.

Fifteen years ago in Camacho v. City of Yonkers, we noted that a judge’s individual rule requiring litigants to delay the filing of a motion (in that case the rule required delaying the filing until after a conference with the court) was likely to serve as a snare for the unwary litigant. We urged district courts to modify such rules so they do not lead the unwitting to believe they have preserved a right to appeal when in fact they have not. In spite of that exhortation, we have found in studying this forfeited appeal that numerous district judges in this circuit continued to publish individual rules that prohibit the filing of a motion, either until after a conference with the court, or until completion of briefing on the motion. It is a virtual certainty that such rules will continue, on occasion, to cause litigants to forfeit important rights in the good-faith, but erroneous, belief that they cannot be held to have defaulted for failure to file a motion when they are commanded by the judge not to file the motion.

While it is true that in many cases counsel will have the opportunity, as in this case, to ask the judge’s leave to file without delay, a judge is not always available to deal promptly with an emergency application. Nor is there a guarantee that all judges will reasonably grant an exception from compliance with their rules. Litigants should not be put in the position of risking to be held in contempt for violation of the court’s rules – simply for filing with the court a paper whose filing is not only permitted, but also required, by the federal rules.

We have no doubt that the purpose of such individual calendar rules is to assist district courts in dealing with significant administrative burdens. Nonetheless, we are confident that the useful objectives of such rules could be achieved in a manner that would avoid these unacceptable pitfalls.

We very strongly recommend that district courts promptly review their individual rules and practices so as to eliminate the unacceptable risk that litigants will forfeit rights because of observance of rules promulgated by individual judges, especially with regard to rules that are of questionable consistency with the governing provisions of the federal rules and statutes.

(Internal quotations and citations omitted).

Posted: September 14, 2015

Second Circuit Recognizes Retaliation Claims Under Section 1983

On September 2, 2015, the Second Circuit issued a decision in Vega v. Hempstead Union Free School District, 14‐2265‐CV, recognizing the existence of a retaliation claim under Section 1983.

In Vega, the plaintiff school teacher brought an action in the EDNY against his school district and two administrators alleging claims for “discrimination and retaliation claims under Title VII of the Civil Rights Act of 1964 . . . and 42 U.S.C. § 1983.” The EDNY granted the defendants’ motion for judgment on the pleadings on, among other claims, the plaintiff’s Section 1983 retaliation claim, holding that “claims of retaliation for complaining of discrimination are not actionable under § 1983.” The Second Circuit reversed.

The court recognized that it had:

sent conflicting signals in this respect.  In Bernheim v. Litt, on which the district court relied, we observed that we know of no court that has recognized a claim under the equal protection clause for retaliation following complaints of racial discrimination. We declined to break new constitutional ground in that case, reasoning that retaliation claims based on complaints of racial discrimination can be brought under Title VII, which the plaintiff had chosen not to invoke. . . . .

In 2010, however, in Hicks v. Baines, we permitted retaliation claims brought by state employees to proceed under § 1983, even though the adverse treatment was allegedly in retaliation for their participation in discrimination investigations and proceedings. . . . In Hicks we did not discuss or cite Bernheim.

(Internal quotations and citations omitted). The court went on to explain that it had

conclude[d] that a claim of retaliation for a complaint that alleged discrimination is actionable under § 1983 for the following reasons.

First, our decision in Hicks squarely recognized that an employer’s retaliatory action in response to an employee’s participation in discrimination investigations and proceedings constituted an impermissible reason to treat an employee differently for purposes of the Equal Protection Clause.  In Bernheim, we did not directly address the question because we were reluctant to break new constitutional ground when there was an apparent remedy for relief under Title VII. In fact, however, Title VII did not provide a means for relief in that case because the claims were against the individual supervisor, the principal of the school where the plaintiff was a teacher. Hence, Bernheim was decided on the basis of an incorrect premise.
     
Second, we have recognized that once the color of state law requirement is met, except for the issue of individual liability, an equal protection claim parallels a plaintiff’s Title VII claim. There is no sound reason to deviate from this principle for a retaliation claim, when the retaliatory action is taken because a plaintiff complains of or otherwise opposes discrimination.

Third, more substantively, retaliation is a form of discrimination.  As the Supreme Court recognized in the Title IX context:
Retaliation against a person because that person has complained of sex discrimination is another form of intentional sex discrimination encompassed by Title IXʹs private cause of action.  Retaliation is, by definition, an intentional act.  It is a form of discrimination because the complainant is being subjected to differential treatment. Moreover, retaliation is discrimination on the basis of sex because it is an intentional response to the nature of the complaint: an allegation of sex discrimination.  We conclude that when a funding recipient retaliates against a person because he complains of sex discrimination, this constitutes intentional discrimination on the basis of sex, in violation of Title IX.

This reasoning applies with equal force to the employment context.  When a supervisor retaliates against an employee because he complained of discrimination, the retaliation constitutes intentional discrimination against him for purposes of the Equal Protection Clause.

(Internal quotations and citations omitted).

Posted: August 24, 2015

Second Circuit Holds that Applying for ACA Accommodation is not a Substantial Burden Violating RFRA

On August 7, 2015, the Second Circuit issued a decision in Catholic Health Care System, v. Burwell, 14-427-cv, reversing the EDNY and holding that “regulations promulgated under the Patient Protection and Affordable Care Act that allow religious non-profit employers to opt out of providing contraceptive coverage do not themselves substantially burden Plaintiffs’ religious exercise in violation of the Religious Freedom Restoration Act.”

In Catholic Health Care System, the plaintiff “religiously-affiliated organizations that did not qualify for the ACA’s ‘religious employer’ exemption,” brought an action asserting that applying for “the so-called ‘accommodation,’ which applies more broadly to religious non-profit organizations that object to providing contraceptive coverage” violated their rights under RFRA. The EDNY granted the plaintiffs summary judgment, but the Second Circuit reversed, explaining:

At the threshold, RFRA requires us to assess whether Plaintiffs have shown a substantial burden on their exercise of religion. If the law’s requirements do not amount to a substantial burden under RFRA, that is the end of the matter.

. . .

In analyzing the substantiality of a burden under RFRA, we employ an objective test. RFRA plaintiffs must show that the government has imposed a burden that is substantial, not simply one that they believe is substantial. To be sure, the government concedes, and we do not doubt, the sincerity of Plaintiffs’ belief that providing, paying for, or facilitating access to contraceptive services is contrary to their faith. Nor do we doubt that, in Plaintiffs’ religious judgment, participation in the accommodation violates this belief. However, accepting the sincerity of Plaintiffs’ beliefs does not relieve this Court of its responsibility to evaluate the substantiality of any burden on Plaintiffs’ religious exercise. Although a court accepts a litigant’s sincerely held religious beliefs, it must assess the nature of a claimed burden on religious exercise to determine whether, as an objective legal matter, that burden is “substantial” under RFRA.

. . . [W]hether a law substantially burdens religious exercise under RFRA is a question of law for courts to decide, not a question of fact.

(Internal quotations and citations omitted). With this background, the Second Circuit held that the ACA’s requirement that a plaintiff “send a single sheet of paper communicating its eligibility and religious objection” did not constitute a substantial burden, rejecting arguments that (1) the heavy fines for non-compliance constituted a substantial burden, noting that “[a]n objectively insubstantial burden does not become substantial simply because a RFRA plaintiff faces substantial burdens in the alternative” and (2) obtaining the accommodation, while exempting plaintiffs, nonetheless made them complicit in the “provision of contraceptive coverage by the government and third parties.”

Posted: August 19, 2015

Second Circuit Examines Accrual of Claims for Unauthorized Computer Access

On August 4, 2015, the Second Circuit issued a decision in Sewell v. Bernardin, Docket No. 14‐3143, “address[ing] a matter of first impression in” the Second “Circuit: the operation of the statutes of limitations applicable under the civil enforcement provisions of the Computer Fraud and Abuse Act (“CFAA”), 18 U.S.C. § 1030, and the Stored Communications Act (“SCA”), 18 U.S.C. § 2701, et seq.”

In Sewell, the plaintiff sued the defendant, “her former boyfriend” in the EDNY for violating the CFAA and SCA by accessing her “e‐mail and Facebook accounts without her permission.” The EDNY found that both claims were time-barred. The Second Circuit affirmed with respect to the claims relating to access to the plaintiff’s email account because she:

discovered the “damage” to her AOL account for CFAA purposes on August 1, 2011, when she learned that she could not log into her AOL e‐mail account.  That she may not have known exactly what happened or why she could not log in is of no moment.  The CFAAʹs statute of limitations began to run when [the plaintiff] learned that the integrity of her account had been impaired.

(Internal quotations and citations omitted) (emphasis added). On the other hand, the Second Circuit held that the EDNY had erred in holding that the plaintiff’s claims regarding her Facebook account were time-barred, explaining:

[The plaintiff’s] Facebook‐related claims, by contrast, appear to have accrued on or about February 24, 2012.  Her complaint alleges that she was the sole authorized user of her Facebook account. On or about February 24, 2012, she discovered that she could no longer log into or access her account with www.facebook.com because her password had been altered. There is nothing in the facts as alleged in the complaint from which to infer that anyone gained unauthorized access to her Facebook account before then.  Thus, taking these allegations as true, there would have been no damage, for CFAA purposes, or violation, for SCA purposes, for [the plaintiff] to discover with respect to her Facebook account before that date, which was less than two years before the suit was brought.

(Internal quotations and citations omitted).

Posted: August 14, 2015

Court Rejects Settlement in Class Action Due to Improper Communications by Class Counsel

In In re Am. Express Anti-Steering Rules Antitrust Litigation, 11-MD-2221 (E.D.N.Y. August 4, 2015), Judge Nicholas G. Garaufis took the unusual step of denying a motion for final approval of a negotiated settlement in an antitrust class action on the ground that he was not satisfied that the settlement was “fair, reasonable, and adequate” because of his “serious concerns about the Settlement’s substantive fairness.” Slip op. 21.

The circumstances that justified this rare occurrence were the revelation of private communications between the lead lawyer for the class plaintiffs, Gary Friedman, and Keila Ravelo, a defense lawyer for AmEx competitor MasterCard in a separate class action (where the class of plaintiffs substantially overlapped with the class in the AmEx litigation, though Friedman was not involved in the MasterCard action). Friedman, a longtime friend and former law school classmate of Ravelo, was regularly consulting with her on case strategy related to his action against AmEx. In the course of those discussions, he disclosed confidential information produced by AmEx under a protective order. He was apparently aware of the sensitive nature of his disclosures, as he marked at least two of them with the words, “Burn after reading.” Slip op. 25.

The court ruled that Friedman’s “improper and disappointing conduct . . . fatally tainted the settlement process,” slip op. 21, in part because the relief sought in the AmEx action impacted what relief would be available in the MasterCard action in which Ravelo was involved. And the court rejected Friedman’s co-counsel’s assertions that they could carry the settlement to its conclusion without him, noting that “Friedman’s co-counsel may be more interested in protecting Friedman, their settlement, and their attorneys’ fees application, than they are in protecting the merchant class that they purport to represent.” Id. at 39.

Posted: August 11, 2015

Judge Weinstein Chastises New York City for Abusive Revocation of Retirement Benefits

“It is somewhat absurd for a federal district judge to have to slosh its way through the swamps of New York City retirement plans.” So lamented Judge Weinstein as he began his lengthy analysis of the plaintiff’s challenge to a decision by one of New York City’s employee pension systems to revoke the plaintiff’s eligibility for the richest category of benefits. Nonetheless, slosh the judge did in King v. New York City Employees Retirement System (NYCERS), 13 CV 4730 (E.D.N.Y. Aug. 10, 2015), and granted judgment for plaintiff—on a motion to dismiss brought by the Corporation Counsel.

The court suggested that to avoid such an exercise by federal courts, which in this case followed an Article 78 proceeding in state court, there should be “a single state cause of action” for challenging “the accuracy of the administrative decision denying a pension claim,” in which “a possible due process claim, a possible breach of contract claim, and any other challenge to the denial” should be determined “in one litigation, in one state court, by one state judge, on the merits.” Slip op. at 3-4 (emphasis in original). Such a claim, Judge Weinstein continued, “should be adjudicated, where practicable, administratively before a final adverse decision is made by NYCERS.” Id. at 3. In the wake of this decision it would be surprising if NYCERS does not take steps to create a pre-deprivation process for pensioners to challenge adverse decisions on benefits.

Plaintiff David King first worked for New York City for six years in the 1970s, and on that basis became eligible for a Tier 1 pension plan, the most generous of the four tiers of plans offered by NYCERS. By the time he returned to city government employment in the 1980s, the pension laws had been revised and he was now considered a Tier 4 employee, a formula yielding a lower retirement benefit. See id. at 8, 10, 15. He retired in August 2000. Id. at 16. Under state law, he was allowed to, and did, apply for reinstatement as a Tier 1 member, and in an October 2005 letter, NYCERS informed him that was eligible to be reinstated into Tier 1. The letter told King that once he was back in Tier 1, his reinstatement was “irrevocable,” and thereafter King made the necessary payments to become reinstated. Id. at 16, 22.

Despite that seemingly categorical pronouncement, NYCERS subsequently revoked King’s Tier 1 reinstatement. In 2008, the agency informed him by letter that he was erroneously reinstated and in fact belonged in Tier 4, based on what the agency determined was his retirement date of November 16, 2000. See id. at 24-25. The letter did not explain how NYCERS determined that this was his retirement date (other than to say that this was his “payability date”) or that its decision could be challenged in court or with NYCERS. Id. at 25, 26.

After a tortuous path that included an Article 78 proceeding, a district court dismissal, and an appeal to and remand by the Second Circuit, the case returned to the district court on plaintiff’s claims for breach of contract, violation of the due process clause, violation of the pension provision of the New York State Constitution, and violation of section 349 of New York’s General Business Law. Judge Weinstein denied NYCERS’s motion to dismiss and ruled that the agency violated plaintiffs’ due process rights, both procedural and substantive, and committed a breach of contract. The absence of a pre-deprivation hearing at which King could contest the City’s intended revocation of his Tier 1 status violated procedural due process, and the post-deprivation process of an Article 78 proceeding, which King was not informed of, was in any event insufficient because it could not have cured the procedural due process problem of the lack of a pre-deprivation hearing. See id. at 43-44. The City committed a “gross abuse of governmental authority,” and therefore violated substantive due process, by failing to identify the statutory provisions it relied on to determine King was ineligible for Tier 1 benefits or to explain how it determined King’s retirement date and refusing to inform him that he had a right to challenge the decision reducing his benefits. Id. at 44-45. Judge Weinstein granted judgment for the plaintiff and stated that he was deciding the case “on the state contract claim under supplemental jurisdiction . . . rather than on the federal due process claim,” because the latter could leave room for pain and suffering damages “greatly exceeding his contract damages,” and this “would unduly burden the city pension system.” Id. at 53.

Posted: August 10, 2015

Reimbursement of Expert Fees Not Awardable Under FLSA

On July 29, 2015, the Second Circuit issued a decision in Gortat v. Capala Bros., 14‐CV-3304, reversing a decision by the EDNY and holding that expert fees may not be awarded to a prevailing plaintiff under the Fair Labor Standards Act.

In Gortat, the EDNY awarded the plaintiffs, who had prevailed on their FLSA claims against the defendant, not only attorneys’ fees, but also reimbursement of expert fees “beyond the allowances authorized by 28 U.S.C. § 1920.” The Second Circuit reversed the award of expert fees, explaining:

The Supreme Court has made clear on multiple occasions that, absent explicit statutory authorization, a district court may not award reimbursement for expert fees beyond the allowances authorized by 28 U.S.C. § 1920, as limited by 28 U.S.C. § 1821. Unlike other statutory provisions explicitly authorizing such reimbursement, 29 U.S.C. § 216(b) of the FLSA does not expressly address awards reimbursing prevailing plaintiffs for expert fees. In particular, § 216(b)’s reference to “costs” does not constitute explicit statutory authorization to award expert fees.   [T]he Supreme Court [has] stated that the word costs is a term of art that generally does not include expert fees. In the context of a fee provision contained in the Individuals with Disabilities Education Act (“IDEA”), 20 U.S.C. 18 § 1415(i)(3)(B), that likewise referred to costs, the Supreme Court stated that the use of this term of art, rather than a term such as expenses, strongly suggests that § 1415(i)(3)(B) was not meant to be an open‐ended provision that makes participating States liable for all expenses incurred by prevailing parents in connection with an IDEA case.

[That] reasoning is applicable here.  Because 29 U.S.C. § 216(b) of the FLSA does not explicitly authorize courts to award reimbursement for expert fees, it does not permit a court to award such fees beyond the allowances recoverable pursuant to 28 U.S.C. § 1920 as limited by 28 U.S.C. § 1821.3 8   For this reason, the district court erred in awarding $10,425 in costs for expert fees pursuant to this provision.

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

Posted: August 3, 2015

Attempt to Recover Money from Thief not Covered by Fair Debt Collection Practices Act

On July 21, 2015, the Second Circuit issued a decision in Beauvoir v. Israel, 14‐CV-3794, holding that an attempt to recover money owed as a result of a theft is not covered by the Fair Debt Collection Practices Act (“FDCPA”).

In Beauvoir, the defendant was an attorney employed by the company that provided natural gas to the plaintiffs’ home. The defendant contacted the plaintiffs, accusing them of tampering with their gas meter, allowing them to use gas that was unmetered, and thus, in effect, stolen. The plaintiffs sued the defendant in the EDNY for violating the FDCPA, claiming that the defendant’s communications with them had not complied with the requirements of the FDCPA in several ways. The EDNY dismissed the plaintiffs’ claims. The Second Circuit affirmed, explaining:

The FDCPA defines a “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.” We have held that, at a minimum, the statute contemplates that the debt has arisen as a result of the rendition of a service or purchase of property or other item of value.

Although we have not previously had occasion to address whether money owed as a result of theft constitutes a “debt” for purposes of the FDCPA, several of our sister circuits have addressed the question and unanimously held that liability deriving from theft or torts does not constitute a “debt’ within the meaning of the FDCPA. Each court reasoned that the transaction from which the obligation to pay money arises must, by definition, be one that is consensual in nature.

We join our sister circuits and hold that money owed as a result of theft is not an “obligation or alleged obligation of a consumer to pay money arising out of a transaction” and, therefore, does not constitute a “debt” for purposes of the FDCPA. Such an obligation plainly is not one that has “arisen as a result of the rendition of a service or purchase of property or other item of value.”

(Internal quotations and citations omitted).