Second Circuit Holds a Threat of Suit Without Further Notice May Overshadow Consumer’s Validation Rights

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Troutman Pepper

[co-author: Noah DiPasquale]

Reversing a district court’s dismissal for failure to state a claim under the Fair Debt Collection Practices Act (“FDCPA”), the Second Circuit (“the Court”) ruled in Mizrachi v. Wilson, Elser, Moskowitz, Edelman & Dicker LP that a threat of suit without further notice included in the defendant’s debt collection letter may have overshadowed notice of the consumer’s validation rights also included in the letter.

The defendant, law firm Wilson, Elser, Moskowitz, Edelman & Dicker LP, sent plaintiff Jordan Mizrachi a debt collection letter stating the firm had been instructed by the creditor “to commence litigation against [Mizrachi] in order to collect” the debt, and warned, “THERE MAY BE NO FURTHER NOTICE OR DEMAND IN WRITING FROM [WILSON ELSER] PRIOR TO THE FILING OF SUIT.” The letter further informed Mizrachi that he could avoid legal consequences by “paying . . . now or making a suitable payment arrangement.” Pursuant to the FDCPA, the letter also included a notice explaining Mizrachi’s right to dispute the debt by demanding validation within 30 days. Mizrachi filed suit, claiming the letter violated the FDCPA because the apparent demand for immediate payment in combination with a threat of severe legal consequences overshadowed the validation notice. The district court dismissed the suit for failure to state a claim.

In a summary order released Thursday, November 5, 2020, the Second Circuit reversed the district court and held the complaint adequately alleged violations of the FDCPA. The Court noted the letter threatened a lawsuit, cataloged myriad consequences of such a suit, and suggested payment or arrangement of payment “now” was the sole means of avoiding suit. The Court rejected Wilson Elser’s argument that the word “now” only applied to payment and not the making of “a suitable payment arrangement,” concluding: “Even if the letter does not literally demand immediate payment, these warnings, combined with the all-caps admonition that no further notice might follow before a lawsuit is filed, could have created the misimpression that immediate payment is the consumer’s only means of avoiding a parade of collateral consequences, thereby overshadowing the consumer’s validation rights.” Furthermore, the letter contained no “transitional language” explaining that the demand for payment did not override the consumer’s validation rights, so the uncertainty created by the demand was left unmitigated. The letter failed to mention that the consumer’s demand for validation pauses the collection process, causing uncertainty not only as to whether the consumer could dispute the debt but also as to whether the consumer could withhold payment while doing so.

Creditors and debt collectors should note carefully the Second Circuit’s reasoning in this case and ensure that demand letters do not create a misimpression that immediate payment is the only means of avoiding a lawsuit. Such a misimpression may be avoided by including clear transitional language to explain that any demand for payment does not override the consumer’s validation rights – an important step the defendant in this case failed to take.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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