Fed law applies to 3-day notice.

A Federal appeals court has upheld an earlier decision that equates an attorney signing a three-day notice to begin the New York State rent collection court process with a debt collector who must send consumers a 30-day letter allowing them to contest the debt before beginning collection.

The matter was brought by a tenant against her attorney, and this latest decision in Jennifer Lynn Romea vs. Heiberger & Associates was issued by the three-judge panel of the Court of Appeals for the Second Circuit on December 9th. It stunned real estate organizations and attorneys, who had believed the lawyers were on firm and settled legal grounds.

Many national groups filed amicus briefs because it could affect legal actions in more than 40 states, said Dan Marguiles, executive director of the Community Housing Improvement Program (CHIP), which was among those that did so.

Leave to appeal would now have to be requested from U.S. Supreme Court.

"Every indication was that this was an aberration and we would get it overturned," said Joseph Strasburg, president of the 25,000 owners of the Rent Stabilization Association (RSA) in referring to the first decision by Judge Lewis Kaplan. "Except for the exposure to the law firms, it will change the way business is conducted in the future. It will be another layer."

The law firms are exposed to lawsuits themselves, because this decision means they are violating Federal law each time they sign a three-day notice.

Tenant lawyer Colleen F. McGuire and her co-counsel, Robert E. Sokolski, both of McGuire & Zekaria, said they have an undisclosed number of lawsuits pending or in the process of being settled against owner's law firms. These attorneys could be facing tens of thousands of dollars in settlements or class action claims under the Federal statute, which has a one-year statute of limitations.

For instance, an active firm handling process for numerous large owners could easily have mailed out 1,000 three-day notices over the last year, if they did not change their procedures when the original Federal decision was issued on January 8, 1998.

"It was about that time the attorneys in this area rectified their behavior," said McGuire.

Under the Federal statute, each tenant is entitled to damages up to $1,000, and if the class is certified, there could be damages equal to the lesser of $500,000 or one percent of the debt collector's net worth, plus legal fees, Sokowski told REW last year.

"Every once in a while I see an old [three-day notice]," said McGuire. "If it was signed on January 15, 1998, that's still within a year, and that tenant to whom it was directed would still have time to file a complaint against that attorney."

But owners' groups wonder if anyone was really damaged under the Federal statute, since the three-day notice is a formality that normally does not get sent out until at least 13 days after the first of the month, and most often when rent has been due for two months. That notice is required to begin a series of legal procedures that under New York practice usually takes months or years before a settlement and timely payments are begun, or the tenant vacates the apartment.

The tenants' attorneys' theory behind using the Federal Debt Collection Practices Act (FDCPA) of 1977 (15 U.S.C section 1692) was that a communication from someone other than the creditor themselves must contain certain advisory language, and must give the debtor 30 days to contest the validity of the debt.

The entire issue can be avoided if an owner signs the three-day notice themselves, which they say is an annoyance and causes further delays, or by a managing agent that signed the lease with the tenant.

"It's disappointing, and an issue that owners and attorneys can avoid by simply having the owner or agent sign the notice rather than the attorney," said Margulies. "It's a paperwork hassle, but not an insurmountable obstacle. It's also not clear under state law that the notice has to be signed if the name of the owner is printed on the form."

That's because a typewritten signature could be construed as a legal signature, agrees McGuire, the tenant lawyer. But most attorneys don't want to take the chance that a tenant will object to the unsigned form, adding yet more motions and issues to worry about.

The law firm of Kucker Kraus & Bruh obtained a dismissal in a case entitled Chris Franceschi v Mautner-Glick last month. "We were able to distinguish it from Heiberger," said Santo Golino, a partner with the firm. "Southern District Federal Court Justice Denise Cote didn't base her decision on Heiberger, and she found the managing agent, Mautner-Glick, was not a debt collector. They are agents for the owner, but they executed the lease with the tenant."

But a case against the law firm itself is ongoing, although a possible settlement has been reached.

Owner advocates believe they will have to turn to Congress to carve out an attorney exception when they are merely sending a required notice under state law.

"It clearly wasn't the intent of Congress to interfere with the due process laid out in the state statute," said Margulies.

Added Golino, "There is no way Congress intended this to apply to the attorney in a situation like this. They intended it to protect the little old lady from debt collectors."