[Editor’s note: Yesterday insideARM reported that the judge in the case of CFPB v. Hanna issued an order denying the defendant’s motion to dismiss. The order, released yesterday, is 70 pages. Today, as promised, we begin to provide analysis of that order. This is one of two articles – by two different attorneys – offering their view. You can find the other one, by Natalie Mencia, here.]

Joann Needleman

Joann Needleman

“Frederic J. Hanna & Associates, P.C. … is a self-proclaimed creditors’ rights law firm”. Those were the opening salvos issued by the Federal District Court in the Northern District of Georgia yesterday in flatly denying Frederic J. Hanna’s Motion to Dismiss the CFPB’s Enforcement Action.  The decision was a scathing rebuke of all of Hanna’s defense as well as an indictment of the debt buying industry as a whole.

The Court outlined its decision as follows:

The Practice of Law Exclusion did not Apply to Hanna
Although the Court found that Hanna was in fact practicing law and that the practice of law exception did not apply to FDPCA claims, Hanna was not was not rendering legal advice to consumers, therefore their litigation activities fell within the definition of a consumer financial product or service and thus fell within 12 USC § 5527e(2)(B), the exception to the exception.

Put another way, and which was further argued by the Bureau in its papers, because Hanna represented a creditor in an effort to collect a debt and was otherwise adverse to the consumer, Hanna does not receive the benefit of the practice of law exclusion. The Court cited to Miljkovic v. Sharfitz and Dinkin, P.A., 2015 U.S. App. LEXIS 11252 (11th Cir. 2015), in this and other sections of the decision for support of many of its conclusions. While  Miljkovic found that the FDCPA applies to attorneys who engage in debt collection litigation, the Miljkovic Court found in favor of the law firm whose conduct of opposing a garnishment proceeding did not otherwise violate the FDPCA.  More importantly the Miljkovic Court found that  “It would be passing odd to find that allegations that a state court filing asserted a legal position contrary to that of the consumer were sufficient to state a claim under § 1692e.” That holding was noticeably missing from the Hanna Court’s opinion.

Constitutional Defenses
Hanna argued that the Bureau’s claims infringed upon their First Amendment rights to petition the court for redress (Noerr-Pennington Doctrine) as well as violated the Equal Protection Clause of the Fifth Amendment for imposing what amounts to additional burdens to file certain law suits. The Court rejected both arguments finding that Noerr-Pennington does not extend to FDPCA claims and the fundamental right to access the court rests with the client and not the law firm.

Meaningful Involvement
The Court’s decision that the CFPB’s complaint stated a claim for meaningful involvement was certainly no surprise. Citing to the standard abundance of decisions over the years, the Hanna Court added nothing new. What was troubling was the Court’s analysis, including that meaningful involvement can extend to the filing of pleadings. While Hanna argued that consumers cannot otherwise be misled by a lawsuit because it informs the consumer that they have  in fact been sued, the Court saw it differently. Rather, when served with a law suit, the least sophisticated consumer would believe that the “lawyer reviewed [the] account and determined there was a valid claim.” The Court then went on to take a nasty and unfounded shot at Hanna:

Arguably, even the more sophisticated consumer would come to this same conclusion, unless of course the consumer is aware that the law firm who filed the complaint runs a litigation mill without any meaningful attorney involvement.

The court used the same logic and reasoning to find that the Bureau stated a claim for unfair, deceptive and abusive practice pursuant to the CFPA as well.

Use of Affidavits
The Court rejected Hanna’s defense that a heightened pleading standard was necessary to state a claim for the mis-use of affidavit. The Court went further in its analysis and took  judicial notice that Hanna represented debt buyers and  “debt buyers often or may routinely lack evidence of the debt they seek to recover.” For that reason, Hanna should have not relied on their client’s affidavit.

Statute of Limitations
Hanna’s final argument was that the one-year statute of limitations found in the FDCPA should otherwise be applied to the Bureau. The Bureau, in its response to its motion, made the famous quote  “quod nullum tempus occurrit regi” or “time does not run against the King,” so no statute of limitations applies. The Court somewhat sided with the King by declining to rule on the issue so as to “consider further judicial developments that may be of assistance.”

There is much speculation that Hanna will seek a request for Interlocutory Appeal. However the decision is littered with statements like “discovery may support these claims” or “at the early stage of this litigation” which suggests the Court wants the issues to be more fully developed. Nevertheless, the tone of the Court’s decision is quite troubling. Armed with very few facts otherwise alleged in the CFPB’s complaint, the Court made extremely broad conclusions about the Hanna law firm and the industry as a whole. The industry will be watching carefully as this matter progresses.


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