Demanding payment of attorney’s fees in a foreclosure complaint that have not yet been incurred, without disclosing them as estimates, violates FDPCA

The Plaintiff-debtor in Kaymark v. Bank of Am., N.A., 783 F.3d 168 (3d Cir. Apr. 7, 2015) filed a class action against his lender and its foreclosure attorneys alleging, inter alia, violations of §§ 1692e(2)(A), (5), (10), and 1692f(1) of the FDCPA because the foreclosure complaint sought attorneys’ fees which were not actually incurred upon commencement of the foreclosure action. The District Court dismissed the case reasoning that the FDCPA claim – that defendants were not authorized to list not-yet-incurred flat fees in the foreclosure complaint – was rather hypertechnical. On appeal the Third Circuit reversed relying heavily on _McLaughlin v. Phelan Hallinan & Schmieg, LLP_, 756 F.3d 240 (3d Cir.2014) which found that nearly-indistinguishable conduct in a debt collection demand letter, rather than a foreclosure complaint, violated the FDCPA. A dunning letter seeking to collect fees and costs that had not actually been incurred as of the date stated in the letter constituted actionable misrepresentation under § 1692e(2). The Court found the facts of McLaughlin were virtually indistinguishable: the foreclosure complaint also plainly inform[ed] the reader of the specific amounts due for specific items as of a particular date, two months prior to the date of the complaint. The attorneys also did not convey that the disputed fees were estimates or imprecise amounts. Thus, pursuant to _McLaughlin_, the foreclosure complaint conceivably misrepresented the amount of the debt owed in violation of § 1692e(2)(A) and (10). By extension, the debtor also sufficiently alleged that the attorneys’ attempt to collect misrepresented fees was not expressly authorized by the mortgage contract or permitted by law. In fact, the contract specified that the lender could only charge for services _performed_ in connection with the default and collect all expenses_ incurred_ in pursuing authorized remedies. While such language is arguably capable of more than one meaning, viewed through the lens of the least-sophisticated consumer and in the light most favorable to the debtor, the most natural reading is that the attorneys were not authorized to collect fees for not-yet-performed legal services and expenses, in violation of § 1692f(1). The Court was not impressed with any of the counter-arguments advanced by the attorneys. It rejected the theory that pleadings cannot be the basis of FDCPA claim. It cited _Heintz v. Jenkins_, in which the Supreme Court confirmed that by repealing an express exemption for attorneys from the definition of debt collector in an earlier version of the statute Congress intended that lawyers be subject to the FDCPA. It also noted that subsequent to _Heintz_, Congress twice amended the statute and exempted formal pleading[s] made in connection with a legal action from only two sections, neither of which is at issue in this case. If Congress had wanted to exclude formal pleadings from the protections of the FDCPA under any of its other provisions, it could have done so. It did not. It also rejected the argument that because the communication was directed to the _court_, it was not a communication to the _consumer_ subject to §§ 1692e and 1692f. The FDCPA covers direct as well as indirect communications.

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