In a recent decision, the Eastern District of New York (“E.D.N.Y”) answered a question left open by the Second Circuit in Taylor v. Financial Recovery Services, Inc., 886 F.3d 212 (2d Cir. 2018). In Taylor, the Second Circuit explicitly refused to answer the question of whether the safe harbor language is required if interest may accrue on the account at some point in the future. In Medzhidzade v. Kirschenbaum & Phillips, P.C., No. 17-CV-6452, 2018 WL 2093116 (E.D.N.Y. May 3, 2018), the court gave its answer: No.
Read the decision here.
Factual & Procedural Background
Kirschenbaum & Phillips, P.C. mailed a collection letter to plaintiff for a Discover account that included the balance as of the date of the letter and the safe harbor language adopted by Avila v. Riexinger & Assocs., 817 F.3d 72 (2d Cir. 2016). The account was static while placed with Kirschenbaum & Phillips, but the cardholder agreement entered into between plaintiff and Discover provided for daily accrual of interest and for Discover to recover its legal costs from plaintiff where permitted by law.
Plaintiff filed a lawsuit against Kirschenbaum & Phillips alleging the letter failed to accurately state the balance owed. Motions for summary judgment were filed where two main issues were presented to the court. First, whether the Avila safe harbor language was sufficient under the itemization requirements of Carlin v. Davidson Fink LLP, 852 F.3d 2017 (2d Cir. 2017). Second, whether it was appropriate to include the Avila safe harbor language where the account balance was static but may increase at some time in the future.
On the Avila/Carlin issue, the judge decided consistently with the prior E.D.N.Y. decision on the issue. Specifically, the court found that Carlin is applicable only in the limited circumstance where the amount listed on the letter is an estimated pay off balance. Since the letter from Kirschenbaum & Phillips contained the balance as of the date of the letter, the court found that Carlin was inapplicable.
On the second issue, the court decided that the Avila safe harbor disclosure is not required where an account is static, even if it may increase in the future. In reaching this decision, the court looked to the cardholder agreement. The court recognized that there was a distinction between what the debt collector may do versus the rights of the creditor. The cardholder agreement that allowed for accrual of interest was between Discovery – not Kirschenbaum & Phillips – and plaintiff, since there was no evidence presented to show that Discover allowed Kirschenbaum & Phillips to collect interest. Because of this, the court decided that the Avila safe harbor language would not be appropriate in the letter.
This decision is a victory for the industry and provides the much needed support for the last few hanging Avila claims in New York. The Second Circuit left open the question of whether the ability of the account balance to change at some undisclosed point in the future impacts the Avila disclosure requirement due to the issue being raised for the first time on appeal. E.D.N.Y.’s opinion in this case, coupled with the Second Circuit’s denial of en banc review of their Taylor decision, should provide plenty of ammunition for debt collectors’ summary judgment motions.