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Hodges v. Sasil Corp.

January 31, 2007

ROCHELLE HODGES AND RENITA HODGES, PLAINTIFFS-RESPONDENTS,
v.
SASIL CORPORATION, SOTNAS GARDEN APARTMENTS CORPORATION, ROSALIE C. SCHECKEL, ESQ., 100 CHADWICK AVENUE, L.L.C. AND ALFONSO SANTOS, DEFENDANTS, AND FEINSTEIN, RAISS, KELIN & BOOKER, L.L.C., DEFENDANT-APPELLANT.



On appeal from the Superior Court, Appellate Division, whose opinion is reported at 383 N.J. Super. 596 (2006).

SYLLABUS BY THE COURT

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

This appeal requires the Court to determine whether a law firm that regularly files summary dispossess actions for nonpayment of rent may be considered a "debt collector" under the Federal Debt Collection Practices Act (FDCPA or the Act), 15 U.S.C.A. §§ 1692 to 1692o.

Renita Hodges and Rochelle Hodges are sisters who reside in separate apartments in Newark's Sotnas Garden Apartments operated by Sasil Corporation. Their rent is subsidized by the U.S. Department of Housing and Urban Development, commonly referred to as Section 8 rental assistance. The Hodges' rental obligation is defined by federal law as thirty percent of their adjusted monthly household income.

The Hodges signed identical rental agreements requiring monthly payment of rent for the use of their respective apartments. The agreements define "additional rent" as late charges, reasonable attorneys' fees, and court costs incurred as a result of the tenants' failure to comply with the agreements. The leases empower Sasil to terminate the agreements for the "non-payment of rent," but not "for failure to pay late charges."

The Hodges were regularly in arrears on rent, and thus accrued late charges, attorneys' fees, and court costs under their leases. Consequently, Sasil's attorneys, Feinistein, Raiss, Kelin & Booker, L.L.C. (Feinstein), a law firm that represents property owners and management companies in summary dispossess proceedings, filed actions seeking the Hodges' eviction or, alternatively, payment of "rent." Those complaints enumerated all rent, late charges, attorneys' fees, and miscellaneous fees as "rent" owed by the Hodges. However, in summary dispossess litigation, a landlord may not recover late charges, attorneys' fees, and miscellaneous fees against Section 8 tenants, such as plaintiffs, and, as Feinstein acknowledges, the failure to pay those charges and fees cannot serve as a basis for eviction. The complaints itemized all amounts due and owning, but labeled the total due as "rent." They did not inform the Hodges that they were required to pay only the statutorily-defined rent to avoid eviction. The Hodges claim that on more than one occasion, they were required to pay representatives of Sasil or Feinstein monies that included late charges, attorneys' fees and miscellaneous fees to avoid eviction.

The Hodges allege that the summary disposssess complaints were filed to induce them to believe they would be evicted unless they paid all enumerated charges, including amounts exceeding their statutory-defined rental obligation. Accordingly, they commenced an action against defendants Sasil, Feinstein, and others. The Hodges allege that by labeling late charges and legal fees "rent," Sasil and Feinstein violated the U.S. Housing Act, the N.J. Anti-Eviction Act, the N.J. Consumer Fraud Act, and the FDCPA.

The trial court granted defendants' motion for summary judgment before discovery, dismissing all counts except the CFA claim. The Appellate Division granted the Hodges' motion for leave to appeal, and reversed the dismissal in a published opinion. Hodges v. Feinstein, Raiss, Kelin & Booker L.L.C., 383 N.J. Super. 596 (App. Div. 2006). This Court granted Feinstein's motion for leave to appeal. The Court also permitted amicus curiae briefs to be filed by Legal Services of New Jersey, the New Jersey Apartment Association, the New Jersey HUD Tenants' Coalition, and the New Jersey State Bar Association.

HELD: Based on the Act's broad statutory language, a law firm that regularly files summary dispossess actions for nonpayment of rent is a "debt collector" under the FDCPA.

1. One of several statutory grounds permitting a summary dispossess action is nonpayment of rent. However, a landlord may not evict a tenant for failure to pay tangential fees such as late charges, attorneys' fees, or costs unless the lease provides that such fees are collectable as rent. A landlord's ability to evict is further circumscribed when a tenant's rent is federally subsidized, as here. Because "rent" is statutorily defined for Section 8 tenants, they can only be evicted for nonpayment of rent defined by federal law, not as defined pursuant to a rental agreement. (pp. 12-13)

2. Congress enacted the FDCPA in 1968 to eliminate abusive debt collection practices, to insure that debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses. "Debt" is defined broadly in the FDCPA as "any obligation . . . to pay money arising out of a transaction . . . primarily for personal, family, or household purposes." 15 U.S.C.A. § 1692a(5). Rent squarely comports with the FDCPA's definition of "debt" when it is paid for residential purposes. That finding is consistent with federal precedent. There is support for that position at the state level as well. (pp. 13-17)

3. The FDCPA defines "debt collector" as "any person . . . who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another." 15 U.S.C.A. § 1692a(6). For Feinstein and other law firms engaged in summary dispossess actions to be debt collectors, the filing of a summary dispossess action for nonpayment of rent must be either a direct or indirect attempt to collect debt. Interpreting the Act's plain language, the United States Supreme Court unanimously held that litigating attorneys who regularly attempt to collect debts are subject to the FDCPA. Heintz v. Jenkins, 514 U.S. 291, 115 S.Ct. 1489, 131 L.Ed. 2d (1995). An earlier version of the FDCPA expressly exempted attorneys from the Act's scope. However, as the Court in Heintz noted, Congress repealed the exemption in 1996, indicating a legislative intent to subject attorneys to the FDCPA. Further, Congress recently amended the FDCPA by excluding "formal pleading[s] in a civil action" from being treated as an initial communication from a debt collector. That amendment evinces a legislative recognition that the FDCPA applies to attorneys. (pp. 17-19)

4. According to Feinstein, attorneys engaged in summary dispossess actions are not debt collectors because the litigation is designed to recover possession, not rent. It is true that the sole remedy available in a summary dispossess proceeding is possession, not money damages. In practice, however, the summary dispossess action is also a powerful debt collection mechanism. The facts of this appeal demonstrate this to be so. Application of the FDCPA to law firms regularly engaged in summary dispossess actions furthers the congressional objective underlying the statute -- protection of consumers from debt collectors who coerce payment of debts and additional charges. For law firms or attorneys to be subject to the FDCPA's provisions, they must "regularly" engage in summary dispossess actions. Because this dispute was decided at the summary judgment stage, the record is incomplete concerning the regularity of Feinstein's participation in summary dispossess actions. Accordingly, this matter must be remanded for a determination of that question. (pp. 19-24)

5. Feinstein argues that the FDCPA and the State's court rules are incompatible, because application of the Act will discourage law firms from pursuing pre-trial settlement of their summary dispossess litigation. These contentions, however, do not justify refection of the Act's clear mandates. The Court refers the matter to the Special Civil Part Practice Committee to draft, for the Court's consideration, proposed rules to harmonize the FDCPA with the State's summary dispossess process. In the interim, the Court requires that complaints in summary dispossess proceedings be verified and expressly state the creditor's identity and the amount of the rent that must be paid by the tenant to avoid eviction. (pp. 24-32)

The judgment of the Appellate Division is AFFIRMED, and the matter is REMANDED for further proceedings consistent with this opinion.

JUSTICE LaVECCHIA has filed a CONCURRING and DISSENTING opinion, in which JUSTICE RIVERA-SOTO joins, expressing the view that attorneys who file summary dispossess actions are not "debt collectors" subject to the FDCPA, but agreeing with the majority's determination to require improvements to the State's summary dispossess process.

JUSTICES LONG, ALBIN, and WALLACE join in JUSTICE ZAZZALI's opinion.

JUSTICE LaVECCHIA filed a separate opinion concurring in part and dissenting in part, in which JUSTICE RIVERA-SOTO joins.

The opinion of the court was delivered by: Justice Zazzali

Argued September 25, 2006

Plaintiffs, two sisters living in separate, federally-subsidized apartments, were regularly behind on their rent. Their missed rental payments prompted the filing of several summary dispossess actions seeking eviction. The summonses and complaints, prepared by the landlord's attorneys, labeled the total amount due and owing -- the actual monthly rental obligation, late charges, attorneys' fees, and miscellaneous fees -- as "rent." The complaints did not advise plaintiffs that in order for them to avoid eviction, they were required to pay only the statutorily-defined rent rather than all amounts itemized in the pleadings. Therefore, under a mistaken belief concerning their obligations, plaintiffs regularly remitted amounts substantially exceeding the minimum needed to prevent eviction. They then filed suit, claiming that the law firm's conduct violated the Fair Debt Collection Practices Act (FDCPA, the Act), 15 U.S.C.A. §§ 1692e & f. The trial court dismissed that claim against the law firm. The Appellate Division reversed, holding that law firms regularly engaged in summary dispossess proceedings are subject to the FDCPA's strictures.

In this appeal, we must determine whether a law firm that regularly files summary dispossess actions for nonpayment of rent may be considered a "debt collector" under the FDCPA, 15 U.S.C.A. §§ 1692 to 1692o. Based on the Act's broad statutory language, we hold that a law firm that regularly files summary dispossess actions for nonpayment of rent is a "debt collector" under the FDCPA. Our holding furthers the congressional intent of eliminating abusive debt collection practices and provides low-income tenants with the essential protections to which they are entitled.

I.

Because this matter is before the Court following defendant's successful motion for summary judgment, we review the facts in the light most favorable to plaintiffs, the non-moving party. See R. 4:46-2(c); Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).

Plaintiffs, Renita Hodges (Renita) and Rochelle Hodges (Rochelle), are sisters who reside in separate apartments in Newark's Sotnas Garden Apartments operated by defendant Sasil Corporation (Sasil). Their rent is subsidized by the United States Department of Housing and Urban Development, commonly referred to as Section 8 rental assistance, 42 U.S.C.A. § 1437f. Each plaintiff's rental obligation is defined by federal law as thirty percent of her adjusted monthly household income. 42 U.S.C.A. § 1437a(a)(1); 24 C.F.R. § 5.601 (2001).

Plaintiffs signed identical rental agreements requiring monthly payment of rent for the use of their respective apartments. Although the lease agreements are somewhat unclear, they define "additional rent" as all late charges, reasonable attorneys' fees, and court costs incurred by Sasil as a result of plaintiffs' failure to comply with the agreements. The leases empower Sasil to terminate the agreements for the "non-payment of rent," but not "for failure to pay late charges."

Plaintiffs were regularly in arrears on rent, and thus accrued late charges, attorneys' fees, and court costs under their leases. Consequently, Sasil's attorneys, Feinstein, Raiss, Kelin & Booker, L.L.C. (Feinstein), a law firm that represents property owners and management companies in summary dispossess proceedings, filed actions seeking plaintiffs' eviction or, alternatively, payment of "rent." Those complaints enumerated all rent, late charges, attorneys' fees, and miscellaneous fees as "rent" owed by plaintiffs. However, in summary dispossess litigation, a landlord may not recover late charges, attorneys' fees, and miscellaneous fees against Section 8 tenants, such as plaintiffs, and, as Feinstein acknowledges, the failure to pay those charges and fees cannot serve as a basis for eviction. See Hous. Auth. & Urban Redevelopment Agency of Atl. City v. Taylor, 171 N.J. 580, 594 (2002) (holding that federal law prohibits collection of "additional rent" in summary dispossess proceeding from defaulting public housing tenant). The complaints itemized all amounts due and owing, but labeled the total due as "rent." The complaints did not inform plaintiffs that they were required to pay only the statutorily-defined rent to avoid eviction.

With the above as background, we now consider the specific circumstances concerning each plaintiff that gave rise to this dispute.

Renita Hodges

During the relevant period, Renita lived in her apartment with five children. Her sole income was a $424 monthly welfare payment. Her monthly rent, payable to Sasil, was $55. In October 2003, Feinstein, on Sasil's behalf, sent Renita a "Notice of Termination -- Non-payment of Rent" informing plaintiff that her lease would be terminated for "failure to pay rent." The notice stated that Renita owed $251, itemized as $91 for rent, $120 in late fees, and $40 in "AC," which is not defined. Shortly thereafter, Feinstein filed, on Sasil's behalf, a summons and complaint against Renita for nonpayment of rent. The summons read: "The purpose of the attached complaint is to permanently remove you and your belongings from the premises." Further, the summons prominently stated that "back rent" of $460 was owed. Itemizing the amounts owed, the complaint declared: "There is due, unpaid and owing . . . $460.00 for rent . . . ." The $460 debt was composed of the $251 itemized in the notice of termination, plus an additional $30 late fee and $179 in legal fees. Although Renita was ...


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