February 21, 2014

Illinois Appellate Court holds that attorney who filed lawsuit on behalf of unlicensed debt buyer did not violate FDCPA

Gibbs v. Blitt and Gaines, P.C., --- N.E.3d ----, 2014 IL App (1st) 123681, 2014 WL 554550

In Gibbs, the Illinois Court of Appeals upheld dismissal of a complaint against a law firm for an alleged violation of the FDCPA, finding that the suit filed by the law firm on behalf of its unlicensed debt collector client did not violate the Illinois Collection Agency Act ("the Act"). Accordingly, it could not serve as a viable basis for the FDCPA violation claim. Hinshaw & Culbertson handled the defense of the case. [according to Dave Schultz, we have client permission to identify we handled the case.

The defendant initially filed suit on behalf of its debt collector client for recovery of alleged outstanding credit card debt. The debt collector was not licensed in Illinois at the time the lawsuit was filed. The plaintiff filed a putative class action complaint, asserting the law firm engaged in illegal debt collection activity and violated the FDCPA. Defendant moved to dismiss the complaint on the grounds that attorneys are expressly exempted from liability under the Act, thus precluding the Act from serving as a basis for the FDCPA claim. The claim was dismissed, and this appeal ensued.

The court discussed LVNV Funding, LLC v. Trice, 952 N.E.2d 1232, 2011 IL App (1st) 092773. Plaintiff claimed that Trice stood for the proposition that a judgment obtained by an unlicensed debt collector was void. The plaintiff argued that the defendant was aware of this law and should have known that filing suit on behalf of its unlicensed client would result in a void judgment, thus constituting a violation of section 1692e.

The Court, however, stated that the Trice case was remanded and, on remand, the trial court upheld the judgment obtained by the unlicensed collector, finding portions of the Act were unconstitutional. That ruling is currently on appeal to the Illinois Supreme Court and Hinshaw & Culbertson is handling the appeal. Given its posture, the Gibbs Court held that the Trice decision does not support the debtor's claim that the law firm pursued a frivolous lawsuit. Furthermore, the law firm's filing of the complaint on behalf of its client did not violate the Act, which specifically exempts licensed attorneys. The court concluded that filing the lawsuit could not constitute an FDCPA violation.

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