Holding the plaintiff liable for its attorney's actions

[Recovering Attorney]

There has been discussion whether you can hold the OC or CA liable for FDCPA violations committed by its lawyer. I have found one case that supports that theory of recovery.

In Fox vs Citicorp Credit Services, Inc., the 9th Circuit found the Foxes sustained a claim against CCSI based on the fact its lawyer 1) sued in the wrong county and 2) sought a garnishment even though the Foxes were paying CCSI per stipulation. See 15 F3rd 1507, 1516.

Of course, when I say the court sustained the claim, I mean the 9 th Circuit reversed a summary judgment in favor of CCSI dismissing the claim, and sent it back to the trial court. So while it does not rule in favor of such an action, it gives you some legal precedent to show to a court.

I believe it has greatest value to the venue argument.

[c m chase]

There are several good ones....here's one I'm looking at now...Ditty v. Checkrite, Ltd., Inc., 973 F.Supp. 1320.

Here's a part of it:

2. Principal/Agent

It is well established that the attorney-client relationship is one between an agent and his or her principal. McCarthy v. Recordex Service, Inc., 80 F.3d 842, 852 (3d Cir.), cert. denied, 519 U.S. 825, 117 S.Ct. 86, 136 L.Ed.2d 42 (1996); see also United States v. 7108 West Grand Avenue, 15 F.3d 632, 634 (7th Cir.), cert. denied, 512 U.S. 1212, 114 S.Ct. 2691, 129 L.Ed.2d 822 (1994) ("[t]he clients are principals, the attorney is an agent, and under the law of agency the principal is bound by his chosen agent's deeds"); Von Hake v. Thomas, 858 P.2d 193, 195 n. 3 (Utah App.1993) (attorney is agent *1334 of client); Restatement (Second) of Agency § 1 cmt. e (1958) ("the attorney-at-law ... and other similar persons employed either for a single transaction or for a series of transactions, are agents"). Whether a principal is responsible for the actions of an agent, however, turns on whether the agent acted with either actual or apparent authority. Zions First National Bank v. Clark Clinic Corporation, 762 P.2d 1090, 1094 (Utah 1988); see also Jaeger v. Western Rivers Fly Fisher, 855 F.Supp. 1217, 1220 (D.Utah 1994). Plaintiffs contend that DeLoney and DeLoney & Associates acted with both actual and apparent authority.

To impose liability under a theory of actual authority, plaintiffs must demonstrate that CheckRite consented to the manner in which its attorney-agent collected the debts owed by plaintiffs. Newman, 912 F.Supp. at 1370 (citing Restatement (Second) of Agency § 7 (1958)). Actual authority can be either express or implied. Zions First National Bank, 762 P.2d at 1094.

Express authority exists whenever the principal directly states that its agent has the authority to perform a particular act on the principal's behalf. Implied authority, on the other hand, embraces authority to do those acts which are incidental to, or are necessary, usual, and proper to accomplish or perform, the main authority expressly delegated to the agent.... This authority may be implied from the words and conduct of the parties and the facts and circumstances attending the transaction in question.

Id. at 1094-95. Here, while the record indicates that CheckRite was well aware of the collection methods utilized by DeLoney and his law firm, there is no evidence that CheckRite expressly authorized DeLoney or DeLoney & Associates to utilize the "covenant not to sue" scheme. Thus, no express actual authority existed.

There was, however, implied actual authority. DeLoney & Associates and CheckRite entered into an oral contract which authorized the law firm to collect CheckRite's delinquent accounts. Under the terms of the contract, CheckRite and the firm shared in the proceeds of such collection efforts-- CheckRite received the face value of the check plus $20.00, DeLoney & Associates retained the balance. Further, CheckRite knew of the collection methods employed by DeLoney & Associates. CheckRite's Senior Vice President, Neil Auerbach, testified in his deposition that prior to the commencement of this suit, he had seen collection letters generated by DeLoney & Associates containing the covenant not to sue language.

In fact, Mr. Auerbach was aware that all of the attorneys retained by CheckRite for its collection activities, including DeLoney & Associates, utilized the "covenant not to sue" technique in their collection efforts. That CheckRite did not specifically manifest its consent to its attorney's use of the "covenant not to sue" scheme is not controlling, for "[t]he manifestation of the principal may consist of his failure to object to unauthorized conduct." Restatement (Second) of Agency § 26 cmt. d (1958); see also Lowder v. Holley, 120 Utah 231, 233 P.2d 350, 354 (1951) (manifestation of consent necessary to bind principal under theory of implied authority "may be proved by evidence of acquiescence with knowledge of the agent's acts" (quotations and citations omitted)).

CheckRite authorized DeLoney & Associates to do its collection work and then knowingly stood by while the firm utilized the "covenant not to sue" scheme. By its acquiescence, CheckRite impliedly authorized the collection practices of DeLoney & Associates and thus is liable for any violations of law caused by the firm's use of those practices.

CheckRite is also liable for its attorney's collection practices under the doctrine of apparent authority. "To be vicariously liable for the acts of [its agent] under a theory of apparent authority, [the principal] must conduct itself in such a way as to clothe its [agent] with apparent authority to perform the [acts] committed and there must be reasonable reliance on that apparent authority on the part of the injured party." Jackson v. Righter, 891 P.2d 1387, 1392 (Utah 1995). CheckRite effectively "clothed" DeLoney & Associates with apparent authority to collect dishonored checks using the "covenant not to sue" scheme.

The record indicates that CheckRite knowingly permitted DeLoney and his firm to employ the "covenant not to sue" practice in collecting dishonored checks on CheckRite's behalf. In addition, *1335 CheckRite manifested its consent to the collection practices of DeLoney and DeLoney & Associates. The second collection letter sent by CheckRite to each plaintiff warned that "it is [CheckRite's] practice to refer checks that remain unpaid to outside counsel for litigation" and listed "Attorney Fees and Court Costs," typically in the amount of $200.00, under the heading "POTENTIAL LIABILITY UNDER STATE LAW IF TOTAL DUE IS NOT PAID."

On the heels of this letter, plaintiffs received a letter from DeLoney & Associates informing them that their dishonored checks had been referred to the firm by CheckRite. This letter also advised each plaintiff that the firm had CheckRite's authority to settle the matter in exchange for a covenant not to sue. While the acts and representations of DeLoney & Associates were insufficient to create apparent authority on behalf of CheckRite, see Zions First, 762 P.2d at 1095, the letters from DeLoney & Associates reinforced CheckRite's manifestation of consent, found in its letters, of the firm's collection practices. In short, "by allowing [DeLoney & Associates] to identify themselves to third parties as representatives of CheckRite, [CheckRite] has made itself responsible for the acts of the attorneys performed in the course of that representation." Newman, 912 F.Supp. at 1371.

Acting in good faith, plaintiffs reasonably believed that DeLoney & Associates was authorized to collect dishonored checks on behalf of CheckRite using the "covenant not to sue" scheme. In an effort to avoid vicarious liability, CheckRite argues that DeLoney & Associates was an independent contractor rather than an agent. This may be so; however, it does not save CheckRite from liability under principles of agency because the terms "agent" and "independent contractor" are not mutually exclusive.

To the contrary, most of the persons known as agents, that is, brokers, attorneys, collections agencies, and selling agencies are independent contractors but, although employed to perform services, are not subject to the control or right to control of the principal with respect to their physical conduct in the performance of the services. However, they fall within the category of agents. They are fiduciaries, they owe to the principal the basic obligations of agency: loyalty and obedience.

McCarthy, 80 F.3d at 853 (quoting Restatement (Second) of Agency § 14N cmt. a (1958)). DeLoney & Associates acted as CheckRite's agent. That the law firm might also have been an independent contractor does not relieve CheckRite of vicarious liability.

Link to the whole case: http://www.ppforum.parachatboard.com/index.php?showtopic=95

[Recovering Attorney]

Check rite and Fox are fact-rich. It takes extensive discovery to develop this kind of case.

[admin]

Check rite and Fox are fact-rich. It takes extensive discovery to develop this kind of case.

So are you saying it takes alot of work to cite these cases?

[Recovering Attorney]

it takes discovery of the OC and the attorney to show that the OC knew what the attorney was up to, or that the attorney acted on direction of the OC, or such other connection. You would want to see contracts between the two, emails and correspondence regarding procedure, procedure on the matter at hand, you would want to depose employees, etc. IN each case, there was more going on than simply the OC asking a lawyer to sue the defendant for money.

[c m chase]

Glad I asked all that stuff from my CA/law firm that I'm suing.

However, Ditty says that actual knowledge of the collection process wasn't necessary to prove liability. Even if authority to do that stuff was IMPLIED, then they would be held liable. In my case, the law firm does work for this CA nearly everyday - and has for years. It would be implied that since they let them take so many cases, they agree with or give authority to them (expressly or otherwise) to use their standard collection methods.

Most big CAs and their collection lawyers would fall into this category, I would think.

[Recovering Attorney]

I read Ditty as one of those cases where Checkrite pissed the court off so much he was going to lay it on him anyway he could. Don't rely on the "does work everyday with them." Ask for a copy of their contract. Bet it says somewhere that teh lawyer will comply with the FDCPA and the like