Violation of the New Jersey Professional Services Corporation Act Sufficient Basis for Violation of the FDCPA

When a New Jersey law firm purchased charged-off debt, then filed suit to collect it, it found itself facing a Fair Debt Collection Practices Act (“FDCPA”) putative class action. The lawsuit alleged that Hudson Law Offices, P.C. violated the New Jersey Professional Services Corporation Act (“PSCA”) by engaging in the business of purchasing defaulted credit-card debt and then suing alleged consumers to collect those debts.

In denying the law firm’s motion to dismiss the Complaint, a New Jersey Federal Court Judge found that the a law firm organized under the New Jersey PSCA is prohibited from engaging in any business other than rendering the professional services for which it was incorporated. In this case, the court interpreted the statute to limit the law firm to the practice of law, which would not include the purchase and collection of defaulted debt in its own name. The New Jersey PSCA provides:

No professional corporation shall engage in any business other than the rendering of the professional services for which it was specifically incorporated; and no foreign professional legal corporation shall engage in any business in this State other than the rendering of legal services of the type provided by attorneys-at-law;

The mere purchase of debt, the Court noted, is not prohibited by the PSCA, which itself provides “that nothing in this act or in any other provisions of existing law applicable to corporations shall be interpreted to prohibit such corporation from investing its funds in real estate, mortgages, stocks, bonds or any other type of investments.” (emphasis added).

But, the complaint here alleged that the law firm engaged in the business of purchasing and collecting debts that alleges a violation of the PSCA. Thus, if the law firm’s business includes the purchase of and collection of the same debt, it is arguably void against New Jersey’s public policy. If the business of purchasing and collecting debt is void, then the law firm would not lawfully be the owner of the debt it was attempting to collect, the Court wrote.

The Court found that under these circumstances the Plaintiff alleged a viable claim that the law firm’s conduct could violate §1692e(2)(A), a misrepresentation of the legal status of the debt.

The decision, Chulsky v. Hudson Law Offices, P.C., et al., 10-cv-3058 is available at this link.

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Donald Maurice provides counsel to the financial services industry, successfully litigating matters in the state and federal courts in individual and class actions. He has successfully argued before the Third, Fourth and Eighth Circuit U.S. Courts of Appeals, and has represented the financial services industry before several courts including as counsel for amicus curiae before the United States Supreme Court. He counsels clients in regulatory actions before the CFPB, and other federal and state regulators and in the development and testing of debt collection compliance systems. Don is peer-rated AV by Martindale-Hubbell, the worldwide guide to lawyers. In addition to being a frequent speaker and author on consumer financial services law, he serves as legal counsel to DBA International and as chair of the ABA's Bankruptcy and Debt Collection Subcommittee. He serves on the governing Board of Regents of the American College of Consumer Financial Services Lawyers and on the Governing Committee of the Conference on Consumer Finance Law .