City Department of Consumer Affairs Cannot Regulate Lawyer Conduct

10/05/12

On Wednesday, U.S. District Judge Eric Vitaliano struck down part of a 2009 New York City law that allowed the New York City's Department of Consumer Affairs to expand the agency's oversight into debt collection activities, and effectively regulate the conduct of lawyers involved in the process. While passing the summary judgment, the judge observed, “With respect to attorneys authorized by state law to practice in the courts of New York, the DCA can have no role as gatekeeper.”

The ruling has been referred to the New York City Law Department by the DCA, and in an officially issued statement, a spokesman of the law department said, “This is an extensive decision that we are carefully studying and will consider our options.”

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The validity of the Local Law 15 was challenged in 2009 by Lawyer Eric Berman, DBA Asset Holdings Corp, and the law firm Lacy Katzen, as violating both New York State law and the U.S. Constitution. Local Law 15 broadens the definition of “debt collection agency” to include attorneys engaged in collection proceedings.

As, by law, all ‘debt collection' agencies need to be licensed by the DCA in order to operate in New York City, the Local Law 15, with its expanded definition of a “debt collection agency” imposed a condition upon lawyers to be licensed by the DCA in order to work on related proceedings.

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Judge Vitaliano recognized the plaintiffs' claim that it led to a violation of the New York Judiciary law if the DCA acquired authority to regulate the professional conduct of an attorney. Vitaliano also observed that allowing Local Law 15 would “directly regulate core aspects of the practice of law.”

The 75- page ruling, however, did not resolve a principal issue and left it unresolved. The question as to whether the Local Law 15 violated the Commerce Clause of the U.S. Constitution by imposing New York law on debt-buying companies based in other states.

Vitaliano observed, “To the extent that Local Law 15 regulates contracts formed entirely outside of the state, it violates the United States Constitution.” However, he also noted that the question of fact as to whether the contracts referred to by the plaintiffs were legally formed or not are not subject of the summary judgment concerning the authority of the DCA in regulating attorney professional conduct.

The case is Eric C. Berman v. City of New York, e U.S. District Court for the Eastern District of New York, No. 09-3017.