7th Circuit Court sanctions law firm for threat to sue under Fair Debt Collection Practice Act.

Byline: David Ziemer

A law firm was properly sanctioned for responding to a client's dunning letter with a frivolous threat to sue under the Fair Debt Collection Practices Act, the Seventh Circuit held on July 18.

Judith A. Kelly wrote a bad check to a riverboat casino in Illinois. Riddle & Associates, a Utah law firm, was retained to collect the debt. Riddle sent a collection notice to Kelly demanding payment of $125, which included the original debt and a $25 service charge.

Kelly did not respond to the notice for 10 months, but instead retained the law firm of Edelman, Combs & Latturner. Daniel Edelman of that firm sent a letter to Riddle threatening to sue Riddle under sec. 1692g of the Fair Debt Collection Practices Act. The letter claimed that Riddle's collection notice contradicted and overshadowed Kelly's right to dispute the debt, and demanded that Riddle pay $3,000 ($1,000 to Kelly for damages and $2,000 to Edelman for attorneys' fees) in order to avoid a lawsuit

Riddle's attorney, David Hartsell, a member of the Ross & Hardies law firm, sent a letter to Edelman, rejecting his demand for $3,000 and advising that "if you file suit over this matter, we will most assuredly seek sanctions . . . on the ground that such lawsuit was brought in bad faith and for purposes of harassment." Hartsell also demanded $500 in attorneys' fees and costs and noted that if payment was not received within one week, his client would "pursue [its] rights through all legally available means."

Edelman did not respond to Hartsell's letter, and Riddle brought an action in federal court against Kelly under the Declaratory Judgment Act, asking the court to declare that its collection letter did not violate the FDCPA.

Kelly counterclaimed against Riddle, alleging that the $125 demand letter to her contained a false threat of litigation in violation of sec. 1692e. In the counterclaim, Riddle did not raise the sec. 1692g overshadowing issue.

Kelly also counterclaimed against Ross & Hardies, claiming that the letter Hartsell sent to Edelman was an attempt to collect money from Kelly and therefore violated the FDCPA.

The district court granted summary judgment in favor of Riddle, finding that Riddle's letter was "virtually identical" to the "safe haven" letter that this court suggested in Bartlett v. Heibl, 128 F.3d 497, 501-02 (7th Cir.1997).

With regard to the counterclaim against Ross & Hardies, the court granted the firm's motion to dismiss because the letter...

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