National Housing Law Project Housing Law Bulletin

Federal Court Permits Abusive Rent
Collection Challenge to Proceed

Many federally subsidized housing tenants face the ordeal of defending repeated baseless notices or lawsuits demanding payment of rent or other charges that are disputed or not owed. Because of the value of preserving the subsidized tenancy and the difficulty of obtaining counsel to defend any suit, tenants often suffer these practices despite their illegality. Recently, however, subsidized tenants in New York filed a class action in federal court against the owners, managers and their counsel, alleging that the practices violated a number of federal and state unfair debt collection and business practice statutes, as well as federal housing laws. Rejecting a motion to dismiss, Judge Jack Weinstein ruled that their claims can proceed. Travieso v. Gutman, Mintz, Baker & Sonnenfeldt, P.C., No. 94 CV 5756 (JBW) (E.D.N.Y. memorandum and order Nov. 16, 1995). Especially significant in this decision is recognition of the propriety of using the debt collection and unfair trade practices acts to challenge this harassment, and of suing a law firm pursuing baseless evictions under these statutes.

The tenants reside in the Sea Park and Bay Park developments in Brooklyn, buildings subsidized under the Section 236 and Rent Supplement programs. Their complaint alleged that the owners, management, and counsel (the defendants) established and pursued a practice of demanding rent and other charges beyond the limits of federal law, including market-level rents upon disputed recertification, and then commenced local eviction actions to collect rents and charges not actually due. The tenants further claimed that they were forced to appear repeatedly in local court to defend against these baseless claims and that, even after vindication, the levying of fees and charges and filing of eviction suits continued. For example, the named plaintiffs alleged that they were sued five times over a 15-month period despite having timely paid their lawful rent. Some of these suits sought rent arrearage that had explicitly been waived in prior proceedings.

The tenants' claims were based on the federal Fair Debt Collection Practices Act ("FDCPA"),¹ the United States Housing Act and implementing regulations, and the state's consumer protection statute.

FDCPA Claims

Significant for the FDCPA claims, which are expressly enforceable through a private cause of action, was the fact that the defendants included not just the owners and managers, but also the law firm that handled the owners' eviction actions. The objectionable practice was counsel's alleged failure to check the facts alleged as grounds for eviction prior to filing summary petitions. Seeking to dismiss the FDCPA claim against it, the law firm contended that application of the statute to counsel filing evictions would preempt the state's statutory eviction framework, and that Congress did not intend such a result.² The law firm claimed that the state eviction framework conflicted with the FDCPA because it creates a possibility for resolution prior to expiration of the 30-day dispute resolution period required by the FDCPA.

The court, finding that rent is a "debt" within the law's coverage,³ rejected this attempt to dismiss the claim, relying primarily on a recent United States Supreme Court case holding that attorneys engaged in litigation can be "debt collectors" within the FDCPA.⁴ The court found no conflict between the FDCPA and state eviction law because the eviction hearing process substantially satisfied the same purpose of the federal law's protections of debtors. What tenants are entitled to under the FDCPA is freedom from abusive debt collection practices at the earliest stage, including baseless summary eviction petitions which, according to the court, have little to do with quick resolution of disputes that reach housing court. The tenants' prevailing in court does not absolve the owner or counsel of potential liability for the abusive practice. The court also found the managing agent potentially liable as a debt collector under the FDCPA.

Federal Housing Claims

The tenants also alleged violation of federal housing laws and regulations by the owners and managers, seeking enforcement pursuant to 42 U.S.C. § 1983. The main issue here was whether these defendants satisfied the "color of state law" requirement of Section 1983. One owner was a wholly owned subsidiary of the New York State Urban Development Corporation, concededly a state actor for purposes of a Section 1983 claim. That owner sought refuge under the Eleventh Amendment immunity enjoyed by state entities.⁵ Because that owner is not a state agency and its employees are neither controlled nor paid by the state, the court declined to dismiss the Section 1983 claim against it and its managing agent. Regarding the other owner, a private limited partnership unconnected to the state, the court found that the applicability of Section 1983 presented a "serious issue" under applicable case law. It refused to dismiss the Section 1983 claim at this early stage because of allegations that the two owners acted in concert.

State Consumer Protection Law Claim

Most states have statutes protecting consumers against deceptive trade practices. All of the defendants argued that the contractual nature of the landlord-tenant relationship removes it from coverage under the consumer protection law. Rejecting this claim, the court cited numerous cases from New York courts.

Having left the tenants' claims largely intact, the court suggested that the parties pursue mediation to resolve their dispute. For others facing repeated problems with sloppy or harassing rent collection practices, Travieso's recognition of the viability of these consumer protection claims should prove useful in addressing the abuse.

1. 15 U.S.C.A. § 1692 (West 1994).
2. Central to this argument was the fact that the FDCPA provides a 30-day "debt validation" period to dispute debts, which would conflict with shorter time frames of the state summary process framework that can produce judgments more quickly. The court stated that this conflict was insignificant, since the tenants were not seeking to enforce that provision of the FDCPA to the exclusion of local eviction law, but only to be free from false and misleading representations, such as false rent bills, unlawful charges, and baseless eviction petitions, proscribed by the FDCPA.
3. Citing Emanuel v. American Credit Exchange, 870 F.2d 805 (2d Cir. 1989).
4. Heintz v. Jenkins, __ U.S. __, 115 S.Ct. 1489 (1995).
5. See Will v. Michigan Dep't of Police, 491 U.S. 58 (1989).