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Archive for the tag “claims”

The Secret Defense to Debt Collection Matters

Unfortunately, many people find themselves in a situation where they get behind on paying their bills and, due to lack of funds, wind up not paying some of them.  Not paying one’s bills will more often than not result in that debt being sold to a collections agency and that agency suing the debtor for payment (and adding on all kinds of things, like interest, attorney’s fees, penalties and the like to boot).

Selling one’s debt to a collection agency is an important step in the process that directly affects the subsequent lawsuit against the debtor.  Typically, large lenders – especially lenders like credit cards companies – have a fair amount of debtors who stop paying (for whatever reason) on the debt owed to the lender which results in their debts being sent to collections.  When these lenders send debts to collections, they do so by selling the debts to a collection agency.  When they sell the debts to a collection agency, they will often sell the debts in bulk, often for pennies on the dollar.  The transaction benefits the creditor as it gets something for the debts owed without having to pursue costly and time consuming litigation.  The transaction benefits the collection agency because it can pursue collection (including law suit) against a debtor for the full amount despite having bought the debt for far less than its principal value, let alone its value inflated by interest and such.

More often than not, when debts are sold to collection agencies, the initial creditor (e.g.: a credit card company) simply provides an affidavit to the collection agency regarding the amount of the debts and the names of those who owe the debts.  Typically, no other document is supplied by the initial creditor to the collection agency, including any contracts with the debtor or anything bearing the signature on the debtor.  Once the collection agency assumes the debt, it has the right to bring suit against the debtor for the unpaid debt.

The lack of documentation of the contract with the debtor is absolutely key to any defense to the collection of the debt.  If the creditor brings suit against the debtor in the Court of Common Pleas and does not attach the contract between the debtor and the creditor which underlies the alleged debt, the debtor can file objections to the complaint (the document which initiates the law suit) asking for it to be dismissed due to the lack of a contract.  I can say, from personal experience, that such a tactic works as, very often, the collection agency pursing the debtor simply does not have the underlying contractual documentation to prove its case against the debtor.

If the case is brought in small claims court, the creditor does not have the obligation to include a copy of the contract to the complaint, so successfully defending against a collections law suit takes some shrewd strategy.  The lack of documentary evidence is still a huge problem for the creditor, but the small claims aspect of this matter makes the approach different and much trickier.  As the complaint does not require the contract to be appended to it, and the primary place for these matters to be resolved is at a hearing before a judge, the creditor has the procedural advantage.  At the hearing, the collection agency, armed with an affidavit from the initial creditor (as described above), secures almost all of the other evidence it needs to win against the debtor through the debtor’s testimony.

Here is how the hearing would play out: the creditor describes the claim to the judge, which is that the debtor had a contract with a credit card company (for example), he did not pay the debt owed, and is now in collections and all of this is supported by the affidavit.  Now, the affidavit, taken alone, is insufficient to win the case as there is no evidence that the debtor actually contracted with the creditor.  So, at the appropriate time during the trial, the creditor will ask the debtor some questions (i.e.: cross-examination).  These questions will be something like: “did you have a credit card from XYZ company on these dates”?  “Did you make charges on it?” “Did you make all the payments on it?”  “Do you owe $XYZ on the credit card?” And other questions like it.  At the end of the examination, the debtor himself provides all of the evidence against himself that the creditor needs to win the case against him.   As a result, the creditor will win the case against the debtor thanks to the debtor supplying all of the evidence, via his testimony, need by the creditor.

So, how does a debtor avoid the fate of the debtor in the above scenario?  That is where a good lawyer comes into play.

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Limiting Legal Malpractice Claims: Applying the Glenbrook Analysis

The statue of limitations for a legal malpractice action in Pennsylvania is two years from the date of the malpractice; however that time period may be extended under certain circumstances.  In Glenbrook Leasing Co. v. Beausang, 839 A.2d 437 (Pa. Super. 2003), affirmed, 881 A.2d 1266 (Pa. 2005), the Pennsylvania Superior Court explored the viability of various ways to potentially extend that two year period.

Plaintiff in Glenbrook is a real estate partnership which purchased office space in a condominium development to be used as medical offices.  The agreement of sale for the office space included language granting Plaintiff use (and alleged ownership) of 35 parking spaces.  Nothing was placed in the deed regarding Plaintiff’s ownership of the aforesaid parking spaces.

About six years later, the condominium association took action to limit Plaintiff’s use of the aforesaid 35 parking spaces.  Unsurprisingly, a dispute arose between Plaintiff and the condominium association regarding the ownership and use of the parking spaces, which eventually evolved into litigation.  The litigation culminated in a ruling in favor of the condominium association.  The ruling was based on the merger doctrine, which generally states that any guarantee to be granted in a real estate transaction must be stated in the deed to the subject property.  As applied to the instant matter, Plaintiff was considered not to have any ownership rights over the parking spaces as they were not memorialized in the deed to the property.

When the initial real estate transaction took place, Plaintiff was represented by Defendant, a real estate law firm.  Plaintiff believed that its loss in the litigation against the condominium association, and the resulting loss of the 35 parking spaces, was a direct result of the legal malpractice of Defendant in failing to take into consideration the merger doctrine, and by failing to include language regarding the parking spaces in the deed to the property at issue.  About a year after the conclusion of the litigation against the condominium association, and about six years after the association first presented the issues regarding the deed, and its lack of language dealing with the parking spaces to Plaintiff, the company brought suit against Defendant law firm, claiming it committed legal malpractice.

Defendant ultimately filed a motion for summary judgement, claiming that Plaintiff brought suit far beyond the two year statute of limitations.  The trial court ruled in favor of Defendant.  On appeal, the Superior Court affirmed the trial court’s ruling, and the Supreme Court issued a per curiam order affirming the Superior Court’s ruling.  It is the Superior Court’s opinion that is the subject of this article.

While the statue of limitation in a legal malpractice claim is two years, that period can be extended via the equitable discovery rule which sates that the two years is initiated not at the occurrence of the malpractice, but when it was, or should have been, discovered.  The Court ruled that Plaintiff discovered, or should have discovered, that there may have been legal malpractice six years before it initiated suit against Defendant (or four years longer than the two year statute allows) when the dispute with the condominium association first arose.

Plaintiff then argued that the Court should apply the “continuous representation rule” which states that the limitations period would not begin to run until plaintiff terminated Defendant’s services.  The Court was unmoved by Plaintiff’s argument to extend the legal malpractice statute of limitations based on the continuous representation rule.  The Court noted that the rule was not the law of Pennsylvania (although it is in other jurisdictions) and it is not the place of the Superior Court to adopt new rules without authority to do so.

Plaintiff next argued that the limitations period should be extended through estoppel, asserting that the “special relationship” between a lawyer and his client lulled Plaintiff into a false sense of security, through fraud, or deception, or concealment, to trust Defendant beyond when it would have been prudent to do so.  This sort of argument has traction among physicians and patients and Plaintiff attempted here to apply it to attorneys and clients.  The Court rejected this argument as well, as it found Defendant was completely candid with Plaintiff regarding the claims made by the condominium association, including providing Plaintiff with the first allegation of their own malpractice nearly six years prior to Plaintiff’s bringing suit.

Finally, Plaintiff argued that the question of precisely when it discovered the malpractice is a question of fact that should have been decided by a jury, not via a motion for summary judgement.  The Court rejected this argument as well, ruling that the facts in this matter were abundantly clear as to when Plaintiff discovered the malpractice.

The statute of limitations is critical to be aware of when considering bringing suit.  Although the Court made a variety of rulings, as described above, it is significant and useful in that it lays out some guidelines as to how to apply the various means to extend the statute of limitations and notably refuses to adopt and apply the continuous representation rule.

Originally published in Upon Further Review on September 24, 2015 and can be seen here.

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