Condominium Attorneys’ Fees Held Not To Be Consumer Debt Under FDCPA
For those interested in following scorched-earth litigation in Illinois condominium practice, we have a ruling on another action brought by Marshall Spiegel. Spiegel v. Kim, No. 18-2449, 2020 WL 1073071 (7th Cir. Mar. 6, 2020). This time the Seventh Circuit affirmed dismissal of a claim under the Fair Debt Collection Practices Act (FDCPA), Pub.L. 90-321, Title VIII, as added by Pub.L. No. 95-109, 91 Stat. 874 (1977), brought by Mr. Spiegel against his condominium association’s attorney.
In the March 2019 Condominium Law FLASHPOINTS (available to IICLE® Online Library subscribers), we examined the Seventh Circuit’s affirmation of dismissal of Marshall Spiegel’s federal complaint (one of many) against his neighbors and local police for conspiracy to violate constitutional rights and for an intrusion into seclusion claim, all flowing from a unit owner’s video surveillance campaign against his neighbors. In the December 2019 Condominium Law FLASHPOINTS (available to IICLE® Online Library subscribers), we examined the Illinois Human Rights Commission’s affirmation of the dismissal by the Human Rights Department of Spiegel’s complaint that his human rights were violated by a condominium association rule prohibiting leaving personal property overnight by the pool and a rule change as to how late in the season the pool was kept open.
Background on FDCPA and Condominium Assessments
Before proceeding with the facts and law in the instant case, a brief review of FDCPA claims and condominium assessments may be helpful. In the August 2019 Condominium Law FLASHPOINTS (available to IICLE® Online Library subscribers), we briefly reviewed how for years the federal courts followed Zimmerman v. HBO Affiliate Group, 834 F.2d 1163, 1168 – 1169 (3d Cir. 1987), to read the definition of the term “debt” under the FDCPA to require an offer or extension of credit to a consumer.
In 1995, the U.S. Supreme Court, in a case arising from the Seventh Circuit, held that the FDCPA applied to lawyers collecting consumer debts through legal proceedings. Heintz v. Jenkins, 514 U.S. 291, 131 L.Ed.2d 395, 115 S.Ct. 1489 (1995). Two years later, the Seventh Circuit rejected Zimmerman’s extension of credit analysis regarding collection of condominium assessments in Newman v. Boehm, Pearlstein & Bright, Ltd., 119 F.3d 477, 480 – 482 (7th Cir. 1997). The Newman court found that condominium assessments were transactions for “money, property, insurance, or services” that arose with the purchase of the condominium unit. “It is therefore clear that the obligation to pay in these circumstances arose in connection with the purchase of the homes themselves, even if the timing and amount of particular assessments was yet to be determined.” 119 F.3d at 481. The court also found that the assessments were for personal, family, or household purposes simply because they arose from the purchase of the obligors’ home. Id. The court then took the analysis further by holding that regular and special assessments themselves were consumer debts within the scope of the FDCPA because they were for repair or maintenance services “for a household purpose even if more than a single household benefits.” Id.
Section 1692e of the FDCPA prohibits a debt collector from using any false, deceptive or misleading representation in connection with collection of a debt within the purview of the Act. 15 U.S.C. §1692e. This section of the Act itemizes 16 communications that may constitute violations of the FDCPA. One such subsection is §1692e(11), which expressly exempts the mini-Miranda language (“this is an attempt to collect a debt and anything you say may be used against you”) from pleadings in a legal action. Other that this specific exception, the fact that false, deceptive, or misleading representations are made in pleadings does not remove the communications from being actionable under the FDCPA. See Marquez v. Weinstein, Pinson & Riley, P.S., 836 F.3d 808, 811 (7th Cir. 2016).
Spiegel v. Kim
Spiegel had served as director of his condominium association until he was removed by a vote of the association members. The association sued Spiegel in state court for alleged unauthorized acts including “falsely holding himself out as president, attempting to unilaterally terminate another board member, freezing the association’s bank accounts, sending unapproved budgets to unit owners, and filing unwarranted lawsuits on behalf of the association.” Spiegel, supra, 2020 WL 1073071 at *1. The association sought to enjoin him from interfering with board actions or holding himself out as a director and also sought damages, costs, and attorneys’ fees. Id. The action was based in part on a restated declaration that Spiegel had signed when he bought his unit which provided that unit owners who violated the rules or obligations would pay the association’s damages, costs, and attorneys’ fees. Id. Ultimately, the state court enjoined Spiegel from certain conduct and awarded more than $700,000 in fees and sanctions against him. Id.
While the state court action was pending, Spiegel sued well-known condominium practitioner Michael Kim, the association’s attorney, for making the “run-of-the-mill request” of attorneys’ fees in the state court action. Id. Kim moved to dismiss, but the district court found that Spiegel’s pleadings were sufficient to state a claim. Kim answered and moved for judgment on the pleadings. After initially staying the proceedings, the district court decided that its decision would not interfere with the state court litigation and granted Kim’s motion for judgment on the pleadings. Spiegel moved to vacate the judgment and to amend his pleadings, but the trial court denied those motions. This appeal followed. 2020 WL 1073071 at *2.
The legal analysis involved in this case is simple. The district court held, and the Seventh Circuit affirmed, that the attorneys’ fees sought in the state court action did not constitute consumer debt.
Congress limited the definition of “debt” [under the FDCPA] to consumer debt — specifically, to an obligation “arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes.” Id., quoting 15 U.S.C. §1692a(5).
As the court held: “The fit is not there on any fair reading of Kim’s complaint.” 2020 WL 1073071 at *2. The complaint sought attorneys’ fees for Spiegel’s wrongdoings, not obligations arising from consensual, consumer transactions. The fact that the state court complaint referred to the restated declaration did not change the conclusion. “Put most simply, any nexus between the financial demand lodged in the state court litigation and a consumer transaction is way too remote to satisfy what Congress required in the FDCPA for an obligation to qualify as ‘debt.’ ” Id.
Relying on Newman, Spiegel argued that but for the purchase of the condominium unit, he would not have been on the board; but for his being on the board, he would not have been sued by the association; but for his being sued, he would not have been exposed to a demand for attorneys’ fees. The Seventh Circuit read Newman as relating to obligations to pay assessments that arise directly from the declaration and bylaws, not from actions that arose from serving as a board member. 2020 WL 1073071 at *3.
The Seventh Circuit concluded its opinion with a discussion concerning Spiegel’s motions attacking Kim for attaching to his brief copies of judicial decisions issued after the district court entered judgment so that the Seventh Circuit could take judicial notice of the decisions. The Seventh Circuit denied the motions and noted that Kim followed proper procedure. “Having taken judicial notice of the orders, it is not lost on us that the state court rejected all of Spiegel’s claims and reprimanded him for frivolous filings.” Id.
Questions Left Open
The Seventh Circuit’s holding here logically follows from precedent but may be the first appellate recognition we have had in the Seventh Circuit that to the extent a condominium or homeowners’ association is seeking to recover fines or indemnification claims, such claims are not consumer debts within the meaning of the FDCPA. Although the case concerned only attorneys’ fees claims, is it fair to infer the court’s analysis would apply to fines and charges outside of regular assessments and special assessments pursuant to the association’s budget process?
Also, the Seventh Circuit did not address the question of whether there is any impact arising from the permitted recovery of attorneys’ fees under §9.2(b) of the Condominium Property Act. Section 9.2(b) provides:
Any attorneys’ fees incurred by the Association arising out of a default by any unit owner, his tenant, invitee or guest in the performance of any of the provisions of the condominium instruments, rules and regulations or any applicable statute or ordinance shall be added to, and deemed a part of, his respective share of the common expense. 765 ILCS 605/9.2(b).
This section adds the association’s attorneys’ fees into the unit owner’s assessments for common expenses; does this statute transform these fees into consumer debt?
For more information about condominium law, see CONDOMINIUM LAW (ILLINOIS) — 2016 EDITION. Online Library subscribers can view it for free by clicking here. If you don’t currently subscribe to the Online Library, visit www.iicle.com/subscriptions.