United States District Court, Southern District of New York
August 6, 1990
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA. AND D'AMATO & LYNCH, PLAINTIFFS,
STEPHEN HARTEL, DEFENDANT.
The opinion of the court was delivered by: Stanton, District Judge.
MEMORANDUM AND ORDER
Defendant Stephen Hartel invested $100,000 in a tax-shelter
limited partnership which was formed to purchase and operate
hotels and motels. He paid for his partnership interest with a
cash payment of $6,670 and promissory notes for $93,330. Hartel
signed the promissory notes in Louisiana, where he resides. The
partnership negotiated the promissory notes to a bank, to
secure a loan of working capital to the partnership. Plaintiff
National Union Fire Insurance Company of Pittsburgh, Pa.
("National Union") issued a bond which guaranteed, to the
partnership and to the
bank, that Hartel would make all of the capital contributions
represented by his promissory notes to the partnership. In
return for guaranteeing Hartel's notes, National Union required
him to execute an indemnity agreement in which he agreed to
reimburse National Union for any payments it made on the notes
to the bank on his behalf.
Hartel stopped making his required contributions, and
National Union made them on his behalf. National Union
commenced an action (the "reimbursement action"), No. 88 Civ.
4768 (S.D.N.Y.) (LLS), seeking reimbursement under the
indemnity agreement Hartel gave National Union when it
guaranteed his payments, and as subrogee on the notes on which
he had defaulted. Since an issue arose whether the filing of
the reimbursement action violated the venue provision of the
Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692-1692m,
National Union and D'Amato & Lynch, the law firm
representing National Union in the reimbursement action (and
many others), commenced this action, seeking a declaratory
judgment that they had not violated the FDCPA.
Both sides have moved for summary judgment.
Section 1692i(a)(2) of the FDCPA provides that any debt
collector who brings any legal action on a debt against any
bring such action only in the judicial district or
similar legal entity —
(A) in which such consumer signed the contract
sued upon; or
(B) in which such consumer resides at the
commencement of the action.
The question presented is whether that section applies, to
require the filing of the reimbursement action in Louisiana,
rather than New York.
Defendant's motion is denied, and plaintiffs' motions are
The promissory notes signed by Hartel are not a "debt" within
the meaning of section 1692a(5) of the FDCPA, which defines a
any obligation or alleged obligation of a consumer
to pay money 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,
whether or not such obligation has been reduced to
See Staub v. Harris, 626 F.2d 275
, 278 (3rd Cir. 1980) ("There
is nothing in the language or the history of the FDCPA to lead
us to believe that Congress intended to extend the scope of the
Act to encompass debtors of any kind other than consumer
debtors"); Zimmerman v. HBO Affiliate Group, 834 F.2d 1163
1168-69 (3rd Cir. 1987) ("We find that the type of transaction
which may give rise to a 'debt' as defined in the FDCPA, is the
same type of transaction as is dealt with in all other
subehapters of the Consumer Credit Protection Act, i.e., one
involving the offer or extension of credit to a consumer.
Specifically it is a transaction in which a consumer is offered
or extended the right to acquire 'money, property, insurance,
or services' which are 'primarily for household purposes' and
to defer payment"); Munk v. Federal Land Bank of Wichita,
791 F.2d 130
, 132 (10th Cir. 1986) (loan taken for agricultural
purposes is not a debt as defined by section 1692a(5)); see
also Bank of Boston International of Miami v. Arguello Tefel,
644 F. Supp. 1423, 1430 (E.D.N.Y. 1986) (doubtful that loan
taken to purchase interest in a textile company is a debt as
defined by section 1692a(5)); National Union Fire Insurance Co.
v. Pidala, No. 85 Civ. 4487, slip op. at 6 n. 2 (S.D.N.Y. May
28, 1986) (then-District, now Circuit, Judge John M. Walker
refers to argument that similar investor was a consumer as
specious: "He was not buying a washing machine on credit; he
was investing $55,000 in a tax-shelter partnership").
Nor is D'Amato & Lynch a "debt collector" within the meaning
of section 1692a(6) of the FDCPA, which defines a debt
any person who uses any instrumentality of
interstate commerce or the mails in
any business the principal purpose of which is the
collection of any debts, or who regularly collects
or attempts to collect, directly or indirectly,
debts owed or due or asserted to be owed or due
since it has engaged in activities only of a purely legal
nature in seeking reimbursement for National Union.
See H.R.Rep. No. 99-405, 99th Cong., 1st Sess., 1-7, reprinted
in 1986 U.S.Code Cong. & Admin. News 1752, 1753-57 (reflects
purpose, in amending FDCPA to delete provision exempting "any
attorney-at-law collecting a debt as an attorney on behalf of
and in the name of a client", of bringing under the FDCPA's
coverage attorneys engaging in activities traditionally carried
on by debt collectors); Hearing on H.R. 237 Before the Subcomm.
on Consumer Affairs and Coinage of the House Comm. on Banking,
Finance and Urban Affairs, 99th Cong., 1st Sess., 2-3 (1985)
(Rep. Annunzio, sponsor of Amendment, states "The removal of
the attorney exemption will not interfere with the practice of
law by the nation's attorneys. It will not prevent them from
representing the interests of their clients"); 132 Cong.Rec. H
10031 (1986) (after enactment of Amendment, Rep. Annunzio
states "Only collection activities, not legal activities, are
covered by the Act . . . The act applies to attorneys when they
are collecting debts, not when they are performing tasks of a
legal nature . . . The act only regulates the conduct of debt
collectors, it does not prevent creditors, through their
attorneys, from pursuing any legal remedies available to
them"); 53 Fed.Reg. 50,097, 50,100 (1988) (Staff of Federal
Trade Commission, the agency charged with administrative
enforcement of the Act, states that attorneys who engage in
traditional debt collection activities are debt collectors
under the FDCPA, but attorneys whose practices are limited to
legal activities are not); compare Crossley v. Lieberman,
868 F.2d 566
, 569-70 (3rd Cir. 1989) (attorney who, while
representing creditor loan company, sends debtor threatening
letter seeking payment of debt to him, and who also regularly
represents several other loan companies in collection
activities, held to be debt collector under the FDCPA), aff'g.
90 B.R. 682 (E.D.Pa. 1988).
Accordingly, the lawsuit for reimbursement is not required by
the FDCPA to be brought in Louisiana, where the defendant
resides and signed the promissory notes.
Plaintiffs' motions for summary judgment are granted.
Defendant's motion for summary judgment is denied. Plaintiffs
are to submit a judgment, on consent as to form if possible,
within thirty days from the date of entry of this order.
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