Banking & Finance Law Report

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Legal mistakes, Good Faith Errors and the Fair Debt Collection Practices Act

Things looked bad for an Illinois law firm in 2014 when a consumer complaint was filed in federal district court against it. It was accused of violating the Fair Debt Collection Practices Act. The firm’s purported violation: Not anticipating when an appellate court would overrule established precedent.

And an opinion of United States Supreme Court overruled the firm’s best defense: that it had made a good faith legal error.

The matter began in 2013 when the law firm filed a consumer collection action. The FDCPA requires the filing of collection actions in the “judicial district” where the debtor lives or signed the contract.  The law firm reasoned that if the debtor lived in the Cook County judicial district, filing the suit would be proper there.  Its choice of venue was the First Municipal District of the Circuit Court of Cook County.

But there was a complication. There are many municipal districts in Cook County and the consumer did not actually live in the First Municipal District (although he did live in Cook County).

So should the law firm file the suit in the municipal district where the debtor lived? Or was it enough to file in the “judicial” district of …

Conflict of Interest and Cognovit Judgment

Does a conflict of interest arise under the Ohio Rules of Professional Conduct (“Rules”) when an attorney confesses judgment on a cognovit note? No, according to a recent opinion (Opinion 2014-3, August 8, 2014) issued by The Supreme Court of Ohio’s Board of Commissioners on Grievances & Discipline (“Board”), so long as the cognovit note contains a warrant of attorney that expressly waives a conflict and permits a creditor’s attorney to confess judgment pursuant to R.C. §2323.13. In issuing the Opinion, the Board reaffirmed and updated Advisory Opinion 93-3, which found no conflict existed under Ohio’s former Code of Professional Responsibility, which the current Rules replaced in 2007.

R.C. §2323.13 permits an attorney hired by a creditor to obtain cognovit judgment without notice or hearing in certain commercial transactions (typically loans and guaranties of loans) by producing in court a valid warrant of attorney that also contains a specific warning to the debtor of the rights being surrendered and otherwise complies with law. Ohio courts grant such cognovit judgments because the debtor consented in advance to the creditor obtaining a judgment upon the debtor’s default.

The Opinion specifically finds that confessing judgment does not create a conflict of interest under …

Be Conscientious About Standard of Care and Ethics Because, as with all Nightmares, This Could Happen to You

Editor’s Note:  From time to time, it is good for financial institution and other business executives to look at the world through from the point of view of their attorneys. In this context, we offer a recent experience of a Porter Wright attorney who is writing to reach other attorneys.

What could be a worse nightmare for an attorney and his client than the following scenario?

Because of a breakdown in communications between the attorney and the client during the sale of the client’s business, the client takes matters into his own hands, negotiates a few provisions in several agreements and closes the deal without seeking further advice from or telling the attorney. Shortly after the sale closes — and the client becomes an employee of the buyer — the seller is found to have breached the asset purchase agreement and, because of a cross-default provision in his employment agreement, is terminated for cause by the buyer. The seller turns around and sues the attorney for malpractice, claiming the attorney breached his standard of conduct. By the time the matter goes to trial, the claim for damages exceeds the attorney’s malpractice insurance coverage limits.

This nightmare was a four-year reality …