1. Parties--motion to amend--joinder of counsel--no valid claim
The trial court did not err in denying defendants' motion to amend in order to join
plaintiff's counsel for purposes of defendants' counterclaims because defendants could not have
asserted a valid claim against plaintiff's counsel under the North Carolina Debt Collection Act in
the first place. N.C.G.S. § 1A-1, Rule 13(h).
2. Consumer Protection--debt collection--federal act--homeowners' association
The trial court properly dismissed defendants' unfair debt collection counterclaim against a
homeowners' association under the federal Fair Debt Collection Practices Act because this Act
only applies to those who regularly collect debts on behalf of others, and it does not apply to
creditors trying to collect their own debts.
3. Consumer Protection--Debt Collection Act--action against homeowners' association
The trial court erred in dismissing defendants' unfair debt collection counterclaim against a
homeowners' association under the North Carolina Debt Collection Act because: (1) the three
threshold requirements have been met since defendant-homeowners are consumers incurring an
obligation for family or household purposes, homeowners' association dues and assessments are
debts, and plaintiff-homeowners' association is a debt collector; and (2) the three generalized
requirements of all unfair or deceptive trade practice claims under N.C.G.S. § 75-51 have been
met since plaintiff represented that the amount needed to satisfy the obligation included attorney
fees well in excess of the fifteen percent limit, plaintiff's collection of dues and assessments was a
business activity in or affecting commerce, and defendants have alleged that plaintiff's actions
have injured their credit reputations and caused them emotional distress.
4. Costs--attorney fees--notice--prejudgment interest
The trial court erred in granting summary judgment in favor of plaintiff for its claim for
attorney fees because the forecast of evidence does not establish whether plaintiff complied with
the statutory notice requirement in N.C.G.S. § 6-21.2(5), and therefore, the trial court's grant of
prejudgment interest is also improper until a determination is made as to whether the notice
requirement had in fact been met.
Sellers, Hinshaw, Ayers, Dortch, Honeycutt & Lyons, P.A., by
John F. Ayers, III and Timothy G. Sellers for plaintiff-
appellee.
Dean & Gibson, L.L.P., by Rodney Dean, for plaintiff-appellee's counsel.
Hewson Lapinel Owens, PA, by H.L. Owens, for defendant-
appellants.
LEWIS, Judge.
Plaintiff Davis Lake Community Association is a homeowners'
association established for the purpose of maintaining a planned
development community within Mecklenburg County. Defendants are
residents who live in this planned community. This community is
subject to certain restrictive covenants under which plaintiff is
given the authority to collect quarterly assessments and other
maintenance charges from all community residents. Defendants
failed to pay these assessments for four consecutive quarters in
1996 and 1997. Plaintiff thereafter sent several demand letters to
defendants, attempting to collect the $200.95 outstanding balance
plus all attorney's fees incurred in trying to collect the
delinquent assessments. Defendants tendered a check for $200.95,
but this check was returned to them because it did not include
payment for all attorney's fees alleged to be owed. Plaintiff then
filed this action to collect the $200.95 in past-due assessments
plus reasonable attorney's fees. Plaintiff's counsel filed an
affidavit claiming their fees amounted to $2378.90 as of 28 October
1998, over ten times the amount of the outstanding balance.
Defendants thereafter filed a counterclaim for unfair debt
collection practices in violation of both state and federal laws. Plaintiff subsequently filed a 12(b)(6) motion to dismiss these
counterclaims and also filed a motion for summary judgment as to
its own claims. Defendants later sought to amend their
counterclaim in order to join plaintiff's counsel as a required
party to the counterclaims under Rule 13(h). The trial court
addressed all three motions in a series of orders entered 5
February 1999. First, the trial court granted plaintiff's motion
for summary judgment, ordering defendants to pay the $200.95
outstanding balance plus interest, together with attorney's fees in
the amount of fifteen percent of this balance. Second, the court
denied defendants' motion to amend their counterclaims in order to
join plaintiff's counsel. Finally, the trial court granted
plaintiff's motion to dismiss defendants' counterclaims. From
these orders, defendants now appeal.
[1]We begin by addressing defendants' motion to amend inorder to join plaintiff's counsel for purposes of their
counterclaims. Rule 13(h) governs the joinder of parties necessary
for the disposition of counterclaims and crossclaims.
Specifically, Rule 13(h) states:
When the presence of parties other than those
to the original action is required for the
granting of complete relief in the
determination of a counterclaim or crossclaim,
the court shall order them to be brought in as
defendants as provided in these rules.
N.C.R. Civ. P. 13(h). In a companion case also filed today, Reid
v. Ayers, No. 99-790 (N.C. Ct. App. June 6, 2000), we have held
that attorneys engaged in debt collection on behalf of their
clients are exempt from the North Carolina Debt Collection Act.
Accordingly, because defendants could not have asserted a valid
claim against plaintiff's counsel in the first place, joinder of
plaintiff's counsel was not "required for the granting of complete
relief" as to defendants' counterclaim. Consequently, the trial
court did not err in denying defendants' motion to amend.
[2]Next, we consider the propriety of defendants' unfair debt
collection counterclaims against plaintiff. We emphasize that, in
light of our holding as to the first issue, we are only dealing
with defendants' claims against the homeowners' association.
The essence of defendants' counterclaims is that, in
attempting to collect the outstanding balance, plaintiff
purportedly deceived defendants by intentionally misrepresenting
the amount of money needed to satisfy their outstanding obligation.
Specifically, defendants point to plaintiff's various collection
letters in which it attempted to collect attorney's fees well inexcess of $2000. Because N.C. Gen. Stat. § 6-21.2(2) specifically
limits the amount of attorney's fees recoverable to fifteen percent
of the outstanding debt, defendants assert plaintiff engaged in
unfair debt collection practices by trying to collect more than
that fifteen percent limit. Defendants have alleged claims under
both state and federal law, and we will address each claim
separately.
Defendants' claim under federal law was properly dismissed by
the trial court. The Fair Debt Collection Practices Act (FDCPA),
codified at 15 U.S.C. § 1692, proscribes certain enumerated
activities by "debt collectors." Under the FDCPA, "debt collector"
is defined as:
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 another.
15 U.S.C. § 1692a(6) (1998) (emphasis added). The FDCPA thus only
applies to those who regularly collect debts on behalf of others;
it does not apply to creditors trying to collect their own debts.
See Oldroyd v. Associates Consumer Discout Co., 863 F. Supp. 237,
241-42 (E.D. Pa. 1994); Kizer v. Finance Am. Credit Corp., 454 F.
Supp. 937, 939 (N.D. Miss. 1978); Mendez v. Apple Bank, 541
N.Y.S.2d 920, 923 (Civ. Ct. 1989). Because plaintiff was trying to
collect unpaid assessments and charges due it directly, the FDCPA
does not apply to plaintiff's acts.
[3]Under state law, however, we conclude that defendants havepled a valid claim. As we have stated in Reid v.
Ayers, the North
Carolina Debt Collection Act (NCDCA) contains three threshold
requirements before a claim based upon alleged unfair debt
collection practices may be considered. First, the party alleging
the claim must be a "consumer." N.C. Gen. Stat. § 75-50(1) (1999).
Defendants here, as homeowners within the Davis Lake Community
Association, are indeed consumers because they have incurred an
obligation (i.e. assessment fees) for family or household purposes.
Second, the obligation incurred must be a "debt." N.C. Gen. Stat.
§ 75-50(2). We concluded in Reid v. Ayers that homeowners'
association dues and assessments are "debts" within the meaning of
the statute. Third, the party against whom the claim is alleged
must be a "debt collector." N.C. Gen. Stat. § 75-50(3). Unlike
the FDCPA, our state act does not limit the definition of debt
collector only to those collecting debts on behalf of others; any
person engaging in debt collection from a consumer falls within the
statutory definition. Id. Under this plain language, plaintiff
here, as a homeowners' association trying to collect assessments
owed to it, is a "debt collector."
Once these three threshold requirements are satisfied, Reid v.
Ayers instructs us to next apply the more generalized requirements
of all unfair or deceptive trade practice claims: (1) an unfair act
(2) in or affecting commerce (3) proximately causing injury. First
Atl. Mgmt. Corp. v. Dunlea Realty Co., 131 N.C. App. 242, 252, 507
S.E.2d 56, 63 (1998). Thus, the debt collector first must have
committed an unfair or deceptive act. In the context of debtcollection, these acts include the use of threats, coercion,
harassment, unreasonable publications of the consumer's debt,
deceptive representations, and unconscionable means. N.C. Gen.
Stat. §§ 75-51 to -56. By alleging that plaintiff represented to
them that the amount needed to satisfy their $200.95 obligation
included attorney's fees well in excess of the fifteen percent
limit, defendants have satisfied the unfair or deceptive act
requirement.
Next, the debt collector's practices must be "in or affecting
commerce." N.C. Gen. Stat. § 75-1.1(a). "Commerce" includes "all
business activities, however denominated, but does not include
professional services rendered by a member of a learned
profession." N.C. Gen. Stat. § 75-1.1(b). In Reid v. Ayers, the
alleged debt collector was a law firm, and thus we focused on the
learned profession exemption within this definition. Here,
however, the alleged debt collector is the homeowners' association
itself. Accordingly, we focus only on the meaning of "business
activities" under the statute. Our Supreme Court has clarified
that "business activities" are those normal, day-to-day activities
regularly conducted by the business and for which the business was
organized. HAJMM Co. v. House of Raeford Farms, 328 N.C. 578, 594,
403 S.E.2d 483, 493 (1991). According to the restrictive covenants
entered into between the homeowners and the homeowners'
association, plaintiff was organized for the purpose of creating
and maintaining a planned development community. In order to do
so, it was authorized to collect certain dues and assessments. Thus, one of plaintiff's regular, day-to-day activities was
collecting dues and assessments. Because the allegedly unfair acts
committed by plaintiff were directly connected with these dues-
collecting activities, we conclude that the debt-collection
practices of plaintiff were business activities in or affecting
commerce.
The final generalized requirement is that the debt collector's
unfair practices must have proximately caused injury to the
consumer. Defendants have satisfied this requirement by alleging
that plaintiff's actions have injured their credit reputations and
caused them emotional distress. Thus, defendants have satisfied
all three threshold requirements and all three generalized
requirements for substantiating a valid unfair debt-collection
claim under the NCDCA. Accordingly, we reverse that part of the
trial court's order dismissing this counterclaim.
We again emphasize that defendants only have a valid claim
against plaintiff, not its counsel. Thus, in proceeding with their
claim, defendants must focus on those alleged unfair debt
collection practices employed exclusively by plaintiff. Any acts
engaged in by plaintiff's counsel, even if cloaked in terms of a
principal-agent relationship, fall within the learned profession
exemption and thus outside the purview of the NCDCA.
[4]In their final assignment of error, defendants contest the
trial court's entry of summary judgment against them. Summary
judgment is appropriate if "the pleadings, depositions, answers to
interrogatories, and admissions on file, together with theaffidavits, if any, show that there is no genuine issue as to any
material fact and that any party is entitled to a judgment as a
matter of law." N.C.R. Civ. P. 56(c). We conclude that there are
genuine issues of material fact with respect to plaintiff's claim
for attorney's fees and thus vacate that portion of the trial
court's summary judgment order. Specifically, the forecast of
evidence produced by both parties does not establish whether
plaintiff complied with the statutory notice requirement in N.C.
Gen. Stat. § 6-21.2(5).
Before attorney's fees can be collected on a debt, our
statutes require the creditor to notify the debtor in writing that
"the provisions relative to payment of attorneys' fees in addition
to the 'outstanding balance' shall be enforced and that [the
debtor] has five days from the mailing of such notice to pay the
'outstanding balance' without the attorneys' fees." N.C. Gen.
Stat. § 6-21.2(5) (1999). Thus, the mere delinquency of a debt is
not sufficient to trigger the award of attorney's fees under our
statutes. Defendants must have been given written notice plus a
five-day grace period to pay their outstanding balance.
Plaintiff's forecast of evidence nowhere establishes that this
requirement was satisfied. Absent evidence showing it did comply
with this notice requirement, any award of attorney's fees is
unauthorized. McGinnis Point Owners Ass'n v. Joyner, ___ N.C. App.
___, ___, 522 S.E.2d 317, 320 (1999).
In light of this, we further conclude that the trial court's
award of pre-judgment interest was also improper. Defendantstendered a check for the $200.95 outstanding balance on 14
September 1997. Plaintiff refused this tender because the check
did not also include payment of attorney's fees. But, as just
stated, unless plaintiff first provided the requisite notice, it
was not authorized to collect attorney's fees in the first place.
Thus, to the extent that the trial court's award of pre-judgment
interest represents interest accruing after the date of tender,
that award must be vacated until a determination is made as to
whether the notice requirement had in fact been met.
Affirmed in part, reversed in part, vacated in part, and
remanded.
Judges JOHN and EDMUNDS concur.
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