On June 30, the Court of Appeals of New York answered questions certified from the Second Circuit regarding whether a New York City law imposing certain requirements on attorneys engaged in debt collection practices is preempted by state law.

Local Law 15, which was enacted in 2009, expanded an earlier definition of debt collection agencies to include any attorney “who regularly engages in activities traditionally performed by debt collectors.”  Under the law, those that qualify as debt collectors are required to obtain a license and comply with certain other requirements.  The law contains a limited exception for attorneys collecting debts on behalf of clients through activities that may only be performed by a licensed attorney.

In a lawsuit in federal district court, plaintiffs’ attorneys argued that Local Law 15 was preempted by the New York Judiciary Law, which gives the state judiciary authority to regulate the admission and certification of attorneys.  After certification of the question by the Second Circuit, the Court of Appeals held that Local Law 15 is not preempted (opinion attached here).  The Court reasoned that Local Law 15 does not expressly conflict with the New York Judiciary law because it only applies to conduct of attorneys who are engaged in debt collection activity falling outside the practice of law.  In addition, the Court held that although the state judiciary may have preempted the field of regulating attorney misconduct, this authority does not extend to all “nonlegal aspects of attorney behavior.”  According to the majority, “the regulatory schemes can be seen as complementary to, and compatible with, one another.”

The Court recognized that in some instances it may be difficult to determine where to draw the line between debt collection and the practice of law, but that case law under the FDCPA would provide guidance in this area.  In dissent, two judges argued that Local Law 15 is preempted by the New York Judiciary Law because it seeks to regulate legal as well as nonlegal activity.