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Legal Notes
Kohn Law Firm S.C.
312 E. Wisconsin Ave. • Suite 501 • Milwaukee, WI 53202-4305 • 414-276-0435 • 1-800-451-1791
KLF@kohnlaw.com • http://www.kohnlaw.com
Robert E. Potrzebowski, Jr., David A. Ambrosh
President Jason D. Hermersmann
Matthew J. Richburg Paula R. Brunner
Litigation Manager Paul H. Thielhelm
Robert W. Kohn Elaine M. Lesniak
Of Counsel Joel S. Tilleson
December 2007
WISCONSIN COURT OF APPEALS FINDS CREDIT CARD
ARBITRATION CLAUSE TO BE UNENFORCEABLE
sion. Also, the court found that the relative bargaining
I
n January of 2007, the Wisconsin Court of Ap-
peals issued a decision that found an arbitration power between the creditor and the customers was
clause in a Cross Country Bank credit card grossly disproportionate. Lastly, the court found that
agreement to be both substantively and procedural- the credit card agreement, most notably the arbitration
ly unconscionable, and therefore unenforceable. See provision, was in small print. The court further held
Coady v. Cross Country Bank, Inc., 2007 WI App 26 the arbitration provision to be substantively uncon-
(Ct. App. 2007). The arbitration provision under scionable. In making this determination, the court re-
scrutiny read, in part: lied heavily on the fact that the arbitration provision
If you or we elect to arbitrate a claim, you incorporated the Delaware choice of law provision,
will not have the right to pursue that claim thereby forcing customers to waive their substantive
in court or have a jury decide the claim… . rights under the Wisconsin Consumer Act. Based
If you or we elect to arbitrate a claim: (1) upon these holdings, the court ruled that the arbitra-
neither you nor anyone else on your behalf tion provision was unenforceable.
can pursue that claim in court or in an arbi- There are a number of points to be drawn from
tration proceeding on a class-wide or repre- this decision. First, it’s important to point out that the
sentative basis; and (2) claims brought by court’s decision in Coady does not extend beyond that
or against one account holder (or joint ac- of the particular arbitration provision in the Cross
count holders) may not be brought togeth- Country Bank credit card agreement. Nor does the
er with claims brought by or against any decision have any retroactive impact on judgments
other account holder. that were rendered prior to Coady (January 2007).
In addition, the credit card agreement had a However, creditors need to understand the risks in-
choice of law provision which provided that volved in attempting to enforce an arbitration provi-
Delaware law applied to the entire agreement. The sion which contains language identical to or substan-
arbitration clause contained a separate choice of law tially similar to that which was criticized in Coady. It
provision which incorporated the Delaware choice is strongly recommended that creditors review their
of law provision. arbitration clauses with legal counsel, and analyze the
In addressing whether a contractual provision is language of the clause with the same scrutiny that
unconscionable, Wisconsin courts review the provision was applied by the Coady court. If the clause has lan-
in terms of both procedural and substantive uncon- guage that is identical to or substantially similar to
scionability. Determining whether procedural uncon- that which was criticized in Coady, it is strongly rec-
scionability exists requires examining factors that bear ommended that the creditor pursue the debtor on the
upon the formation of the contract. Those factors in- underlying account rather than attempt to enforce the
clude age, education, intelligence, business acumen arbitration provision. The failure to do so could ex-
and experience, relative bargaining power, who draft- pose creditors not only to the risk of the same type of
ed the contract, etc. Substantive unconscionability adverse ruling that was
refers to whether the terms of a contract are unreason- rendered by the Coady
ably favorable to the more powerful party. court, but may also
The Coady court found the Cross Country Bank subject the creditor to
arbitration provision to be procedurally unconscionable adverse action taken
based on the fact that all of the plaintiffs qualified as by the customer. G
either “low-income or nearly so” and, as such, were David A. Ambrosh,
unlikely to turn down this particular credit card sim- Associate Attorney
ply because of the inclusion of the arbitration provi- davea@kohnlaw.com
Firm affiliations: The American Lawyers Quarterly, The Forwarders List of Attorneys, The General Bar List, The National List, the
Commercial Law League of America, The State Bar of Wisconsin, Lease Enforcement Attorney Network (LEAN), National Associ-
ation of Retail Collection Attorneys (NARCA), National Association of Subrogation Professionals (NASP), National Attorney edi
Network (NAN), Paralegal Association of Wisconsin, Association of Legal Administrators.
APPLICABILITY OF THE FDCPA TO SUBROGATION CLAIMS
W
hether the Federal Debt Col- result of Hawthorne’s alleged negligence. ceeds from the settlement and ultimately,
lection Practices Act Hawthorne filed a complaint alleging vi- United received over $57,000 from State
(“FDCPA”) applies to a claim olations of the FDCPA based on the ac- Farm. Hamilton attempted to recover
arising out of subrogation is an important tions of Mac Adjustment Inc. The court those funds and asserted a claim under
question to address prior to attempting to cited to Bass with approval and stated the FDCPA for violations during the re-
collect on such claims. The FDCPA de- that the FDCPA dealt with transactions covery of the disputed funds. The court
fines a “debt” as “any obligation or al- involving business dealings and not in reaching its decision distinguished the
leged obligation of a consumer to pay obligations to pay for damages as a result 11th Circuit case of Hawthorne v. Mac
money arising out of a transaction in of negligence. The court ultimately deter- Adjustment Inc. and held that the in-
which the money, property, insurance or mined that the subrogation claim was not sured’s “obligations arose from a busi-
services which are the subject of the subject to the FDCPA. In addition, the 3rd ness transaction where Hamilton con-
transaction are primarily for personal, Circuit Court of Appeals has held that tracted for personal and family services,
family, or household purposes, whether obligations arising out of tort are not cov- i.e. insurance.” Ultimately, the court de-
or not such obligation has been reduced ered under the FDCPA. See Zimmerman termined that the definition of “debt”
to judgment.” 15 U.S.C. §1692a(5). The v. HBO Affiliate Group, 834 F.2d 1163, under the FDCPA included the funds
statute does not specifically address sub- 1168 (3rd Cir. 1987)(Court addressed owed in this case.
rogation claims, but the federal courts issue involving the theft of television sig- While it appears that subrogation
have addressed the applicability of the nals and found that the FDCPA was not actions with a basis in tort do not fall
FDCPA to subrogation claims and the applicable). While it appears that subro- under the FDCPA, care should be taken
underlying basis for the claim whether it gation claims with a basis in tort do not with claims having a basis in contract.
is a claim that arises in tort or contract. fall under the FDCPA, the question that Even though the 5th Circuit is not con-
Wisconsin is in the 7th Circuit Court the cases above do not address is whether trolling authority in Wisconsin, the hold-
jurisdiction, and case law from that juris- a subrogation claim with a basis in con- ing in the case and its applicability to
diction is controlling. While the 7th Cir- tract falls under the Act. subrogation claims with a basis in con-
cuit Court of Appeals has not specifically The 5th Circuit did apply the FDCPA tract should be acknowledged. In light of
addressed the issue of whether a subro- to a subrogation claim with a contractual the fact that the majority of cases involv-
gation claim is subject to the FDCPA, the basis, which involved an insurer attempt- ing the FDCPA and the issues concerning
court clearly defined what obligations are ing to enforce its subrogation rights the subrogation practice are fairly recent,
considered “debts” and therefore, fall against its insured for proceeds obtained we will likely see more courts rendering
under the FDCPA. The court stated in in a settlement of the insured’s personal decisions in the future involving these is-
Bass v. Stolper, Koritzinsky, Brewster & injury action. See Kyle Hamilton V. Unit- sues. G
Neider, S.C., 111 F.3d 1322, 1326 (7th Cir. ed Healthcare of Louisiana, Inc., 310 F.3d
1997) that the FDCPA only regulates 385 (5th Cir. 2002). While the case is not
“those obligations to pay arising from controlling authority in Wisconsin, it is
consensual transactions, where parties still important to be cognizant of its hold-
negotiate or contract for consumer-relat- ing and background. United Healthcare
ed goods or services.” Based on the of Louisiana, Inc. (“United”), had a group
court’s interpretation of what constitutes health plan that covered its insured Kyle
a “debt”, it would appear that a subroga- Hamilton and paid out over $100,000 to
tion claim involving negligence would him as a result of an accident. Hamilton
not be subject to the FDCPA as it would who was covered under his father’s auto
not be a consensual transaction and there policy through State Farm received
is no negotiation or contract involved. $250,000 in uninsured motorist benefits
In another jurisdiction, the 11th Cir- and $5,000 in medical payment benefits.
cuit Court of Appeals addressed a subro- United contracted with Healthcare Re-
gation claim in Hawthorne v. Mac Ad- coveries, Inc. (“HRI”) to enforce subroga-
—Jason D. Hermersmann
justment Inc., 140 F.3d 1367 (11th Cir. tion rights it claimed against any pro-
ceeds that its insured received from the Associate Attorney
1998). Mac Adjustment, Inc. was collect-
auto policy. HRI sent notices to Hamil- jasonh@kohnlaw.com
ing on behalf of an insurance company
that asserted a claim for subrogation as a ton’s father and State Farm to obtain pro-
2
LAW FIRM UPDATES
jewski most recently spoke at
A
s reported in our last
issue, recent chan- an ethics seminar on behalf of WELCOME
ges to the our malpractice provider on
W
“Ethics for Support Staff.” e would like to extend a
Supreme Court Rules in
We’ve welcomed new staff warm welcome to the fol-
Wisconsin require signed
members to our paralegal department lowing who have joined
fee agreements for all new
matters. While that has long over the past few months. The 5th baby in our valued roster of clients since our
been a practice of the firm, please be 13 months is due the end of December in August publication. We anticipate
aware that we are unable to process a that department! We have added staff serving their legal and collection
new matter, unless you have a collection members to cover the workloads during needs for many years to come.
contract in place. family leave time. The department is han-
dling record numbers of lawsuits and • Arquitectura Inc.
And as also reported, Bob Kohn has
made his final appearances in our Mil- garnishments weekly. A new initiative of • Badger Creditors Inc.
waukee offices. As of August 1, he has using The Work Number for employment
sold his home in Milwaukee and relocat- verification is paying off in more con- • CMT Legal Group Ltd.
ed permanently to Santa Barbara, CA. He firmed employers, garnishments, and
• Cascade Recovery
is available via e-mail yet at bobk@kohn- confirmation from employers who only
law.com in an of counsel role. Please verify using that resource to verify em- • Cash Flow Management Inc.
change all default client contact informa- ployment.
tion to Attorney Rob Potrzebowski, cur- The newest release of our collection • Coakley Tech LLC
rent owner and president of Kohn Law and litigation software was recently in-
• Edgewood Contractors Inc.
Firm, who can be reached via email at stalled. Enhancements in software contin-
robp@kohnlaw.com. ue to enable us to effectively communi- • Goins Underkofler
The firm’s Compliance Manager, cate and remit internally and externally, Crawford Langdon
Jane Lyons, and Administrator, Brenda and offer greater safeguarding of docu-
ments through rigorous compliance stan- • Healthcare Funding
Majewski, attended NCO’s attorney
dards on document retention and de- Solutions LLC
meeting in Baltimore in August. Attorney
Rob Potrzebowski and Collection Manag- struction as well as disaster prepared- • Kass, Shuler, Solomon,
er, Doug Smyth attended NARCA’s con- ness. The majority of documentation pro- Spector & Foyle
ference in Atlanta in November. Rob is a duced internally and received externally
member of the association’s education is scanned daily and backed up nightly. • Konecranes, Inc.
committee. Brenda and Litigation Man- Bar coding will bring another enhance-
• James C. Lampman, D.D.S.
ager, Attorney Matt Richburg, attended ment feature to our records management
the Commercial Law League of Ameri- department in 2008. • NACM Tampa Inc.
ca’s Eastern District meeting in New York Attorney Joel Tilleson joined the firm
City also in November. It is great to per- in October in an expansion legal position. • National Crime
sonally see some of our clients across the He will be handling small claims retail Reporting Inc.
country during these industry confer- court calendar cases. Joel is a graduate of • Northern Tool and
ences. the University of Minnesota and Thomas Equipment
Our attorneys and managers are Cooley Law School. He can be reached
available for various speaking engage- via e-mail at joelt@kohnlaw.com, or via • Progressive Financial
ments. Over the past year, many of them telephone at 414-276-4608, Extension Services Inc.
have spoken at industry events on vari- 3024. We welcome him to the firm. G
• Receivable Management
ous topics of debt collection and office
International
management. Administrator, Brenda Ma-
• Soles Law Office
• Stecker Construction
fxtáÉÇËá ZÜxxà|Çzá Company LLC
• The Sun Cleaning
Group LLC
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Company
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3
KLF PARALEGAL RECOGNIZED AS UNSUNG HERO
Collection Manager, Doug Smyth Paralegals attending nominee luncheon: Heather Lechner,
with nominee Sara Burg Shannon Czebotar, Sara Burg, Patricia Ruffolo
prestigious recognition. tion of being the “go to” person when
O
n November 16th several mem-
bers of the firm joined Sara Burg, Nominated by our collection manag- complex problems need to be solved on
Assistant Paralegal Manager, at er, Doug Smyth, Sara was honored for individual cases. Sara’s paralegal skills
a luncheon to celebrate her nomination her dedicated work at KLF. As Doug ex- and ability to work with and mentor her
as an Unsung Hero. This award is pre- plained in his nomination, “Sara is a vital co-workers has led her to become a
sented by the Wisconsin Law Journal to member of our firm’s success and has be- leader in her department and earned the
legal support personnel whose amazing come the cornerstone of her department. respect of our firm.”
hard work behind the scenes contributes Employing her excellent paralegal skills, We congratulate Sara for her selec-
to the operation of courts and law firms leadership and a strong work ethic, Sara tion as an honoree for 2007’s Unsung
throughout the state. Court staff, law has developed into a strong valuable re- Hero awards, and thank her for her years
firm secretaries, paralegals, librarians, source that makes Kohn Law Firm of service dedication to the firm as well G
marketing professionals and administra- stronger as a result of her contribu- —Kathy Johnson, Office Manager
tors were selected as honorees for this tions….. She has developed the reputa- kathyj@kohnlaw.com
COOPERATIVE EDUCATION PROGRAM IS WIN/WIN FOR STUDENT AND FIRM
training schedule which has been devel- students and the law firm. The students
F
or over 20 years, Kohn Law Firm
S.C. has partnered with area oped to teach them the necessary skills gain valuable employment skills during
schools offering employment op- needed throughout each of the depart- often their first job at the law firm and the
portunities through cooperative educa- ments. Grades are determined by quar- firm often gains an employee who con-
tion programs. The firm has worked terly evaluations administered by direct tinues working throughout the summer
with both the city of Milwaukee high management and they are based on at- and often into college years. G
schools and suburban high schools tendance, attitude and quality of work. —Shannon Graff
through the years. We are currently working with West Support Department Manager
The cooperative program was devel- Allis Central high school senior, Silvia shannong@kohnlaw.com
oped to teach high school students prac- Aguirre. Silvia joined the cooperative
tical, on the job knowledge in their field program with our firm because she is in-
of study. Teachers at participating schools terested in becoming an attorney. Her fa-
coordinate interviews with our office for vorite part of the program has been the
students who show an interest in the hands-on experience that she has ob-
legal community. Once it is determined tained in the paralegal department. She
that the student possesses the skills and believes that the cooperative program
interests that our firm is looking for, a will help her achieve her goals in pursuit
contract is signed by the student, their of her career in law. Silvia would recom-
parents and our office manager, before mend the program to upcoming seniors
the assignment begins. and says the program affords students
Cooperative education students at- the chance to get involved in the real
tend classes in the morning each week- world and see what opportunities are
day and they punch in for their work as- available. Silvia Aguirre
signments in the firm in the afternoons. A cooperative education program is Cooperative education student
At the Kohn Law Firm, students follow a a win/win program for the schools, the
4
SMILE – YOU’RE ON CAMERA!
Dual control is used for all cash han- been processed accurately each morning.
O
ur Firm is consistently looking
at ways we can better serve our dling and reconciliations in the Cash De- Any discrepancies are acted upon imme-
clients’ security requirements. partment. For example, we have desig- diately. Due to the fact that all payment
Our most recent improvement included nated two employees to handle all Wire handling is done in the Cash Department,
the installation of closed circuit security and ACH transactions of trust funds for the room has been closed off from the rest
cameras in the Cash Department as well client remittances. In the same manner, of the office. The department is locked at
as in the server room. This install was in there are two different employees as- all times and only Cash Department em-
addition to the cameras in place at all signed to reconcile the wire/ACH ployees and firm managers are allowed
points of egress from the office. The amounts on our monthly bank state- access. Debtor payments made at the re-
cameras are set to record motion and the ments. This procedure confirms that all ception window are dually reviewed and
recordings are kept for 90 days. They funds meant to reach our clients’ ac- verified by bonded employees. The de-
can be monitored locally and remotely. counts have processed and are accurate. posits are then placed in a locked drop box
Alarms are programmed to alert desig- In addition, employees responsible for until a cash department employee picks
nated recipients if triggered. reconciling monthly bank statements do them up for processing.
We also realize the concerns many of not have access to scanning checks into All cash payments are locked up in a
our clients have in regards to accessing IDD. fire and water proof safe if necessary.
cash department programs. Accounting Cash transactions must still be made Client trust account checks are locked in a
programs in our CLS system are blocked at our local branch so we have recently cabinet in the Cash Department after
from outside users so that only designat- introduced the use of sealed cash bags. A scanning until deposit verification is ob-
ed employee logins will have access to designated cash department employee tained. Access to both the cabinet and the
run cash transactions. In addition, all verifies the total amount of cash to be de- safe is limited to the Cash Department
cash transactions including payment posited each morning. The deposit slips Manager and the Firm Administrator.
posting, check releasing, remittance re- are completed and sealed in the bag We strive to take all reasonable pre-
ports and billings are also password pro- along with the cash. At the time of the de- cautions to secure the cash flow in the of-
tected. posit, the teller must cut open the sealed fice. Our client trust account activities are
Another security measure imple- bag to retrieve the deposit. If the bag is monitored by the Office of Lawyer Regu-
mented is the use of Image Deposit Di- not sealed, they will not accept the de- lations and we abide by those rules. We
rect (IDD). For over a year, we have been posit as it may have been tampered with. have received excellent feedback from
utilizing IDD to make all non cash de- The cash total is then matched with the our clients’ auditors in regards to our
posits to our clients’ trust accounts. This amount on each of the enclosed deposit cash policy and procedures and will con-
method stores all debtor payments “in slips. tinue to meet, if not exceed, their expecta-
house” electronically as we are deposit- Reconciliations of our bank accounts tions. G
ing an image of the check to the bank. are done on a monthly basis. We take the —Carrie Conner
Our deposit amounts are verified imme- initiative to look for any possible deposit Cash Department Manager
diately after the checks are scanned and errors daily. We utilize online banking to carriec@kohnlaw.com
IDD will not allow a deposit to be confirm deposits made via IDD or cash
processed if it does not balance. deposits made directly to a teller have
This publication is intended to provide accurate information on the subject matter covered. It is provided with the understanding that the publisher
is not rendering a legal service, and assumes no liability whatsoever in connection with its use. For republication or reprint permission, contact
the editor, Brenda Majewski, at the firm. If you would like more information about the Kohn Law Firm's debt collection services, contact us at
1-800-451-1791 or 414-276-0435, or see us on the Internet at www.kohnlaw.com.
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