Mass. Clash: Federal Judge Temporarily Halts Massachusetts’ Sweeping COVID-19 Debt Collection Emergency Regulations
Today, the United States District Court for the District of Massachusetts granted ACA International’s (ACA) emergency motion for a temporary restraining order and preliminary injunction (Emergency Motion) to enjoin enforcement of a regulation issued by the Massachusetts Attorney General. This regulation prohibited, among other things, initiating debt collection lawsuits and outbound debt collection phone calls by debt collectors, except to respond to a debtor’s request for the debt collector to call, and it declares all such calls an unfair or deceptive act in violation of Mass. Gen. Laws ch. 93A, § 2 (Chapter 93A).
Today’s ruling temporarily halts Massachusetts’s ability to enforce the regulation which bans telephonic communications initiated by debt collectors and enforcement actions in state and federal courts of Massachusetts.
March 27, 2020 - Massachusetts Emergency Regulation
Massachusetts Attorney General Maura Healey issued a sweeping emergency regulation as a result of the coronavirus (COVID-19) pandemic on March 27. These rules took effect on March 28 and were to remain in force until either 30 days after Massachusetts’s State of Emergency was lifted, or June 26, 2020, 90 days after the effective date of the rules.
Section 35.04 of this regulation prohibits debt collectors from initiating a communication with a debtor via telephone, either in person or by recorded audio message, unless the communication is in response to a request made by a debtor for said communication or to communicate regarding rescheduling of court appearances.
Moreover, Section 35.03 of these rules prohibit collectors and creditors, as defined by 940 CMR 7.03 from:
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Initiating or threatening to file a new collection lawsuit;
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Initiating or threatening to garnish wages or seize other property or funds for debt repayments, including vehicle repossession;
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Applying for, causing to be serving, enforcing, or threatening to apply for any capias warrant;
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Visiting or threatening to visit an individual’s home in conjunction with an unpaid debt; and
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Communicating in person with an individual in a public place in conjunction with an unpaid debt.
The collection of debts resulting from loans secured by mortgages on real property or by tenants are exempt from all prohibitions established by the emergency regulations. Further, utility companies are exempted from the prohibition on home visits.
April 20, 2020 – Complaint and Emergency Motion
ACA filed its complaint for declaratory and injunctive relief along with the Emergency Motion on April 20. The complaint alleges eight distinct justifications for declaring the emergency regulation invalid and enjoining its enforcement, specifically that:
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Section 35.04 of the regulation violates the First Amendment of the United States Constitution;
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Section 35.03 of the regulation violates the First Amendment of the United States Constitution;
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Section 35.03 is barred by Massachusetts’s litigation privilege;
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The regulation violates the due-process clause of the Fourteenth Amendment of the United States Constitution;
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The regulation violates the Equal Protection Clause of the Fourteenth Amendment and Article 10 of Massachusetts’s Constitution;
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Section 34.03 violates state law separation of powers; and
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The regulation is invalid because it exceeds the Massachusetts Attorney General’s authority.
The Emergency Motion accompanying the complaint focused on the constitutional arguments. In support of its position that the First Amendment renders the regulation invalid, ACA argued in its May 4 supplemental brief that consumers are “already covered adequately by the existing tapestry of regulations” and that “[e]very allegation of misconduct noted in the AG’s supporting affidavit would … already be unlawful under existing law” – thus making the regulation redundant.
May 6, 2020 – Order Granting the Motion for a Temporary Restraining Order
Judge Richard Stearns entered a temporary restraining order enjoining the Attorney General from enforcing Section 35.04, which bans telephonic communications initiated by debt collectors and Section 35.03 insofar as it bars debt collectors from bringing enforcement actions in the state and federal courts of Massachusetts, finding a likelihood of success on the merits.
Section 35.04 – First Amendment Challenge of Outbound Call Ban
The Court found that the outbound calls by a debt collector constitute commercial speech. While commercial speech is entitled to less protection than noncommercial speech, a state has no constitutional power to suppress “truthful, nonmisleading commercial messages.” Liquormart, Inc. v. Rhode Island, 517 U.S. 484, 501 (1996) (plurality opinion). Regulation of commercial speech is subject to the “intermediate scrutiny” standard of judicial review, guided by the factors set out in Central Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n, 447 U.S. 557, 566 (1980).
Under Hudson, if the expression is protected by the First Amendment, the court must resolve three issues: (1) is the asserted governmental interest substantial; (2) does the disputed regulation advance that governmental interest; and (3) is the regulation no more extensive than necessary to serve that interest. Id.
Finding that debt collection in its normal practice is not “actually false, deceptive, or misleading, or proposes an unlawful activity” and, thus, is protected by the First Amendment, the Court turned to the remaining three prongs in Hudson. Addressing whether the asserted governmental interest is substantial, the court “assume[d] for present purposes” that preserving domestic tranquility in residential privacy is a sufficiently significant state interest. Then, largely side-stepping discussion of whether the regulation advances domestic tranquility, the Court found that the regulation failed by restricting speech more extensively than necessary.
In reaching this conclusion, the Court pointed to the comprehensive federal and state regulations of telephonic communication by debt collectors and stated that “[i]f what the Attorney General meant to accomplish by way of the Regulation was a strict-liability ban on all deceptive and misleading debt collection calls, the Regulation is redundant as that is already the law, both state and federally.”
For four and a half pages, the Court then thoroughly detailed the regulations already in place to protect consumers – ending its discussion of Section 35.04 writing, “[w]hile I laud the Attorney General’s desire to protect citizens of Massachusetts during a time of financial and emotional stress created by the COVID-19 pandemic, I do not believe that the Regulation adds anything to their protections that the existing comprehensive scheme of law and regulation already affords to debtors, other than an unconstitutional ban on one form of communication.”
Section 35.03 – First Amendment Challenge of Initiating Collection Lawsuits Ban
The Court found that restricting access to the federal and state courts was impermissible under federal law and that this constitutional guarantee is “among the most precious of the liberties safeguarded by the Bill of Rights.” United Mine Workers of Am., Dist. 12 v. Illinois State Bar Ass’n, 389 U.S. 217, 222 (1967).
Rejecting the Attorney General’s argument that the regulation was permissible as it “impose[d] mere procedural obstacles to the vindication of substantive rights,” the Court recognized that “the mere fact of an emergency does not increase constitutional power, nor diminish constitutional restrictions.” To hold differently would violate the Petition Clause of the First Amendment that “Congress shall make no law … abridging … the right of the people … to petition the Government for a redress of grievances.”
State Law Issues
The Court declined to wade into issues of state sovereignty, stating that “the injunctive power of a federal court over state officials is defined and confined by the extent that such relief is necessary to vindicate a violation of federal law.” While noting that a federal court may act when a state official is acting ultra vires, that exception was not available as it only applies when an official is acting “without any authority whatsoever” – not that the official erred in the exercise of his or her delegated authority.
Implications for Similar Legislation or Regulations
This decision comes as governmental entities are scrambling to implement top-down responses to the COVID-19 pandemic. While well-meaning, these responses often overreach and are riddled with unintended consequences.
Jurisdictions which have passed comparable restrictions (like the District of Columbia) or proposed similar legislation (like Ohio) likely can expect similar challenges. Additionally, federal lawmakers proposing wide-sweeping reform, such as Senator Sherrod Brown’s (D-Ohio) Senate Bill, will need to heed this decision when evaluating the constitutionality of present and future legislative proposals that restrict the fundamental rights enshrined in the First Amendment.