PERSELS & ASSOCIATES, LLC v. BANKING COMMISSIONER, SC 19359

Judicial District of New Britain

 

      Debt Negotiation; Attorneys; Whether Law Firm Qualifies for General Statutes § 36a-671c (1) Exemption from Debt Negotiation License Requirement.  The plaintiff is a Maryland based, national consumer advocate law firm that offers legal services to its clients in connection with compromises of unsecured debt, defense of creditor collection lawsuits, protection from creditor harassment, and bankruptcy.  The plaintiff petitioned the Banking Commissioner for a declaratory ruling as to whether it qualified for the “attorney exemption" of General Statutes § 36a-671c (1).  That statute provides that “[a]ny attorney admitted to the practice of law in this state who engages or offers to engage in debt negotiation as an ancillary matter to such attorney’s representation of a client” is exempt from the debt negotiation license requirement of General Statutes § 36a-671.  The plaintiff urged that the commissioner conclude that an out-of-state law firm offering debt negotiation services to a client using Connecticut attorneys is not required to have a debt negotiation license.  The commissioner ruled that the plaintiff was not entitled to the attorney exemption because it is not a “natural person,” reasoning that only a natural person can be an “attorney admitted to the practice of law in this state” for purposes of § 36a-671c (1).  The commissioner ruled, however, that the Banking Department would take no action against a law firm engaging in debt negotiation services performed exclusively by an attorney admitted to the practice of law in Connecticut who: (1) is a partner or shareholder of the firm, (2) is the only contact with the debtor and the creditors, and (3) qualifies for the § 36a-671c (1) exemption in that the attorney engages in debt negotiation only as “an ancillary matter” to the representation of the client.  The commissioner found that the plaintiff does not meet the standards of the “no action” policy.  Finally, the commissioner construed the “as an ancillary matter” language of the statute, indicating that the Banking Department would employ a “primary purpose test” and take enforcement action in cases of unlicensed debt negotiation activity where retention of an otherwise qualifying attorney or firm was for debt negotiation services as a primary purpose of the relationship, or where debt negotiation was the primary purpose of the services actually performed.  The commissioner concluded that the plaintiff would require a debt negotiation license.  The plaintiff appealed the commissioner’s declaratory ruling to the Superior Court.  The trial court affirmed the ruling and rejected the plaintiff’s claim that the commissioner’s interpretation of the attorney exemption violated the separation of powers doctrine by interfering with the Judicial Branch’s authority to regulate the practice of law.  The trial court ruled that debt negotiation does not constitute the practice of law and therefore that agency regulation of debt negotiation does not encroach on an area under the exclusive control of the courts.  The plaintiff appeals, and the Supreme Court will decide whether the trial court properly: (1) ruled that the attorney exemption requires law firms to be licensed by the department, (2) interpreted the “ancillary matter” language of the exemption, (3) upheld the commissioner’s “no action” policy for law firms, and (4) found that the commissioner’s interpretation of the exemption does not violate the separation of powers doctrine.