Things looked bad for an Illinois law firm in 2014 when a consumer complaint was filed in federal district court against it. It was accused of violating the Fair Debt Collection Practices Act. The firm’s purported violation: Not anticipating when an appellate court would overrule established precedent.
And an opinion of United States Supreme Court overruled the firm’s best defense: that it had made a good faith legal error.
The matter began in 2013 when the law firm filed a consumer collection action. The FDCPA requires the filing of collection actions in the “judicial district” where the debtor lives or signed the contract. The law firm reasoned that if the debtor lived in the Cook County judicial district, filing the suit would be proper there. Its choice of venue was the First Municipal District of the Circuit Court of Cook County.
But there was a complication. There are many municipal districts in Cook County and the consumer did not actually live in the First Municipal District (although he did live in Cook County).
So should the law firm file the suit in the municipal district where the debtor lived? Or was it enough to file in the “judicial” district of Cook County?
The firm consulted its law books. It found a decision in 1996 of the federal Seventh Circuit Court of Appeals right on point. And Cook County is in the Seventh Circuit. That case was well known and had been followed in other cases. That seemed to be the end of the matter until a few weeks after the filing of the collection action.
Then the Court of Appeals in a split decision overruled the older decision. The case should have been filed in the municipal district where the debtor lived.
Now it was clear that the law firm had filed the collection suit in the wrong place. The firm voluntarily dismissed the case, without prejudice to refiling in the correct venue.
And was the consumer happy? No. He turned the table on the firm and became a plaintiff under the FDCPA.
Under the FDCPA, a debt collector (in this case the law firm) is responsible for its errors. And consumers can enforce the FDCPA.
It was clear in this case, of course, there had been an error even if there was a good justification for it. But a U.S. Supreme Court decision under the FDCPA refuses to permit debt collectors to assert a good faith error defense when the error at issue is a legal mistake. The consumer argued filing in the venue was no doubt a legal mistake. So it didn’t matter whether the law firm acted in good faith.
The law firm argued it was unfair to impose liability against it in these circumstances. It had followed a clear judicial precedent, in good faith. There was no dispute about that.
The law firm argued that it should not be required to predict when previous legal precedent would be overruled. If that was the case, then how would anyone know which cases to follow and which to disregard? The Seventh Circuit Court of Appeals ultimately agreed, affirming a decision of the lower court that did not impose liability on the law firm.
Under the bona fide error defense, a debt collector is shielded from liability under the FDCPA, if it can show by preponderance of the evidence the violation was unintentional and resulted from a bona fide error notwithstanding procedures put in place to avoid the error. There was no assertion the law firm’s violation was intentional or that the law firm did not maintain procedures designed to avoid errors.
The only issue was whether the firm could rely on precedent and still be in “good faith.” At the time of the decision, the previous decision was almost eighteen years old. While the decision may have been criticized, it was clear the previous decision permitted the law firm to file the lawsuit where the lawsuit was filed.
The debtor asserted, however, that a recent U.S. Supreme Court decision, Jeremy v. Carlisle, 559 U.S. 573 (2010), held that the bona fide error defense was not intended to apply to a mistake in interpretation of legal requirements. Debt collectors must follow the law and the good faith defense was intended by Congress to cover other kinds of errors.
But the Seventh Circuit Court of Appeals held the law firm had in fact made no mistake in legal interpretation because the existing precedent permitted the law firm to file where it did. The Court reasoned the law firm correctly interpreted the law that existed at the time the lawsuit was filed.
The Court of Appeals concluded that it was not the law firm’s mistake. Instead, it was the Court of Appeal’s mistake in its previous interpretation of the law that led to the misfiling of the collection action.
The Court of Appeals noted that the filing of the lawsuit was indeed a violation of the FDCPA. Yet that result was under the new precedent. The retroactive change of law was entirely outside of the law firm’s control. Hence, the bona fide error of defense applied.
The Court made specific mention of two aspects of record of the case. The Court may have found these persuasive in reaching its view of the case.
First, as soon as the older court decision was overruled, the law firm voluntarily dismissed its collection action.
Second, during the consumer’s deposition he was asked if where the collection suit was filed mattered to him. He responded, “I would say it only matters to me because it matters to my lawyer.”