On January 13, 2010, the Supreme Court heard arguments in Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, a case that will have a far reaching impact on the bona fide error defense in the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692 – 92p, as well as attorneys’ obligations while collecting debts.
In this case, the Plaintiff sued the Defendant law firm and one of its attorneys for representing to her that her debt would be assumed valid unless she disputed the debt in writing, even though the FDCPA does not contain a written requirement. The district court granted summary judgment in favor of the Defendants because even though the Defendants violated the FDCPA by telling the Plaintiff that she must dispute the debt in writing, the Defendants were shielded by the bona fide error defense. 502 F. Supp. 2d 686 (N.D. Ohio 2006). Under the FDCPA, a debt collector may avoid liability by showing “by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.” 15 U.S.C. § 1692k(c).
On appeal, the Sixth Circuit held that the FDCPA’s bona fide error defense includes legal errors and affirmed the award of summary judgment. The court noted that courts are divided on the issue as to whether FDCPA’s bona fide error defense applies to mistakes of law or is limited to clerical errors. See Jerman, 538 F.3d 469, 473 (6th Cir. 2008) (“Although the ‘majority view is that the defense is available for clerical and factual errors’ only, ‘a growing minority of courts . . . have concluded that mistakes of law can be considered bona fide errors under section 1692k(c).’”) (quoting Nielsen v. Dickerson, 307 F.3d 623, 641 (7th Cir. 2002)). The court found that the plain language of the FDCPA does not limit the defense to clerical errors, especially in light of the Truth in Lending Act’s (“TILA”) bona fide error defense, 15 U.S.C. § 1640(c), which expressly excludes legal errors, while the FDCPA does not. Id. at 476.
The court then applied the three part test to establish the bona fide error defense: “(1) the violation was unintentional; (2) the violation was a result of a bona fide error; and (3) the debtor collector maintained procedures reasonably adapted to avoid any such error.” Id. at 476-77. The Plaintiff argued that there was a genuine issue of material fact as to whether the Defendants maintained procedures reasonably adapted to avoid a legal error on imposing written requirements. The court, however, agreed with the district court that the Defendant law firm’s procedures were sufficient, including designating an attorney in charge of compliance with the FDCPA, conducting meetings for all employees regarding FDCPA issues, and providing all attorneys with the firm’s FDCPA Procedures Manual. Id. at 477.
At the oral argument in front of the Supreme Court, there was not a clear consensus as to whether the FDCPA’s bona fide error defense includes legal errors. Justice Breyer asked the Plaintiff’s attorney if a hypothetical attorney followed the decisions of every circuit on a point of law, and that law is later overturned by the Supreme Court, would the hypothetical attorney be liable under the FDCPA? The Plaintiff’s attorney answered that the hypothetical attorney would be liable. Justice Breyer responded that this argument “puts lawyers in an impossible position . . . . It’s worse that unfair.”
Justice Ginsberg, on the other hand, stated that a legal errors defense “would be highly extraordinary, and if that’s what Congress meant to do, to make something that ordinarily is no defense a defense, we would expect Congress to do so expressly.” Justice Sotomayor was concerned that under the Defendants’ reasoning, debt collectors would have a “get out of jail card” by merely seeking legal advice.
At this point, it is unclear how the Court will rule. The Jerman decision will not only have an impact on the scope of the bona fide error defense under the FDCPA, but the decision will likely also impact the ethical obligations of attorneys involved in debt collection. We will be sure to keep you updated on any new developments