The United States Supreme Court has resolved a circuit split concerning the “bona fide error” defense found in the Fair Debt Collection Practices Act (“FDCPA”). While confirming the old axiom “ignorance of the law is no excuse,” the Supreme Court ruled that the FDCPA’s bona fide error defense cannot be used to assert errors of law. In Jerman v. Carlisle, McNellie, Rini, Kramer and Ulrich LPA, No. 08-1200 (United States Supreme Court 2010), here, the respondent law firm filed suit in Ohio state court to foreclose on a mortgage of real property owned by the petitioner Jerman. The complaint included a notice that the law firm would assume that the debt was valid unless Jerman disputed it in writing. Jerman disputed the debt, the mortgage company acknowledged that she had paid in full, and the law firm dropped the suit.
Jerman then sued the law firm claiming its requirement that she dispute the debt in writing violated the FDCPA, which contains no such requirement. The law firm defended stating that a debt collector is not liable under the FDCPA if it can show “the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of the procedures reasonably adopted to avoid any such error.” 15 U.S.C. § 1692(k)(c). Courts have long agreed that the bona fide error defense applies to clerical and factual errors. For example, a collector who calls a debtor after 9:00 p.m. (prohibited), could defend on the ground that his computer mistakenly showed that the debtor was in an earlier time zone. These kind of factual mistakes have long been considered covered by the defense. However, Courts disagreed on whether one could defend a FDCPA claim citing legal error.
Writing for the Court, Justice Sotomayor concluded in a 7-2 opinion that the bona fide error defense does not cover a violation which results from a debt collector’s incorrect interpretation of the law. The opinion is predicated on existing case law, legislative history, and the words of the statute. First, the Court acknowledged that for more than 150 years it has recognized the “common maxim, familiar to all minds, that ignorance of the law will not excuse any person.” Given that, whenever Congress intends to provide a mistake – of – law defense, it does so explicitly. According to the Court, that was not done here. The Court also found it significant that the defense requires a debt collector to maintain “procedures reasonably adopted to avoid any such error.” These procedures are clearly to avoid clerical and factual mistakes, not mistakes in legal interpretation.
The Court did not address whether the bona fide error defense could still apply to a violation that results from a misinterpretation of some state law or a federal law other than FDCPA. For example, the FDCPA requires that no one threaten to take an action that is not legally permitted. Suppose that the debt collector misinterprets a state law covering garnishments or dishonored checks and advises action that the state law does not permit. It remains an open question as to whether one can defend an FDCPA case by relying on that kind of legal misunderstanding.
Justice Kennedy’s dissent notes that lawyers will now be subject to FDCPA lawsuits for filing cases which implicate statutory provisions which have not been interpreted in a definitive way. They will be liable for honest, unintentional technical legal errors which cause the debtor no harm. According to Justice Kennedy, lawyers will be challenged for offering interpretations of the FDCPA that are permissible if not yet settled.
Federal Rule 11 allows attorneys to pursue claims that “are warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law.” In the absence of a bona fide error defense, debt collector attorneys cannot seek a good faith extension, modification or reversal of existing law without risking FDCPA liability. Thus, in the context of the FDCPA, an attorney better be right on his interpretation of the law.