Banking and Finance Law Daily Failing to predict law interpretation change was bona fide error
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Wednesday, June 15, 2016

Failing to predict law interpretation change was bona fide error

By Richard A. Roth, J.D.

A debt collecting law firm that decided where to sue a consumer based on a court’s Fair Debt Collection Practices Act interpretation that later was overturned committed a bona fide error, the U.S. Court of Appeals for the Seventh Circuit has decided. As a result, the firm was not liable for suing a consumer in the wrong court (Oliva v. Blatt, Hasenmiller, Leibsker & Moore, LLC, June 14, 2016, Manion, D.).

The FDCPA restricts where a debt collector can file a collection suit to either "the judicial district or similar legal entity" where the consumer lives when the suit is filed or where the consumer signed the contract that is the basis of the suit (15 U.S.C. §1692i(a)(2)). In Newsom v. Friedman, 76 F3d 813 (1996), the Seventh Circuit decided that all of Cook County, Illinois, comprised a single judicial district, meaning that a consumer living anywhere in the county could be sued in any of the county’s six municipal districts.

Shifting sands. This interpretation of the FDCPA was changed in 2014 by the decision in Suesz v. Med-1 Solutions, LLC. The new interpretation was that "judicial district or similar legal entity" meant the smallest geographic area that could be used to fix venue in the relevant court system. In Cook County, that meant a consumer now had to be sued in the municipal district where he lived (Banking and Finance Law Daily, July 7, 2014).

Suesz also said explicitly that the change in interpretation was retroactive.

The law firm was caught in the middle. It filed the collection suit before Suesz was decided, but the suit still was pending when the interpretation changed. The consumer sued, claiming that the collection suit had been filed in a location banned by the FDCPA.

Bona fide error. The FDCPA gives debt collectors that unintentionally violate the act protection from liability. An unintentional error that happens despite procedures maintained by the debt collector that are reasonably adapted to avoid such an error is referred to as a bona fide error. Debt collectors are not liable for bona fide errors (15 U.S.C. §1692k(c)).

There was no dispute that the law firm’s choice of municipal district was permitted before Suesz and banned after Suesz. There also was no question that the firm’s error was unintentional and that it occurred despite the firm’s procedures that were reasonably adopted to avoid filing suit in the wrong place. That meant the violation was a bona fide error, the appellate court said.

There was, however, an additional hurdle. In Jerman v. Carslile, 559 U.S. 573 (2010), the Supreme Court determined that the bona fide error defense could not apply to erroneous interpretations of the FDCPA’s legal requirements. The consumer argued that the question of where the act said a suit could be filed required a legal interpretation and thus could not result in a bona fide error.

That argument was rejected. The law firm had not interpreted the FDCPA’s legal requirements, according to the appellate court. The firm simply relied on a previously binding interpretation by the court. If there was a mistaken interpretation, it was the earlier court’s mistake, not the law firm’s, the court said.

Even if the error had resulted from a mistaken legal interpretation by the firm, Jerman would not disallow the defense, the court continued. The firm’s interpretation of the rule on where a suit could be filed would not have been a mistaken interpretation of the law when it was made. In other words, the violation did not result from a mistaken interpretation of the act’s requirements.

The case is No. 15-2516.

Attorneys: Matthew Henry Hector (Sulaiman Law Group, Ltd.) for Ronald Oliva. David L. Hartsell (McGuireWoods LLP) for Blatt, Hasenmiller, Leibsker & Moore LLC.

Companies: Blatt, Hasenmiller, Leibsker & Moore, LLC

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