Banking and Finance Law Daily Following reversed debt collection act precedent not bona fide error
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Tuesday, July 25, 2017

Following reversed debt collection act precedent not bona fide error

By Richard A. Roth, J.D.

A debt collecting law firm that relied on a subsequently reversed precedent when it selected where to sue a consumer over an unpaid credit card account could not claim the protection of the Fair Debt Collection Practices Act bona fide error defense, according to an en banc decision by the U.S. Court of Appeals for the Seventh Circuit. By a vote of seven to four, the full circuit reversed a 2016 decision by a unanimous three-judge panel that the law firm was shielded from liability. The three judges who joined in the earlier decision, plus a fourth, dissented from the en banc opinion (Oliva v. Blatt, Hasenmiller, Leibsker & Moore LLC, July 24, 2017, Hamilton, D.).

At issue was the interpretation of the FDCPA section establishing where a debt collector can file a collection suit. Under 15 U.S.C. §1692(e), a debt collector (other than in a foreclosure suit) has two choices—it can sue in the "judicial district or similar legal entity" where the consumer either signed the relevant contract or resides when the suit is filed.

Proper location for suit. In most of the Seventh Circuit, the application of that provision is clear, the majority said. State courts generally are organized on a countywide basis, so suits must be filed in the proper county. However the counties in which Chicago and Indianapolis are located are divided into smaller subdistricts.

The Seventh Circuit decided in 1996 that the six municipal districts in Cook County, Illinois, comprised a single judicial district for FDCPA purposes (Newsom v. Friedman, 76 F3d 813). That allowed a debt collector to sue a consumer in any of the six.

Eighteen years later, the court changed its mind. In Suesz v. Med-1Solutions, LLC, the court decided that each of the Marion County, Indiana, subdistricts was a separate judicial district under the FDCPA. Debts collectors therefore could sue a consumer only in the proper subdistrict (see Banking and Finance Law Daily, July 7, 2014).

Debt collector’s dilemma. Blatt, Hasenmiller, Leibsker & Moore LLC originally sued the consumer in the Cook County municipal district in downtown Chicago, presumablely for the convenience of the firm’s attorneys. The consumer lived in a different district, but the firm’s choice was permissible under Newsom. Unfortunately for the law firm, Suesz was decided shortly after the suit was filed. The court noted that the firm dismissed the collection suit and refunded the filing fees paid by the consumer’s attorney.

The consumer then sued the firm, claiming that he had been sued in the wrong district.

Bona fide error. The U.S. district court judge dismissed the consumer’s suit. Blatt, Hasenmiller had sued the consumer in the wrong judicial district court, the judge said. However, in doing so, the firm had relied in good faith on the existing Seventh Circuit precedent established in Newsom. Under the FDCPA, a debt collector was not liable in the case of bona fide error—an unintentional error that happens despite procedures maintained by the debt collector that are reasonably adapted to avoid such an error. That provision protected the firm (see Banking and Finance Law Daily, June 15, 2016).

Panel decision. The three-judge panel agreed that the law firm was not liable for the FDCPA violation because it had made a bona fide error. However, the panel needed to reconcile its decision with another precedent. In Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 559 U.S. 573 (2010), the Supreme Court said that the bona fide error defense cannot protect mistaken legal interpretations.

Relying on an appellate court decision was not a mistake of law, the panel reasoned. According to the three judges, Blatt, Hasenmiller had not interpreted the FDCPA at all; rather, it had relied on what was at the time the court’s binding legal interpretation. Any erroneous legal interpretation was the court’s error, not the law firm’s error.

En banc reversal. Analyzing the case anew, a majority of the full circuit court came to the contrary conclusion. Blatt, Hasenmiller had violated the FDCPA by suing in the wrong judicial district, and the violation resulted from the firm’s error in interpreting the statute. Since the error was a mistake in interpreting the law, it could not be a bona fide error.Jerman could not be read to separate a debt collector’s legal interpretation from a court’s interpretation, the en banc majority said. The Supreme Court did not intend that the bona fide error defense would "protect some mistakes of law about the Act but not others." The majority added that there was no "workable line between protected and unprotected mistakes of law." Rather, the Supreme Court intended that the Jerman decision would apply to all misinterpretations of the FDCPA, "regardless of how understandable or reasonable they might have been."

Dissenting opinion. The dissenting opinion, by Judge Manion, charged that the majority had created "an unprecedented new rule—one that punishes debt collectors for doing exactly what the controlling law explicitly authorizes them to do at the time they do it." This would eliminate the FDCPA’s bona fide error defense, "undermine the rule of law in this circuit," and result in "unforeseeable and arbitrary liability in civil proceedings."

The dissent pointed out that even the majority opinion said that if there were a good faith mistake under the FSDCPA, a situation like this would be it.

Blatt, Hasenmiller did not make a mistake in interpreting the FDCPA, the dissent argued. In fact, the law firm interpreted the law correctly by doing exactly what the Seventh Circuit previously had said it could do. The court’s changing interpretation did not make the law firm’s action wrong at the time it occurred. The court’s misinterpretation in Newsom could not be attributed to the law firm, the dissenting opinion insisted.

Put differently, Blatt, Hasenmiller’s good faith error was not in how it interpreted the FDCPA. The error was in following the Newsom decision rather than anticipating the change wrought by the Suesz decision.

The case is No. 15-2516.

Attorneys: Mohammed O. Badwan (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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