An April 21 decision of the US. Supreme Court is must reading for attorneys who collect debts. Making a legal mistake can subject the attorney and the firm to liability under the Fair Debt Collection Practices Act.
In Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA (.pdf), the law firm filed a complaint in state court. The complaint contained a statement that the mortgage debt in question would be assumed valid unless the debtor disputed the debt in writing. When debtor’s attorney showed that the debt had been paid the original lawsuit was dropped. Debtor then sued the firm and one of its attorneys for violating the FDCPA, alleging that the statement in the complaint that the debt must be disputed in writing was false.
The district court found that the complaint had, indeed, violated the Act but that the defendants were entitled to summary judgment on their statutory “bona fide error” defense under 15 U.S.C. 1692k(c). This provision allows a defendant to escape liability by showing that the violation was not intentional, but resulted from a good faith error occurring despite the maintenance of reasonable procedures.
The Supreme Court, Justice Sotomayor writing for the majority, reversed. It held that the bona fide error defense did not include errors of law.
We have long recognized the common maxim, familiar to all minds, that ignorance of the law will not excuse any person, either civilly or criminally.
Congress had provided a mistake-of-law defense in other statutes but in those cases expressed its intent more clearly. Moreover, Congress did not confine liability under the FDCPA to “willful” violations, further providing an indication that it did not intend to excuse legal mistakes. Finally, the references in the statute to procedures designed to prevent error suggests that Congress was concerned with factual, not legal, errors.
Justice Kennedy, joined by Justice Alito, dissented. In their view, the term “bona fide error” was broad enough to include mistakes of law. They feared that the court’s decision threatened to unleash a flood of litigation against attorneys who took legal positions in collection cases that did not ultimately prevail.
Justice Scalia’s interesting concurring opinion suggested that the court should seldom if ever look to legislative history in construing a statute. He agreed with Justice Sotomayor’s textual analysis, however.
Jerman should amply demonstrate that the collection practice is full of potential pitfalls. Attorneys who do not regularly practice in the area should think twice before undertaking such work and absolutely must make sure that all communications to the debtor and court pleadings are on solid legal grounds.
Most attorneys are used to environment where statements in court pleadings are largely immune from serving as the basis of liability. It is jarring, therefore, to see a federal statute that imposes what amounts to strict liability on the legal pleadings of attorneys. Congress should act to assure that the FDCPA is reserved for its appropriate role—protecting debtors from truly abusive practices.