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FDCPA: The Bona Fide Error Defense

Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, 538 F.3d 469 (6th Cir. 2008)

Facts:  Plaintiff alleged that the Defendant law firm violated the Federal Debt Collection Practices Act (“FDCPA”) by representing to her that her debt would be assumed valid unless she disputed the debt “in writing” even though the FDCPA does not require a written dispute.  Defendants filed a motion for summary judgment on the basis that that they qualified for the FDCPA bona fide error defense. The district court granted the motion and Jerman appealed on two grounds: (1) the district court erred in concluding that the FDCPA’s bona fide error defense may apply to mistakes of law, and (2) even if the defense does apply to mistakes of law, a question of fact remains as to whether defendants maintained procedures reasonably calculated to avoid the violation.

Issue:  Was the Defendant law firm’s mistake a bona fide error under the FDCPA?

Ruling:  Yes.

The FDCPA bona fide error defense (15 U.S.C. § 1692k(c)) provides:

A debt collector may not be held liable in any action brought under this subchapter if the debt collector shows 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.

Whether the bona fide error defense applies to mistakes of law or procedural/clerical error was an issue of first impression for the Court. The Court reviewed the case law from the Sixth Circuit as well as other jurisdictions, and ultimately rejected Jerman’s argument that the FDCPA bona fide error defense should apply only to clerical mistakes because the Truth In Lending Act (“TILA”) bona fide error defense applies only to clerical errors, since the TILA, unlike the FDCPA, is explicitly limited to “clerical, calculation, computer malfunction and programming, and printing errors, except that an error of legal judgment with respect to a person’s obligations under this subchapter is not a bona fide error.” The FDCPA, on the other hand, has no such provision.

The Court also rejected Jerman’s argument that the phrase “maintenance of procedures reasonably adapted to avoid any such error” references clerical errors because “ it makes no sense that a collector can maintain procedures reasonably adapted to avoid mistakes of law”.  The Court stated:

[T]here is nothing unusual about attorney collectors maintaining procedures, such as frequent education and review of the FDCPA.

After concluding that mistakes of law may be considered bona fide errors, the Court held that defendants had , in fact, set up satisfactory procedures in an effort to avoid such errors by:

  • Designating a principal of the firm for handling compliance issues;
  • Regularly attending seminars on FDCPA issues;
  • Subscribing to relevant publications; and
  • Counseling attorneys and other employees on the firm’s obligations under the FDCPA and providing them with a procedures manual;

Finally, the Court rejected Jerman’s argument that adoption of the model language contained in the International Guide to the FDCPA of the American Collector’s Association is the only acceptable procedure to avoid the legal error at issue.

Lesson:  Attorneys may be able to rely on the bona error defense to avoid liability under the FDCPA for mistakes of law by incorporating compliance mechanisms into their practice, keeping abreast of pertinent developments, and educating support staff of the firm’s obligations under the FDCPA.

Note: The US Supreme Court has granted cert. See 129 S.Ct. 2863 (2009),  as  there is conflict among the circuits with the 2d, 8th and 9th circuits holding that the bona fide error defense does not apply to violations resulting from legal mistakes. Stay tuned. We will keep  you posted as soon as the Court rules. 

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Posted in: Commercial, Federal, Standard of Care