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US Supreme Court: FDCPA: No Bona Fide Error Defense for Mistakes of Law

Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA et al., 2010 WL 1558977 (U.S. April 21, 2010).

Facts:  Jerman sued Carlisle, McNellie, Rini, Kramer & Ulrich (the “Defendant law firm”) for, allegedly, violating the Federal Debt Collection Practices Act (“FDCPA”) by representing to Jerman that her debt would be assumed valid unless she disputed the debt “in writing” even though the FDCPA does not require a written dispute.

The Defendant law firm argued that their mistake was excused under the FDCPA’s bona fide error defense:

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.

Issue:  Can attorneys avoid liability for a mistake of law under the FDCPA’s bona error defense? 

Ruling:  The Supreme Court reversed the Appellate Division and held that the bona fide error defense does not apply to a violation resulting from a debt collector’s mistaken interpretation of the legal requirements of the FDCPA. The Court declined to adopt an expansive reading of the defense and relied upon the “common maxim” that “ignorance of the law will not excuse any person, either civilly or criminally”.

The Court reasoned that the bona fide error defense’s requirement of maintaining “procedures reasonably adapted to avoid any such error…naturally evokes procedures to avoid mistakes like clerical or factual errors”:

The dictionary defines procedure as a series of steps followed in a regular orderly definite way…In that light, the statutory phrase is more naturally read to apply to processes that have mechanical or other such regular orderly steps to avoid mistakes…But legal reasoning is not a mechanical or strictly linear process.

The Court next considered the Defendant law firm’s argument that Congress’ decision to amend only the bona fide error defense in the Truth in Lending Act to specifically exclude “errors of legal judgment” evidenced its intent to include mistakes of law in the FDCPA’s bona fide error defense. The Court disagreed:

[I]t is not obvious that the amendment changed the scope of TILA’s bona fide error defense in a way material to our analysis, given the uniform interpretations of three Courts of Appeal holding that the TILA defense does not extend to mistakes of law.

Furthermore, the Court stated that Congress likely did not intend the defense to apply to mistakes of law, since Congress did not expressly include mistakes of law in any of the parallel bona fide error defenses elsewhere in the U.S. Code.

In response to the argument that the threat of liability under the FDCPA might create an irreconcilable conflict between an attorney’s personal financial interest and her ethical obligation of zealous advocacy on behalf of a client, the Court noted that “an attorney’s ethical duty to advance the interests of his client is limited by an equally solemn duty to comply with the law and standards of professional conduct”.

Finally, the Court noted that the FDCPA contains a safe harbor defense for “any act done or omitted in good faith in conformity with any [Federal Trade Commission] advisory opinion” that is more tailored to address the mistake at issue than the bona fide error defense. Although the Court recognized that the Federal Trade Commission has issued only four opinions in the past decade, and has an average processing time in excess of three months, the Court concluded that the existence of this separate, more apposite provision weighs against “stretching” the bona fide error defense to provide protection for mistakes of law.

Lesson:  An attorney cannot rely upon the FDCPA’s bona fide error defense for misinterpretations of the statute’s legal requirements.

Editor’s Note:  Jerman involves only a mistake of law under the FDCPA. Accordingly, it is not clear whether Jerman is applicable to mistakes of state law or federal law on issues other than the FDCPA.  The Courts of Appeal have expressed different views on this issue.

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Posted in: Commercial, Federal, Standard of Care