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Supreme Court Finds Bona Fide Error Defense Inapplicable In FDCPA Action

WASHINGTON, D.C. — (Mealey’s) A divided U.S. Supreme Court on April 21 reversed a federal appellate court and ruled that the bona fide error defense does not apply to a violation of the Federal Debt Collection Practices Act (FDCPA) resulting from a debt collector's incorrect interpretation of the statute’s requirements (Karen L. Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, et al., No. 08-1200, U.S. Sup.).

Karen Jerman petitioned the U.S. Supreme Court for review of a ruling in the Sixth Circuit U.S. Court of Appeals that affirmed the U.S. District Court for the Southern District of Ohio, which had granted summary judgment to the law firm of Carlisle, McNellie, Rini, Kramer & Ulrich and attorney Adrienne S. Foster, a lawyer with that firm, on Jerman's claim that they had violated the FDCPA.

The defendants had filed a foreclosure action on Jerman’s house in Ohio state court and sent a validation notice to Jerman to indicate that the debt related to the house being foreclosed upon would be presumed valid unless it was disputed in writing.  The law firm erred by telling Jerman that her debt to Countrywide Home Loans would be considered valid unless she disputed it in writing, despite the fact that Jerman had already paid the debt in full.

In a 7-2 decision, the Supreme Court majority, comprising Justices Sonya Sotomayor, John G. Roberts Jr., Clarence Thomas, Ruth Bader Ginsburg, Stephen G. Breyer, Antonin Scalia and John Paul Stevens, reversed the Sixth Circuit 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, 15 U.S. Code Section 1692.

Furthermore, the majority said that a violation resulting from a debt collector's misinterpretation of the legal requirements of the FDCPA cannot be "not intentional" under 15 U.S. Code 1692k(c).  The decision does not place unmanageable burdens on debt-collecting lawyers, the majority said, because the FDCPA contains several provisions expressly guarding against abusively filed lawsuits and gives courts discretion in calculating additional damages and attorney fees.

"We are unpersuaded by what seems an implicit premise of Carlisle's arguments:  that the bona fide error defense is a debt collector's sole recourse to avoid potential liability," the majority wrote.

In dissent, Justices Anthony Kennedy and Samuel Alito said the FDCPA excepts from liability "bona fide errors" as long as they are unintentional, which would naturally include "legal errors."  The majority's ruling adopts a "questionable interpretation and rejects a straightforward, quite reasonable interpretation of the statute's plain terms.”

Moreover, the dissenting justices said the majority's decision aligns the judicial system with those who would use litigation to enrich themselves at the expense of attorneys who strictly follow and adhere to professional and ethical standards.

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