The United States Supreme Court announced a decision Wednesday in a case that limits the scope of a defense provided to debt collectors who violate the Fair Debt Collection Practices Act (FDCPA) so as to exempt a legal error made in good faith, see story.
Reminger, a Cleveland-based law firm, represented a Beachwood attorney and her firm against allegations that they engaged in abusive debt-collection practices when they issued a notice in connection with a foreclosure action.
In Jerman v. Carlisle, the Supreme Court reversed and remanded the lower court decision, with Justice Sotomayor writing for the majority. The issue before the court was whether a bona fide error defense contained within the FDCPA exempted a party from civil liability where the violation arose from a good faith legal mistake. On a 7-2 vote, the court held that a good faith violation of the FDCPA caused by a legal mistake did not excuse the debt collector from civil liability.
"By excluding legal error from the bona fide error defense, lawyers acting as debt collectors will have no realistic protection from liability where their legal error was made in good faith and with reasonable procedures in place to avoid the error," said George Coakley, Reminger practice area head who argued the case on behalf of the Carlisle Law Firm. He added that, “a lawyer could now be held liable for damages to a non-client under the FDCPA for an error in exercising legal judgment even though the lawyer's own client may not have a claim against the lawyer based on the same exercise of legal judgment."
Justice Kennedy in writing a dissent joined by Justice Alito wrote that the court’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.” Coakley commented, "Attorneys owe their clients an ethical duty of uncompromised and zealous representation. Lawyers may now face an irreconcilable ethical conflict by having to weigh concerns of personal liability against the client's best interest."
The ruling will also have a negative economic impact upon the small businesses that debt collectors serve. Coakley stated, "Small businesses are the lifeblood of our economy. By this ruling, the court has made it more difficult for debt collectors to collect legitimate debts. As a result, they will be subjected to additional economic hardship and lost income."
"We fought the good fight in reference to the defense of the legal and business community," said Coakley. "We argued that if the Court ruled in favor of the debtor, small businesses will be forced to pay a higher premium to engage collection agencies to collect uncollected debts."
The case originated when the debt collector sent a notice with a foreclosure complaint to a homeowner, requiring them to dispute their debt "in writing" within 30 days. The ‘in writing’ language was included in the notice based on legal authority from other jurisdictions. The homeowner hired a lawyer who sued the debt collector seeking damages, in addition to class certification on behalf of all debtors who may have received similar notices.
Coakley argued that the FDCPA provided a defense to debt collectors who made legal mistakes in good faith, while the homeowner's attorney argued that the defense was only applicable to collectors who made clerical mistakes. The local federal district court and the Sixth Circuit Court of Appeals ruled in favor of the debt collector; however, the matter was accepted for review by the Supreme Court.
An impressive group of organizations joined Reminger's efforts, including those representing small businesses, local governments and health care providers. But the combined front was not enough to defend against the homeowner's position that was supported by the briefs submitted by the Solicitor General representing the United States Government, the attorneys general from 21 states, along with Public Citizen and AARP.