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Jerman v. Carlisle: Argument Preview

The following is a preview of Jerman v. Carlisle (08-1200), which will be argued this morning.  Check the Jerman SCOTUSwiki page for more updates. [Note: Howe & Russell represent the petitioner in this case, though the author of this post is not affiliated with the law firm.]


In 2006, respondent Carlisle, McNellie, Rini, Kramer, & Ulrich filed a complaint seeking to foreclose on the home owned by petitioner Karen L. Jerman.  They sent Ms. Jerman a copy of the complaint and a validation notice which indicated that the debt would be assumed valid unless Jerman disputed the claim in writing within thirty days.  Jerman retained a lawyer to dispute the claim; after investigating, the respondents realized the debt had been paid and dismissed the complaint.

Jerman then filed a complaint against the respondents for unlawful collection practices.  Specifically, she alleged that the requirement that she dispute the debt had to be filed “in writing,” which violated the Fair Debt Collection Practices Act (FDCPA).  Jerman sought class certification for all consumers served with a similar notice, actual damages, penalties consisting of the lesser of either $500,000 or one percent of respondents’ net worth, and attorney’s fees.

The respondents filed a motion to dismiss, which the district court denied.  The district court found that, by directing borrowers to contest the notice “in writing,” the respondents had violated the FDCPA.  However, the district court subsequently granted the respondents’ motion for summary judgment, agreeing with respondents that they were shielded from liability by 15 U.S.C § 1692k(c), which exempts debt collectors from liability when they can show 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.”

On appeal, the Sixth Circuit affirmed.  It followed the Tenth Circuit’s decision in Johnson v. Riddle, which rejected the holdings of three other circuits – the Second, Eighth, and Ninth – that  the FDCPA’s bona fide error defense does not apply to legal errors.  Those cases, the Tenth Circuit concluded, relied on the Truth in Lending Act (TILA), which has generally been applied only to clerical errors; by contrast, the Tenth Circuit concluded, the FDCPA was not limited to clerical errors. In its decision, the Sixth Circuit emphasized that Congress has amended the FDCPA on multiple occasions without clarifying that the bona fide error defense does not apply to legal errors.  Thus, including legal errors within the protective framework of the FDCPA is in line with Congress’s objective of eliminating abusive practices without putting debt collectors who make bona fide errors at a competitive disadvantage.

Ms. Jerman filed a petition for certiorari, which the Supreme Court granted on June 29, 2009.

In her brief on the merits, Ms. Jerman emphasizes that Congress has rarely, if ever “made mistake of a law a complete defense” against culpability, and that even unintentional legal errors are outside the protection afforded to bona fide errors.  She further notes that when Congress has wanted to impose liability only when a defendant knows both what he is doing and that his actions violate the law, it has used the term “willful violation.”  By contrast, Congress’s use of the term “intentional” in the FDCPA indicates that it intended it to apply to debt collectors who violated the statute even if they did not understand the legal consequences for doing so.  Congress’s intent to exclude legal mistakes from the bona fide error shield can also be seen from its requirement that a defendant seeking to invoke the defense demonstrate that the error occurred despite reasonable procedures to avoid such errors; Ms. Jerman posits that it is “quite difficult” to develop procedures to avoid mistakes of law.

Ms. Jerman next contends that extending the bona fide error defense to legal mistakes will undermine Congress’s intent to discourage abusive collection practices by allowing collection agencies to “take an aggressive view of the law” because they believed there would be no legal recourse for illegal actions.  Finally, she notes that although Congress amended TILA to exclude errors of law from the bona fide legal error category, it did so simply to clarify, and it did not intend to change the TILA’s operative language.  Because Congress used the same language in the FDCPA, Ms. Jerman suggests, it too should be interpreted to exclude legal errors from the bona fide defense.

In their brief on the merits, the respondents counter that a “plain text analysis” of the FDCPA leads to the conclusion that Section 1692k(c) covers all unintentional, bona fide legal errors, as long as there were procedures in place to avoid errors.  Congress did not intend to omit legal errors from the category of bona fide errors; if it had intended to do so, it would have expressly provided such an exclusion. Moreover, Congress in the FDCPA intended to “equitably balance” the concerns of debt collection agencies and borrowers, and allowing legal practitioners to avail themselves of the bona fide error protection fulfills this purpose.  The respondents cite Heintz v. Jenkins, a 1995 case which concluded that the FDCPA applied to attorneys engaged in debt collection litigation, as further proof that the scope of FDCPA extends to include attorneys and legal errors.

Responding to Ms. Jerman’s arguments regarding the similarities between the FDCPA and the TILA, the respondents counter that such an argument would lead to indistinguishable treatment for ethical and unethical debt collectors.  However, they continue, this is contrary to the FDCPA’s intent, which is to curtail abusive practices, and their error amounts to a legal error.  Thus, by punishing a bona fide legal error, the Court would be punishing a non-abusive practice.