Washington – The U.S. Supreme Court is set to decide whether an attorney’s misunderstanding of the law qualifies for the bona fide error defense under the Fair Debt Collection Practices Act.

The case Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, began when a law firm representing a mortgage company, served Karen J. Jerman with a foreclosure complaint and a notice informing her of her legal rights.

The notice informed Jerman that her mortgage debt would be assumed valid unless she disputed the debt “in writing.” However, under the Fair Debt Act, a debtor need not dispute the debt in writing.

Jerman did dispute the debt in writing, and after the mortgage company checked its records and discovered that her mortgage was paid in full, it dismissed the complaint.

Jerman then filed suit against the law firm, alleging that the claim that a dispute must be made in writing violated the Fair Debt Act, and seeking statutory, injunctive and declaratory relief.

The firm moved for summary judgment based on the “bona fide error” defense, which shields debt collectors from liability when a violation of the law is (1) not intentional, (2) results from a bona fide error, and (3) made despite the existence of procedures in place to avoid such an error.

The firm argued that the attorneys were well trained on debt collection law through continuing legal education courses and periodicals, yet they still honestly misunderstood the law to require debtor disputes be made in writing.

A U.S. District Court granted summary judgment, and the 6th Circuit affirmed.

The U.S. Supreme Court agreed to hear the case.

Mistake-of-law defense?

At oral arguments on Wednesday, Kevin K. Russell, partner at Howe & Russell in Bethesda, Md., argued that debt collectors should not be shielded when they have made a mistake of law.

“While it may seem unfair to hold defendants in some sense strictly liable [in these cases], the accumulated wisdoms of generations of legal practice has been that attempting to fix that unfairness through a mistake of law defense causes more harm than it prevents,” Russell stated.

But Justice Stephen Breyer wondered if such an interpretation would expose diligent lawyers to liability in areas where the law is unsettled.

“The lawyer looks up everything in sight and says, ‘yes, it’s legal,’” Breyer said. “[He] asks the FTC and they say, ‘yes, it’s legal.’ Everybody’s told him it’s legal. And lo and behold, [a] court holds the opposite. Well, he shouldn’t be liable. And if he has to worry about that, he can never defend his client.”

Russell reasserted that being mistaken about the law should not be a defense in debt collection cases.

“You shouldn’t read [the bona fide error] defense as necessarily creating a mistake of law defense simply because you think it’s so unfair,” Russell said.

“It’s not just that it’s unfair,” Breyer replied. “It’s worse than unfair. The lawyer is under an obligation to represent his client, [but] cannot do anything but tell the client: ‘Just pay money to this particular plaintiff [because] his view of the law is totally different.’”

George S. Coakley, a partner at Reminger in Cleveland, argued on the law firm’s behalf that the statute’s plain text shows the existence of an exception based on a mistake of law.

“[The law] may be read plainly to include the bona fide error defense [and] to include legal error,” Coakley said.

But Justice Ruth Bader Ginsburg said that given the rarity of mistake-of-law defenses, it would be unusual for Congress to imply one in the debt collection statute.

“So this would be highly extraordinary,” Ginsburg said, “and if that’s what Congress meant to do, to make something that ordinarily is no defense a defense, we would expect Congress to do so expressly.”

Coakley pointed out that the language in the statute was modeled after the Truth in Lending Act. Congress later amended TILA to remove the mistake-of-law exception. It did not, however, amend the FDCPA, and therefore must have intended the mistake-of-law exception to remain.

But Justice Scalia questioned the logic of that argument, since TILA imposes criminal penalties and should therefore come with greater protections against unintentional violations.

“I mean, the fact that there is criminal liability under TILA would seem to me to cut in precisely the opposite direction,” Scalia said. “You would want to provide excuses of bona fide errors of law, I would think. Am I missing something here?”

A decision from the Court is expected later this term.

Questions or comments can be directed to the writer at kimberly.atkins@lawyersusaonline.com