Act I, Scene IV: Jerman v. Carlisle, McNellie, Rini, Kramer, & Ulrich LPA

Hold the presses: it’s another case involving debt collection! In case you haven’t yet, check out “How Debt Collectors are Transforming the Business of State Courts.” Basically, about 1 in 4 civil cases brought to state court is related to debt collection, the total number of cases continues to increase, and most result in default judgments. Translation: attorneys for debt buying agencies are filing suit against unrepresented parties for debts that may belong to someone else, they may have already paid, or they may be unable to pay. Charming.

Thankfully, Congress enacted the Fair Debt Collection Practices Act (FDCPA) “to eliminate abusive debt collection practices, to ensure that debt collectors who abstain from such practices are not competitively disadvantaged, and to promote consistent state action to protect consumers.” Good job, Congress! Only wait… this was passed in 1977 and the problem is worse than ever. I guess keep collecting your paychecks and thank you for your service?

Anywhoozle! Back to our case. The thrilling question: whether the “bona fide error” defense, codified in section 1692k(c) applies to a violation resulting from a debt collector’s mistaken interpretation of the legal requirements of the FDCPA.

Section 813(c) of the Act, 15 U. S. C. §1692k(c), provides that a debt collector is not liable in an action brought under the Act if she can show “the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.”

Pause. I’ll translate in a minute. First, let’s tackle the elephant in the room: how to pronounce “bona fide.” According to Oxford, we’ve got four options to tackle this Latin phrase:

  1. bōnə ˌfīd. Is this the most common? Maybe it’s regional?
  2. ˈbänə ˌfīd. The short “O” feels more relaxed. Plus, I used to think it was “banafide” so this makes sense to me!
  3. bōnə ˈfīdē. Incredibly Latin, fun to say, plus a bit snobby. Professor Haynes pronounced it this way in class once and I was so distracted that I have no idea what we covered.
  4. bōnə ˈfēdā. Now with even more Latin! Never heard it.

Returning to the question, there’s an easier way to ask it: does the FDCPA provide a mistake-of-law defense to civil liability? Can someone who misunderstanding or misapplies the law avoid penalties when someone brings suit? Nope.

[I]gnorance of the law will not excuse any person, either civilly or criminally. Barlow v. United States

Most interesting to me, is the fact that an error occurs despite “procedures reasonably adapted to avoid any such error.” Despite all the checks put in place a mistake still happens. That’s fine, so long as is not a misunderstanding or misapplication of the law. So, what was the error that Carlisle committed that got us here in the first place?

Karen L. Jerman had a mortgage (emphasis on had, as Karen had already paid it in full). Carlisle sought foreclosure! That escalated quickly and also, doesn’t make any sense knowing what we know (remember, Karen had ALREADY paid off the mortgage). In their efforts to foreclose on Karen’s real property, Carlisle included a “Notice” that stated “the mortgage debt would be assumed valid unless Jerman disputed it in writing.” Yikes. Thankfully, Karen hired a lawyer who sent a letter “disputing the debt” (remember, Karen had ALREADY paid off the mortgage). Karen’s mortgagor, Countrywide Home Loans, acknowledged full payment and Carlisle withdrew the foreclosure suit.

Taking a step back, someone who PAID OFF their mortgage receives a piece of mail that says “This mortgage debt will be assumed valid unless you dispute it in writing.” Doesn’t that smell scammy? Plus, it’s total nonsense because the homeowner knows they’ve already PAID OFF their mortgage. What if Karen had thought it was just some junk mail and shredded it? Carlisle would have received a default judgment, meaning that the undisputed mortgage debt was valid and delinquent. Carlisle could have proceeded with foreclosure. That’s how the system works! It’s absurd.

This case also raised my skeptical eyebrow because of Rule 11(b).

By presenting to the court a pleading, written motion, or other paper—whether by signing, filing, submitting, or later advocating it—an attorney or unrepresented party certifies that to the best of the person’s knowledge, information, and belief, formed after an inquiry reasonable under the circumstances:

(1) it is not being presented for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation;

(2) the claims, defenses, and other legal contentions are warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law;

(3) the factual contentions have evidentiary support or, if specifically so identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery; and

(4) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on belief or a lack of information.

The lawyers did not conduct “an inquiry reasonable under the circumstances…” because their “factual contentions” totally lacked “evidentiary support,” as an “reasonable opportunity for further investigation or discovery” from their client would show that Karen had already paid off her mortgage. The complete lack of due diligence means that filing this complaint only served to harass Karen and other former mortgagees. Certification of this complaint by attorneys at this firm should have resulted in sanctions.

Oh, but that can’t just happen. Karen’s attorney would have needed to file a Motion for Sanctions under Rule 11(c)(2).

A motion for sanctions must be made separately from any other motion and must describe the specific conduct that allegedly violates Rule 11(b). The motion must be served under Rule 5, but it must not be filed or be presented to the court if the challenged paper, claim, defense, contention, or denial is withdrawn or appropriately corrected within 21 days after service or within another time the court sets. If warranted, the court may award to the prevailing party the reasonable expenses, including attorney’s fees, incurred for the motion.

Despite the harassing nature of filing complaints bringing foreclosure action against former mortgagees who have already paid of their mortgages, a motion for sanctions must not be filed or presented if the complaint is challenged and then dropped within 21 days after service of the answer, motion to dismiss, or some other action by the former mortgagee. So, even if Karen thinks this conduct is horrific, as long as the firm withdraws the suit within the time period, Karen is barred from filing for sanctions.

For the the people in the back: a mortgage company hires a law firm, a law firm sues “delinquent” clients of mortgage company, Karen (a former mortgagee) is not delinquent, Karen hires an attorney to say so to the law firm, law firm drops suit after mortgage company verifies that Karen is not delinquent. And the Supremes, in their infinite wisdom, focus on whether requiring the reply challenging the outstanding debt be in writing is an unfair debt collection practice (because it violates the legal requirements within the FDCPA). Despite the fact that a simple inquiry by the law firm could have prevented this entire interaction, Karen probably couldn’t file for sanctions under Rule 11(c). Karen was able to keep the property, but think about what she had to go through to hold on to it.

Surprise to no one, John Oliver talked about debt buyers and this mess back in 2016:

Also, I cannot believe we live in a world where Debt Collector gets a sequel… Debt Collectors:

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