Fair Debt Collection Practices Act SCOTUS ruling may have negative impact on lawyers

by Correy Stephenson The Daily Record Newswire The U.S. Supreme Court's decision in a Fair Debt Collection Practices Act case last week may create ethical dilemmas for attorneys forced to interpret the statute on behalf of their clients. In Jerman v. Carlisle, McNellie, Rini, Kramer and Ulrich LPA, the justices held that a law firm could be liable under the Act for sending a letter to a debtor on behalf of a mortgage company that misrepresented the debtor's legal obligations. The Court held that the firm was not entitled to the "bona fide error" defense under §1692k(c) of the Act. "This is a very unfortunate outcome, and it guarantees absurd results," said Austin, Texas attorney Manny Newburger, who practices at Barron, Newburger and Sinsley and filed an amicus brief on behalf of the Commercial Law League and DBA International, a trade group of debt buyers, sellers and service providers. Newburger explained that in this case, when the law firm filed the original suit there was no case law on the issue from the 6th Circuit, so the firm followed a decision from the 3rd Circuit. However, there was a split of authority, with a contrary holding from the 9th Circuit. "The Supreme Court decided to impose strict liability on a lawyer who made the wrong choice when confronted with a split of authority in the circuits," Newburger said. "A lawyer faced with split in circuit authority should not be subjected to strict liability if he or she chooses to follow a decision ultimately not adopted in his or her circuit." Kevin Russell, a partner at Howe & Russell in Bethesda, Md., who argued the case on behalf of the plaintiff before the Court, disagreed. "Mistakes of law, even if reasonably understood, can subject lawyers to liability just like others in our system," said Russell. A ruling for the firm would have made it "quite difficult for plaintiffs to bring [FDCPA] cases and it would have emboldened debt collectors to take a very aggressive view of what is lawful," he added. But under the Court's decision, debt collection lawyers now face tough decisions, said George S. Coakley, a partner at Reminger in Cleveland, Ohio, who argued the case on behalf of the firm. "If they are faced with an interpretation of law where they might be wrong, then they have a real ethical dilemma: do they advance the interest of their client, as they should, or do they protect themselves from personal liability?" Mistake of law - or mistaken interpretation - no defense In the Jerman case, a law firm representing a mortgage company sought to foreclose on a home. It sent a letter to the debtor that said the debt would be considered valid unless the debtor disputed the claim in writing, even though the Fair Debt Act does not require a written dispute. The mortgage company acknowledged that the debtor had already paid the debt in full, and the firm withdrew the foreclosure suit. The debtor filed suit under the Act. The firm moved for summary judgment, arguing that although it made a mistake of law, it was protected by §1692k(c), which protects defendants from liability under the Act for a "bona fide error." The 6th Circuit agreed. Recognizing a split in the circuits, the Supreme Court granted certiorari. In an opinion authored by Justice Sonia Sotomayor, the Court reversed. "We have long recognized the 'common maxim, familiar to all minds, that ignorance of the law will not excuse any person, either civilly or criminally.' Our law is therefore no stranger to the possibility that an act may be 'intentional' for purposes of civil liability, even if the actor lacked actual knowledge that her conduct violated the law," the Court said. The justices noted that the statutory language shields defendants from liability if they maintain "procedures reasonably adapted to avoid any such error" - language that indicates Congress meant "errors like clerical or factual mistakes. Such procedures are more likely to avoid error than those applicable to legal reasoning, particularly in the context of a comprehensive and complex federal statute such as the FDCPA that imposes open-ended prohibitions on, inter alia, 'false, deceptive,' or 'unfair' practices." Unworkable consequences? Justices Stephen Breyer and Antonin Scalia filed concurring opinions. Justice Breyer highlighted another route lawyers can take when uncertain of the law under the FDCPA: seek an advisory opinion from the Federal Trade Commission. But given the infrequency with which such opinions are issued, that's not a viable option in practice, Coakley said. The Court said that its decision would not have unworkable practical consequences for debt collecting lawyers, something Justice Anthony Kennedy - joined by Justice Samuel Alito - took issue with in his dissent. "Attorneys will often find themselves confronted with a statutory provision that is susceptible to different but still reasonable interpretations," Justice Kennedy wrote. "An attorney's obligation in the face of uncertainty is to give the client his or her best professional assessment of the law's mandate. ... "Under the Court's interpretation of the FDCPA, however, even that might leave the attorney vulnerable to suit. For if the attorney proceeds based on an interpretation later rejected by the courts, today's decision deems that to be ... an intentional 'violation,' with personal financial liability soon to follow. Indeed, even where a particular practice is compelled by existing precedent, the attorney may be sued if that precedent is later overturned." As a result, going forward, "lawyers will probably choose to follow the most restrictive case law," in order to protect themselves from liability, said Newburger. But that path "may not be in the best interests of their client." Russell suggested that when faced with a conflict lawyers work it out with the client. "Go to the client and say, 'We could do this, but it might subject me to personal liability. I want you to indemnify me if I get sued,'" he said. Published: Mon, May 3, 2010

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