Debt collectors and “ignorance of the law”

By Anna Christensen
on Apr 26, 2010 at 3:03 pm

Below, Jonathan Eisenman of Akin Gump recaps last week’s opinion in 08-1200, Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA.  Check the Jerman page on SCOTUSwiki for further information.  [DISCLOSURE: Howe & Russell represented the petitioner in the case.]

People who unwittingly violate criminal laws frequently run aground on the aphorism that “ignorance of the law is not an excuse.”  Earlier this week the Court offered the same warning not to hapless criminals, but to debt collectors who stray from the terms of the Fair Debt Collection Practices Act (“FDCPA”).  In Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, the Court held – by a vote of seven to two – that the FDCPA’s bona fide error defense –established in Section 1692k(c) – does not apply to errors of law.  (You can read Matt Sundquist’s preview and recap of oral argument in posts here and here.)    The result?  If a nationwide debt collector mistakenly calls a debtor after 9 p.m. (a violation of the Act), it nevertheless has a defense if it made the factual mistake of placing the debtor in a time zone where it isn’t yet 9 p.m.  On the other hand, a debt collector who commits the legal error of requiring a debtor to dispute a debt in writing, when the FDCPA is silent on whether a writing can be required, has no defense if sued for requiring the writing, no matter the genesis—reasonable or not—of the legal error.  So concluded the Court in an opinion by Justice Sotomayor and joined by Chief Justice Roberts, Justice Stevens, Justice Thomas, Justice Ginsburg, and Justice Breyer (who also wrote a separate, concurring opinion).  Justice Scalia concurred in part and in the judgment, but—true to form—had his own thoughts on the majority’s reliance on the FDCPA’s legislative history.  Justices Kennedy and Alito dissented.

The Court began its substantive discussion by quoting the “‘common maxim, familiar to all minds, that ignorance of the law will not excuse any person, either civilly or criminally.’” When Congress means to offer such an excuse, it does so more explicitly than in § 1692k(c).  For example, when the scope of a law is meant to exclude ignorant violators, the law is often directed only at “willful” conduct:  “Willful” violations are traditionally interpreted to require a defendant to know that its actions violate the law.  Consequently, ignorance of the law is an excuse if violating the law requires willfulness.  But willfulness is nowhere mentioned in the portion of the FDCPA that makes debt collectors liable to debtors for failing to comply with the Act, § 1692k(a), nor is it mentioned in the section of the Act providing debt collectors a defense.

The majority then looked to the FDCPA’s legislative history, and the provenance of § 1692k(a) in a similar defense provided by the Truth In Lending Act (TILA).  Section 130(c) of the TILA provided the affirmative defense that “[a] creditor may not be held liable in any action brought under [TILA] if the creditor shows by a preponderance of the evidence 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.”  In the nine-year period between the passage of that language and the passage of the FDCPA, three courts of appeals considered the scope of the application of the bona fide error defense in TILA; none interpreted it to extend to errors of law.  From this, the majority posits that when Congress used the same language in the FDCPA, it intended that language to similarly be read as not extending to errors of law.

The Court acknowledged a point raised by Carlisle, its amici, and the dissent—that narrowing the scope of the bona fide error defense in cases such as this will allow plaintiffs with minimal actual damages to threaten debt collectors with costly class-action litigation.  However, the majority parried this argument by noting that if an attorney is liable for an FDCPA violation but the violation is trivial, the damages will be de minimis.  Moreover, not only could a court elect to award a prevailing plaintiff only minimal attorney fees in such a case, but it could even award fees to the defendant under § 1692k(a)(3) if the plaintiff’s suit “was brought in bad faith and for the purpose of harassment.” That the FDCPA, without a defense for mistakes of law, could impose a constraint on an attorney’s zealous advocacy is of no moment, the majority found, as many laws constrain attorneys’ conduct.  In any event, the Court observed, many states have similar debt collection statutes that provide no defense for bona fide legal errors; consequently, even under Carlisle’s reading of the exception, debt collectors may not escape liability for their conduct under state law.

To take the dissent’s position, the majority concluded, could grant blanket immunity to anyone who seeks a legal opinion on a provision of the FDCPA before violating that statute.  Further, the dissent’s position would invite litigation as to a defendant’s subjective intent to violate the statute, because by creating a defense for errors of law, the dissent essentially reads a willfulness requirement into the Act (i.e., the defendant must know that its action violates the law).  If debt collectors are unsure as to the meaning of some part of the Act, they can seek a formal opinion on its meaning from the FTC, pursuant to § 1692k(e).  Acting within the scope of the FTC’s formal advice immunizes a debt collector from suit for its action.  Thus, absent some absurdity arising from applying § 1692k(c) only to mistakes of fact, the majority would not interpret the law contrary to its understanding of the statute’s legislative history or the traditional notion that a mistake of law does not excuse the law’s violation.

Justice Breyer wrote separately to emphasize that his agreement with the Court’s judgment hinged on the actual availability of FTC advisory opinions.  Otherwise a party, faced with the uncertain meaning of a provision of the FDCPA, could be sued even if it acts in good faith on an understanding of the law that later proves erroneous.  The availability of official advisory opinions solves that problem; were the FTC to prove dilatory in issuing them, Justice Breyer explained, he would view the case differently.

Justice Scalia joined the Court’s opinion “except for its reliance on two legal fictions.”  First, Justice Scalia disagreed with the Court’s reliance on the history of the TILA to interpret the FDCPA.  He observed that the courts of appeals which had interpreted the TILA bona fide error defense did not discuss whether the defense applied to factual errors, which the FDCPA’s defense assuredly does.  Instead, those courts of appeals only discussed clerical errors; if the majority wanted to rely on those opinions, Justice Scalia suggested, it should similarly limit the FDCPA.  Second, Justice Scalia upbraided the majority for making “fulsome use of that other legal fiction, legislative history . . . .”  Here, Justice Scalia contended, the majority compounded the sin of relying on legislative history by taking a biased view of the FDCPA’s history and discounting those portions that undermined the Court’s conclusion.  Nevertheless, because “[t]he Court’s textual analysis stands on its own, without need of (or indeed any assistance from) the two fictions” he discussed, Justice Scalia concurred in the judgment.

Justice Kennedy’s dissent, joined by Justice Alito, seems driven largely by what the two must view as an unfavorable outcome:  the ability of a plaintiff like Ms. Jerman to proceed with a costly class action suit against a defendant like Carlisle, without having shown actual damages as a result of Carlisle’s legal error.  That danger is heightened by statutes, like the FDCPA, which provide attorney fees to the prevailing plaintiff.  Even if the victorious plaintiff gets de minimis damages, the availability of attorney fees for their trouble may cause attorneys to engage in barely meritorious litigation.

The dissent would thus read § 1692k(c) as it is “most naturally” read:  to include any bona fide error, whether it be one of law or one of fact.  That the statute speaks of an intentional “violation” of the Act implies a legal violation; thus, a bona fide error in the same context includes a legal error, by the dissent’s reasoning.  The dissent argues that majority’s reliance on the jurisprudence surrounding the word “willful” (and its absence from the FDCPA) is misplaced, as that jurisprudence surrounds criminal, not civil, infractions.

Further, the dissenters were unconvinced by the majority’s argument that many laws constraint a lawyer’s ability to engage in damn-the-torpedoes-full-steam-ahead litigation.  Instead, they wrote, in a case like this—in which the underlying law is unclear on whether a debt must be disputed in writing—a lawyer advising a debt collector is damned either way:  A debtor can argue that a collector (or a lawyer acting as a collector) violated the FDCPA if it demands a writing or if it fails to demand a writing.  The dissenters were similarly unconvinced by the “availability” (as the dissenters would have it) of the FTC advisory opinion as a method for insulating against the dangers that the dissenters anticipate.  They noted that the FTC has issued only four opinions, in response to seven requests, in the entire history of the FDCPA.

Finally, the dissent, like Justice Scalia, was unconvinced by the majority’s logic surrounding the connection between TILA and the FDCPA.  Particularly noteworthy to the dissenters was the fact that Congress amended TILA’s bona fide error defense in 1980 to specifically exclude legal error.  If Congress understood the original language—the language incorporated in the FDCPA—to already exclude legal error, why go to the trouble of amending it to make explicit that exclusion?