bona fide error

Victory in the Seventh Circuit in Bona Fide Error Case

Appellate decisions on the FDCPA’s bona fide error defense are rare. Even rarer are those upholding a grant of summary judgment on the bona fide error defense to a law firm.. Messer Strickler is pleased to report another total defense victory in the case of Abdollahzadeh v. Mandarich Law Group, 2019 U.S. App. LEXIS 12887 (7th Cir April 29, 2019).

In Abdollahzadeh, a law firm inadvertently filed a collection lawsuit against a consumer that was outside of the statute of limitations as a result of an inaccurate last payment date transmitted to it from the original creditor through its client. Specifically, the date of last payment reflected a bounced payment, as opposed to a payment that had cleared. When the consumer moved to dismiss, Mandarich Law Group defended consistent with its ethical obligations to argue in good faith that the consumer’s intent to pay extended the statute of limitations. The trial court disagreed and dismissed the matter with prejudice.

Abdollahzadeh, represented by Mario Kasalo, then sued Mandarich in federal court blaming it not only for filing suit but also for defending his motion to dismiss. Mandarich held strong and pointed to its policies and procedures for scrubbing out and closing time barred accounts. Ultimately, it prevailed at the district court level at summary judgment by invoking the bona fide error defense. The consumer appealed.

The Seventh Circuit was “not persuaded” by the consumer’s arguments for reversal. The consumer argued that in order to succeed on the defense, the law firm should have abandoned its client’s claims in response to the consumer’s motion to dismiss. The consumer also insisted that Mandarich should have engaged in independent efforts to valid the debt prior to suit and refrained to relying on its client’s data. Ultimately, the Circuit rejected all of the consumer’s arguments and affirmed the judgment of the district court.

This case is important for two reasons. First, this case affirms that a law firm cannot be faulted for a good-faith argument in a state court collection suit merely because it was ultimately unsuccessful. Second, the simplistic nature of procedures does not lead to the conclusion that the procedures utilized were insufficient. This case will likely provide a road map which can be used by other law firms developing policies and procedures for time-barred debts.

Messer Strickler thanks its client, Mandarich Law Group, LLP, for its resolve and positive contribution to Seventh Circuit precedent.. A copy of the decision can be found here: https://law.justia.com/cases/federal/appellate-courts/ca7/18-1904/18-1904-2019-04-29.html

Debt Collector Succeeds with FDCPA Bona Fide Error Defense

The United States District Court for the Southern District of Alabama recently granted a Motion for Summary Judgment in favor of a defendant debt collection agency.  In Robert L. Arnold v. Bayview Loan Servicing, LLC, et al., the plaintiff filed suit against the collection agency for multiple FDCPA violations.  Arnold fell behind on his mortgage payments and declared bankruptcy in 2012, under which the judge granted a discharge for the mortgage.  In January 2013, Arnold received written notification that the mortgage loan servicing had been transferred to Bayview.  Bayview was well aware of the default and that the debt had been discharged in bankruptcy.  Upon receipt of the account, Bayview started the foreclosure process, and purchased the property for most of the amount of the outstanding principal on Arnold’s loan.  While the account was properly coded in Bayview’s system upon transfer, and no billing statements were produced, in December 2013, ten months after the transfer, two billing statements were sent to Arnold.  The statements reflected the outstanding balance; they did not reference the bankruptcy discharge, and they did not reference a credit for the foreclosure sale.

Bayview sought summary judgment based solely on the bona fide error defense.  To succeed on this defense, Bayview must show “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 such an error.”  This defense is not available for mistakes of law or misinterpretations of the FDCPA, but instead “to protect against liability for errors like clerical or factual mistakes.”  See Edwards v. Niagara Credit Solutions, Inc.

The court found Bayview sufficiently demonstrated that the December 2013 mailings were unintentional based on the following:

  1. Arnold’s loan had been coded with a foreclosure man code when Bayview assumed servicing responsibilities, effectively suppressing all billing statements;
  2. Bayview sent no billing statements to Arnold between February 2013 and November 2013;
  3. The Bayview employee who performed a pre-foreclosure review of Arnold’s loan was bound to follow a Bayview checklist that did not call for changing the man code or issuing billing statements;
  4. Nothing in the checklist or employee comments suggested that this individual intended to change the man code or reactivate Arnold’s loan;
  5. The man code was changed anyway, even though Bayview had no reason to do so in its pre-foreclosure review;
  6. Bayview ceased communications to Arnold when it discovered the error; and
  7. Bayview provides extensive, ongoing training to employees in the area of FDCPA compliance.

The Court also concluded that Bayview’s violation was in good faith in that it properly relied on the foreclosure code to suppress monthly statements to Arnold, and that it had no reason to believe that the man code would be changed during the pre-foreclosure review process.  Furthermore, Bayview had provided appropriate training and checklists to its employees concerning pre-foreclosure review.

Finally, the Court also concluded that Bayview maintained policies and procedures to avoid readily discoverable errors.  Bayview had general training procedures and specific procedures for pre-foreclosure review.  It also had ongoing FDCPA compliance training for its employees.

This case demonstrates the importance for debt collection agencies to have clear policies and procedures for FDCPA compliance, as well as ongoing training to reinforce the implementation of these policies and procedures.

For more information on this topic or questions regarding your FDCPA policies and procedures, please contact Stephanie Strickler at sstrickler@messerstrickler.com or at 312-334-3465.