Supreme Court Tells Debt-Collection Law Firm that Ignorance of Law Is No Excuse

ABA JOURNAL

By Debra Cassens Weiss

Law firms that misinform a debtor facing foreclosure about his or her legal obligations aren’t shielded from liability for the legal error, the U.S. Supreme Court has ruled.

In a 7-2 opinion (PDF) by Justice Sonia Sotomayor, the Supreme Court said the “bona fide error defense” doesn’t protect debt collectors who make mistakes when interpreting the legal requirements of the federal Fair Debt Collection Practices Act. The law imposes civil liability for certain debt collection practices, but provides an exception—when the “the violation was not intentional and resulted from a bona fide error.”

The bona fide error defense does not extend to mistakes of law, Sotomayor said. “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,’ ” she wrote, quoting from an 1833 opinion.

Sotomayor ruled against an Ohio law firm, Carlisle, McNellie, Rini, Kramer & Ulrich, accused of making a mistake when bringing foreclosure proceedings on behalf of Countrywide Home Loans Inc., the Wall Street Journal reports.

Carlisle McNellie had told homeowner Karen Jerman that her debt was assumed to be valid unless she disputed it in writing. Jerman had paid her debt, and she sued the law firm after the foreclosure was withdrawn. The trial court had noted a division of authority over the need for a written protest, but ruled against the law firm on the question. However, the court said the law firm was shielded under the bona fide error rule, and an appeals court affirmed.

The Supreme Court reversed in a decision that will make it easier for debtors to sue debt collectors, the Wall Street Journal says. Sotomayor also acknowledged concerns that the opinion will affect debt-collecting lawyers, but said the burdens are not unmanageable.

She pointed to two objections. Carlisle and amici warned of a flood of lawsuits for errors. The dissenters, Justices Anthony M. Kennedy and Samuel A. Alito Jr., warned of another problem: The majority opinion may force lawyers to resolve ambiguities in the debt collection law against their client’s interests.

Sotomayor disagreed, saying, “We do not believe our holding today portends such grave consequences.” The law has several provisions that protect against abusive lawsuits, she said. And restraints on advocacy are not unique, she said. Lawyers can be sanctioned for improper motives in filing suit, and ethics rules provide outer limits on their advocacy.

Kennedy, who wrote the dissenting opinion, countered that the majority holding may result in lawyers being punished for reasonable advocacy. “Today’s holding gives new impetus to this already troubling dynamic of allowing certain actors in the system to spin even good-faith, technical violations of federal law into lucrative litigation,” he said.

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