In a divided en banc decision, the U.S. Circuit Court of Appeals for the Seventh Circuit has reversed (by vote of 7 to 4) a 2016 decision that a law firm when acting as a debt collector was shielded from liability under the Fair Debt Collection Practices Act when it relied on precedent that was subsequently overruled. The prior decision was described in this blog here.
The issue is the extent of the bona fide error defense that is provided by the Fair Debt Collection Practices Act for debt collectors who make a mistake despite having procedures in place to avoid such mistakes. A 2010 U.S. Supreme Court decision holds that the defense does not protect mistakes of law.
A prior three-judge panel of the Seventh Circuit had concluded that relying on a controlling appellate court decision was not a mistake of law and that the law firm had made no legal error even though the decision was later overruled.
The new decision however concluded that the law firm had violated the statute since the firm made a mistake in interpreting applicable law. And since the error was a mistake in interpreting law, the bona fide error defense had no application under the controlling U.S. Supreme Court precedent even though the law firm had relied on a prior controlling Seventh Circuit decision which was overruled after the law firm relied on it.
The majority wrote that the U.S. Supreme Court did not intend that the bona fide defense would “protect some mistakes in the law…but not others.” It noted that there is “no workable line between protected and unprotected mistakes of law.” Judicial opinions are usually retroactive in nature, the majority noted, and the appellate court had explicitly held in the recent decision in which it overruled its prior holding, that the new decision would have retroactive effect. At footnote 2 in the new decision, the majority also noted that no other district court decision addressing the issue had not given retroactive effect to appellate court’s recent decision. It said its current decision was necessary, among other things, to “maintain the uniformity of circuit law.”
The three judges who originally reviewed the case were among the four dissenters from the new opinion. The dissenters said they could not agree with a rule of law that “punished debt collectors for doing exactly what the controlling law explicitly authorizes them to do at the time they do it.” Ronald Oliva v. Blat, Hasenmiller, Leibsker & Moore LLC (7th Cir., No. 15-2516, July 24, 2017). The dissent argued that the majority misunderstand the extent of the 2010 U.S. Supreme Court decision which dealt with the application of a non-controlling judicial interpretation. In contrast, in the current matter, the law firm complied with controlling judicial precedent, the dissent argued.