Student Authors, University of Arkansas School of Law Class of 2002
This compilation of model arguments is a companion piece to the preceding article, Fair Debt Collection Practices Act: Mounting a Legal Argument for Application of the Bona Fide Error Defense to Interpretations of State Collections Law.(1) An explanation of the analysis and research exercise from which these arguments are drawn appears in the preceding article.
In these model arguments, Appellant is referred to as "Mr. Post Hawks" to distinguish him from the attorney in the Eighth Circuit decision, Picht v. Jon R. Hawks, Ltd.,(2) upon which this hypothetical appeal is based. These arguments assume Hawks has not yet been decided. Each argument in this section could have been made to the Hawks district court and in the subsequent appellant's brief. If such arguments had been made, the limitations of the Hawks decision, outlined in the preceding article in this collaboration, could have been eliminated or at least more fully analyzed. With that said, assuming points of distinction from the Hawks case, even these post-hoc arguments maintain continuing vitality.
To recognize individual student authorship for their contributions, the arguments are graphically broken up and the names of the student authors appear before their contributions.
Repetition appears in some arguments to preserve the student contributions in the fullest form possible and to clarify, through some repetition, several complicated and discrete arguments.
Kirsten C. Sanford, University of Arkansas School of Law Class of 2002.
When Congress expanded the FDCPA to include attorneys, it did so as a specific response to unethical, outrageous behavior by overzealous attorney debt collectors. H.R. Rep. No. 99-405, reprinted in 1986 U.S.C.C.A.N. 1752, 1753. For example, some attorneys were harassing consumers with late night phone calls, frequent and repeated calls, improper disclosure of consumer debt to third parties, simulation of legal proceedings, threats of seizure, harassment, and abuse. Id. at 1755. Recognizing these activities were unconscionable intrusions into the lives of consumers, Congress removed the attorney exemption from the FDCPA in 1986.
After the attorney exemption was removed, attorneys began to suffer much injustice from impending debtor claims alleging violations of the FDCPA. As one commentator has noted:
Debt collectors must be extremely cautious because the courts have taken frequent opportunities to interpret the Act strictly so that the consumer is protected from situations that might create an appearance of abuse. At first glance, one might think that the FDCPA verges on stifling business and crippling ethical debt collectors or that it enables legal service organizations to win arbitrary damage awards, especially in cases where no harm results.
Derek S. Burrell, The Federal Fair Debt Collection Practices Act: An Overview Rx for Debt Collector Myopia, 21 S. Ill. U. L.J. 1, 2 (1996).
The attorney's vulnerability to civil liability stems from several sources. The FDCPA is an imposition of strict liability which maintains a "least sophisticated consumer standard" to evaluate attorney's actions. Therese G. Franzen & Robert S. Carlson, Defense Strategies in Fair Debt Collection Practices Act Litigation, 3 Consumer Fin. L.Q. Rep. 34, 34 (1999). Additionally, the statutory award of damages, despite a showing of actual harm suffered by the plaintiff, is more than enough motivation for many plaintiffs to initiate suit even if it is based merely on a technical violation. Id. The FDCPA goes far beyond its mission of eliminating abusive practices of unscrupulous debt collectors and actually promotes causes of action based on harmless and unintentional attorney error. Id.
However, the FDCPA has provided the bona fide error defense for attorneys accused of violating the FDCPA while collecting a debt on behalf of another. Before Heintz, it was argued that attorneys who litigate a creditor's claim should be exempt from liability under the Act, but the United States Supreme Court rejected this argument, noting the bona fide error defense provisions provide sufficient protections. Heintz v. Jenkins, 514 U.S. 291, 295 (1995). By its plain language, the FDCPA provides that a debt collector may escape liability under the FDCPA if he shows by a preponderance of the evidence the violation was unintentional and resulted despite proper procedures the attorney took to prevent such an error. 15 U.S.C. § 1692k(c). This provision allows attorneys to claim an exemption from the Act's potential strict liability for any debt collection activity.
Michael B. Heister, University of Arkansas School of Law Class of 2002.
Mr. Post Hawks pled the affirmative defense of bona fide error under 15 U.S.C. §1692k(c) in his memorandum supporting his motion for summary judgment (see Def.'s Fictional Mem. Supp. Summ. J. at 13). In order to preserve the issue for appeal, Mr. Post Hawks ensured that his "claim or issues [were] 'pressed or passed upon below.'" 19 James Wm. Moore et. al, Moore's Federal Practice § 205.05[a] (3d ed. 1999). He submitted evidence (see fictional appellant's evidence) in which he detailed the reasonable steps which his firm took to avoid violating the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq. (Hereinafter "the Act"). Nevertheless, the district court held he was not entitled to the defense, because it held legal error is not covered by the FDCPA's bona fide error defense.(3)
Mr. Post Hawks urges this Court to find that his conduct, if it was technically in the wrong, clearly falls within the aegis of the bona fide error defense provided by 15 U.S.C. § 1692k(c). A fair reading of the Act, case law, and the legislative history behind removing the attorney exemption supports the proposition that behavior which is not intentional is excused under the Act. While several courts have read the bona fide error defense very narrowly and have limited it to clerical mistakes, such a reading is inconsistent with the legislative history
and public policy behind the Act. Mr. Post Hawks's conduct was not the type of conduct which the FDCPA was designed to punish. Mr. Post Hawks presented evidence to the district court that he kept himself up-to-date on the Act and made a good faith effort to comply with the Act and also fulfill his ethical duty to safeguard the rights of his client.(4) Because he pled and proved that if a mistake was made, it was a bona fide error,(5) this Court should recognize his bona fide error defense.
The Act provides that an attorney will be excused from FDCPA liability if he can show by a preponderance of the evidence three things: 1) that the violation was not intentional, 2) and resulted from bona fide error, 3) notwithstanding the maintenance of procedures reasonably adapted to avoid such error. 15 U.S.C. 1692k(c); Heintz. v. Jenkins, 514 U.S. 291, 295 (1995).
In Heintz, the Court recognized that lawyers who unintentionally violate the Act could seek shelter under the bona fide error defense. Heintz, 514 U.S. at 295. While appellee debtor argues that no intent is needed to violate the Act (see Appellees's Brief at 24-26),(6) appellee debtor made the statement based on pre-Heintz authority.
Specifically, Appellee cites Bentley v. Great Lakes Collection Bureau, 6 F.3d 63 (2d Cir. 1993), for the proposition that the Act is a strict liability statute. Bentley was decided two years before Heintz and, therefore, is controlled by the reasoning of the Heintz Court which acknowledged that the bona fide error defense could shield those who qualify for it from liability under the Act. Heintz, 514 U.S. at 295. Further, the other cases upon which Appellee relies to support his strict liability argument were also decided before Heintz. The United States Supreme Court, by recognizing the continuing vitality of the bona fide error defense, demonstrated that the Act is not a strict liability statute in the purest sense of the term. While the Act is broadly construed to protect consumer debtors who invoke the Act's protection, broad construction should not impose strict liability for unintentional legal errors in interpreting state collections law.
Even assuming that, once plaintiffs establish a violation of the FDCPA, they have made out their prima facie case, and the proof required to establish that prima facie case does not include proof of deception or actual damages, Jenkins v. Heintz, 124 F.3d 824, 835-38 (7th Cir. 1997) (Ripple, J., dissenting); Baker v. G.C. Serv. Corp., 677 F.2d 775, 780 (9th Cir. 1982) (stating that proof of deception or actual damages not necessary to recover under the FDCPA), the debt collector is still entitled to prove his statutory bona fide error defense by a preponderance of the evidence, and Mr. Post Hawks has done just that.
Consistent with Mr. Post Hawks's position on the bona fide error defense are the majority opinion in the Seventh Circuit's post-Supreme Court Heintz decision and two other recent federal court decisions. See Jenkins, 124 F.3d at 831-32 (applying burden shifting summary judgment analysis to bona fide error defense and affirming summary judgment in favor of defendant debt collector) (on remand from United States Supreme Court decision); Taylor v. Luper, Sheriff & Niedenthal Co., L.P.A., 74 F. Supp.2d 761, 766-67 (S.D. Ohio 1999) (granting summary judgment in favor of attorney debt collector for bona fide legal error); Lewis v. ACB Business Serv., Inc., 135 F.3d 389, 399, 401 (6th Cir. 1998) (affirming summary judgment in favor of debt collector).
However, even under the Baker analysis, the Act provides for intent analysis in the affirmative bona fide error defense. See also Janet Flaccus, Fair Debt Collection Practices: A Decade of Litigation, 1996 Ark. L. Notes 23, 49 (1996). To read out of the statute the bona fide error defense for legal errors would be to ignore the Act's statutory bona fide error defense which does not, on its face, include a clerical error limitation.(7)
Bradley W. Wallace, University of Arkansas School of Law Class of 2002
This Court should recognize that the bona fide error defense in the FDCPA applies to mistakes of law, following the important policy that "[l]awyers should not be held strictly liable when they discharge their ethical duty [zealous representation] to a client by asserting in good faith a claim which is ultimately rejected by a court." Taylor v. Luper, Sheriff & Niedenthal Co., L.P.A., 74 F. Supp.2d 761, 765 (S.D. Ohio 1999) (declaring a bona fide, yet "unfounded," attempt at collecting attorney fees in a debt collection claim to be protected by the bona fide error defense). "There is nothing in the language of 15 U.S.C. § 1692k(c) which limits its application to clerical mistakes or ministerial errors." Luper, 47 F. Supp.2d at 765.
Louisa N. Vassileva, University of Arkansas School of Law Class of 2002.
This Court has reasoned that, because the bona fide error defense in the Fair Debt Collection Practices Act ("FDCPA") is similar to the bona fide error defense in the Truth in Lending Act ("TILA"), analysis under the TILA statutory provision should control the FDCPA defense. Hulshizer v. Global Credit Serv., Inc., 728 F.2d 1037, 1038 (8th Cir. 1984) (per curiam) (citing Baker v. C.G. Serv. Corp., 677 F.2d 775, 779 (9th Cir. 1992)). However, unlike the language of the TILA, there is nothing "clearly" establishing a clerical error limitation to the bona fide error defense in the FDCPA. Specifically, section 1640(c) of the TILA incorporates a bona fide error defense provision similar to the FDCPA, but the TILA contains additional language not present in section 1692k(c) of the FDCPA. In TILA, "[e]xamples of a bona fide error include, but are not limited to, clerical, calculation, computer malfunction and programming, and printing errors." Id. The absence of such language in the FDCPA strongly suggests that Congress did not intend to limit the FDCPA bona fide error defense to clerical mistakes or ministerial errors. See Luper, 74 F. Supp.2d at 765; Jenkins v. Heintz, 124 F.3d 824, 832 (7th Cir. 1997).
Bradley W. Wallace, University of Arkansas School of Law Class of 2002.
Mr. Post Hawks's zealous representation of his client should not be hampered by a reading of § 1692(k)(c) which would imply strict liability to attorneys whose claims are subsequently deemed unfounded. See Luper, 74 F. Supp. at 764. Mr. Post Hawks is not reaching so far as to require a ruling that recognizes the bona fide error defense for presenting a good faith basis for changing the law. See Simmons v. Miller, 970 F. Supp. 661, 665 (S.D. Ind. 1997) (suggesting that even if the law was clearly stated in the plaintiff debtor's favor, the attorneys "properly could have asserted a good faith basis to change that law" and would still be entitled to the bona fide error defense). Mr. Post Hawks is asking this Court to recognize a bona fide error, and unintentional error, when state law is unclear on the question.
The Hulshizer decision appears to contradict the decision in Luper; Hulshizer suggests the bona fide error defense does not exist where a mistake of law is concerned. However, Hulshizer should be limited to its facts. The facts of Hulshizer differ from those of the present case in two significant ways. First, the collectors in Hulshizer were not attorneys. Thus, the Hulshizer analysis does not take into consideration the litigation activities of attorneys and the complicating factor of zealous client representation.
Additionally, as mentioned in Luper, the mistake of law in Hulshizer concerned the FDCPA itself. See Luper, 74 F. Supp.2d at 75 (distinguishing several cases, where the bona fide error defense did not apply to mistakes of law on the basis that the mistakes dealt with clear FDCPA statutory requirements). The ruling in Hulshizer should not apply to the present case. The appellant, Mr. Post Hawks, is an attorney whose appeal highlights concerns that are unique to the application of the bona fide error defense to attorney collectors. His status as an attorney engaged in debt collection should be given significant weight, with regard to the bona fide error defense. Because the mistake of law committed by Mr. Post Hawks was not in regards to the FDCPA itself, but instead regarded the interplay of three Minnesota state law provisions, this Court should carefully consider his bona fide error defense which exists because of technical mistakes he made in interpreting that Minnesota state collections law.
Jay A. Edwards, University of Arkansas School of Law Class of 2002.
It was over sixteen years ago when the Eighth Circuit last had the opportunity to address mistakes of law, or legal judgment, in relation to the FDCPA, and stated that "reliance on the advice of counsel or a mistake about the law is not protected by the unintentional and bona fide error defense of 15 U.S.C. 1692 § (k)(c)." Hulshizer, 728 F.2d at 1038 (8th Cir. 1984). This conclusion was reached, however, prior to, and without the benefit of: (1) the 1986 amendments to the FDCPA, and (2) the United States Supreme Court's decision in Heintz.
Since the Eighth Circuit's decision in Hulshizer, significant changes have taken place in relation to attorney debt collectors and the FDCPA. First, Congress removed the attorney exemption from the FDCPA, effectively placing a class of attorneys on the same level as more traditional debt collectors. Second, the nation's highest court ruled that attorneys working to collect debts are synonymous with more traditional debt collectors, and may assert the bona fide error defense in light of an unintentional error. Heintz v. Jenkins, 514 U.S. 291, 295-96 (1995).
The case at bar is distinguishable from Hulshizer. The debt collector in Hulshizer did not misinterpret the law of its state; it directly violated an FDCPA statutory provision. The debt collector knew that the FDCPA required certain disclosures be provided to the debtor. However, it intentionally chose not to provide such disclosures, and sought an advisory opinion from a staff attorney at the Federal Trade Commission to support its position. Id. at 1037. Mr. Post Hawks, on the other hand, did not directly violate the FDCPA by choosing to overlook its provisions. Mr. Post Hawks, a Minnesota attorney, rather, interpreted Minnesota law in a manner consistent with his experience, and no violation of Minnesota law occurred until the federal district court said one had occurred. Because the debt collector's actions were intentional in Hulshizer, this Court would not have to overrule Hulshizer to allows Mr. Post Hawks to assert the bona fide error defense. This Court should allow a litigating attorney debt collector, who had made an unintentional error, to assert a defense that the FDCPA allows, and that the United States Supreme Court has said is available to him.
Michael B. Heister, University of Arkansas School of Law Class of 2002.
In sum, Mr. Post Hawks is distinguishable from Hulshizer on three significant legal points.
(1) The foremost is that in this case, Mr. Post Hawks did not have any option of deciding whether to follow the clear language of the statute or an outside opinion on the statute. Rather, Mr. Post Hawks was in the position of reconciling the meaning of two Minnesota statutes and the default provision of the Minnesota Rules of Civil Procedure. Neither the Minnesota Supreme Court, the Minnesota Legislature, nor the Minnesota Attorney General have clarified the applicable provision of Minnesota's prejudgment garnishment statute.
Because an attorney is obligated to advance all claims which can reasonably be made on his clients' behalf in good faith, see ABA Model Rule of Profession Conduct, 2.1, Mr. Post Hawks found himself in an ethical dilemma and opted to act zealously in favor of his client. In this case, the federal district court decided that its reading of the three Minnesota state provisions was correct and Mr. Post Hawks's interpretation was wrong. Picht, 77 F. Supp.2d at 1044. Thus, Mr. Post Hawks technically violated 15 U.S.C. § 1692f(a). Assuming, arguendo, that the district court correctly interpreted Minnesota law, it is clear that Mr. Post Hawks's violation was because of a good faith disagreement about the meaning of the law. It was not the intentional malfeasance which the Act was designed to punish.
(2) Another ground on which Hulshizer is distinguishable is on the ground that its holding applies to mistakes of law regarding the applicability of the Act itself. See Taylor v. Luper, Sheriff & Niedenthal Co., L.P.A., 74 F. Supp.2d 761, 765 (S.D. Ohio 1999). Hulshizer does not touch on the issue of whether the bona fide error defense applies to mistakes of law regarding interpretation of state law. However, the Luper case involved a mistake of law regarding the collection of certain fees under Ohio law, and applied the bona fide error defense in that case, recognizing "[t]here is nothing in the language of 15 U.S.C. § 1692k(c) which limits its application to clerical mistakes or ministerial errors." Luper, 74 F. Supp.2d at 765.
Jay A. Edwards, University of Arkansas School of Law Class of 2002.
(3) Another ground is the historical background surrounding the 1986 Amendments and the Heintz decision, both of which occurred after Hulshizer was decided, and touch on issues that impact Hulshizer's precedential value.
In 1977, Congress enacted the Fair Debt Collection Practices Act, (FDCPA). Publ. L. No. 95-109 § 803(6)(F), 91 Stat. 874, 875 (1977). The FDCPA was an effort by Congress to curtail the harassing, and intentionally deceptive, practices of debt collectors. Id.
Originally, only traditional debt collectors, such as collection agencies were targeted by the legislation, and attorneys were not covered. However, by 1985 attorneys accounted for a greater proportion of debt collection than did collection agencies. See H.R. Rep. No. 99-405, at 2 (1985). Consequently, the exclusion of attorneys engaged in debt collection brought widespread criticism. Congress responded in 1986, by amending the FDCPA, and creating a single standard for both attorney and lay debt collectors. Fair Debt Collection Practices Act, Pub. L. No. 99-361, 100 Stat. 768 (1986) (amending Pub. L. No. 95-19, § 803 (6)(F)). After the 1986 amendments, the term "debt collector" applies to "any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collect or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another." 15 U.S.C. § 1692(a).
With the 1986 amendments, Congress clearly intended to place attorneys who regularly collect debts on the same footing as other more traditional debt collectors who were covered by the original Act. As regarding non-exempt classes of debt collectors, in its 1986 amendments, Congress did not draw distinctions between the types of debt collectors who were now subject to the Act. The lack of such distinctions foreshadowed the problems in analysis recognized by the Sixth Circuit in Green v. Hocking, 9 F.3d 18 (6th Cir. 1993).(8)
After Heintz, it is clear that the Act applies to attorneys engaged in litigation activities. That aspect of the Act which provides for the bona fide error defense is likewise available to all debt collectors subject to the Act, including attorneys involved in litigation.
In order to deter abusive debt collection practices, Congress wrote the FDCPA so that it imposes strict liability upon a "debt collector" who intentionally deceives a debtor by threatening to take any action that cannot legally be taken. 15 U.S.C. § 1692(3)(5), 1692(k)(a). Consequently, the only defense available to a debt collector is contained within the Act, and is known as the bona fide error defense. The relevant section provides:
a debt collector may not be held liable in any action . . . if the debt collector shows by a preponderance of the evidence that the violation was not intentional and resulted from a bona fide error notwithstanding procedures reasonably adapted to avoid such error.
15 U.S.C. § 1692 (k)(c).
In 1993, the Sixth Circuit Court of Appeals expressed confusion, and ultimately concern, when it attempted to determine how the strict liability of the FDCPA applied to attorney debt collectors involved in litigation who were covered by the Act after the 1986 amendments:
Section 1692e(5) makes it unlawful to threaten "to take any action that cannot legally be taken or that is not intended to be taken." Assuming a lawsuit is brought, and the consumer prevails to any extent, it would appear that the law has been broken, as the creditor threatened to take action that apparently, as a result of "the judgment cannot legally be taken."
Green v. Hocking, 9 F.3d 18, 21 (6th Cir. 1993).
In 1995, the United States Supreme Court ruled that attorneys, who regularly collect consumer debts, fall within the umbrella of the FDCPA, and that they do so regardless of whether they collect debts though litigation or other traditional debt collection methods. Heintz v. Jenkins, 514 U.S. 291, 294 (1995). The Court addressed the liability concerns recognized by the Sixth Circuit in Green, stating:
The Sixth Circuit reasoned that, were the Act to apply to litigating activities, this provision automatically would make liable any litigating lawyer who brought, and then lost, a claim against a debtor. . . . But, the Act says explicitly that a "debt collector" may not be held liable if he 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. § 19692(k)(c). Thus, even if we were to assume that the suggested reading of § 1692(3)(5) is correct, we would not find the result so absurd as to warrant employing an exemption for litigating lawyers.
Heintz, 514 U.S. at 298.
The Court noted the Sixth Circuit's concerns over the Act's strict liability, observing the bona fide error defense could apply to litigation attorneys. While the Court's language is a bit equivocal, first stating one hypothetical case and then another, Heintz, 514 U.S. at 296, this case demonstrates the sound basis for recognizing a legal error application of the bona fide error defense in the FDCPA.
On remand from the United States Supreme Court's decision in Heintz, the Seventh Circuit directly held that the bona fide error defense protected the attorney and his law firm from liability for an alleged false statement of the consumer debt. Jenkins v. Heintz, 124 F.3d 824, 833-34 (7th Cir. 1997). However, the Jenkins court did not address the issue squarely before this Court today in which Mr. Post Hawks is subject to potential FDCPA liability for his interpretation of three separate state law provisions and their legal import. Significantly, the Jenkins court refused to "require an attorney debt collector to conduct an independent investigation into the legal intricacies of the client's contract with the consumer" because to do so "would create a double standard for the bona fide error doctrine based upon the identity of the collector." Id. at 833-34. The reason for Mr. Post Hawks's potential FDCPA liability does not exist for a lay debt collector. It is because of this important difference that this Court must take a close look at the legal error application of the bona fide error defense.
The focus on this appeal is whether Mr. Post Heintz is a defendant in the FDCPA lawsuit because of his status as a debt collector or because of his status as an attorney who identifies legal process through which to collect debts on behalf of his client. In communications directed to the consumer, clearly the attorney acts as debt collector. In choosing the forum and statutes under which to prosecute the underlying state law claim, the attorney is acting as an attorney. It is this intersection that is squarely before the Court in this case.(9)
In assessing whether a mistake in legal judgment about the interplay in these Minnesota state statutes is entitled to the bona fide error defense, this Court should be mindful of the Congressional Record relating to the 1986 amendment that brought attorneys within the coverage of the FDCPA. The record indicates that, when Congress removed the attorney exemption from the Act's definition of "debt collector," it took no affirmative steps to limit an attorney's ability to assert the defenses available to all other debt collectors. Congress also did not limit the assertion of the bona fide error defense to clerical or ministerial mistakes. Such an effort to limit the scope of the bona fide error defense can be seen in the "Truth in Lending Act," 15 U.S.C. § 1640 (c), in which Congress employed the following language:
Examples of a bona fide error include, but are not limited to, clerical, calculation, computer malfunction and programming, and printing errors.
115 U.S.C. § 1640(c).
As previously noted, and as the district court and court of appeals observed in Heintz, "the TILA bona fide error provision expressly defined bona fide errors as 'clerical, calculation, computer malfunction and programming, and printing errors, except that an error of legal judgment with respect to a person's obligations under this sub chapter is not a bona fide error.' 15 U.S.C. § 1640(c). The FDCPA provision does no such thing. This, along with the statutes' different purposes, distinguishes the two." Jenkins, 124 F.3d at 832 n.7.
Mr. Post Hawks's errors were bona fide, unintentional, and occurred despite the presence of elaborate procedures in place to avoid violations of the Act. The district court's judgment in favor of the plaintiff should be reversed and this case should be remanded for entry of judgment as a matter of law in favor of Mr. Post Hawks.
Bradley W. Wallace, University of Arkansas School of Law Class of 2002.
To completely negate the defense for legal errors confirms the arguments raised in Green v. Hocking, 9 F.3d 18, 21 (6th Cir. 1993) (that the application of the FDCPA to litigating activities would make liable any lawyer who brought and lost a claim against a debtor).(10) To limit the bona fide error defense to mere clerical errors denies the spirit, if not the language, of the United States Supreme Court's decision in Heintz. The Court stated, "we do not see how the fact that a lawsuit turns out ultimately to be unsuccessful could, by itself, make the bringing of an 'action that cannot legally be taken.'" Id. at 296. To limit the bona fide error defense to mere clerical errors would cause the result the Court could not imagine when it refused to overrule Congress's decision to place attorneys within the statutory definition of "debt collector."
Caroline L. Curry, University of Arkansas School of Law Class of 2002.
Neither the Minnesota legislature, the Minnesota Supreme Court, nor any other Minnesota court has specifically addressed the issue of prejudgment garnishment. While the United States Supreme Court has recognized important concerns about prejudgment garnishment, its analysis has not directly focused on the use of prejudgment garnishment in the context of a default under Minnesota law.
The record reflects that Mr. Post Hawks based his collection attempts on the language contained in Minn. Stat. Ann. § 332.50, which provides for a civil penalty of up to $100 for each dishonored check, and Minn. R. Civ. P. 55.01, which provides for prejudgment garnishment in cases where a default judgment could have been entered, but has not yet been entered by the clerk of the court. At the time this suit arose, no court in Minnesota had specifically determined that a dishonored check was not a contract for money within the meaning of Minn. R. Civ. P. 55.01.
This Court has specifically recognized that some uncertainty is built into Minn. Stat. § 332.50 and has concluded that, under Minnesota law, the decision whether to permit recovery of the entire $100 penalty sought by Mr. Post Hawks is a matter of discretion for the court, thus removing dishonored checks from the scope of Minn. R. Civ. P. 55.01. Duffy v. Landberg, 215 F.3d 871, 874 (8th Cir. 2000). However, Duffy is distinguishable from the current case for several reasons. First, in Duffy, the debt collector included the full statutory amount in a letter listing the charges necessary for the debtor to pay in order to avoid further litigation. Id. There had been no actual legal pleadings or other legal documents filed. Id. The court also indicated that the bona fide error defense did not apply because of the threatening and misleading scare tactics engaged in by the attorney in the Duffy case. Id.(11)
Michael B. Heister, University of Arkansas School of Law Class of 2002.
Mr. Post Hawks believed in good faith that the manner in which he collected his client's debt was authorized by law. The rules of civil procedure in Minnesota provide that, upon default on liquidated sums (e.g., a dishonored check), the plaintiff can have the court clerk enter judgement. See Minn. R. Civ. P. 55.01(a). Because the debtors had defaulted in payment and in failing to appear in the bad check state law suit brought by Mr. Post Hawks, Mr. Post Hawks sought a default judgment under the rules of procedure. Picht, 77 F. Supp.2d at 1043. In Minnesota, creditors can recover whichever is greater, up to one hundred dollars or up to the value of the check, for each bounced check. See. Minn. Stat. § 332.50(2)(b)(1). Further, creditors can issue a garnishment summons forty days after a default judgment could have been entered. See Minn. Stat. § 571.71. In reading these three rules, Mr. Post Hawks interpreted "up to" to mean the creditor could recover one hundred dollars or the value of the check, whichever was greater. In this case, the one hundred dollars was greater and the debtor was in default; therefore, Mr. Post Hawks used that sum when issuing the garnishment summons permitted by Minn. Stat. § 571.71.
Mr. Post Hawks and the federal district court have disagreed over whether the Minnesota statute should be interpreted to mean that the civil penalty is a discretionary amount as required by Sommers v. Thomas, 88 N.W.2d 191, 193-94 (1958), such that the amount's recovery using pre-garnishment procedures is invalid under Minnesota law.(12) Until the Minnesota Supreme Court rules on the precise matter raised by this case, ambiguity exists in Minnesota state law. Mr. Post Hawks operated under a good faith interpretation of the intersection between these three state law provisions.
Mr. Post Hawks's interpretation of the meaning of these state law provisions appears to be inconsistent with this Court's review, in Duffy v. Landberg, 215 F.3d 871 (8th Cir. 2000), of these same Minnesota state law provisions. This Court concluded that it was a violation of the Act for a party to initiate collection of the one hundred dollar civil penalty. Id. at 874. However, this principle from Duffy is inapposite in this case for several reasons.
First, Duffy is factually distinguishable. Duffy involved a creditor using an attorney's letterhead to mail threatening letters to debtors without consulting the attorney. Duffy, 133 F.3d 1120, 1122 (8th Cir. 1998) (Duffy I). The primary issue in Duffy I was whether dishonored checks are "debts" within the meaning of the Act. Id. at 1122-24. The Duffy court did not discuss the FDCPA bona fide error defense. Additionally, Duffy was concerned with communications directed to the debtor; it did not involve the application of legal process like the Post Hawks case does.
Second, even while the Duffy II court reviewed the same statutes at issue in the Post Hawks case, the Duffy II court did not analyze these Minnesota statutes in light of the default judgment situation which exists in Post Hawks. It was patently inappropriate for the defendants in Duffy II to presume that the court would award them one hundred dollars in penalties. Duffy II, 215 F.3d at 874. However, in Post Hawks, the debtor's default made the sum certain such that there was no need for any judicial discretion. Mr. Post Hawks acted in good faith compliance with Minn. R. Civ. P. 55.01(a) in conjunction with Minn. Stat. Ann. § 332.50(2)(b)(1) and reasonably believed that he could collect the one hundred dollar penalty for his client.
The federal district court concluded that Mr. Post Hawks's reasoning was incorrect. Hawks, 77 F. Supp.2d at 1045. However, the Minnesota Supreme Court has not spoken on the matter and it remains to be seen whether the federal district court's reading of Minnesota law was correct.(13) What is certain is that Mr. Post Hawks acted pursuant to his good faith interpretation of Minnesota state law.
Amanda C. Rose, University of Arkansas School of Law Class of 2002.
Because Minn. Stat. Ann. § 332.50(b)(1) authorizes a penalty of "up to $100 or the value of the check, whichever is greater," the district court erred in finding that Mr. Post Hawks misapplied Minnesota's prejudgment statute based on the federal district court's interpretation of this provision as discretionary. See Minn. Stat. Ann. § 332.50 (2000) (emphasis supplied). The statute, on its face, provides that the penalty to be applied is the greater of the two, leaving no room for discretion. The Minnesota statute authorizes a penalty of either the face value of the check or $100, whichever is greater. Relying on this language, Mr. Post Hawks sought a penalty of $100 per check because the value of the checks written by appellee totaled less than $100. Thus, no discretion was involved, and therefore the clerk could properly enter the default under the plain language of the statute.(14)
Mr. Post Hawks's reading of the interplay of the Minnesota state law provisions is similar to the reading of the collections agent in Simmons v. Miller, where the defendant debt collectors threatened to file an action against the debtor plaintiffs which, depending upon interpretation of certain state statutes, might have been barred by the statute of limitations. 970 F. Supp. 661, 665 (S.D. Ind. 1997). As in the case at bar, the Simmons defendant simply misinterpreted a state statute, thereby violating the FDCPA's prohibition against threatening action that cannot legally be taken. Id. at 664-65. The court in Simmons held that because the defendants did not intentionally misapply the state statute of limitations and proceeded in good faith, "as a matter of law, [d]efendants did not violate [the FDCPA]." Id. at 665. In the instant case, Mr. Post Hawks also made a mistake in the interpretation of a state statute while making a good faith effort to represent his client's interests, resulting in the appellee's claim that Mr. Post Hawks violated the FDCPA. See Picht v. Hawks, 77 F. Supp.2d 1041 (D. Minn. 1999). As a matter of law, the unintentional nature of Mr. Post Hawks's error fulfills one element of the bona fide error defense. Because, in this case, Mr. Post Hawks's law firm had procedures in place reasonably calculated to avoid violations of the FDCPA, he has produced evidence of another element of the bona fide error defense. This appeal asserts the presence of all elements demonstrate the existence of a "bona fide" error. This Court should reverse the district court's decision and remand this case for entry of judgment as a matter of law in favor of Mr. Post Hawks.
1. Kathryn A. Sampson, 2001 Ark. L. Notes ___ (2001).
2. 236 F.3d 446 (8th Cir. 2001).
3. Because the Appellant had not preserved his bona fide error defense in the district court, the reported district court decision does not address the defense. The focus of the analysis in Picht v. Hawks, 77 F. Supp.2d 1041 (D. Minn. 1999) is on the underlying FDCPA violation, which is essentially the same analysis that would be provided under the affirmative defense (with respect to the "unintentional" and "bona fide error" elements); however, it had not been treated by the district court because the appellant had not argued it there. One of the lessons from this assignment is that all appealable issues must be preserved at the trial court level. Mr. Heister's sophisticated analysis demonstrates excellent role playing in the context of an underdeveloped trial court record.
4. Argument drawn from the actions of the attorneys in the Luper decision. Such facts were not present in the Hawks record.
5. Id.
6. Page numbers are to actual page numbers in Appellee's Brief in Eighth Circuit Docket #00-1270. The composite is a "revision" of the appellant's brief in this case.
7. On statutory interpretation, Professor Flaccus has observed: "A good argument can be made that it is not the role of the judiciary to second guess the legislature. This 'Scalia' approach to statutes occasionally reaches results that Congress did not intend. This is preferable I believe to that uncertainty that the old statutory construction rules provided when an attorney could not predict when a statute would be construed in a way contrary with most reasonable interpretations of the language. But even those old rules of statutory construction were used only in cases where there was some argument, however small, that the language was ambiguous. Section 1692f(8) is clear." Janet Flaccus, Fair Debt Collection Practices Act: A Decade of Litigation, 1996 Ark. L. Notes 23, 46 (1996). One question posed by this Law Notes bona fide error defense collaboration is whether section 1692k(c) is also clear.
8. For a more contemporary analysis of the bona fide error defense in the Sixth Circuit, see Lewis v. ACB Business Serv., Inc., 135 F.3d 389 (6th Cir. 1998). The Lewis court recognized settlement negotiations to be within the spirit of the Act and provided a full policy analysis on this issue. Id. at 398-400. The court also applied the bona fide error defense to the defendant debt collector. Id. at 401-02.
9. The Seventh Circuit post Heintz decision addressed the dual functions of a debt collection attorney in dicta: "errors in legal judgment are not an issue simply because the collectors are attorneys; nevertheless, there is no evidence that defendants exercised any legal judgment as to the validity of the force placed insurance charges. . . . Even if there was evidence that these collection attorneys exercised legal judgment as to the validity of the force placed insurance charges, [the consumer's] argument-that a legal (rather than clerical or factual) error vitiates the bona fide error defense-presumes that an attorney debt collector has an independent duty to assess the legality of the debt sought to be collected . . . . Filing a lawsuit does not insulate a lawyer from the restrictions of the Act, nor does it expose him to standards under the Act not applied to non-lawyer collectors." Id. at 832-33. It was on this point, among others, that Circuit Judge Ripple dissented: "My colleagues portray the attorney/debt collector as a Janus-like entity who, in the course of collecting a single debt for his client, is sometimes attorney engaged in debt collection and sometimes debt collector engaged in debt collection. However, the Supreme Court has made it clear: He is a debt collector who, because of the special tools at his disposal, can violate the Act in especially potent ways." Id. at 837-38 (Ripple, J., dissenting).
10. The Green holding that attorneys were not subject to the Act was effectively reversed by Heintz v. Jenkins, 514 U.S. at 295-96 (nevertheless acknowledging the potency of the Green rationale and stating the existence of the bona fide error defense disposes of such arguments).
11. An important observation Ms. Curry made in class was that the timing of the Duffy decisions demonstrated Hawks could not have been aware of the highly relevant Duffy II decision. To illustrate, the full case history of Duffy is Duffy v. Landberg, 133 F.3d 1120 (8th Cir. 1998) (Duffy I), appeal after remand, 215 F.3d 871 (8th Cir. 2000) (Duffy II). Because Duffy II was filed May 25, 2000, and because Hawks had made his assessment of Minnesota state collections law in February 1998 (Hawks, 236 F.3d at 448), Hawks did not have the benefit of the Duffy II decision at the time he attempted collection of the Picht debt. While it was decided in January of 1998, Duffy I focused on the issue of whether a check was a "debt" within the meaning of the FDCPA; it was in Duffy II that the statutes at issue in Hawks came under scrutiny. Ms. Curry elected not to include this argument in her brief, out of deference to the Eighth Circuit, and because the arguments based on this Law Notes compilation will all have the benefit of the analysis in both Duffy decisions.
12. The Eighth Circuit relied upon Sommers to support its conclusion that Hawks should have known the clerk of court was not authorized to enter a default judgment because Sommers limited the application of the default rule by court clerks to "'cases where a definite contractual sum is involved and no discretionary determination of the amount due need be made.'" Picht v. Jon R. Hawks, Ltd., 236 F.3d 446, 450 (8th Cir. 2001) (discussing and quoting Sommers; emphasis supplied by Hawks court). However, even the 1958 Sommers rule is ambiguous. In Sommers, while the plaintiff attempted to "waive the tort and sue in assumsit," the court analyzed the default issue under a conversion analysis, holding and recognizing an assessment of conversion damages required proof and factual findings on "original purchase price, replacement cost, or any other standard by which the extent of plaintiff's loss might have been measured." Id. at 294. The court concluded, "[t]here is no reason for terming this a contract action." Id. Factual distinctions were present between the Hawks and Sommers case; moreover, the Sommers rule lost clarity (as to its contract/tort distinction) in 1961, when the Minnesota Supreme Court decided Osterhus v. King Constr. Co., 107 N.W.2d 526, 529-30 (Minn. 1961) and held that where a complaint could be construed to sound in contract, that complaint was sufficient to support a default judgment. Osterhus was a better illustration of the "sum certain" principle analyzed by the Hawks court because it "allegedly" involved a liquidated debt of exactly $3907.23. Still, at least two fair readings can be made of the intersection of the Sommers/Osterhus decisions: 1) the tort/contract distinction and 2) the sum certain analysis. The tort/contract distinction supports an argument against the Hawks court's result. Had Hawks also analyzed Osterhus, the Hawks court's analysis might have been more developed on this point.
13. See supra note 12 (discussing the extant ambiguity with respect to Sommers (Minn. 1958) and Osterhus (Minn. 1961)).
14. If this argument had been made to the Eighth Circuit, the court would have analyzed the effect of a finding, later in the Minnesota dispute, that the debt collector was entitled to a $40 per check penalty. Picht v. Jon R. Hawks, Ltd., 236 F.3d 446, 448 n.2 (8th Cir. 2001).