Consumer Finance Litigation

Following the Supreme Court's ruling in Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 559 U.S. 573 (2010), it is clear that the bona fide error defense set forth in section 1692k(c) of the Fair Debt Collection Practices Act, 15 U.S.C. § § 1692 to 1692p (the "FDCPA"), "does not apply to a violation of the FDCPA resulting from a debt collector's incorrect interpretation of the requirements of th[e FDCPA]." Id. at 604-05. But as the district court recently recognized in Gray v. Suttell & Associates et al., a putative FDCPA class action filed in the Eastern District of Washington, it remains unsettled "whether a bona fide error defense is available when a violation results from a misinterpretation of the legal requirements of a state or federal law, other than the FDCPA." See Order Ruling on Motion to Strike and Summary-Judgment Motions Regarding the Statute of Limitations (hereinafter "Gray Order") at 6, No. 2:09-cv-251 (E.D. Wash. Aug. 12, 2015), ECF No. 544. After all, the Supreme Court in Jerman expressly declined to address the issue, see 559 U.S. at 580 n.4, leaving it instead to district courts to decide for the first time. In Gray, Senior United States District Judge Edward F. Shea entered an opinion on the precise issue left open by Jerman, and in so doing gave defendants a clear victory regarding the breadth of the FDCPA's bona fide error defense. Like many FDCPA cases, there was no dispute that the plaintiff in Gray owed the credit card debt at issue in the case. Indeed, she had admitted applying for and using a First Consumer National Bank ("FCNB") credit card to purchase clothing from Spiegel Brands, Inc. ("Spiegel") stores. See Gray Order at 3-4. Instead, the question was whether the defendants, including Midland Funding, LLC, which purchased the plaintiff's debt from Spiegel, and Suttell & Associates, the law firm that sought to collect the debt on Midland's behalf, violated the FDCPA by filing a debt-collection lawsuit outside the applicable statute of limitations. Id. at 2-4. Crucial to this question was the fact that, despite admitting that she obtained and used the credit card, the plaintiff denied obtaining it from FCNB, and instead claimed that she obtained the card from Spiegel and could only use it for purchases at the Spiegel website and catalog. Id. at 14-15. As the district court in Gray explained, these distinctions were highly relevant. If, on the one hand, the plaintiff obtained the credit card from Spiegel and could only use it to buy goods from Spiegel, the transaction "may be deemed a sale of goods" governed by Article 2 of the Uniform Commercial Code (the "UCC"), including the UCC's four-year statute of limitations. See id. at 9, 13-14. On the other hand, if the plaintiff obtained the credit card from FCNB pursuant to a separate agreement from any entered into with Spiegel, a "tripartite relationship" between the plaintiff, Spiegel, and FCNB may have been created, which would not be governed by Article 2's four-year statute of limitations, but rather by the six-year statute of limitations applicable to actions upon a written contract or account receivable. See id. at 9, 12-13. Arguing that a six-year statute of limitations applied, the defendants moved for summary judgment. Ultimately, the Gray court found "insufficient undisputed facts in the record . . . to determine the applicable statute of limitations," and therefore denied the defendants' motion for summary judgment on that ground. See id. at 16-18, 28-30. However, in addressing the defendants' alternative basis for summary judgment premised on the FDCPA's bona fide error defense, Judge Shea recognized that "[t]he trend in the case law appears to be toward allowing the bona fide error defense where the law is not clear," such that the defense "may be available in a case alleging defendants filed suit outside the applicable statute of limitations where the applicable limitations period has not been provided by the state legislature or resolved by the state courts." See id. at 8-9. Thus, after acknowledging that, in fact, "it was not clear to the Court" whether a four-year or six-year statute of limitations applied, the district court found that even if a four-year statute of limitations governed, the defendants' violation of the FDCPA nonetheless resulted from an "unintentional, genuine mistake" made in good faith and despite procedures "reasonably adapted to avoid filing suit outside the statute of limitations." See id. at 19-2030-31. As a result, the Gray court held that the defendants' determination that a six-year statute of limitations applied "was a bona fide error, insulating [them] from liability under 15 U.S.C. § 1692k(c)," and therefore granted the defendants' motions for summary judgment. Id. at 32.