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2nd Cir. Holds FDCPA Defendant’s ‘Bona Fide Error’ Defense Should Go to Jury

FDCPA debt collectionThe U.S. Court of Appeals for the Second Circuit recently held that a debt collector did not violate the federal Fair Debt Collection Practices Act (FDCPA) where it unintentionally sent a valid debt collection communication to a non-debtor.

However, the Second Circuit also held that the trial court erred in granting summary judgment for the debt collector based on the bona fide error defense relating to additional communications made to the non-debtor because a reasonable jury could find these errors were not bona fide and the debt collector did not maintain procedures reasonably adapted to avoid them.

A copy of the opinion in Wagner v. Chiari & Ilecki, LLP is available at:  Link to Opinion.

A collection firm obtained a default judgment over a debtor named “William J. Wagner, Jr.” in 2006 for unpaid rent. Thereafter, the collection firm unsuccessfully attempted to serve various post-judgment subpoenas and summons on the debtor at various addresses over the next few years.

In February 2015, the collection firm obtained a new address for William J. Wagner in Hamburg, New York. However, the William J. Wagner who resided at the Hamburg address was not the debtor and did not know the debtor.

On Feb. 9, 2015, the collection firm sent a debt collection notice to Wagner at the Hamburg address. Upon receipt, on Feb. 12, 2015, Wagner called the collection firm to notify it that he was not the debtor, did not use the suffix Jr., and had a different Social Security number.

A day earlier, the collection firm sent a subpoena and restraining notice by certified mail addressed to the debtor to the Hamburg address. Wagner, knowing that he was not the debtor, did not retrieve the letter.

On March 19, 2015, after receiving notifications from the postal service that it was holding certified mail sent to “William J. Wagner, Jr.,” Wagner again called the collection firm to advise that he was not the debtor.

With the prior subpoena unclaimed, the collection firm sent a special process server to serve the debtor at the Hamburg address with specific instructions to “be sure to serve the correct William J. Wagner” because the collection firm “believe[d] there is a William J. Wagner, Sr. and William J. Wagner, Jr. living at the same address.” This instruction was based off a LexisNexis search that indicated that a Senior and Junior William Wagner lived at the Hamburg address.

The process server served Wagner who again called the collection firm to reiterate that he was not the debtor and explain that no person using the suffix Jr. resided at the Hamburg address.

On July 15, 2015, Wagner brought suit against the collection firm, alleging the collection firm’s communications violated various provisions of the FDCPA. After discovery, both parties moved for summary judgment.

The trial court granted the collection firm’s motion for summary judgment on claims relating to the original notice, reasoning that the collection firm had legal authority to pursue the collection of the debt in the precise amount owed, but merely attempted to collect the debt from the wrong person.

The trial court also held that the collection firm’s conduct was not “unfair or unconscionable” reasoning that Wagner had not actually attended a debtor’s examination, and the collection firm adjourned the debtor’s examination upon Wagner’s attorney’s request.

In addition, the trial court held that the collection firm did violate portions of the FDCPA by serving Wagner with the subpoena after being informed he was not the debtor. However, the court concluded that the FDCPA’s bona fide error defense shielded the collection firm from liability and thus entered judgment on its behalf. This appeal followed.

The Second Circuit examined the plaintiff’s claim that the collection firm violated the provision of the FDCPA that makes it unlawful for a debt collector to “use any false, deceptive, or misleading representation or means in connection with the collection of any debt.” 15 U.S.C. § 1692e.

On appeal, the plaintiff argued that the trial court erred in granting summary judgment because (1) under New York law the collection firm lacked the right to serve a restraining notice on him without first having “reason to believe” that he was the debtor; and (2) New York case law held that a subpoena duces tecum could not “be used as a fishing expedition for the purpose of discovery.”

The Second Circuit rejected the plaintiff’s arguments noting that he misconstrued both the statute and case law cited.  The Second Circuit also held the trial court did not err as the collection firm sought to collect on a valid judgment against the debtor by explicitly instructing the process server to serve the subpoena on “Wagner, Jr.”, not “Wagner, Sr.”

The Appellate Court also agreed with the trial court that the collection firm did not violate section 1692f of the FDCPA which provides a debt collector “may not use unfair or unconscionable means to collect or attempt to collect any debt.” 15 U.S.C. § 1692f.

Here, the Second Circuit noted, the plaintiff was never forced to attend a debtor’s examination or to respond to the subpoena, and the collection firm ultimately agreed to hold it in abeyance.

Accordingly, the collections firm’s conduct did not constitute “unfair or unconscionable means” of debt collection for purposes of section 1692f, and the collection firm was entitled to summary judgment on this claim.

Next, the Appellate Court examined the application of the bona fide error defense under the FDCPA which provides a “debt collector asserting the bona fide error defense must show by a preponderance of the evidence that its violation of the act: (1) was not intentional; (2) was a bona fide error; and (3) occurred despite the maintenance of procedures reasonably adapted to avoid any such error.” Edwards v. Niagara Credit Sols., Inc., 584 F.3d 1350, 1352-53 (11th Cir. 2009).

The Second Circuit disagreed with the trial court’s ruling that the collection firm was entitled to summary judgment pursuant to the bona fide error defense, because a reasonable jury could find that the collection firm’s error was not bona fide and that it did not maintain procedures reasonably adapted to avoid its error.

In making this holding, the Appellate Court relied on the fact that the plaintiff twice informed the collection firm that he was not the debtor before receiving the subpoena. In addition, the collection firm conceded it had no written policies for situations when it is uncertain where a debtor resides based on conflicting information.

In sum, the Second Circuit concluded that a reasonable jury could find that the collection firm did not make a “bona fide error” within the meaning of the FDCPA, and accordingly held that the trial court erred in granting summary judgment to the collection firm.

Accordingly, the Appellate Court affirmed in part and vacated in part, and remanded the judgment of the trial court for further proceedings consistent with its opinion.

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Ryan Grotz practices in Maurice Wutscher's Commercial Litigation, Consumer Credit Litigation, and Appellate groups. He has substantial experience in all phases of commercial litigation, including motion practice, written discovery, depositions, mediations, and bench and jury trials. Ryan received his Juris Doctor from the Chicago-Kent College of Law, where he was an associate editor on the Access to Justice Student Editorial Board. He was awarded his Bachelor of Business Administration degree from the University of Iowa. Ryan is licensed to practice law in Illinois and the U.S. District Court for the Northern District of Illinois. For more information, see https://mauricewutscher.com/attorneys/ryan-grotz/

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