In a surprising decision involving a vigorous and scathing dissent, the Seventh Circuit ruled that a debt collector was liable under the Fair Debt Collection Practices Act even when it followed the law that was in effect at the time the alleged violation took place.  This alarming ruling raises an obvious question:  Is compliance with the FDCPA becoming an impossible task?

Plaintiff Ronald Oliva had a credit card account on which he became delinquent, and the account was eventually sold to another entity.  In 2013, the law firm of Blatt, Hasenmiller, Leibsker & Moore (“Blatt Hasenmiller”) filed a collection suit in a specific judicial district of the state court on behalf of the debt buyer.  At the time, Oliva did not reside in the district where suit was filed but, under the Seventh Circuit’s 1996 decision in Newsom v. Friedman, 76 F.3d 813 (7th Cir. 1996), venue there was permissible.  While the collection suit was pending, the Seventh Circuit overruled Newsom in its 2014 decision in Suesz v. Med-1 Sols., LLC, 757 F.3d 636 (7th Cir. 2014).

In response, Blatt Hasenmiller voluntarily dismissed the suit against Oliva and refunded the appearance fee Oliva’s attorney had paid.  Notwithstanding, Oliva then filed an FDCPA lawsuit against Blatt Hasenmiller, claiming a violation of Section 1692i.  That section requires that a debt collector bring a collection action to enforce an interest (other than real estate) only in the judicial district in which such consumer signed the contract or in which such consumer resides at the commencement of the action.

The district court granted Blatt Hasenmiller’s motion for summary judgment, holding that its violation of the venue provision was the result of a bona fide error in relying on Seventh Circuit controlling precedent.  Oliva appealed and a panel of the Seventh Circuit affirmed, finding the retroactivity holding in Suesz did not apply because Blatt Hasenmiller was entitled to the safe harbor for bona fide mistakes as established by § 1692k(c).  The Court further distinguished the Supreme Court’s seminal decision in Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, L.P.A., which held that mistakes of law did not qualify for a bona fide error defense, by finding that the Supreme Court’s decision did not extend to mistakes of law based on controlling circuit precedent.  Oliva petitioned for rehearing en banc, which was granted.

The full Seventh Circuit disposed of the issue of retroactivity under Suesz quickly.  That question was already answered in the affirmative in Suesz, and the Court saw no reason to reconsider it because “the general rule … [is] that judicial decisions are given retroactive effect, unlike legislation, which ordinarily is not.”  Thus, effectively, the Court reiterated that debt collectors were in violation of the FDCPA when they chose venue for their collection lawsuits by relying on the controlling authority in Newsom.  The only remaining defense was bona fide error.

Unlike the question of retroactivity, the Court changed its mind on the bona fide error defense.   Earlier, the panel had concluded that Jerman did not bar a good faith error defense because there was a distinction between defendant’s own mistaken interpretation of the law and reliance on a precedent that was later overruled as mistaken.  The panel also said that even if this distinction did not hold up, the debt collector’s interpretation was not mistaken when it was made.  The Court, sitting en banc, disagreed with the panel.  According to the majority of the Court, there were “clear signs” in Jerman that “all mistaken interpretations of the Act, regardless of how understandable or reasonable they might have been” did not qualify for a bona fide error defense.

Having thus ruled against Blatt Hasenmiller, the Court found it “helpful to recall” that whether a violation was intentional is one of the factors in determining statutory damages under the FDCPA.  This statement, however, provides little solace to debt collectors that find themselves in a similar predicament because the practical exposure in FDCPA lawsuits does not come from statutory damages, but instead from the attorney’s fees sought by the plaintiff’s counsel.  As the dissenting judges put it, “[i]t is not a mistake of law to follow controlling law, even when that law is later overruled” and the court’s decision “punishes debt collectors for doing exactly what the controlling law explicitly authorizes them to do at the time they do it.”