Civil Litigation

The Bona Fide Error Defense to the Rescue

On January 23, 2013, the United States District Court for the District of Maryland upheld a law firm’s bona fide error defense on summary judgment.  In Yu v. Kevin B. Wilson Law Offices, et al, 2013 U.S. Dist. LEXIS 14863, a plaintiff filed suit against a law firm (the “Law Firm”) for violations of the Fair Debt Collection Practices Act (the “FDCPA”) and common law intrusion upon seclusion stemming from an unpaid bill (the “Debt”) from a hospital (the “Hospital”).  After the plaintiff was unable to pay the Debt, it was referred for collection to North American Credit Services (“NACS”) on May 5, 2011.  On August 22, 2011, the plaintiff filed for bankruptcy (the “Bankruptcy”).  In the Bankruptcy, the plaintiff listed the Hospital as a creditor but not NACS.  On October 25, 2011, the Debt was transferred from NACS to the Law Firm.  The Law Firm did not receive notice of the Bankruptcy when it received the account.  Subsequently, the Law Firm attempted to collect the Debt through a letter and two phone calls.  During one of the phone calls, the plaintiff notified the Law Firm that he had filed the Bankruptcy.  After verifying the Bankruptcy, the Law Firm closed the account and stopped trying to collect the Debt.

In support of its bona fide error defense, the Law Firm advised the Court that the Law Firm, the Hospital and NACS operated with the understanding that they would not transfer debts for collection to one another where the debtor was in bankruptcy, Furthermore, they shared information regarding bankruptcy with one another as they became aware of it.  The Law Firm also received information regarding bankruptcies from debtors, debtors’ counsel and directly from the bankruptcy courts.  The Law Firm also trained staff regarding procedures to verify a debtor’s bankruptcy and close those accounts when appropriate.  In this matter, the Hospital verified that it had not received notice of the Bankruptcy.

The parties filed cross motions for summary judgment.  The plaintiff argued that the Law Firm’s conduct in attempting to collect the Debt after the filing of the Bankruptcy constitutes a violation per se of the FDCPA.  The Law Firm countered by invoking the bona fide error defense.  In order to prevail on the bona fide error defense, the Law Firm was required to prove by a preponderance of the evidence that: (1) the violation was not intentional; (2) the violation resulted from bona fide error; and (3) the error occurred in spite of the Law Firm’s maintenance of procedures reasonably adapted to avoid any such error.  The mere assertion of good intent, absent a factual showing of actual safeguards reasonably adopted to avoid violations of the FDCPA, is insufficient to establish the bona fide error defense.

In granting summary judgment in favor of the Law Firm, the Court held that the undisputed evidence established that the Law Firm had an understanding with the Hospital and NACS for the exchange of information regarding accounts in bankruptcy.  Furthermore, the Law Firm established that during its thirty (30) year relationship with the Hospital and NACS, there existed (at a minimum) an informal agreement not to forward accounts for collection where an underlying debt was subject to discharge in bankruptcy.  Lastly, the Law Firm ceased collection efforts immediately after learning of the Bankruptcy.

The Law Firm prevailed on its bona fide error defense because it established a pattern and practice of compliance with the FDCPA.  Fortunately for the Law Firm, it could demonstrate to the Court that for the past three decades, it fostered relationships with the Hospital and NACS which encouraged the open and frequent exchange of information.  In addition, the training provided to its staff and immediate response after learning of the Bankruptcy proved to be crucial when one account slipped through the cracks.


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