11th Circuit: Don't Break the Law to Comply With It

Can't break the law to comply with it.
11th Circuit: Don't Break the Law to Comply With It Federal appeals court rejects collection company's defense against debtor's suit

Janet L. Conley

Fulton County Daily Report

October 19, 2009

Arguing that you broke the law in order to comply with it is not, apparently, the way to win an argument before the 11th U.S. Circuit Court of Appeals.

In a tart but analytical opinion, the court said a debt collector could not defend itself by saying it acted in good faith when it intentionally violated one requirement of the Fair Debt Collection Practices Act so that it will not run afoul of another provision.

Niagara Credit Solutions Inc. argued that it broke the rule saying debt collectors must identify themselves and tell a debtor it is calling to collect a debt so that it could comply with a rule barring debt collectors from communicating about the debt with third parties (such as a roommate who hears an answering message from a debt collector).

Trying to sum up the situation, Judge Edward E. Carnes wrote in the opening paragraph of the opinion, "In an oft-repeated statement from the Vietnam War, an unidentified American military officer reputedly said that 'we had to destroy the village to save it.' That oxymoronic explanation may be apocryphal, but the debt collection agency in this case offers up much the same logic."

And that logic impressed neither Carnes nor Senior Judge Peter T. Fay and 9th Circuit Judge Arthur L. Alarcon, sitting by designation. The panel heard arguments in the case on Sept. 25 and issued an opinion on Wednesday, less than three weeks later.

The panel affirmed a decision by Judge Beverly B. Martin of the U.S. District Court for the Northern District of Georgia (who is awaiting confirmation for a post on the 11th Circuit), who had adopted a decision by Magistrate Judge C. Christopher Hagy.

One of the debtor's attorneys, Kris K. Skaar of Decatur, Ga.'s Skaar & Feagle, noted, "We've won on every step, we just haven't won on the same grounds," said Skaar.

Skaar, who worked on the case with his law partner James M. Feagle, pointed out that a similar case from the 6th Circuit, Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, 538 F.3d 469, is poised to go before the U.S. Supreme Court on the theory the magistrate considered -- whether a mistake of law qualifies for a bona fide error defense.

Skaar said his case is likely to be significant regardless of how the high court rules. "It's significant in that it means that even if the ... the Supreme Court sides with the industry and says an error of law can be a bona fide error, [the 11th Circuit case] means that there will still be meaningful review, and it won't be an automatic win for the industry."

Skaar & Feagle's client, debtor Brenda Edwards, owed less than $1,000 to the Consumer Shopping Network when her past-due account was assigned to Niagara Credit Solutions. Between July and October 2007, according to the court file, Niagara left more than a dozen messages on Edwards' answering machine.

Two of the messages, the text of which is printed in the court's opinion, merely stated that the message was for Edwards and that she needed to call an 800 number. The messages did not reveal what company was calling or why.

Carnes wrote that those messages were consistent with a "well-defined" policy of Niagara's to leave a bare-bones message simply asking the debtor to call back about an "important matter."

"Niagara purposefully left out of the messages any information disclosing that they were from Niagara Credit Solutions, Inc. or a debt collector or that the call had been made for the purpose of collecting a debt," Carnes wrote. "The Fair Debt Collections Practices Act specifically requires that a debt collector disclose in all communications with a debtor that the message is from a debt collector."

But Niagara deliberately did not comply, the court said, because, "it feared that doing so would risk violating another provision of the Act, which generally forbids an agency from communicating about the debt with a third party. ... It was concerned that answering machine messages might be played by or within the hearing of a family member or roommate, who would then know that a collection agency was calling the debtor."

Niagara's attorney, Michael D. Robl of Thomerson Spears & Robl, could not be reached for comment.

Edwards sued Niagara in September 2007 in district court, alleging violations of the act and asking for the maximum allowable $1,000 in statutory damages, plus costs and attorney fees.

The district court granted her motion for summary judgment and her request for damages and fees, and Niagara appealed to the 11th Circuit.

On appeal, Carnes wrote that Niagara conceded that the messages it left violated the section of the act requiring it to identify itself as a debt collector. Niagara challenged only the district court's conclusion that it is not protected by the bona fide error defense.

But Carnes said that this defense, at 15 U.S.C. Section 1692k(c), provides that a debt collector must show by a preponderance of the evidence that its violation of the act was not intentional, was a bona fide error and occurred despite procedures reasonably adapted to avoid such an error.

"The failure to meet any one of those three requirements is fatal to the defense," the panel writes.

The 11th Circuit examined only the first two elements -- whether the violation was intentional and whether it was a bona fide error -- and concluded that Niagara did not meet its burden on either one.

Specifically, the court found that Niagara did not meet the intentionality showing because, by its own admission, it deliberately failed to include its identity as a debt collector in order to avoid violating the act's privacy provisions. The company also did not meet the bona fide error showing, the panel found, because to be bona fide, the error must be a "genuine" as opposed to "contrived" mistake; it also must be objectively reasonable.

"Just as it is not reasonable to destroy a village in order to save it," the panel writes, "neither is it reasonable to violate an Act in order to comply with it."

Niagara had complained, according to Carnes, that if it is not permitted to leave the disclosure out of its answering machine messages, it won't be able to leave messages at all.

Noting that the argument assumed that the required disclosure would, in fact, violate privacy provisions, Carnes wrote: "We have not decided that issue, but even if Niagara's assumption is correct, the answer is that the Act does not guarantee a debt collector the right to leave answering machine messages."

He added that because Niagara failed to meet the intentionality and bona fide error requirements, the court did not need to examine whether the error had occurred despite procedures designed to avoid it, and affirmed the district court's opinion.

Interestingly, said Skaar, the one ground the 11th Circuit did not reach is the sole ground on which the district court decided the case. Martin, the district court judge, wrote in her opinion that summary judgment was warranted "because there is no question of material fact that Niagara did not maintain procedures 'reasonably adapted' to avoid the specific error at issue" -- that error being, as Martin saw it, the company's failure to disclose its identity.

The magistrate, by contrast, found in the debtor's favor by ruling that an error of law cannot be a bona fide error, Skaar said.

The case is Edwards v. Niagara Credit Solutions, No. 08-17006.

This is very interesting because it nearly ruins the collections industry due to the fact that if they cannot leave a message telling who they are and the purpose of the call because some 3rd party might hear the recording and they can't call, find out it is an answering machine and hang up because of it and did that repeatedly it could easily be construed as harassment and must comply with the full identification requirement then they don't have too many more ways they can call and comply with the law if an answering machine is all they ever get.

The full story with links to the actual opinion in pdf format and the appropriate section of FDCPA can be accessed on my links pages.

 

Yes, but the way I see it almost any phone call they make in which they connect to an answering machine could leave them open to a federal lawsuit using that decision as the cause of action.

Seems to me that an answering machine almost becomes a veritable trap for them. If the consumer funnels his phone calls through a computer using phone tray which will record all phone calls, date, time and number and also has the ability to deliver a prerecorded message to callers who don't show their caller I.D. and zap them off the line they would be forced to let their caller I.D. show or never get through. If they get through and then get an answering machine they are just about dead ducks to my way of thinking.

Phone tray will only work with a V.92 modem that also has voice and caller I.D. capability and that kind of modem is difficult to find. I've probably got at least 25 modems and so far have only found one that worked with phone tray. I've got a big cardboard box full to the brim with various kinds of cards including but not limited to modems, networking cards, sound cards, video cards, USB cards and just about any kind of card one can think of but only one modem card like what is needed for phone tray.

So running out and buying a new modem card probably would end up just being a waste of time and money. I used to pick up old scrap computers at garage sales for $5 or $10 and get the cards out of them. I also used to go to various auctions and buy pallets of computers and scrap those out. I often got a whole pallet of computers for $10 or $20 so that's how I got so many cards. Scrap the computers out and sell the tin and and the boards for the gold in them, keep the drives and other stuff and end up getting all the stuff I wanted for free or nearly so. Don't do that any more. I buy everything new now.

Anyway, if some way can be found to record the time and date of those calls and keep a careful record one should be able to build a nice case out of it using this decision.

On the other hand, another trick that works is having all your home phone calls forwarded to your cell phone and then you can get the record of the calls from the statement the cellphone company sends you each month.

 

I don't know about all companies but I have two cellphones with two different cellphone providers and neither have ever shown my home phone number as the forwarding phone number.

 

Each of us do things differently and for different reasons. I have at least 9 or 10 different phone numbers and most of them are forwarded to one of my two cellphones. None of them are actual hard wired land lines. I have two vonage lines, three magic jack lines two cellphones and at least 3 Google Voice lines. All but the Google voice lines are call forwarded to cellphones.

Between Vonage and Magic Jack I'll pick Magic Jack every time. Their voice quality is about the same. Terrible. The major difference is that the call forwarding is instantaneous with magic jack and so voice quality don't enter into the equation at all. I don't even have any of the magic jacks actually plugged in to anything. I have them all in a desk drawer. I figure that $110 each to get the magic jack and 5 years of service is a price that can't be beat. Wal-Mart gets $40 for 1 magic jack and 1 year of service. And stop to think about it I actually have 3 active cellphones but I can't make any actual phone calls with the 3rd one.

So as I said, everybody has their own way of doing things with their cellphones and land line phones. The statistics or polls or whatever we want to call them say that about 20 percent of American households are using cellphones but have no landlines.