McCollough v. Johnson, Rodenburg & Lauinger, LLC
2011 WL 746892, 2011 U.S. App. LEXIS 4072, 637 F.3d 939 (2011)
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Rule of Law:
A debt collector's reliance on a creditor's representations is unreasonable, and thus cannot support a bona fide error defense under the FDCPA, when the collector possesses information contradicting the representation, is contractually warned of potential data inaccuracies, and fails to verify information after a potential violation is flagged by its own procedures.
Facts:
- Around 1990, Tim McCollough opened a credit card account with a bank that later became Chase Manhattan.
- After McCollough suffered a brain injury, he fell behind on payments, with his last payment occurring in 1999.
- In 2001, CACV purchased McCollough's charged-off debt. In 2005, CACV sued McCollough, who answered that the statute of limitations had expired, and CACV subsequently dismissed the suit.
- In 2006, CACV's parent company, Collect America, retained the law firm Johnson, Rodenburg & Lauinger (JRL) to collect the debt. The contract between them expressly disclaimed the accuracy of the data provided by Collect America.
- JRL's internal screening system flagged a statute of limitations problem with McCollough's debt in January 2007.
- In response to JRL's inquiry, CACV falsely claimed McCollough had made a $75 payment on June 30, 2004, which would have reset the statute of limitations.
- Information already in JRL's electronic file indicated the June 30, 2004 entry was for a return of court costs, not a payment, but JRL filed a collection suit against McCollough on April 17, 2007.
- In October 2007, JRL served McCollough, acting pro se, with requests for admission that asked him to admit to false statements, including that he had made a payment on June 30, 2004, and had no defense to the suit.
Procedural Posture:
- Tim McCollough sued the law firm Johnson, Rodenburg & Lauinger (JRL) in U.S. District Court, alleging violations of the FDCPA and state law.
- On cross-motions for summary judgment, the district court granted partial summary judgment to McCollough on his FDCPA claims.
- The remaining claims for damages and state law violations proceeded to a jury trial.
- The jury found in favor of McCollough on all claims, awarding statutory, emotional distress, and punitive damages.
- JRL moved for a new trial and for an amendment of the judgment, both of which the district court denied.
- JRL, as appellant, appealed the district court's judgment to the U.S. Court of Appeals for the Ninth Circuit. McCollough is the appellee.
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Issue:
Does a debt-collecting law firm violate the Fair Debt Collection Practices Act (FDCPA) by filing and maintaining a time-barred lawsuit based on a client's unsubstantiated and incorrect representation, when the firm possesses contradictory information and its contract with the client disclaims the accuracy of the provided data?
Opinions:
Majority - Thomas, Circuit Judge
Yes, the law firm's actions violate the Fair Debt Collection Practices Act (FDCPA). A debt collector cannot claim the bona fide error defense when its reliance on a client's information is unreasonable as a matter of law. The court found JRL's reliance on its client, CACV, was unreasonable because: (1) JRL's contract with the client expressly disclaimed the accuracy of the provided data; (2) JRL's own electronic file contained information contradicting the client's claim of a recent payment; (3) the file showed McCollough had previously asserted a statute of limitations defense against the same debt; and (4) JRL continued the suit even after McCollough again raised the defense. The court also held that the FDCPA applies to litigation activities, including discovery, and that serving false requests for admission on a pro se debtor constitutes an unfair and deceptive collection practice under the 'least sophisticated debtor' standard.
Analysis:
This decision significantly narrows the application of the bona fide error defense for debt-collecting law firms, establishing that passive reliance on a client's word is insufficient, especially in the face of contradictory evidence or contractual warnings about data integrity. It reinforces the precedent from Heintz v. Jenkins by explicitly extending the FDCPA's reach to cover in-litigation tactics like written discovery, preventing attorneys from using procedural rules as a shield for harassing or misleading debtors. The ruling puts the onus on debt collection firms to implement robust verification procedures, shifting the burden of accuracy from the debtor to the collector and potentially reducing the filing of meritless, time-barred lawsuits.
