District Court Serves Up a Cautionary Tale for Use of the Bona Fide Error Defense

A recent case out of the Eleventh Circuit serves as a cautionary tale for both consumers and collection agencies in FDCPA cases, reminding defendants to carefully check the pleading standards of the court and reminding plaintiffs to timely bring forth motions to strike pleadings. . The issues in Arnold v. Bayview Loan Servicing focus on the pleading of the mortgage servicer’s bona fide error defense.                                                    

The Bona Fide Error Defense

                While the Federal Debt Collection Practices Act is a strict liability statute, it provides debt collectors with a bona fide error defense where their violation was not intentional and that they have policies and procedures in place to prevent such violations from occurring. 15 USC § 1692k(c). The debt collector must show by a preponderance of the evidence: (1) that the error was unintentional; (2) that the FDCPA violation arose because of a bona fide error; and (3) the violation occurred even though the debt collector had procedures in place to avoid the error. Owen v. I.C. Systems, Inc., 629 F.3d 1263, 1271 (11th Cir. 2011).

Arnold v. Bayview Loan Servicing, LLC

    In Arnold v. Bayview Loan Servicing, LLC. Case No. 14-0543-WS-C, 2016 U.S. Dist. LEXIS 10509 (S.D. Ala. Jan. 29, 2016), issues arose when the mortgage servicer sent two billing statements to the consumer after the debt was discharged in bankruptcy and post foreclosure. Arnold filed suit against the mortgage servicer alleging that the two billing statements violated the FDCPA because the statements implied money was owed on a discharged debt and the amounts the mortgage servicer sought to collect exceeded the actual balance owed.  The mortgage servicer answered and generally pled the bona fide error defense.  After extensive discovery, the mortgage servicer moved for summary judgment in reliance upon its bona fide error defense.  Plaintiff objected to the court considering the bona fide error defense because it was not pled with sufficient particularity.

The court agreed with the plaintiff’s contention  that bona fide error defenses should be specifically pled, noting that “because the bona fide error defense rests upon mistake, the circumstances surrounding the mistake must be stated with particularity…[T]o satisfy Rule 9(b), the defense must articulate ‘who, what, when, where and how’ the bona fide error occurred.” Arnold at *24. The court, however, was not inclined to allow the plaintiff sit on a technical objection where the defense had been properly vetted and detailed through discovery.  “The upshot is that plaintiff cannot raise this technical pleading defect for the first time on summary judgment as a means of derailing the Rule 56 Motion and excising that defense from the case.” Id.

                Proceeding to the merits of the case, the court held that the mortgage servicer met its burden of proof as to the bona fide error defense.  Specifically, the court held that: (a) the mortgage servicer established that its violation was unintentional; (b) that the transmission of the billing statements was a mistake that occurred in good faith; and (c) the error occurred despite the fact that the mortgage servicer has regular processes in place to avoid errors like clerical or factual mistakes.

        Key Take Aways

• FOR THE DEFENSE: This case reminds defense counsel to be aware of the pleading standard established by the court with regard to pleading generally (has the Court adopted a Twombley/Iqbal standard as to responsive pleadings in general) and specifically, as to bona fide error. The case also serves as a good refresher as to the evidentiary standard necessary to sustain the bona fide error defense. The court must be able to point to specific policies and practices the debt collector has in place that would normally have kept the error from occurring. IN this case, the mortgage servicer was able to point to a number of internal documents demonstrating the steps the company takes to follow the FDCPA.
• FOR THE CONSUMER: The case serves as a reminder that motions to strike should be made within 21 days of service of the pleading, and that failure to do so can be a costly mistake.