On April 21, 2010 the United States Supreme Court in a 7 to 2 decision, sent a loud and clear message to banks and to the lower courts that banks must be held to a strict standard when they are collecting debts or trying to take you house away.

No more “I didn’t bother to read the fine print”, no more “Statute? What statute?”, no more “The dog ate the mortgage note”. Banks and the debt collectors they hire, be it law firms or debt servicers, are going to have start playing by the rules just like everybody else.

This is huge! And how do I know it is huge? Because somebody spent the time and the money to go to the Supreme Court; amicus briefs were filed on both sides; and SCOTUS saw fit to grant certiorari all because a law firm included the words “in writing” on a debt collection letter.

Yep, all that falderal over one line in a letter saying the debt collecting law firm would assume the debt to be valid unless the debtor disputed it in writing. The “in writing” part is a technical violation of the Fair Debt Collections Practices Act.

Think about that for a minute.

Of all the horror stories we have been hearing about foreclosure fraud cases, with forged documents, missing documents, mixed up assignments, multiple debtors claiming on the same debt, “lost mortgage” affidavits attested to by people who never actually saw the mortgage in the first place…all this KrazyWorld that has been going on in the lower courts and SCOTUS spanks a law firm for including the words “in writing” in a debt collection letter?

If this is not the clearest possible instruct to the lower courts that they are to insist upon strict adherence to all the formalities before they let a bank steamroll over a consumer, I don’t what is.

I have tried to give you some gist of the opinion in the excerpts below, but between the majority opinion, two concurring opinions, and a minority opinion, there were 64 single spaced pages. You can read the whole thing here.

I recommend that you read the entire opinion for entertainment value as well. It is a knock down drag out pie fight between Justice Sotomayor and Justice Kennedy. On the first page of the dissent, he basically accuses her of being a shill for the trial lawyers. Much of her majority opinion is wasted defending against his ad hominem attacks. She could have saved herself a lot of trouble by inserting one sentence “My opinion has seven votes, sucka!”

JUSTICE SOTOMAYOR delivered the opinion of the Court.

The Fair Debt Collection Practices Act (FDCPA or Act)imposes civil liability on “debt collector[s]” for certain prohibited debt collection practices. Section 813(c) of the Act, 15 U. S. C. §1692k(c), provides that a debt collector is not liable in an action brought under the Act if she can show “the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.” This case presents the question whether the “bona fide error” defense in §1692k(c) applies to a violation resulting from a debt collector’s mistaken interpretation of the legal requirements of the FDCPA. We conclude it does not.

-snip-

Respondents in this case are a law firm, Carlisle, McNellie, Rini, Kramer & Ulrich, L. P. A., and one of its attorneys, Adrienne S. Foster (collectively Carlisle). In April 2006, Carlisle filed a complaint in Ohio state court on behalf of a client, Countrywide Home Loans, Inc. Carlisle sought foreclosure of a mortgage held by Countrywide in real property owned by petitioner Karen L. Jerman. The complaint included a “Notice,” later served on Jerman, stating that the mortgage debt would be assumed to be valid unless Jerman disputed it in writing. Jerman’s lawyer sent a letter disputing the debt, and Carlisle sought verification from Countrywide. When Countrywide acknowledged that Jerman had, in fact,already paid the debt in full, Carlisle withdrew the foreclosure lawsuit. Jerman then filed her own lawsuit seeking class certification and damages under the FDCPA, contending thatCarlisle violated §1692g by stating that her debt would be assumed valid unless she disputed it in writing.

-snip-

…concern that our reading will have unworkable practical consequences for debt collecting lawyers. See, e.g., Brief for Respondents 40–41, 45–48; NARCA Brief 4–16; post, at 5–14. Carlisle claims the FDCPA’s private enforcement provisions have fostered a “cottage industry” of professional plaintiffs who sue debt collectors for trivial violations of the Act. See Brief for Respondents 40–41. If debt collecting attorneys can be held personally liable for theirreasonable misinterpretations of the requirements of theAct, Carlisle and its amici foresee a flood of lawsuits against creditors’ lawyers by plaintiffs (and their attorneys) seeking damages and attorney’s fees. The threat of such liability, in the dissent’s view, creates an irreconcilable conflict between an attorney’s personal financial interest and her ethical obligation of zealous advocacy onbehalf of a client: An attorney uncertain about what theFDCPA requires must choose between, on the one hand,exposing herself to liability and, on the other, resolvingthe legal ambiguity against her client’s interest or advising the client to settle—even where there is substantial legal authority for a position favoring the client.

-snip-

We do not believe our holding today portends such grave consequences. For one, the FDCPA contains several provisions that expressly guard against abusive lawsuits, thereby mitigating the financial risk to creditors’ attorneys. When an alleged violation is trivial, the “actua damage[s]” sustained, §1692k(a)(1), will likely be de minimis or even zero. The Act sets a cap on “additional” damages, §1692k(a)(2), and vests courts with discretion to adjust such damages where a violation is based on a good faith error, §1692k(b). One amicus suggests that attorney’s fees may shape financial incentives even where actual and statutory damages are modest. NARCA Brief 11.

The statute does contemplate an award of costs and “reasonable attorney’s fee as determined by the court” in the case of “any successful action to enforce the foregoing liability.” §1692k(a)(3). But courts have discretion in calculating reasonable attorney’s fees under this statute, and §1692k(a)(3) authorizes courts to award attorney’s fees to the defendant if a plaintiff’s suit “was brought in bad faith and for the purpose of harassment.”

-snip-

To the extent the FDCPA imposes some constraints on a lawyer’s advocacy on behalf of a client, it is hardly unique in our law. “[A]n attorney’s ethical duty to advance the interests of his client is limited by an equally solemn duty to comply with the law and standards of professional conduct.” Nix v. Whiteside, 475 U. S. 157, 168 (1986). Lawyers face sanctions, among other things, for suits presented “for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation.” Fed. Rules Civ. Proc. 11(b), (c). Model rules of professional conduct adopted by many States impose outer bounds on an attorney’s pursuit of a client’s interests. See, e.g., ABA Model Rules of Professional Conduct 3.1 (2009) (requiring nonfrivolous basis in law and fact for claims asserted); 4.1 (truthfulness to third parties). In some circumstances, lawyers may face personal liability for conduct undertaken during representation of a client. See, e.g., Central Bank of Denver, N. A. v. First Interstate Bank of Denver, N. A., 511 U. S. 164, 191 (1994) (“Any person or entity, including a lawyer, . . . who employs a manipulative device or makes a material misstatement (or omission) on which a purchaser or seller of securities relies may be liable as a primary violator under [Securities and Exchange Commission Rule] 10b–5”).

Moreover, a lawyer’s interest in avoiding FDCPA liability may not always be adverse to her client. Some courts have held clients vicariously liable for their lawyers’ violations of the FDCPA. See, e.g., Fox v. Citicorp Credit Servs., Inc., 15 F. 3d 1507, 1516 (CA9 1994); see also First Interstate Bank of Fort Collins, N. A. v. Soucie, 924 P. 2d 1200, 1202 (Colo. App. 1996).

-snip-

Moreover, many debt collectors are compensated with a percentage of money recovered, and so will have a financial incentive to press the boundaries of the Act’s prohibitions on collection techniques. It is far from obvious why immunizing debt collectors who adopt aggressive but mistaken interpretations of the law would be consistent with the statute’s broadly worded prohibitions on debt collector misconduct. Jerman and her amici express further concern that the dissent’s reading would give a competitive advantage to debt collectors who press the boundaries of lawful conduct. They foresee a “race to the bottom” driving ethical collectors out of business. Brief for Petitioner 32; Brief for Public Citizen et al. as Amici Curiae 16–18. It is difficult to square such a result with Congress’ express purpose “to eliminate abusive debt collection practices by debt collectors, [and] to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged,” §1692(e).

[Earlier posts in this series and related links at FDL's Foreclosure Fraud Resources]