MEHDI ABDOLLAHZADEH v. MANDARICH LAW GROUP, LLP
No. 18-1904
United States Court of Appeals For the Seventh Circuit
ARGUED OCTOBER 30, 2018 – DECIDED APRIL 29, 2019
Manish S. Shah, Judge.
Appeal from the United States District Court for the Northern District of Illinois, Eastern Division.
No. 16 CV 8682 — Manish S. Shah, Judge.
Before WOOD, Chief Judge, and SYKES and BARRETT, Circuit Judges.
CACH referred Abdollahzadeh‘s debt to the Mandarich Law Group, LLP (“Mandarich“), a debt-collection firm. CACH identified the later, unsuccessful payment attempt as the last payment on the account. Relying on this date, Mandarich sent a collection letter to Abdollahzadeh on December 3, 2015, and then sued him in state court when it received no response. The state court dismissed the suit because the last payment to clear occurred outside of Illinois‘s five-year statute of limitations.
Abdollahzadeh sued Mandarich for attempting to collect a time-barred debt in violation of the Fair Debt Collection Practices Act,
Abdollahzadeh challenges that ruling on several grounds. First, he argues that Mandarich‘s continuation of the collection action after it learned the true last-payment date creates a factual dispute on the issue of intent. He also contends that the law firm‘s reliance on CACH‘s representations about the last-payment date was an abdication of its duty to engage in meaningful review and thus was unreasonable as a matter of law. Finally, he characterizes the firm‘s procedures for weeding out time-barred debts as “thinly specified policies” insufficient to support the affirmative defense.
We reject these arguments and affirm. The bona fide error defense doesn‘t require the independent verification and procedural perfection Abdollahzadeh seems to think necessary. The undisputed evidence shows that any FDCPA violations were the unintentional result of a bona fide mistake. And Mandarich had procedures in place that, while simple, were reasonably adapted to avoid late collection efforts.
I. Background
Abdollahzadeh opened an MBNA credit-card account in 1998 and used it to pay for personal, family, and household expenses. In 2010 MBNA, later renamed FIA Card Services (“FIA“), declared Abdollahzadeh‘s debt to be in default. The last payment to clear on the account—one for $300—was
FIA sold Abdollahzadeh‘s delinquent debt to CACH in April 2013 pursuant to a Loan Sale Agreement. SquareTwo Financial Corp. (“SquareTwo“), CACH‘s parent company, retained Mandarich for collection services. Under its retainer agreement, SquareTwo stated that it “does not warrant the completeness, correctness or accuracy of Account Data” and has no “liability for any incomplete, incorrect, or inaccurate Account Data.” The agreement also required Mandarich to follow SquareTwo‘s operating procedures in its efforts to collect on CACH-owned credit accounts. Accordingly, the firm adopted SquareTwo‘s “Out of Statute Account Policy” for addressing statute-of-limitations issues.
As a matter of policy, both Mandarich and CACH prohibit untimely collection efforts. They refer to debts falling outside of the applicable limitations period as “out-of-statute” debts. When the statute of limitations expires for any account not in active litigation, Mandarich‘s policy is to immediately cancel the account and return it to the creditor. To check for out-of-statute accounts, Mandarich attorneys analyze account data—specifically the date of last payment—and the relevant state‘s statute of limitations. While the firm has no written policy defining the date of last payment, in practice it uses the last payment to clear as the last payment on the account. To ascertain the last-payment date, Mandarich relies on account reports provided by CACH and its parent company. For its part, SquareTwo subjects the data used to generate these reports to a nightly computerized “scrub.” SquareTwo uses its scrubbing software to identify last-payment dates that place an account beyond the relevant statute of limitations. Any out-of-statute account identified by the scrub, including those owned by CACH, is immediately recalled.
On or around December 1, 2015, CACH placed Abdollahzadeh‘s account with Mandarich for collection. Following its usual practice, CACH provided Mandarich with the bill of sale memorializing its purchase, a document called “Schedule 1” containing FIA‘s electronic-transfer file for the account, and an Account Information Report generated by CACH itself. Schedule 1 includes the date the account was opened, the date of last payment, and the charge-off date. It also displays Abdollahzadeh‘s current balance and his balance at the charge-off date. The Account Information Report, created using proprietary software, contains similar data. As we‘ve noted, Mandarich and CACH normally identified the last payment to clear as the last payment for statute-of-limitations purposes. In this case, however, the Schedule 1 and Account Information Report identified the reversed June 30, 2011 payment attempt as Abdollahzadeh‘s last payment. And both documents list Abdollahzadeh‘s current balance as $16,709.62—the same balance he carried at the March 2011 charge-off date.
On December 3, 2015, Mandarich sent Abdollahzadeh a “demand for payment of [his] outstanding obligation.” The firm made clear that the letter was a “communication from a debt collector.” Receiving no response, on February 11, 2016, Mandarich filed a collection action in Cook County Circuit Court alleging breach of contract. Attached to the complaint was an affidavit from CACH averring that the account information it provided was correct. On March 14, 2016, Abdollahzadeh called Mandarich and said that his June 2011 payment of $1,670.96 had settled the debt. Less than a month later, however, he
At that point Mandarich contacted CACH to clarify the date of Abdollahzadeh‘s last payment. CACH responded that the June 30, 2011 payment identified in its account information hadn‘t cleared and that the last payment without reversal occurred on August 3, 2010. Nevertheless, Mandarich determined that it was obligated to oppose the motion to dismiss on its client‘s behalf because it “could make a good faith argument that the claim was not time barred.” The state court ultimately sided with Abdollahzadeh and dismissed the action as untimely.
Abdollahzadeh then sued Mandarich and CACH alleging FDCPA violations. Specifically, he complained that the defendants violated
The district court entered judgment for Mandarich based on the affirmative defense provided in
Abdollahzadeh insisted that the accuracy disclaimer in SquareTwo‘s retainer agreement made it unreasonable as a matter of law for Mandarich to rely on CACH‘s data. He also maintained that Mandarich‘s decision to oppose Abdollahzadeh‘s motion to dismiss in state court was evi-dence of an intentional FDCPA violation. The judge disagreed on both counts. Finally, the judge rejected Abdollahzadeh‘s arguments about the insufficiency of the firm‘s procedures for avoiding out-of-statute collection attempts. Those procedures, he said, were “imperfect” but “reasonable as a matter of law.”
II. Discussion
We review a summary judgment de novo, “construing all facts and drawing all reasonable inferences in favor of the party against whom the motion under consideration was filed.” Hess v. Bd. of Trs. of S. Ill. Univ., 839 F.3d 668, 673 (7th Cir. 2016). Summary judgment is appropriate when “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
The Fair Debt Collection Practices Act protects debtors from “abusive debt collection practices by debt collectors.”
A debt collector may not be held liable in any action brought under this subchapter if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.
Essentially restating the statute, we‘ve explained that this bona fide error defense requires the debt collector to make three showings: “(1) it must show that the presumed FDCPA violation was not intentional; (2) it must show that the presumed FDCPA violation resulted from a bona fide error . . . ; and (3) it must show that it maintained procedures reasonably adapted to avoid any such error.” Kort v. Diversified Collection Servs., Inc., 394 F.3d 530, 537 (7th Cir. 2005). The defense “does not apply to a violation of the FDCPA resulting from a debt collector‘s incorrect interpretation of the requirements of that statute.” Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 559 U.S. 573, 604–05 (2010). In other words, “a defendant can invoke the bona fide error defense only if it claims it made an error of fact, not an error of law.” Evans v. Portfolio Recovery Assocs., LLC, 889 F.3d 337, 349 (7th Cir. 2018) (citing Jerman, 559 U.S. at 604–05).
We assume for present purposes that Mandarich violated the Act by sending the collection letter and filing the state-court collection action. Both were attempts to collect a time-barred debt. As the district judge properly concluded, however, the undisputed facts establish the elements of the bona fide error defense. Mandarich‘s factual mistake—using the wrong date of last payment in its statute-of-limitations analysis—resulted in unintentional violations of the Act despite reasonable procedures to prevent errors of this type.
Abdollahzadeh resists this conclusion on several grounds. We‘re not persuaded.
A. Intent
The bona fide error defense doesn‘t protect intentional lawbreakers. To establish that its error was unintentional, “[a] debt collector need only show that its FDCPA violation was unintentional, not that its actions were unintentional.” Kort, 394 F.3d at 537 (emphases added) (citing Nielsen v. Dickerson, 307 F.3d 623, 641 (7th Cir. 2002)).
At the time of the violations at issue here, Mandarich was unaware that Abdollahzadeh‘s debt fell outside of Illinois‘s five-year statute of limitations. Following its established policies, the law firm relied on the account information provided by CACH. That information consistently identified June 30, 2011, as the date of Abdollahzadeh‘s last payment. The firm was unaware of the key facts that the 2011 payment was reversed and that the final payment to clear actually occurred in 2010. That negates any inference that the FDCPA violations were intentional.
Abdollahzadeh maintains that material factual disputes remain regarding Mandarich‘s intent. Relying on out-of-circuit cases, he argues that unintentional FDCPA violations can become intentional if the debt collector persists in litigation after learning of its defects. Assuming for the sake of argument that the statutory text can support that proposition (Mandarich disputes the point), the cases cited in support are distinguishable. Each contains aggravating factors making the debt collector‘s actions significantly less innocent.
In short, no evidence suggests that Mandarich intentionally violated the Act.
B. Reliance on Creditor-Provided Account Data
Abdollahzadeh also challenges Mandarich‘s reliance on the account data provided by CACH. He argues that the accuracy disclaimer in the retainer agreement made the firm‘s decision to trust CACH‘s last-payment date unreasonable as a matter of law. He also claims that the firm should have noticed that his balance remained unchanged after the reported last payment, which should have prompted further inquiry.
First, the disclaimer in the retainer agreement doesn‘t defeat the bona fide error defense because “the FDCPA does not require collectors to independently verify the validity of the debt to qualify for the ‘bona fide error’ defense.” Hyman v. Tate, 362 F.3d 965, 968 (7th Cir. 2004). Abdollahzadeh relies on McCollough v. Johnson, Rodenburg & Lauinger, LLC, 637 F.3d 939 (9th Cir. 2011), but that case bears no resemblance to this one. Under the agreement at issue there, the creditor made “no warranty as to the accuracy or validity of data provided,” and the debt collector was “responsible to determine [its] legal and ethical ability to collect.” Id. at 945 (alteration in original). Under those circumstances, the Ninth Circuit concluded that the debt collector‘s reliance on a communication from the creditor was “unreasonable as a matter of law,” citing the disclaimer as a factor in its analysis. Id. at 949. Moreover, McCollough contains a factual twist not present here: the unreliable representation was an email from the creditor contradicting information in the creditor‘s own account file. Id. at 945. Here, Mandarich relied on the account information itself, which consistently (though incorrectly) identified the last-payment date as June 30, 2011.
Abdollahzadeh also points to our decision in Turner v. J.V.D.B. & Associates, Inc., 330 F.3d 991 (7th Cir. 2003), but that case doesn‘t help him. In Turner we merely suggested that “an agreement [between a collector and] its creditor-clients that debts are current” would be a “reasonable preventative measure[]” for a debt collector to take. Id. at 996. We‘ve never made such an agreement a prerequisite to the
Finally, no inference of intent can be drawn from Mandarich‘s failure to notice that CACH‘s records displayed an identical balance on either side of the reported date of last payment. The law firm made a mistake—no one disputes that. Had it undertaken a more searching review of the Schedule 1 document and Account Information Report from CACH, it‘s possible that it would have noticed this discrepancy, notified CACH, and avoided litigation altogether. But the bona fide error defense doesn‘t demand perfection, and independent verification of the debt isn‘t a prerequisite. Hyman, 362 F.3d at 968.
C. Mandarich‘s Procedures
The final element of the bona fide error defense requires the debt collector to show that it “maint[ains] . . . procedures reasonably adapted to avoid any such error.”
The Supreme Court has described “procedures” in this context as “processes that have mechanical or other such ‘regular orderly’ steps to avoid mistakes.” Jerman, 559 U.S. at 587. On the other hand, “a thinly specified ‘policy,’ allegedly barring some action but saying nothing about what action to take,” doesn‘t qualify. Leeb v. Nationwide Credit Corp., 806 F.3d 895, 900 (7th Cir. 2015).
Relying on Leeb, Abdollahzadeh argues that Mandarich‘s error-prevention procedures are insufficient. But Leeb is distinguishable. There the debt collector simply asserted that its misleading collection letter was against company “policy,” offering no evidence that it had “mechanical or other such regular orderly steps” in place for its employees to follow. Id. (quotation marks omitted). Under those circumstances we were unconvinced that the debt collector had any error-prevention procedures in place at all.
The Supreme Court has focused on the orderliness and regularity of the debt collector‘s error-prevention steps, not on the number or complexity of those steps. Jerman, 559 U.S. at 587. On that understanding of the defense, Mandarich‘s system for guarding against attempts to collect time-barred debts, while unquestionably simple, qualifies under
And the system is reasonably adapted to avoid collecting out-of-statute debts. We‘ve said that the reasonableness inquiry is “uniquely fact bound” and “susceptible of few broad, generally applicable rules of law.” Leeb, 806 F.3d at 900 n.3 (quoting Owen v. I.C. Sys., Inc., 629 F.3d 1263, 1277 (11th Cir. 2011)). Moreover, “[t]he word ‘reasonable’ in the [bona fide error] defense cannot be equated to ‘state of the art,’ which is to say, at the technological frontier.” Ross v. RJM Acquisitions Funding LLC, 480 F.3d 493, 497–98 (7th Cir. 2007).
Our cases thus reflect a flexible, fact-specific approach to the reasonableness inquiry. In Jenkins v. Heintz, 124 F.3d 824, 834 (7th Cir. 1997), we approved a debt collector‘s “elaborate procedures” for avoiding FDCPA violations, including “publication of an in-house . . . compliance manual,” debt-collection “training seminars for firm employees,” and “an eight-step, highly detailed pre-litigation review process.” On the other end of the spectrum, in Ross the defendant attempted to collect a debt that had been discharged in bankruptcy, and we were satisfied by its “understanding”
Mandarich‘s procedures resemble those we approved in Ross. The law firm relied on account information provided by its client. The account data was subjected to an automated scrub that culled out-of-statute debts, and CACH supplied an affidavit attesting that the information in its report was correct. Finally, a Mandarich attorney examined the account to check whether a collection action would fall outside the applicable limitations period. These procedures didn‘t catch the mistake here, but “§ 1692k(c) does not require debt collectors to take every conceivable precaution to avoid errors; rather, it only requires reasonable precaution.” Kort, 394 F.3d at 539. Mandarich took reasonable precautions to prevent attempts to collect time-barred debts. Its procedures were reasonably adapted to that purpose, giving it a safe harbor for occasional unintentional missteps. The bona fide error defense applies, and summary judgment was proper.
AFFIRMED.