WASHINGTON (CN) – The Supreme Court heard arguments Wednesday over whether lawyers are liable as debt collectors for serving a foreclosure notice that may have been incorrect in its statement of the law. The notice also happened to go to a woman who owned her home outright.
Lawyers for Countrywide Home loans orchestrated a foreclosure in 2006, serving a notice to Karen Jerman that said she would have 30 days to dispute it in writing. Jerman, who had paid off her mortgage in full, hired a lawyer to write a response and Countrywide realized its mistake.
Jerman then filed a class action for damages and injunctive relief against the Ohio law firm and an associate attorney at the firm.
Under the Fair Debt Collection Practices Act, debt collectors are excused if they prove that their wrongdoing was in good faith and had not been intentional. It also stipulates that they have systems set up to reasonably avoid making the error.
Kevin Russell represented homeowner Jerman. He said that ignorance of the law does not grant immunity to liability. He also maintained that the lawyers intentionally served the notice even if they did not realize that their act violated the law, interpreting a violation as an act of violating the law, as opposed to the fact of violating the law.
The question of whether the lawyers were wrong in requiring that the foreclosure objection be written is still up in the air.
Justice Stephen Breyer asked if the lawyer would still be liable if he authorized something where the law was unclear and it was later determined to be against the law. Russell replied that the lawyer would still be liable. Breyer seemed critical. “Your view of it puts lawyers in an impossible position, let alone the client,” he said.
“It’s not just that it’s unfair,” Breyer said of Russell’s response. “It’s worse than unfair.” He noted that a lawyer is obligated to represent his client and that because the law can be uncertain, the lawyer may not do what is later determined to be legal.
Chief Justice John Roberts noted that the name of the creditor must be on the foreclosure letter, but he hypothesized that the creditor had recently agreed to a merger and the name was now in question. He asked who would be liable for a mistake in the name under various scenarios.
Russell said that the creditor would not be liable if he simply put the wrong name of the notice because he would be making an honest error. If he called his lawyer to ask, however, and the lawyer gave the wrong answer after a little research, the mistake would become a legal error and both the lawyer and debt collector would be liable under the law.
Roberts appeared unimpressed. “If the client just says, ‘I’m not going to ask the lawyer.’ It’s a bona fide error, but he gets the benefit of that position,” he said. “But if he asks the lawyer, he doesn’t get the benefit.”
George Coakley represented Carlisle, McNellie, Rini, Kramer & Ulrich. He argued that the lawyers are not liable because they made a bona fide error, protected under the law.
But Justice Ruth Bader Ginsburg suggested that simply not knowing the law is not a defense. “If that’s what Congress meant to do, to make something that ordinarily is no defense a defense, we would expect Congress to do so expressly.”
Justice Sonia Sotomayor probed what Congress intended. “Do you think that they intended for debt collectors to have an automatic defense if they just called up a lawyer?” she asked skeptically. “And so a lawyer’s opinion would give them absolute immunity from liability?”
The Sixth Circuit ruled that the law firm violated the law in maintaining that Jerman must object to the foreclosure in writing, but held that the defendants qualified for the bona fide error defense.