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Pleading and proving the FDCPA’s bona fide error defense

May 6, 2016 Leave a comment

I don’t generally write blog posts about just one case, but I’m going to make an exception this month and discuss Arnold v. Bayview Loan Servicing, LLC, No. 14-cv-0543, 2016 U.S. Dist. LEXIS 10509 (S.D. Ala. Jan. 29, 2016).

In Arnold, the plaintiff alleged that Bayview violated the FDCPA by sending him two mortgage billing statements in December 2013, even though the plaintiff’s debt had been discharged in bankruptcy (September 2012), and even though Bayview foreclosed on plaintiff’s former home (November 2013).  Bayview admitted sending the statements, but it argued that it had not violated the FDCPA because sending them was a “bona fide error,” which if true would be a complete defense to FDCPA liability under 15 U.S.C. § 1692k(c).  Specifically, Bayview argued that when it began to service plaintiff’s mortgage loan, it had coded the loan file in its computer system so as not to send plaintiff any billing statements, but then, following the November 2013 foreclosure, an employee reviewed the file and inadvertently (i.e., she was not told or instructed to do this) changed the code to allow new billing statements to be sent.

I found Arnold to be interesting because it granted a defense motion for summary judgment (which doesn’t happen every day, and which is good news if you’re a defense lawyer like me), and because it made two points about the FDCPA’s bona fide error defense that I think are worth remembering.  They are:

I.  THE BONA FIDE ERROR DEFENSE MUST BE PLEADED WITH PARTICULARITY

To raise the bona fide error defense, the defendant must include it as an affirmative defense in its initial pleading, and the defendant must plead it with particularity.  Bayview’s initial pleading was an answer that listed a number of affirmative defenses, none of which were pleaded with particularity.  It raised the bona fide error defense by simply stating that “Plaintiff’s individual and class claims are barred by the bona fide error defense pursuant to the FDCPA, 15 U.S.C. § 1692, et seq.”

The court ruled that Bayview’s pleading was insufficient:  it didn’t state the who/what/when/where/why of the bona fide error, so it wasn’t a pleading with particularity.  However, the court held that Bayview’s mistake was a technical one, and it wasn’t willing to preclude Bayview from raising the defense unless plaintiff could show that either:  a) he had challenged the pleading as insufficient within 21 days per Rule 12; or b) he had been deprived of an opportunity to take discovery related to the defense.  Plaintiff could not show either of these things:  he hadn’t moved to strike the pleading per Rule 12, and he had been given information about the defense in discovery (through interrogatory responses and depositions of Bayview personnel).

I think that this was the right result – cases should be won or lost on the merits, and not due to technical mistakes by counsel.  That said, I am going to make a point of trying to plead the bona fide error defense with more particularity in the future.

II.   THE BONA FIDE DEFENSE IS ABOUT PARTICULAR ERRORS, NOT GENERAL ONES

The Arnold court found that the plaintiff could not and did not challenge the facts of Bayview’s bona fide error defense:  i.e., it was uncontested that Bayview had initially coded plaintiff’s loan in such a way as to prevent any billing statements from being mailed to him, but then an employee had inadvertently changed that code while reviewing his loan post-foreclosure.  Rather, the plaintiff argued that Bayview’s error was that it sent mortgage bills to consumers even after they had their debts discharged through bankruptcy.  In other words, plaintiff’s counsel contended that Bayview should have had a policy in place to never send a billing statement to anyone whose mortgage loan was discharged in bankruptcy.  Because Bayview didn’t do that, counsel contended that its mistake was not a “bona fide error” but rather an intentional error due to a bad internal policy.

The court found for the defendant, and made two points which, again, are worth remembering.  The first point is that “the bona fide error defense does not require a defendant to exhaust all possible means of preventing the specific error. Again, the legal standard is that the defendant “maintain procedures reasonably adapted to avoid readily discoverable errors.”  The second point is that “plaintiff’s fixation on Bayview’s purported practice of billing borrowers whose debts have been discharged is unavailing because that general practice was not the specific error that caused Arnold to receive billing statements. It is undisputed that, during the first ten months that Bayview serviced the loan, Bayview never sent a single monthly billing statement to Arnold [until] a single
Bayview employee made a single processing error that changed the code on Arnold’s loan ….  That is the “specific error” on which the bona fide error defense analysis appropriately centers.”

In short, when a defendant raises a bona fide error defense, defense counsel should focus on the precise mistake that caused the problem, and attempt to show that such mistakes are rare and against company practice.

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