The Court of Appeals for the Seventh Circuit has issued a ruling reviving a lawsuit against a collection agency because a change in precedent over where a collections lawsuit should be filed can be applied retroactively. More simply, the appeals court ruled that a collection law firm can be sued for filing a lawsuit in the improper jurisdiction, even if the jurisdiction was proper when the original lawsuit was filed. The case has been remanded back to the District Court.
Here are the details:
Ronald Oliva had an unpaid balance on a credit card that was sold to a third party. The third party assigned collection of the debt to a law firm, Blatt Hasenmiller Leibsker & Moore LLC, which filed suit against Oliva in Cook County, Illinois. The Circuit Court of Cook County is divided into six different districts. The district that the suit was filed in was neither the proper district where the debtor resided or where the original contract was signed. But a ruling in the 7th Circuit – Newsom v. Friedman – had ruled that the relevant judicial district included anywhere in the county, making it permissible for the law firm to file the suit in any of the six districts.
A subsequent case before the 7th Circuit, Suesz v. Med‐1 Solutions, LLC, 18 years later, overturned that ruling. In Suesz, the 7th Circuit ruled that the relevant judicial district is the “smallest geographic area” that is “relevant for determining venue in the court system in which the suit is filed.” Moreover, the 7th Circuit determined that this ruling was retroactive.
After the Suesz ruling, Blatt dismissed the case. But Oliva subsequently filed suit against the law firm, alleging that the lawsuit was filed in the improper jurisdiction. A district court granted summary judgment in favor of the law firm, saying it was covered under the bona fide error defense of the Fair Debt Collection Practices Act. Oliva appealed and the 7th Circuit upheld the summary judgment ruling. The plaintiff then requested an en banc hearing of all the judges from the 7th Circuit Court of Appeals. In a ruling that was issued yesterday, the court ruled 7-4 in favor of overturning its original decision, applying a Supreme Court decision in Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, which says that mistakes of law are not covered under the bona fide error clause of the FDCPA. Wrote Judge Hamilton is his majority opinion:
With a statute, however, the controlling law is and always has been the statute itself, as enacted by both houses of Congress and signed by the President. One judge or a panel of judges may or may not understand that text correctly, but the statute remains the law even if judges err. That is why overrulings of earlier statutory decisions, like reversals by the Supreme Court, are retroactive. It is also why it makes sense to think of the defendant’s action here as reflecting a mistake of law despite the reliance on admittedly substantial precedent. Defendant was mistaken about the meaning of the statute, and so were the panels in Newsom and Suesz. The fact that different sets of lawyers, including those with judicial commissions, made a legal error does not make it less a legal error.
In writing the dissenting opinion, Judge Manion had a dire warning for the ARM industry:
Today the court announces an unprecedented new rule—one that punishes debt collectors for doing exactly what the controlling law explicitly authorizes them to do at the time they do it. The court’s inverted new standard effectively eradicates the FDCPA’s bona fide error defense.