Medical Debt Case Brings to Light Bona Fide Error Defense

Jul 13, 2020

ACA International supports defendants in case focused on liability under the FDCPA when a factual error leads to collection on an account.

A federal appeals court reviewed a case involving the Fair Debt Collection Practices Act bona-fide-error defense on Monday, June 22. ACA International filed an amicus (friend of the court) brief supporting the defendant, Asset Systems Inc. (Asset.)

UPDATE: On June 24, the court issued an Order delaying the submission of the appeal and referring the parties to the Circuit Mediator. Mediation was one of several options for the court to choose, including affirming the district court’s decision or remanding the case to the district court for further proceedings.

According to the Order, the parties have 90 days to complete mediation.

Additionally, the Order notes that the plaintiffs’ request for reassignment to a different district court judge would be moot considering Judge Leighton’s planned retirement on Aug. 31, 2020.

Case Background

The case, Von Esch v. Asset Systems Inc., is the second appeal from a federal district court’s summary dismissal of plaintiffs’ claims under the FDCPA and the Washington Consumer Protection Act. Plaintiffs argued that Asset should be held strictly liable for attempting to collect a $5,000 medical debt from plaintiffs that plaintiffs did not owe. Unbeknownst to Asset, the balance due in Asset’s letter was incorrect.

Asset is a medical account debt collector.  The issue for the federal appeals court was whether Asset, as a medical account debt collector, should have had a policy in place to request and review a copy of an Explanation of Benefits (EOB) from the debtor and the original creditor in the event of a dispute by a debtor as to the amount of a medical account due.

Asset argued its procedures in place were reasonable even if they did not have a procedure in place to request an EOB.  Asset argued that the statute does not require that Asset have all procedures in place to avoid the error.  Asset argued that the statute instead only requires reasonable procedures in place.  Asset argued it had reasonable procedures in place.

A later investigation revealed that an accounting error by the original creditor resulted in failure to credit an insurance payment to plaintiffs, but that plaintiffs still owed a $400 co-pay. Asset argued that even if this was an FDCPA violation, the violation was excused because the error was not intentional, and occurred notwithstanding Asset’s procedures in place to avoid the error.

The FDCPA is a strict liability statute. Debt collectors, like Asset, are strictly liable for any violation of the act, but for the bona fide error defense to liability—that they unintentionally made a factual or clerical error notwithstanding reasonable procedures in place to avoid that error. Asset argued that a debt collector may prevail under the bona fide error defense when the debt collector reasonably relies on the information provided by the creditor. Here, the district court found that the accounting error was not of Asset’s making and Asset’s reliance on reliable creditors, among other reasonable procedures, entitled it to the bona fide error defense.

“The bona fide error defense plays an important role in FDCPA jurisprudence. This issue is of great importance to ACA members,” said Angela Brown, counsel at Gray Reed & McGraw LLP, who served as amicus counsel on behalf of ACA International.

“A reversal of the district court’s decision would upset the statutory balance of rights, liabilities, and defenses contained in the FDCPA,” Brown states in the brief.

The defendant’s counsel, Jeffrey Hasson, an attorney with Hasson Law LLC, quoted ACA’s brief in his argument: “As best stated by ACA International, a reversal would allow a one-off accounting error by a creditor’s employee to transform the FDCPA into a rule requiring each debt collector to also be an auditor, accountant and a fact checker.”

After oral argument, the case was submitted to a panel of three judges on the 9th Circuit Court of Appeals for a decision.

The appellate court had many questions about the de minimus amount of the damages sought by plaintiffs. After the district court dismiss in favor of Asset, Asset filed a motion requesting more than $100,000 in attorneys’ fees and costs against plaintiffs and their attorneys, Hasson said. The motion for attorney fees partially relied on an offer of judgment that was made early in the case for $2,500 plus costs and attorney fees, and the appellate court had this information in the briefing.

By ACA International