VAN HOVEN v. BUCKLES BUCKLES (2021)

OPINION AND ORDER

INTRODUCTION

This case was one of about sixteen cognate FDCPA cases addressing whether and how a judgment creditor could assess and attempt to collect costs of unsuccessful garnishments in Michigan. This is the only one that remains open. The Court certified a class challenging two particular practices: 1) frontloading the cost of garnishment in the initial request before the creditor knew whether the garnishment would succeed; and 2) including the costs of an unsuccessful garnishment in a subsequent garnishment request.¹ This Court ultimately entered Judgment for the plaintiff class and against the defendants. The Court of Appeals vacated and remanded for further proceedings, including without limitation, determination of the bona fide error defense. The parties have filed cross-motions for summary judgment on the issue. (ECF Nos. 266 & 271)

BACKGROUND

Plaintiff Van Hoven owed a consumer debt on her Discover credit card. Discover hired defendant Buckles to collect the debt. Defendants filed and obtained a judgment in the principal amount of $6,198.16. Defendants then attempted to collect the debt. Their collection effort included two garnishments that form the factual foundation for the FDCPA claims here. The first was a garnishment to Huntington Bank. Defendants frontloaded the cost of the garnishment, and the garnishment came back unsuccessful.² A few days later, defendants applied for a garnishment to Chemical Bank. They again frontloaded the costs of the new garnishment. In addition, they included the cost of the unsuccessful Huntington garnishment. The Chemical Bank garnishment was also unsuccessful. No other garnishments were attempted before this case began a few months later.

All parties agree that the frontloading in and of itself is not an FDCPA violation based on the holding of the Court of Appeals. The only issue, then, is the $15 cost of the unsuccessful Huntington garnishment that defendants included in the later Chemical Bank garnishment. Defendants acknowledge that was a mistake that could form the basis for FDCPA liability. However, defendants say they had and have a “back out” policy designed to prevent the mistake; that they follow the policy; and that it is reasonably designed to prevent mistakes like this, but just failed to do so in this case. In fact, according to the defendants, the total error rate of the policy amounted to only .02 percent (or two-tenths of one percent).³ Accordingly, defendants move for summary judgment on the good faith error defense. (ECF No. 266).

Plaintiff opposes the motion and cross moves for summary judgment. (ECF Nos. 270 & 271). Plaintiff says the defendants violated the FDCPA with the Chemical Bank garnishment, subject only to the bona fide error defense, and that defendants fail as a matter of law to establish that defense. In particular, plaintiff says the “back out” policy is not reasonably designed to prevent mistakes like this, and that it failed to do so on multiple occasions. Plaintiff also says defendants did not actually follow the policy in this and many other cases. To be effective, plaintiff says the policy would have to “back out” the cost of the failed garnishment as soon as defendants learned of it, and not simply at some indeterminate later time before defendants decide to try another garnishment. In addition, plaintiff says the “back out” policy should apply not simply at the time the defendants decide to request a new garnishment from the court, but also at the later time they serve the garnishment (assuming the court grants it) on the garnishee. Finally, plaintiff says the defense calculation of an error rate of .02 percent (or two-tenths of one percent) misrepresents the actual number of times the policy actually failed to prevent an attempt to collect the cost of a failed garnishment.

The calculation issue has spawned a side controversy between the parties over whether Plaintiff's position on the issue requires expert testimony, which Plaintiff has not provided. In the Court's view, some of what Plaintiff submits on the issue is fair argument and straightforward math. Plaintiff points out, for example, that the $1.5 million figure used in the denominator includes not simply the costs of failed garnishments, but also all front-loaded garnishment costs, thus understating the actual error rate on failed garnishments. In addition, plaintiff argues that using dollar amounts is not the best method of assessing error rate. However, plaintiff then goes on to suggest its own model for calculating the actual error rate. The model rests on counsel's sampling of data from defendants’ records. Defendants object that an analysis based on sampling data requires more than counsel's argument and should rest on expert testimony, something plaintiff has not provided. (ECF No. 276).

The Court concludes that plaintiff's overall critique of the method used by defendants is fair argument. However, plaintiff's attempt to create its own model of error rate based on counsel's own sampling of a defense data set requires expert analysis to support it. In the end the issue is not dispositive. Regardless of how the Court looks at the matter, the pattern and quantum of defendants’ failures to back out the costs of failed garnishments as required by its policy is not sufficient enough to undermine its bona fide error defense on this record, as the Court points out in its analysis to follow.

DISCUSSION

1. Legal Standards

The “bona fide error” defense of the FDCPA is an affirmative defense on which the debt collector bears the burden of proof. Smith v. Transworld Sys., Inc., 953 F.2d 1025, 1034 (6th Cir. 1992). It “protects debt collectors from liability if they can show ‘by a preponderance of the 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.’ ” Van Hoven v. Buckles & Buckles, P.L.C., 947 F.3d 889, 899 (6th Cir. 2020) (quoting 15 U.S.C. § 1692k(c)). Accordingly, a defendant debt collector who wishes to raise a bona fide error defense must prove three elements: “(1) the violation was unintentional; (2) the violation was a result of a bona fide error; and (3) the debt collector maintained procedures reasonably adapted to avoid any such error.” Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 538 F.3d 469, 476-77 (6th Cir. 2008) (Jerman I), rev'd on other grounds, 559 U.S. 573, 130 S.Ct. 1605, 176 L.Ed.2d 519 (2010). The first of these three elements amounts to a subjective test that assesses the credibility of the debt collector's assertions that the FDCPA violation was not intentional. Montgomery v. Shermeta, Adams & Von Allmen, P.C., 885 F. Supp. 2d 849, 857 (W.D. Mich. 2012) (citing Richburg v. Palisades Collection LLC, 247 F.R.D. 457, 467 (E.D. Pa. 2008)). The remaining elements are objective inquiries. Id. “Where the undisputed record establishes that the procedures in place are extensive and were adhered to, the matter may be resolved as a question of law.” Id. At bottom, then, what the defense requires for a summary judgment is that the defendants: 1) have a policy; 2) that is reasonably designed to prevent error; and 3) that the defendants followed that policy. Under such circumstances, there is no genuine question for the fact-finder about defendants’ claim that the admitted error was unintentional. The record here supports summary judgment for defendants.

2. Analysis

Defendants have met the first hurdle of showing the existence of procedures designed to prevent the errors at issue. Indeed, the Court of Appeals concluded as much in its opinion. The Court of Appeals summarized the measures and how the defendants applied those procedures to plaintiff's case as follows:

The law firm avoids failed garnishments by carefully picking its targets and seeking garnishment only if it “knows or has good reason to believe” the third party is an appropriate garnishee. When garnishments nonetheless fail, it has “written procedures in place to record, track, and, if and as appropriate, back out postjudgment garnishment costs that are not recoverable”—procedures “designed to prevent” seeking costs of failed garnishments. Those general contours are fleshed out by a description of the specific actions it took in Van Hoven's case to avoid charging her for failed garnishment costs. When a garnishment request against Van Hoven's old bank failed, a firm employee “printed a copy of the [bank's] disclosure” showing the failure. The employee then “delivered [it] to another Firm employee” who was responsible for updating Buckles & Buckles’ records to subtract the filing fee associated with the failed garnishment. Unfortunately, the employee hadn't yet updated the records two days later, so Buckles & Buckles accidentally included the $15 filing fee in one more garnishment request. No one disputes the existence of this procedure.

Van Hoven, 947 F.3d at 900 (internal citations omitted). Following the Court of Appeal's decision that frontloading in and of itself is not an FDCPA violation, this “back out policy” is sufficient for purposes of establishing that the defense-maintained procedures to avoid the FDCPA violation and demonstrates that the FDCPA violation was not intentional as a matter of law.

The Court is furthermore satisfied as a matter of law that the defendants followed that policy, and that it was reasonably designed to avoid the error. The defendants followed the policy based on the unrebutted testimony of Defendant Buckles describing the internal office mechanics that applied generally to “back out” of garnishment costs and to the specifics of this case. To be sure, the Chemical Bank garnishment mistakenly included the costs associated with the Huntington Bank garnishment. The statute, however, “does not require debt collectors to take every conceivable precaution to avoid errors; rather it only requires reasonable precaution.” Abdollahzadeh v. Mandarich Law Group, LLP, 922 F.3d 810, 818 (7th Cir. 2019). If it were otherwise, “the defense would be meaningless.” Webster v. Receivables Performance Management, 473 F. Supp. 3d 861, 874 (S.D. Ind. 2020).

And here, the record demonstrates that defendants properly flagged the costs of the failed Huntington garnishment in the firm's records as subject to “back out” on, or very shortly after, they learned of it. The garnishment to Chemical Bank mistakenly issued just a few days later, before the firm had completed implementation. Ultimately, the defendants did not mechanically back out the cost until a few months later, after this lawsuit was filed. However, the record demonstrates that defendants made no attempt at further garnishments between the Chemical Bank garnishment and the eventual back out of the mistakenly included failed garnishment cost.

Plaintiff complains that the policy does not call for immediate, mechanical implementation of the “back out” as soon as the defendants learn of a failed garnishment. It may in some ways be administratively easier to apply the changes right away, as Plaintiff suggests, but what is more important is that the critical information is recorded promptly so that it can be applied before the next risk of injury, which is the next point of garnishment. That never happened here because there was no further garnishment after the Chemical Bank garnishment. Under the terms of the policy, defendants flagged the need for “back out,” which would simply need to have been implemented before the next occasion, if any, on which defendants sought a new garnishment. This was reasonable, as was the defendants’ policy decision not to provide for a recheck at the time of service on the garnishee. The request to the court is the first and critical step in setting the collection procedures in motion. Once the form comes back as requested, service is a ministerial act that normally follows quickly. Again, the law requires a reasonable policy, not “every conceivable precaution.”

This procedure, furthermore, generally worked in practice. Whether the error rate is two tenths of one percent, or something higher, the reality is that only a few thousand dollars of failed garnishment costs slipped through the policy at a time that about $1.5 million in total garnishment costs were being tracked by defendants. Yes, some—maybe a lot—of that were frontloading costs. But the record still reflects the procedures were generally successful because defendants had to track the total dollar amount of costs. Moreover, until the Court of Appeals ruled otherwise, the frontloading costs were part of the FDCPA challenge. For these reasons, then the Court concludes that Defendants have met their burden of establishing that they are entitled to the bona fide error defense and that they are entitled to judgment in their favor as a matter of law.

The result the Court reaches is especially fitting in light of the recent decision from the Supreme Court in TransUnion LLC v. Ramirez, ––– U.S. ––––, 141 S.Ct. 2190, 2214, 210 L.Ed.2d 568 (2021) (“No concrete harm, no standing.”). There is no injury to Plaintiff, here, in just having the failed garnishment cost on the defendants’ books, as long as there is a clear policy in place to make reasonably sure the costs are backed out before the next third-party communication that could result in actual harm: namely, a request to the court for garnishment. Moreover, it is noteworthy that there was never any overage actually collected by defendants in this case from plaintiff. The $15 failed garnishment cost was never collected at all. Under TransUnion, there is at least a fair question about whether Plaintiff has injury in fact to support standing under the circumstances of the case, let alone to support class representative status. To be sure, the garnishment statement to Chemical Bank was factually wrong to the extent it included the $15 failed garnishment cost. However, that was only about 0.2% of the principal amount actually owed, and therefore unlikely to create any defamatory or other recognized common law injury for plaintiff, an important consideration under TransUnion. The existing record at least raises a question under TransUnion of whether there is only a statutory violation without any concrete harm at issue. If so, plaintiff may not have standing to proceed in any event.

CONCLUSION

For all these reasons, the Court concludes that the defense has established the bona fide error offense and that the defense is entitled to judgment as a matter of law. Given this decision, the Court need not address the matter of redefining or recertifying the class, or the issue of attorneys fees in this case. ACCORDINDGLY, IT IS ORDERED:

1. Defendants’ Motion for Summary Judgment (ECF No. 266) is GRANTED.

2. Plaintiff's Motion for Summary Judgment (ECF No. 271) is DENIED.

3. Defendants’ Objection (ECF No. 276) is DISMISSED AS MOOT.

4. This case is CLOSED. A separate Judgment shall issue.

FOOTNOTES

1.   Some of the cases also challenged the handling of garnishments aimed at tax refunds, but in this case the tax garnishments were successful and so that practice is not at issue.

2.   Defendants say the bank was wrong in its disclosure and that plaintiff Van Hoven actually did have funds on deposit there properly subject to garnishment. That could be an issue if the case proceeded to trial, but for purposes of summary judgment, all parties treat the Huntington garnishment as unsuccessful.

3.   Defendants derive this number by starting with the dollar amount of failed garnishment costs for all class members that were not “backed out” as required by the policy. This amount was $3,661.43. Over the same time, defendants say the total amount of garnishment costs assessed to the members of the class (for both frontloaded and failed garnishments) was $1,576,159.89. The resulting rate of error (failed garnishment costs not backed out divided by total garnishment costs added to class member accounts), is computed at .02 percent.

ROBERT J. JONKER, CHIEF UNITED STATES DISTRICT JUDGE