The U.S. Court of Appeals for the Sixth Circuit recently held in a split decision that attorneys garnishing a debtor do not make a "false, deceptive or misleading representation" under the Federal Debt Collection Practices Act when their representations of law are later proven wrong, so long as they represent a reasonable interpretation of the law.

In essence, only representations not "warranted under existing law"—the threshold for sanctions under Federal Rule of Civil Procedure 11—would also trigger liability for the attorney under the FDCPA. In this FDCPA appeal, Van Hoven v. Buckles & Buckles, No. 18-2399, the plaintiff defaulted on a credit card and the credit card company hired Buckles & Buckles to collect the debt. After losing the collections lawsuit, Maureen Van Hoven still failed to pay.

Instead of pursuing payment from her directly, the law firm filed writs of garnishment in Michigan to collect the debt from her sources of income or accounts. Michigan's court rules provide a procedure for obtaining such writs through the judicial system, and Buckles & Buckles invoked that procedure to collect the debt.

Van Hoven did not contest the writs of garnishment. She instead filed a federal class action lawsuit against the law firm under the FDCPA. She claimed Buckles & Buckles violated the act in requesting writs to garnish fees it was not entitled to under the court rules.

Michigan's rules allowed creditors to include all "costs accrued to date" in their garnishment requests, but the rules also said that the costs may be recovered "as in other civil actions." In other civil actions, costs can only be recovered by the "prevailing" party.

Van Hoven complained that Buckles & Buckles made two types of "false, deceptive, or misleading representations": One, it claimed entitlement to the $15 fee for requesting the garnishment writ itself before it had "prevailed" on the garnishment. Two, Buckles & Buckles sought collection of $15 filing fees incurred on prior writs of garnishment that had failed.

Van Hoven won her case. The U.S. District Court for the Western District of Michigan awarded Van Hoven $3,662 in damages and, notably, $180,000 in attorney fees. But the victory did not last.

Following the lead of the Eighth and Eleventh circuits, a majority on the Sixth Circuit held that "just as a lawyer does not 'misrepresent' the facts by making a factual contention later proved wrong, a lawyer does not 'misrepresent' the law by advancing a reasonable legal position later proved wrong." This logic, said the court, "applies with even more force to representation of law given the frequent before-the-case difficulty, sometimes indeterminacy, of legal questions."

At the same time, the majority acknowledged that some misstatements of law are "false." As one example, suing on a time-barred debt is objectively baseless, making it a false representation the creditor is still legally entitled to collect the debt.

But where should the line be drawn? The majority said to draw it in the same place as sanctions under Federal Rule of Civil Procedure 11. Rule 11 requires attorneys to certify that their legal contentions are "warranted by existing law," and authorizes sanctions when attorneys violate that rule. Legal representations are only "false" when they are "unwarranted by existing law."

The current garnishment costs, the majority said, were a "reasonable request under Michigan law at the time," and such requests even "reflected the better reading of Michigan law." Two things supported this conclusion.

First, "the filing fee of each garnishment request occurs on the date of the garnishment request and thus counts as a cost 'accrued to date'—the date of the request." Though the civil rules generally only permit parties to recover costs after they win, the rules "suggest this general guideline applies only to contested garnishments." Buckles & Buckles' garnishment requests were uncontested.

Second, the Michigan Supreme Court recently amended the garnishment rules to clarify what was meant by "the total amount of the postjudgment costs accrued to date," stating it "included the costs associated with filing the current writ of garnishment." The majority observed it was "almost as if the district court certified the question, and the Michigan Supreme Court answered it."

As for the failed garnishment costs, these were not misrepresentations of law at all, according to the court. They were instead misrepresentations of fact that the fees were not from failed garnishments. Buckles & Buckles contended it included the prior failed garnishment costs by mistake, not realizing the garnishments had failed.

Such a mistake can be excused under the FDCPA's "bona fide error" defense, which protects debt collectors from liability "if they can show that their 'violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.' "

Buckles & Buckles submitted an affidavit attesting it had a procedure for backing out costs of failed garnishments from future requests and explaining the procedure was unsuccessful in some instances because employees had not updated the records before the next garnishment request was submitted. The majority concluded that Buckles & Buckles deserved a chance to prove this procedure sufficed and remanded to allow the trial court to rule on whether Buckles & Buckles made a "bona fide error."

Circuit Judge Jane B. Stranch disagreed on both fronts. She dissented first and foremost from the majority's ruling that liability for seeking current garnishment costs turned on "whether the practice of Buckles & Buckles was reasonable, rather than whether it was lawful." Quoting Wise v. Zwicker & Associates, 780 F.3d 710, 713 (6th Cir. 2015), she wrote: "if a debt collector seeks fees to which it is not entitled, it has committed a prima facie violation of the act, even if there was no clear prior judicial statement that it was not entitled to collect the fees."

Stranch also disagreed with the majority's interpretation of the court rules. In her view, the rules required Buckles & Buckles to achieve prevailing party status first before it could claim garnishment costs, and that did not happen upon filing the garnishment request. She noted that if the garnishee was not indebted to the defendant, did not hold any property subject to garnishment and was not the defendant's employer, "the plaintiff was not entitled to recover the costs of that garnishment," according to MCR 3.101(R)(2).

As to Buckles & Buckles' representations it was owed costs from unsuccessful garnishments, she agreed with the majority that this was a false representation. But she would not have remanded to give Buckles & Buckles a chance to prove the "bona fide error" defense applied. The district court had precluded Buckles & Buckles from presenting that information because the law firm had failed to provide it in discovery. She saw no abuse of discretion in that ruling.

Stranch's view, of course, did not prevail.

So, can attorneys go back to business as usual and treat a pleading to collect a debt in Sixth Circuit like any other? Apparently so.

This case shows that legal contentions will be judged by the customary Rule 11 standard—they must be "objectively baseless" for an attorney to be held liable. Couple this with Harvey v. Great Seneca Finance, 453 F.3d 324, 333 (6th Cir. 2006), where the court held that factual allegations satisfying Rule 11 also are not actionable under the FDCPA. Whether it is a representation of fact or law, Rule 11 must be violated for there to be FDCPA liability.

Rule 11 is a standard with which attorneys are quite familiar. Back to business as usual.

Gaëtan Gerville-Réache is a partner in the appellate and Supreme Court practice of Warner Norcross + Judd and editor and author of ICLE's Michigan Appellate Handbook. He has successfully represented clients numerous times in the U. S. Supreme Court and Michigan Supreme Court, and in state and federal courts of appeal. He can be reached at [email protected].