Court Allows FDCPA Suit Where Assignment of Judgment Failed to List Current Balance of Debt

Ronald Canter

In a ruling bound to increase compliance concerns for purchasers of bad debts and collection law firms hired to enforce judgments against consumers, the United States Court of Appeals for the Fourth Circuit in Powell v. Palisades Acquisition XI, held that the filing of an assignment of judgment is a collection action subject to the Fair Debt Collection Practices Act (FDCPA).

The Circuit panel reversed a lower court decision dismissing a consumer’s lawsuit based on the reasoning that the filing of the assignment in the court where the judgment was entered was not an action to collect the debt. The appellate court rejected this analysis, explaining that “it would be incongruous…to hold that an assignment of judgment filed in a debt collection action is not similarly subject to the FDCPA, given that a debt collector who obtains a judgment…stands in exactly the same position as a debt collector who files an assignment of judgment. Both have the right to collect on their judgments.”

The consumer’s suit in Powell asserted that the debt buyer and its collection law firm misrepresented the amount due in the assignment by overstating the judgment amount by almost $1,300, an error resulting from the failure to list payments made after judgment. The appellate court rejected arguments of the debt buyer and its law firm, which had been accepted by the lower court, that the misstated amount was not a material misrepresentation because the total amount due was now greater because of accruing interest.

In ordering a remand to the trial court, the Fourth Circuit directed the court to consider the defendants’ bona fide error defense. The Court referred to the deposition testimony of the lawyer for Palisades who filed the Assignment of Judgment that the error as to the amount was not known to him and had been made by a paralegal. Based on this record, the Court determined that “on remand, the court should give the defendants an opportunity to develop the (bona fide error) defense.”

Debt buyers who purchase open judgments can take only small comfort in the fact that the FDCPA’s bona fide error defense may operate to avoid liability given the substantial expense and time devoted to defending this kind of lawsuit. It is likely that this decision will spur “copycat” lawsuits by eager consumer advocates seeking to take advantage of missteps and miscalculations by debt buyers and their counsel when seeking to enforce assigned judgments. Hopefully, this word to the wise and compliance driven debt buyer will suffice to avoid the errors that faced the debt buyer in Powell.

Ronald S. Canter, Esq. is the founding member of The Law Offices of Ronald S. Canter, LLC of Rockville, Maryland. Canter’s firm recently announced an Of Counsel relationship with Bedard Law Group. He is a member of the Bars of Maryland, Pennsylvania, Florida and the District of Columbia. He is also admitted to practice in federal courts through the United States, including the Supreme Court and several courts of appeal.