Mehdi Abdollahzadeh v. Mandarich Law Group, LLP

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 18-1904
MEHDI ABDOLLAHZADEH,
Plaintiff-Appellant,
v.
MANDARICH LAW GROUP, LLP,
Defendant-Appellee.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 16 CV 8682 — Manish S. Shah, Judge.
____________________
ARGUED OCTOBER 30, 2018 — DECIDED APRIL 29, 2019
____________________
Before WOOD, Chief Judge, and SYKES and BARRETT, Circuit
Judges.
SYKES, Circuit Judge. Mehdi Abdollahzadeh opened a
credit-card account with MBNA America Bank in 1998 and
used it to make various personal, family, and household
purchases. Twelve years later he defaulted on his debt,
making his last payment in August 2010. In June 2011 he
attempted another payment, but it never cleared. In April
2 No. 18-1904
2013 the bank sold the delinquent account to CACH, LLC, a
debt buyer.
CACH referred Abdollahzadeh’s debt to the Mandarich
Law Group, LLP (“Mandarich”), a debt-collection firm.
CACH identified the later, unsuccessful payment attempt as
the last payment on the account. Relying on this date,
Mandarich sent a collection letter to Abdollahzadeh on
December 3, 2015, and then sued him in state court when it
received no response. The state court dismissed the suit
because the last payment to clear occurred outside of
Illinois’s five-year statute of limitations.
Abdollahzadeh sued Mandarich for attempting to collect
a time-barred debt in violation of the Fair Debt Collection
Practices Act, 15 U.S.C. §§ 1692 et seq. (“FDCPA” or “the
Act”). His claims centered on the collection letter and the
state-court collection action. Mandarich moved for summary
judgment citing the bona fide error defense. Id. § 1692k(c).
The district court granted the motion, concluding that the
violations were unintentional and occurred despite reasona-
ble procedures aimed at avoiding untimely collection at-
tempts.
Abdollahzadeh challenges that ruling on several
grounds. First, he argues that Mandarich’s continuation of
the collection action after it learned the true last-payment
date creates a factual dispute on the issue of intent. He also
contends that the law firm’s reliance on CACH’s representa-
tions about the last-payment date was an abdication of its
duty to engage in meaningful review and thus was unrea-
sonable as a matter of law. Finally, he characterizes the firm’s
procedures for weeding out time-barred debts as “thinly
No. 18-1904 3
specified policies” insufficient to support the affirmative
defense.
We reject these arguments and affirm. The bona fide er-
ror defense doesn’t require the independent verification and
procedural perfection Abdollahzadeh seems to think neces-
sary. The undisputed evidence shows that any FDCPA
violations were the unintentional result of a bona fide mis-
take. And Mandarich had procedures in place that, while
simple, were reasonably adapted to avoid late collection
efforts.
I. Background
Abdollahzadeh opened an MBNA credit-card account in
1998 and used it to pay for personal, family, and household
expenses. In 2010 MBNA, later renamed FIA Card Services
(“FIA”), declared Abdollahzadeh’s debt to be in default. The
last payment to clear on the account—one for $300—was
made on or around August 3, 2010. FIA charged off
Abdollahzadeh’s account on March 31, 2011. He tendered a
payment toward the account on June 30, 2011, in the amount
of $1,670.96, but it never cleared.
FIA sold Abdollahzadeh’s delinquent debt to CACH in
April 2013 pursuant to a Loan Sale Agreement. SquareTwo
Financial Corp. (“SquareTwo”), CACH’s parent company,
retained Mandarich for collection services. Under its retainer
agreement, SquareTwo stated that it “does not warrant the
completeness, correctness or accuracy of Account Data” and
has no “liability for any incomplete, incorrect, or inaccurate
Account Data.” The agreement also required Mandarich to
follow SquareTwo’s operating procedures in its efforts to
collect on CACH-owned credit accounts. Accordingly, the
4 No. 18-1904
firm adopted SquareTwo’s “Out of Statute Account Policy”
for addressing statute-of-limitations issues.
As a matter of policy, both Mandarich and CACH prohib-
it untimely collection efforts. They refer to debts falling
outside of the applicable limitations period as “out-of-
statute” debts. When the statute of limitations expires for
any account not in active litigation, Mandarich’s policy is to
immediately cancel the account and return it to the creditor.
To check for out-of-statute accounts, Mandarich attorneys
analyze account data—specifically the date of last pay-
ment—and the relevant state’s statute of limitations. While
the firm has no written policy defining the date of last
payment, in practice it uses the last payment to clear as the
last payment on the account. To ascertain the last-payment
date, Mandarich relies on account reports provided by
CACH and its parent company. For its part, SquareTwo
subjects the data used to generate these reports to a nightly
computerized “scrub.” SquareTwo uses its scrubbing soft-
ware to identify last-payment dates that place an account
beyond the relevant statute of limitations. Any out-of-statute
account identified by the scrub, including those owned by
CACH, is immediately recalled.
On or around December 1, 2015, CACH placed
Abdollahzadeh’s account with Mandarich for collection.
Following its usual practice, CACH provided Mandarich
with the bill of sale memorializing its purchase, a document
called “Schedule 1” containing FIA’s electronic-transfer file
for the account, and an Account Information Report generat-
ed by CACH itself. Schedule 1 includes the date the account
was opened, the date of last payment, and the charge-off
date. It also displays Abdollahzadeh’s current balance and
No. 18-1904 5
his balance at the charge-off date. The Account Information
Report, created using proprietary software, contains similar
data. As we’ve noted, Mandarich and CACH normally
identified the last payment to clear as the last payment for
statute-of-limitations purposes. In this case, however, the
Schedule 1 and Account Information Report identified the
reversed June 30, 2011 payment attempt as Abdollahzadeh’s
last payment. And both documents list Abdollahzadeh’s
current balance as $16,709.62—the same balance he carried
at the March 2011 charge-off date.
On December 3, 2015, Mandarich sent Abdollahzadeh a
“demand for payment of [his] outstanding obligation.” The
firm made clear that the letter was a “communication …
from a debt collector.” Receiving no response, on
February 11, 2016, Mandarich filed a collection action in
Cook County Circuit Court alleging breach of contract.
Attached to the complaint was an affidavit from CACH
averring that the account information it provided was
correct. On March 14, 2016, Abdollahzadeh called
Mandarich and said that his June 2011 payment of $1,670.96
had settled the debt. Less than a month later, however, he
moved to dismiss the suit as untimely, claiming that it was
filed after the expiration of Illinois’s five-year statute of
limitations. See 735 ILL. COMP. STAT. 5/13-205 (2011).
Abdollahzadeh identified the August 3, 2010 payment as the
last payment for purposes of the statute of limitations.
At that point Mandarich contacted CACH to clarify the
date of Abdollahzadeh’s last payment. CACH responded
that the June 30, 2011 payment identified in its account
information hadn’t cleared and that the last payment with-
out reversal occurred on August 3, 2010. Nevertheless,
6 No. 18-1904
Mandarich determined that it was obligated to oppose the
motion to dismiss on its client’s behalf because it “could
make a good faith argument that the claim was not time
barred.” The state court ultimately sided with Abdollahza-
deh and dismissed the action as untimely.
Abdollahzadeh then sued Mandarich and CACH alleg-
ing FDCPA violations. Specifically, he complained that the
defendants violated 15 U.S.C. §§ 1692e and 1692f by sending
a misleading collection letter and suing to collect an out-of-
statute debt. He claimed that these actions caused emotional
distress and financial losses in the form of state-court litiga-
tion expenses. CACH was dismissed by stipulation, and the
case proceeded to cross-motions for summary judgment.
The district court entered judgment for Mandarich based
on the affirmative defense provided in § 1692k(c) for “bona
fide error.” The judge held that the undisputed evidence
established that any violation of the Act was the uninten-
tional result of a bona fide error and had occurred despite
Mandarich’s reasonable procedures to guard against at-
tempts to collect time-barred debts. CACH’s account infor-
mation showed an identical balance before and after the
failed 2011 payment, which supported an inference that
Mandarich should have known to double-check the last-
payment date. But the firm’s failure to do so was simply an
error; no evidence supported an inference that Mandarich
had “intentionally overlooked the discrepancy.”
Abdollahzadeh insisted that the accuracy disclaimer in
SquareTwo’s retainer agreement made it unreasonable as a
matter of law for Mandarich to rely on CACH’s data. He also
maintained that Mandarich’s decision to oppose
Abdollahzadeh’s motion to dismiss in state court was evi-
No. 18-1904 7
dence of an intentional FCDPA violation. The judge disa-
greed on both counts. Finally, the judge rejected Abdollah-
zadeh’s arguments about the insufficiency of the firm’s
procedures for avoiding out-of-statute collection attempts.
Those procedures, he said, were “imperfect” but “reasonable
as a matter of law.”
II. Discussion
We review a summary judgment de novo, “construing all
facts and drawing all reasonable inferences in favor of the
party against whom the motion under consideration was
filed.” Hess v. Bd. of Trs. of S. Ill. Univ., 839 F.3d 668, 673 (7th
Cir. 2016). Summary judgment is appropriate when “there is
no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” FED. R. CIV. P. 56. A
genuine dispute of material fact exists if “the evidence is
such that a reasonable jury could return a verdict for the
nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 248 (1986).
The Fair Debt Collection Practices Act protects debtors
from “abusive debt collection practices by debt collectors.”
15 U.S.C. § 1692(e). It places restrictions on debt collectors’
communications with debtors and third parties; bans “false,
deceptive, or misleading representation[s]”; and prohibits
debt collectors from using “unfair or unconscionable means
to collect or attempt to collect any debt.” Id. §§ 1692c, 1692e,
1692f. Debt collectors who violate the Act are subject to civil
liability. Id. § 1692k. But the Act also includes an affirmative
defense:
A debt collector may not be held liable in any
action brought under this subchapter if the
8 No. 18-1904
debt collector shows by a preponderance of ev-
idence that the violation was not intentional
and resulted from a bona fide error notwith-
standing the maintenance of procedures rea-
sonably adapted to avoid any such error.
Id. § 1692k(c).
Essentially restating the statute, we’ve explained that this
bona fide error defense requires the debt collector to make
three showings: “(1) it must show that the presumed FDCPA
violation was not intentional; (2) it must show that the
presumed FDCPA violation resulted from a bona fide er-
ror … ; and (3) it must show that it maintained procedures
reasonably adapted to avoid any such error.” Kort v. Diversi-
fied Collection Servs., Inc., 394 F.3d 530, 537 (7th Cir. 2005). The
defense “does not apply to a violation of the FDCPA result-
ing from a debt collector’s incorrect interpretation of the
requirements of that statute.” Jerman v. Carlisle, McNellie,
Rini, Kramer & Ulrich LPA, 559 U.S. 573, 604–05 (2010). In
other words, “a defendant can invoke the bona fide error
defense only if it claims it made an error of fact, not an error
of law.” Evans v. Portfolio Recovery Assocs., LLC, 889 F.3d 337,
349 (7th Cir. 2018) (citing Jerman, 599 U.S. at 604–05).
We assume for present purposes that Mandarich violated
the Act by sending the collection letter and filing the state-
court collection action. Both were attempts to collect a time-
barred debt. As the district judge properly concluded,
however, the undisputed facts establish the elements of the
bona fide error defense. Mandarich’s factual mistake—using
the wrong date of last payment in its statute-of-limitations
analysis—resulted in unintentional violations of the Act
despite reasonable procedures to prevent errors of this type.
No. 18-1904 9
Abdollahzadeh resists this conclusion on several
grounds. We’re not persuaded.
A. Intent
The bona fide error defense doesn’t protect intentional
lawbreakers. To establish that its error was unintentional,
“[a] debt collector need only show that its FDCPA violation
was unintentional, not that its actions were unintentional.”
Kort, 394 F.3d at 537 (emphases added) (citing Nielsen v.
Dickerson, 307 F.3d 623, 641 (7th Cir. 2002)).
At the time of the violations at issue here, Mandarich was
unaware that Abdollahzadeh’s debt fell outside of Illinois’s
five-year statute of limitations. Following its established
policies, the law firm relied on the account information
provided by CACH. That information consistently identified
June 30, 2011, as the date of Abdollahzadeh’s last payment.
The firm was unaware of the key facts that the 2011 payment
was reversed and that the final payment to clear actually
occurred in 2010. That negates any inference that the FCDPA
violations were intentional.
Abdollahzadeh maintains that material factual disputes
remain regarding Mandarich’s intent. Relying on out-of-
circuit cases, he argues that unintentional FDCPA violations
can become intentional if the debt collector persists in litiga-
tion after learning of its defects. Assuming for the sake of
argument that the statutory text can support that proposi-
tion (Mandarich disputes the point), the cases cited in sup-
port are distinguishable. Each contains aggravating factors
making the debt collector’s actions significantly less inno-
cent.
10 No. 18-1904
For example, in Currier v. First Resolution Investment Corp.,
762 F.3d 529, 537–38 (6th Cir. 2014), the court held that the
bona fide error defense did not apply where the debt collec-
tor failed to release a judgment lien in the face of a motion to
vacate the judgment and made no showing that it had
procedures in place to avoid the error. Here, in contrast,
Mandarich has procedures in place to avoid suing on time-
barred debts. In Thompson v. D.A.N. Joint Venture III, L.P.,
No. 1:05-CV-938-TFM, 2007 WL 1625926, at *2 (M.D. Ala.
June 5, 2007), a district judge rejected the bona fide error
defense where the debt collector “was on notice after the
summary judgment opinion [that] the debt was barred by
the statute of limitations.” This case is materially different:
Mandarich didn’t continue collection efforts after a disposi-
tive order from a court. In Elder v. David J. Gold, P.C.,
No. 08CV733A, 2009 WL 2580320, at *3 (W.D.N.Y. Aug. 18,
2009), a district judge declined to allow the defense when the
debt collector had no basis for continuing a state-court
collection action after being advised of a clear venue error.
Nothing similar occurred here. Mandarich determined that it
had a good-faith basis to oppose the dismissal motion and
thus had an obligation to do so on its client’s behalf. Finally,
unlike the debt collector in Canady v. Wisenbaker Law Offices,
P.C., 372 F. Supp. 2d 1379, 1384 (N.D. Ga. 2005), Mandarich
didn’t violate its own internal error-prevention procedures
once the suit began.
In short, no evidence suggests that Mandarich intention-
ally violated the Act.
B. Reliance on Creditor-Provided Account Data
Abdollahzadeh also challenges Mandarich’s reliance on
the account data provided by CACH. He argues that the
No. 18-1904 11
accuracy disclaimer in the retainer agreement made the
firm’s decision to trust CACH’s last-payment date unreason-
able as a matter of law. He also claims that the firm should
have noticed that his balance remained unchanged after the
reported last payment, which should have prompted further
inquiry.
First, the disclaimer in the retainer agreement doesn’t de-
feat the bona fide error defense because “the FDCPA does
not require collectors to independently verify the validity of
the debt to qualify for the ‘bona fide error’ defense.” Hyman
v. Tate, 362 F.3d 965, 968 (7th Cir. 2004). Abdollahzadeh relies
on McCollough v. Johnson, Rodenburg & Lauinger, LLC,
637 F.3d 939 (9th Cir. 2011), but that case bears no resem-
blance to this one. Under the agreement at issue there, the
creditor made “no warranty as to the accuracy or validity of
data provided,” and the debt collector was “responsible to
determine [its] legal and ethical ability to collect.” Id. at 945
(alteration in original). Under those circumstances, the Ninth
Circuit concluded that the debt collector’s reliance on a
communication from the creditor was “unreasonable as a
matter of law,” citing the disclaimer as a factor in its analy-
sis. Id. at 949. Moreover, McCollough contains a factual twist
not present here: the unreliable representation was an email
from the creditor contradicting information in the creditor’s
own account file. Id. at 945. Here, Mandarich relied on the
account information itself, which consistently (though
incorrectly) identified the last-payment date as June 30, 2011.
Abdollahzadeh also points to our decision in Turner v.
J.V.D.B. & Associates, Inc., 330 F.3d 991 (7th Cir. 2003), but that
case doesn’t help him. In Turner we merely suggested that
“an agreement [between a collector and] its creditor-clients
12 No. 18-1904
that debts are current” would be a “reasonable preventative
measure[]” for a debt collector to take. Id. at 996. We’ve
never made such an agreement a prerequisite to the bona
fide error defense. Regardless, the effect of SquareTwo’s
general disclaimer (if any) was displaced by the affidavit
Mandarich received from CACH attesting to the accuracy of
its reports.
Finally, no inference of intent can be drawn from
Mandarich’s failure to notice that CACH’s records displayed
an identical balance on either side of the reported date of last
payment. The law firm made a mistake—no one disputes
that. Had it undertaken a more searching review of the
Schedule 1 document and Account Information Report from
CACH, it’s possible that it would have noticed this discrep-
ancy, notified CACH, and avoided litigation altogether. But
the bona fide error defense doesn’t demand perfection, and
independent verification of the debt isn’t a prerequisite.
Hyman, 362 F.3d at 968.
C. Mandarich’s Procedures
The final element of the bona fide error defense requires
the debt collector to show that it “maint[ains] … procedures
reasonably adapted to avoid any such error.” 15 U.S.C.
§ 1692k(c). To qualify for the defense, the debt collector must
have “procedures” in place, and the procedures must be
“reasonably adapted” to avoid the error in question.
The Supreme Court has described “procedures” in this
context as “processes that have mechanical or other such
‘regular orderly’ steps to avoid mistakes.” Jerman, 559 U.S. at
587. On the other hand, “a thinly specified ‘policy,’ allegedly
barring some action but saying nothing about what action to
No. 18-1904 13
take,” doesn’t qualify. Leeb v. Nationwide Credit Corp., 806 F.3d
895, 900 (7th Cir. 2015).
Relying on Leeb, Abdollahzadeh argues that Mandarich’s
error-prevention procedures are insufficient. But Leeb is
distinguishable. There the debt collector simply asserted that
its misleading collection letter was against company “poli-
cy,” offering no evidence that it had “mechanical or other
such regular orderly steps” in place for its employees to
follow. Id. (quotation marks omitted). Under those circum-
stances we were unconvinced that the debt collector had any
error-prevention procedures in place at all.
The Supreme Court has focused on the orderliness and
regularity of the debt collector’s error-prevention steps, not
on the number or complexity of those steps. Jerman, 599 U.S.
at 587. On that understanding of the defense, Mandarich’s
system for guarding against attempts to collect time-barred
debts, while unquestionably simple, qualifies under
§ 1692k(c) as a regular and orderly error-prevention proce-
dure.
And the system is reasonably adapted to avoid collecting
out-of-statute debts. We’ve said that the reasonableness
inquiry is “uniquely fact bound” and “susceptible of few
broad, generally applicable rules of law.” Leeb, 806 F.3d at
900 n.3 (quoting Owen v. I.C. Sys., Inc., 629 F.3d 1263, 1277
(11th Cir. 2011)). Moreover, “[t]he word ‘reasonable’ in the
[bona fide error] defense cannot be equated to ‘state of the
art,’ which is to say, at the technological frontier.” Ross v.
RJM Acquisitions Funding LLC, 480 F.3d 493, 497–98 (7th Cir.
2007).
14 No. 18-1904
Our cases thus reflect a flexible, fact-specific approach to
the reasonableness inquiry. In Jenkins v. Heintz, 124 F.3d 824,
834 (7th Cir. 1997), we approved a debt collector’s “elaborate
procedures” for avoiding FDCPA violations, including
“publication of an in-house … compliance manual,” debt-
collection “training seminars for firm employees,” and “an
eight-step, highly detailed pre-litigation review process.” On
the other end of the spectrum, in Ross the defendant at-
tempted to collect a debt that had been discharged in bank-
ruptcy, and we were satisfied by its “understanding” that its
creditor-clients would “not knowingly sell … a discharged
debt” and would notify the collector if they did so. 480 F.3d
at 495. The debt collector had minimal procedures in place
beyond this “understanding”: it relied on a computerized
search “done … by another firm” and a policy of “prompt
cessation of any attempt to collect a debt upon notification
that it had been discharged.” Id. at 497. That was enough for
the defense.
Mandarich’s procedures resemble those we approved in
Ross. The law firm relied on account information provided
by its client. The account data was subjected to an automated
scrub that culled out-of-statute debts, and CACH supplied
an affidavit attesting that the information in its report was
correct. Finally, a Mandarich attorney examined the account
to check whether a collection action would fall outside the
applicable limitations period. These procedures didn’t catch
the mistake here, but Ҥ 1692k(c) does not require debt
collectors to take every conceivable precaution to avoid
errors; rather, it only requires reasonable precaution.” Kort,
394 F.3d at 539. Mandarich took reasonable precautions to
prevent attempts to collect time-barred debts. Its procedures
were reasonably adapted to that purpose, giving it a safe
No. 18-1904 15
harbor for occasional unintentional missteps. The bona fide
error defense applies, and summary judgment was proper.
AFFIRMED.