Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 93 C 1332 George M. Marovich, Judge.
Before RIPPLE, MANION, and KANNE, Circuit Judges.
Darlene Jenkins bought a car. The sales contract required that she maintain certain insurance on it. According to the bank to which the sales contract was assigned, Jenkins failed to take out the proper insurance, so the bank took it out for her. Jenkins could not make all the payments on her car loan, and the defendants, who are collection lawyers, sued Jenkins in Illinois state court to recover the deficiency, including the insurance premiums. Jenkins countersued the collection lawyers in federal court under the Fair Debt Collection Practices Act, 15 U.S.C. sec. 1601 et seq. ("FDCPA" or "the Act"), claiming that the insurance the bank procured was not authorized by the loan, and that the lawyers knew this when they attempted to collect the premiums, thereby violating the Act.
This case is before us a second time. The Supreme Court affirmed our first decision and determined that the FDCPA applies equally to debt collectors and lawyers engaged in consumer debt-collection litigation. The case is now before us to determine whether, by trying to collect the "force placed" insurance premiums, the defendants violated the Act. The district court granted the defendants summary judgment, concluding that Jenkins' evidence of defendants' knowledge and intent to violate the Act was insufficient to create an issue for trial. It also interpreted the Act's bona fide error provision and concluded that defendants' actions met the statutory requirements for a valid defense. We affirm.
In July 1987 Darlene Jenkins signed a retail installment sales contract for the purchase of a car. The contract was assigned to what is now known as NBD Bank. She made only 35 of the 48 payments due, so the bank declared the loan in default and repossessed the car. The sale of the car did not cover the full amount of the debt. The bank retained the defendants' law firm to collect the deficiency, and it brought suit against her in Illinois state court on June 13, 1992 for the balance. Jenkins answered, filed affirmative defenses, and counterclaimed, contending that the balance due included unauthorized charges for force placed insurance. Insurance is force placed when a contract holder (here the bank) compels a borrower (an automobile purchaser) to maintain physical damage insurance and charges the premium to the borrower. On July 9, 1992, shortly after the state court action was filed, defendant Heintz sent Jenkins' lawyer a settlement offer asking for $4,173 in premiums for this force placed insurance as well as $3,000 remaining on the principal balance of the loan (as well as some $1,000 in penalties).
Jenkins then sued attorney Heintz and his law firm for violating the Fair Debt Collection Practices Act by attempting to collect unauthorized amounts. Approximately half of the amount Heintz claimed in the letter that Jenkins owed consisted of the force placed insurance premiums. Jenkins complained especially about the lawyers' attempt to collect for the bank force placed "financial protection" insurance premiums, which covered the bank's expenses associated with the customer's default, such as repossession costs. Jenkins said that she never authorized such insurance, as evidenced by her copy of the loan agreement. She alleged that when Heintz included in his July 9, 1992 settlement letter a claim for force placed insurance premiums, he used "unfair or unconscionable means to collect or attempt to collect any debt" in violation of 15 U.S.C. sec. 1692f (which defines "unfair or unconscionable" to include adding amounts to a principal obligation not authorized by the agreement creating the debt or permitted by law), and falsely represented the character of her debt in violation of 15 U.S.C. sec. 1692e. Included among her allegations was a mention of the defendants' collection suit against her. *fn1
In the previous round before the district court, the defendants moved to dismiss Jenkins' suit, arguing that attorneys who file suit to collect debts are not covered by the Act. The district court agreed and dismissed Jenkins' case. She appealed. This court reversed that decision, concluding that there was no longer an attorney exception to the FDCPA and that one would not be created by judicial fiat. 25 F.3d 536, 540 (7th Cir. 1994). The defendants petitioned for certiorari to the Supreme Court, which granted their request. 513 U.S. 959 (1994).
The Supreme Court affirmed this court's decision. 514 U.S. 291 (1995). The Court phrased the issue before it as "whether the term 'debt collector' in the [FDCPA] applies to a lawyer who 'regularly' through litigation, tries to collect consumer debts." Id. at 292 (emphasis in original). For two reasons, it found that the Act applied to lawyers engaged in consumer debt-collection. First, a lawyer who regularly attempts to obtain payment of consumer debts through legal proceedings meets the Act's definition of "debt collector": one "who regularly collects or attempts to collect, directly or indirectly, [consumer] debts owed . . . another." Id. at 294 (quoting 15 U.S.C. sec. 1692a(6)). Second, in 1986 Congress repealed an exemption from this Act for attorneys without creating a narrower, litigation-related exemption. Id. at 294-95. The Court concluded: "[W]e agree with the Seventh Circuit that the Act applies to attorneys who 'regularly' engage in consumer-debt collection activity, even when that activity consists of litigation." Id. at 299.
On remand to the district court, and after Jenkins amended her complaint for the second time, *fn2 the defendants moved for summary judgment contending that they did not know the nature of the unauthorized insurance coverage--including for financial protection-- and simply collected amounts which the bank claimed were due. They also raised the bona fide error defense of the FDCPA, 15 U.S.C. sec. 1692k(c). Jenkins disputed defendants' claim of lack of knowledge and information, the parties engaged in discovery, and Jenkins responded to defendants' motion.
The district court granted summary judgment to the defendants, holding that Jenkins' evidence of defendants' knowledge was insufficient to create an issue for trial. The district court also held that defendants' procedures for preparing suits were reasonably adapted to avoid the error of which Jenkins complains, and thus that the FDCPA's bona fide error provision exempted defendants from liability. It reasoned that the Act does not require attorneys to make an independent investigation of the information their client provided, and that counsel was entitled to rely on the bank's representations that the charges were legally valid and authorized under Jenkins' contract.
The district court had jurisdiction over this dispute pursuant to 28 U.S.C. sec. 1331 and 15 U.S.C. sec. 1692k. We review the district court's grant of summary judgment pursuant to 28 U.S.C. sec. 1291, and do so de novo, drawing all reasonable inferences in the light most favorable to the nonmovant. Bass v. Stolper, Koritzinsky, et al., 111 F.3d 1322, 1323-24 (7th Cir. 1997) (citations omitted). We are not required to "draw every conceivable inference [in the non-movant's favor], but only those that are reasonable." Bartman v. Allis-Chalmers Corp., 799 F.2d 311, 312-13 (7th Cir. 1986), cert. denied, 479 U.S. 1092 (1987) (emphasis in original). "Summary judgment is proper only if there is no genuine (in the sense of reasonably contestable) issue of material (that is, potentially outcome-determinative) fact. Fed. R. Civ. P. 56(c)." Wallace v. SMC Pneumatics, Inc., 103 F.3d 1394, 1396 (7th Cir. 1997).
"The primary goal of the FDCPA is to protect consumers from abusive, deceptive, and unfair debt collection practices. . . . In the most general terms, the FDCPA prohibits a debt collector from using certain enumerated collection methods in its effort to collect a 'debt' from a consumer." Bass, 111 F.3d at 1324. Section 1692k of the Act provides for civil liability against a debt collector who intentionally violates the Act; such a collector is absolved if the violation was unintentional and procedures were in place to prevent it:
A debt collector may not be held liable in any action brought under this subchapter if the debt collector shows 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. 15 U.S.C. sec. 1692k(c).
The defendants rested their summary judgment motion on this provision. Jenkins points to evidence in which she says the defendants knew they were collecting unauthorized insurance premiums; she asserts the district court erroneously decided this case as a matter of law despite a jury question about the defendants' knowledge and intent. She also argues that the district court misconstrued the bona fide error provision and misapplied it to defendants' actions.
We begin by noting one assumption. Whether or not the bank was authorized to or did force place financial protection insurance on the car Jenkins purchased is not at issue. For purposes of their motion, defendants did not contend that the force placed insurance was validly imposed under Jenkins' sales contract. Rather, they argued that even if some of the force placed insurance charges were unauthorized, they are not liable because they never examined whether the bank obtained authorized or unauthorized charges. Thus, in our review of defendants' motion we will assume, without deciding, that the force placed insurance the bank procured was not authorized under Jenkins' sales contract.
A. Issue of Knowledge or Intent
The collection attorneys aver that they did not know what type of insurance the bank force placed on Jenkins' car. They do so primarily through the affidavit of Glen Vician, the law firm's chief executive officer. They say they were retained only to collect amounts the bank claimed were due, and that at no time did any of their attorneys, employees, or agents have any information or discussions with the bank concerning the nature or extent of the insurance coverage the bank obtained pursuant to its loan contracts. Jenkins asserts the defendants knew the insurance premiums they were collecting included unauthorized coverages, and thus that they intentionally violated the Act. Jenkins labels Vician's affidavits hearsay, contradicted by documents (unearthed through a protracted discovery battle) which she says demonstrate that the firm knew of the problems associated with force placed insurance. At least, Jenkins argues, this evidence raises a genuine issue of material fact entitling her to the jury trial she requested. The district court reviewed this evidence in detail, but concluded that it did not get Jenkins past summary judgment. We engage in the same examination.
1. December 5, 1990 opinion letter.
Jenkins asserts that the strongest evidence against the defendants is a 1990 opinion letter from attorney Thomas Burris of defendants' law firm to a vice president at the bank with the heading: "Requested Analysis of Gainer Bank Policy of Force Placed Collateral Insurance on Consumer Loans." In this seven-page letter, the defendants provided the bank legal advice to "keep the collateral fully insured against loss or damage." The letter describes how force placed insurance works, and then discusses the provision of Indiana law under which force placed insurance is legal. It also treats the terms of the contracts between the bank and its borrowers (but not the terms and coverages of any insurance for which borrowers were allegedly improperly charged). Jenkins points out one portion of the letter:
As a practical matter, over the past several years FPCI [force placed collateral insurance] has become a litigation hot spot. Today, we see more and more deficiency balances made up primarily of force placed premiums. We have also litigated a number of counterclaim matters which were based on the legality of FPCI provisions in consumer loan contracts. Too [sic] date, we have been successful on behalf of the lenders in enforcing such provisions, however, the current scrutiny given to the Mellon Bank situation offers us ample encouragement to review our current provisions and practices with regard to forced placing insurance.
Burris then suggests some drafting changes to the bank's standard form contract relating to force placed insurance, and proposes that a firm lawyer meet with a bank representative to coordinate those changes. The "Mellon Bank situation" referenced was a ...