No. 03-059
IN THE SUPREME COURT OF THE STATE OF MONTANA
2004 MT 84
COLLECTION BUREAU SERVICES, INC.,
a Montana corporation,
Plaintiff and Appellant,
v.
RUTH A. MORROW a/k/a RUTH A. BUCKNER,
Defendant and Respondent.
APPEAL FROM: District Court of the Sixteenth Judicial District,
In and For the County of Custer, Cause No. DR 2001-116,
Honorable Gary L. Day, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
Dennis E. Lind, Datsopoulos, MacDonald & Lind, Missoula, Montana
For Respondent:
S. Kim Taylor, Lucas & Tonn, Miles City, Montana
For Amicus:
Andrea J. Olson, ASUM Legal Services, Missoula, Montana
Submitted on Briefs: September 4, 2003
Decided: April 6, 2004
Filed:
__________________________________________
Clerk
Justice W. William Leaphart delivered the Opinion of the Court.
¶1 Collection Bureau Services, Inc. (Collection Bureau), filed a complaint on February
23, 2001, in Justice Court against Ruth Morrow (Morrow) to collect the face value, service
charges, and statutory damages for eight checks she issued with insufficient funds in June
of 2000. Morrow countered that Collection Bureau waived its right to seek $800 in statutory
damages under § 27-1-717(3), MCA, and in pursuing such damages, it had violated the Fair
Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692. After the Justice Court entered
judgment in favor of Morrow, Collection Bureau appealed to the District Court. The District
Court also granted summary judgment in favor of Morrow and, after a trial on damages,
awarded actual damages, statutory damages, costs of suit and attorney fees to Morrow.
Collection Bureau now appeals those two orders of the District Court. For the reasons stated
below, we affirm the orders of the District Court.
FACTS
¶2 In June of 2000, Ruth Morrow issued eight bad checks for a total face value of
$148.96. The checks ranged in value from $10.20 to $25.00. Three of the checks were to
the Golden Spur, three to Pizza Hut, and one each to 4B’s and Holiday. Those businesses
engaged Collection Bureau to collect the unpaid value of the checks. In July 2000,
Collection Bureau sent Morrow eight letters, one for each check demanding the face value
plus a thirty dollar service charge. Adding the thirty dollar service charge to each of eight
checks increased the amount Morrow owed by $240.00, more than doubling the amount from
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$148.96 to $388.96. On November 22, 2000, Collection Bureau sent Morrow another letter,
which demanded payment of the entire balance of $388.96 and also stated:
YOU MAY EXPERIENCE DIFFICULTY WRITING CHECKS DUE TO
THE UNPAID ITEMS. MT. CODE ANNOTATED 27-1-717 PROVIDES
SPECIFIC LEGAL REMEDIES. CALL US TO RESOLVE THIS.
On December 4, 2000, Morrow responded by sending a check for $25.00. She also included
a note which stated: “I must have missed your bill in the mail. I will send 50.00 or more
every two weeks until this is taken care of.” Morrow next sent Collection Bureau a money
order for $10.00 on January 4, 2001. That same day, Collection Bureau returned the money
order with a letter which indicated the agreement was to pay $50.00 every two weeks. On
January 16, 2001, Morrow made another $50.00 payment which Collection Bureau accepted,
leaving a new balance of $313.96.
¶3 Morrow missed the next two promised payments, and on February 23, 2001,
Collection Bureau filed suit in Justice Court. Collection Bureau’s complaint prayed for a
total of $1,113.96, reflecting the $313.96 balance owing for the face amount of the checks
and service charges as well as the § 27-1-717(3), MCA, statutory damages of $100 for each
of the eight checks for an additional $800.
¶4 On February 27, 2001, Morrow sent a payment of $150.00. On March 1, 2001,
Morrow was served with Collection Bureau’s complaint. The next day, she called Collection
Bureau and spoke with Collection Bureau’s employee Cody Kruger. Morrow asked whether
or not they had received her payment and inquired into the reason for the suit. Kruger said
they filed suit because of Morrow’s failure to make the agreed-on payments. Morrow felt
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that because she had sent the money before being served, it should have been applied to
reduce the $313.96 to $163.96. Kruger, however, was only willing to apply the $150.00 to
reduce the total prayed for relief of $1,113.96. Kruger also indicated it might be possible to
“knock off” a couple hundred dollars if Morrow paid in one lump sum, or in the alternative,
Collection Bureau would accept regular payments of $50.00 on the amount prayed for in the
complaint.
¶5 Throughout these proceedings, Morrow has only contested the statutory damages. She
does not challenge the validity of the face value of the checks plus the service charges. The
Justice Court ruled in favor of Morrow, reasoning that, by accepting partial payments instead
of payment in full, Collection Bureau had waived its right to statutory damages and
subsequently violated the FDCPA by pursuing such damages. On appeal, the District Court
granted Morrow’s motion for partial summary judgment, holding that Collection Bureau, in
accepting partial payment, waived its right to the statutory damages and then violated the
FDCPA by pursuing these damages. After a trial on Morrow’s damages, the District Court
awarded $40.00 actual damages, $1,000 statutory damages, costs of $183.75 and attorney
fees in the amount of $17,000. Collection Bureau now appeals, claiming that the District
Court erred in interpreting § 27-1-717, MCA, and that if it violated the FDCPA the bona fide
error defense applies. 15 U.S.C. § 1692k(c).
STANDARD OF REVIEW
¶6 Our standard of review on appeals from summary judgment is de novo. Sherner v.
Conoco, Inc., 2000 MT 50, ¶ 10, 298 Mont. 401, ¶ 10, 995 P.2d 990, ¶ 10. We apply the
same evaluation as the district court based on Rule 56, M.R.Civ.P. Danelson v. Robinson,
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2003 MT 271, ¶ 11, 317 Mont. 462, ¶ 11, 77 P.3d 1010, ¶ 11. We review a trial court’s legal
conclusions to determine whether they are correct. Gonzalez v. Walchuck, 2002 MT 262,
¶ 9, 312 Mont. 240, ¶ 9, 59 P.3d 377, ¶ 9. Our standard of review for a question of law is
plenary. In re Marriage of Robison, 2002 MT 207, ¶ 15, 311 Mont. 246, ¶ 15, 53 P.3d 1279,
¶ 15.
DISCUSSION
Part I: Waiver
¶7 Before addressing the Fair Debt Collection Practice Act violations, we first address
waiver. We conclude, as did the District Court, that Collection Bureau waived its right to
statutory damages.
¶8 Montana provides various statutory remedies for the payee or the payee’s assignee of
a dishonored draft. Section 27-1-717, MCA. A payee may collect both the face value of the
check and a service charge in a reasonable amount not to exceed $30. Furthermore, when
a written demand is made for payment in full, but payment in full is not made, then the payee
or its assignee may pursue statutory damages in an amount which is “equal to the service
charge plus the greater of $100 or three times the amount for which the check, draft, or order
was issued. However, damages may not exceed the value of the check, draft, or order by
more than $500.” Section 27-1-717(3), MCA. Before a payee on a dishonored check may
seek statutory damages in court, it must demand payment in full and wait at least ten days.
Section 27-1-717(4)(a), MCA.
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¶9 The District Court held that Collection Bureau had waived its right to seek statutory
damages. A waiver is the intentional and voluntary relinquishment of a known right, claim
or privilege. Reiter v. Yellowstone County (1981), 192 Mont. 194, 202, 627 P.2d 845, 850.
Statutorily-created rights may be waived.
Waiver of a benefit of a law. Anyone may waive the advantage of a law
intended solely for his benefit. But a law established for a public reason
cannot be contravened by a private agreement.
Section 1-3-204, MCA.
¶10 Although statutes creating rights for a public benefit are not subject to waiver,
Rothwell v. Allstate Ins. Co., 1999 MT 50, ¶ 16, 293 Mont. 393, ¶ 16, 976 P.2d 512, ¶ 16
(employee indemnification statute, § 39-2-701(1), MCA, not subject to waiver) and State ex
rel. Neiss v. Dist. Ct. (1973), 162 Mont. 324, 328, 511 P.2d 979, 981 (minimum wage is
public benefit not subject to waiver), rights created for private benefits can be waived. In
Matter of Gaither (1990), 244 Mont. 383, 389, 797 P.2d 208, 212, we held that the surviving
widow’s right to benefits under the workers’ compensation laws was personal to her and thus
she could waive or abandon those rights. In the present case, the right of a payee on a
dishonored check to pursue statutory damages is a right created solely for the benefit of the
payee and is thus subject to waiver under § 1-3-204, MCA.
¶11 Waiver may be proven by express declarations or by a course of acts and conduct so
as to induce the belief that the intention and purpose was to waive. Kelly v. Lovejoy (1977),
172 Mont. 516, 520, 565 P.2d 321, 324. We have held that waiver may be established by
conduct which manifests the intention to forego the benefit:
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It may be proved by express declarations, or by acts and declarations
manifesting an intent and purpose not to claim the supposed advantage, or by
a course of acts and conduct, or by so neglecting and failing to act, as to
induce the belief that it was his intention and purpose to waive.
Northwestern F. & M. Ins. Co. v. Pollard (1925), 74 Mont. 142, 149, 238 P. 594, 596.
¶12 In VanDyke Const. Co., v. Stillwater Mining Co., 2003 MT 279, ¶ 16, 317 Mont. 519,
¶ 16, 78 P.3d 844, ¶ 16, VanDyke’s letters requesting arbitration were deemed a waiver of
its right to subsequently object to the contract provisions requiring arbitration. The express
conduct of the sellers in a real estate contract established waiver in Thiel v. Johnson (1985),
219 Mont. 271, 711 P.2d 829. Thiels, the sellers of a motel, expressly waived their right to
receive certain monthly contract payments on time when the buyers communicated that,
because of low winter months’ revenue and an increase in utility rates, they were unable to
make their monthly installment payments. Thiels said this was “fine” and that they were
willing to work with the buyers as long as the interest payments were made on the underlying
contract with the previous owner and “they would be glad to extend their payments to be
made until the summer season started rolling again.” Thiel, 219 Mont. at 275, 711 P.2d at
832.
¶13 In the present case, after having already sent demand letters for each of the eight
checks in July of 2000, Collection Bureau sent a letter in November 2000, demanding the
full amount of $388.96. Instead of paying the full amount, Morrow began making
installment payments. She paid $25 in December, and included a note indicating she would
make installment payments. Morrow next sent $10 in January, which Collection Bureau sent
back. Shortly thereafter, Morrow sent a $50 payment which Collection Bureau accepted and
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applied to the balance of $363.96 leaving a balance of $313.96. Before Collection Bureau
received Morrow’s next payment of $150 on February 27, it had already filed suit for
$1,113.96, including $800 statutory damages under § 27-1-717(3), MCA.
¶14 Collection Bureau contends that there was no intentional waiver of a known right and
that, although it accepted partial payments, it repeatedly told Morrow that if she did not make
the agreed upon payments, it could invoke its legal remedies under the law. It further
contends that it complied with the statute by giving notice in July and November and that
nothing would be accomplished by requiring it to give yet another notice. Finally, it
contends that it would be contrary to public policy to penalize payees for attempting to settle
claims through acceptance of partial payments.
¶15 Morrow responds that the District Court’s ruling does not discourage settlement or
put debt collectors at a disadvantage. The collector is in control; it can choose whether or
not to accept partial payments. If it accepts partial payments, it has not permanently waived
its rights to statutory damages. It can reinstate that right with the giving of a new notice.
Morrow also points out that, even after accepting partial payments, the collector can,
without giving any further notice, pursue a claim for the amount of the debt plus the $30
service fee.
¶16 The District Court held:
After making the written demand for payment in full for the dishonored checks
and service charges, CBS accepted partial payments. By accepting just one
partial payment, CBS effectively waived its ability to sue for the $800.00 in
statutory damages pursuant to the November 22, 2000 notice. Having waived
its right to sue for the statutory damages under the November demand, in order
to comply with the Montana Code Annotated § 27-1-717, CBS had to reinstate
8
its statutory rights by issuing another written demand for payment of the
remaining balance after deducting all partial payments and waiting ten days.
If full payment was not tendered pursuant to the new written demand, CBS
could then demand the statutory damages in addition to the remaining balance
of dishonored checks and service charges in a lawsuit filed pursuant to CBS’s
rights under §27-1-717.
¶17 We agree with the reasoning of the District Court. The statutory scheme is designed
to give the debtor a ten-day opportunity to pay the debt and service charges before being
faced with civil liability for statutory damages. Where, as here, the collector engages in a
course of conduct wherein it demands full payment but accepts partial payment, the debtor
is led to believe that the collector has foregone its demand and that partial payments are
acceptable. Contrary to Collection Bureau’s assertion that another demand would serve no
purpose, another demand (after having accepted a partial payment) puts the debtor on notice
that partial payments are no longer acceptable; that payment in full of the new balance (prior
demand less credit for partial payments) must be paid within ten days or the collector may
invoke its remedies for statutory damages.
¶18 We hold that acceptance of a partial payment after having made a demand for full
payment waives the collector’s right to statutory damages under § 27-1-717, MCA. In order
to reinstate its right to such damages, the collector must make further demand for payment
of the new balance and then wait the requisite ten days before filing suit.
Part II: Violations of the FDCPA
¶19 The Fair Debt Collection Practices Act provides as follows:
A debt collector may not use unfair or unconscionable means to collect
or attempt to collect any debt. Without limiting the general application of the
foregoing, the following conduct is a violation of this section:
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(1) The collection of any amount (including any interest, fee, charge,
or expense incidental to the principal obligation) unless such amount is
expressly authorized by the agreement creating the debt or permitted by law.
15 U.S.C. § 1692f(1) (emphasis added).
¶20 The District Court held that, since Collection Bureau sought statutory damages under
§ 27-1-717, MCA, without having given the requisite demand, it had attempted to collect an
amount which was not “permitted by law” and thus had violated 15 U.S.C. § 1692f(1). In
particular, the District Court concluded that Collection Bureau violated the FDCPA when
it sued for statutory damages without having first complied with the notice requirements of
Montana law and then, instead of crediting Morrow’s $150 partial payment against the
amount owed on the checks ($313.96), it credited it against the statutory damages prayed for
in the complaint ($1,113.96).
¶21 The District Court correctly interpreted the federal law. The FDCPA clearly prohibits
a debt collector from using unfair or unconscionable means to “collect or attempt to collect
any debt.” Transamerica Financial Services, Inc. v. Sykes (7th Cir. 1999), 171 F.3d 553,
555 (§ 1692f applies to circumstances where debt collectors attempt to collect fee not
authorized by law); Newman v. Checkrite Calif., Inc. (E.D. Cal. 1995), 912 F.Supp. 1354,
1377 (attempt to recover amounts not authorized by law is violation of § 1692f(1)). It further
provides that it is unfair or unconscionable for a debt collector to collect any amount which
is not expressly authorized by contract or which is not permitted by law. In the present case,
Collection Bureau, in suing for statutory damages of $800 without giving a renewed demand
was attempting to collect a sum not “permitted by law.” Furthermore, in applying Morrow’s
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$150 partial payment towards the claimed balance of $1,113.96, it actually collected a sum
not “permitted by law.” Failure to comply with state statutory requirements prior to
attempting to collect sums in excess of the amount of the dishonored check violates § 1692f
of the Act. Ozkaya v. Telecheck Services, Inc. (N.D. Ill. 1997), 982 F.Supp. 578, 586; Ditty
v. CheckRite Ltd. (D. Utah 1997), 973 F.Supp 1320, 1324-25. In CheckRite, the collector
attempted to settle for the amount of the check, plus a service charge and a further sum listed
as consideration for a covenant not to sue. State law, however, provided that, unless a civil
action had been filed, a debtor could not be liable for a sum greater than the amount of the
check, plus a service charge. Accordingly, the court concluded that CheckRite’s attempt to
collect the excess amount prior to filing suit violated the FDCPA.
¶22 We conclude that when Collection Bureau accepted partial payments and then,
without giving a new demand as required by § 27-1-717, MCA, sued for statutory damages
and applied a subsequent partial payment of $150 towards the statutory damages, it
attempted to collect and actually did collect sums which were not permitted by law. This
constitutes a violation of 15 U.S.C. § 1692f(1).
¶23 Collection Bureau contends that, even assuming that it did violate § 27-1-717, MCA,
it cannot be held liable since its violation was unintentional. Collection Bureau relies on the
bona fide error defense in 15 U.S.C. § 1692k(c), which provides:
Intent (c) 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.
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¶24 Collection Bureau argues that, since there was no prior case law interpreting § 27-1-
717, MCA, as requiring a renewed demand after accepting partial payment, it had no
forewarning that it was violating Montana law and thus it cannot be said that the resulting
violation of FDCPA was “intentional.” Rather, it contends any mistake was a bona fide
error.
¶25 This raises a question as to whether a mistake of law qualifies as a bona fide error
defense under § 1692k(c). There is a split of authority among the circuit courts on this issue.
The minority view holds that mistakes of law can be considered bona fide errors. Johnson
v. Riddle (10th Cir. 2002), 305 F.3d 1107, 1121. The majority view is that the defense is
only available for clerical and factual errors. See, e.g., Picht v. Jon R. Hawks, Ltd. (8th Cir.
2001), 236 F.3d 446, 451-52; Hulshizer v. Global Credit Services, Inc. (8th Cir. 1984), 728
F.2d 1037, 1038 (no bona fide error defense where the debt collector relied on advice of a
Fair Trade Commission (FTC) staff attorney); Pipiles v. Credit Bureau of Lockport, Inc. (2nd
Cir.1989), 886 F.2d 22, 27; and Baker v. G.C. Services Corp. (9th Cir. 1982), 677 F.2d 775.
In the Ninth Circuit’s decision in Baker, the issue was whether a demand letter sent by G.C.
Services was misleading in that it threatened legal action when, in fact, G.C. Services had
no intention of instituting legal proceedings. Relying on the “bona fide error” defense of
§ 1692k(c), G.C. Services contended that it had obtained the advice of legal counsel on the
correctness of the contents of the letter and that counsel had met with the staff of the FTC
to discuss compliance with the Act. The Circuit Court rejected this defense holding:
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“Reliance on advice of counsel or a mistake about the law is insufficient by itself to raise the
bona fide error defense.” G.C. Services, 677 F.2d at 779.
¶26 We note that the Act references “procedures reasonably adapted to avoid any such
error.” “Procedures” are generally adopted to avoid clerical errors as opposed to mistakes
of law. In accord with the majority view, we hold that the fact that Collection Bureau did
not anticipate a decision that § 27-1-717, MCA, requires a new demand after acceptance of
partial payments does not rise to the level of a “bona fide error” defense under § 1692k(c).
That Collection Bureau mistook the law does not make its action any less intentional.
CONCLUSION
¶27 For the above-stated reasons, the orders of the District Court are affirmed. The
FDCPA provides for reasonable attorney fees and costs of suit for those who are successful
in establishing liability under the FDCPA. 15 U.S.C. § 1692k(a)(3). Since Morrow has
prevailed, she is entitled to reasonable attorney fees and costs on appeal. We remand to the
District Court for a hearing to determine Morrow’s reasonable attorney fees and costs on
appeal.
/S/ W. WILLIAM LEAPHART
We concur:
/S/ KARLA M. GRAY
/S/ JOHN WARNER
/S/ JIM REGNIER
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Justice Patricia O. Cotter dissenting.
¶28 I respectfully dissent.
¶29 The Court concludes at ¶18 that acceptance of a partial payment after having made
a demand for full payment waives the collector’s right to statutory damages under § 27-1-
717, MCA. The problem is that the statute suggests no such thing.
¶30 Given that CBS did not violate the statute as written, and that this Court’s
interpretation of the statute is a matter of first impression, I find our application of the
provisions of the FDCPA, and the imposition of over $17,000.00 in attorney fees and costs
under that Act, unconscionable. We have effectively, and in violation of § 1-2-101, MCA,
inserted into § 27-1-717, MCA, what has been omitted, and then faulted CBS for not
construing the law as we--for the first time--have interpreted it. Even if we conclude that
CBS was wrong, it is patently unfair to punish it so excessively for taking a position that is
entirely defensible under the statute as written. I therefore dissent.
/S/ PATRICIA O. COTTER
Justice James C. Nelson joins in the dissent of Justice Patricia O. Cotter.
/S/ JAMES C. NELSON
Justice Jim Rice joins in the dissent of Justice Patricia O. Cotter.
/S/ JIM RICE
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Justice Jim Rice dissenting.
¶31 I join in Justice Cotter’s dissent.
¶32 Section 1-3-204, MCA, the waiver provision relied upon by the Court, is one of the
“Maxims of Jurisprudence.” Section 1-3-101, MCA, provides:
Purpose of maxims. The maxims of jurisprudence set forth in part 2 of this
chapter are intended not to qualify any of the other provisions of this code but
to aid in their just application.
Pursuant thereto, we have held that § 1-3-204, MCA, cannot be used to “qualify other
substantive statutory provisions.” Campbell v. Mahoney, 2001 MT 146, ¶ 17, 306 Mont. 45,
¶ 17, 29 P.3d 1034, ¶ 17. Here, the Court has used the waiver provision not only to qualify
substantive law, but to re-write it.
¶33 In ¶ 16, the Court cites approvingly from the District Court decision:
[I]n order to comply with the Montana Code Annotated § 27-1-717, CBS had
to reinstate its statutory rights by issuing another written demand for payment
of the remaining balance after deducting all partial payments and waiting ten
days. If full payment was not tendered pursuant to the new written demand,
CBS could then demand the statutory damages in addition to the remaining
balance of dishonored checks and service charges in a lawsuit filed pursuant
to CBS’s rights under § 27-1-717.
This language, which sets forth a new “reinstatement” requirement, established by “another
written demand,” which must reflect “all partial payments,” and undergo another “waiting”
period, is pure legislating. It is entirely inaccurate to say that these new procedures are
necessary “to comply with” § 27-1-717, MCA. Collection Bureau fully complied with the
statute, and it is incredulous to hold that its full compliance with the statute somehow
transformed into a waiver of its rights thereunder.
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¶34 In order to clarify matters, the Court should announce that its new legislative
requirements shall henceforth be known as new subparagraph (8) of the statute. Of course,
the only problem with attaching a subparagraph number to the Court’s new requirements is
that the number would directly conflict with the subparagraph (8) which has been placed in
the statute by the real Legislature:
(8) Making partial payments of amounts owed under this section or
entering into an agreement for paying in whole or in part amounts owed under
this section does not waive any right that the payee or the payee’s assignee
may have under this section. Once a demand required under this section is
made, the demand is not required to be repeated upon partial payment of
amounts owed under this section.
Section 27-1-717(8), MCA (2003) (emphasis added).
¶35 The courts should stay out of the legislating business. I would reverse.
/S/ JIM RICE
Justice James C. Nelson joins in the dissent of Justice Jim Rice.
/S/ JAMES C. NELSON
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