November 12, 2020 - This Week at the Ninth

This Week at The Ninth: Collections and Coverage

This week, we examine one Ninth Circuit decision holding that a debt collector cannot insulate itself from liability under the Federal Debt Collection Practice Act by contractually obligating its clients to provide it with accurate information, and another holding that an HMO’s refusal to cover out-of-state mental health treatment did not violate federal and state law mandating equal coverage for mental and physical illnesses. 

URBINA v. NATIONAL BUSINESS FACTORS INC.
The Court holds that the Federal Debt Collection Practice Act’s “bone fide error defense” is not satisfied simply by a debt collector contractually obligating its clients to provide accurate information.

Panel: Judges Tashima, Christen, and Bataillon (D. Neb.), with Judge Christen writing the opinion.

Key highlight: “The procedures that have qualified for the bona fide error defense were consistently applied by collectors on a debt-by-debt basis; they do not include one-time agreements committing creditor-clients to provide accurate information that are later acted upon without question.”

Background: National Business Factors (NBF), a debt collector, entered into an agreement with Tahoe Fracture Clinic in which the Clinic promised that whenever it assigned debts to NBF for collection, it would provide “only accurate data” and ensure that “the balances reflect legitimate, enforceable obligations of the consumer.” Plaintiff Mercedes Urbina received treatment at the Clinic, but did not fully pay her bill. Based on information provided to it by the clinic, NBF then sent Urbina a collection notice for the amount due plus interest of $29.07. Because of inaccuracies in the information furnished by the Clinic, NBF’s calculation of this interest payment was incorrect.

Urbina sued NBF for violations of the FDCPA. The district court granted summary judgment to NBF, concluding that it was entitled to the FDCPA’s “bona fide error” defense as a matter of law given its reliance on the Clinic’s contractual promise to provide accurate information.

Result: The Ninth Circuit reversed. As the Court explained, the bona fide error defense is available only where the alleged violation of the FCDPA was “not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid such errors.” 15 U.S.C. § 1692k(c). And, the Court continued, it had “previously rejected the contention that unquestioned reliance on a creditor’s information can suffice as a bona fide defense.”

Joining the Eleventh Circuit, the Ninth Circuit held that the mere existence of a collection service contract obligating NBF’s client to provide accurate information was not a “procedure[] reasonably adapted to avoid” errors that might satisfy this defense. In doing so, the Court distinguished a Seventh Circuit decision on which the district court had relied, which had stated that “where there is an agreement that the creditor-client would only provide reliable information, there is evidence of reasonable reliance on creditor information.” The Ninth Circuit characterized this language as dicta, emphasizing that on remand from the Seventh Circuit, the district court had ultimately concluded that the bona fide error defense was unavailable. 

Finally, the Court rejected NBF’s argument that its practice of sending client follow up requests seeking verification was a sufficient procedure, noting that NBF did not wait for a response from those clients before sending collection notices. Thus, the Ninth Circuit held, “NBF fails to show that its practice of requesting account verification from its clients is genuinely calculated to catch errors of the sort that occurred here.” 

STONE v. UNITED HEALTHCARE INSURANCE COMPANY
The Court holds that denying coverage for out-of-state treatment for anorexia nervosa did not violate the federal Mental Health Parity and Addiction Equity Act or the California Mental Health Parity Act.

Panel: Judges Wallace, Tashima, and Bade, with Judge Tashima writing the opinion.

Key Passage: “Both the Federal Parity Act and the California Parity Act require that health plans provide equal coverage for mental illnesses and physical illnesses. Here, the denial of coverage was based solely on the Plan’s exclusion of coverage for out of-state treatment, which applies equally to mental and physical illnesses.”

Background: Suzanne Stone’s HMO, which is administered by OptumHealth Behavioral Solutions of California (“Optum”), generally excludes coverage for mental health services rendered outside California. Despite having been told that her HMO plan was geographically “limited by state law,” Stone admitted her daughter to a Colorado residential treatment center for anorexia nervosa after her daughter was discharged from the University of California San Diego for treatment of the same condition. Optum denied coverage and Stone filed suit, alleging violations of the Mental Health Parity and Addiction Equity Act of 2008, 29 U.S.C. § 1185a, and the California Mental Health Parity Act, Cal. Health & Safety Code § 1374.72. The district court granted summary judgment for defendants on the grounds that there was no disparity in the plan between the coverage for mental illness and physical illness, and because nothing obliged Optum to satisfy the beneficiaries’ preferences.

Result: The Ninth Circuit affirmed. The Court rejected Stone’s arguments under the Federal Parity Act because she “has not shown that the Plan’s requirement that [her daughter] receive treatment at a residential treatment facility in California is a more restrictive limitation on treatment than limitations on treatment for medical and surgical issues.” Because Stone did not contend that “the Plan’s geographic limitation applies unequally to physical and mental health issues,” the Court concluded that she could not show a violation of the Federal Parity Act. 

Moving on to the California Parity Act, the Court rejected Stone’s argument that the statute effectively “guarantees a substantive right to medically necessary treatment of the listed mental illnesses, without any relationship to parity with physical illness” because that “position is not supported by the language and purpose of the statute.” “The Plan’s exclusion of coverage for out-of-state treatment,” the Court said, “is not an exclusion of an entire type of medical treatment” but rather “a term or condition … applied equally to all benefits under the Plan.” Critically, the Plan provided for in-state residential treatment center for anorexia nervosa, and Stone had “not presented any evidence that the Plan’s coverage of mental illnesses is less generous than its coverage of physical illnesses.” Thus, the Court held, the California Parity Act likewise was not implicated.