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Court ruling on unfair debt collection claims could quell suits

Court ruling on unfair debt collection claims could quell suits

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A U.S. Supreme Court ruling allowing successful defendants in civil unfair debt collection claims to be awarded attorney fees and costs without a showing that the plaintiff brought the claim in bad faith will likely spur lawyers on both sides to take a harder look at cases early in the litigation process.

Plaintiff-side attorneys and consumer advocates expressed concern that the ruling will hamper efforts to enforce the Fair Debt Collection Practices Act, which was designed to prevent debt collectors from using overly aggressive measures to collect from debtors and those mistakenly accused of owing creditors.

“This is going to have a chilling effect on enforcement,” said Julie Nepveu, senior attorney at AARP Foundation Litigation in Washington and author of an amicus brief on the debtor’s behalf in Marx v. General Revenue Corp.

But parties on both sides of the issue agree that the court’s ruling will cause attorneys to give FDCPA cases more careful consideration, leading to fewer complaints filed by plaintiffs and more vigorous defense strategies.

“It’s going to weigh very heavily on parties on both sides when they are entering into pretrial settlement negotiations,” said James Todd, a litigation defense attorney in the Cincinnati office of Weltman, Weinberg & Reis Co.

Bad faith not required

The law, adopted in 1977, created guidelines for consumer debt collectors and gives consumers subjected to abusive debt collection practices the right to sue for $1,000 in statutory damages for each violation, as well as actual damages incurred by the debtor due to the violations.

The Marx case involved a debtor who sued to recover from a debt collector that sent a fax to her workplace. The action, she argued, violated the law’s provision barring debt collectors from contacting debtors’ employers.

After the debt collector was found not to have violated the Act, it sought and was awarded $4,500 in costs pursuant to Federal Rule of Civil Procedure 54(d)(1), which provides that “[u]nless a federal statute, these rules, or a court order provides otherwise, costs — other than attorney’s fees — should be allowed to the prevailing party.”

The debtor appealed, arguing that under the FDCPA, costs can only be awarded “[o]n a finding by the court that an action [was] brought in bad faith and for the purpose of harassment.”

But in a 7-2 opinion authored by Justice Clarence Thomas, the Supreme Court disagreed, holding that the language of the statute does not conflict with, and therefore does not displace, a district court’s discretion to award costs under Rule 54(d)(1).

    “Congress was simply confirming the background rule that courts may award to defendants attorney’s fees and costs when the plaintiff brings an action in bad faith,” Thomas wrote. “The statute speaks to one type of case — the case of the bad-faith and harassing plaintiff. Because Marx did not bring this suit in bad faith, this case does not fall within the ambit of the more specific provision.”

    Consumer advocates and plaintiffs’ attorneys note that in most cases, defense attorney fees and costs can easily exceed the amount in damages plaintiffs can recover in an FDCPA case, particularly if defendants decide to conduct extensive discovery in defense of the claims. That will make the prospect of filing suit, even in cases alleging egregious debt collector behavior, worrisome for plaintiffs, lawyers said.

    “In many cases, we are talking about people who by definition don’t have any money and can’t pay their bills,” Nepveu said. “[Now] more of them will be worried that the impact on them in bringing the lawsuit could be harsher than the impact on debt collectors.”

    But Todd said the Court’s ruling underscores the purpose of fee-shifting in civil litigation.

    “It’s going to operate to reduce the number of nuisance cases, [and] also provide stop-and-look points for plaintiffs’ attorneys to consider if the prospect of winning could be offset by what the losses could be,” Todd said.

    Change in approach

    Sergei Lemberg, a principal at Lemberg & Associates in Stamford, Conn., where he represents FDCPA plaintiffs, said careful case screening has always been a crucial part of his evaluation process, and more plaintiffs’ lawyers will take measured approaches in deciding whether to file suit under the law.

    “I always assumed that the loser could pay costs in the context of fair debt collection cases,” Lemberg said.

    But the ruling could change defendants’ approach to the cases.

    “Because most [FDCPA] cases don’t go to trial, most of them don’t have depositions,” he said. “Typically, there haven’t been a lot of costs for the defendant to incur.”

    But if defendants also take a harder look at claims, more of them will likely conduct discovery. The cost of a single deposition conducted by a defendant could reach well into the thousands of dollars.

    “The costs can exceed what a plaintiff can recover,” Lemberg said. “We have to advise plaintiffs of this. But [in] my practice, we always take cases forward only when we think we are going to win.”

    But the ruling could have an effect beyond fair debt collection. Other statutes, including the Truth in Lending Act, have language mirroring that of the FDCPA.

    “I think you are certainly going to see attempts to have [Marx] applied to other consumer statutes,” Todd said.

    The ruling could also mean fewer FDCPA counterclaims filed in response to suits against debtors, Todd said.

    Nepveu noted that many people subjected to unfair debt collection practices are not debtors but actually identity theft victims or elderly people who mistakenly believe they are responsible for the debts of family members.

    Despite the ruling, she said, enforcement actions by the Consumer Financial Protection Bureau and other agencies can help keep debt collectors within the parameters of the law. “I’m hopeful that will help solve some of these problems,” Nepveu said.

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