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FDCPA Case Analysis

The court wrote, "The FDCPA was created to protect consumers from abusive practices by debt collectors." The decision shows what can happen if attorneys attempt to use the FDCPA as a sword, rather than as a shield, and then miss their target.

The case is remarkable for its unique procedural history.

Normally, the debtor would initiate suit against the debt collector. If the debt collector prevailed in the action, it may seek attorney’s fees under 15 U.S.C. 1692k(a)(3), which allows for fees if an FDCPA action is brought in bad faith or for the purpose of harassment.

To recover fees, however, the debt collector must show that the entire lawsuit, not just one claim, was brought in bad faith or for the purposes of harassment. Horkey v. J.V.D.B. & Associates, Inc., 333 F.3d 769, 775 (7th Cir. 2003).

In the case at bar, of course, attorney fees could not be recovered pursuant to this provision, because Kelly and her attorney, Edelman did not bring any "action" that could be found to be in bad faith. The court in Horkey limited "action" to "its usual legal sense" — "a lawsuit brought in a court." Id.

Edelman’s demand letter, even if constituting "extortion," as the court found, cannot be an "action" under Horkey, and thus could not give rise to attorney’s fees or any other sanction under the FDCPA (attorney discipline is another matter).

The fees and sanctions awarded in this case were not awarded pursuant to sec. 1692k(a)(3), but 28 U.S.C. 1927.

The question is whether, had Edelman abandoned all claims and moved to dismiss the summary judgment action as moot, rather than contesting it and filing crossclaims, there would be a basis for any award, such as the $500 that Ross & Hardies had demanded in its letter to Edelman.

The letter from Ross & Hardies to Edelman stated, "We believe that your letter to Riddle is what gives rise to a cause of action." However, it is not clear from the opinion what statute would have allowed judgment for the $500 that Ross & Hardies demanded.

Section 1927 allows sanctions if an attorney multiplies "proceedings" in a "case." Arguably, the court would be bound to interpret "case" the same as it did "action," in Horkey: "a lawsuit brought in a court." By moving to dismiss the case as moot, Edelman could have avoided liability, even if the initial letter threatening suit under the FDCPA was extortionate.

Until a lawsuit is filed, Edelman arguably could not have "multiplied" any "proceedings." Thus, even if the $3,000 demand letter was "extortion," the statute would not apply by its own terms.

However, the court’s opinion suggests otherwise: "When Edelman demanded $3000 to release a blatantly frivolous claim, the firm pursued a path that it should have known was improper; therefore, its conduct was ‘objectively unreasonable and vexatious’ (cites omitted)."

This statement implies that Edelman could be sanctioned based solely on pre-litigation conduct.

However, the only support for its implication that the court cites is Kapco Mfg. Co. v. C & O Enters., Inc., 886 F.2d 1485 (7th Cir. 1989), and Kapco can be distinguished. In Kapco, a case was dismissed, but the district court retained jurisdiction pending settlement.

The Seventh Circuit held that sanctions were properly awarded based on post-dismissal conduct, and that dismissal of the suit did not bar sanctions. Nevertheless, in Kapco, "proceedings" had clearly begun, and the party’s conduct multiplied them vexatiously.

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Seventh Circuit Court of Appeals

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FDCPA threat leads to sanctions

Had Edelman’s only bad conduct been the extortionate demand letter, made prior to the commencement of any proceedings, Kapco could be distinguished on this basis.

Edelman’s client was surely thrilled to hear that, not only would she not have to pay $125 for the check she bounced, but that the debt collector would pay her $1,000.

As a result of Edelman’s actions, however, he will be paying more than $18,000 in sanctions already awarded, and more, after additional sanctions are imposed on remand.

Attorneys should be aware that, if they use the FDCPA as a sword, rather than a shield, without solid legal foundation, they had better hit the target; and if they don’t, they would be wise to give up the fight sooner, rather than later.

– David Ziemer

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David Ziemer can be reached by email.

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