Practice Alert: U.S. Supreme Court Expands Liability for Losing FDCPA Plaintiffs

The Fair Debt Collection Practices Act (FDCPA) states that when a Plaintiff brings a case in bad faith and with the purpose of harassment, that Plaintiff will be liable for the Defendant's attorney's fees and costs.

The Federal Rules of Civil Procedure (FRCP) allow federal District Courts to award costs to the winning party within Court's discretion.

In Marx v. General Revenue Corp., (case no. 11-1175, published cite not yet available) the SCOTUS decided the question of whether a losing plaintiff in an FDCPA case, where there is no evidence of bad faith or harassment, can be charged the winning defendant's costs. In a 7-2 opinion, the majority of the Court held that nothing in the FDCPA precluded the application of FRCP 54's provisions regarding costs.

Marx had filed an FDCPA claim against GRC. She lost after a 1-day bench trial. GRC sought the award of $7,779.16 in costs related to depositions, witness travel, and witness fees. The District Court ultimately awarded $4,543.03 in costs to GRC. Marx appealed, arguing that the FDCPA only allowed for the assessment of costs against a losing plaintiff when there was evidence of bad faith and the intent to harass. The Tenth Circuit found that Rule 54 was not precluded by the FDCPA and that the cost award was proper.

The Supreme Court has affirmed the ruling of the Tenth Circuit.

In its opinion, the majority held that although the FDCPA imposes a specific threshhold for the awarding of attorney's fees and costs to a successful defendant, that requirement does not preclude the permissive nature of Rule 54 and its provisions regarding the awarding of costs. As the law now stands, a victorious defendant in an FDCPA case can recover its costs regardless of whether there was bad faith on the part of the plaintiff. The award of attorney's fees is not affected by this ruling.

The dissent, authored by Justice Sotomayor and joined by Justice Kagan, argued that the majority's reading ignored the plain meaning of the statute and rule in question. Rule 54(d) states that, "unless a federal statute . . . provides otherwise," a district court may award costs to the prevailing party. The dissent notes that "provides otherwise" does not mean "contrary." The dissent takes Rule 54(d) to mean that it is a default rule, and that if a statute speaks to costs in a manner that is different than Rule 54, then the statute controls. The dissent also looks at the way "otherwise" is defined in the dictionary, which includes "different" as one of the definitions. Requiring that something be "contrary" obviously raises the bar.

The dissent itself takes the majority to task for failing to follow its own rules of stautory contstruction and is well-worth the read.

So what is the practical affect of this ruling for consumer rights attorneys bringing FDCPA claims? Although the FDCPA is, at its core, a strict liability statute, this ruling may have a chilling effect on some FDCPA lawsuits.

Statutory damages under the FDCPA are limited to $1,000 for a violation of the act. In general, many of these cases never make it to trial -- they are either settled or dismissed. This means that many FDCPA cases that are based solely on a statutory violation may never put the plaintiff at risk of being saddled with a bill for the defendant's costs. However, if a summary judgment was entered in the defendant's favor in this type of case, then there may be costs that could be assessed against the losing plaintiff.

Where this ruling seems to create significant risk is when the case involves something more than statutory damages. The FDCPA allows successful plaintiffs to recover their actual damages as well. In cases where there are actual damages, it is much more likely that the case will progress to trial or that the case will progress much further towards trial (and incur more costs). In these situations, a losing plaintiff may discover himself footing a rather significant bill.

Hopefully, this ruling will not have much impact on FDCPA claims. However, it is worth noting when developing cases and making determinations about which cases to take. Some longshot cases may now create a greater risk for a client than before. As with any other risk, always disclose the risks to your client before moving forward.

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