Friday, November 22, 2013

FYI: 2nd Cir Holds Settlement Offer of Full Amount Sought Not Equal to Offer of Judgment, Ethical Violations by Pl's Counsel Not Enough to Deny Fees

The U.S. Court of Appeals for the Second Circuit recently upheld an award of attorney's fees to the plaintiff in an action under the federal Fair Debt Collection Practices Act, where the defendant's offer to settle for the full amount of statutory damages did not include an offer of judgment and thus in the view of the Court did not resolve the case, including as to subsequent litigation of the amount of the plaintiff's attorney's fees.  


The Court also ruled that any alleged ethical violations on the part of plaintiff's attorney did not provide a basis for denying fees to the plaintiff, partly because the attorney's fees were reasonable for the work performed.


A copy of the opinion is available at:  Link to Opinion


In an action under the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692 ("FDCPA"), defendant attorney ("Attorney"), offered to settle for $1001, the maximum statutory damages plaintiff was entitled to under the FDCPA plus $1.   Attorney also offered, as required by the FDCPA, to pay plaintiff's attorney's fees and costs, leaving to the court the determination as to the amount of such fees.      


Seeking to avoid entry of judgment, Attorney later argued that the original offer mooted the action and that he would thus not be liable for any further attorney's fees accrued by plaintiff, because the offer included maximum recoverable damages for the underlying violation. 


In response, the plaintiff requested a lump sum settlement including attorney's fees, arguing that the settlement offer also needed to include an offer of judgment in order to render any award of attorney's fees judicially enforceable.  The plaintiff's counsel also refused to provide Attorney with her fee records but was willing to have the court determine the amount of fees if Attorney filed an offer or stipulation of judgment.


The parties eventually jointly stipulated for judgment in plaintiff's favor, with damages set at the $1000 statutory maximum.   The stipulation also requested the court to determine the amount of attorney's fees and costs. 


In the subsequent litigation over the amount of attorney's fees, Attorney argued that the settlement offer mooted further litigation and that, by failing to communicate the original settlement offer to the plaintiff, plaintiff's counsel acted unethically even though the offer did not include an offer of judgment.  


The lower court, noting that there was a sincere dispute over the "nature and form" of the settlement, concluded that Attorney's original offer did not moot the action and that Attorney should pay reasonable attorney's fees incurred during the continuing litigation over the amount of such fees.    The lower court ordered Attorney to pay the plaintiff the full amount of the requested fees, over $32,000.  Attorney appealed. 


The Second Circuit affirmed, concluding that the award for attorney's fees properly included fees for work performed after the original settlement offer.


As you may recall, under the FDCPA the prevailing party is entitled to reasonable attorney's fees.  See 15 U.S.C. § 1692k(a)(3).  In addition, Federal Rule 68 provides that a plaintiff who rejects an "offer of judgment" and later fails to obtain greater relief may not recover any costs accruing after the date of rejection.  See Fed. R. Civ. P. 68 ("Rule 68").


Noting that Attorney sought to avoid entry of judgment that would have ended the litigation, the Second Circuit rejected Attorney's assertions that the original offer for the maximum statutory penalty (1) rendered the underlying action moot or (2) was equivalent to an offer of judgment under Rule 68.  See McCauley v. Trans Union, L.L.C., 402 F.3d 340 (2d Cir. 2005)(ruling that unaccepted offer of settlement for full amount of damages did not "moot" a case and that proper disposition was to enter judgment against the defendant for the proffered amount and to direct payment to plaintiff consistent with the offer, resolving the controversy).  


In so doing, the Court observed that Attorney never moved for dismissal of the case or challenged the judgment of FDCPA liability and that, because the parties continued to dispute the extent of the attorney's fees plaintiff was entitled to, the case never became moot. 


Turning to the question as to the propriety of litigating the case after the original settlement offer, the Second Circuit noted the lower court's conclusion that there remained a substantive dispute over the "nature and form" of the settlement and that the amount of attorney's fees was reasonable.  


Specifically, the Appellate Court pointed out that had Attorney made an offer of judgment in accordance with Rule 68, the plaintiff would have had to bear the costs of additional litigation if plaintiff had failed to win more than what Attorney had offered.  Cf. Doyle v. Midland Credit Management, Inc., 722 F.3d 78, 80-81 (2d Cir. 2013)(ruling that an offer of judgment that satisfied an FDCPA claim left no conflict over the nature and form of settlement).  Without an offer of judgment, the Court explained, a settlement agreement by which the defendant agrees to pay in exchange for dismissal of the plaintiff's action only creates a contract between the parties, whereas a judgment provides a judgment creditor with enforcement mechanisms.  Accordingly, the Court declined to rule that Attorney's offer of settlement without judgment was equivalent to a Rule 68 offer of judgment.


Finally, in rejecting Attorney's assertion that the alleged ethical violations on the part of plaintiff's counsel was a basis to deny attorney's fees, the Second Circuit noted that attorney's fees in FDCPA actions are awarded to the prevailing party, not to his attorney, and that a fee litigation proceeding was not the proper forum for addressing ethical violations. 


In addition, not having identified any errors in the lower court's determination as to the reasonableness of the attorney's fees for the work performed, the Second Circuit upheld the lower court's award of full attorney's fees to the plaintiff.




Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874


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