Friday, May 7, 2010

FYI: 9th Cir Says FDCPA Def Must Show Bad Faith by Pl/Debtor in Order to Recover Costs

The U.S. Court of Appeals for the Ninth Circuit recently held that a prevailing defendant cannot be awarded costs under the FDCPA without a finding that the plaintiff brought the action in bad faith and for the purpose of harassment.  A copy of the opinion is attached. 


Plaintiff, a consumer, filed this action alleging unfair debt collection practices against defendants and asserting claims under, among other things, the FDCPA.  A trial on the merits was held solely as to plaintiff's FDCPA claim and a jury found in favor of defendants.  The court then awarded defendants costs under Fed.R.Civ.P. 54(d), which, with few exceptions, allows a court to award costs to a prevailing party.  Plaintiff sought to re-tax costs, arguing that the FDCPA requires a finding of bad faith and harassment on plaintiff's part before costs can be awarded.  The district court denied plaintiff's motion to re-tax costs, holding that the FDCPA requires a bad faith finding only before awarding attorneys fees, but not before awarding costs.  This appeal followed. 


In reversing the district court's decision, the central inquiry for the Ninth Circuit was how to interpret the mention of costs in the FDCPA's provision on damages, 15 U.S.C. § 1692(k)(a)(3), which states in part: "[o]n a finding by the court that an action under this section was brought in bad faith and for the purpose of harassment, the court may award to the defendant attorney's fees reasonable in relation to the work expended and costs." 


The appellate court disagreed with the district court's explanation that this provision is "primarily concerned with the recovery of attorney's fees," noting that this interpretation "would require courts to consider costs in determining the reasonableness of attorneys' fees," but that "costs are not part of the traditional methodology of determining the reasonableness of attorney's fees" and to use costs to determine attorneys fees would be a "logical fallacy."  The appellate court also found that the FDCPA's legislative history did not support the district court's decision, and the FDCPA's remedial purpose is best served if the damages provision is interpreted to allow costs only when there is a finding of bad faith and harassment. 


Accordingly, the Ninth Circuit held that the FDCPA's damages provision superseded Fed.R.Civ.P. 54 which generally allows for a court to award costs "unless a federal statute … provides otherwise."


Let me know if you have any questions.  Thanks.


Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

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