The U.S. Supreme Court recently upheld an award of costs to a prevailing defendant debt collector in an action under the federal Fair Debt Collection Practices Act, even though there was no finding under section 1692k(a)(3) that the plaintiff consumer brought the case "in bad faith and for the purpose of harassment."
A copy of the opinion is available at: http://www.supremecourt.gov/opinions/12pdf/11-1175_4fc5.pdf
Plaintiff borrower ("Borrower") defaulted on her student loan debt. Defendant debt collection agency ("Debt Collector") was hired to collect on the debt. Borrower later filed an action under the federal Fair Debt Collection Practices Act ("FDCPA"), alleging that Debt Collector violated the FDCPA by harassing her with phone calls and making various false threats against her.
Debt Collector made an offer of judgment under Fed. R. Civ. P. 68 to pay borrower a settlement amount, along with reasonable attorney's fees and costs. Instead of responding to the settlement offer, Borrower amended her complaint to add another claim that Debt Collector improperly sent her workplace a fax seeking information about her employment status.
After a bench trial, the district court concluded that Borrower had failed to prove any violation of the FDCPA. As the prevailing party, Debt Collector submitted a bill of costs and expenses. Pursuant to Fed. R. Civ. P. 54(d)(1), the district court ordered Borrower to pay Debt Collector over $4,000.
Borrower moved to vacate the award of costs, arguing that the court lacked authority to award costs under Fed. R. Civ. P. 54(d)(1) and 68(d) because 15 U.S.C. 1692k(a)(3) was the exclusive basis for awarding costs in FDCPA cases. The district court disagreed, and ruled in part that section 1692k(a)(3) did not override a court's discretion to award costs under Rule 54(d)(1). Borrower appealed. The Tenth Circuit affirmed.
The United States Supreme Court granted Borrower's petition for certiorari to determine whether section 1692k(a)(3) precluded an award of costs under Rule 54(d)(1).
The Court affirmed the judgment of the Tenth Circuit, addressing the assertions of both Borrower and the United States, which filed an amicus brief in this case.
As you may recall, Rule 54(d)(1) provides in part: "Unless a federal statute, these rules, or a court order provides otherwise, costs – other than attorney's fees – should be allowed to the prevailing party." Fed. R. Civ. Pro. 54(d)(1).
In addition, the federal Fair Debt Collection Practices Act provides in pertinent part: "Except as otherwise provided by this section, any debt collector who fails to comply with any provision of this subchapter with respect to any person is liable to such person in an amount equal to the sum of . . . (3) in the case of any successful action to enforce the foregoing liability, the costs of the action, together with a reasonable attorney's fee as determined by the court. On 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." See 15 U.S.C. § 1692k(a).
First, defining the term "provides otherwise" in Rule 54(d)(1) as meaning "contrary" to Rule 54(d)(1), the Supreme Court reasoned that a statute is "contrary" to Rule 54(d)(1) if it limits a court's discretion to award costs, such as where a statute specifies that "plaintiffs shall not be liable for costs" or provides that plaintiffs may recover costs only under certain conditions.
Noting, however, that a statute which provides, for example, that "the court may award costs to the prevailing party," is not contrary to Rule 54(d)(1) because it does not limit a court's discretion, the Supreme Court rejected Borrower's assertion that any statute that specifically provides for costs automatically displaces Rule 54(d)(1). In so doing, the Court specified that in order to displace Rule 54(d)(1), statutes would have to set forth a standard for awarding costs that differed from, i.e., was contrary to, that articulated in Rule 54(d)(1).
Applying this standard here, the Supreme Court next analyzed whether section 1692k(a)(3) was contrary to Rule 54(d)(1), ultimately concluding that it was not. In so ruling, the Court noted that although section 1692k(a)(3) expressly authorizes the award of attorney's fees and costs where an FDCPA action is "brought in bad faith and for the purpose of harassment," such was not the circumstance in this case. Rather, the Court stressed, the question here was whether section 1692k(a)(3) precluded an award of costs under Rule 54(d)(1), which independently authorizes courts to award costs to prevailing parties.
In reaching its conclusion, the Court rejected Borrower's various assertions, including the arguments that: (1) by specifying that a court may award costs when an action is brought in bad faith and for the purpose of harassment, section 1692k(a)(3) creates a negative implication whereby the absence of bad faith and harassment precludes the award of costs; (2) section 1692k(a)(3) is the exclusive basis for awarding costs in FDCPA cases; and (3) the phrase "and costs" is superfluous under the Court's interpretation. In so doing, the Court examined the context in which section 1692k(a)(3) was created, including the existence of Rule 54(d)(1) and its general grant of authority to allow a court to award costs to the prevailing party, and the fact that section 1692k(a)(3) was a codification of the generally accepted background presumptions for awarding attorney fees and costs.
Reading the second sentence in section 1692k(a)(3) in the context of the preceding sentence, the Court further reasoned in part that the use of explicit language in other statutes to limit a court's discretion under Rule 54(d)(1) cautioned against inferring a similar limitation under section 1692k(a)(3), noting that had Congress intended the second sentence of section 1692k(a)(3) to displace Rule 54(d)(1), it could easily have done so by adding the word "only" before the phrase "[o]n a finding by the court that an action . . . was brought in bad faith and for the purpose of harassment. . . ."
Concluding that section 1692k(a)(3)'s second sentence is not contrary to Rule 54(d)(1), the Court ruled that it did not displace the district court's discretion to award costs under that Rule in FDCPA cases, even without a finding that the plaintiff brought the case in bad faith and for the purpose of harassment.
Accordingly, the Supreme Court affirmed the award of costs to the prevailing Debt Collector in this case.
Ralph T. Wutscher
McGinnis Wutscher LLP
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