The U.S. Court of Appeals for the Fifth Circuit recently affirmed a trial court's denial of an award to attorney fees to a debtor who settled her claims against a debt collector for purported violations of the federal Fair Debt Collection Practices Act, 15 U.S.C. 1692, et seq. ("FDCPA") and parallel state law consumer protection statutes.
In so ruling, the Fifth Circuit concluded that the fee-shifting provision under the FDCPA for a "successful action to enforce the foregoing liability" requires that a lawsuit generates a favorable end result compelling accountability and legal compliance with a formal command or decree under the FDCPA, and that reaching settlement before any such end result does not entitle a plaintiff to an award of attorneys' fees under the statute.
A copy of the opinion is available at: Link to Opinion
A consumer ("Debtor") sued a debt collector ("Debt Collector") for purported violations of the FDCPA and parallel provisions of Texas state law. After the parties' cross-motions for summary judgment were denied on the basis that triable issues of fact existed, the parties reached a settlement before trial wherein the Debt Collector agreed to waive the outstanding debt (approximately $2100) and pay $1,000 damages.
After apprising the trial court of the settlement, the court entered sanctions against the Debtor's attorneys, ordering thousands of dollars in costs and fees and reporting them to the disciplinary committee of the U.S. District Court for the Western District of Texas for purportedly bringing the case in bad faith. See Tejero v. Portfolio Recovery Assocs., L.L.C., 955 F.3d 453, 457.
The Debtor appealed, and the Fifth Circuit reversed the imposition of sanctions for abuse of discretion and remanded for the trial court to determine in the first instance whether the Debtor's favorable settlement entitled him to attorneys' fees under the FDCPA. Id. at 462-463. The district court said no, which led to the instant appeal.
In this appeal, the sole question before the Fifth Circuit was whether the trial court erred in refusing the Debtor's fee application under the FDCPA.
The United States generally employ the "American Rule" wherein "[e]ach litigant pays his own attorney's fees, win or lose," but this general rule can be altered or amended by statute or contract. Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242, 253 (2010).
As you may recall, the FDCPA authorizes fee shifting, allowing a plaintiff to recover reasonable attorney's fees as determined by the court with costs "in the case of any successful action to enforce the foregoing liability." 15 U.S.C. § 1692k(a)(3).
To determine whether such an award was merited here, the Fifth Circuit first turned to the dictionary definition of "successful" — a "favorable outcome," or favorable end result. Successful, American Heritage Dictionary 1740 (5th ed. 2011); Outcome, Id. at 1251. "Successful" modifies the word "action" in the statutory language—the "lawsuit" in this case—thus requiring a favorable end or result from a lawsuit, not merely success in vacuo. Next considering the infinitive phrase "to enforce the foregoing liability," "enforce" expresses the purpose of the "successful action," and thus, the action must succeed in its purpose of enforcing FDCPA liability.
Read together, the Fifth Circuit stated that a "successful action to enforce the foregoing liability" means a lawsuit that generates a favorable end result compelling accountability and legal compliance with a formal command or decree under the FDCPA.
Here, the appellate court determined that because settlement was reached before the lawsuit reached any end result, let alone a favorable one, the Debtor won no such relief and the Debt Collector avoided a formal legal command or decree from the lawsuit.
The Debtor argued that his "action" was "successful" because he settled for $1,000, which are the statutory damages allowed by the FDCPA. The Fifth Circuit rejected this alternative interpretation because it was resolved by settlement agreement that did not "enforce" FDCPA "liability" because it did not compel the Debt Collector to do anything. Adopting such a position would improperly rewrite Congress's statute to authorize fee-shifting "in the case of any successful plaintiff."
The Fifth Circuit also declined to apply the catalyst theory to the FDCPA's fee-shifting provision, as a "successful action[s]" under 15 U.S.C. § 1692k(a)(3) notwithstanding its inapplicability to "prevailing party" statutes.
As you may recall, the catalyst theory posits that a plaintiff succeeds "if it achieves the desired result because the lawsuit brought about a voluntary change in the defendant's conduct" (Buckhannon Bd. & Care Home, Inc. v. W. Va. Dep't of Health & Hum. Res., 532 U.S. 598, 601 (2001)).
The Fifth Circuit declined to adopt that interpretation here because "prevailing party" and "successful party" are synonymous phrases carrying similar legal salience, requiring a formal lawsuit, success in that lawsuit, and some form of judicial relief (as opposed to private relief) that enforces the winner's rights (Prevailing Party, Black's Law Dictionary 1232), and such an interpretation would also disrupt recent circuit precedent and the Supreme Court's mandate that fee-shifting statutes must be interpreted consistently. Buckhannon, 532 U.S. at 603.
Because the Debtor's lawsuit was not a successful FDCPA action as defined by section 1692k(a)(3), the Fifth Circuit held that the trial court correctly determined that he was not entitled to fees, and its denial of attorneys' fees was affirmed.
Ralph T. Wutscher
Maurice Wutscher LLP
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