In 2007, Petitioner Olivea Marx defaulted on her student loans. Her debt was assigned to Respondent General Revenue Corporation (GRC) for collection. In their attempts to collect the debt, Marx claims that GRC called her multiple times a day and sent a fax to her employer. Marx sued GRC under the Fair Debt Collection Practices Act (FDCPA), claiming that GRC’s attempts to collect her debt were acts of harassment in violation of the FDCPA. The District Court dismissed Marx’s claims and ordered her to pay GRC the costs of its defense. Marx argues that the FDCPA allows only an award of costs to defendants only if the plaintiff filed the suit in bad faith. In response, GRC argues that a court may award costs under Rule 54 of the Federal Rules of Civil Procedure as there is no prohibition under the FDCPA. If Marx wins, consumers face less risk of carrying the costs of defendants in lawsuits against abusive debt collecting practices. If GRC wins, debt collectors are less vulnerable to abusive negotiation tactics of attorneys who bring meritless claims that would be less expensive to settle than to litigate.
Questions as Framed for the Court by the Parties
The Fair Debt Collection Practices Act (FDCPA) provides that, "[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." 15 U.S.C. § 1692k(a) (3). Federal Rule of Civil Procedure 54(d) provides that, "[u]nless a federal statute, these rules, or a court order provides otherwise, costs-other than attorney's fees should be allowed to the prevailing party."
The first question presented is whether a prevailing defendant in an FDCPA case may be awarded costs where the lawsuit was not "brought in bad faith and for the purpose of harassment." 2. The FDCPA defines "communication" as "conveying of information concerning a debt directly or indirectly to any person through any medium." 15 U.S.C. § 1692a(2). The statute generally bars debt collectors from communicating "in connection with the collection of any debt, with any person other than the consumer." § 1692c(b).
An exception to this bar allows a debt collector to "communicat[e]" with a debtor's employer solely to acquire "location information" about the debtor, but provides that a location information inquiry shall "not state that [the] consumer owes any debt" and not "indicate ... that the communication relates to the collection of a debt." § 1692b.
The second question presented is whether the FDCPA's strict limits on communications with third parties cease to apply when a debt collector, contacting a third party in connection with the collection of a debt, does not indicate the reason for the communication.
Whether a plaintiff who brings a good-faith claim under the FDCPA may be ordered to pay the defendant’s costs and attorney’s fees if they lose.
In 2007, Petitioner Olivea Marx defaulted on her student loan. Approximately a year later, the company that guaranteed her loan hired the General Revenue Corporation (GRC) to collect from her. Marx sued GRC, under the Fair Debt Collection Practices Act (FDCPA), claiming that calling her multiple times during the day and threatening her violated the FDCPA. Marx further claimed that GRC violated the FDCPA by faxing an employment verification letter to her employer.
Dismissing her claims, the district court decided that GRC did not act in an abusive or threatening manner. The district court also awarded costs to GRC under Rule 54 of the Federal Rules of Civil Procedure. Disagreeing with the decision, Marx appealed to the Tenth Circuit Court, arguing that the lower court should have found the employment verification form to be a “communication” covered under the FDCPA and should not have ordered her to pay GRC’s costs as she neither sued in bad faith nor harassed GRC.
Agreeing that the purpose of the FDCPA was to stop abusive practices of debt collection agencies, the Tenth Circuit rejected Marx's argument about the faxed employment verification form. According to the Tenth Circuit, because Marx did not show that her employer knew about her debt from GRC’s fax, the fax was not prohibited by the FDCPA.
In discussing Marx's objection to paying the costs of GRC's defense, the Tenth Circuit determined that FDCPA Section 1692k(a)(3) creates two different “cost-shifting scenarios.” The first scenario, the Tenth Circuit explained, allows a plaintiff who wins an FDCPA claim to receive costs and reasonable attorney's fees from the defendant. The second scenario, the Tenth Circuit continued, allows attorney's fees to a defendant who wins against the plaintiff suing in bad faith and for the purpose of harassment. As the Tenth Circuit noted, the question here is whether a defendant may recover costs from the plaintiff who did not sue in bad faith or to harass the defendant.
Ultimately, the Tenth Circuit rejected Marx’s argument that a court may award costs under the FDCPA only if a plaintiff sued in bad faith and for the purpose of harassment. Pointing to the absence of a provision in the FDCPA dedicated to the allocation of costs for a prevailing defendant, the Tenth Circuit reasoned that the FDCPA should be read in harmony with the Federal Rules of Civil Procedure, including Rule 54's allowance of costs. The Tenth Circuit concluded that, without express direction from Congress to override Rule 54 or exclude costs from recovery, the FDCPA allows a court to award costs to a defendant.
Petitioner Marx contends that the Fair Debt Collection Practices Act (FDCPA), in Section 1692k(a)(3), allows an award of costs only if a plaintiff sued in bad faith and to harass the defendant. In response, the General Revenue Corporation (GRC) argues that Section 1692k(a)(3) does not explicitly override Rule 54 of the Federal Rules of Civil Procedure, which allows an award of costs. The consequences of the Supreme Court’s decision may impact the ability of consumers to sue under the FDCPA and how FDCPA claims are settled out of court.
The Ability of Consumers to Sue under the FDCPA
Supporting Marx, the United States argues that upholding the decision to award costs to prevailing defendants will deter plaintiffs from suing under the FDCPA. The United States argues that the enforcement of the FDCPA and the achievement of its goal to curb abuses of debt collectors depend on the willingness of individuals to pursue their claims under the FDCPA. The United states notes that allowing defendants to recover costs means that even the slightest possibility of losing an FDCPA claim exposes plaintiffs to the recovery claims of defendants; this increased exposure reduces the incentive of any plaintiff to pursue an FDCPA claim. Further, the United States argues that the possibility of awarding costs on good-faith plaintiffs would most impact the plaintiffs in greatest need of protection from abusive debt collection practices, because those who are financially unstable are least likely to afford the risk of carrying a defendant's costs after losing the case.
In support of GRC, ACA International (“ACA”) contends that denying costs to prevailing defendants would increase the number of FDCPA claims that have little to no merit. ACA claims that debt collectors as a group face an enormous number of FDCPA claims already, despite their legitimate business practices. ACA argues that removing the possibility of imposing costs on plaintiffs would remove one of the few deterrents to filing a lawsuit against a debt collector. According to the ACA, eliminating the possibility of paying a defendant’s costs would increase the incentive for plaintiffs to file unsubstantiated lawsuits because there would be no harm in trying to win a substantial amount of money. Further, removing a debt collector's ability to recover costs from plaintiffs would competitively disadvantage those debt collectors whose legitimate and non-abusive business practices prevailed against FDCPA claims.
Negotiation of FDCPA Claims
Noting the centrality of private litigation to the enforcement of the FDCPA, AARP and others claim that the threat of litigation motivates debt collectors to police their own behavior when they otherwise are unlikely to care about whether consumers like them or not. AARP argues that encouraging private enforcement of FDCPA violations is necessary because public enforcement agencies, such as the Consumer Financial Protection Bureau, are unable to adequately regulate debt collection abuses on their own. In support of this point, the AARP cites that the Federal Trade Commission is usually only able to bring between two to three cases against debt collection agencies for abusive practices each year—a number far below the estimated number of actual debt collection abuses. Thus, AARP emphasizes the necessity of private enforcement, which is encouraged by removing the fear of carrying a defendant’s costs.
In contrast, ACA claims that many lawyers bring unsubstantiated FDCPA lawsuits against law-abiding debt collection agencies in order to force settlements. To illustrate this tactic, ACA cites that defending even a meritless FDCPA claim costs in the tens of thousands of dollars while settling a claim costs between $2,500 and $7,500: Debt collection agencies, in order to save money, are likely to settle unsubstantiated claims. Additionally, ACA claims that the plaintiff’s original debt almost always remains after the suit is settled, further demonstrating the benefit to plaintiff attorneys rather than the indebted plaintiffs. Moreover, the National Association of Retail Collection Attorneys (“NARCA”) contends that awarding costs is necessary to deter these abusive settlement tactics, because without the risk of costs, plaintiff attorneys will continue to bring FDCPA lawsuits simply as a means of generating attorney’s fees.
This case focuses on the interpretation of the following words: “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.” Petitioner Olivea Marx argues that this provision allows a defendant to recover costs only from plaintiffs who sue in bad faith and to harass. In contrast, respondent General Revenue Corporation (GRC) argues that this provision does not undermine a default rule that a winning party may recover its costs of litigation from the losing party.
Section 1692k(a)(3)Terminology is Unclear in Distinguishing between Attorney’s Fees and Costs
Marx argues that the Fair Debt Collection Practices Act (FDCPA) allows an award of both attorney’s fees and costs to a defendant only when a plaintiff brings a case in bad faith and to harass a defendant. Marx contends that since the statute makes no distinction between attorney’s fees and costs, the language that requires bad faith must be proven for either to be awarded, and without bad faith neither can be awarded. Additionally, Marx contends that because the preceding sentence in the statute clearly awards costs in all situations where the debt collector loses, this sentence allowing debt collectors to recover attorney's fees and costs explicitly strays from Rule 54 by requiring a debt collector who wins to show that the plaintiff sued in bad faith and for the purpose of harassment. Marx argues that if the FDCPA allowed for the awarding of costs in line with Rule 54 of the Federal Rules of Civil Procedure rather than impose a requirement of bad faith, then the language would have excluded the reference to costs altogether. Marx argues that the Tenth Circuit erred in writing the requirement of bad faith out of Section1692k(a)(3). Marx notes that she was not found to have brought the case in bad faith and so asserts that there is no justification for an award of any costs to GRC.
Contrary to Marx’s argument, GRC argues that Section 1692k(a)(3) does not prohibit awarding costs under Rule 54. GRC argues that the language of Section 1692k(a)(3) should be read in context with the other provisions of the FDCPA. According to GRC, Section 1692k(a)(3) serves the same purpose as the previous sentence in targeting improper behavior except that it imposes liability on the plaintiff. GRC asserts that the purpose of Section 1692k(a)(3) is to allow for the recovery of attorney’s fees which are not recoverable except in rare instances where there is statutory language and that is the main purpose for the inclusion of Section 1692k(a)(3). GRC contends that while the main purpose of the section is to clarify a special situation where attorney’s fees are allowed, Congress also made reference to “other costs” in the sentence, to assure that where there is bad faith both attorney’s fees and costs will both be awarded. GRC puts forth the idea that Congress meant to delineate a specific situation where costs and fees should be awarded but is the awarding of costs and fees are not exclusive to a case of bad faith. GRC asserts that since there is no bad faith present the court should look to the general principles of awarding fees outside the presence of bad faith. GRC also argues that Congress clearly delineates exceptions where costs will not be awarded and if Congress so intended to preclude Rule 54 and the awarding of costs in the present situation, the statutory language would make this clear.
Does the Statute Override Rule 54?
Marx argues that the language of Rule 54 applies only when there is no other statute, rule, or court order that “provides otherwise.” Marx’s argument is that the Section 1692k(a)(3) provides clear language to supersede the allocation of costs laid out in Rule 54. Marx references the language of other courts’ decisions, which say that once there is a statute that provides for costs independent of Rule 54, there is no need for any special analysis to determine the statutory language and its relation to Rule 54. Marx also argues that the Tenth Circuit’s decision to require clarity in the language of the statute of overriding Rule 54 incorrectly imports a legal principle of constitutional law into the interpretation of a court rule that is neither rooted in the constitution nor implicating questions of constitutional weight. Marx claims that the Tenth Circuit misinterpreted Section 1692k(a)(3) of the FDCPA in reading some fundamental right or value into the permissible and not mandatory awards of Rule 54. Marx contends that, in other statutes, simply mentioning costs may be enough to override Rule 54. Marx argues that Congress replaced the lenient Rule 54 with the stricter requirement of bad faith in the FDCPA to protect particularly vulnerable plaintiffs who would be unable to pay an award of costs. It is Marx’s assertion that the Tenth Circuit erred in the awarding of costs because Congress wanted to allow indebted plaintiffs to bring suit and not have to fear extra costs simply for losing a case.
In contrast, it is the assertion of GRC that because Section 1692k(a)(3) of the FDCPA makes no clear mention of what to do when a defendant wins and a plaintiff sued in good faith, a court must look to the presumption that a losing party carries the costs of the winning party—a presumption that is the opposite of the one existing for the allocation of attorney's fees. GRC asserts that based on the language of Rule 54, it does not apply only when a statute is merely mentions costs but rather applies when the statute offers a different allocation of costs than the provision of Rule 54. GRC contends that when Congress adopted Rule 54 in 1937, Congress demonstrated its requirement of using express terms to limit a court’s discretion under Rule 54 by providing a list of statutes that explicitly offered different allocations of costs than Rule 54. GRC also argues that Congress added Section 1692k(a)(3) in order “to protect debt collectors from nuisance lawsuits” and not to override the scope of Rule 54. Additionally, GRC claims that a court still has discretion in determining the exact allocation of costs and may refuse to impose costs on a plaintiff debtor who is unable to take on more debt. Therefore, it is the view of GRC that Marx could have asked for a waiver or reduction of the cost award but instead sought to pursue a rigid rule that would preclude recovery of costs even against a plaintiff who is able to afford them.
The outcome of this case may impact the effect of Rule 54 on the allocation of costs in debt collecting cases. Marx argues that the statutory language clearly limits a defendant's recovery of costs to cases of bad-faith plaintiffs, while GRC contends that Rule 54 controls and costs can be recovered independent of whether or not a plaintiff sued in bad faith. Some caution that holding for GRC will inhibit future debtors from bringing valid claims due to a fear of owing even more money if they lose the case. However, others argue that if Marx is successful, the number of lawsuits against debt collection agencies will skyrocket.
- Fox Business: http://www.foxbusiness.com/personal-finance/2012/08/20/supreme-court-case-could-curb-debt-collection-lawsuits/ (Aug. 23, 2012).
- Federal Trade Commission: http://ftc.gov/opa/2012/08/amicus.shtm (Aug. 16, 2012).