Yesterday (2/27/2013), the U.S. Supreme Court issued an opinion
that may reduce the number of claims brought by debtors under the
Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C.
§§ 1692 et seq., or at least cause
plaintiffs' counsel to think twice about bringing such claims.
In Marx v. General Revenue Corp., No. 11-1175, 2013 U.S.
LEXIS 1859 (U.S. Feb. 26, 2013), the Court held that a district
court's authority to award costs to prevailing defendants on a
claim under the FDCPA, pursuant to Federal Rule of Civil Procedure
("FRCP") 54(d)(1), is not displaced by §1692k(a)(3)
of the FDCPA. The Court therefore concluded that a district court
may award costs to prevailing defendants in FDCPA cases without a
threshold finding that the plaintiff brought the case in bad faith
or with the intent to harass. Thus, a finding that the claim was
frivolous is not required to entitle a defendant to an award of
costs against the debtor/plaintiff.
Prior to the Court's decision in Marx, there was a
split among the circuits concerning whether 15 U.S.C. §
1692k(a)(3) provided the exclusive basis for awarding costs in
FDCPA actions. Compare Marx v. Gen. Revenue Corp., 668
F.3d 1174, 1182 (10th Cir. 2011) with Rouse v. Law Offices of
Rory Clark, 603 F.3d 699, 701 (9th Cir. 2010). FRCP 54(d)(1)
provides in part that "[u]nless a federal statute...provides
otherwise, costs -- other than attorney's fees -- should be
allowed to the prevailing party." Section 1692k(a)(3) of the
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." The issue before the Court, therefore, was whether
§ 1692k(a)(3) was a federal statute that "provide[d]
otherwise," thereby displacing the district courts'
authority pursuant to FRCP 54(d)(1).
Background of Case
Petitioner Olivea Marx defaulted on a student loan, and the
creditor hired respondent General Revenue Corp. ("GRC")
to collect the debt. Gen. Revenue Corp., 2013 U.S. LEXIS
1859, at *6. Marx filed a claim against GRC under the FDCPA,
alleging that GRC harassed her with phone calls and falsely
threatened to garnish her wages and bank account. Id. at
*6-7. The district court found Marx had failed to prove any
violation of the FDCPA. GRC subsequently submitted a bill of costs
seeking an award of its witness fees, witness travel expenses and
deposition transcript fees in accordance with FRCP 54(d)(1).
Id. at *7. The district court ordered Marx to pay GRC
$4,543.03 in costs. Id. Marx filed a motion to vacate the
award, arguing the district court lacked authority to award costs
under FRCP 54(d)(1) because § 1692k(a)(3) sets forth the
exclusive basis for awarding costs in FDCPA cases. Id. at
*8. The district court rejected Marx's argument and concluded
it had discretion under Rules 54(d)(1) and 68(d) to award GRC its
costs. Id. The U.S. Court of Appeals for the Tenth Circuit
disagreed that costs were allowed under FRCP 68(d) but affirmed the
district court's judgment that costs could be awarded pursuant
to FRCP 54(d)(1). Id. at *9.
Supreme Court's Decision
The Supreme Court first noted that the discretion granted to the
district courts pursuant to FRCP 54(d)(1) can be displaced by a
federal statute that "provides otherwise." Id.
at *12. According to the Court, a statute "provides
otherwise" if it is contrary to FRCP 54(d)(1) by limiting the
discretion of the district courts. Id. For example, the
Court noted that a statute providing that "plaintiffs shall
not be liable for costs" is contrary to FRCP 54(d)(1) because
it precludes a court from awarding costs to prevailing defendants.
Id. at *12-13.
The Court then addressed whether § 1692k(a)(3) was contrary to
FRCP 54(d)(1). GRC argued that Congress intended § 1692k(a)(3)
to deter plaintiffs from bringing nuisance lawsuits. Id.
at *17. Therefore, it expressly provided that, when plaintiffs
bring an action in bad faith and for the purpose of harassment, the
court may award attorney's fees and costs to the defendant.
Id. at *17-18. Marx and the Consumer Financial Protection
Bureau, as amicus curiae, conceded that the language of
§ 1692k(a)(3) does not expressly limit a court's
discretion to award costs under FRCP 54(d)(1) but argued it does so
by negative implication. Id. at *18. They invoked the
expressio unius canon of statutory construction and argued
that, by specifying that a court may award attorney fees and costs
when an action is brought in bad faith and for the purpose of
harassment, Congress intended to preclude the district courts from
awarding fees and costs when there is no showing of bad faith or
intent to harass. Id.
The Court noted that the force of any negative implication depends
on context and that expressio unius does not apply unless
Congress considered the unnamed possibility and intended to
preclude it. Id. at *19. The Court also noted that the
expressio unius canon of construction can be overcome by
contrary indications that adopting a particular rule or statute was
probably not meant to signal any exclusion. Id.
Noting the general presumption that each litigant pays its own
attorney fees, as well as the inherent power of a federal court to
award such fees in certain circumstances, the Court concluded that
"[i]t is undisputed that § 1692k(a)(3) leaves the
background rules for attorney's fees intact.... Because §
1692k(a)(3) codifies the background rule for attorney's fees,
it is dubious to infer congressional intent to override the
background rule with respect to costs. The statute is best read as
codifying a court's pre-existing authority to award both
attorney's fees and costs." Id. at *21 (citation
omitted.).
The Court also noted that the first sentence of § 1692k(a)(3)
provides that "defendants who violate the FDCPA are liable for
the plaintiff's attorney's fees and costs," while the
second sentence "similarly provides that plaintiffs who bring
an action in bad faith and for the purpose of harassment may be
liable for the defendant's fees and costs." Id.
at *22. The Court stated that "[i]f Congress had excluded
'and costs' in the second sentence, plaintiffs might have
argued that the expression of costs in the first sentence and the
exclusion of costs in the second meant that defendants could only
recover attorney's fees when plaintiffs bring an action in bad
faith." Id. at *23. The Court concluded this argument
was foreclosed by Congress' inclusion of the words "and
costs" in the second sentence. Id. Finally, the Court
found that the language in § 1692k(a)(3) sharply contrasts
with that of other statutes in which Congress has placed conditions
on awarding costs to prevailing defendants. Id. at
*24.
The Court rejected the final argument that § 1692k(a)(3)
"establishes explicit cost-shifting standards that displace
[FRCP] 54(d)(1)'s more general default standard."
Id. at *29 (citation omitted). The Court noted that §
1692k(a)(3) "speaks to one type of case -- the case of the
bad-faith and harassing plaintiff," and "[b]ecause Marx
did not bring this suit in bad faith, this case does not
'fal[l] within the ambit of the more specific
provision.'" Id (citation omitted).
Justice Sotomayor (joined by Justice Kagan) dissented from the
majority's opinion, stating that "[f]ar from merely
restating a district court's discretion to award costs, this
provision imposes a prerequisite to the exercise of that
discretion: a finding by the court that an action was brought in
bad faith and for the purpose of harassment." Id. at
*37.
The Marx ruling is a positive development for debt
collectors -- not only because it theoretically entitles them to
recover their costs in defending an FDCPA action without producing
evidence that the action was brought in bad faith or for the
purpose of harassment, but also because it is likely to reduce the
number of frivolous and baseless actions brought by debtors, who
now face a more significant downside risk in bringing an FDCPA
claim.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.