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Bad faith motion for attorney fees denied in Lauer v. Credit Control Services

Bad Faith

In a recent decision, a Utah federal district judge denied a defendant’s bad faith motion for attorney fees arising out of claims brought by the plaintiff.  In Lauer v. Credit Control Services, the court was asked to determine whether the plaintiff filed his claims in bad faith, as well as whether defendant was entitled to attorney fees under either 15 U.S.C. § 1692k(a)(3) or 28 U.S.C. § 1927.  Ultimately, the court ruled that “[b]ecause the entirety of [plaintiff’s] action was not brought or pursued in bad faith, and because [plaintiff’s attorney] did not unreasonably an vexatiously multiple the proceedings in pursuing [plaintiff’s] claims, [defendant’s] Bad Faith Motion is denied.

Plaintiff Sues Defendant, Alleging Violations of FDCPA

Initially, the defendant attempted to collect a debt owed by the plaintiff to AT&T.  In response, on May 19, 2014, the plaintiff filed suit against the defendant alleging that defendant had violated the Fair Debt Collection Practices Act (“FDCPA”) by “falsely representing the character, amount, or legal status” of the debt.  More specifically, the plaintiff claimed that he did not owe the debt to AT&T and that the defendant falsely represented the debt in “multiple actions in an attempt to collect [on the] debt[.]”

Defendant’s MSJs and Plaintiff’s Amended Complaint

In October 2014, the defendant filed a motion for summary judgment seeking dismissal of the plaintiff’s FDCPA claim.  However, prior to resolving defendant’s motion for summary judgment, the plaintiff was granted leave to file an amended complaint.  The amended complaint reasserted the initial FDCPA claim, but also raised two additional FDCPA claims against the defendant: 1) a claim for defendant’s failure to disclose its representatives’ identities and corporate identity in four phone calls; and 2) a claim for defendant’s failure to notify plaintiff that each call was from a debt collector and made for the purpose of collecting a debt.  In light of the amended complaint, the defendant filed a subsequent motion for summary judgment.

As a result of plaintiff filing his amended complaint, the defendant’s initial motion for summary judgment was construed as a motion for partial summary judgment, which was eventually granted.  The court’s order stated that the defendant was entitled to rely on AT&T’s representations regarding the debt’s validity as a matter of law.  Accordingly, the order concluded that defendant had not violated the FDCPA.  Defendant’s second motion for summary judgment was also granted, with the court concluding that as a matter of law the transcripts of the four calls from defendant to plaintiff demonstrated that defendant’s representative complied with the FDCPA by stating the caller’s name and that the call was on behalf of defendant.

Defendant Files Bad Faith Motion

Following the court’s granting of defendant’s two motions for summary judgment, the defendant claimed that plaintiff and his counsel “pursued plaintiff’s claims without evidence or legal authority and that their conduct should be viewed as nothing less than bad faith, done for the purpose of harassing [defendant].”  Defendant claimed that on account of the aforementioned behavior, defendant was entitled to attorney fees under 15 U.S.C. § 1692k(a)(3) and 28 U.S.C. § 1927.

Pursuant to 15 U.S.C. § 1692k(a)(3), an award of attorney fees is only appropriate if the district court finds that the actions “was brought in bad faith and for the purpose of harassment.”  In order to recover under § 1692k(a)(3), a defendant must show that the entire action, not just an individual claim, was brought in bad faith.  Or in other words, if a defendant can show that the plaintiff knew the “claim was meritless and that he pursued the claim for purposes of harassment,” then “the court may award to the defendant attorney’s fees reasonable in relation to the work expended and costs.”

Alternatively, under 28 U.S.C. § 1927, “[a]ny attorney or other person admitted to conduct cases in any court … who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.”  However, unlike the all or nothing approach of § 1692k(a)(3), § 1927 allows for the recovery of attorneys’ fees on individual claims.  More importantly, § 1927 only allows sanctions against counsel and not against his or her client(s).

Sanctions under Subsection 1927 Only Available Against Attorney, Not Party

Sanctions under § 1927 against an attorney are appropriate when the “attorney is cavalier or bent on misleading the court, intentionally acts without a plausible basis, when the entire course of the proceedings was unwarranted, or when certain discovery is substantially unjustified and interposed for the improper purposes of harassment, unnecessary delay and to increase the costs of litigation.”  Furthermore, because § 1927 sanctions are meant to be penal in nature, “an award should be made under § 1927 only in instances evidencing a serious and standard disregard for the orderly process of justice.”

Defendant’s Claims of Bad Faith and Unreasonable and Vexatious Multiplication of Proceedings

In its Bad Faith Motion, the defendant argued that an award of attorneys’ fees against plaintiff and his counsel were appropriate because: 1) plaintiff and his counsel pursued the initial FDCPA claim “despite clear evidence and case law authorizing [defendant] to rely on AT&T’s representations regarding the debt’s validity”; and 2) plaintiff and his counsel pursued the other two FDCPA claims despite clear evidence that [defendant’s] representatives made the required disclosures in their four calls [to plaintiff].”

Court Rejects Bad Faith and Unreasonable and Vexatious Multiplication of Proceedings

As it related to plaintiff’s initial FDCPA claim, the district court that it was not brought or pursued in bad faith and did not unreasonably and vexatiously multiply the proceedings.  There, the court concluded:

[Plaintiff] therefore had colorable, though unsuccessful, arguments in the pursuit of his § 1692e(2)(A) Claim until the determination on the Motion of the Debt.  Without binding precedent and a definitive ruling on the admissibility of the AT&T representative’s declaration, neither [plaintiff’s] nor [his counsel’s] conduct in pursuing [plaintiff’s] § 1692e(2)(A) Claim rise to the level of bad faith.  Nor did their conduct unreasonably and vexatiously multiply the proceedings.  Accordingly, [defendant] is not entitled to an award of attorneys’ fees under either of its theories for relief with regard to [plaintiff’s] § 1692e(2)(A) Claim.

Additionally, given that [plaintiff’] § 1692e(2)(A) Claim was not pursued in bad faith, [defendant] may not recover attorneys’ fees under § 1692k(a)(3) for [plaintiff’s] § 1692d(6) Claim or [plaintiff’s] § 1692e(11) Claim, as [plaintiff’s] entire action was not brought and pursued in bad faith.  Consequently, there is no need to discuss [plaintiff’s] § 1692d(6) Claim and [plaintiff’s] § 1692e(11) Claim under the § 1692k(a)(3) standard.

Turning to the other FDCPA claims related to the four calls by defendant to plaintiff, the court concluded that neither claim unreasonably and vexatiously multiplied the proceedings against defendant.  The court determined that it was unclear from the materials presented that the plaintiff received the four phone calls from the defendant.  However, it was clear that plaintiff’s counsel did receive the transcripts of the four phone calls when defendant attached them as an exhibit to its second motion for summary judgment.  In light of that fact, the court said that plaintiff’s counsel was obligated to re-evaluate Lauer’s claims and avoid prolonging meritless claims.”  In the court’s view, once plaintiff’s counsel received and read the transcripts of the recordings:

[H]e should have known that [defendant] strictly complied with § 1692d(6) on each of its four calls to [plaintiff] and withdrawn [plaintiff’s] § 1692d(6) Claim.  [Plaintiff’s counsel] therefore should have withdrawn [plaintiff’s] § 1692d(6) Claim after his receipt of the recordings, before the filing of [defendant’s] Motion on the Collection Calls, or in his response to the motion, but he did not.  [Plaintiff’s counsel] acknowledges this, but points out that he “made no attempt to argue liability for [§ 1692d(6)] in his response to the [Motion on the Collection Calls].”  Though accurate, [plaintiff’s counsel’s] failure to withdraw [plaintiff’s] § 1692d(6) Claim necessitated [defendant’s] discussion of the claim in its Motion on the Collection Calls and in its reply memorandum.  [Plaintiff counsel’s] conduct also consumed court resources by requiring the meritless claim to be addressed in the Order Granting Motion on the Collection Calls.

While the court took issue with plaintiff’s counsel’ conduct, it concluded that:

[U]nder the circumstances, [plaintiff’s counsel’s] failure to withdraw [plaintiff’s] § 1692d(6) Claim did not unreasonably and vexatiously multiply the proceedings.  [Plaintiff’s] § 1692d(6) Claim and [plaintiff’s] § 1692e(11) Claim became procedurally married with the filing of [defendant’s] Motion on the Collection Calls.  No separate filings or proceedings occurred in the adjudication of [plaintiff’s] § 1692d(6) Claim independent of [plaintiff’s] § 1692e(11) Claim.  As discussed below, [plaintiff’s]§ 1692e(11) Claim was not brought and pursued in bad faith.  Moreover,[defendant’s] discussion and arguments relating to [plaintiff’s] § 1692d(6) Claim in its Motion on the Collection Calls and its reply on the motion were minor in relation to that of [plaintiff’s] § 1692e(11) Claim.

Finally, the court addressed plaintiff’s third FDCPA claim.  As with the second FDCPA claim, the court found that plaintiff’s counsel did not possess the recorded phone calls at the time he filed the amended complaint.  However, the question remained whether plaintiff’s counsel’s continued pursuit of the third FDCPA claim after he received the phone calls from the defendant amounted to “bad faith or an unreasonable and vexatious multiplication of the proceedings,” the court said.

Plaintiff’s counsel’s challenges to the phone calls to plaintiff centered only upon call three, as he admitted that the other three calls strictly complied with § 1692e(11).  Defendant responded that it should not be held liable under the bona fide error defense.  In response, plaintiff’s counsel argued that, while defendant’s violation was unintentional and a bona fide error, there was a problem with defendant’s in-house debt collection procedures.  The court determined:

Though it was ultimately determined that [defendant] did provide sufficient undisputed evidence to demonstrate that it did not violate § 1692e(11), [plaintiff’s counsel’s] reliance on Riddle was a colorable defense to [defendant’s] Motion on the Collection Calls.  Therefore, [plaintiff’s counsel’s] continued pursuit of [plaintiff’s] § 1692e(11) Claim was not in bad faith and the opposition to [defendant’s] Motion on the Collection Calls did not unreasonably and vexatiously multiply the proceedings.  Accordingly, [defendant] is not entitled to an award of attorneys’ fees under § 1927 on Lauer’s § 1692e(11) Claim.

Key Takeaways

This case provides several different important takeaways.  First, the case highlights the continued need for counsel to reevaluate their client’s case in light of new evidence and/or evidence submitted as exhibits to the opposing party’s motions.  Second, in order to recover attorney’s fees under § 1692k(a)(3), a defendant must show that the entire case is without merit, not just any individual claims.  Third, § 1927 only allows sanctions against an attorney and not his or her client.  Finally, even though § 1927 only allows claims against attorney, the conduct rising to the level warranting sanctions must amount to “a serious and standard disregard for the orderly process of justice.”

* Photo Cred.: blognetwork.kilpatricktownsend.com

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