Alert March 05, 2013

Supreme Court Holds Debt Collectors Can Recover Costs Despite FDCPA

The United States Supreme Court has resolved a question that has divided various circuit courts of appeal—whether a prevailing defendant in a Fair Debt Collection Practices Act action may be awarded costs where the lawsuit was not "brought in bad faith and for the purpose of harassment." Initially brought in district court, the district court dismissed plaintiff’s suit alleging that defendant, a debt collector, had sent unlawful debt collection "communications" to plaintiff’s place of employment in violation of the FDCPA. Upon dismissal of the case, the district court awarded costs of suit—but not attorney’s fees—to the prevailing debt collector. The FDCPA’s cost-shifting provision authorizes a court to award attorney’s fees to a defendant upon a finding that the action "was brought in bad faith and for the purpose of harassment." However, Rule 54(d) of the Federal Rules of Civil Procedure, provides, in relevant part, that unless a federal statute provides otherwise, costs—other than attorney’s fees—should be allowed to the prevailing party. On appeal, the Tenth Circuit Court affirmed, in part, the district court’s decision, interpreting the FDCPA as distinguishing the award of costs to a prevailing defendant from an award of attorney’s fees. The Tenth Circuit held that the latter requires a finding that the plaintiff filed suit "in bad faith," whereas costs could be awarded to a prevailing defendant regardless of the plaintiff’s motives in bringing suit. Plaintiff petitioned for a writ of certiorari.

The CFPB, FTC and the Department of Justice filed a joint amicus brief in support of plaintiff urging the Supreme Court to overturn the Tenth Circuit’s decision to award costs to defendant (see August 21, 2012 Alert). The CFPB, FTC and DOJ argued that Rule 54(d) does not supersede the FDCPA’s cost-shifting language, as evidenced by the text of the Rule and to interpret otherwise would "frustrate the [FDCPA’s] goal of discouraging and remedying abusive debt-collection practices."

The Supreme Court agreed with the Tenth Circuit’s holding that the FDCPA’s cost-shifting provision did not supersede Rule 54(d). Rejecting the arguments of both plaintiff and the amici curiae in support of plaintiff that any statute that specifically provides for costs displaces Rule 54(d) regardless of whether it is contrary to the Rule, the Supreme Court held that a federal statute "provides otherwise" if the statute is contrary to Rule 54(d). A statute is contrary to Rule 54(d) if it limits a court’s discretion. Rule 54(d), according to the Supreme Court, "codifies a venerable presumption that prevailing parties are entitled to costs." The FDCPA cost-shifting provision does not address situations in which the plaintiff brings the action in good faith and/or without the purpose of harassment, and "silence," according to the Supreme Court, "does not displace the background rule that a court has discretion to award costs."

The Supreme Court’s decision resolves a conflict among the circuit courts of appeals; namely the Ninth and Tenth Circuits. The Ninth Circuit held in Rouse v. Law Offices of Rory Clark, 603 F.3d 699, 701 (9th Cir. 2010) that a prevailing defendant cannot be awarded costs under the FDCPA’s cost-shifting provision unless the action was brought in bad faith and for the purpose of harassment. However, the Supreme Court did not address a secondary issue—whether the FDCPA’s limits on communications with third parties were applicable when the debt collection communication does not indicate the reason for the communication. In her complaint, plaintiff alleged that defendant violated the FDCPA’s that the subject facsimile was not a "communication" under the FDCPA because it did not "convey[] information ‘regarding a debt.’" In granting certiorari, the Supreme Court declined to address this issue.