Death to Foti? Supreme Court to Hear FDCPA Case on Awarding Costs to Defendants

The U.S. Supreme Court Tuesday said that it would hear a case where a debt collection agency was awarded costs after prevailing in an FDCPA case. The Court will consider whether a defendant in an FDCPA case is entitled to costs should they win the case, even if the case was not initially brought by the plaintiff in bad faith or for the purposes of harassment.

The Supreme Court announced Tuesday that it had granted certiorari (meaning it will review the decision) in the case Marx v. General Revenue Corp. The action was originally brought by a student loan debtor who claimed General Revenue violated the Fair Debt Collection Practices Act (FDCPA) by sending an employment verification fax to her job while attempting to collect the debt.

A federal judge found that General Revenue’s actions did not violate the FDCPA and dismissed the case. The district court judge in Colorado awarded General Revenue $4,543 in costs, despite the absence of a finding that Marx had brought the case “in bad faith and for the purpose of harassment.”

Collection agencies have long been able to recover costs in cases in which they prevail if it can be shown that a consumer brought a case in bad faith. But this case may set a precedent for costs being awarded to prevailing FDCPA defendants when the case is not found to be in bad faith or for the purpose of harassment.

Under Federal Rule of Civil Procedure 54(d), courts can award costs to the prevailing party unless a federal statute provides otherwise. Marx is arguing that a cost-shifting provision of the FDCPA does supersede the rule, allowing costs to be awarded only in cases brought in bad faith. So far, two courts have disagreed and awarded costs to General Revenue.

The U.S. Supreme Court Tuesday decided to hear the case and address the issue of awarding costs to prevailing FDCPA defendants.

Regardless of the outcome of the Supreme Court procedures, one of the attorneys involved in the case thinks the Supreme Court sent a strong message with Tuesday’s announcement, one that could have Foti implications.

On initial appeal, Marx consolidated her FDCPA claims to one potential violation: a third party disclosure violation concerning a fax. General Revenue sent a fax to Marx’s place of work to verify employment. The fax included the company’s name, logo, and address, its internal identification number for Marx’s account, and stated “Sallie Mae” (General Revenue’s parent company) in the fax information line at the top of the page. The fax requested the employer’s address and corporate payroll address, Marx’s date of hire, whether she was full or part time, and her position.

The district court dismissed Marx’s claim, holding that the fax did not violate the FDCPA’s prohibition on communicating with third parties “in connection with the collection of a debt” because it was not a “communication” at all. The court noted that a debt collector can contact an employer to ask for information in addition to “location information,” as long as the debt collector does not convey information concerning the debt. The appeals court in the case, the U.S. Court of Appeals for the Tenth Circuit, agreed and upheld the ruling.

Adam Plotkin, of Adam L. Plotkin, P.C. – a law firm defending General Revenue in the case – said that by refusing to consider the FDCPA “communication” question before it, the Supreme Court left the appeals court opinion as the highest court in the country to have ruled upon this issue.

“The Marx court, the Tenth Circuit Court, ruled that if you don’t convey information about the debt, you don’t have a ‘communication’ under the FDCPA, and therefore there is no third-party disclosure under the FDCPA,” said Plotkin. “By applying the express definition of ‘communication’ as it is set forth in the FDCPA, the Marx Court stuck a dagger in the heart of Foti.”

Plotkin will be arguing before the Supreme Court in the fall on behalf of General Revenue.

Marx’s initial appeal of the lower court decision was heard by the Tenth Circuit Court, with a decision handed down in December 2011. The majority decision affirmed the lower court rulings on the FDCPA violation and the award of $4,543 in costs for General Revenue.

But the 2-1 split decision did draw an interesting dissent. The dissenting appellate judge noted that he disagreed with the decision in the FDCPA violation question. He said that he thought the fax was a violation, rendering moot the discussion about awarding costs to General Revenue.

Marx appealed the Tenth Circuit Court decision to the Supreme Court and presented two potential questions to the high court: 1) whether FDCPA cases can be allowed to award costs to a prevailing defendant in the absence of a finding of bad faith litigation, essentially arguing that the FDCPA supersedes Rule of Civil Procedure 54(d), and 2) 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.

The Supreme Court announced Tuesday that it would hear arguments only on the first question.

The case will be heard after the Supreme Court convenes its next session in October. In the interim, both sides will file briefs and encourage interested parties to file amicus briefs on their behalf.