FDCPA Litigation: The Loser May Be Stuck with Costs

In a recent opinion, the United States Supreme Court reminded litigants that the loser could be stuck with litigation costs. On February 26, 2013, the Supreme Court decided Marx v. General Revenue Corp. and addressed the taxation of litigation costs in lawsuits brought under the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq.

In this case, plaintiff Olivia Marx filed suit alleging that General Revenue Corporation (GRC) violated the FDCPA by harassing and threatening her in order to collect on a debt related to a student loan.  She claimed that GRC violated the FDCPA by making improper phone calls and faxes in its attempts to collect the debt. The FDCPA is a consumer protection statute that prohibits certain abusive, deceptive, and unfair debt collection practices. The case was tried without a jury and the district court ruled in favor of the debt collection company and dismissed the case. The trial court found that Marx failed to prove a violation of the FDCPA. Pursuant to Rule 54 of the Federal Rules of Civil Procedure, the trial court awarded GRC approximately $4,500 in court and litigation costs.

The plaintiff appealed to the U.S. Court of Appeals for the Tenth Circuit  and argued that the litigation costs were not recoverable under the FDCPA because there was no finding that she brought the lawsuit in bad faith. 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.” 15 U.S.C. § 1692k(a)(3). On the other hand, Rule 54(d)(1) of the Federal Rules of Civil Procedure 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 10th Circuit affirmed the trial court on the merits of the case and upheld the award of costs.

On appeal, the Supreme Court was tasked with interpreting the interplay between Rule 54 and the statutory provision of the FDCPA related to recovery of costs. The Federal Trade Commission, the Department of Justice, and the Consumer Financial Protection Bureau filed an amicus brief in support of the plaintiff. However, in a 7-2 majority decision by Justice Clarence Thomas, the Court ruled that the FDCPA “does not displace the background rule that a court has discretion to award costs.” Accordingly, the Court ruled that the award of costs to the prevailing party in an FDCPA action is within the discretion of the trial court under Rule 54.

This is an important decision because plaintiffs that lose lawsuits involving violations of the FDCPA may be liable for costs even if the case was not brought in bad faith. This will likely serve a deterrent for plaintiffs bringing frivolous claims under the FDCPA and will curtail abuse of FDCPA by some enterprising plaintiff attorneys. The decision also serves as authority for consumer debt collection companies to recoup costs when a case is successfully defended, without the need to prove it was brought in bad faith.