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Fifth Circuit's Affirmance of Denial of Attorney's Fees to Successful FDCPA Plaintiff May Aid Collectors in Challenging Unreasonable Fee Requests

Debt collectors should take note of a recent decision by the U.S. Court of Appeals for the Fifth Circuit holding that a Texas federal district court was justified in relying on "special circumstances" to deny attorney's fees to a successful plaintiff in a lawsuit in which the defendant was found to have violated the Fair Debt Collection Practices Act (FDCPA). The decision suggests that attorney's fees may be disallowed to a prevailing plaintiff if the fee request is exorbitant or the lawsuit was manufactured by the plaintiff and his or her attorneys.

In addition, the decision demonstrates that while prevailing plaintiffs are generally awarded attorney's fees in FDCPA cases, the need for such fees to be reasonable can be used as ammunition against plaintiffs' lawyers whose conduct in litigating the case is questionable—particularly in individual cases where there are no actual damages, just statutory damages.

In this case, Davis v. Credit Bureau of the South, the plaintiff claimed that the defendant had violated the FDCPA by using the words "credit bureau" in its name in an attempt to collect a debt, thereby misrepresenting itself as a credit bureau. The plaintiff, Crystal Davis, identified two incidents in which the defendant allegedly attempted to unlawfully collect the debt—a 2013 water bill for $107.29. Ms. Davis alleged that in August 2015, the defendant mailed her a collection letter on letterhead that identified itself as "Credit Bureau of the South." The second alleged violation was based on a recorded phone call that Ms. Davis made to the defendant in September 2015, during which she claimed that the defendant misrepresented itself as a credit bureau.

Accepting the magistrate judge's finding and recommendation that the defendant had violated the FDCPA by continuing to use the term credit bureau in its name while engaging in debt-collection activities—despite having previously ceased to be a consumer-reporting agency—the district court granted summary judgment in Ms. Davis' favor and awarded her $1,000 in statutory damages.

Ms. Davis subsequently filed a motion seeking $130,410 in attorney's fees, which was denied by the magistrate judge based on his determination that the case involved special circumstances making an award of attorney's fees unjust. According to the magistrate judge, "it appears that this cause of action was created by counsel for the purpose of generating, in counsel's own words, an 'incredibly high' fee request."

While observing that a successful FDCPA plaintiff is ordinarily entitled to attorney's fees to disincentivize future violations, the magistrate judge stated that "the Court is even more concerned about disincentivizing the conduct of Plaintiff’s counsel." The magistrate judge stated at the hearing that he found it "suspicious" that Ms. Davis, while employed by the law firm that represented her, asked the defendant to mail a new water bill to her parents' Texas address and then based an FDCPA claim on that action. The record also indicated that the phone call claimed to have violated the FDCPA was made in the presence of Ms. Davis' attorney and recorded using a device owned by his firm.

The Fifth Circuit concluded that the district court did not abuse its discretion in adopting the magistrate judge's order denying attorney's fees. Citing precedents by the U.S. Courts of Appeal for the Third and Fourth Circuits, the Fifth Circuit concluded that based on the "outrageous facts in this case" it was appropriate to invoke a "special and unusual circumstances" exception to the FDCPA provision making a debt collector liable for a successful plaintiff's reasonable attorney's fees.

The court also concluded that the district court's finding that no attorney's fees should be awarded was justified based on the poor quality of legal work and excessive number of hours claimed. Noting the concession by plaintiff's counsel at oral argument that there were no actual damages in the case, the Fifth Circuit expressed both its "disapproval of utilizing technical violations of the FDCPA solely as a means for generating attorney's fees" and its view that "grossly excessive attorney's requests directly contravene the purpose of the FDCPA [and] must be deterred."

Copyright © by Ballard Spahr LLPNational Law Review, Volume VIII, Number 344


About this Author

Kaplinksy, partner, New York, finance

Alan S. Kaplinsky is Co-Practice Leader of the firm's Consumer Financial Services Group, which has more than 115 lawyers. Mr. Kaplinsky devotes his practice exclusively to counseling financial institutions on bank regulatory and transactional matters, particularly consumer financial services law, and defending financial institutions that have been sued by consumers in individual and class action lawsuits and by government enforcement agencies. Visit Mr. Kaplinsky's profile in Wikipedia.

Christoper Willis, Partner, Ballard Spahr law firm, Consumer Financial Services Litigation attorney

Christopher J. Willis is Practice Leader of the firm's Consumer Financial Services Litigation Group. He devotes his practice to assisting financial services institutions facing government investigations and examinations, counseling them on fair lending risk and compliance assessments, and defending them in individual and class action lawsuits brought by consumers and enforcement actions brought by government agencies.

Mr. Willis also chairs the firm's Fair Lending Task Force. His clients span the financial services industry and include banks and non-banks, mortgage banking lenders and servicers, debt collectors and buyers, third-party service providers, student lenders and servicers, and auto finance companies.

Culhane, Ballard, Partner

John L. Culhane, Jr., is known for his work advising on interstate direct and indirect consumer and residential mortgage loan and leasing programs, through both traditional brick-and-mortar facilities and e-commerce. Before joining Ballard Spahr, Mr. Culhane was associate counsel with Mellon Bank, N.A.; associate counsel with Bank of America NT&SA; and senior attorney (section chief) with the National Credit Union Administration, the federal agency regulating federal credit unions.

Mr. Culhane addresses issues involving licensing,...

Stephanie Jackman, Ballard Spahr, Litigation attorney

Stefanie H. Jackman devotes her practice to assisting financial services institutions facing state and federal government investigations and examinations, counseling them on complex compliance issues, as well as defending them in individual and class action lawsuits. Stefanie represents clients across the financial services industry, including banks and nonbanks, mortgage banking lenders and servicers, debt collectors and buyers, third-party service providers, medical revenue cycle service providers, credit and prepaid card companies, and auto lenders.  She regularly...