Banking and Finance Law Daily Fee request in FDCPA case was unreasonable, given settlement rejection
Thursday, May 16, 2019

Fee request in FDCPA case was unreasonable, given settlement rejection

By Nicole D. Prysby, J.D.

An attorney fee request for $187,000 was reduced to $10,875. Although the consumer prevailed on his FDCPA claim, the jury awarded him only $1,000 and the defendant had offered to settle for triple that amount 18 months prior.

A consumer's attorney fee request for $187,000 under the Fair Debt Collection Practices Act (FDCPA) was unreasonable, held the U.S Court of Appeals for the Seventh Circuit. The consumer rejected multiple settlement offers from a debt collector and proceeded to trial, even after the court dismissed a number of his claims on summary judgment. The jury found in the consumer's favor, but awarded him only the $1,000 FDCPA statutory damages. Because the debt collector had made a settlement offer 18 months before trial of $3,501, which turned out to be triple the award received, the settlement rejection should be considered in determining an appropriate fee award. The bulk of the work done by the consumer's attorney (all but 29 hours) was done after the consumer rejected the settlement offer. The court rejected the consumer's argument that he didn't understand the settlement terms, because he had previously settled FDCPA claims. Ultimately, the court concluded that the consumer went to trial in pursuit of a payoff that was bigger than remotely possible, and therefore the attorney fee award should be limited to time spent before the reasonable settlement offer (Paz v. Portfolio Recovery Associates, LLC, May 15, 2019, Scudder, M.).

Background. A consumer sued a debt collector in 2014 for violations of the FDCPA after the debt collector failed to report that a debt was disputed. The parties settled the claims for $1,001 plus attorney fees of $4,500. Despite the settlement, the debt collector erroneously continued to attempt to collect the debt and in December 2014, the consumer again sued, alleging violations of the FDCPA and the Fair Credit Reporting Act (FCRA).

The debt collector attempted to settle the claims—first in January 2015 for $1,500, then in February 2016 for $2,500, and later in March 2015 for $3,501 (plus reasonable attorney fees and costs). The offers contained standard language disclaiming liability. The consumer never responded to the settlement offers and (after summary judgment on a number of issues) went to trial on only one of his FDCPA claims and one of his FCRA claims. On his FDCPA claim, the consumer sought the maximum statutory damages of $1,000 and $21,000 in emotional distress. For his FCRA claims, he sought $5,000 in actual damages. One week before trial, the debt collector offered to settle the claims for $25,000 plus reasonable attorney fees. The consumer rejected the offer and the case went to trial. After a one-day trial on Sept. 7, 2016, the jury found for the consumer, but determined that he sustained no actual damages, thus limiting his recovery to the $1,000 FDCPA statutory damages. The consumer later sought to recover $187,410 in attorney fees. The district court awarded the consumer only $10,875 in attorney fees, and the consumer appealed.

Attorney fee request was unreasonable. In determining what amount of attorney fees was reasonable, the court focused on the debt collector's settlement offer of $3,501 in March of 2015. That settlement offer was more than triple the damages awarded to the consumer at trial. Although he was free to reject the offer, his rejection warranted a reduction in attorney fees. The district court used a lodestar method (with $375 as the hourly rate) for the consumer's attorney, but determined that only 29 hours of work (the time incurred before the March 2015 settlement offer) were reasonable.

The consumer took the position that the offer to settle for $3,501 was not substantial and therefore should be disregarded in determining the fee award. He argued that he did not understand what the offer meant—that its terms were so ambiguous and unfair as to render the offer worthless. And he pointed to the condition in the offer that he read as cutting off attorney fees at the time of acceptance (a provision that he argued exposed him to an unknown amount of fees for the time his counsel would spend doing the paperwork necessary to finalize the settlement).

The court rejected all of the consumer's arguments. His claim that he had little idea what the offer meant was unrealistic, as he had previously settled similar claims. His attorney could have requested a fee award that would have covered the time necessary to finalize the settlement. The court also rejected an argument that the consumer achieved more than limited success, an argument that he based on the liability disclaimer in the settlement offer. The fact that the debt collector disclaimed liability in a settlement offer, but then the consumer obtained the maximum statutory damages, was irrelevant. The settlement offer contained merely standard terms and as soon as the parties had finalized the settlement, a judgment would have been entered against the debt collector, making the liability disclaimer in the offer immaterial. The time associated with the $187,410 in attorney fees did not reflect the reasonable attorney work. To the contrary, the vast majority of the fees were for time spent pursuing an unsuccessful and ill-advised effort to win a much bigger payoff than was even remotely possible in the circumstances giving rise to the claims.

The case number is No. 17-3259.

Attorneys: Mario Kris Kasalo (Law Office of M. Kris Kasalo, Ltd.) for Isaac Paz. David M. Schultz (Hinshaw & Culbertson LLP) for Portfolio Recovery Associates, LLC.

Companies: Portfolio Recovery Associates, LLC

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