Supreme Court Says Fair Debt Collection Practices Act Does Not Prohibit Award Of Costs Under FRCP 54(d)(1)

WASHINGTON, D.C. - (Mealey's) Section 1692k(a)(3) of the Fair Debt Collection Practices Act (FDCPA) "is not contrary to, and, thus, does not displace a district court's discretion to award costs under" Federal Rule of Civil Procedure 54(d)(1), a divided U.S. Supreme Court ruled Feb. 26 (Olivea Marx v. General Revenue Corporation and Kevin Cobb, No. 11-1175, U.S. Sup.) [lexis.com subscribers may access Supreme Court briefs and the opinion for this case].

In a 7-2 ruling, the majority held that "Rule 54(d)(1) gives courts discretion to award costs to prevailing parties, but this discretion can be displaced by a federal statute or FRCP [Federal Rule of Civil Procedure] that 'provides otherwise,' i.e., is 'contrary' to Rule 54(d)(1)."

"Contrary to the argument of [petitioner Olivea] Marx and the United States, as amicus, language of the original 1937 version of the Rule does not suggest that any 'express provision' for costs should displace Rule 54(d)(1), regardless of whether it is contrary to the Rule," the majority said.

Section 1692k(a)(3)

The majority also found that "Section 1692k(a)(3)'s language and context demonstrate that the provision is not contrary to Rule 54(d)(1)."

In particular, the majority agreed with Marx and the United States, ruling that "context indicates that Congress did not intend § 1692k(a)(3) to foreclose courts from awarding costs under the Rule."

"First, under the American Rule, each litigant generally pays his own attorney's fees, but the Court has long recognized that federal courts have inherent power to award attorney's fees in a narrow set of circumstances, e.g., when a party brings an action in bad faith. The statute is thus best read as codify­ing a court's pre-existing authority to award both attorney's fees and costs. Next, §1692k(a)(3)'s second sentence must be understood in light of its first, which provides an award of attorney's fees and costs, but to prevailing plaintiffs. By adding 'and costs' to the second sen­tence, Congress foreclosed the argument that defendants can only re­cover attorney's fees when plaintiffs bring an action in bad faith and removed any doubt that defendants may recover costs as well as at­torney's fees in such cases. Finally, §1692k(a)(3)'s language sharply contrasts with that of other statutes in which Congress has placed conditions on awarding costs to prevailing defendants," the majority stated.

Surplusage Argument

Moreover, the majority ruled that "[e]ven assuming that their surplusage argument is correct, the canon against surplusage is not absolute."

"First, the canon 'assists only where a competing interpretation gives effect to every clause and word of a statute.' Here, no interpretation of §1692k(a)(3) gives effect to every word. Second, redundancy is not unusual in statutes address­ing costs. Finally, the canon is strongest when an interpretation would render superfluous another part of the same statutory scheme. Because §1692k(a)(3) is not part of Rule 54(d)(1), the force of this canon is diminished," the majority explained, citing its previous ruling in Microsoft Corp. v. i4i Ltd. Partnership (No. 10-290, U.S. Sup.; 2011 U.S. LEXIS 4376) [enhanced version available to lexis.com subscribers].

"Lastly, contrary to the United States' claim that specific cost­ shifting standards displace general ones, the context of the statute indicates that Congress was simply confirming the background pre­sumption that courts may award to defendants attorney's fees and costs when the plaintiff brings an action in bad faith. Because Marx did not bring this suit in bad faith, the specific provision is not appli­cable."

Justice Clarence Thomas wrote the majority's opinion and was joined by Chief Justice John G. Roberts Jr. and Justices Antonin Scalia, Anthony Kennedy, Ruth Bader Ginsburg, Stephen G. Breyer and Samuel A. Alito Jr.

Dissent

In a dissenting opinion, Justice Sonia Sotomayor said, "Federal Rule of Civil Procedure 54(d)(1) is a default standard that grants district courts discretion to award litigation costs to a prevailing party. This default, how­ever, gives way when a federal statute includes a costs provision that 'provides otherwise.' The Fair Debt Collection Practices Act (FDCPA), 91 Stat. 874, 15 U. S. C. §1692 et seq., contains a costs provision, §1692k(a)(3), and it 'provides otherwise.' That is apparent from the statute's plain language, which limits a court's discretion to award costs to prevailing defendants to cases 'brought in bad faith and for the purpose of harassment.' In reaching the opposite conclusion, the Court ignores the plain meaning of both the FDCPA and Rule 54(d)(1) and renders the statutory language at issue in this case meaningless. I respectfully dissent."

Justice Elena Kagan joined in the dissenting opinion.

After Marx defaulted on her student loan, her guarantor, EdFund, a division of the California Student Aid Commission, hired General Revenue Corp. (GRC) to collect on the account. In 2008, she sued GRC in the U.S. District Court for the District of Colorado, alleging abusive and threatening phone calls in violation of the FDCPA.

Employment Status

She amended her complaint to add a claim that GRC violated the FDCPA by sending a fax to her workplace that requested information about her employment status. The District Court found that the challenged debt collection practices were not abusive and threatening.

On appeal to the 10th Circuit U.S Court of Appeals, Marx contested the District Court's finding that GRC did not violate the FDCPA's provision against debt-collector communications with their parties. She argued that the District Court erred in finding that a fax sent by GRC did not constitute a "communication" under the FDCPA, awarding GRC costs pursuant to Federal Rule of Civil Procedure 54(d) and permitting, in the alternative, an award of costs following GRC's offer of judgment pursuant to Federal Rule of Civil Procedure 68.

On Dec. 21, 2011, the 10th Circuit affirmed the District Court's dismissal of the lawsuit. In particular, it agreed with the District Court that the fax in question is not a "communication" under the FDCPA. A "communication" under the FDCPA must indicate to the recipient that the message relates to the collection of debt. The panel said the fax cannot be construed as "conveying" information "regarding a debt" because the fax does not reference debt and speaks only of verifying employment.

Costs Awarded

The 10th Circuit also found that the District Court properly awarded costs to GRC.

Marx filed a petition for writ of certiorari with the Supreme Court on March 23.

The question presented was: "Whether a prevailing defendant in a Fair Debt Collection Practices Act (FDCPA) case may be awarded costs for a lawsuit that was not 'brought in bad faith and for the purpose of harassment,' when 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' and Federal Rule of Civil Procedure 54(d) 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.'"

Marx is represented by Allison M. Zieve of the Public Citizen Litigation Group. The defendants are represented by Lisa S. Blatt of Arnold & Porter. Amicus United States is represented by Assistant to the Solicitor General Eric J. Feigin of the Department of Justice. All are in Washington.

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