Supreme Court Hears Arguments in FDCPA Case

The U.S. Supreme Court Wednesday heard oral arguments in a case that may determine whether businesses that successfully defend Fair Debt Collection Practices Act (FDCPA) claims are entitled to costs, even if the case was not initially brought by the plaintiff in bad faith or for the purposes of harassment.

Supreme Court Justices heard arguments Wednesday in Marx v. General Revenue Corp. The high court heard from three attorneys yesterday: counsel representing Marx, counsel representing GRC, and a representative of the U.S. Justice Department arguing on behalf of Marx.

The action was originally brought by a student loan debtor who claimed General Revenue violated the 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 the company $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.”

That award is being weighed by the Supreme Court after Marx appealed the district court ruling. The justices will not be judging the merits of the FDCPA claims, which have already been resolved.

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.

In her oral arguments, Lisa S. Blatt, on behalf of GRC, noted that the cost-shifting section of the FDCPA is “a pro-defendant provision that does not strip courts of their discretion under Rule 54 to award costs to prevailing defendants.” This opening argument led to an interesting exchange with Justice Elena Kagan when Kagan noted that Rule 54 exists for when a statute does not include cost and fee provisions, as is the case in the FDCPA:

MS. BLATT: Yes. I disagree with everything you said for the following reasons -
JUSTICE KAGAN: I expected you might.
(Laughter.)
MS. BLATT: This is not a field preemption case.
JUSTICE KAGAN:  It’s not a question of field preemption.
MS. BLATT: Yes, it is.

Later in her arguments, Blatt – who is a veteran of the Supreme Court having argued more than 30 cases before the Justices, got into another interesting exchange with Kagan and Justice Sonia Sotomayor (with an assist from Justice Antonin Scalia) while arguing the nuance of costs and fees awarded to defendants in cases:

JUSTICE KAGAN: Now you might say that’s very uncommon, but in both sentences it says, we want the same rule for costs as we do for fees.
MS. BLATT: Well, I mean, a couple things about that. It’s both very common — fee shifting provisions routinely refer to both fees and costs, just like salt and pepper, peanut butter and jelly, they go together as a set.
JUSTICE SOTOMAYOR: And with that is that there are some statutes that don’t.
MS. BLATT: Yes. Yes.
JUSTICE SOTOMAYOR: So it’s not always peanut butter and jelly.
MS. BLATT: Okay.
JUSTICE SOTOMAYOR: It’s peanut butter and honey sometimes.
(Laughter.)
MS. BLATT: Yes. And here -
JUSTICE SCALIA: Love and marriage.
(Laughter.)

A transcript of the entire session can be viewed on the Supreme Court’s web site.

An opinion on the case is expected sometime next year.

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 when it agreed to hear the case, 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.”