Marx v. General Revenue Corporation:

The Supreme Court will hear arguments on November 7 for Marx v. General Revenue Corp. The grant of certiorari has been limited to a single question involving the right of a debt collector under federal law to recover its court costs if it wins a lawsuit against it over its collection practices.

Background:

The Plaintiff/Petitioner in the case is Olivea Marx, who defaulted on her student loan.  In September 2008 General Revenue Corp. (GRC) was hired to collect Ms. Marx’s account. Marx filed suit against GRC in October of 2008 for alleged violations of the Fair Debt Collection Practices Act (FDCPA). The Colorado district court found no violations of FDCPA and awarded costs to GRC in the amount of $4,543. Marx appealed both the finding of no FDCPA violations as well as the award of costs to GRC. Only the issue of costs has been granted cert.

The Language at Issue:

Two statutory provisions are at the root of this case:

•   FRCP Rule 54(d)(1) 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 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).

The Arguments:

Marx contends that the above provision of the FDCPA “provides otherwise” and as such costs may not be awarded to the prevailing party in cases brought under the FDCPA. Additionally, Marx argues that the FDCPA provision should be read to mean costs may only be awarded to a prevailing creditor/defendant upon a showing that the plaintiff brought the suit in bad faith and for the purpose of harassment.

GRC disagrees with Marx’s reading of the FDCPA, and argues the statute does not “provide otherwise” from FRCP Rule 54(d). GRC’s brief lays out their argument via analysis of the plain language, straightforward statutory construction, Congressional intent, as well as the purpose and history of not only the statute but also the precise provision at issue.  Additionally GRC counters Petitioner’s argument that affirming this holding would “chill enforcement” of the FDCPA – showing that even after the Marx decision, the number of cases filed by consumers in this district has been consistent.

What’s at Stake:

There is potentially a lot on the line for debt collectors. A SCOTUS opinion reversing the lower courts, and precluding innocent collection agencies from recovering costs absent a showing of bad faith and harassment would mean a lose-lose situation for debt collectors. GRC’s brief also looks at the potential of an unfavorable outcome in the context of an already pro-plaintiff ruling in Delta Airlines Inc., v. August. A result that, as GRC puts it, would mean defendant debt collectors would face FDCPA suits “with both hands tied behind their backs.”

Delta addresses FRCP Rule 68, which states that should a defendant offer to settle and the plaintiff declines, if that plaintiff is awarded less than the offered amount s/he is liable for costs incurred after the time the offer was made. The Delta opinion limits this rule to mean that if the defendant wins outright, such as the case here, Rule 68 is not applicable. Effectively this means that should the Supreme Court rule in favor of the petitioner, innocent debt collectors who are forced to defend meritless claims in court cannot be awarded costs through either Rule 54 or 68.

Statistics show consumer cases against debt collectors have been increasing and are continuing to rise. Without the small balance of allowing innocent defendants to be awarded costs, there is nothing to stop a slew of meritless attacks on the industry. GRC even points out that this was exactly what Congress intended to prevent in enacting the FDCPA.

Best Possible Outcome:

For both debt collectors and consumers, the best possible outcome for the long term would be for the Supreme Court to affirm the 10th Circuit’s decision, and to overrule Delta.

By affirming the lower court in this case it would send a clear message to plaintiff’s attorneys that the current trend of flooding the court houses and collection agencies with these law suits, regardless of the strength of their merit is not in the best interests of their clients. Additionally innocent debt collectors would have the peace of mind knowing they don’t have to give in to a meritless claim or suffer the entire cost of going to trial. It also encourages debt collectors to abide by the FDCPA and maintain good collection practices. When as in the case at hand you are a reputable and innocent debt collector, you will not be punished for successfully defending a meritless case against you. Otherwise, if these collectors lose money even when they win the case, debt collectors are not incentivized to adhere to the law. It becomes more cost effective to operate outside of the law when it seems you will lose money either way.

Furthermore, overruling Delta would encourage more legitimate settlement offers for plaintiffs. Encouraging consumers to settle claims if possible frees up valuable time and space in our crowded court systems. In many ways it is also better for the consumers as they most likely do not wish to expend the time and effort it requires to take the case all the way through court.

Tags: Consumer Credit