Judge Denies Prevailing Party's Motion For Attorney Fees in Clear Cut FDCPA Case

A recent opinion from the Honorable Robert D. Mariani, United States District Judge for the District Court of the Middle District of Pennsylvania, highlights the challenges of defending Fair Debt Collection Practices Act (“FDCPA”) litigation, even when a defendant is vindicated in a trial.  The opinion in Hamburger v. Northland Group, Inc. (3:13-CV-01155), filed on February 10, 2015, discusses the request for an award of attorneys’ fees and costs for the prevailing party in an FDCPA case. A copy of the opinion can be found here.

The Background

Howard and Irene Hamburger, a husband and wife, filed a Complaint against Northland Group, Inc. on April 30, 2013 alleging causes of action under the FDCPA and Pennsylvania tort law. The Complaint alleged that Defendant, Northland Group, Inc. (“Northland”) repeatedly called the Plaintiffs to collect a debt of a third party identified only as “Henry”. It further alleged that neither Plaintiff was named Henry nor did they know an individual by that name. The Complaint further claimed that Northland called the Hamburgers every day to collect Henry’s debt, including “on occasion more than once in a single day, and that these calls continued even after Northland was informed that no one named Henry lived at the hamburger residence, and that Northland should stop calling about his debt.”

During and after discovery, the allegations in the Complaint began to unravel. Plaintiffs’ claim that they did not know any person named Henry was shown to be categorically untrue: the Plaintiff’s son was named Henry. During his deposition Howard Hamburger admitted that the automated calls alleged in the complaint said, “We are looking for Henry Hamburger.”  Per the Order, “This admission  makes clear, from the very onset of this case there could never have been any confusion as to whom the Defendant sought; Northland already gave Howard the full name of the debtor, which happened to be  the exact name of his son. Thus the Complaint contained known false allegations.”

There was a dispute about the number of calls Northland made. Northland submitted account notes showing a total of 5 calls were made. Plaintiffs, on the other hand, claimed that the Defendant called them at least 7 or 8 times. Their only evidence of this was their personal recollections and a supposed call log where Irene Hamburger claimed that she “logged or wrote down” each call that came in. However, throughout the entire course of the litigation Plaintiffs never produced the call log and claimed at trial that they somehow lost it.

During trial the Plaintiffs testified about the times they were called by Northland, purportedly relying on the lost/missing call log and their own recollections. The Northland records were listed in Central Time Zone. The Hamburgers live in the Eastern Time Zone. Unfortunately, it appeared to the Judge that Plaintiffs were merely relying on the Northland call records produced in discovery by Northland and then “passed it off to Defendant, the jury, and the Court as if it were Hamburger’s own recollection.  But in so doing, they did not realize that they would need to convert Northland’s call records to Eastern Time to make their false statements believable.” Finally, no evidence was ever produced by Plaintiffs on the other alleged calls.

After a short deliberation, the jury returned a verdict in favor of Northland on all counts. Northland then filed a motion for Attorney’s Fees and Costs. It was this motion that was the subject of the opinion.

The Opinion

Judge Mariani first discussed the “American Rule” regarding assessment of attorney’s fees in litigation.

Editor’s Note: The American Rule provides that each party to litigation is responsible for paying its own attorney’s fees, unless specific authority granted by statute or contract allows the assessment of those fees against the other party. The American rule contrasts with the English Rule, under which the losing party pays the prevailing party’s attorneys’ fees.

In its Motion Northland had asserted three exceptions to the American Rule that it believed entitled them to attorney’s fees and costs. Mariani outlined the three exceptions:

1. The FDCPA provides in part: “On 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.”
2. More generally, Congress provided that, “Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.”  28 U.S.C. § 1927
3. Even if neither of these statutory schemes apply, “Courts of justice are universally acknowledged to be vested, by their very creation, with power to impose silence, respect, and decorum, in their presence, and submission to their lawful mandates. These powers are ‘governed not by rule or statute but by the control necessarily vested in courts to manage their own affairs so as to achieve the orderly and expeditious disposition of cases.’”

In discussing the first potential justification Mariani wrote,  “…It does not appear that the Hamburgers brought this case for any reason other than satisfying a perceived grievance. Their trial testimony insisted that they did in fact receive multiple harassing phone calls from debt collectors. Their entire strategy throughout litigation had been to receive compensation for this conduct. But their case’s fatal flaw was simply that, while they may indeed have been repeatedly contacted by some debt collectors, they had no evidence supporting their attempt to blame all of that conduct on Northland. In other words, their case arose out of what appears to be a legitimate grievance, though the subsequent litigation over it was poorly prepared, sloppily executed, and devoid of evidentiary support for the sweeping claims against Northland. The FDCPA is not designed to penalize such litigants, who litigate honest grievances but utterly fail to prove them.

In discussing the second potential justification Mariani wrote, “There is no evidence that Plaintiffs’ attorneys “multiplied the proceedings” through any sort of delaying tactics. As poorly as Plaintiffs’ attorneys acted over the course of this case, they did not unduly multiply the proceedings and, as such, their misconduct falls outside the scope of section 1927.

Finally, in discussing the third potential justification Mariani wrote,

“Defendant is strongest when it argues in favor of sanctions under our inherent power.   The evidence strongly suggests that the Hamburgers and their attorneys lied when they claimed the times listed in Interrogatory 8 were transcriptions from Irene Hamburger’s Caller ID. It also strongly suggests that the Plaintiffs’ attorneys knowingly submitted false evidence to the Court. The Court agrees with the Defendant that due to the complicated nature of Northland’s call records, the Plaintiffs’ attorneys would likely have had to explain to the Hamburgers what the document actually said. Then, in order to get the Hamburgers to say that Northland called them at the exact times listed in the records, their attorneys would have had to point out the times that the attorneys believed (erroneously, in some cases) that the record showed that Northland called them.

Moreover, Plaintiffs’ attorneys should have known that the times recorded in Northland’s call log were listed in Central Time and the Hamburgers’ Caller ID would reflect Eastern Time. Thus, even if the attorneys did not actually spoon feed the Hamburgers the answers that they then listed in Interrogatory 8, and even if the Hamburgers actually came up with those responses themselves, their attorneys should have known that the information they received from their clients was untrue.

So, whichever way we analyze the situation, Defendant has met its burden in proving that the Plaintiffs and their attorneys submitted evidence to this Court that they either knew or reasonably should have known was untrue.”

Still, the court decided not to award attorneys’ fees and costs to Northland under the theory that the “clearly established fraud had no actual effect on the proceedings and was very limited in scope.” The court did take one final opportunity to chide plaintiff and counsel, “The false statements were made in the course of a case that was litigated in a consistently poor manner and lacked evidentiary support from its inception. They are, if anything, simply a more extreme example of Plaintiffs’ counsel’s sloppy litigation tactics. But we remain unconvinced that counsel’s poor performance justifies the substantial sanctions that Defendant seeks.”

(Northland had sought sanctions in the form of fees, which they indicated were likely exceed $75,000.)

insideARM Perspective

As noted above, Northland incurred substantial expense defending this case.  The deck is stacked against ARM companies is responding to this type of litigation. The options are to pay to make an apparent frivolous case go away or spend significant funds defending the case. Northland made their case for costs and fees. It seems to this writer that Judge Mariani did everything but pull the trigger on an award.

insideARM asked two prominent attorneys in the ARM space for their thoughts on this case.

John Bedard, Attorney at Law with the Bedard Group commented:  ”If filing a knowingly false complaint, lying to a federal court, fabricating evidence and then submitting that knowingly false evidence to a federal court, and thereafter epically losing your jury trial does not warrant sanctioning the untruthful plaintiffs and their puppeteer attorney, then I don’t know what does!  This decision sends a clear message to all litigants in the Middle a District of Pennsylvania that Judge Mariani has an extremely high tolerance for despicable behavior.”

Tim Collins, General Counsel and Chief Ethics & Compliance Officer for Convergent Resources added additional color: “While this is one case with one judge, the ruling only emboldens plaintiff attorneys to bring even more frivolous lawsuits and now take them all the way thru trial. They have nothing to lose. The cost to defend these cases is going to go thru the roof.”

Editor’s Note

The aforementioned Tim Collins will be conducting a Pre-Conference “Litigation Workshop” before the Fourth Annual Larger Market Participant Summit on April 21, 2016 in Washington, D.C. Information on the workshop can be found here. Defense strategies for these types of cases will be discussed.