LEGAL NEWSLINE

WASHINGTON (Legal Newsline) -- The U.S. Supreme Court last week ruled that plaintiffs that lose lawsuits claiming violations of the Fair Debt Collection Practices Act may be liable for costs to their defendants, even if the case was not brought in bad faith.

In the case at issue, plaintiff Olivea Marx alleged that General Revenue Corp., or GRC, violated the FDCPA by harassing and falsely threatening her in order to collect on a student loan debt.

Marx defaulted on a loan guaranteed by EdFund, a division of the California Student Aid Commission.

In September 2008, EdFund hired GRC to collect the debt.

Marx alleged in her complaint that GRC violated the FDCPA by harassing her with phone calls several times a day and falsely threatening to garnish up to 50 percent of her wages, and to take the money she owed directly from her bank account.

GRC made an offer of judgment to pay Marx $1,500 plus reasonable attorney's fees and costs to settle any claims she had against it. Marx did not respond to the offer.

She subsequently amended her complaint to add a claim that GRC unlawfully sent a fax to her workplace that requested information about her employment status.

Following a one-day bench trial, the a district court found that Marx had failed to prove any violation of the FDCPA. In particular, the judge found GRC's fax was not a "communication" under the law.

As the prevailing party, GRC submitted a bill of costs seeking $7,779.16 in witness fees, witness travel expenses and deposition transcript fees.

The court disallowed several items of costs and, pursuant to Federal Rule of Civil Procedure 54(d)(1), ordered Marx to pay the debt collector $4,543.03.

Marx filed a motion to vacate the award of costs, arguing that the court's discretion under Rule 54(d)(1) was displaced by 15 U.S.C. §1692k(a)(3), which 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."

The district court rejected Marx's argument.

The U.S. Court of Appeals for the Tenth Circuit affirmed, agreeing that costs are allowed under the rule and concluding that nothing in the statute's text, history or purpose indicates that it was meant to displace the rule.

The nation's high court affirmed the Tenth Circuit's decision, siding with the debt collector, in its Feb. 26 ruling.

"The first sentence of §1692k(a)(3) provides that defendants who violate the FDCPA are liable for the plaintiff's attorney's fees and costs. The second sentence of §1692k(a)(3) similarly provides that plaintiffs who bring an action in bad faith and for the purpose of harassment may be liable for the defendant's fees and costs," Justice Clarence Thomas wrote for the Court majority.

"If Congress had excluded 'and costs' in the second sentence, plaintiffs might have argued that the expression of costs in the first sentence and the exclusion of costs in the second meant that defendants could only recover attorney's fees when plaintiffs bring an action in bad faith.

"By adding 'and costs' to the second sentence, Congress foreclosed that argument, thereby removing any doubt that defendants may recover costs as well as attorney's fees when plaintiffs bring suits in bad faith."

Chief Justice John Roberts and justices Antonin Scalia, Anthony Kennedy, Ruth Bader Ginsburg, Stephen Breyer and Samuel Alito joined in the majority's 16-page opinion.

Justices Sonia Sotomayor and Elena Kagan dissented.

"We are encouraged this important decision will assist in reducing the incentive for, and incidence of, frivolous and meritless allegations filed by consumers against its members," ACA International, the Association of Credit and Collection Professionals, said in a statement last week.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.