Insights

The federal circuit courts have decided a handful of Fair Debt Collection Practices Act (FDCPA) cases over the last few months, with some interesting developments. The U.S. Court of Appeals for the Eleventh Circuit affirmed a reduction of a plaintiff’s attorney fee award by more than half of the amount the plaintiff requested, while the U.S. Court of Appeals for the Tenth Circuit affirmed a significant award of plaintiff’s attorney fees on appeal. In a case that dealt with more substantive issues, the U.S. Court of Appeals for the Seventh Circuit issued an opinion finding that letters from a servicer and its door-knocker “partner” to a distressed borrower offering foreclosure alternatives were “communications” subject to the FDCPA, even though the letters did not specifically request or demand payment.

The attorney fee cases resulted in significantly different fee awards, but the written opinions do not allow for a meaningful comparison. The Eleventh Circuit considered an appeal from the U.S. District Court for the Middle District of Florida in the case of Hepsen v. J.C. Christensen and Associates, Inc., 2010 U.S. App. LEXIS 17767 (August 25, 2010). A magistrate judge at the District Court level found that J.C. Christensen and Associates, Inc. committed two violations of the FDCPA and awarded plaintiff $500 in statutory damages. When the plaintiff’s attorneys filed a motion requesting attorneys’ fees of $54,273.50 after prevailing on the merits, the magistrate reviewed the request to determine whether the fee requested reasonable and concluded that it was not. First, the magistrate reduced the hourly rate of the attorney from $350 to $300. Then the magistrate determined that the hours billed were excessive, time entries were vague and that billing for co-counsel time was not necessary, and as a result reduced the hours recorded by half, from 165.6 to 82.8. Finally, the magistrate reduced the resulting lodestar of $25,153.50 by another 10% based on the limited success of the case, and awarded an attorney fee of $22,638.15 – less than half of what the plaintiff requested. The appellate court reviewed the magistrate’s decision for abuse of discretion and found none. The appellate court’s review of the magistrate’s reasoning in reducing the hourly rate and the number of hours awarded did not provide the details, simply a conclusion that the magistrate had not abused her discretion. In reviewing the final 10% in the fee for the limited success of the case, however, the court noted that while the plaintiff sought $1,000 in statutory damages, $2,500 in actual damages and unspecified punitive damages, the case was a limited success for the plaintiff in that he only walked away with statutory damages of $500. Because plaintiff’s attorneys only succeeded in obtaining a small portion of the relief sought, the court thought the 10% reduction in the fee award was appropriate.

In an appeal in a similar case out of the U.S. District Court for the District of New Mexico, the Tenth Circuit affirmed a fairly generous attorney fee award for the plaintiff in the case of Anchondo v. Anderson, Crenshaw & Associates, L.L.C., 2010 U.S. App. LEXIS 17105 (August 16, 2010). In that case, the parties settled and the District Court awarded attorneys’ fees for Anchondo’s lawyers in the amount of $63,333.52, almost three times the award in Hepsen. The District Court reduced the hourly rate for the plaintiff’s national class action lawyer from $465 to $300, deeming $300 per hour to be more in line with prevailing local New Mexico rates. The District Court did not, however, reduce the number of hours claimed by the class action lawyer or his local counterpart at all, finding the number of hours billed by both attorneys reasonable without reduction. The decision out of the appellate court does not disclose the number of hours billed by either attorney or the nature of the settlement agreement, so it is not clear how this decision compares to the Hepsen outcome except that the fee award was significantly higher.

The Seventh Circuit, as is its way, provides the decision with the most significant substantive impact in Gburek v. Litton Loan Servicing, 2010 U.S. App. LEXIS 15346 (July 27, 2010). In that case, Litton Loan Servicing, LP, serviced a mortgage on a home owned by Camille Gburek. Gburek missed payments on the loan, and Litton sent her a letter offering to discuss ways she could avoid losing her home in foreclosure and asking for her current financial information. A few days later, Titanium Solutions, who offers door-knocker and other sub-servicer-type solutions to loan servicers, delivered another letter to Gburek on behalf of Litton, offering to facilitate discussion of foreclosure alternatives between Gburek and Litton. The letter asked again for Gburek’s financial information. Gburek filed a class action against Litton, alleging that Litton had committed violations of the FDCPA in its letter and in communicating about her debt with Titanium without her consent. Litton moved to dismiss on the theory that none of the communications that took place were made “in connection with the collection of a debt,’ because they did not demand payment, and that the communications were therefore not subject to the FDCPA. The U.S. District Court for the Northern District of Illinois granted Litton’s motion and Gburek appealed.

The U.S. Court of Appeals for the Seventh Circuit reversed the dismissal, finding that the content of the letters and the context in which they were sent had more of an impact on the determination of whether a person made a communication “in connection with the collection of any debt” than did the single question of whether the letters specifically included a demand for payment. The court noted that Gburek’s mortgage loan was in default a the time Litton and Titanium sent their letters, and that while the letters did not specifically demand payment, the servicers sent the letters in an effort to work out the problems with the loan and ultimately achieve satisfaction of Gburek’s debt. For that reason, the court held that Gburek had sufficiently pled a case under the FDCPA, so that dismissal by the District Court was inappropriate. The court emphasized that it was not deciding the FDCPA claims in its decision, but that it was reviewing the District Court’s dismissal based on the initial pleadings. Because the Seventh Circuit felt that the District Court should have considered more than just the fact that the letters did not demand payment on the underlying mortgage loan when it dismissed the FDPCA claims, it reversed.

The lesson from Gbuerk is that a servicer or debt collector should not assume that the requirements of the FDCPA or state law equivalents do not apply to certain communications with debtors that do not contain an explicit demand for payment. It appears that the Seventh Circuit’s holding in Gburek is consistent with the majority of FDCPA voice mail litigation results from the past few years, where courts have held voice mails that included no specific information about a debt and no demand for payment are nevertheless “communications” made “in connection with the collection of any debt” and subject to the FDCPA. In light of these results, servicers and debt collectors who do not already do so should consider the potential consequences of concluding that the FDCPA does not apply to these kinds of communications, if the Act otherwise applies in the context of a particular customer relationship. It will be interesting to see if the new Consumer Financial Protection Bureau will write rules that clarify when certain requirements under the FDCPA apply to activities like servicing and loss mitigation, that were not even considered when the FDCPA was written.

Chuck Dodge is a partner in the Maryland office of Hudson Cook, LLP. Chuck can be reached at 410-865-5427 or by email at cdodge@hudco.com.