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Plaintiffs that lose lawsuits claiming violations of the Fair Debt Collection Practices Act (FDCPA) may be liable for costs to their defendants even if the case was not brought in bad faith, so ruled the Supreme Court Tuesday.

In a 7-2 majority decision, the Justices ruled for a debt collector in the case Marx v. General Revenue Corp. The question before the Court was whether a defendant in an FDCPA case is entitled to costs should they win the case, even if the case was not initially brought by the plaintiff in bad faith or for the purposes of harassment.

The case was closely watched by the ARM industry for obvious reasons. But it also attracted plenty of attention from other quarters. The FTC, Department of Justice, and the CFPB filed a joint amicus brief in the U.S. Supreme Court in support of Marx, with a DoJ representative actually joining oral arguments in the case.

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 because the fax was not a “communication” under the law 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.”

Although the FDCPA claim decision was also presented to the Supreme Court, the Justices elected to hear arguments only about the awarding of costs.

Adam Plotkin, of Adam L. Plotkin, P.C. – a law firm defending General Revenue in the case – said that by declining 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.”

Reaction to Tuesday’s decision from the ARM legal community has been swift and very positive.

“We are hopeful this important decision will assist in reducing the incentive for frivolous and meritless allegations filed by consumers against its members,” said ACA International CEO Pat Morris in a statement.

Don Maurice, an attorney who wrote an amicus brief in support of General Revenue on behalf of the National Association of Retail Collection Attorneys (NARCA) wrote on his blog Tuesday, “The decision provides some relief to defendants in FDCPA cases that are successfully defended.  It can be very difficult to satisfy the standard of ‘bad faith and for the purpose of harassment’ when attempting to recover costs and attorneys fees.”

“The hope is a litigant will think twice before asserting a questionable FDCPA claim,” Maurice later told insideARM.com. “There are far too many FDCPA suits premised on marginal factual or legal claims which, if litigated, would likely fail. While these suits may not be brought in bad faith, they still tie up our clients’ important resources.”

The Supreme Court’s seven-justice majority opinion was written by Justice Clarence Thomas. Justices Kagan and Sotomayor dissented.

 


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