A coalition of the largest trade groups in the debt collection industry submitted a petition to the U.S. Supreme Court recently urging the high court to consider a case on appeal involving the settlement of Fair Debt Collection Practices Act (FDCPA) cases.

The case sets up a battle against what the groups say is a “cottage industry” of Plaintiff lawyers that have created a “tidal wave” of “low-damages, high attorneys’ fees claims.”

In an amicus brief prepared by by Andrew J. Pincus and Paul W. Hughes of Mayer Brown, LLP, three ARM industry groups – ACA International, DBA International, and the National Association of Retail Collection Attorneys (NARCA) – presented the formal question to the Supreme Court, “whether a settlement offer that provides a plaintiff with all the relief available, but not a formal judgment embodying the settlement, moots the underlying claim.”

The groups want the Court to take up Convergent Outsourcing, Inc., f/k/a ER Solutions, Inc., V. Anthony W. Zinni, one of three cases that a Circuit Court recently revived after determining a settlement rejection by a consumer for full relief under the FDCPA did not moot the claims, making them easy for judges to dismiss.

All three cases were brought by consumers alleging violations of the FDCPA. In all three cases, the collection agency being sued offered settlements of $1,001 (an amount exceeding by $1 the maximum statutory damages available for an individual plaintiff under the FDCPA) and reasonable attorneys fees and costs. Plaintiffs in each case rejected the settlement offers.

The defendant companies in each case filed motions to dismiss under Federal Rule of Civil Procedure 12(b)(1), arguing that because they had offered the plaintiffs everything they were entitled to under the FDCPA, the FDCPA claims were moot and should be dismissed with prejudice. Judges in the U.S. District Court for Southern Florida agreed and dismissed the cases.

A three-judge appeals circuit court panel disagreed with the lower court’s rulings and reversed the decisions. The primary issue in the case on appeal was that the collection agencies did not offer judgment against themselves in their settlements. The Circuit Court said that the entry of judgment was an important consideration to the debtor/plaintiff, explaining that the offer was a mere promise to pay and that if the promise was broken, the debtor would be faced with filing a breach of contract suit in state court.

But the ACA, DBA, and NARCA noted in its petition that the decision conflicts with a ruling by the Seventh Circuit (Damasco v. Clear Wire Corp.) holding an offer of settlement providing a plaintiff full relief moots a claim.

The amicus brief also took direct aim at what it says is a cottage industry of Plaintiff lawyers that take advantage of certain provisions in consumer statutes, writing:

It is easy to see why plaintiffs’ attorneys bring these statutory claims in large numbers. Although the FDCPA, FCRA, and TILA contain caps on the amount of damages a plaintiff may recover, there are no statutory limits on the attorney’s fees that may be awarded to prevailing plaintiffs. In practice, the award of fees and costs often dwarfs the plaintiff’s recovery. To take just a few examples:

    • In cases where the plaintiff received the FDCPA statutory maximum of $1,000, courts have issued fee and cost awards for far more—including for $63,610.60, $43,180, $24,693.80, $29,037.50, and $77,680.44.

    • In a Pennsylvania action, a plaintiff won a $500 FDCPA judgment, but his attorney obtained fees and costs of $14,753.02. Vandzura v. C&S Adjusters, Inc., 1997 WL 56927, at *4 (E.D. Pa. 1997).

    • In Connecticut, a $1,500 FDCPA settlement generated $24,316.19 in fees and costs. Goins v. JBC & Assocs., P.C., 2006 WL 540332, at *1 (D. Conn. 2006).

    • And in California, a $1,091 settlement was followed by a fee and cost award of $46,124.77. Langley v. Check Game Solutions, Inc., 2007 WL 2701345, at *8 (S.D. Cal. 2007).

The brief asks the Supreme Court to grant certiorari in the Zinni case and answer the question Whether a settlement offer that provides a plaintiff with all the relief available, but not a formal judgment embodying the settlement, moots the underlying claim.