Supreme Court Rules Defendants Can Recover Costs Under the Fair Debt Collection Practices Act Without a Showing of Bad Faith and Purpose of Harassment
On February 26, 2012, the United States Supreme Court found in Marx v. General Revenue Corp. that a district court may award a prevailing defendant its costs incurred in defending against a Fair Debt Collections Practices Act (“FDCPA”) lawsuit without a finding that the plaintiff brought the lawsuit in bad faith and for the purpose of harassment. This decision resolved a conflict among the Circuit Courts.
Rule 54(d)(1) of the Federal Rules of Civil Procedure states that “[u]nless a federal statute … provides otherwise, costs — other than attorney’s fees — should be allowed to the prevailing party.” According to the Supreme Court, this rule gives a district court the discretion to award costs and “codifies a venerable presumption that prevailing parties are entitled to costs.” The issue in Marx, however, was whether § 1692k(a)(3) of the FDCPA is a federal statute that “provides otherwise.”
According to § 1692k(a)(3), “[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.” Marx argued that this statute conflicts with Rule 54(d)(1) and, therefore, limits the situations in which a district court can award costs under the FDCPA to only those where it finds bad faith and harassment. The Court disagreed with this interpretation.
According to the Court, a statute “‘provides otherwise’” than Rule 54(d)(1) if” the statute is “contrary” to the Rule. And a statute is contrary to the Rule if it limits a district court’s discretion. Because § 1692k(a)(3) of the FDCPA is silent with respect to awarding costs “where bad faith and purpose of harassment are absent, and silence does not displace the background rule that a court has discretion to award costs,” the Court found that § 1692k(a)(3) does not displace a district court’s general discretion to award costs to the prevailing party. As a result, a defendant can recover its costs in defending against an FDCPA claim, without showing bad faith and purpose of harassment on the part of the plaintiff.
Although costs are often relatively small in relation to the legal fees incurred in defending against a lawsuit, the Marx decision may ultimately provide defendants with a potential vehicle for any business that is sued and prevails in an FDCPA suit to recover its costs.
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