Ninth Circuit Holds that the Fair Debt Collection Practices Act Does Not Authorize an Award of Attorneys' Fees Against Plaintiff's Lawyers

Plaintiff Darren Del Nero sued Midland Credit Management Inc. and MRC Receivables Corporation for violating the Fair Debt Collection Practices Act and California's Business and Professions Code §17200 (prohibiting "unfair" business practices) in federal court for the Southern District of California.

Unfortunately for Mr. Del Nero, his case was tried before the bench and the district judge was less than impressed with Mr. Del Nero's claims. At the close of the plaintiff's case, Judge Schiavelli granted MRC's Rule 52(c) motion and ruled in Midland's favor after the close of evidence.

Judge Schiavelli then awarded attorneys' fees and costs to Midland and MRC in the amount of $155,979.09(!!) against plaintiff, finding that the action had been brought in bad faith and for purposes of harassment as defined in 15 U.S.C. 1692k(a)(3). The court awarded the same amount of attorneys' fees and costs against plaintiff's lawyers under both 15 U.S.C. 1692k(a)(3) and F.R.Civ.P. Rule 11.

The law firm timely appealed (Mr. Del Noro did not). Hyde, et al., v. Midland Credit Management, Inc., et al., 567 F.3d 1137 (Ninth Cir. 2009). Both sides agreed that the award could not be sustained on the Rule 11 front as the 21-day "safe harbor" requirement was not met. For purposes of the appeal, the Ninth Circuit assumed that Del Noro's action was brought in bad faith and for purposes of harassment within the meaning of 15 U.S.C. 1692k(a)(3), and reviewedde novo the question of whether the statute permitted an award of attorneys' fees against an attorney.

The Court noted that the statute was silent on the issue of who should pay an award of attorneys' fees and costs, stating only that "the court may award to the defendant attorney's fees reasonable in relation to the work expended and costs." The Court determined that an award against an attorney was not permitted, based in part on its prior decision regarding a similar provision in the False Claims Act, and on the general presumption that an attorney is generally not liable for fees unless that prospect is specifically spelled out.

Posted by: Thomas E. Satrom

Categories: Bankruptcy & Banking Law