February 26, 2013

DECISION ALERT
Today the Supreme Court issued one decision, described below, of interest to the business community.

• Fair Debt Collection Practices Act—Awards Of Costs To Prevailing Defendants

Fair Debt Collection Practices Act—Awards Of Costs To Prevailing Defendants

Marx v. General Revenue Corp., No. 11-1175 (previously described in the May 29, 2012 Docket Report)

Federal Rule of Civil Procedure 54(d)(1) states that, “[u]nless a federal statute . . . provides otherwise, costs—other than attorney’s fees—should be allowed to the prevailing party.” Meanwhile, the Fair Debt Collection Practices Act provides that defendants “may” recover reasonable “attorney’s fees . . . and costs” upon “a finding by the court that an action under this section was brought in bad faith and for the purpose of harassment.” 15 U.S.C. § 1692k(a)(3). Today in Marx v. General Revenue Corp., No. 11-1175, the Supreme Court held that the FDCA’s fee-shifting provision does not “provide[ ] otherwise” than Rule 54(d)(1). Accordingly, a court in FDCPA litigation is not required to make a finding of bad faith before awarding costs to a prevailing defendant. The Court’s decision overrules precedent from the United States Court of Appeals for the Ninth Circuit, which had held that the FDCPA evidences Congress’s intent “to condition an award of costs to a prevailing defendant upon a finding of bad faith and harassment on plaintiff’s part.” Rouse v. Law Offices of Rory Clark, 603 F. 3d 699, 706 (9th Cir. 2010).

In a 7-2 opinion authored by Justice Thomas, the Court held that “[a] statute ‘provides otherwise’ than Rule 54(d)(1)” only “if it is ‘contrary’ to the Rule.” Slip op. at 5. Because the FDCPA’s fee-shifting provision codifies a “background rule” within the common law that courts have discretion “to award attorney’s fees in a narrow set of circumstances, including when a party brings an action in bad faith,” the Court found it “dubious to infer congressional intent to override” the other “background rule” that costs should ordinarily be awarded to the prevailing party. Id. at 10. “Had Congress intended . . . to displace Rule 54(d)(1),” the Court reasoned, “it could have easily done so.” Id. at 12. The Court therefore concluded that the FDCPA “is not contrary to Rule 54(d)(1), and, thus, does not displace a district court’s discretion to award costs under the Rule.” Id. at 15-16.

Justice Sotomayor filed a dissenting opinion, in which Justice Kagan joined. Relying on the dictionary definition of “otherwise,” the dissent reasoned that, “to displace Rule 54(d)(1), a federal statute need only address costs in a way different from, but not necessarily inconsistent with, the default.” Slip op. at 3. And because the FDCPA’s cost-shifting provision “described with specificity a single circumstance in which costs may be awarded,” the dissent found it “readily apparent that this provision is different from the default Rule of 54(d)(1).” Id. at 5.

The Court’s decision in Marx establishes that prevailing defendants in FDCPA litigation are eligible to recover costs under Rule 54(d)(1) regardless of whether they can demonstrate that the suit was brought in bad faith. The ruling will thus be of interest to businesses that are engaged in the collection of consumer debt, and therefore are potentially subject to suit under the FDCPA. But the ruling also has broader implications, beyond the FDCA. It recognizes that although Rule 54(d)(1) “codifies a venerable presumption that prevailing parties are entitled to costs,” the “decision to award costs ultimately lies within the sound discretion of the district court.” Slip op. at 5. That aspect of the decision effectively forecloses the argument in any type of federal litigation that Rule 54(d)(1) permits a prevailing party to recover its costs as a matter of right.

Any questions about this case should be directed to Tim Bishop (+1 312 701 7829) in our Chicago office or Richard Katskee (+1 202 263 3222) in our Washington office

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