LEGAL
When it comes to attorney's fees, the American rule is that each party pays their own way (as opposed to the English rule, under which the loser pays the winner's fees).
When it comes to the rest of the costs of litigation – travel expenses, witness fees, etc. things are sometimes not as certain, especially where there's a bit of conflict in federal statutes.
For example, Rule 54 of the Federal Rules of Civil Procedure provides that "[u]nless a federal statute, these rules, or a court order provides otherwise, costs – other than attorney's fees – should be allowed to the prevailing party."
Conversely, the Fair Debt Collection Practices Act (FDCPA) provides that, on a court finding 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."
This seemingly minor incongruence is the subject of a lawsuit that just completed oral arguments before the Supreme Court.
The case, Marx v. General Revenue Corporation, began when Olivea Marx filed suit against General Revenue Corporation (GRC) for allegedly violating several provisions of the FDCPA. After a bench trial, the court found that no violation of the FDCPA had occurred (though did state that the question of one alleged violation was "close").
GRC submitted a bill of costs seeking $7,779.16 in witness fees, witness travel expenses, and deposition transcript fees under FRCP Rule 54, and, after reviewing the submitted costs, the court ordered Marx to pay $4,543.03.
Marx appealed, but the appeals court sided with GRC; in May 2012, the Supreme Court agreed to hear the case.
Marx's and GRC's arguments on how to reconcile the seeming statutory incongruity represent the two general interpretations fairly well.
Marx argues that the section of FDCPA that allows for fee recovery by a defendant where there's a finding of bad faith represents an example of the "unless provided otherwise" exception found in Rule 54.
Further, Marx argues that the FDCPA provision would be completely superfluous if it didn't serve as a statute that "provides otherwise" under Rule 54.
The seemingly strongest proponent of this perspective on the Court was Justice Kagan, who seemed to drill GRC's counsel the most with questions.
On the other side was Justice Scalia, who seemed to most clearly support GRC's argument, which is that the award of costs at the end of litigation is commonplace, and that the FDCPA provision should be construed as being intended to benefit defendants, not hinder them.
It's hard to gauge the rest of the Justices' positions from the oral arguments alone, but a unanimous decision one way or the other seems unlikely.
However the Court comes down in Marx, the impact of the decision won't be particularly broad; it will be deeply felt in two fields of litigation.
The first, obviously, is debt collection.
The second field – electronic fund transfer violations by financial institutions – is quite a bit less robust in the amount of traffic it generates in the courts.
This field is primarily regulated by the Electronic Funds Transfer Act (EFTA), which imposes liability on financial institutions for certain transactions involving electronic banking.
This field would be affected by the Marx decision because of a provision within the EFTA that is almost identical to the one from the FDCPA at issue in this case.
Nevertheless, debt collection litigation will still see the biggest impact from this decision.
Should the Court rule for GRC, you can bet that the amount of claims filed against debt collectors under the FDCPA will drop significantly, as potential plaintiffs will not want to risk paying the defendant's costs in cases where the possibility of loss is not so remote.
On the other hand, if debt collectors are forced to pay their own way in court, regardless of the outcome, they will likely be far more willing to settle at the early stages of litigation.
With the case now submitted and being considered by the Supreme Court, all we can do now is wait for the decision and see how the consequences play out.
Jeremy Byellin is a practicing attorney in the state of Minnesota and a writer for the Westlaw Insider blog. His articles for the blog cover a wide range of legal topics, with a specific focus on major legal developments and cyberlaw.
Other articles recently authored by Jeremy Byellin:
Corporate Counsel Connect (August/September 2012 Issue)
CFPB Action Against Capital One Stresses the Need to Regulate Sales Culture
Corporate Counsel Connect (June/July 2012 Issue)
Posner Adds Insult to Injury from Adverse Tax Ruling
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