Seventh Circuit affirms reduction of fee petition on FDCPA verdict from $187,410 to $10,875

The Seventh Circuit observed in Paz v. Portfolio Recovery Assocs., LLC, No. 17-3259 (7th Cir. May 15, 2019) that “[s]ometimes settling a case is the only course that makes sense”. It affirmed a district’s reduction of a debtor’s fee petition on an FDCPA verdict from $187,410 to $10,875 concluding the fees were not reasonable in light of the debt collector’s multiple attempts to settle.

After the debtor defaulted on his credit card debt the defendant debt collector purchased the debt and attempted to collect. Alongside these collection efforts, however, the debt collector violated the FDCPA by failing to report to credit reporting agencies that the debtor disputed the debt. Debtor sued.

The debt collector promptly made a FRCP 68 offer of judgment which the debtor accepted after some back and forth on fees. However, the debt collector continued to report the debt to credit reporting agencies, even confirming the validity of the debt in response to inquiries from the agencies. This continued reporting violated the FDCPA prompting the second lawsuit.

The debt collector answered the second lawsuit admitting its error was due to an oversight. The debt collector tried to settle the second suit the same way as the first by invoking Rule 68 and making a series of settlement offers. The debtor never responded to the offers. The parties eventually moved for cross motions for summary judgment and the debtor was permitted to go to trial on one violation of the FDCPA, communicating false information. A week before trial, the debt collector made a final offer to settle at $ 25,000 to resolve all remaining claims and to cover attorneys’ fees and costs. Debtor rejected the offer and proceeded to trial, enlisting the aid of two more attorneys to help at trial.

The trial took one day and the jury found for the debtor. It determined he had sustained no actual damages, however, so it limited his recovery to $ 1,000 in statutory damages. Debtor then sought $ 187,410 in attorneys’ fees. The court found that only $ 10,875 in attorneys’ fees was reasonable and approved the fee award in that amount.

On appeal, the Seventh Circuit acknowledged that the debtor is entitled to reasonable attorneys’ fees without regard to the limitation on costs in Rule 68. In determining the reasonableness of fees, the district court correctly underscored that one relevant consideration was debtor’s decision to reject the Rule 68 offers and instead to proceed to trial. The debtor had obtained only limited success at trial; especially so given that the offer was more than three times the amount of his ultimate recovery. “[Debtor] was free to proceed to trial, the district court reasoned, but his doing so was a consideration that warranted a substantial reduction in the award of attorneys’ fees.”

The Court was not impressed by debtor’s argument that the terms of settlement were so ambiguous and unfair as to render the offer worthless. The offer supposedly cut off attorneys’ fees at the time of acceptance, which debtor claimed exposed him to an unknown amount of fees for the time his counsel would spend doing the paperwork necessary to finalize the settlement and enter the Rule 68 judgment. “[Debtor’s] position inheres with an air of unreality”, the Court stated. Debtors counsel had accepted offers with identical terms in the past and all he had to do was request a fee award that would cover the time necessary to finalize the settlement.

The Court was also unmoved by the contention that the settlement offers disclaimed liability while the jury verdict yielded a judgment. But what debtor overlooked is his acceptance of the offer, by operation of Rule 68, would have resulted in a judgment being entered against the debt collector.

“[Debtor] was free to make these choices. Like any other party, he was not required to accept the trial court’s (or anyone else’s) view of the best litigation strategy, including whether to accept a settlement offer. So, too, is it clear as a more general matter that a sound approach to litigation will often and inevitably entail the pursuit of what turn out to be dead ends, all of which will result in a party reasonably incurring fees and costs.” In these circumstances, the district court did not abuse its discretion in rejecting the request for $ 187,410 in fees and instead awarding him $ 10,875.

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