Seventh Circuit holds that debtor’s settlement with creditor moots FDCPA claim against creditor’s law firm

In Portalatin v. Blatt, Hasenmiller, Leibsker & Moore, LLC, No. 16-1578 (7th Cir. Aug. 13, 2018), an FDCPA action, the Seventh Circuit vacated a judgment based on a jury verdict of $200 in statutory damages and over $70,000 in fees and costs against a law firm. The Court held that the debtor’s prior settlement with another defendant for the same violation rendered the claim for FDPCA statutory damages against the law firm moot.

The debtor in this case sued the debt collector and its law firm for violating the FDCPA by pursuing a collection action in the wrong forum. She also sued the debt collector under a consumer fraud theory. Shortly before trial, the debtor settled both of her claims with the debt collector for $5000. The case against the law firm went to trial with the jury awarding the debtor $200 in statutory damages and over $70,000 in attorney’s fees and costs.

The law firm brought two appeals arguing, among other things, that the debtor had received all possible compensation through her settlement with the debt collector, thus mooting her action against the law firm. It also challenged the award of attorney’s fees and costs, arguing that it falls with the mootness of the statutory-damages claim.

The Court sided with the law firm on the mootness argument and vacated the judgment. It observed that under the FDCPA a plaintiff is only entitled to a single recovery for a single injury, regardless of how many defendants could be liable for that single injury, or how many different theories of recovery could apply to that single injury. For statutory damage claims under the FDCPA, recovery is capped at $1,000 per action, not per violation and not per defendant.

Once a plaintiff settles with one defendant for the full relief available for a single, indivisible injury, the plaintiff generally cannot pursue a claim for the same injury against a different defendant; the settlement renders such a claim moot.

When a plaintiff wants to settle with one defendant but maintain a claim against another defendant, one possibility is for the plaintiff to allocate all the funds in such a way as to maximize recovery against the non-settling defendant, if this is possible in good faith. But the debtor in this case did not allocate the settlement funds to any particular claims. “Indeed, far from allocating, the settlement agreement says it encompasses and resolves all claims arising out of the facts alleged in or capable of being alleged in this federal action” Therefore, the claim for FDCPA additional damages—which is capped at $1,000—is fully covered by the settlement funds of $5,000.

Thus, when the debtor settled with the debt collector, her claim against the law firm for statutory damages became moot, and the district court should have dismissed it. She prevailed at trial, but she should not have reached trial. Therefore, she was not entitled to an award of attorney’s fees.

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