State Appeals Court Reverses Ruling, Puts Agency on Hook for Debtor’s Legal Fees

For companies in the accounts receivable management industry, knowing when to settle a lawsuit or continue defending it is a decision that is never simple or straightforward. Settle and you save money now, but possibly paint a target on your back for more lawsuits. Fight and you may stop future lawsuits from being filed, but it will cost you a lot more to defend. A state court in Washington has reversed a lower court’s ruling that a collection agency is not liable for the attorney’s fees of an individual it sued to recover an unpaid debt because it did not accept an offer to pay a debt that did not include $213 in costs.

A copy of the ruling in the case of Asset Recovery Group v. Wilson-Codega can be accessed by clicking here.

The collection agency filed suit against the individual seeking to recover $1,374.56. The agency then offered to settle the debt for the full amount owed plus $213 in costs. The individual did not respond to the offer. Two months later, the individual offered to pay the debt in full, but not the costs, if the agency would dismiss the suit. The agency declined the offer.

The individual then responded to the collection lawsuit and counterclaimed for damages, alleging the agency violated state law in Washington and the Fair Debt Collection Practices Act. The individual sought $10,000 to settle her counterclaims while the agency held fast and demanded the full payment, including costs.

A state court ruled in favor of the agency and awarded it $1,374.56 plus $213 in court costs. The agency also sought — and was awarded — $15,030 in attorney’s fees as the prevailing party in the original lawsuit. The individual appealed that decision and the state Appeals Court determined that the individual was the prevailing party, not the collection agency, because the $1,587.56 that was demanded by the agency was less than the $1,374.56 plus $213 in court costs that it was awarded. While they may add up to the same figure, the Appeals Court ruled that the agency was not entitled to any costs when it offered its initial settlement because there was no judgment “so segregating its offer into amounts corresponding to damages and costs amounted to nothing more than requesting a lump sum of ‘just dollars.’ ” the Appeals Court wrote.

Because the agency was ultimately awarded exactly the amount that the individual was offering to settle the debt, she was the prevailing party, the Appeals Court ruled. So not only is the agency now on the hook for the individual’s attorney’s fees during the initial trial, but for the appeal as well.

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