Appeals Court Overturns $163k Attorney’s Fee Award in Favor of Defendants in FDCPA Case

The Court of Appeals for the Fifth Circuit has reversed a lower court’s decision ordering the attorneys representing a plaintiff in a Fair Debt Collection Practices Act and Texas Fair Debt Collection Practices Act case to pay $163,000 in attorney’s fees to the defendant while also remanding the case back to the District Court to determine whether a settlement award made to a plaintiff designates him as the prevailing party, requiring the defendant to cover his legal fees instead.

A copy of the ruling in the case of Ozmun, Wood, and Chatman v. Portfolio Recovery Associates, Rausch, Sturm, Israel, Enerson & Hornik can be accessed by clicking here.

This case made waves across the accounts receivable management industry three years ago when a District Court judge ruled that plaintiff’s attorneys “manufactured” a case with “practically no input” from the plaintiff himself. Judge Sam Sparks of the District Court for the Western District of Texas ordered the plaintiff’s attorneys to pay $163,627.82 to cover the defendants’ attorney fees. At the time, Judge Sparks seemed particularly irked that more than two years of his time was spent dealing with a case in which the plaintiff sued because the defendant allegedly did not credit the plaintiff’s account after a $57 payment was made.

Unfortunately for Judge Sparks, there is nothing in the FDCPA or TFDCPA that authorizes the award of attorney’s fees against counsel in a case, the Fifth Circuit panel noted in its ruling. The defendant attempted to argue that the Court should uphold the award of attorney’s fees because of its “Inherent Power”. But in order for that to be allowed, the sanctioned party has to be found to have acted in bad faith, and Judge Sparks made his determination absent of any evidence to confirm his ruling. “… this finding appears to have been made sua sponte and in the absence of any evidence; no party argued or introduced evidence that the debt dispute letters Ozmun sent were ‘deliberately deceptive and intentionally confusing’ before the district court found they were so,” the Appeals Court wrote. “Moreover, multiple courts have found identically worded debt dispute letters to be clear and entirely sufficient to dispute a debt under the FDCPA.”

After overturning the attorney’s fee award in favor of the defendant, the Appeals Court then turned the case back over to the District Court to determine whether the plaintiff should be considered to be the prevailing party — and thus entitled to have his attorney’s fees covered — because he was awarded $1,250 in a private settlement.

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