August 27, 2018
A recent Law 360 story by Jon Hill, “CFPB’s ‘Bad Faith’ Merits $1.2M Atty Fees, Law Firm Says,” reports that a law firm that recently beat a Consumer Financial Protection Bureau (CFPB) lawsuit accusing it of illegal debt collection practices wants the agency to pay for its attorneys’ fees, asking an Ohio federal judge for more than $1.2 million because the agency “brought and prosecuted this case in bad faith.” The CFPB was handed a rare defeat in July when U.S. District Judge Donald C. Nugent ruled against the agency in its suit alleging Weltman Weinberg & Reis Co. violated the Fair Debt Collection Practices Act and Consumer Financial Protection Act through the millions of collection letters it sent consumers.
According to the CFPB, the letters gave the impression that attorneys were “meaningfully involved” in the debt collection process when they actually weren’t in most cases, but after a four-day trial before an advisory jury this spring, the judge ruled that the agency had “failed to prove its case by a preponderance of the evidence.” But Weltman Weinberg argued that Judge Nugent should go further and sanction the CFPB for “abusing its unparalleled power to pursue a meritless case,” arguing that the agency knew its claims wouldn’t hold water long before it dragged the firm through more than a year of litigation.
“Though Weltman prevailed at trial, the bureau’s blind pursuit of its groundless case cost Weltman dearly, both in terms of the substantial expense Weltman incurred in its defense and the reputational harm that cost the firm valued clients and employees,” the firm said. “Weltman, as the prevailing party, respectfully requests an award of its reasonable attorney’s fees of $1,207,481.25 … because the bureau brought and prosecuted this case in bad faith.” The CFPB filed its suit against Weltman in April 2017, after what the firm said was more than two years of investigation that involved four civil investigative demands and extensive productions of documents and other materials.
“From that investigation, the bureau knew no consumer had been harmed, misled, or confused by Weltman’s practice of truthfully identifying itself as a law firm,” the firm said. “Indeed, if the bureau had any evidence to support its claims, it surely would have presented it during motion practice or at trial.”
The complaint initially asserted six counts of FDCPA and CFPA violations, covering both the firm’s allegedly misleading collection letters as well as collection calls it placed to consumers. According to the CFPB, these calls were also misleading because they referred to Weltman as a law firm, implying an attorney had reviewed a customer’s file beforehand when usually that wasn’t the case. Yet the agency went on to drop its three claims related to the calls — half the case — as well as its request for disgorgement as the advisory jury trial cranked up, a move that Weltman argued underscored the CFPB’s awareness of how hollow its case was.
In July, Judge Nugent ultimately ruled in Weltman’s favor on the remaining three counts, finding that attorneys were meaningfully involved in the debt collection process and that there wasn’t any evidence showing the letters’ lawyerly trappings had improperly influenced anyone to make a payment. But the damage was done, according to Weltman. In addition to the legal expenses it incurred defending itself, Weltman said it lost clients and revenue from having its name dragged through the mud by the lawsuit, creating financial pressures that forced downsizing and layoffs at the firm.
“This case is the concrete example of what happens when the bureau ‘pushes too hard’ and subjects an innocent company to unwarranted scrutiny in an attempt to regulate by litigating, rather than by establishing rules before charging a company with allegedly breaking them,” Weltman said in its filing, alluding to CFPB acting Director Mick Mulvaney’s pledge earlier this year to shift the agency away from what he described as its “push the envelope” governing philosophy under former CFPB director Richard Cordray.
Cordray, who led the agency when the suit against Weltman was filed, knew about the firm’s debt collection practices from back when he was the attorney general of Ohio, according to Weltman The firm said he approved very similar letters that it used to collect debts for the state. “This court has the inherent authority to sanction the bureau for abusing its unparalleled power to pursue a meritless case, and the court should exercise that power to award Weltman its reasonable attorney’s fees,” the firm said.
The case is Consumer Financial Protection Bureau v. Weltman Weinberg & Reis Co., case number 1:17-cv-00817, in the U.S. District Court for the Northern District of Ohio.