A recent article by Christopher P. Hahn, “Fifth Cir. Holds FDCPA Plaintiff Not Entitled to Attorney’s Fees Following Settlement,” reports on a recent case involving the federal Fair Debt Collection Practices Act (FDCPA) and attorney fee awards.  This article was posted with permission.  The article reads:

The U.S. Court of Appeals for the Fifth Circuit recently affirmed a trial court’s denial of an award of attorney’s fees to a debtor who settled his claims against a debt collector for purported violations of the federal Fair Debt Collection Practices Act and parallel state law consumer protection statutes.

In so ruling, the Fifth Circuit concluded that the fee-shifting provision under the FDCPA for a “successful action to enforce the foregoing liability” requires that a lawsuit generates a favorable end result compelling accountability and legal compliance with a formal command or decree under the FDCPA, 15 U.S.C. 1692, et seq., and that reaching settlement before any such end result does not entitle a plaintiff to an award of attorney’s fees under the statute.

A consumer sued a debt collector for purported violations of the FDCPA and parallel provisions of Texas state law.  After the parties’ cross-motions for summary judgment were denied on the basis that triable issues of fact existed, the parties reached a settlement before trial wherein the debt collector agreed to waive the outstanding debt (approximately $2,100) and pay $1,000 damages. 

After apprising the trial court of the settlement, the court entered sanctions against the debtor’s attorneys, ordering thousands of dollars in costs and fees and reporting them to the disciplinary committee of the U.S. District Court for the Western District of Texas for purportedly bringing the case in bad faith.  See Tejero v. Portfolio Recovery Assocs., L.L.C., 955 F.3d 453, 457. 

The debtor appealed, and the Fifth Circuit reversed the imposition of sanctions for abuse of discretion and remanded for the trial court to determine in the first instance whether the debtor’s favorable settlement entitled him to attorney’s fees under the FDCPA.  Id. at 462-463.  The district court said no, which led to the instant appeal.  In this appeal, the sole question before the Fifth Circuit was whether the trial court erred in refusing the debtor’s fee application under the FDCPA.

The United States generally employ the “American Rule” wherein “[e]ach litigant pays his own attorney’s fees, win or lose,” but this general rule can be altered or amended by statute or contract. Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242, 253 (2010).  As you may recall, the FDCPA authorizes fee shifting, allowing a plaintiff to recover reasonable attorney’s fees as determined by the court with costs “in the case of any successful action to enforce the foregoing liability.”  15 U.S.C. § 1692k(a)(3).

To determine whether such an award was merited here, the Fifth Circuit first turned to the dictionary definition of “successful” — a “favorable outcome,” or favorable end result.  Successful, American Heritage Dictionary 1740 (5th ed. 2011); Outcome, Id. at 1251.  “Successful” modifies the word “action” in the statutory language—the “lawsuit” in this case—thus requiring a favorable end or result from a lawsuit, not merely success in vacuo.  Next considering the infinitive phrase “to enforce the foregoing liability,” “enforce” expresses the purpose of the “successful action,” and thus, the action must succeed in its purpose of enforcing FDCPA liability. 

Read together, the Fifth Circuit stated that a “successful action to enforce the foregoing liability” means a lawsuit that generates a favorable end result compelling accountability and legal compliance with a formal command or decree under the FDCPA.  Here, the appellate court determined that because settlement was reached before the lawsuit reached any end result, let alone a favorable one, the debtor won no such relief, and the debt collector avoided a formal legal command or decree from the lawsuit. 

The debtor argued that his “action” was “successful” because he settled for $1,000, which are the statutory damages allowed by the FDCPA.  The Fifth Circuit rejected this alternative interpretation because it was resolved by settlement agreement that did not “enforce” FDCPA “liability” because it did not compel the debt collector to do anything.  Adopting such a position would improperly rewrite Congress’s statute to authorize fee-shifting “in the case of any successful plaintiff.”

The Fifth Circuit also declined to apply the catalyst theory to the FDCPA’s fee-shifting provision, as a “successful action” under 15 U.S.C. § 1692k(a)(3) notwithstanding its inapplicability to “prevailing party” statutes.  As you may recall, the catalyst theory posits that a plaintiff succeeds “if it achieves the desired result because the lawsuit brought about a voluntary change in the defendant’s conduct” (Buckhannon Bd. & Care Home, Inc. v. W. Va. Dep’t of Health & Hum. Res., 532 U.S. 598, 601 (2001)). 

The Fifth Circuit declined to adopt that interpretation here because “prevailing party” and “successful party” are synonymous phrases carrying similar legal salience, requiring a formal lawsuit, success in that lawsuit, and some form of judicial relief (as opposed to private relief) that enforces the winner’s rights (Prevailing Party, Black’s Law Dictionary 1232), and such an interpretation would also disrupt recent circuit precedent and the Supreme Court’s mandate that fee-shifting statutes must be interpreted consistently.  Buckhannon, 532 U.S. at 603.

Because the debtor’s lawsuit was not a successful FDCPA action as defined by section 1692k(a)(3), the Fifth Circuit held that the trial court correctly determined that he was not entitled to fees, and its denial of attorney’s fees was affirmed.

A recent Law 360 story by Matthew Santoni, “Pa. Enviro Board Can Weight ‘Bad Faith’ in Awarding Attorney Fees,” reports that the administrative board that hears appeals of decisions by Pennsylvania's Department of Environmental Protection was justified in denying attorney fees to environmental groups that reached a settlement with Sunoco over its Mariner East 2 pipeline, since the board found neither side acted in "bad faith," a state appellate court ruled.

A majority of the Commonwealth Court ruled the state's Environmental Hearing Board could deny a petition for fees from the Clean Air Council, The Delaware Riverkeeper Network and Mountain Watershed Association Inc. based on the so-called bad faith standard, since neither the environmental groups nor Sunoco had acted in bad faith through the groups' appeal of the DEP granting permits for the pipeline, which resulted in a settlement between the groups and the state.

The environmental groups had argued that the board should have applied the looser "catalyst test," which would have only required them to show that their appeal was the motivating factor behind some benefit conferred by the other side in order to trigger fee-shifting provisions in the state's Clean Streams Law and have Sunoco pay their nearly $230,000 legal bill.

"Contrary to objectors' assertions, the catalyst test is not the sole and exclusive standard that EHB may employ in disposing of a request for costs and fees against a permittee under ... the Clean Streams Law.  Indeed, we have specifically recognized that EHB's 'broad discretion includes the authority to adopt standards by which it will evaluate applications for costs and fees,'" wrote Judge Michael H. Wojcik for the majority.  "It was entirely within EHB's discretion, and eminently appropriate, to apply the instant bad faith standard in deciding whether or not to impose costs and fees upon a private party permittee."  The court ruled that the EHB had wide discretion when weighing whether and how to award fees, and in a separate decision it upheld another EHB ruling that had cut the fees awarded to a family that challenged the DEP permits for another part of the pipeline crossing their land.

The environmental groups had challenged 20 permits the DEP had granted Sunoco for construction of a pipeline linking gas wells in Western Pennsylvania to a refinery in the east. The matter wound its way through various proceedings before the EHB until the challengers reached a deal with the DEP in which it would establish a "stakeholder group" on pipeline construction and would put more of its permitting documents online in exchange for the groups dropping their challenge.  The DEP also agreed to pay $27,500 of the challengers' legal fees.

But the challengers then asked the EHB to make Sunoco pay additional legal bills related to their appeal, and Sunoco filed its own petition to make the environmental groups pay nearly $300,000 toward what it had spent defending the permits.  The EHB was split, with the majority saying it could apply the bad-faith standard and find that neither side had "engaged in dilatory, obdurate, vexatious, or bad faith conduct in the course of prosecuting or defending" the appeals.  The minority had agreed that neither side was entitled to fees, but said the bad-faith test was not necessary and the board had broad discretion to award fees as it saw fit.

The environmental groups and the DEP both appealed, though the Commonwealth Court found the DEP lacked standing and granted Sunoco's bid to quash that side of the appeal because the state agency hadn't formally intervened in the fee debate and would not have been affected by the EHB ruling against the private parties.

President Judge P. Kevin Brobson wrote a concurring opinion, joined by Judge Renée Cohn Jubelirer, expressing concerns that the EHB's discretion might be so broad that the particular section of the Clean Streams Law might run afoul of the state constitution's requirement that the law contain standards to "guide and restrain" the administrative board's decision-making.  But because that issue wasn't brought up on appeal, and the EHB had denied either side any fees, this wasn't the case to address that with, Judge Brobson wrote.  In this case, there was no reason Sunoco should have been required to pay, he said.

"There is absolutely no basis in the record upon which the EHB could have exercised its discretion below in such a way as to compel Sunoco to pay objectors' legal fees," he wrote. "Sunoco was not a party to the settlement agreement between objectors and DEP that essentially ended objectors' appeals.  Moreover, Sunoco gave up nothing in the settlement or otherwise.  Sunoco kept its permits, unaltered, as if objectors had not even filed their appeals with the EHB."

A dissenting opinion from Judge Ellen Ceisler said the courts shouldn't apply a tougher standard to permit holders when the DEP itself could have been made to pay fees under the catalyst test.  "It does not therefore seem reasonable that, in theory, the DEP could be saddled with fees and costs in response to inadvertent mistakes or good faith, negotiated compromises or settlements, while a permittee could get off scot-free under similar circumstances unless it has conducted itself in a dilatory, obdurate, or vexatious way," she wrote.

The court then applied its ruling to a separate appeal by the DEP of another EHB order, which said the state had to pay about $13,000 of a family's requested $266,000 in fees from the DEP and Sunoco.  Huntingdon County landowners Stephen and Ellen Gerhart had convinced the EHB in 2019 that the DEP had misclassified a wetland on their property and that Sunoco had to do more work to restore it after completing the pipeline's construction.  But the EHB held Sunoco to the bad-faith standard and the DEP to the catalyst test in parceling out who was responsible for the reduced fee award.

Following the same logic as its ruling in the Clean Air Council case, the court affirmed that the EHB had the discretion to apply both standards in awarding fees.  "We agree that the statute and the case law grant broad discretion to the EHB in setting the standard and applying it," said Robert Fox of Manko Gold Katcher & Fox LLP, representing Sunoco in both cases.  An attorney for the environmental groups said they were weighing the decision and their options.

The attorney for the Gerharts said he thought the court correctly balanced the different standards for fee-shifting against the state and against private actors, but noted that in cases like his where the DEP and Sunoco essentially worked together to defend the permits, the state would have to be mindful of whether it would need to build a record to establish that the permit-holder was acting in bad faith.

A recent Metropolitan News story, “Pre-Suit Demand Can’t Serve As ‘Catalyst’ For Public Benefit, Justifying Fee Award,” reports that an attorney fee award may not be made based on a pre-litigation demand having been the “catalyst” for bringing about alterations to a public accommodation which caused it to be accessible to persons in wheelchairs, Div. One of the First District Court of Appeal held.

Richard Skaff, who is wheelchair bound, sued the Rio Nido Roadhouse in Sonoma County, owned by Lowbrau, LLC, for injunctive relief and damages based on his inability to gain access to the facility on the night of Oct. 18, 2012.  However, that was before he complained to the owner, who was in the process of effecting renovations which provided access to the handicapped when suit was filed in 2013, with the work having been completed by the time of trial in 2017.

Skaff sued under Health and Safety Code §19955 et seq., pertaining to accessibility of public accommodations to the handicapped, and the Unruh Civil Rights Act. Civil Code §55 provides that where a suit is brought under §19955, “[t]he prevailing party in the action shall be entitled to recover reasonable attorney’s fees.  Sonoma Superior Court Judge Allan Hardcastle ruled against Skaff on the Unruh claim, finding there was no access barrier that needed to be remediated.  He held in his favor under §19955, however, awarding Skaff $242,672 in attorney fees and costs.

Hardcastle reasoned that the §19955 claim “would have entitled him to obtain injunctive relief for all non-compliant conditions at the Rio Nido Roadhouse relative to his disability” had they not already been remediated, but since they had been, he “already obtained all the injunctive relief he sought in his pre-litigation correspondences and in his complaint,” rendering him the prevailing party. 

Justice Gabriel P. Sanchez wrote the opinion reversing the judgment on the §19955 cause of action and the fee award. He wrote: “It is axiomatic that plaintiff cannot prevail on a cause of action in which no violation of law was ever demonstrated or found.  Nor is the catalyst theory available when a claim lacks legal merit.  That a pre-litigation demand may have spurred action that resulted in positive societal benefit is not reason alone to award attorney fees under the Civil Code.”

Sanchez said the catalyst theory originated in connection with the private attorney general statute, Code of Civil Procedure §1021.5, but has been applied since 2010 to attorney fee awards under Civil Code §55.  However, he pointed out, the theory “requires a causal connection between the plaintiff’s lawsuit and the relief obtained.”  The jurist said the pre-litigation demand, not the lawsuit, prompted the remediation and, in any event, remediation was not required under §19955 which requires remediation only where certain other repairs or alterations were made—which weren’t.

Sanchez set forth: “Plaintiff cannot be deemed the prevailing party because no evidence was adduced at trial establishing a violation or potential violation of section 19955.  Nor can plaintiff be awarded his attorney fees under a catalyst theory because the claim on which it is based was objectively without legal merit.  While Lowbrau accomplished all the remediation plaintiff sought in his pre-litigation demands, plaintiff concedes that none of that remediation was required by section 19955.  The fee award must therefore be reversed.”