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Collector’s Sanctions Motion Backfires in Florida Federal Court

Central FloridaThe U.S. District Court for the Middle District of Florida recently denied a debt collector’s motion for sanctions based on the plaintiff’s filing of allegedly frivolous consumer protection claims, which the plaintiff consumer voluntarily dismissed with prejudice after demand from the debt collector’s counsel, where the debt collector failed to show the claims met the Eleventh Circuit’s two-prong test for frivolity.

A copy of the opinion in Claudet v. First Federal Credit Control, Inc., is available here: Link to Opinion.

After the plaintiff consumer underwent a medical procedure with a medical imaging company, she allegedly informed the medical imaging company that the debt was discharged in bankruptcy, and the medical imaging company allegedly made a notation on the account.  The medical imaging company allegedly assigned her debt to a debt collector, which attempted to collect the debt with letters and calls to the plaintiff consumer’s cellular telephone.

The plaintiff consumer filed suit against the debt collector alleging violations of the federal Telephone Consumer Protection Act (TCPA), the federal Fair Debt Collection Practices Act (FDCPA), and the Florida Consumer Collection Practices Act (FCCPA).

The debt collector’s counsel contacted the plaintiff consumer’s counsel and demanded voluntarily dismissal of the TCPA and FCCPA claims. The debt collector’s counsel stated that the claims were meritless because the debt collector does not use an “automatic telephone dialing system” under the TCPA, and that the debt collector lacked the requisite “actual knowledge” of the illegitimacy of the debt pursuant to Fla. Stat. § 559.72(9) of the FCCPA.

The debt collector’s counsel eventually complied, and voluntarily dismissed all of the allegations with prejudice. The debt collector then filed a motion for sanctions against the plaintiff consumer and her counsel, alleging that the TCPA and FCCPA counts were frivolous.

As you may recall, Fed. R. Civ. Pro. Rule 11(b) governs the filing of frivolous pleadings. In analyzing this rule, the Court applied the two-prong test established by the Eleventh Circuit for such motion, i.e., “whether the legal claims or factual contentions are objectively frivolous, and, if so, whether a reasonably competent attorney should have known they were frivolous.” Thompson v. RelationServe Media, Inc., 610 F.3d 628, 665 (11th Cir. 2010).

Under the first step, “[a] factual claim is frivolous if no reasonably competent attorney could conclude that it has a reasonable evidentiary basis.” Id. Under the second step, the question is “whether the attorney should have known they were frivolous” or, stated differently, whether “a reasonable investigation would have revealed the error to a reasonably competent attorney.” Id.  “Both inquiries measure attorney conduct under an objective reasonably competent attorney standard.” Id.

The Middle District of Florida held that the debt collector failed to apply the two-prong analysis. The Court noted that the debt collector did not take issue with any lack of pre-filing inquiry, and instead the sole basis for the motion was plaintiff’s failure to immediately voluntarily dismiss the counts after the debt collector’s demand.

The Court noted that the debt collector’s counsel failed to show how its counsel’s demands for dismissal rendered the claims objectively frivolous or how the claims would have caused a reasonably competent attorney to know of their frivolity.

Moreover, the Court also found that the debt collector failed to show how the claims would be frivolous after reasonable investigation, and failed to suggest any means of non-discovery fact-finding that might have revealed a lack of factual basis for the claims.  The Court noted that debt collector’s counsel expected plaintiff’s counsel to rely merely on the debt collector’s counsel’s statements regarding discrete factual issues as the basis for withdrawal and dismissal of the claims.

Accordingly, the Middle District of Florida held that the debt collector’s motion for sanctions failed to address the applicable standard for such motions, and failed to cite supporting legal authority in contravention of the Middle District’s Local Rule 3.01(a), which requires a memorandum of legal authority in support of a motion.

The Court further stated that the motion is “self-contradictory” in that it alleged that plaintiff consumer’s entire action is frivolous but then only addressed two counts of the three count complaint, and also failed to distinguish the pursued fees and costs between the two counts and the remaining third count.

The Court further held that the debt collector’s motion was filed for an improper purpose, finding that “the unexceptional nature of Defendant’s motion bespeaks an ancillary purpose,” as the debt collector filed the motion despite already achieving a voluntary dismissal with prejudice.

Accordingly, the Court not only denied the debt collector’s motion, but also awarded the plaintiff consumer her reasonable expenses, including attorneys’ fees, to be paid by the debt collector’s counsel.

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The attorneys of Maurice Wutscher are seasoned business lawyers with substantial experience in business law, financial services litigation and regulatory compliance. They represent consumer and commercial financial services companies, including depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, financial asset buyers and sellers, loss mitigation companies, third-party debt collectors, and other financial services providers. They have defended scores of putative class actions, have substantial experience in federal appellate court litigation and bring substantial trial and complex bankruptcy experience. They are leaders and influencers in their highly specialized area of law. They serve in leadership positions in industry associations and regularly publish and speak before national audiences.

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