Tejero sued Portfolio Recovery for violating the FDCPA and the Texas Debt Collection Act. The District Court ordered the parties to exchange settlement offers by October 19, 2016. Portfolio Recovery offered to settle the case for $1,101, plus costs and reasonable attorney’s fees. Tejero’s lawyers neither submitted a written offer nor responded to Portfolio Recovery’s offer. Later, during discovery, Tejero acknowledged that $1,000 would make him whole and conclude the case. For some reason, the case nevertheless continued, until, at the conclusion of discovery, the parties cross-moved for summary judgment. The District Court granted the Defendant’s motion on the Texas Debt Collection Act claim, but denied both motions on the FDCPA claim, finding a triable issue as to whether Tejero validly disputed the debt. Following these rulings, the parties settled. Portfolio Recovery agreed to pay Tejero $1,000 and to forgive the underlying debt. The parties left the District Court to decide the issue of costs and attorney’s fees. Tejero moved for costs and fees in the amount of $14,731.80, while Portfolio Recovery moved to sanction Tejero’s lawyers under 28 U.S.C. §1927 and 15 U.S.C. §1692k(a)(3), requesting $13,950.38 in costs and fees.
Before ruling, Judge Sparks wrote to the Disciplinary Committee for the Western District of Texas. He listed the FDCPA cases in which Tejero’s attorneys had participated, and accused them of various ethics violations, including their purported participation in “a scheme to force settlements from debt collectors by abusing the FDCPA.”
Then, the District Court declined to award Tejero costs and fees, and, instead, sanctioned Tejero’s attorneys under 15 U.S.C. §1692k(a)(3) and Federal Rule of Civil Procedure 11(c), and ordered that they pay Portfolio Recovery’s costs and attorney’s fees. The District Court found that Tejero’s attorneys acted in bad faith when they: (1) failed to comply with the September 2016 settlement-offer order; (2) continued to litigate the case even after receiving an offer that would make Tejero whole; and (3) drafted the January 2016 debt letter in a manner that would cause the debt collector not to realize that the debt was disputed, so that counsel could engage in a scheme to force settlements from debt collectors by abusing the FDCPA.
The U.S. Fifth Circuit reversed:
With respect to the award of sanctions under Rule 11, the Court initially notes that a court may not award attorney’s fees sua sponte under Rule 11; there must first be a Rule 11 Motion, or an Order to Show Cause under Rule 11(c)(3). Substantively, the failure to engage in settlement discussions relates to an attorney’s litigation tactics, rather than a filing subject to Rule 11. Similarly, “the decision to reject a settlement offer is not a court filing subject to Rule 11(b). Litigation conduct can trigger sanctions under other statutes. See, e.g., 28 U.S.C. §1927 (providing for counsel’s liability for multiplying the proceedings in any case unreasonably and vexatiously). But the district court explicitly ruled out the award of §1927 sanctions in its April 2018 order.
“Perhaps the district court meant to say that the Attorney-Appellants’ decision to file a summary judgment motion after discovery and settlement negotiations violated Rule 11. But the district court did not find that the motion was frivolous, which would have been a violation of Rule 11(b)(2). And it did not determine that the attorneys knew or ought to have known that factual contentions or denials in the motion were unsupported by the evidence, in violation of Rule 11(b)(3) and (4). To the contrary, the district court denied Portfolio Recovery’s cross-motion for summary judgment on the FDCPA claim – which indicates Tejero’s position was far from frivolous. In fact, it was so substantial that the district court thought it warranted a trial.”
Finally, the District Court referenced the debt-dispute letter, which it considered intentionally unclear – a “bad faith” attempt to use “ambiguously worded” language to “expose debt collectors to FDCPA liability.” While this letter is not a filing or other paper subject to Rule 11, Tejero incorporated it into his Complaint. “So at last we’re talking about a filing to which Rule 11 could apply. Even so, there is no evidence that Tejero filed his complaint in ‘bad faith’.
“The phrase ‘bad faith’ does not appear in the Rule. And the district court did not explain precisely which part of Rule 11 it considered violated. The court might have thought that the factual contentions in the letter – the existence of a dispute over the debt – did not have evidentiary support. Rule 11(b)(3). But the district court found elsewhere that an issue of fact existed on whether Plaintiff actually disputed the debt. So lack of evidentiary foundation cannot be the problem here. A claim that survives summary judgment likewise cannot be frivolous. See Rule 11(b)(2). The district court itself acknowledged that the dispute letter exposed debt collectors to liability. If a claim has merit, it cannot be frivolous.”
With respect to the award of attorney’s fees under the FDCPA, the Court of Appeal acknowledged that the Act permits a court to “award to the defendant attorney’s fees” on “a finding . . . that an action under this section was brought in bad faith and for the purpose of harassment.” 15 U.S.C. §1692k(a)(3). But “we have already expressed disagreement with the court’s finding of bad faith. That’s a sufficient reason to reverse the §1692k(a)(3) fee award. But there’s another problem: The district court ordered Tejero’s lawyers to pay it…. Section 1692k(a)(3) says only that the court may award to the defendant attorney’s fees. It is silent as to whether a plaintiff’s attorney may be ordered to pay them. Unlike 28 U.S.C. §1927 or Rule 11, there is no language that specifically and explicitly permits the courts to depart from the common law and make fee awards against lawyers. Consistent with our interpretation of 42 U.S.C. §§ 1988 and 2000e-5(k), we hold that 15 U.S.C. §1692k(a)(3) permits fee awards only against parties, not against their counsel.”
Tejero v. Portfolio Recovery Associates, 955 F.3d 453 (5th Cir. 2020).