Sunday, August 11, 2013

Attorney's fees and fee affidavits in debt collection cases


When it comes to attorney’s fees, Texas follows “The American Rule”, meaning that each party pays its own fees. Until the arrival of the expedited action rule this year, that it. But even under the American (as opposed to British/European rule) plain and simple, attorney fees could be awarded if the underlying contract provided for them, not to mention that Chapter 38 of the CPRC has long provided an exception for certain types of claims, including breach of contract claims. 

The 2013 rule changes are no sea change in that regard. The most notable innovation is that the new rules give Defendants a chance for a fee award too. This should make it more attractive for attorneys to defend cases on behalf of cash-strapped consumers being dragged into court on unpaid credit card bills. After all, such cases are often dismissed or nonsuited when a consumer attorney gets involved because the plaintiff does not have adequate documentation. Now, dismissal can be sought early on, with a potential fee award for the efforts of the defendant's counsel.

Nor is Chapter 38 the only statute providing for a fee award. So, in essence, the American rule pretty much boils down no fees being available in a tort case, unless it’s based on a statutory cause of action, e.g. Theft Liability Act rather than conversion; or statutory fraud as opposed to common-law fraud. 


The main difference between a fee claim under Chapter 38 and one under a contract provision is that the Chapter 38 authorizes fees only to a successful plaintiff, i.e. one who secures an award of damages, and that it has certain other requirements, while an award of attorney’s fees based a contract provision is not so restricted. It will instead depend on what the parties agreed as revealed in the attorney fee provision of their contract. This may include an agreement that the prevailing party is entitled to such fees, including a prevailing defendant. A defendant who manages to defeat a contract claim by a debt collector cannot obtain a fee award under Chapter 38. 


As for the requirements for fee recovery under Chapter 38, the party relying on this chapter must first present the claim to the opposing party so as to provide that party an opportunity to pay the debt without incurring attorney’s fees. This requirement is easily met. After all, it is standard practice for debt collection attorneys to mail a dunning or demand letter.  The only questions regarding this “condition precedent” for fee recovery may be whether a copy of the demand letter is included among the summary judgment exhibits (or offered at trial) and whether it qualifies as “presentment”. In rare cases, the plaintiff’s attorney may be reluctant to produce it if it would (or arguably could) support an unfair debt collection claim under the FDCPA. 

But testimony that such a letter was sent, or an admission by the defendant that a demand letter was received, may be sufficient. According to the case law, the “presentment” does not have to be in a particular form; nor is there a prescribed form or stock verbiage (as there is, for example, for a business records affidavit, or a sworn account affidavit). Additionally, the defendant would have to specifically deny in the answer that “all conditions precedent have been met or satisfied” if the plaintiff includes that verbiage in its original or amended petition.

The best way for a debt suit defendant to avoid being saddled with attorney’s fees is to win the case. If that is not feasible, or not a likely prospect, it may be worth quibbling about the amount, particularly when it seems unreasonable. 

What is reasonable or not is not so clear, so there is plenty of room for disagreement; not to mention the defendant’s attorney should be equally qualified to opine on reasonableness of fees, and can produce conflicting testimony for her own the occasion, if warranted. In cases brought by certain debt collection attorneys of certain law firms it is highly warranted because their sworn testimony of what is reasonable (in cases that are invariably based on stock pleadings and motions) falls on the far right end of the spectrum. 


These days, many debt plaintiffs do not plead for attorney’s fees at all. Others routinely claim $400-$500 not including court costs; but some ask, and have their attorneys swear to the reasonableness of, much higher amounts. 

Some debt collection firms compute the attorney’s fee amount as a percentage of the amount of the debt. James Hull, for example, routinely pleads for a third of the amount in controversy, and Anh Regent uses a percentage likewise (although the amount appears in a request for admissions, rather than within the attorney fee paragraph of the petition itself). Regent tries for a more modest 25%, but this can still be a hefty sum, if the amount sued for is on the upper end of the typical range. 


New Expedited Action rule provides for attorney fee recovery by prevailing defendants
Fee award under Chapter 38 of the Texas Civil Practice and Remedies Code

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