Countering the opposing counsel's excessive fee claim in a credit card case

Attorney’s fees sought by debt collectors: 

  
How much is too much?

There is no straightforward answer to this question. Suffice it to say that, as a matter of empirical observation, the range of amounts claimed is broad.  A number of debt collection firms do not claim attorney’s fees at all (or have stopped doing so), while some individual collection attorneys swear under oath that similar efforts on behalf of a plaintiff that engages in industrial-scale debt litigation merits thousands of dollars for a single case. Some members of the creditors rights bar are clearly greedier than others.
  

A distinction can also be drawn between amounts requested in pleadings (or disclosed in discovery responses) and amounts actually sought by fee affidavit attached to a motion for summary judgment, or attested to by the attorney for the Plaintiff at trial. Some debt collection firms qualify the amount stated in the petition with the words “at least”, leaving open the possibility that they might eventually claim more, others state a dollar figure, but regularly file a fee affidavit later that seeks less. Some plaintiffs or lawfirms drop or lower the fees they previously pleaded for so as to induce a settlement or agreed judgment.  

Attorney’s fees incurred in a civil case are inherently unliquidated. Therefore the judge (rarely, the jury, since there is hardly ever a jury in a debt collection case), must hear evidence, and the evidence regarding amount sought is evaluated based on the criteria of reasonableness and necessity. What is reasonable in one debt collection case that is virtually identical to most others – hundreds, if not thousands of others -- is highly debatable. It provides fodder for a swearing match among members of the bar all claiming expert status with respect to the question of how much their work is worth. 

This blog post focuses on the amount(s) of attorney’s fees claimed by debt collection lawyers. Others explore the legal basis for a fee award in a collection case; the applicability of Texas law vs. the law of the creditor’s home state; and the other fee-related matters.

REASONABLENESS AND NECESSITY ARE EMINENTLY DEBATABLE IN COLLECTION CASES  

The principal evidentiary requirements for a viable fee claim under Chapter 38 (and likely on any other basis) encompass the elements of reasonableness and necessity of the amount claimed. Chapter 38 of the Texas Civil Practice and Remedies Code is the statute upon which most debt collection attorneys rely as authority for attorney fee recovery as an exception to The American Rule (under which parties are otherwise responsible for their own legal fees). Many also plead that the underlying contract authorizes legal fees; sometimes even the summary judgment affidavits signed by non-attorney employees of debt-buyers include an averment to that effect along with other boiler-plate verbiage.  

Reasonableness is a fact issue because attorney effort and time expended vary greatly across the broad spectrum of civil cases and, as such, require evidence. Reasonableness, of course, also depends on comparison with what other attorneys charge for similar efforts in similar cases, and thus requires a certain level of familiarity with the practice of law and the relevant market for legal services.

Reasonableness figures more prominently in disputes over attorney's fees than necessity.

Disputes over necessity typically involve part of a fee claim specifically attributed to certain activities that were arguably superfluous, redundant, or of marginal relevance (busywork to drive up fees); or should not have been performed by an attorney; or not by a senior attorney at the highest hourly rate. But all this presupposes that detailed information is presented to the court.

A typical fee affidavit in a routine debt collection case does not meticulously itemize activities, not to mention incorporate by reference an attached timekeeper or billing sheet. Some affidavits mention specific tasks, but only in a very general fashion that is not case-specific. The reason for is the premium placed on economy and efficiency of mass debt collection litigation in order to maximize profitability for the lawfirm and, more generally, return on investment for debtbuyers.

A generally-phrased affidavit can be used and reused in numerous cases time and again. It just needs to be customized with the appropriate case style, dated, and signed by an attorney before a notary.    

The fee affidavits of many debt collection firms are based on templates with standardized verbiage just as pleadings and motions and are part of computerized document production systems. The amount of the attorney's fee is either identical for all cases involving a particular plaintiff ($400 or $500), or computed as a percentage of the amount of the amount in controversy (e.g., 20%, 25%, or a third of amount of the debt).

Because the paperwork is automated (handled with computers and litigation software packages), a standard debt-collection case typically receives a minimum amount of attorney attention as long as no court appearances are involved. Even if an attorney appearance is involved, the same attorney will often make appearance in several cases on the same day in the same local courthouse. Trials may be as short as five minutes, particularly when the Defendant defaults, or appears without attorney and is at a loss what to do, and merely has to be told what to do, like answering questions under oath and help prove the plaintiff’s case.

Nor would it make sense for the law firms to try to account of attorney effort to the purpose of proving a fee claim. Given the high volume of cases, the amount of attorney time attributable to any particular case would be minimal. Nor would much of the management of the paper flow (or, increasingly, of the e-filing routine) even involve attorneys.

Arguably, claims for attorneys fees for such things as “preparing” a case, “drafting” a pleading and “arranging for service” are dubious because most of the process is performed by computers and low-level operatives who may not even have training as paralegals.

Data from a spreadsheet (or equivalent data file) is merged with standard litigation templates. All petitions look alike except for case-specific information such as defendant’s name, address, SSN digits, amount of the debt, and – perhaps, but not always – identity of the original creditor (if not the plaintiff). No need for attorneys to do any “drafting”. Some standard petitions and motions even use either/or phrasing to cover alternative fact scenarios and use both singular and plural versions of nouns and proverbs so they don't have to customize the pleadings when there are two defendants rather than merely one (which is the common situation). 

Summary judgment motions are no different. Some law firms do not even have a variable data field for the amount of the judgment they seek in their standard PMSJ template itself; -- not even in the prayer or conclusion. The amount of the claimed debt instead appears only in the attached Affidavit of Debt (or similarly denominated summary judgment affidavit), or in a summary judgment exhibit. Of course the amount is not omitted from the proposed order granting the summary judgment. That's where it counts, if a judgment is granted.  

That said, if the amount of attorney’s fees claimed in a summary judgment affidavit does not exceed a few hundred dollars, it may not be worth the trouble challenging it, unless the fee affidavit is patently defective in and of itself.   

  
If the fee affidavit is in proper form, but the amount claimed is excessive, however, it should be challenged by counter-affidavit. Since the reasonableness of attorney's fees requires expertise, the affidavit must be by an attorney with experience in the relevant jurisdiction, i.e. local market for legal services.  

I DO AS YOU DO, AND I AM AN EXPERT TOO: CHALLENGING A FEE AFFIDAVIT WITH A COUNTER-AFFIDAVIT

A counter-affidavit by the Defendant's own attorney is the most obvious method to challenge the Plaintiff's fee claim; but it may also be accomplished through another attorney, whether or not affiliated with the same law firm.

It is important to make sure that the counter-affidavit does not involve the same weaknesses that could provide a basis to attack the plaintiff’s affidavit as deficient, such as not providing any factual detail; not establishing the affiant’s qualifications to testify on fees; or omitting any mention of reasonableness and necessity.

The counter-affidavit should do more than deny that the fee attested to by the opposing counsel is reasonable. It should explain why it is not reasonable, and offer competent testimony as to what (lower) amount would be reasonable, considering the nature and complexity of the case (or rather lack of complexity).

If the defendant is himself an attorney, he can create and file his own counter-affidavit. A current member of the Texas Supreme Court did just that in response to a motion for summary judgment by American Express when sued on a credit card debt. The trial judge granted the motion anyhow, but the court of appeals reversed on the attorney's fee issue.     

CONTROVERTING FEE AFFIDAVIT FOUND WANTING

Here is an  example for the Dallas Court of Appeals that illustrates of how an attempt to controvert a fee affidavit can go wrong for lack of care in preparing it.

We cannot agree with [COMPANY] that it presented controverting evidence on the issue of fees. The affidavit submitted by [COMPANY']s attorney recites that the attorney is "familiar with the work that has been done in this case" and that the reasonable and necessary attorney's fees "for handling the Plaintiff's case in this lawsuit based upon the quality of the work done by the Plaintiff's attorney through the summary judgment hearing is a good deal less than [DOLLAR AMOUNT OF ATTORNEYS FEES]."  

The affidavit, however, does not address what was described by CSX's lawyer as the work that was done, what is customarily charged in similar cases, why the time expended was excessive to accomplish the work provided, or that the work performed was unnecessary. [case cite in support] The affidavit submitted by Pegasus did not sufficiently controvert CSX's attorney's affidavit or raise a fact issue.

FEE AFFIDAVIT OF A COLLECTION ATTORNEY FROM ANOTHER CASE

A less common approach is to offer a fee affidavit filed by a different debt collection lawyer (of a different firm) in a similar case, preferably a case involving the same plaintiff in the same local jurisdiction. This would be done for comparison purposes. If one debt collection attorney (e.g., Stephanie Briggs Donaho or James Hull) testifies that $3,500 is reasonable in a $10K case, and another one (say, Christopher Osborn) testifies that the reasonable amount of a fee in a case of this nature is $400, that should be sufficient to create a fact issue on fees, and thus prevent an award of fees by way of summary judgment. It may also have the beneficial effect of reigning in attorneys who leave the mainstream with testimony on the supposed value of their work because their credibility will be placed in question by presentation of a "comparable" fee affidavit executed and filed by a colleague in a similar case. 
    

RELATED TOPICS AND POSTS ON ATTORNEY FEE ISSUES

Attorneys fees in debt collection cases in addition to the amount of the debt (general overview)

Chapter 38 of the CPRC: Fee Recovery under Texas law as exception to The American Rule 

Attorney fee claims under Texas law or the law of the jurisdiction specified in the choice-of-law clause  

EXAMPLES OF FEE AMOUNTS IN MASS DEBT LITIGATION  PER ATTORNEY AFFIDAVIT 

$400 fee affiadvit of Attorney Joel H. Klein in a PHARIA debt suit in Bexar County District Court
$400 fee affidavit of Attorney Benjamin K. Sanchez in debt collection suit by debt buyer  in San Antonio
$400 fee affidavit of Attorney Ben Sanchez in debt suit by Pharia L.L.C. in county court at law of Bexar County 
$500 fee affidavit of Christopher D. Osborn in original creditor suit by Discover Bank in Bexar Cty District Court 

$500 fee affidavit of Christopher Osborn in a lawsuit by American Express Centurion Bank in Bexar County District Court 

CASE LAW SNIPPET: ATTORNEY'S FEES ARE NOT A LIQUIDATED CLAIM AND REQUIRE EVIDENCE EVEN IN THE DEFAULT JUDGMENT CONTEXT

Liquidated vs. unliquidated; Attorneys fees not a liquidated claim

Choice of Law and Attorney’s Fee Claims by Debt Collection Attorney under Texas law

This blog post discusses the basis for recovery of attorney's fees in debt suits filed in Texas, and the question whether Texas law even applies. Under the American Rule, each party pays its own fees regardless of who wins unless a statute specifically authorizes an award of attorney's fees in the type of lawsuit at issue or the dispute involves a contract that provides for recovery of fees under specified circumstances. Both bases for fee recovery are available in Texas, but Texas law does not necessarily govern a debt claim because most credit card agreements specify another jurisdiction in a choice-of-law clause. This raises the question if and when the choice-of-law issue should be raised. Since choice-of-law is contractual, it is – like other contractual rights – subject to waiver.

Other articles on this blog discuss or will discuss the matter of proving and disputing attorney's fees, i.e. reasonableness of the amount claimed, which, in the context of summary judgment and default judgment, typically involves a fee affidavit by the Plaintiff's counsel. Fee claims vary greatly in amount among collection attorneys. Some debt collection law firms do not claim any and therefore do not submit attorney fee affidavits either. -- > Attorney fee affidavits   

  

LEGAL BASIS FOR RECOVERY OF ATTORNEY'S FEES UNDER TEXAS LAW

When debt collection lawyers seek attorney's fees -- not all do -- they typically claim such fees both under the underlying contract, and under Chapter 38 of the Civil Practice and Remedies Code.

To recover fees under the contract, the Plaintiff would have to prove its claim as a breach of contract claim (i.e. produce the contract and prove Defendant's liability under it) and show that such contract authorizes attorney fee recovery. If the contract provisions says the creditor may recover "reasonable" legal fees, the reasonableness element would require evidence because it is a fact issue. Reasonable attorney's fees are not liquidated.

To recover fees under Chapter 38, authorizes fee recovery for contract claims and certain other specified types of claims, but additional requirements must satisfied to take advantage of this statutory authorization for an award. A separate post on this blog discusses these requirements, including the presentment requirement as a condition precedent. 

The implication of the broader scope of Chapter 38 for debt collection cases is that the plaintiff can recover attorney’s fees even if it does not base its claim on breach of contract (i.e. breach of credit card agreement in a credit card debt suit), but uses an alternative theory, such as account stated, which courts of appeals in some appellate districts (but not all) have blessed as a viable theory of recovery even though the original creditor is a bank, rather than a merchants that sold goods on credit, or a provider of professional services.   

REASONABLENESS AND NECESSITY OF FEES SOUGHT UNDER CHAPTER 38  

The principal evidentiary requirements for a viable fee claim under Chapter 38 (and likely on any other basis) encompass the elements of reasonableness and necessity of the amount claimed. 
  
Reasonableness is a fact issue because attorney effort and time vary across cases and, as such, requires evidence. Reasonableness, of course, also depends on comparison with what other attorneys charge for similar efforts in similar cases, and thus requires the opinion of an expert familiar with the relevant market for legal services.

Disputes over reasonableness and necessity of attorneys fees claimed in debt collection suits, and defensive strategies, are the subject of a subsequent post. (Click link). 

But the Texas Civil Practice & Remedies Code constitutes Texas law, and would arguably be inapplicable if the Plaintiff's claim is governed by a credit card agreement that specified that the law of another state applies. The issue can, of course, be waived, and that is what typically happens even in the minority of collection cases in which the debtor hires an attorney.

If the other jurisdiction's law is found to apply, however, the Plaintiff would have rely on authority from the other state that permits attorney fee recovery as an exception to the American Rule, and would be subject to any applicable limitations.

DOES TEXAS LAW APPLY TO THE FEE CLAIM?

Most credit card agreements (CMAs) contain a choice-of law clause that specifies that the law of a state other than Texas applies to the extent federal law does not apply. The most common states are Delaware, South Dakota, and Utah.

Federal law is mentioned because the issuers are federally regulated; many are even established under federal law, as reflected in part of their name: National, NB for national bank, or NA for National Association. Only national banks are allowed to use the term "national". A list on national banks can be found on the website of the Office of the Comptroller of the Currency.

Chapter 38 of the Texas Civil Practice of Remedies Code authorizes fee recovery for a successful breach-of-contract cause of action irrespective of where the contract was signed and what state's law applies. It even authorizes fee recovery in a case involving an oral contract, and on other specified types of claims, such as sworn account, materials furnished, and services rendered.

In order to thwart a plaintiff's claim for recovery of attorney's fees under Texas law (i.e., dispute its right to invoke chapter 38 altogether), the Defendant would have to seek enforcement of the choice-of-law provision in the relevant contract. -- > Motion for judicial notice and application of another state's law 

It may also be necessary to convince the trial court that a claim for attorney's fees a matter of substantive law, and that is not a matter for which the forum state supplies the law. There is such a dispute regarding on whether the statute of limitations is procedural or substantive. As for attorney's fees, however, existing case law stands for the proposition that recovery of attorneys' fees is a substantive, not a procedural, issue and that it will be governed by the law governing the substantive issues.   

IS IT WORTH CHALLENGING THE APPLICABILITY OF TEXAS LAW? 

Probably not, in most cases, for several reasons: (1) The choice-of-law state will likely also authorize recovery of attorney's fees by statute or rule; and (2) the Defendant would either have to prove up the contract and its terms, or agree with the Plaintiff that the unsigned version of a cardmember agreement that it produced (attached to its petition, in discovery, or as a summary judgment or trial exhibit) is the correct one, and that both parties are bound by its terms. In other words, the Defendant would give up all arguments and objections relating to Plaintiff's proof of the correct contract and Defendant's liability under it.

The Defendant would surrender a potential defense to Plaintiff's claim because the Plaintiff has the burden to prove the contract terms, and may have difficulty doing so. After all, cardmember agreements are rarely signed (by the consumer/card holder) and issuing banks typically have (or have over time issued) numerous different versions. Therefore, a creditor must establish the Defendant's liability on the unsigned contract document offered as a trial or summary judgment exhibit with extrinsic contract-formation proof, i.e. proof of offer and acceptance.

IS THE OTHER STATE'S LAW MORE FAVORABLE?

If there is no dispute or fact issue regarding the identity of the contract that controls the debt claim (and Defendant's liability under its terms), it may be worthwhile researching whether the law of the jurisdiction specified in the choice-of-law clause differs in a significant way, and whether it is more or less favorable to the defendant regarding fees. This is the key consideration generally when choice-of-law is a potential issue in any lawsuit, and the reason why lawyers spar over it.  

Researching the other state’s law may pay off where the Plaintiff's fee claim seems excessive. But it would be only one option among several, to counter an unreasonably large fee claim. See -- > Countering attorney fee claim and fee affidavits.

There may, of course, be good reasons to file a motion for judicial notice and application of the law of the state chosen in the choice-of-law clause, -- reasons that have nothing to do with attorney's fees.

A savvy attorney for the defense may, for example, challenge a Plaintiff's attempted recovery under a common-law theory other breach of contract on which the Plaintiff has favorable Texas appellate precedent (in some appellate districts) that have no counterpart under the jurisprudence of the choice-of-law state.

See -- > Account stated claim as an alternative theory to recover a credit card debt under Texas law. 

-- > Open account suit: a questionable basis for recovery of a credit card debt.

SAMPLE CHOICE OF LAW CLAUSES FROM CREDIT CARD AGREEMENTS
(click on image to enlarge the display) 

US Bank NA ND: North Dakota 

Attorney's fees and fee affidavits in debt collection cases

ATTORNEY’S FEES 

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. 

FEES AUTHORIZED BY CONTRACT VS FEES BASED ON STATUTE   

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. 

PRESENTMENT REQUIREMENT 

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. 

VARIATION IN AMOUNTS OF FEES PLEADED FOR 

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. 

ADDITIONAL TOPICS PERTAINING TO ATTORNEYS FEES IN DEBT COLLECTION CASES 

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

Disputing Reasonableness and Necessity of Attorney's Fees claimed in debt collection cases 
Does Texas law govern the award of legal fees in credit card debt suits filed in Texas courts? 
Fee factors per Texas Supreme Court opinion in Arthur Anderson & Co. v. Perry Equip. Corp