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Seventh Circuit Vacates Fee Award Based on Mootness

The United States Court of Appeals for the Seventh Circuit has vacated an award of over $70,000 in fees and costs to a prevailing plaintiff in an FDCPA case.  In Portalatin v. Blatt, Hasenmiller, Leibsker & Moore, LLC, the plaintiff sued a law firm and its debt-buyer client for filing suit in the wrong venue in violation of Section 1692i of the FDCPA.  (Although the venue was proper under the Seventh Circuit’s 1996 holding in Newsom v. Friedman,, in 2014 the same court of appeals, sitting en banc, reversed that decision in Suesz v. Med—1 Sols., LLC. Portalatin then sued Blatt and its client.)

Portalatin settled with the debt-buyer co-defendant for $5,000 plus release of the underlying debt.  The settlement agreement did not apportion any of the settlement funds to any particular claims, and it provided that each party would bear its own costs and attorney’s fees. After the district court granted summary judgment rejecting Blatt’s bona fide error defense, Portalatin abandoned her claim for actual damages, proceeding to trial against Blatt seeking only statutory damages.  A jury awarded $200 in statutory damages, and the district court then granted $69,393.75 in attorney’s fees and $772.95 in costs.  Blatt appealed, challenging both the award of statutory damages and the award of fees and costs.

Blatt argued that the settlement with Midland satisfied Portalatin’s claim against it, rendering that claim moot or, alternatively, entitling it to a setoff.  Although the district court concluded the settlement and the $200 jury award were not double recoveries and that no setoff was required, the court of appeals held that Portalatin’s settlement rendered the claim against Blatt moot, depriving the district court of subject-matter jurisdiction under Article III of the Constitution, which limits the judicial power of the United States to “cases and controversies.”

Noting that “the prospect of an award of attorneys’ fees does not create a

justiciable controversy if nothing else is at stake in the litigation” and that “a plaintiff is only entitled to a single recovery for a single injury, regardless of how many defendants could be liable for that single injury, or how many different theories of recovery could apply to that single injury,” the court stated:

Once a plaintiff settles with one defendant for the full relief available for a single, indivisible injury, the plaintiff generally cannot pursue a claim for the same injury against a different defendant; the settlement renders such a claim moot.

Portalatin’s suit arose out of a single violation of the FDCPA. Her claimed harm (having to defend herself in the wrong courthouse) was indivisible between the two Defendants, who acted in concert at all relevant times. Neither acted independently of the other, as “plaintiff’s claims stem from the same conduct” and “plaintiff’s claims arise from a single, indivisible act.”  Under such circumstances a plaintiff cannot recover more than a maximum of $1,000 in statutory damages per action, no matter how many defendants are joined.  The court of appeals held that the settlement with the co-defendant mooted the claim against Blatt, and the district court should have dismissed it. Having concluded that the settlement rendered the claim against Blatt moot, the court of appeals further held that the district court should have dismissed the suit and that it was error to award Portalatin fees.

This decision is likely to affect the manner in which plaintiffs settle cases when a settlement is with fewer than all of the defendants in a case.  It also serves as a warning to plaintiffs and their attorneys:

Given the isolated and minimal nature of the noncompliance by Blatt with respect to Portalatin, given Blatt’s lack of intent to violate the FDCPA, and given Blatt’s quick correction after Suesz, the court might have been within its discretion in awarding attorney’s fees and costs to Blatt under § 1692k(a)(3) if the court concluded Portalatin’s claim against Blatt was “in bad faith and for the purpose of harassment” . . .