Here's a doozy of a case where the debt collectors won...

For Day 26 of 30 Days of Debt Collection, (yes, it's still going on...) I thought I'd follow up on what I talked about the other day when I mentioned that debtors can't harass debt collectors, what I called the Good For The Gander rule, by looking at a case where the debtors, or, more correctly, their lawyer, really messed up.

Really really messed up.

The case is Riddle & Associates, P.C. v. Kelly, and here's what happened to set it up: A woman wrote a bad check to a casino in Illinois. So Riddle & Associates was hired to collect the debt. Riddle sent a notice demanding $125 -- the $100 check plus a $25 service charge.

The check writer never responded to that notice directly. Instead, she hired a lawyer, Edelman, to help her out, and Edelman helped her out by writing to Riddle and claiming that Riddle's letter violated the Fair Debt Collection Practices Act (FDCPA.)

The violation Edelman claimed was a violation known as "overshadowing," which can occur when a letter correctly sets out the information the FDCPA requires -- such as the fact that a debtor has 30 days to dispute a debt -- but then "overshadows" that information by providing other threats or information which contradict or otherwise confuse things.

The "overshadowing" wasn't the only claim that Edelman made. He also said that Riddle had falsely threatened to sue his client, a second claim that will become important.

Edelman demanded Riddle pay his client $3000 for what he said were FDCPA violations. No cowards, Riddle responded by saying they hadn't violated the law, and by demanding that Edelman pay them $500 for their time and fees.

Edelman didn't pay, and we all know what happened next, right? In the ordinary scheme, the debt collector files suit and the debtor counterclaims. Or, sometimes, the debtor files suit and the debt collector counterclaims.

Well, that didn't happen here. Instead, Riddle filed an action for what's called "declaratory judgment," a ruling from the court that "declares" things to be, or not be. In this case, Riddle wanted the Court to say that their letter wasn't illegal.

Edelman didn't back down; he filed counterclaims saying that the letter was illegal... but not for the reasons he'd originally said. He didn't claim, anymore, that the letter "overshadowed" anything, but instead claimed that the letter made a false threat to sue his client, and also claimed that Riddle's asking him for $500 violated the FDCPA, too.

Riddle then moved the court for "summary judgment," (a motion asking the court to decide a case without a trial). Edelman opposed that, saying their motion was "without merit." But Edelman didn't argue much about the "overshadowing" claim that started this whole shebang.

Edelman lost the overshadowing argument. The court ruled in Riddle's favor, saying that Riddle's letter was exactly the kind of letter that the Seventh Circuit Court of Appeals had suggested debt collectors like Riddle use. Edelman then lost his counterclaims, too, one after a jury trial.

That's when the real fight started, because Riddle, and Riddle's lawyers, asked the Court to award them fees, and they didn't ask for fees under the FDCPA. Instead, they asked for fees to be awarded under a different statute, section 1927 of the United States Code.

That statute says that "Any attorney ... who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct."

That's a rule that prohibits attorneys from ramping up the proceedings unreasonably, and vexatiously. If they do that, the Court can order them to pay excess costs.

Here, the Court found that Edelman's conduct in sending the original letter, and then in how he fought against the declaratory judgment, did just that: He vexatiously and unreasonably multiplied the proceedings. The Court of Appeals said:

"When Edelman demanded $3000 to release a blatantly frivolous claim, the firm pursued a path that it should have known was improper."

That path, the Court decided, led to the litigation which Edelman then fought rather than throw in the towel -- so the whole proceedings, or at least most of them, were Edelman's fault, and he owed Riddle money.

How much money? $18,000 or so.

But Edelman's troubles in this case didn't end there. Riddle's own lawyers wanted their fees paid, too, for the counterclaims. Originally, Edelman won on this issue, but the Court of Appeals overturned that and held that the counterclaims, too, were vexatious, and so it ordered that Edelman pay additional fees.

The good news for the debtor is that she, apparently, was not ordered to pay those amounts. I have no record of whether she ever paid the check, either.

The Riddle case is a cautionary note for lawyers and their clients, one that warns lawyers to make sure that the claims they advance are on solid legal ground. It's important to remember that not all losing cases are frivolous, or vexatious, or unreasonable; in every case that goes to trial, one side wins and one side loses -- but that doesn't mean that 50% of all litigants are behaving unreasonably or frivolously.

It's important to remember, too, that even claims that have been held barred by law are not necessarily frivolous. In some cases, a lawyer can make an argument that the law should be changed, thereby advancing a case that has been previously ruled to be unfounded, and still not be acting frivolous. One famous example of just such a situation is Brown v. Topeka Board of Education, in which Thurgood Marshall argued that separate-but-equal was not; Marshall was arguing against a long-established U.S. Supreme Court precedent -- but he wasn't being frivolous.

In a similar but far less important vein, the Wisconsin Supreme Court held in Rabideau v. City of Racine that a litigant's request for emotional distress damages based on her dog being shot -- while a loser, and barred by law -- was not frivolous.

So not every case is frivolous, vexatious, or unreasonable -- but every case deserves to be examined to make sure that not only can it be brought, but it should be brought.



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