Cohen & Slamowitz loses attempt to wipe out consumer's actual damages via a "Rule 68" offer

Summer has begun and the hot weather is here, so we thought we'd give you our version of "beach reading" – a summary of a decision from 2009 that, while a couple years old, still makes for entertaining reading, with just the right amount of usefulness: some information about what a Rule 68 Offer of Judgment in an FDCPA case is not.

In this case, Shepherd v Law Offices of Cohen & Slamowitz, LLP, Ms. Shepherd brought an action in federal court for the Southern District of New York against Cohen & Slamowitz for violating the Fair Debt Collection Practices Act (FDCPA) by trying to collect a debt from her despite her documentary proof that the debt had already been paid. Cohen & Slamowitz moved for summary judgment, and the court issued a harsh opinion denying the motion.

The facts leading up to this sad result for Cohen & Slamowitz are as follows. The debt collection firm made numerous attempts to collect the debt, "pestering" Ms. Shepherd with calls and letters, and ultimately suing her, all while ignoring her protests that the debt was already paid. It was not clear on the record whether Ms. Shepherd was ever served but, said the court, "I tend to doubt it." At any rate, Cohen & Slamowitz obtained a default judgment against Ms. Shepherd in the state court proceeding, at which point she ("finally, and I fear, belatedly," said the court, adding some drama) hired a lawyer.

Then , Cohen & Slamowitz, "in blatant violation of both the FDCPA and its ethical obligations (of which the firm may have been in breach continuously since sometime in 2005), the firm communicated directly with a represented client in an effort to vacate the default judgment without prejudice." Ms. Shepherd's attorney was finally able to convince Cohen & Slamowitz to consent to discontinue with prejudice.

Ms. Shepherd then filed this case in federal court, asserting claims under the FDCPA, New York State General Business Law (unfair trade practices) and for libel (because the defendant had stated to her bank and other third parties that she was "a deadbeat"). Her alleged damages included an FDCPA claim for actual and statutory damages, "hardly surprising," noted the court, since she incurred bank and attorney fees, and credit damage. She also asserted pain and suffering damages from being "hounded," statutory damages under GBL, and punitive damages on her defamation claim.

Before serving and filing its answer, Cohen & Slamowitz responded with an Offer of Judgment, pursuant to Federal Rule of Civil Procedure 68, in the amount of $1000, the maximum statutory amount of money available to the plaintiff under the FDCPA, if she were not to succeed in obtaining actual damages. Ms. Shepherd did not respond, having the effect of rejecting the offer. Cohen & Slamowitz then sought by motion to compel Ms. Shepherd to accept the Rule 68 offer, and to award summary judgment in its favor.

The court's decision on this motion is the opinion we quote from in this blog. "There are so many things wrong with defendant's argument that it is hard to know where to begin," stated the court. Nonetheless, the court began by setting out the text of Fed. R. Civ. P. 68, a Rule which allows a party defending against a claim to serve on the opposing party an offer to allow judgment on specified terms, plus costs. If the other party accepts, the offer and acceptance are filed with the court, and the clerk must enter the judgment.

In this case, Cohen & Slamowitz had offered $1000, plus costs and attorney's fees, stating in the offer that the figure included "all amounts that might otherwise be recovered by the plaintiff for any prejudgment interest, penalties, and damages of any nature, including statutory, actual, treble, punitive or exemplary damages."

Defendant, in its brief, now argued to the court that it had offered, via Rule 68, all the relief the plaintiff could expect to obtain at the end of a trial -- $1000, plus costs and attorney's fees being the most she could get on her FDCPA claim -- and therefore, her FDCPA claim was mooted. The problem with this argument is that it was wrong -- it would only apply when there is no claim for actual damages. "Here, plaintiff asserts that she sustained actual damages. It says so in her complaint, which I presume (perhaps wrongly) that the defendant law firm and its counsel has read." So, $1000 would not, in fact, be Ms. Shepherd's maximum possible recovery. This argument did not sit very well with the court.

The next part of defendant's argument was that if its Rule 68 offer made the FDCPA claim moot, the court would then lack jurisdiction over the plaintiff's remaining state law claims. "But that is nonsense." Under law in effect since 1990, federal courts have concurrent jurisdiction over state law claims pursuant to 28 U.S.C. § 1367(c) even if all federal claims are dismissed. This argument went over even less well with the court, which stated, "Defendant's mootness argument is, in a word, idiotic."

In conclusion, the court stated that there was no basis on which Cohen & Slamowitz' motion could be granted, and in fact, there was far more reason to award summary judgment to Ms. Shepherd! Further, the court stated that Cohen & Slamowitz' motion was so "patently meritless it should never have been made." Therefore, the court decided to award attorney's fees to the plaintiff on this motion, as a sanction to the defendant for its "utter frivolousness."

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