Federal Judge Slashes Fees in 'Production Mill' Debt Collection Case

Judge Slashes Fees in Debt Collection Case
The New York Law Journal by John Caher  -  March 13, 2012

A debtor has been awarded more than $12,000 in attorney fees in a Fair Debt Collection Practices matter—far less than requested—in a case where a federal judge parsed the language of two precedents to calculate an appropriate award.  The plaintiff, Kathy Scott of Florida, had sued a collection agency in Buffalo, Niagara Credit Solutions Inc., under the Fair Debt Collection Practices Act.  Ms. Scott alleged that the collection agency contacted her parents, told them there was a warrant for her arrest and that they were harboring a fugitive and repeatedly harassed her and her family.  The matter was initially pursued as a class action, but the class was never certified.  Ms. Scott accepted the defendant's offer of $3,001 and then sought fees totaling more than $22,000 for her attorney. But Western District Chief Judge William M. Skretny (See Profile), in Scott v. Niagara Credit Solutions Inc., 09-cv-113S, whittled the fee award to $12,277.  After an analysis of two key cases on awarding legal fees—Arbor Hill Concerned Citizens Neighborhood Association v. County of Albany, 493 F.3d 110 (2d Circuit, 2007), and Johnson v. Georgia Highway Express Inc., 488 F.2d 715 (5th Circuit, 1974)—Judge Skretny cut both the hours and rate requested of the debtor's attorney, Amir J. Goldstein of Manhattan.  Johnson set forth 12 factors for courts to take into consideration when setting attorney fees, and Arbor Hill sought to reconcile Johnson with the "lodestar" method of determining fees. The lodestar method involves applying the attorney's usual hourly rate and billable hours, adjusted on a case-specific basis.  Judge Skretny noted that in recent debt collection cases, Western District judges have awarded $215 per hour to partners, $180 per hour to associates and $50 per hour for paralegals.  Mr. Goldstein had sought his normal New York City rate of $250 per hour, but Judge Skretny applied the Western New York rate, partially because Mr. Goldstein has been practicing debtor law for only six years.  Mr. Goldstein had claimed 88.1 hours of time in the case. Judge Skretny cut that down to 55.1, partially because much of the time billed by Mr. Goldstein related to the class certification. The court held that since the class was not certified, only the time spent on Ms. Scott's case is recoverable.  David George Peltan, an attorney in East Aurora, a village outside of Buffalo, said Niagara Credit Solutions continues to maintain that it did not violate the Fair Debt Collection Practices Act. Under the act, a consumer who brings a successful action can recover costs and legal fees.  "The statute is really unfair because it puts it at the mercy of the plaintiff and has created a cottage industry," Mr. Peltan said. "It can cost more money to prove you are right than get rid of the case. They are paying $15,000 to get it done and I couldn't take it to trial for $15,000."  Mr. Goldstein, who practices creditor law in both New York and California, said there is a "mill factory" of attorneys pursuing damages and fees in Fair Debt Collection Practices Act cases. He said that is especially true in Buffalo, which has become a "hub" for collection agencies.  "There are a handful of attorneys or law firms that have tried to turn this type of consumer litigation into a mass production line business," he said. "They are filing so many cases that the quality is compromised, and the client awards are compromised. What we see is they are doing a lot of advertising on the Internet, filing a lot of cases and getting very low value on the cases. It lowers the bar and the standard for not only what the lawyers are entitled to, but what the consumers are entitled to. It is diluting the process and flooding the court with cases that are not great cases."  Debt collection is one of the fastest growing industries in Western New York, with more than 100 collection agencies in the Buffalo area, many created with state grants, according to the Buffalo Niagara Partnership. That generates considerable work for local creditor and debtor attorneys. The Department of Labor estimates that 5,500 people in Western New York are employed as debt collectors.  John Caher can be contacted at jcaher@alm.com.