Opinion
3:21-cv-00242-SB
09-06-2022
CEDAR KELLY, Plaintiff, v. TD BANK USA, N.A. et al., Defendants.
FINDINGS AND RECOMMENDATION
HON. STACIE F. BECKERMAN, UNITED STATES MAGISTRATE JUDGE.
This matter comes before the Court on defendant TD Bank USA, N.A.'s (“TD Bank”) motion for attorney's fees, pursuant to Federal Rule of Civil Procedure (“Rule”) 54(d)(2), the Fair Credit Reporting Act (“FCRA”), 15 U.S.C. §§ 1681n(c) and 1681o(b), and 28 U.S.C. § 1927. For the reasons explained below, the Court recommends that the district judge deny TD Bank's motion.
BACKGROUND
Plaintiff Cedar Kelly (“Kelly”) filed this action against TD Bank and others (together, “Defendants”) on February 13, 2021, alleging violations of the FCRA. (Compl. at 9-15, ECF No. 1.) Although Kelly alleged four FCRA claims, Kelly acknowledged that he was only alleging one FCRA claim against TD Bank. (Findings & Recommendation (“F&R”) at 1 n.1, ECF No. 34.)
Kelly's complaint incorrectly named “TD Bank, N.A.,” not TD Bank USA, N.A. (also referenced herein as “TD Bank”), as the defendant and “TD affiliate” that issued the underlying Target credit card. (See Stipulated Mot. Am. Caption at 1, ECF No. 15.) In an Order dated April 14, 2021, the Court granted Kelly and TD Bank's stipulated motion to amend the caption, noting that: the parties agreed to amend the caption by substituting TD Bank in place of TD Bank, N.A.; Kelly's complaint's references to TD Bank, N.A., were deemed to refer to TD Bank; TD Bank, N.A. was “dropped as a [p]arty”; Kelly “must incorporate the[] changes” in any amended complaint; and Kelly “must arrange for service of process on TD Bank[.]” (Order Stipulated Mot. Am. Caption at 1, ECF No. 17.) TD Bank's counsel waived service on May 11, 2021. (ECF No. 20.)
In Kelly's sole claim against TD Bank, he alleged that TD Bank violated 15 U.S.C. § 1681s-2(b) by inaccurately reporting that Kelly's account had been charged off more than once, even though a single debt can only be charged off one time. (F&R at 1 n.1 & 2) (simplified). In support, Kelly alleged that (1) on or about December 12, 2020, he sent dispute letters to two credit reporting agencies, both of which created and electronically forwarded automated credit dispute verification forms (“ACDVs”) to TD Bank, and (2) despite receiving the ACDVs, TD Bank failed to conduct a reasonable investigation or “remove the multiple charge offs.” (Compl. at 6-8.)
The FCRA provides that entities which furnish credit information “must report accurate information to the [credit reporting] agencies and must investigate a consumer's dispute about reported information when an agency notifies a furnisher of a dispute.” Perkins v. JPMorganChase Bank, NA, No. 19-cv-05914, 2020 WL 5645183, at *2 (D. Ariz. Sept. 22, 2020) (citing 15 U.S.C. § 1681s-2(a)-(b)). After receiving notice of a consumer's dispute, “a furnisher has a statutory duty to investigate and correct the information, if necessary.” Id. (citing 15 U.S.C. § 1681s-2(b)). If the furnisher fails to do so, “the FCRA provides a private right of action for the affected individual to sue the furnisher.” Id. (citing 15 U.S.C. §§ 1681, 1681o, and Nelson v.Chase Manhattan Mortg. Corp., 282 F.3d 1057, 1059 (9th Cir. 2002)).
An ACDV “summarizes what the credit reporting agencies are reporting and the information the consumer is disputing.” Marchisio v. Carrington Mortg. Servs., LLC, 919 F.3d 1288, 1299 (11th Cir. 2019).
On July 12, 2021, TD Bank moved to dismiss Kelly's claim on the ground that he failed to state a claim upon which relief can be granted. (Def. TD Bank's Mot. Dismissal (“Def.'s First MTD”) at 2, ECF No. 27.) TD Bank's motion relied in large part on the Ninth Circuit's recent decision in Steinmetz v. American Honda Financial Corp., 835 Fed.Appx. 199 (9th Cir. 2020). (Def.'s First MTD at 10, 18.)
In Steinmetz, the plaintiff based his FCRA claim on a creditor's reporting of “multiple charge-offs,” and it was “undisputed that an account can be charged off only once.” 835 Fed.Appx. at 201. In affirming the district court's dismissal of the plaintiff's FCRA claim, the Ninth Circuit held that “[t]he report of multiple charge-offs does not support a plausible claim under [FCRA], because [the plaintiff] failed to plead that anyone would believe that the account had been charged off more than once,” noting that “the standard for actionable [FCRA] conduct is that the imprecision alleged could negatively affect credit decisions.” Id. (citing Shaw v.Experian Info. Sols., Inc., 891 F.3d 749, 757 (9th Cir. 2018)).
In an F&R dated November 2, 2021, the Court concluded that Kelly's theory of liability under the FCRA was the same theory that the Ninth Circuit rejected in Steinmetz, and that Kelly had failed meaningfully to distinguish Steinmetz. (F&R at 3-6.) The Court also noted that it was undisputed that a creditor may charge off an account only once and thus there is only one charge-off event, regardless of whether the defendant continues to report that the account was charged off. (Id. at 6.) As a result, and in accordance with Steinmetz, the Court recommended that the district judge grant TD Bank's motion to dismiss Kelly's FCRA claim. (Id. at 1-2, 5-6.)
On November 16, 2021, Kelly timely filed objections to the Court's F&R. (ECF No. 36.) Two weeks later, on November 30, 2021, TD Bank timely filed a response to Kelly's objections. (ECF No. 37.)
On January 31, 2022, the district judge issued an Order adopting the Court's F&R, as supplemented. (Order at 4, ECF No. 39.) The district judge agreed that Kelly asserted the same theory of liability as the theory the Ninth Circuit rejected in Steinmetz. (Id. at 3.) In support, the district judge noted that although Kelly referenced a theory and “distinguishing argument” in his objections about an automated underwriting system's inability to “distinguish[] between multiple charge-off notices on a single account and multiple charged-off accounts,” like the plaintiff in Steinmetz, Kelly “‘failed to plead that anyone would believe that [his] account had been charged off more than once,' . . . and whether ‘anyone' might be an automated underwriting system.” (Id., quoting Steinmetz, 835 Fed.Appx. at 201; see also F&R at 6 n.1, addressing Kelly's conclusory allegations that TD Bank's reporting of the charge-off impacted his credit score and a lender's general understanding and evaluation of tradelines and credit score algorithms). The district judge added that although the F&R did not include a recommendation on leave to amend, the district judge did “not find that amendment would necessarily be futile, and the remaining factors in evaluating whether to grant leave to amend [did] not apply.” (Order at 4.) The district judge therefore granted Kelly leave to amend. (Id.)
The Court notes that consistent with the district judge's January 31, 2022 Order, Kelly was entitled at least one chance to amend his deficient initial complaint unless it was clear that he could not possibly do so. See Nat'l Council of La Raza v. Cegavske, 800 F.3d 1032, 1041 (9th Cir. 2015) (explaining that “a district court must give plaintiffs at least one chance to amend a deficient complaint, absent a clear showing that amendment would be futile,” and “[d]ismissal with prejudice and without leave to amend is not appropriate unless it is clear . . . that the complaint could not be saved by amendment”) (citation omitted); Sharkey v. O'Neal, 778 F.3d 767, 774 (9th Cir. 2015) (“Dismissal with prejudice constitutes an abuse of discretion where the district court fails to make a determination that the pleading could not possibly be cured by the allegation of other facts, and this is so even if no request to amend the pleading was made.”) (simplified); cf.Gardner v. Martino, 563 F.3d 981, 990-91 (9th Cir. 2009) (“[T]he district court did not abuse its discretion when it denied [the plaintiffs'] first request to amend the complaint because [the plaintiffs, who had amended as a matter of right,] did not propose any new facts or legal theories for an amended complaint and therefore gave the [district court] no basis to allow an amendment.”).
Kelly timely filed an amended complaint against the only remaining named defendant, TD Bank, which Kelly incorrectly continued to refer to as “TD Bank, National Association.” (First Am. Compl. (“FAC”) at 1, 9-13, ECF No. 41.) The amended complaint also named several Doe defendants. (Id. at 1.)
Like his original complaint, Kelly alleged in his amended complaint that his FCRA claim stemmed from the credit reports he ordered on September 14, 2020, the inaccurate, misleading, or incomplete “tradelines in his September 14[, 2020] [c]redit [r]eports,” and the dispute letters he sent to two credit reporting agencies on December 12, 2020. (Compare FAC ¶¶ 36-44, 47, with Compl. ¶¶ 50-56, 59.) Unlike the original complaint, however, Kelly alleged in the amended complaint that his dispute letters, which the credit reporting agencies summarized in the ACDVs, “specifically put TD Bank on notice that [Kelly's] account inaccurately reported the date in which the charge off occurred.” (FAC ¶¶ 36-44, 47, 70-74; cf. Compl. ¶¶ 50-52, 56, 59, alleging that the dispute letters/ACDVs “specifically put TD Bank on notice that [Kelly's] accounts are inaccurately reporting with multiple charge off notations in the payment history and should be updated”).
In support of this new theory, Kelly alleged that (1) the tradelines on his credit reports dated September 14, 2020 “incorrectly reflect that [his Target credit] account was charged off in December 2020 . . . and in January 2021 . . . when in fact it was charged off in August 2018,” and (2) despite being put on notice by Kelly's December 12, 2020 dispute letters/ACDVs, TD Bank continued to report to two credit reporting agencies that his account was charged off in December 2020 and January 2021, not August 2018, which is “more derogatory” and damaging to his credit score and overall “credit worthiness.” (FAC ¶¶ 15, 36-47, 49-50, 53, 70-74.) Kelly also alleged that after receiving notice of his dispute/ACDVs, “TD Bank either failed to conduct any investigation or failed to conduct a reasonable investigation of the information as required by the FCRA,” and thus violated § 1681s-2(b). (Id. ¶¶ 54, 72; cf. Compl. ¶¶ 65, 71, 97, 103, reflecting that Kelly previously alleged that TD Bank “failed to conduct a reasonable investigation” and that “TD Bank's lack of investigation, as required by the FCRA, [was] unreasonable”).
The Ninth Circuit has explained that “a furnisher's obligation to conduct a reasonable investigation under § 1681s-2(b)(1)(A) arises when it receives a notice of dispute from a [credit reporting agency],” and in cases where the furnisher had such an obligation, “[t]he pertinent question is . . . whether the furnisher's procedures were reasonable in light of what it learned about the nature of the dispute from the description in the [credit reporting agency's] notice of dispute.” Gorman v. Wolpoff & Abramson, LLP, 584 F.3d 1147, 1157 (9th Cir. 2009). Although the credit reporting agency's “notice determines the nature of the dispute to be investigated,” that does not mean that the notice “also cabins the scope of the [furnisher's] investigation once undertaken.” See id. at 1157 n.11 (“In deciding that the notice determines the nature of the dispute to be investigated, we do not suggest that it also cabins the scope of the investigation once undertaken.”). Notably, in its motion for attorney's fees (and second motion to dismiss), TD Bank argues that what Kelly was “actually disputing is a critical fact” because TD Bank's “duty of investigation was cabined by the nature of [Kelly's] dispute as [the two credit reporting agencies] conveyed it to TD [Bank].” (Def.'s Mot. Fees (“Def.'s Fee Mot.”) at 7, ECF No. 49.) In support, TD Bank states that “the reasonableness of the furnisher's investigation is measured by its response to specific information provided by the [consumer reporting agency] in the notice of dispute.” (Id., quoting Gorman v. Wolpoff & Abramson, LLP, 552 F.3d 1008, 1017 (9th Cir. 2009), amended and superseded by 584 F.3d at 1150-57.) Kelly correctly points out in his opposition that “the line quoted was removed when the [Ninth Circuit] amended its opinion.” (Pl.'s Objs. & Opp'n Def.'s Mot. Fees (“Pl.'s Opp'n”) at 4 n.3, ECF No. 52.)
After the Court granted TD Bank an extension of time to respond to Kelly's amended complaint, TD Bank filed a Rule 12(b)(6) motion to dismiss on March 24, 2022, certifying that “[t]he [p]arties made a good-faith effort through a telephone conference to resolve the dispute and ha[d] been unable to do so.” (Def. TD Bank's Mot. Dismiss Am. Compl. (“Def.'s Second MTD”) at 2, ECF No. 44.) In its second motion to dismiss, TD Bank emphasized that Kelly continued to name the wrong TD affiliate in his amended complaint and failed to comply with the Court's Order on the parties' stipulated motion to amend the caption, and that this “recurring” error or “misnomer” was “itself . . . sufficient grounds for dismissal[.]” (Id. at 4, 78.)
TD Bank further emphasized that Kelly based his amended FCRA claim on the tradelines in his September 2020 credit reports and the dispute letters he sent to two credit reporting agencies in December 2020, yet he alleges that TD Bank violated the FCRA by failing to conduct any, or at least a reasonable, investigation into the inaccurate charge-off dates of December 2020 and January 2021. (Id. at 15.) According to TD Bank, Kelly's allegations were “impossible,” not “merely implausible,” because “there is no way” charge-off dates of December 2020 and January 2021 could have appeared on September 2020 credit reports. (Id.) As to damages, TD Bank noted Kelly's allegation that “‘Citibank saw the inaccurate information in November 2020,' [i.e.,] a month before” December 2020. (Id., quoting FAC ¶ 59.)
TD Bank also attached as Exhibit A to its second motion to dismiss a copy of Kelly's dispute letter, and argued that the Court could consider its contents under the incorporation-by-reference doctrine. (Id. at 5, 13.) Kelly's dispute letter refers to his TD Bank/Target account and states that when he reviewed his credit report he noticed that he was “being listed with multiple charge offs,” “[r]epeated and continuous charge offs or rolling charge offs[] is a one-time event and cannot be reported every single month,” and he wanted the charge-offs “for the months of September 2018-August 2020” removed from his “payment history.” (Id. Ex. A at 1, ECF No. 44-1; see also id., reflecting that Kelly's signature was date- and time-stamped “Nov 25, 2020 06:59 PST”).
The Court agrees that Kelly's amended complaint incorporated his dispute letter by reference. See Baldeosingh v. Transunion, LLC, No. 20-00925, 2021 WL 1215001, at *1 n.1 (M.D. Fla. Mar. 31, 2021) (noting that the plaintiff's FCRA action stemmed from the defendant credit reporting agency's report about a contested account, that the parties attached copies of the plaintiff's dispute letter to their motion papers, agreed that the dispute letter was central to the plaintiff's claims, and did not dispute the authenticity of the dispute letter, and the court determined that it could consider the dispute letter's contents under the incorporation-by-reference doctrine).
Relatedly, TD Bank's second motion to dismiss stated that Kelly may be alleging a new theory that “comports with his dispute letter,” to the extent he is “repackaging” or asserting a “variant” of his previously dismissed theory by suggesting that “in a series of months where TD [Bank was] reporting [his] account in a charged-off status, there is only one charge-off event- not in the first such month, but in the most recent month in which the charged-off status is reported.” (Id. at 16-17.) TD Bank argued that such a theory was similarly flawed and meritless because it “ignores the actual [August 2018] charge-off event, and all the months in between [August 2018 through January 2021] in which the account was in a charged-off status[.]” (Id. at 17.)
On April 5, 2022, two days before Kelly's deadline to respond to TD Bank's second motion to dismiss, Kelly's counsel sent a follow-up email to TD Bank's counsel regarding their afternoon telephone conferral on March 24, 2022. (See Decl. Brian Melendez Supp. Mot. Fees (“Melendez Decl.”) Ex. C at 1-3, ECF No. 50-3; Decl. Kyle Schumacher Supp. Pl.'s Objs. & Opp'n Def.'s Mot. Fees (“Schumacher Decl.”) ¶¶ 8-14, ECF No. 52-1.) Specifically, Kelly's counsel noted that before TD Bank's lead counsel “left,” the parties discussed Kelly's amended complaint's “issues,” including the “scrivener's errors as to the name of the defendant and two of the dates listed,” as well as a second “amended complaint that would [potentially] correct those errors.” (Melendez Decl. Ex. C at 3.) Kelly's counsel attached a copy of his proposed amended pleading for TD Bank's review. (See id.; see also id. at 2, ECF No. 50, noting that the draft pleading was attached to the 1:45 p.m. email, which Kelly's counsel sent.)
TD Bank's counsel responded that Kelly's proposed second amended complaint “addresse[d] the issues of misnomer and impossibility, but it still allege[d] that [TD Bank was] furnishing information that [it] never furnished.” (Id. Ex. C at 3; Def.'s Fee Mot. at 10, referring to August and September 2020 as “dates that weren't impossible in light of the timing of the consumer report”). TD Bank's counsel added that although Kelly's counsel was “correct that the account charged off in August 2018,” TD Bank “never furnished any information to the contrary” and “want[ed] to know where those allegations [were] coming from.” (Melendez Decl. Ex. C at 3.) After Kelly's counsel replied that his client would dismiss his case if TD Bank “sign[ed] a declaration stating that [it] did no[] further reporting after August 2018,” TD Bank's counsel explained that he would not be able to confirm whether his client had reported the charge-off after August 2018 before “tomorrow at the earliest,” and in the meantime, he would “still like to see the consumer reports that allegedly contain the incorrect charge-off dates.” (Id. at 1-3.)
Kelly's counsel states that he did not receive any further correspondence about TD Bank's post-August 2018 reporting. (Schumacher Decl. ¶¶ 12-13.) Similarly, TD Bank's counsel states that Kelly's counsel never provided him the consumer reports at issue and instead filed a notice of voluntary dismissal under Rule 41(a)(1)(A)(i). (Def.'s Fee Mot. at 11, citing ECF No. 45.)
Kelly filed a notice of voluntary dismissal of TD Bank on April 7, 2022, noting that because TD Bank had not served an answer or motion for summary judgment, he was entitled to dismiss his FCRA action against TD Bank without prejudice and without a court order, pursuant to Rule 41(a)(1)(A)(i). (Pl.'s Voluntary Dismissal of TD Bank at 1 -2, ECF No. 45.) Additionally, although he did not confer with TD Bank's counsel and could not unilaterally deny a party's statutory right to petition a court for an award of attorney's fees, Kelly's notice of voluntary dismissal stated that “[e]ach party [was] to bear their own attorney fees and costs.” (Id. at 2.)
Five days later, on April 12, 2022, the Court entered a minute order denying TD Bank's second motion to dismiss as moot given Kelly's notice of voluntary dismissal. (ECF No. 46.) That same day, Kelly voluntarily dismissed the remaining defendants, “DOES 1 through 100 inclusive,” pursuant to Rule 41(a)(1)(A)(i). (Pl.'s Voluntary Dismissal Doe Defs. at 1, ECF No. 47.)
The next day, April 13, 2022, the Court entered an Order of Dismissal confirming that Kelly had voluntarily dismissed all of the named defendants and therefore dismissing the case. (Order Dismissal at 1, ECF No. 48.) The Court's Order of Dismissal did not address attorney's fees or costs. (See id.)
TD Bank's motion for attorney's fees followed on April 26, 2022, and the parties completed their supplemental briefing on TD Bank's motion on June 27, 2022.
DISCUSSION
I. PRELIMINARY MATTERS
A. Kelly's Right to Voluntary Dismissal
TD Bank's second motion to dismiss was pending when Kelly filed his notice of voluntary dismissal, but TD Bank had not served an answer or motion for summary judgment. Thus, Kelly had the right voluntarily to dismiss his case against TD Bank without prejudice, pursuant to Rule 41(a)(1)(A)(i), which TD Bank does not contest. See Swedberg v. Marotzke, 339 F.3d 1139, 1145 (9th Cir. 2003) (“Rule 41(a)(1) . . . allows a plaintiff to dismiss a complaint without prejudice in the face of a [Rule] 12(b)(6) motion[.]”); Am. Soccer Co., Inc. v. Score FirstEnters., a Div. of Kevlar Indus., 187 F.3d 1108, 1110 (9th Cir. 1999) (“[The plaintiff has an] ‘absolute right' . . . [to] voluntarily dismiss an action when the defendant has not yet served an answer or a summary judgment motion[.]”).
B. TD Bank's Right to Request Attorney's Fees
Although Kelly had the right unilaterally to terminate his FCRA action against TD Bank, Kelly's voluntary dismissal did not preclude TD Bank from moving for a fee award, which Kelly does not contest. See Yearwood Enters., Inc. v. Antilles Gas Corp., 69 V.I. 863, 865-72 (V.I. 2018) (noting that the plaintiff filed a notice of dismissal stating that “each party [was] to bear its own costs and attorney's fees” and the defendant argued that the relevant rule of civil procedure, which was identical to Rule 41(a)(1)(A)(i), did “not permit the plaintiff to unilaterally deny the prevailing party its statutory right to petition the court for an award of attorney's fees and costs,” and relying on federal caselaw in holding that the superior court retained jurisdiction to consider a motion for attorney's fees post-voluntary dismissal and did not err in awarding attorney's fees and costs to the defendant); see also Marx v. Gen. Revenue Corp., 568 U.S. 371, 382 (2013) (“Under the bedrock principle known as the ‘American Rule,' each litigant pays his own attorney's fees, win or lose, unless a statute or contract provides otherwise.”) (simplified).
C. Jurisdiction
Although this case is no longer pending, the Court retains jurisdiction over all collateral issues, including TD Bank's motion for attorney's fees. See Teece v. Kuwait Fin. House (Bahr.)B.S.C., 667 Fed.Appx. 931, 931-32 (9th Cir. 2016) (“After [the plaintiff's] voluntary dismissal without prejudice . . ., the district court retained jurisdiction over all collateral matters. An award of attorney's fees is a collateral matter. The rule is well settled.”) (simplified); see also In reMoon, No. NV-20-1199-BFL, 2021 WL 414608, at *5-6 (B.A.P. 9th Cir. Feb. 4, 2021) (rejecting the argument that “a voluntary dismissal prevents a defendant from moving for attorney's fees and costs,” and explaining that “it is well established that a federal court may consider collateral issues after an action is no longer pending, including a request for attorney's fees”) (simplified).
II. TD BANK'S MOTION
TD Bank moves for attorney's fees pursuant to Rule 54(d)(2), § 1927, and the FCRA's fee-shifting provisions, §§ 1681n(c) and 1681o(b). (Def.'s Fee Mot. at 2, 4-5.) The Court recommends that the district judge deny TD Bank's motion for attorney's fees. See CountrymanNev., LLC v. DOE, 193 F.Supp.3d 1174, 1183 (D. Or. 2016) (denying a motion for attorney's fees and stating that “[a] court should be cautious before finding a violation of 28 U.S.C. § 1927 and imposing a sanction against an individual attorney”).
A. Legal Standards
1. Rule 54(d)(2)
Rule 54(d)(2) provides that “[a] claim for attorney's fees . . . must be made by motion unless the substantive law requires those fees to be proved at trial as an element of damages.” FED. R. CIV. P. 54(D)(2)(A). Rule 54(d)(2) also provides that “[u]nless a statute or a court order provides otherwise, the motion must: (i) be filed no later than 14 days after the entry of judgment; [and] (ii) specify the judgment and the statute, rule, or other grounds entitling the movant to the award[.]” FED. R. CIV. P. 54(d)(2)(B). Rule 54(a) defines “[j]udgment” as “includ[ing] a decree and any order from which an appeal lies.” FED. R. CIV. P. 54(a).
2.Section 1927
Section 1927 provides that “[a]ny attorney or other person admitted to conduct cases in any court of the United States . . . who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the . . . attorneys' fees reasonably incurred because of such conduct.” 28 U.S.C. § 1927. “The statute authorizes sanctions against [an individual] in his capacity as attorney . . ., and only in an amount up to the additional expenditures incurred . . . as a result of the multiplicity of the proceedings[.]” NewAlaska Dev. Corp. v. Guetschow, 869 F.2d 1298, 1306 (9th Cir. 1989) (citations omitted).
3. The FCRA's Fee-Shifting Provisions
The FCRA and several other consumer protection statutes, such as the Fair Debt Collection Practices Act (“FDCPA”), are “part of the larger statutory scheme of the Consumer Credit Protection Act[.]” Rouse v. Law Offs. of Rory Clark, 603 F.3d 699, 706 (9th Cir. 2010), abrogated on other grounds by Marx, 568 U.S. at 373-76. Although these consumer protection “statutes expressly provide for an award of costs and attorneys' fees to prevailing plaintiffs, only the FDCPA and the FCRA provide for prevailing defendants.” id. Specifically, the FCRA provides that:
[On] a finding by the court that an unsuccessful pleading, motion, or other paper filed in connection with an action under this section was filed in bad faith or for purposes of harassment, the court shall award to the prevailing party attorney's fees reasonable in relation to the work expended in responding to the pleading, motion, or other paper.15 U.S.C. § 1681n(c) (willful noncompliance); see also id. § 1681o(b) (negligent noncompliance).
By comparison, the FDCPA provides that “[o]n a finding by the court that an action under this section was brought in bad faith and for the purpose of harassment, the court may award to the defendant attorney's fees reasonable in relation to the work expended and costs.” 15 U.S.C. § 1692k(a)(3). Given the statutes' similar standards, courts have relied on FDCPA cases to evaluate FCRA fee awards. See DeBusk v. Wachovia Bank, 291 Fed.Appx. 55, 56 (9th Cir. 2008) (addressing a motion for attorney's fees under § 1681n(c), and relying on a case “applying the analogous provision” in the FDCPA, § 1692k(a)(3) (citing Guerrero v. RJM AcquisitionsLLC, 499 F.3d 926, 933 (9th Cir. 2007) (per curiam))). On a related note, although the FCRA uses the disjunctive “or” and the FDCPA uses the conjunctive “and,” TD Bank does not argue that Kelly or Kelly's counsel filed a pleading, motion, or other paper for “purposes of harassment,” as opposed to “in bad faith.” (See Def.'s Fee Mot. At 5-14.)
B. Analysis
As discussed, TD Bank moves for attorney's fees pursuant to Rule 54(d)(2), § 1927, and the FCRA, §§ 1681n(c) and 1681o(b). (Def.'s Fee Mot. at 2, 4-5.)
1.Section 1927
The Court first addresses § 1927, because the Court's denial of the motion under § 1927 resolves the other issues in TD Bank's motion. See Von Esch v. Asset Sys., Inc., No. 21-35217, 2022 WL 1772996, at *1 (9th Cir. June 1, 2022) (holding that the district court did not abuse its discretion in denying the defendant's motion for attorney's fees under both § 1927 and the FDCPA's analogous fee-shifting provision because the challenged conduct did not satisfy the “high threshold” for a “finding of bad faith,” which is “required to sanction [the plaintiff] under [both § 1927 and the FDCPA]” and is “present when an attorney knowingly or recklessly raises a frivolous argument” (citing Guetschow, 869 F.2d at 1306)).
a. Timeliness
As an initial matter, Rule 54(d)(2) requires fee motions to be filed within fourteen days of entry of judgment. See FED. R. CIV. P. 54(D)(2)(E) (explaining that a motion for attorney's fees under Rule 54(d)(2) “must . . . be filed no later than 14 days after the entry of judgment”). The Court need not reach the issue of whether Kelly's self-executing notice of voluntary dismissal started the 14-day clock (which would suggest TD Bank's motion was untimely), because § 1927 fee motions are exempt from Rule 54(d)(2)'s deadlines. See FED. R. CIV. P. 54(D)(2)(E) (“Subparagraphs (A)-(D) do not apply to claims for fees and expenses as sanctions for violating these rules or as sanctions under 28 U.S.C. § 1927.”); Plaskon v. Pub. Hosp. Dist. No. 1 of KingCnty., No. 06-00367, 2008 WL 249019, at *1 (W.D. Wash. Jan. 28, 2008) (“[T]he time limit in [Rule 54(d)(2)] do[es] not apply to [a motion for] sanctions under § 1927[.]” (citing FED. R. CIV. P. 54(d)(2)(E))); see also Keith Mfg. Co. v. Butterfield, 955 F.3d 936, 938-40 (Fed. Cir. 2020) (applying the law of the regional circuit in vacating a decision from this district holding that the parties' stipulated dismissal with prejudice under Rule 41(a)(1)(A)(ii) meant that “there was no judgment sufficient for a Rule 54 motion,” and declining to address “whether a self-executing stipulation that the court plays no role in entering constitutes a judgment”).
In the § 1927 context, the moving party need only file its motion for sanctions within a “reasonable time.” See, e.g., Home Gambling Network, Inc. v. Piche, No. 2:05-cv-00610, 2015 WL 1734928, at *19 (D. Nev. Apr. 16, 2015) (“[T]he Ninth Circuit has not commented on the issue of timeliness in the context of § 1927 sanctions, [but] other courts have held that § 1927 motions must be made within a ‘reasonable time' or as expeditiously as possible . . ., and should not be unnecessarily or unreasonably delayed.” id. at *19 (simplified) (quoting In re SchaeferSalt Recovery, Inc., 542 F.3d 90, 102 (3d Cir. 2008)).
Here, the Court finds (and the parties do not dispute) that TD Bank timely filed its fee motion. TD Bank filed its motion on April 26, 2022, which was thirteen days after the Court docketed its Order of Dismissal and terminated the case, and nineteen days after Kelly filed his notice of voluntary dismissal of TD Bank without prejudice. Under the circumstances presented, TD Bank filed its motion within a reasonable time. See Plaxon, 2008 WL 249019, at *1 & n.2 (holding that the defendants' § 1927 motion was timely where the court entered judgment on November 16, 2007 and the defendants filed their motion on December 27, 2007).
The Court entered an order confirming dismissal of the case, but the Court did not “grant” Kelly's notice of voluntary dismissal, and a court order was not required to dismiss the case. See ECF Nos. 46, 48; cf.Am. Soccer, 187 F.3d at 1110 (“The language of rule 41(a)(1) is unequivocal. It permits a plaintiff to dismiss an action without order of [the] court. The filing of notice itself closes the file.”) (simplified).
The Court takes judicial notice of the December 27, 2007 filing date on the Plaskon docket. See Chase MacCauley, 971 F.3d 582, 587 n.1 (6th Cir. 2020) (taking judicial notice of filing dates on court dockets); FED. R. EVID. 201(C)(1) (“The court . . . may take judicial notice on its own[.]”).
b. Focus of Inquiry
In contrast to the FCRA's fee-shifting provision, the § 1927 inquiry is focused on the “attorney's conduct.” Siegel v. Dignity Health, No. 20-15485, 2021 WL 5359586, at *1 (9th Cir. Nov. 17, 2021). Here, TD Bank focuses its criticism on the conduct of Kelly's counsel, not Kelly, and therefore TD Bank's grievances are appropriately resolved under § 1927. (See Def.'s Fee Mot. at 12-13, asserting that TD Bank's claim that Kelly's counsel “bear[s] much more responsibility for drawing out this litigation than [his client] does, and [thus] the burden of making TD [Bank] whole should fall on [him] at least as much as on [his client]”; see also id. at 13-14.)
c. Merits
TD Bank argues that it is entitled to sanctions under § 1927 because Kelly's counsel filed an amended complaint which “extended this action for months after it should have been resolved” and filed a notice of voluntary dismissal that “pretended to unilaterally extinguish [TD Bank's] right to seek fees.” (Def.'s Fee Mot. at 13-14) (bold omitted). In support, TD Bank asserts that “[a] finding of bad faith is not necessary for an award of fees under [§ 1927],” and that “recklessness” or “improper motive” alone is sufficient. (Id. at 13, quoting, inter alia, Fink v. Gomez, 239 F.3d 989, 993 (9th Cir. 2001)).
The Ninth Circuit has recognized that its cases have been “less than a model of clarity” regarding whether the imposition of attorney's fees under § 1927 “must be [based on] a finding of subjective bad faith,” or “whether a finding of mere recklessness alone may suffice[.]” In reGirardi, 611 F.3d 1027, 1061 (9th Cir. 2010) (quoting B.K.B. v. Maui Police Dep't, 276 F.3d 1091, 1107 (9th Cir. 2002), and citing In re Keegan Mgmt. Co. Sec. Litig., 78 F.3d 431, 436 (9th Cir. 1996)). Recognizing that § 1927's “key term” is “vexatiously” and that “carelessly, negligently, or unreasonably multiplying the proceedings is not enough [under § 1927],” the Ninth Circuit explained that “what is clear from [its] case law is that a finding that the attorney recklessly or intentionally misled the court is sufficient to impose sanctions under § 1927, and a finding that the attorneys recklessly raised a frivolous argument which resulted in the multiplication of the proceedings is also sufficient to impose sanctions under § 1927.” id.(simplified).
In In re Girardi, the Ninth Circuit panel appointed Judge Wallace Tashima, a then-senior circuit judge, to serve as a special master, and adopted Judge Tashima's findings of fact, conclusions of law, and recommendations with respect to sanctions under § 1927. 611 F.3d at 1034-35.
Consistent with this understanding, in In re Girardi, the Ninth Circuit held that “§ 1927 sanctions [were] justified . . . because [the plaintiffs' lawyers'] filings were made in bad faith insofar as [the plaintiffs' lawyers'] filings [on appeal] were reckless and frivolous, and because [the plaintiffs' lawyers] recklessly and intentionally, misled [the Ninth Circuit].” id. (simplified). The Ninth Circuit explained that each of these reasons “constitute[d] [an] independent ground[] upon which § 1927 sanctions [were] justified,” and therefore it did not need to determine “whether recklessness alone suffice[d], or whether [its] precedents plainly require[d] more[.]” id.(simplified).
More recently, the Ninth Circuit stated that “[s]anctions pursuant to [§] 1927 must be supported by a finding of subjective bad faith,” and that it has “held that ‘[b]ad faith is present when an attorney knowingly or recklessly raises a frivolous argument or argues a meritorious claim for the purpose of harassing an opponent.'” Blixseth v. Yellowstone Mountain Club, LLC, 796 F.3d 1004, 1007 (9th Cir. 2015) (quoting Guetschow, 869 F.2d at 1306).
The Ninth Circuit, however, has continued to state that its cases “have been less than a model of clarity” as to “whether recklessness alone is sufficient to impose sanctions under Section 1927, or whether ‘something more' is required, such as knowledge, frivolousness or bad faith.” Tallman v. CPS Sec. (USA), Inc., 655 Fed.Appx. 602, 603 (9th Cir. 2016) (citation omitted). In Tallman, the Ninth Circuit declined to resolve the parties' dispute about whether recklessness alone was sufficient because, “[r]egardless of the proper standard, the district court did not err in declining to impose sanctions[.]” id. In so holding, the Ninth Circuit emphasized that “[r]ecklessness requires much more than mere negligence: it is a gross deviation from what a reasonable person would do.” id. (simplified). The Ninth Circuit added that although “a more prudent course of action existed” under the circumstances, the district court's finding that the plaintiff's counsel “did not behave ‘unreasonably . . . given the context [at the time]' preclude[d] a finding of recklessness-let alone ‘something more.'” id. Accordingly, and “[t]hough a less generous court might have ruled differently,” the Ninth Circuit affirmed the district court's denial of sanctions. id.
As in Tallman, the Court declines to address whether recklessness alone is sufficient because, regardless of the proper standard, the record does not suggest that Kelly's counsel's actions amounted to recklessness.
TD Bank's fee motion is “directed at the fees that [it] has incurred in responding to the amended complaint,” and is based primarily on Kelly's counsel's reliance in the amended complaint on erroneous or “impossible” charge-off dates and his failure to name the proper TD affiliate. (See Def.'s Fee Mot. at 6-13.) During the April 5, 2022 conferral regarding Kelly's proposed second amended complaint, however, TD Bank's counsel acknowledged that Kelly's counsel's proposed second amended complaint “addresse[d] the issues of misnomer and impossibility[.]” (Melendez Decl. Ex. C at 3; see also Def.'s Fee Mot. at 10, referring to August and September 2020, as opposed to December 2020 and January 2021, as “dates that weren't impossible in light of the timing of the consumer report”; Pl.'s Opp'n at 5; Schumacher Decl. ¶ 5 & Ex. A; Compl. ¶ 60; FAC ¶ 48, reflecting that Kelly's counsel relied on dates from January 19, 2021 credit reports, which Kelly's complaint and amended complaint alleged that he reviewed for “update[s]”).
Furthermore, although TD Bank's counsel agreed that Kelly's account was charged off in August 2018, asserted that TD Bank “had never furnished any information to the contrary,” and asked to review “the consumer reports that allegedly contain[ed] the incorrect charge-off dates” (Melendez Decl. Ex. C at 3), TD Bank's second motion to dismiss acknowledged that Kelly “may be repackaging” his previously dismissed theory in a way that “comport[ed] with his dispute letter[,]” suggesting that the new theory was not entirely frivolous. (See Def.'s Second MTD at 16-17, arguing that the new theory was nevertheless “flawed” and “equally meritless”).
This procedural history and TD Bank's counsel's conferral regarding Kelly's new theory and second amended complaint do not reflect “much more than mere negligence” by Kelly's counsel. Rather, they suggest that Kelly's counsel may have carelessly, negligently, or unreasonably multiplied the proceedings, which is “not enough” for the Court to impose sanctions under § 1927. See In re Girardi, 611 F.3d at 1061. Indeed, Kelly's counsel proposed correcting both issues in a second amended complaint, which supports a conclusion that Kelly's counsel was not acting recklessly nor in bad faith.
The Court notes that it may not have been necessary for TD Bank to file the second motion to dismiss if counsel had conferred earlier than the eve of the filing deadline. TD Bank's counsel “[s]tud[ied] [the] amended complaint” on March 2, 2022, i.e., the day Kelly's counsel filed the amended complaint, about four weeks before TD Bank filed the second motion to dismiss, and over a month before the parties further conferred about issues addressed extensively in the already pending motion to dismiss. (See Melendez Decl. Ex. B at 1; Schumacher Decl. ¶ 4.) The issues of “misnomer and impossibility” were no doubt apparent to TD Bank's counsel on or around March 2, 2022, yet the parties did not confer until the afternoon of March 24, 2022 (i.e., the day TD Bank filed its motion and the day before its deadline for filing a responsive pleading) and April 5, 2022 (i.e., two days before Kelly's deadline to respond to the pending motion to dismiss). (See Melendez Decl. Ex. C at 3.) If the parties had conferred earlier, TD Bank may have avoided incurring fees to prepare a motion focused in large part on issues that were eventually addressed through conferral. (See Melendez Decl. Ex. B at 1; Def.'s Fee Mot. Ex. A at 1, ECF No. 49-1.)
In addition, once the parties reached an impasse regarding Kelly's proposed second amended complaint, and not long after conferring about the amended complaint's deficiencies, Kelly's counsel withdrew his litigation positions by filing a notice of voluntary dismissal. Cf. id.at 1064 (holding that the plaintiffs' lawyers “violated § 1927's duty to correct or withdraw litigation positions after it becomes obvious that they are meritless,” and noting that courts have “affirm[ed] § 1927 sanctions for the ‘willful continuation of a suit known to be meritless'”) (citation omitted). TD Bank's acknowledgment that Kelly's new theory “comport[ed] with his dispute letter,” and the parties' discussions regarding Kelly's ability to cure the purported “errors” as to “misnomer and impossibility,” also undercuts any claim that Kelly's legal or factual contentions were so weak as to constitute objective evidence of improper purpose. See id.at 1062 (explaining that “frivolousness should be understood as referring to legal or factual contentions so weak as to constitute objective evidence of improper purpose”) (simplified).
As to the notice of voluntary dismissal, it is not clear if Kelly's counsel's representation that each party would bear their own attorney's fees was due to his own negligence, such as failing adequately to review or alter the language in a template or previously filed stipulated dismissal, or an attempt to prevent or dissuade TD Bank from filing a motion for attorney's fees. However, it is undisputed that Kelly's counsel could not unilaterally prevent TD Bank from moving for an award of attorney's fees. See, e.g., Yearwood, 69 V.I. at 865-72 (awarding attorney's fees and costs to the defendant, even though the plaintiff's notice of voluntary dismissal attempted unilaterally to deny the defendant its statutory right to petition the court for such an award). Rather than sanctioning Kelly's counsel for a foul resulting in no harm, the Court instructs Kelly's counsel not to engage in this practice in the future.
For these reasons, the record does not support the imposition of sanctions under § 1927. Accordingly, the Court recommends that the district judge deny TD Bank's motion for attorney's fees under § 1927.
2. FCRA
For the same reasons that Kelly's counsel's conduct did not rise to the level of “vexatious” under section 1927, neither his nor his client's conduct amounted to bad faith as required for a FCRA fee award. See Von Esch, 2022 WL 1772996, at *1 (reflecting that the Ninth Circuit did not separately analyze the district court's denial of a defendant's request for attorney's fees under § 1927 and the FDCPA's analogous fee-shifting provision, and affirming because the conduct did not meet the necessary “high threshold” required for a fee award under both statutes); see alsoGuerrero, 499 F.3d at 940-941 (holding that the district court did not abuse its discretion in denying a request for attorney's fees under the FDCPA, and explaining that the plaintiff's “counsel's aggressive use of the [FDCPA was] unworthy of commendation, and [the Ninth Circuit was] skeptical of his claim” but explained it was at least “minimally colorable”).
Furthermore, as TD Bank acknowledges (Def.'s Fee Mot. at 12), a FCRA fee award focuses on a party acting in bad faith, not counsel, and here TD Bank does not meaningfully attribute any of its criticism to Kelly's conduct, as opposed to Kelly's counsel. See id.; see also Thacker v. GPS Insight, LLC, No. 18-cv-0063, 2019 WL 3816720, at *10 (D. Ariz. Aug. 14, 2019) (noting that the FCRA “‘does not authorize the imposition of attorneys' fees on a party's counsel,' but only against the plaintiff himself,” and therefore the scope of the fee-shifting inquiry under the FCRA is “properly limited to an examination of [the client's] conduct, rather than conduct attributed to his counsel.” (quoting Robinson v. Best Serv. Co., Inc., No. 16-03346, 2017 WL 1354766, at *2 (N.D. Cal. Apr. 13, 2017)); see also id. (denying the defendants' motion for attorney's fees based, in part, on their failure to provide any “evidence that [the plaintiff-client] himself knew [the claim] was filed in bad faith”).
For these reasons, the Court recommends that the district judge also deny TD Bank's request for a FCRA prevailing party fee award.
The Court does not reach the question of whether TD Bank was eligible for a FCRA fee award as the prevailing party. Unlike the FCRA's fee-shifting provision, § 1927 does not require a prevailing party analysis. See Lacayo v. Puerta de Palmas Condo. Ass'n Inc., 842 Fed.Appx. 378, 382 & n.5 (11th Cir. 2021) (explaining that when Congress “amended § 1927 to permit the recovery of attorney's fees[,] . . . it did not limit the availability of sanctions . . . to prevailing parties,” and therefore rejecting the plaintiffs' counsel's argument “the district court could award the [defendants] sanctions only if they were prevailing parties in the underlying litigation,” because “§ 1927 contains no prevailing-party requirement”); see also RoadwayExpress, Inc. v. Piper, 447 U.S. 752, 762 (1980) (“[Section] 1927 does not distinguish between winners and losers, or between plaintiffs and defendants. The statute is indifferent to the equities of a dispute and to the values advanced by the substantive law. It is concerned only with limiting the abuse of court processes.”).
CONCLUSION
For the reasons stated, the Court recommends that the district judge DENY TD Bank's motion for attorney's fees (ECF No. 49).
SCHEDULING ORDER
The Court will refer its Findings and Recommendation to a district judge. Objections, if any, are due within fourteen (14) days. If no objections are filed, the Findings and Recommendation will go under advisement on that date. If objections are filed, a response is due within fourteen (14) days. When the response is due or filed, whichever date is earlier, the Findings and Recommendation will go under advisement.