Towle v. TD Bank U.S.

1

STEVEN TOWLE, Plaintiff, v. TD BANK USA, N.A., Defendant.

No. 22-CV-0624 (PJS/TNL)

United States District Court, D. Minnesota

April 20, 2023

Douglas Stiele & Richard J. Meier, THE LITIGATION PRACTICE GROUP, for plaintiff.

Brian Melendez, BARNES & THORNBURG LLP, for defendant.

ORDER

PATRICK J. SCHILTZ, CHIEF JUDGE UNITED STATES DISTRICT COURT.

Plaintiff Steven Towle filed this action against defendant TD Bank USA N.A. (“TD Bank”), alleging that TD Bank had violated the Fair Credit Reporting Act (“FCRA”) by reporting inaccurate information about one of his accounts to a creditreporting agency. ECF No. 1. TD Bank moved to dismiss, and Towle responded by filing an amended complaint. ECF No. 13. TD Bank then moved to dismiss the amended complaint, and Towle responded by filing a brief that did not attempt to defend the amended complaint but instead attempted to raise a new claims. The Court granted TD Bank's motion and dismissed the action with prejudice. ECF No. 33. TD Bank now moves for an award of attorney's fees. ECF No. 35.

TD Bank seeks to recover its fees from both Towle and his attorneys Douglas Stiele and Richard Meier, pursuant to the fee-shifting provisions of the FCRA, 15 U.S.C. § 1681n(c) and 15 U.S.C. § 1681o(b), and pursuant to 28 U.S.C. § 1927. For the reasons that follow, the Court orders Stiele and Meier (but not Towle) to pay part of the fees incurred by TD Bank in defending this action.

I. FEES UNDER THE FCRA

TD Bank initially seeks to recover its fees from Towle and his attorneys under the FCRA. Sections 1681n(c) and 1681o(b) of the FCRA each provide that a prevailing party in a lawsuit arising under either of those provisions may recover attorney's fees if the court finds “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.”

There is a dearth of appellate case law interpreting the FCRA's fee-shifting provisions, but several district courts have analyzed their scope. These courts have “construed the term ‘bad faith' . . . to require ‘either that the party subjectively acted knowing that he had no viable claim-or that he filed an action or paper that was frivolous, unreasonable, or without foundation.'” Robinson v. Best Serv. Co., Inc., No. 5:16-CV-03346-EJD, 2017 WL 1354766, at *1 (N.D. Cal. Apr. 13, 2017) (cleaned up) (quoting Ryan v. Trans Union Corp., No. 99 C 216, 2001 WL 185182, at *5 (N.D. Ill. Feb. 26, 2001)); see also Scroggin v. Credit Bureau of Jonesboro, Inc., 973 F.Supp.2d 961, 967 (E.D. Ark. 2013) (defining “bad faith” in attorney-fee context as “dishonesty of belief or purpose” and “harassment” as “words, conduct, or action . . . that, being directed at a specific person, annoys, alarms, or causes substantial emotional distress in that person and serves no legitimate purpose” (cleaned up)), aff'd, 576 Fed.Appx. 632 (8th Cir. 2014). Courts have also held that §§ 1681n(c) and 1681o(b) authorize an award of attorney's fees only against a party and not against the party's counsel. See, e.g., Thacker v. GPS Insight, LLC, No. CV18-0063-PHX-DGC, 2019 WL 3816720, at *10 (D. Ariz. Aug. 14, 2019); Robinson, 2017 WL 1354766, at *2; Levine v. JPMorgan Chase & Co., 46 F.Supp.3d 883, 885 (E.D. Wis. 2014), vacated on other grounds sub nom. Levine v. JP Morgan Chase Bank NA, No. 13-C-498, 2014 WL 8734863 (E.D. Wis. Dec. 19, 2014); Smith v. HM Wallace, Inc., No. 08-22372-CIV-GOL, 2009 WL 3179539, at *2 (S.D. Fla. Oct. 1, 2009).

As the party moving for an award of attorney's fees, TD Bank has the burden “to demonstrate that they are warranted.” DeBusk v. Wachovia Bank, No. CV 06-0324 PHXNVW, 2006 WL 3735963, at *4 (D. Ariz. Nov. 17, 2006), aff'd sub nom. DeBusk v. Wachovia Bank NA, 291 Fed.Appx. 55 (9th Cir. 2008). TD Bank argues that it is entitled to its attorney's fees under the FCRA because Towle's original complaint, amended complaint, and brief filed in opposition to TD Bank's motion to dismiss the amended complaint all asserted “frivolous claims and arguments, for which there was no good-faith basis” and therefore, “[a]ll three [papers] were filed in bad faith.” Def. Memo. [ECF No. 37] at 9.

Although the Court agrees (for reasons explained below) that Towle's claims were frivolous, TD Bank has not provided any evidence-other than pointing to the papers themselves-that Towle himself acted in bad faith (or even knew what his attorneys were doing). See Thacker, WL 3816720, at *10; cf. Scroggin, 973 F.Supp.2d at 977 (concluding plaintiff had filed action in bad faith and with purpose to harass where he had made numerous posts and emails describing his intent to “set up” the defendant, to turn the litigation into a “circus” and to continue the litigation for his entertainment, and where he had made sexist and offensive comments to defendant's counsel). Indeed, TD Bank admits as much. See Def. Memo. at 11 (“TD knows that it is Mr. Towle's attorneys, and not Mr. Towle himself, pushing the frivolous claims and arguments that propelled this litigation.”). Therefore, the Court will not hold Towle liable for TD Bank's attorney's fees under the FCRA.

In addition, as noted above, courts have also held that the FCRA does not authorize a fee award against the losing party's attorneys. Thus, the Court cannot hold Stiele and Meier liable for TD Bank's attorney's fees under the FCRA.

II. EXCESSIVE COSTS AND FEES UNDER 28 U.S.C. § 1927

TD Bank also seeks an award of attorney's fees against Stiele and Meier (but not against Towle personally) under 28 U.S.C. § 1927. Section 1927 provides:

Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof 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.

Courts are afforded “substantial discretion” in determining whether to award fees under § 1927. Tenkku v. Normandy Bank, 348 F.3d 737, 744 (8th Cir. 2003). Nevertheless, sanctions should be approached with caution. Lee v. L.B. Sales, Inc., 177 F.3d 714, 718 (8th Cir. 1999). The standard “is whether the attorney's conduct ‘viewed objectively, manifests either intentional or reckless disregard of the attorney's duties to the court.'” Perkins v. Spivey, 911 F.2d 22, 36 (8th Cir. 1990) (quoting Braley v. Campbell, 832 F.2d 1504, 1512 (10th Cir. 1987) (en banc)); see also Jones v. Cont'l Corp., 789 F.2d 1225, 1230 (6th Cir. 1986) (“[W]hen an attorney knows or reasonably should know that a claim pursued is frivolous . . . a trial court does not err by assessing fees attributable to such actions against the attorney [pursuant to § 1927].”).

TD Bank argues that it is entitled to an award of attorney's fees under § 1927 because Stiele and Meier repeatedly pushed “frivolous claims and arguments” to “propel[] this litigation” forward. Def. Memo. at 11. The Court agrees.

Original Complaint. Towle filed his original complaint on March 9, 2022, alleging that TD Bank violated the FCRA by reporting “to at least one credit bureau” that Towle had an outstanding balance due on a “Nordstrom credit card,” even though TD Bank (presumably the owner of that Nordstrom debt) had previously charged off the account. Compl. ¶¶ 7-11 [ECF No. 1]. According to Towle's original complaint, TD Bank's reporting was inaccurate because “[a]s a result of the Account being charged off, Plaintiff did not have any owe any [sic] money to Defendant.” Id. ¶ 9.

Towle's claim was frivolous. The fact that a creditor “charges off” an account does not mean that the debtor is no longer legally obligated to pay the amount “charged off”; it simply means that the creditor does not expect the debtor to fulfill that legal obligation. See Morris v. Experian Info. Sols., Inc., 478 F.Supp.3d 765, 771 (D. Minn. 2020) (“A debt that is ‘charged off' still exists, and nothing prevents the creditor from . . . taking steps to collect it.”); see also Belton v. GE Cap. Retail Bank (In re Belton), 961 F.3d 612, 614 (2d Cir. 2020) (noting that reporting a debt as “charged off” indicates that “the debt was severely delinquent but still outstanding”); Martin v. Equifax Info. Servs., LLC, No. 4:19-CV-3691, 2020 WL 1904496, at *1 (S.D. Tex. Apr. 17, 2020) (noting that the plaintiff still owed a debt that was reported as charged off and closed); Foster v. Santander Consumer USA, Inc., No. 1:18-CV-4146-WMR-JFK, 2019 WL 3490463, *10 (N.D.Ga. May 29, 2019) (defendant argued, and plaintiff conceded, that plaintiff still owed a debt that was reported as charged off and closed), report and recommendation adopted, No. 1:18-CV-4146-JPB, 2019 WL 8277254 (N.D.Ga. Oct. 15, 2019).

TD Bank moved to dismiss the original complaint and pointed this out. At that point, Stiele and Meier should have recognized that they did not have a viable claim and walked away. Instead, they filed an amended complaint.

Amended Complaint. Towle filed the amended complaint on May 31, 2022. ECF No. 13. Once again, Towle alleged that TD Bank violated the FCRA because it “continued to report to at least one credit bureau that the full balance of the Account was due and outstanding,” even though TD Bank had allegedly charged off the account. Id. ¶¶ 13-14. This time, however, Towle added the allegation that TD Bank “made an insurance claim for the Account” and “claimed a corresponding deduction on its tax return for the Account as a bad debt expense.” Id. ¶¶ 10-11.^[1] According to Towle, “[i]n the world of accounting, it is impossible to maintain a receivable for an amount owed and simultaneously claim an expense for the same amount.” Id. ¶ 12.

Towle's new claim was hard to...