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Nathanson v. Diversified Adjustment Service, Inc.

United States District Court, D. Minnesota

September 13, 2019

DIVERSIFIED ADJUSTMENT SERVICE, INC., a Minnesota corporation, Defendant.

          Michael J. Sheridan, ATLAS LAW FIRM, for plaintiff.

          Michael A. Klutho and Patrick D. Newman, BASSFORD REMELE, for defendant.


          Patrick J. Schiltz United States District Judge

         Plaintiff Nancy Nathanson filed this action on November 5, 2018, alleging that defendant Diversified Adjustment Service, Inc. (“Diversified”) violated various provisions of the Fair Debt Collection Practices Act (“FDCPA”) when it attempted to collect a debt from her in violation of the automatic stay that had been entered in her Chapter 7 bankruptcy proceeding. A few months later, Nathanson accepted a Fed.R.Civ.P. 68 offer of judgment from Diversified. The offer provided that judgment would be entered in Nathanson's favor and against Diversified in the amount of $1, 001, plus an additional amount of reasonable attorney's fees and costs. The parties agreed that, if they could not reach an agreement on the amount of attorney's fees and costs, the matter would be left to the Court.

         The parties were unable to agree, so the matter is now before the Court on Nathanson's motion for attorney's fees and costs. Nathanson seeks a total of $5, 262.50. Diversified opposes Nathanson's motion, arguing that “special circumstances” preclude any award of attorney's fees and costs. Alternatively, Diversified argues that even if an award is not altogether precluded, a reasonable amount of attorney's fees would be $714.99. For the reasons that follow, the Court grants Nathanson's motion and awards Nathanson a total of $4, 960 in attorney's fees and costs.


         Generally, a plaintiff who prevails on an FDCPA claim is entitled to recover reasonable attorney's fees and costs. 15 U.S.C. § 1692k(a)(3).[1] Some courts have held, however, that an exception applies when “special circumstances would render such an award unjust.” Peter v. Jax, 187 F.3d 829, 837 (8th Cir. 1999) (citation omitted) (indicating that a special-circumstances exception exists under 42 U.S.C. § 1988-a different fee-shifting statute); see also Davis v. Credit Bureau of the S., 908 F.3d 972, 976-77 (5th Cir. 2018) (stating that the special-circumstances exception applies under the FDCPA); Carroll v. Wolpoff & Abramson, 53 F.3d 626, 628 (4th Cir. 1995) (same); Graziano v. Harrison, 950 F.2d 107, 114 (3d Cir. 1991) (same). “Special circumstances” that render an award unjust may be found when a plaintiff or her attorney acts in bad faith. Davis, 908 F.3d at 976-78; Graziano, 950 F.2d at 114 n.13.

         Diversified alleges-or at least strongly implies-that Nathanson's attorney (Michael Sheridan) acted in bad faith by “manufacturing” this lawsuit, and thus that any award of attorney's fees or costs would be unjust. See ECF No. 30 at 1-2, 8-10. Diversified's allegations and argument can be summarized as follows:

         Sheridan represented Nathanson in her Chapter 7 bankruptcy proceeding, which was initiated when Sheridan filed a petition and various schedules on her behalf. One of those schedules (Schedule E/F) required Sheridan to identify all of the unsecured creditors to whom Nathanson owed money. That same schedule also included a section that asked Sheridan to identify any collection agency that was attempting to collect a debt from Nathanson. Sheridan listed eight different collection agencies, but did not list Diversified. This omission must have been intentional, Diversified says, because Sheridan knew very well that Diversified was a collection agency that was attempting to collect a debt from Nathanson. In fact, prior to Sheridan's filing of the bankruptcy petition, Diversified had sent three collection letters to Nathanson.

         What motivated Sheridan? According to Diversified, Sheridan was laying a trap. By omitting Diversified from the schedule, Sheridan was ensuring that Diversified would not receive notice that Nathanson had filed for bankruptcy-and thus would not know that, because of the automatic stay, Diversified was required to cease its collection efforts. Sheridan then waited until Diversified sent another collection letter to Nathanson, and, when it did, Sheridan pounced-suing Diversified for continuing to send collection letters to Nathanson in violation of the automatic stay that Sheridan himself had concealed from Diversified. In this way, Sheridan manufactured an FDCPA claim against Diversified-part of what Diversified alleges is Sheridan's “pattern and practice” of “ambush[ing]” collection agencies in this manner. ECF No. 30 at 1-2.

         At the outset, the Court notes that if Diversified's allegations were true-that is, if Sheridan intentionally excluded Diversified (and other collection agencies) from bankruptcy schedules in order to manufacture FDCPA claims against them-the Court would not only refuse to award attorney's fees and costs to Nathanson, but the Court would notify the Lawyers Professional Responsibility Board of Sheridan's conduct. But Diversified's allegations do not appear to be true. Indeed, the basis for those allegations appears to be quite flimsy.

         The Court first notes that, as best as it can tell, the Bankruptcy Code does not actually require a debtor to identify every collection agency that is attempting to collect a debt from her.[2] And thus, although Sheridan should have identified every collection agency that was attempting to collect a debt from Nathanson, he did not violate any law if he intentionally omitted a collection agency of which he was aware. (Whether he acted ethically is a separate question.)

         The Court also notes that, even if Sheridan was trying to manufacture an FDCPA claim, Diversified could have protected itself from falling into his trap. First, Diversified could have required the creditors on whose behalf it collects debts to notify it of any bankruptcy notices. The creditor on whose behalf Diversified was working in this case (TRIA Orthopaedic Center (“TRIA”)) was identified by Nathanson in her Schedule E/F and thus was notified of Nathanson's bankruptcy filing. TRIA could have notified Diversified of the filing-and Diversified, in its contract with TRIA, could have obligated TRIA to notify it of such filings (and to indemnify it for any damages caused by a breach of that obligation).

         Second, Diversified itself could have checked whether Nathanson filed for bankruptcy before sending her a collection letter. This is, after all, public information, easily obtained through a computer search of public records. (It took the Court less than one minute to find Nathanson's bankruptcy case by searching for her name in the PACER database.[3]) Although Diversified attempts to characterize Sheridan's failure to list it on the Schedule E/F ...

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