Mercantile Adjustment Bureau, L.L.C. v. Flood

• Decision Date: 18 June 2012
• Docket Number: No. 10SC852.,10SC852.
• Citation: 278 P.3d 348,2012 CO 38
• Parties: MERCANTILE ADJUSTMENT BUREAU, L.L.C., Petitioner/Cross–Respondent v. Elizabeth FLOOD, Respondent/Cross–Petitioner.
• Court: Colorado Supreme Court

278 P.3d 348

2012 CO 38

MERCANTILE ADJUSTMENT BUREAU, L.L.C., Petitioner/Cross–Respondent

v.Elizabeth FLOOD, Respondent/Cross–Petitioner.

No. 10SC852.

Supreme Court of Colorado, En Banc.

May 29, 2012.

Rehearing Denied June 18, 2012.

Polsinelli Shughart PC, Sean R. Gallagher, Bennett L. Cohen, Adam L. Plotkin, P.C., Adam L. Plotkin, Steven J. Wienczkowski, Denver, Colorado, Attorneys for Petitioner/Cross–Respondent.

Pendleton Friedberg Wilson & Hennessey, P.C., Richard F. Hennessey, Susan M. Hargleroad, Denver, Colorado, Berg Hill Greenleaf & Ruscitti LLP, Alan C. Friedberg, Gary Merenstein, Attorney at Law, Gary Merenstein, Boulder, Colorado, Attorneys for Respondent/Cross–Petitioner.

Hizer Paul Grueskin LLP, Edward T. Ramey, Denver, Colorado, ACA International, Aaron Geist, Litigation Counsel, Minneapolis, Minnesota, Attorneys for Amicus Curiae ACA International.

The Colorado Bar Association, David L. Masters, Holland & Hart, LLP, Marcy G. Glenn, Husch Blackwell LLP, Michael H. Berger Denver, Colorado, Attorneys for Amicus Curiae Colorado Bar Association.

Leventhal, Brown & Puga, P.C., David P. Mason, Denver, Colorado, Attorneys for Amicus Curiae Colorado Trial Lawyers Association.

Chief Justice BENDER delivered the Opinion of the Court.

¶ 1 In this appeal, we review the order of the district court holding that an attorney does not violate Rule 1.8(e) of the Colorado Rules of Professional Conduct when he pays the fees of an appellate attorney retained to represent his client on appeal.

¶ 2 After losing on her Colorado Fair Debt Collection Practices Act claim at the county court, Elizabeth Flood's trial counsel, Gary Merenstein, paid the fees of several appellate attorneys who represented Flood in an appeal to the district court and later to this court because they were not willing to work on a contingency basis. Flood ultimately prevailed in her appeal to this court, and we awarded attorneys' fees. On remand to the county court to determine Flood's entitlement to and the amount of the attorneys' fees, the opposing party, debt collector Mercantile Adjustment Bureau (“MAB”), argued that Flood was not entitled to receive attorneys' fees for her appellate counsel's work. MAB argued that the arrangement between Merenstein and Flood, wherein he agreed to pay her appellate attorneys' fees and expected to be reimbursed for these fees from any court award of attorneys' fees received by Flood, constituted unethical financial assistance of a client in violation of Rule 1.8(e) of the Colorado Rules of Professional Conduct. The county court rejected MAB's argument and awarded Flood the requested attorneys' fees. MAB appealed to the district court, which affirmed the county court.

¶ 3 We hold that Merenstein did not violate Rule 1.8(e) by paying the fees of Flood's appellate counsel and therefore affirm the district court's decision in part. However, we conclude that the district court erred in applying the Colorado Appellate Rules, which require an appellee to make her request for attorneys' fees in her answer brief, to an appeal to the district court from the county court. The Colorado Appellate Rules are expressly applicable only to appeals to the court of appeals and to this court. We accordingly reverse that part of the district court's ruling applying the Colorado Appellate Rules to deny Flood's request for attorneys' fees incurred in the current appeal. We remand the case to the district court to return it to the county court for proceedings to determine whether Flood is entitled to appellate fees as the prevailing party in this appeal and, if so, the amount of Flood's reasonable attorneys' fees and costs incurred in connection with this appeal—including the proceedings before this court.

I. Facts and Proceedings Below

¶ 4 Elizabeth Flood filed suit in county court under the Colorado Fair Debt Collection Practices Act based on a letter she received from debt collector MAB regarding a debt that Flood owed on the purchase of a used automobile. Flood alleged that this debt collection communication failed to include necessary information and contained contradictory statements about her rights and obligations under the Fair Debt Collection Practices Act, in violation of section 12–14–109, C.R.S. (2011). Flood also alleged that MAB's outsourcing of the printing and the mailing of its communications constituted an impermissible communication with a third party under section 12–14–105(2), C.R.S. (2011), of this act.

¶ 5 The county court entered judgment in favor of MAB. Flood's trial counsel, Gary Merenstein, believed that he lacked the appellate experience and knowledge necessary to appeal competently. With Flood's knowledge and pursuant to the written agreement between Merenstein and Flood permitting Merenstein to hire outside counsel to assist with the case, Merenstein hired an appellate attorney to pursue an appeal to the district court. Merenstein did this with the understanding that he would be reimbursed for these expenses from any appellate attorneys' fees awarded in the event that Flood prevailed—that is, any attorneys' fees awarded to Flood for any appellate attorneys' work would go to him and not to any appellate attorneys who had already been paid by Merenstein.

¶ 6 The district court affirmed the county court's ruling against Flood. ¹ After filing a petition for certiorari with this court, Flood's initial appellate attorney withdrew. Merenstein then hired another law firm to serve as appellate counsel, which has represented Flood from that point continuing to the case before us.² Unlike Merenstein, none of Flood's appellate attorneys were willing to work on her case on a contingency basis, so Merenstein advanced their fees. Merenstein, a sole practitioner, incurred substantial personal debt as a result of paying these fees.

¶ 7 We granted Flood's petition for certiorari review of the district court's ruling (“the first appeal”). We concluded that MAB violated section 12–14–109 because its letter was likely to confuse the least sophisticated consumer about the necessary means of communicating with MAB and also contained conflicting deadlines, further clouding the consumer's understanding of her legal rights under the Colorado Fair Debt Collection Practices Act. Flood v. Mercantile Adjustment Bureau, 176 P.3d 769, 774 (Colo.2008). We therefore reversed that portion of the district court's opinion. We affirmed the district court's holding that MAB's use of an automatic mailing service to prepare and mail its debt collection communication did not violate the prohibition in section 12–14–105(2) against communications between a debt collector and third parties regarding the collection of a debt because it was “a de minimis communication with a third party that cannot reasonably be perceived as a threat to the consumer's privacy or reputation.” Id. at 777. We remanded the case to the district court with directions to return it to the county court for an entry of judgment consistent with our opinion and to determine whether Flood was entitled to damages, costs, and attorneys' fees pursuant to section 12–14–113, C.R.S. (2011), which provides for an award of attorneys' fees for prevailing plaintiffs in claims brought under the Colorado Fair Debt Collection Practices Act. Id.

¶ 8 On remand, MAB claimed that it was entitled to the bona fide error defense contained in section 12–14–113(3), wherein a debt collector may not be held liable if the debt collector “shows by a preponderance of evidence that the violation was not intentional or grossly negligent and which violation resulted from a bona fide error....” § 12–14–113(3). The county court ruled that our remand directed the court to determine fees and costs and therefore MAB's bona fide error defense was not within the scope of the remand. MAB appealed this issue to the district court, which rejected MAB's arguments and affirmed the county court (“the second appeal”).

¶ 9 The case was returned to the county court, which conducted a hearing on the issue of an award of statutory damages and attorneys' fees. At this hearing, MAB argued for the first time that Merenstein violated Rule 1.8(e) of the Colorado Rules of Professional Conduct by paying the fees of Flood's appellate attorneys. MAB contended that Merenstein's payment of these fees constituted improper financial assistance of a client under Rule 1.8(e) and thus MAB should not be required to pay these fees to Flood who would then reimburse Merenstein for this unethically incurred expense. In a ten-page order, the county court rejected MAB's argument and held that Flood, as the prevailing party, was entitled to statutory damages, attorneys' fees, and costs.

¶ 10 The court awarded Flood the maximum amount of statutory damages of $1,000. To determine the reasonable amount of attorneys' fees to which Flood was entitled, the court applied the “lodestar” method. Under the lodestar method, the court calculates the reasonable amount of attorneys' fees by determining the number of hours reasonably expended on the litigation and then multiplying that number by a reasonable hourly rate. Blanchard v. Bergeron, 489 U.S. 87, 94, 109 S.Ct. 939, 103 L.Ed.2d 67 (1989). Based on its lodestar calculation, the court awarded Flood $190,000 in attorneys' fees from the trial and the first and second appeals, as well as her costs. This amount vastly exceeded the $1,000 damages award and the county court's jurisdictional damages cap of $15,000. However, the court held that the bulk of the awarded fees were attributable to complex appellate matters. It found that much of the appellate attorneys' time was necessitated by MAB's unsuccessful assertion of the bona fide error defense on remand and the second appeal. The court also found that the hours spent by Flood's appellate attorneys were necessary to allow Flood to pursue her case fully: “[Flood's] position with regard to the bona fide error defense and the ultimate issues...