Attorney-Client Privilege: Communications between Attorney and 3d Party (Collection Agency) Hired by the Corporate Client Are Privileged Where 3d Party Was Specifically Hired to Find Counsel for Corporation & Is Thus Corporation’s Agent

Baylor v. Mitchell Rubenstein & Assocs., PC, 2017 U.S. App. LEXIS 9333 (D.C. Cir. May 30, 2017):

In order to pursue a Master's degree in Computer Graphics, Demetra Baylor ("Appellant") took out six student loans. Several years after her graduation, Mitchell Rubenstein & Associates, P.C. ("Appellee") came calling to collect. At the heart of this case are a number of inconsistencies in letters that Appellee sent Appellant over the course of several months regarding her loans and the amounts that she owed on them, as well as Appellee's failure to direct all of its communications to Appellant's attorney after she retained counsel. In response, Appellant filed suit on December 17, 2013, alleging that Appellee had violated the Fair Debt Collection Practices Act ("FDCPA"), the District of Columbia [*2]  Consumer Protections Procedures Act ("CPPA"), and the District of Columbia Debt Collection Law ("DCDCL"), statutes which target abusive debt collection and improper trade practices. See 15 U.S.C. § 1692(e); D.C. Code §§ 28-3904, -3814.

Over the course of the next few years, the parties engaged in what the District Court termed a "particularly striking expenditure of effort and resources," generating "excessive, repetitive, and unnecessarily sharp pleadings." Order, Dkt. No. 41, at 2. Nonetheless, all of Appellant's statutory claims were eventually resolved. Appellant accepted Appellee's offer of judgment regarding her FDCPA claim and the District Court, with the aid of a Magistrate Judge, determined the attorney's fees to which she was entitled for this success. Appellee, meanwhile, prevailed in its Motion to Dismiss all of Appellant's CPPA claims and some of her DCDCL claims, the remainder of which were rejected when the District Court subsequently granted Appellee's Motion for Summary Judgment.

A number of orders from this "clutter[ed]...docket" are challenged on appeal. Id. First, the parties dispute the District Court's decision to adopt a Magistrate Judge's recommendation that Appellant receive approximately twenty percent of the [*3]  attorney's fees that she requested. Second, Appellant asserts that the District Court erred in finding that Appellee's conduct does not fall within the aegis of the CPPA. Third, Appellant also contends that the District Court abused its discretion in failing to credit her objections to a different Magistrate Judge's denial of her Motion to Compel the disclosure of communications between Appellee and an agent of Appellant's creditor on the grounds that these documents were protected by attorney-client privilege. Appellant additionally disputes the District Court's refusal to award her attorney's fees for her efforts in litigating this issue. Finally, Appellant argues that the District Court improperly granted Appellee's Motion for Summary Judgment on her DCDCL claims. On this last point, Appellant contends that the District Court failed to appropriately account for evidence demonstrating that Appellee had "willfully violated" the DCDCL and was therefore subject to liability under the statute.

We do not reach the question of whether the District Court abused its discretion in awarding Appellant only a percentage of the attorney's fees she sought in connection with her FDCPA claim. In [*4]  addressing this issue, the District Court relied on the standard set forth in Local Civil Rule 72.2 in finding that the Magistrate Judge's proposed disposition was not "clearly erroneous or contrary to law." This was error. Federal Rules of Civil Procedure 54(d)(2)(D) and 72(b)(3) foreclose the District Court from using a "clearly erroneous or contrary to law" standard when evaluating a Magistrate Judge's proposed disposition of a fee request. The correct standard of review is de novo. We therefore reverse and remand to allow the trial judge to reconsider this matter in the first instance applying de novo review to assess the Magistrate Judge's recommendation. We affirm all of the remaining Orders challenged on appeal.

I. BACKGROUND

On February 21, 2013, Appellee, a law firm whose primary focus is the recovery of consumer debts, sent the first of several letters to Appellant notifying her that her account, which had been assigned file number R80465, "ha[d] been referred to [its] office for collection." Complaint, Dkt. No. 1, Ex. E; see Answer, Dkt. No. 28, at 2. It listed the creditor for her debt as Arrowood Indemnity Company and stated that she currently owed $26,471.07, though cautioned that, "[b]ecause of interest, late charges and other charges that may vary from [*5]  day to day, the amount due on the day you pay may be greater." Complaint, Dkt. No. 1, Ex. E. Following a request for more information regarding both the ownership and amount of this debt from Appellant, Appellee sent a second letter. It provided a new total for the amount that Appellant owed, $31,268, a slight reformulation of the name of Appellant's creditor, Arrowood Indemnity Company/Tuition Guard, and identified her original creditor as Citibank (South Dakota) N.A. Complaint, Dkt. No. 1, Ex. D; Baylor v. Mitchell Rubenstein & Assocs., P.C., 55 F. Supp. 3d 43, 46 (D.D.C. 2014).

Appellant retained counsel, who contacted Appellee regarding the provenance of this debt and advised that any "future communication regarding this matter should be directed to [her] firm" rather than to Appellant. Complaint, Dkt. No. 1, Ex. B. The parties then entered into settlement negotiations, during which Appellant informed Appellee that she had additional outstanding loans not referenced in its second letter. Appellee's client referred these new loans to Appellee so that Appellant could settle all of her debt at once. See Baylor v. Mitchell Rubenstein & Assocs., P.C., 174 F. Supp. 3d 146, 150 (D.D.C. 2016); Appellee's Statement of Undisputed Facts, Dkt. No. 96 [#x204b][#x204b] 12-13. On August 22, 2013, Appellee sent another letter to Appellant's home, albeit addressed to her attorney, [*6]  regarding this second set of loans. Complaint, Dkt. No. 1, Ex. A. It provided a new file number for this debt, R83798, which totaled $27,459.48, and noted that her creditor was Tuitionguard Arrowood Indemnity. Id. After Appellant's counsel requested additional information regarding these loans, Appellee stated that Appellant owed "$27,459.48 plus interest from 10/21/11 at the rate of 3.75% until paid" and listed Tuitionguard/Arrowood Indemnity and Student Loan Corp. as the creditor and original creditor, respectively, of this debt. Complaint, Dkt. No. 1, Ex. C.

On December 17, 2013, Appellant filed suit in the District Court. She claimed that the inconsistencies in the communications she had received from Appellee, including, most notably, the variance in the "character and amount" of Appellant's alleged debt and the creditors associated with these loans, as well as Appellee's failure to direct all of its communications to Appellant's counsel after she had retained legal representation, constituted violations of both the FDCPA and CPPA. Complaint, Joint Appendix ("JA") 26-28, 31-33. She also asserted that these actions were proof that Appellee had both violated various provisions of [*7]  the DCDCL and "knowingly maintained policies, practices and procedures that were intentionally and willfully inadequate" to meet its obligations under this statute. Id. at 29-31.

Appellee moved to dismiss the Complaint. However, while this motion was pending, Appellee extended, and Appellant accepted, an offer of judgment regarding her FDCPA claims. See Baylor v. Mitchell Rubenstein & Assocs., P.C., 77 F. Supp. 3d 113, 115 (D.D.C. 2015). A judgment was then entered "in the amount of $1,001.00 plus costs and expenses together with reasonable attorney fees for all claims under the [FDCPA]" by the Clerk of Court. Id. Appellant thereafter filed a motion seeking $155,700 in attorney's fees for 346 hours of work at a rate of $450 an hour. Id. She was later permitted to amend her requested fees due to subsequent filings in this case. Id. at 115-16.

The District Court referred this request to a Magistrate Judge pursuant to Local Civil Rule 72.2. After reviewing the matter, the Magistrate Judge recommended that the hours included in Appellant's initial fee request be reduced by 85% because they were significantly higher than reasonable. Baylor v. Mitchell Rubenstein & Assocs., P.C., 2014 U.S. Dist. LEXIS 175291, 2014 WL 7014280, at *4 (D.D.C. Oct. 24, 2014). She found that certain tasks were not eligible for attorney's fees under the statute; some of the hours requested were expended on Appellant's unsuccessful state law claims or occurred [*8]  after Appellant had already accepted Appellee's offer of judgment; and Appellant's counsel had failed to "heed the Court's admonition" to moderate the tenor of her filings. 2014 WL 7014280, [WL] at *4-5. The Magistrate Judge also determined that a 50% reduction should be applied to Appellant's additional request for fees because Appellant had "again engaged in the tactics against which the Court cautioned, thus expending considerable unproductive activity." 2014 WL 7014280, [WL] at *5. The District Court reviewed the Magistrate Judge's Report and Recommendation to determine if it was "clearly erroneous or contrary to law" and, after determining that it was not, adopted it in its entirety. Baylor, 77 F. Supp. 3d at 124.

In July 2014, the District Court granted Appellee's Motion to Dismiss all of Appellant's claims under the CPPA and some of her DCDCL claims. Following a contentious discovery process, in which the District Court affirmed a Magistrate Judge's Memorandum Opinion granting in part and denying in part Appellant's Motion to Compel production of certain communications between Appellee and an agent of its client, Appellant's creditor, Appellee filed a Motion for Summary Judgment and Appellant filed a cross-Motion for Partial Summary Judgment. The District Court [*9]  granted the former and denied the latter.

II. ANALYSIS

***

D. Appellee's Claim of Attorney-Client Privilege

After the District Court granted in part Appellee's Motion to Dismiss, the parties embarked on an "extremely long and contentious discovery process." Baylor, 174 F. Supp. 3d at 151. Further problems arose when Appellant filed a Motion to Compel production of certain communications between Appellee and Sunrise Credit Services, Inc. ("Sunrise"), the organization which retained Appellee to collect Appellant's debt on her creditor's behalf. Appellee refused to produce these documents, claiming that they were protected by attorney-client privilege. See Baylor v. Mitchell Rubenstein & Assocs., P.C., 130 F. Supp. 3d 326, 328 (D.D.C. 2015). The District Court referred this matter to a Magistrate Judge who found [*22]  that, because Appellant's creditor, Arrowood Indemnity Company ("Arrowood"), had retained "Sunrise for the limited purpose of finding an attorney to help Arrowood collect [Appellant's] debt," Sunrise had "acted as Arrowood's agent for obtaining legal services." Baylor v. Mitchell Rubenstein & Assocs., P.C., 2015 U.S. Dist. LEXIS 100183, 2015 WL 4624090, at *4 (D.D.C. July 31, 2015). The Magistrate Judge, after reviewing the matter, concluded in turn that attorney-client privilege attached to some of the communications that Appellee wished to withhold.

In finding that attorney-client privilege attached to communications between Sunrise and Appellee, the Magistrate Judge looked to both Maryland and D.C. law, and held that both states recognize that attorney-client privilege extends to communications between a client's agent and his attorney. See id. at *1-2; Baylor, 130 F. Supp. 3d at 330 n.2 (explaining that the court need not resolve a dispute regarding which state's law applied because there were no substantive differences between the two jurisdictions (citing Cruz v. Am. Airlines, 356 F.3d 320, 332, 360 U.S. App. D.C. 25 (D.C. Cir. 2004))); see also In re Sealed Case (Medical Records), 381 F.3d 1205, 1212, 363 U.S. App. D.C. 214 (D.C. Cir. 2004) (noting that when an individual asserts "state claims," such as the DCDCL claims at issue here, "state privilege law applies"). We need not address this determination because Appellant does not contest it on appeal.

The arguments advanced by Appellant before this court speak only [*23]  to the questions of: (1) whether Appellee provided "record evidence" in support of its claims regarding the nature of the relationships between Appellee, Sunrise and Arrowood, Br. for Appellant at 65; and (2) whether two cases, E.I. du Pont de Nemours & Co. v. Forma-Pack, Inc., 351 Md. 396, 718 A.2d 1129 (Md. 1998) and J.H. Marshall & Associates., Inc. v. Burleson, 313 A.2d 587 (D.C. 1973), preclude this court from holding that attorney-client privilege could attach to the communications at issue. We find that the District Court did not abuse its discretion in resolving these issues. We are also unpersuaded by Appellant's claim that the District Court abused its discretion in refusing to award her attorney's fees for her efforts in relation to this matter.

The District Court properly found that Appellee had "proffered adequate evidence" to support its assertion that Sunrise served as Arrowood's agent and an attorney-client relationship existed between Appellee and Arrowood. See Baylor, 130 F. Supp. 3d at 331; id. at 330 (noting that "[a]t bottom, most of [Appellant's] objections boil down to her claim that [Appellee] failed to offer evidence sufficient to show an agency relationship between Arrowood and Sunrise"). Appellee offered an affidavit describing the relationship between Arrowood and Sunrise and two "authorizations by Arrowood for Sunrise to retain counsel." See id. at 331; Appellee's [*24]  Opposition to Appellant's Motion to Compel, Dkt. No. 72-2, Ex. 4, at 41-42; Dkt. No. 72-3, Ex. 4, at 64-65; Dkt. No. 73-4, Ex. 5, at [#x204b][#x204b] 4-5. Although the affidavit is spare, we cannot say that the District Court abused its discretion in holding that the Magistrate Judge's determination that this evidence sufficed to support a finding of attorney-client privilege was not clearly erroneous or contrary to law.

Appellant raises two additional arguments to suggest that attorney-client privilege cannot attach to the disputed communications. First, she contends that attorneys engaged in the business of debt collection cannot invoke this privilege. Br. for Appellant at 64 (citing E.I. du Pont, 351 Md. 396, 718 A.2d 1129). The precedent she cites in support of this claim, E.I. du Pont, is distinguishable from the instant case. In E.I. du Pont, the court held that the privilege did not apply to communications between a corporation and a "non-lawyer collection agency" where the corporation had hired this agency only "for the typical business purpose of collecting a debt" even though the agency had subsequently hired an attorney to "litigate the debt collection matter after [the agency's] efforts [to collect on the debt] proved unsuccessful." [*25]  718 A.2d at 1141-42. It justified this decision by noting that the agency "may certainly have been [the corporation's] agent for the business purpose of collecting [a] debt" but it was "not hired as an agent for purposes of litigation." Id. at 1142. Here, however, the Magistrate Judge specifically found that Sunrise was hired only for "the limited purpose of finding an attorney to help Arrowood collect [Appellant's] debt" and never itself attempted to undertake "direct collection actions" against Appellant. Baylor, 2015 U.S. Dist. LEXIS 100183, 2015 WL 4624090, at *3-4. We find that the District Court properly held that the Magistrate Judge was not clearly erroneous in determining that this precedent did not preclude Appellee from claiming that certain of its communications with Sunrise were covered by attorney-client privilege. See Baylor, 130 F. Supp. 3d. at 334-35.

Second, Appellant asserts that Sunrise's actions constitute the unauthorized practice of law and, as such, attorney-client privilege cannot attach to its communications. In support of this claim, Appellant draws upon J.H. Marshall, in which the D.C. Court of Appeals held that a collection agency that filed suit to collect on a debt assigned to it by a creditor had engaged in the unauthorized practice of law. 313 A.2d at 590-91. Central to the D.C. Court of Appeals' [*26]  reasoning in that case was its belief that a collection agency could not "interpose itself between a creditor and an attorney seeking to collect the creditor's claim," id. at 595, and a concern that the collection agency in J.H. Marshall was "sell[ing] the services of a lawyer, whom it controls and directs, thereby destroying the privity between attorney and client," id. at 597. However here the Magistrate Judge specifically held that Sunrise served only to find "an attorney to help Arrowood collect [Appellant's] debt." Baylor, 2015 U.S. Dist. LEXIS 100183, 2015 WL 4624090, at *4. The Magistrate Judge made no findings that Sunrise ever attempted to collect on Appellant's debt on its own or otherwise serve as anything other than an "intermediary between Arrowood and [Appellee]." Id. at *3. In the absence of additional findings suggesting that Sunrise controlled and directed Appellee's conduct, we hold that the District Court did not abuse its discretion in affirming the Magistrate Judge's determination that Sunrise did not engage in the unauthorized practice of law.

Finally, Appellant claims that the District Court abused its discretion in refusing to award her attorney's fees relating to her Motion to Compel production of communications between Appellee and Sunrise. However, this [*27]  motion was only partially successful, and Federal Rule of Civil Procedure 37(a)(5)(C) vests the District Court with discretion to "apportion . . . reasonable expenses," if such a motion is "granted in part and denied in part," as it was here. See Order, JA 185. We see no abuse of discretion in the District Court's determination that Appellant's limited success and "unduly contentious and overly lengthy pleadings" did not entitle her to attorney's fees and costs. Baylor, 130 F. Supp. 3d at 337.

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