A New York federal district court dismissed the counterclaims of the defendants in a CFPB enforcement action claiming that, pursuant to the Equal Access to Justice Act (EAJA), they were entitled to fees and expenses incurred.
The CFPB’s complaint alleged that the defendants created and operated an illegal debt collection scheme. In their answers, the defendants asserted that the CFPB’s investigation and lawsuit were unjustified and in violation of the EAJA and counterclaimed for their “fees, costs, and other further relief.”
The EAJA provides, that subject to any statutory exceptions, a court shall award to “a prevailing party” other than the United States “fees and other expenses” other than non-attorney fees and expenses awarded under the EAJA that such party incurred in a civil action (other than a tort case) brought by the United States “unless the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust.”
The court dismissed the defendants’ counterclaims as procedurally improper because the defendants could not be considered “prevailing parties.” According to the court, the counterclaims were “premature fee requests” and under the EAJA, “the proper vehicle for a fee request is an application showing eligibility after a party has prevailed—not as a counterclaim within an answer.” (emphasis included)
A party entitled to an award under this provision of the EAJA must be an individual with a net worth that did not exceed $2 million at the time the civil action was filed, or an owner of an unincorporated business, or any partnership, corporation, association, unit of local government, or organization, with a net worth that did not exceed $7 million at the time the civil action was filed, and which did not have more than 500 employees at the time the civil action was filed. However, a 501(c)(3) tax-exempt organization or a cooperative association as defined in the Agricultural Marketing Act may be a party regardless of its net worth.
