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Res judicata doesn’t bar attorney’s fees claim

Where two debt collectors argued an attorney’s fees claim brought by a consumer was barred by res judicata, but they failed to show that the prior dismissal was a judgment on the merits, and the prior litigation did not involve the same conduct, occurrence or transaction, the res judicata arguments were rejected.


In this Fair Credit Reporting Act, or FCRA, suit, defendants LVNV Funding Inc. and Resurgent Capital Services LP have filed motions to dismiss the complaint filed by

Freddie L. Williams. Resurgent’s motion essentially adopts the arguments made by LVNV.

Res judicata

LVNV previously sued Williams over the debt in state court. In that state court action, Williams asserted a counterclaim for attorney’s fees. The state court marked both the warrant in debt for the account and the counterclaim for attorney’s fees as “dismissed.” LVNV argues that, as a result, Williams’ claim for attorney’s fees in this suit is barred by res judicata.

This court finds that LVNV has failed to establish that the dismissal of plaintiff’s state court counterclaim was a final judgment decided on the merits. At most, the nature of the resolution of plaintiff’s counterclaim is ambiguous, which fails to meet LVNV’s burden of proving a final judgment on the merits by a preponderance of the evidence.

A dismissal that is not made “with prejudice” is considered “without prejudice,” and thus not a final judgment on the merits. Second, given that LVNV’s claim for the credit card debt was dismissed, if the state court had decided the counterclaim on the merits then it should have awarded plaintiff his attorney’s fees as a matter of law. The state court’s failure to do so and dismissal of the counterclaim therefore strongly indicates no decision on the merits of the counterclaim was reached.

LVNV contends that plaintiff’s allegation in the amended complaint that “[t]his dispute was tried – with witnesses and documents – and considered on its merits by the Virginia stats court,” constitutes plaintiff’s binding admission that the counterclaim was

tried on the merits to a valid, final judgment. The court disagrees. The reference to the “dispute” which was the subject of that statement reasonably can be inferred to mean only LVNV’s suit to collect the account debt, not plaintiff’s claim for attorney’s fees.

Apart from the question of whether there was a valid, final judgment on the merits in state court, that litigation did not involve the same conduct, occurrence or transaction at issue in the instant case. In state court, plaintiff’s motivation and purpose in bringing the counterclaim were to recompense his attorney’s fees under a specific Virginia statute authorizing attorney’s fees based on LVNV’s ultimate failure to prevail on its state court claim for a credit card debt.

In this action, plaintiff’s motivation and purpose is to obtain redress for LVNV’s conduct in allegedly failing to fulfill its investigatory and reporting obligations under FCRA, which is an occurrence or transaction entirely separate and apart from that addressed in the state court proceeding.

Furthermore, plaintiff’s claims in the instant case are not an alternative legal claim for plaintiff to pursue his state court counterclaim. LVNV’s repeated references in the briefing to the principle that “it is irrelevant whether particular theories of recovery were actually asserted and decided in the prior litigation,” is a strawman argument. Plaintiff is not simply asserting a different “theory of recovery” here. He is asserting a whole new harm – LVNV’s breach of its FCRA duties.

Defendants’ motions to dismiss denied.

Williams v. Equifax Information Services LLC, Case No. 4:21-cv-136, Nov. 10, 2022. EDVA at Newport News (Leonard). VLW 022-3-509. 11 pp.

VLW 022-3-509