In Diaz v. First Marblehead Corp., 2016 WL 736361, at *7 (11th Cir. 2016), the Court of Appeals for the 11th Circuit reversed the trial court’s ruling imposing reverse attorneys’ fees against a debtor.
Although there was no evidence that Diaz, herself, had acted in bad faith or for the purpose of harassment when she brought the lawsuit, the magistrate judge relied on the “general rule … that clients are responsible for the acts and omissions of the attorneys they select to represent them.” Given that principle and the fact that “Diaz has not asserted an advice of counsel defense or provided any reason why the general rule does not apply,” the magistrate judge recommended that Diaz be held personally liable for AES’s attorney’s fees. Over Diaz’s objections, the district court agreed and assessed the attorney’s fees against Diaz personally. We conclude that the district court erred in assessing attorney’s fees against Diaz. Although we have no circuit precedent interpreting the meaning of “in bad faith and for the purposes of harassment” in the context of § 1692k(a)(3), we have previously held that Rule 11 sanctions could not be imposed on a plaintiff-client based solely on the misconduct of her attorney. . . .While ample evidence indicated that counsel had acted with the necessary bad faith to support Rule 11 sanctions, we found no evidence that the plaintiff “knew that a baseless claim had been brought on her behalf or that she was pursuing the [defendants] for a harassing or other impermissible purpose.” Id. at 1124. And to justify a sanction that requires a showing of bad faith or improper purpose, we concluded that the district court “should make specific findings as to the party’s conduct that warrants sanctions.” Id. at 1123. Diaz urges that the same is true here, arguing that none of the magistrate’s findings relating to bad faith on Turner’s part are imputable to Diaz. In support of the district court’s action in assessing fees against Diaz personally, AES argues that “Diaz here did more than merely hire Mr. Turner to represent her regarding her student loans. Diaz filed a Verified Amended Complaint against AES, in which she swore the matters therein ‘are true and correct.’ “ It is true that Diaz swore to the truth of the factual allegations in the amended complaint, and if the sanctionable conduct found by the district court had consisted of mendacious statements of fact attributable to the plaintiff, AES would have a strong point. But the court’s basis for sanctioning Turner was not of that nature. Instead, as set out at length above, Turner was sanctioned because the clear text of the statute on which he based the claim did not permit the claim, under the facts at issue. Moreover, Turner should have been well aware of that fact because he had previously brought the same sort of claim, only to have to dismiss it when the defendant in that case noted the same flaw. No knowledge of this may reasonably be imputed to Diaz herself, absent some evidence that she had knowledge of the legal strategy being pursued and its faults, rather than just the facts of her case. Because neither the magistrate judge’s R & R nor the district court’s order find complicity by Diaz in devising or going along with the frivolous legal strategy, we hold that it was an abuse of discretion to impose AES’s attorney’s fees against Diaz under § 1692k(a)(3).