Consumer Bankruptcy Journal Summer 2015 - Page 42

WHEN FILING PROOF OF CLAIM VIOLATES THE FAIR DEBT COLLECTION PRACTICES ACT By David Levin Partner, Consumer Rights Litigation T he battle continues over whether filing a proof of claim in a Chapter 13 bankruptcy case for a debt which is beyond the statute of limitations violates the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. §1692, et seq. As you may recall from the article published in our Spring 2015 issue, the Eleventh Circuit Court of Appeals, in the case of Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014), held that under the FDCPA’s “least-sophisticated consumer standard,” the filing of a timebarred proof of claim in bankruptcy was “‘unfair,’ ‘unconscionable,’ ‘deceptive,’ and ‘misleading’ within the broad scope of [15 U.S.C.] §1692e and §1692f.” The Second Circuit Court of Appeals had previously held that the filing of a proof of claim in bankruptcy court could not form the basis of an FDCPA violation. Simmons v. Roundup Funding, LLC, 622 F.3d 93 (2nd Cir. 2010). However, in Simmons, the debtor had alleged that the proof of claim filed misrepresented the amount of the debt, as the bankruptcy court reduced the claim from $2,039.21 to $1,100.00. The debtor’s challenge to the proof of claim was not related to the statute of limitations issue. Based upon this apparent conflict between the circuits, the defendant in Crawford filed a petition for certiorari to the U.S. Supreme Court. In support of its contention that there was a circuit court conflict on this issue, the petitioner also cited two other circuit court opinions. However, those opinions, 42 CONSUMER BANKRUPTCY JOURNAL like Simmons, seem inapplicable to the specific issue decided in Crawford. In Buckley v. Bass & Associates, 249 F.3d 678 (7th Cir. 2001), a law firm sent a letter to a consumer, seeking information regarding the consumer’s bankruptcy filing and the identity of her attorney. The Seventh Circuit held that there was no FDCPA violation, but the reasoning had nothing to do with the bankruptcy code. Based upon the limited issue before it, the court held that the letter was not the initial communication with the consumer in an attempt to collect a debt. The petitioner also relied on the Ninth Circuit’s opinion in Walls v. Wells Fargo Bank, N.A., 276 F.3d 502 (9th Cir. 2002), which held that the Bankruptcy Code precluded FDCPA claims based upon the attempted collection of a debt which had been discharged in a Chapter 7 bankruptcy. Apparently the Supreme Court agreed that these various circuit court decisions, although arguably somewhat related, did not amount to a conflict among the circuits on the actual issue decided in Crawford. On April 20, 2015, the Supreme Court denied the petitioner’s writ of certiorari and declined to hear the case. So for now, this battle wages on. Neither the consumers nor the debt buyers appear willing to give up on this issue. Crawford led to the filing of many FDCPA lawsuits based upon the filing of stale proofs of claim in bankruptcy and district courts around the country. Such a lawsuit will almost always be met with a motion to dismiss filed by Summer 2015 the debt buyer defendant. Whether that motion to dismiss is granted or denied will likely depend upon the judge to which the case is assigned, as courts around the country are coming down on both sides of the issue. Take, for example, the Southern District of Indiana. Six decisions from this district have denied the debt buyers’ motions to dismiss. See Smith v. Asset Acceptance, LLC, 510 B.R. 225 (2013); Patrick v. PYOD, LLC, 39 F.Supp.3d 1032 (2014); Grandidier v. Quantum3 Group, LLC, 2014 U.S. Dist. LEXIS 169279, 2014 WL 6908482; Patrick v. Worldwide Asset Purchasing II, LLC, 2015 U.S. Dist. LEXIS 17725, adopted at 2015 U.S. Dist. LEXIS 30823 (magistrate judge’s report and recommendation); Patrick v. Quantum3 Group, LLC, 2015 U.S. Dist. LEXIS 17721, adopted at 2015 U.S. Dist. LEXIS 30824 (magistrate judge’s report and recommendation); and Elliott v. Cavalry Investments, LLC, 2015 U.S. Dist. LEXIS 2423, 2015 WL 133745 (although this opinion is not necessarily pro-consumer). However, three recent decisions from this district have granted the debt buyers’ motions to dismiss. See Donaldson v. LVNV Funding, LLC, No. 1:14-cv-01979-LJMTAB (April 7, 2015); Birtchman v. LVNV Funding, LLC, No. 1:14-cv-00713JMS-TAB (April 22, 2015); and Owens v. LVNV Funding, LLC, No. 1:14-cv02083-JMS-TAB (April 21, 2015). Many varied arguments are raised by debt buyers in motions to dismiss FDCPA claims based upon Crawford. National Association of Consumer Bankruptcy Attorneys