William R. Sawyer, United States Bankruptcy Judge.
These consolidated cases are before the Court on the Defendants' Motion for Judgment on the Pleadings.
As this is before the Court on the Defendants' Motion for Judgment on the Pleadings, the Court will accept as true the facts pled in the Complaint.
This Court has jurisdiction to hear these proceedings pursuant to 28 U.S.C. § 1334(b). An objection to a proof of claim is a core proceeding. 28 U.S.C. § 157(b)(2)(B). Determination of whether the Defendants are entitled to judgment on Feggins's FDCPA claim is a non-core proceeding, but the denial of a motion for judgment on the pleadings is not a final order. See Continental Nat'l Bank of Miami v. Sanchez (In re Toledo), 170 F.3d 1340, 1348 (11th Cir.1999); Wood v. Wood (In re Wood), 825 F.2d 90, 97 (5th Cir. 1987); 28 U.S.C. § 157(c)(1).
These consolidated adversary proceedings are before the Court on the Defendants' motion for judgment on the pleadings. See FED. R. CIV. P. 12(c), as made applicable to these proceedings by FED. R. BANKR. P. 7012(b). The standard to be applied here is the same as if this were a motion to dismiss made pursuant to Rule 12(b)(6). Robert v. Abbett, Case No. 3:08-CV-329-WKW, 2009 WL 902488, *3 (M.D.Ala. Mar. 31, 2009). That standard is as follows:
Ashcroft v. Iqbal, 556 U.S. 662, 677-79, 129 S.Ct. 1937, 1949-50, 173 L.Ed.2d 868 (2009) (internal citations omitted); see also Critten v. Quantum3 Group, LLC, 528 B.R. 835, 837 (Bankr.M.D.Ala.2015).
The Defendants' central argument in the instant motion is that the Bankruptcy Code precludes the Fair Debt Collection Practices Act. The Eleventh Circuit recently held that the filing of a proof of claim on a stale debt in bankruptcy proceedings is a violation of the FDCPA. Crawford v. LVNV Funding, LLC, 758 F.3d 1254, 1261 (11th Cir.2014), cert. denied sub nom. LVNV Funding, LLC v. Crawford, ___ U.S. ___, 135 S.Ct. 1844, 191 L.Ed.2d 724 (2015). However, the court expressly declined to weigh in on whether the Bankruptcy Code displaces the FDCPA when debt collectors "misbehave in bankruptcy."
Before addressing the specifics of the Defendants' repeal argument, the Court notes that there is nothing in the language of either the FDCPA or the Bankruptcy Code that states that a debtor may not be provided a remedy under the FDCPA when the collection activity complained of takes place in a bankruptcy proceeding. In other words, there is no express conflict here and the Defendants make no claim that there is. Rather, the Defendants assert that there is an inherent conflict—the weakest of statutory preclusion arguments.
The Defendants argue that the Bankruptcy Code repeals the FDCPA by implication, failing to recognize that such a practice is highly disfavored and only rarely done. "Because a repeal by implication requires the most speculation about the intent of Congress, there is a presumption against finding one." Miccosukee Tribe of Indians of Fla. v. U.S. Army Corps of Engineers, 619 F.3d 1289, 1299 (11th Cir. 2010). "The courts are not at liberty to pick and choose among congressional enactments, and when two statutes are capable of co-existence, it is the duty of the courts, absent a clearly expressed congressional intention to the contrary, to regard each as effective. `When there are two acts upon the same subject, the rule is to give effect to both if possible. . . . The intention of the legislature to repeal "must be clear and manifest."'" Morton v. Mancari, 417 U.S. 535, 551, 94 S.Ct. 2474, 2483, 41 L.Ed.2d 290 (1974) (quoting United States v. Borden Co., 308 U.S. 188, 198, 60 S.Ct. 182, 188, 84 L.Ed. 181 (1939)); see also Rodriguez v. United States, 480 U.S. 522, 524, 107 S.Ct. 1391, 1392, 94 L.Ed.2d 533 (1987).
The Seventh Circuit in Randolph reversed the district court's holding that § 362(h) of the Bankruptcy Code "preempts" § 1692e(2)(A) of the FDCPA.
The implicit repeal of one federal statute by another is exceedingly rare. "The conclusion that two statutes conflict. . . is one that courts must not reach lightly. If any interpretation permits both statutes to stand, the court must adopt that interpretation, `absent a clearly expressed congressional intention to the contrary.'" Miccosukee Tribe, 619 F.3d at 1299 (quoting Garfield v. NDC Health Corp., 466 F.3d 1255, 1266 (11th Cir.2006)). "Courts must first `assiduously attempt' to try to construe the two statutes in harmony before concluding that one impliedly repeals the other." Id. (citing Tug Allie-B, Inc. v. United States, 273 F.3d 936, 952 (11th Cir.2001) (Black, J., concurring)).
The Defendants argue that § 501 of the Bankruptcy Code provides an absolute right to file a proof of claim, thereby precluding provisions of the FDCPA that impose liability for the filing of a time-barred claim. (Doc. 39 pp. 9-16; Doc. 51 pp. 4-10). The flaw in the Defendants' argument is that this right to file a proof of claim under § 501 does not shelter them from liability if it is later determined that the filing violates another provision of the law. For example, sanctions may be imposed under Bankruptcy Rule 9011 if a filed proof of claim is found to be frivolous. Matter of Sekema, 523 B.R. 651, 654-55 (Bankr.N.D.Ind.2015). Likewise, the filing of a proof of claim may in some situations violate the discharge injunction of a prior
The claims allowance process begins with § 501(a), which provides that "[a] creditor or an indenture trustee may file a proof of claim." Section 502(a) provides, in part, that "[a] claim or interest, proof of which is filed under section 501 of this title, is deemed allowed, unless a party in interest . . . objects." So far this is straightforward enough. Three simple principles emerge: (1) a creditor may file a proof of claim, (2) other parties in interest may object, and (3) if no objection is made, the claim is "deemed allowed."
There is additional information that must be filed with the proof of claim when the debtor is an individual or when the claim is based on an open-end or revolving consumer credit agreement. Specifically, a proof of claim must include an itemization of any interest, fees, expenses, or charges incurred pre-petition when the debtor is an individual. FED. R. BANKR. P. 3001(c)(2)(A). When the claim is based on an open-end or revolving consumer credit agreement that is not secured by the debtor's real property, the proof of claim must include:
FED. R. BANKR. P. 3001(c)(3)(A). Thus, a creditor whose claim falls within the purview of Bankruptcy Rule 3001(c)(3) should be aware of whether its claim is time-barred.
The claims allowance process continues. Section 502(b) provides, in part, that:
11 U.S.C. § 502(b)(1).
It is well established that a claim that is barred by statute of limitations under applicable law will be disallowed under § 502(b)(1).
Young v. Young (In re Young), 789 F.3d 872, 879 (8th Cir.2015) (quoting In re Armstrong, 487 B.R. 764, 774 (E.D.Tex.2012)). Section 501 is not an invitation to abuse the claims allowance process in bankruptcy. To construe it as the Defendants propose would injure debtors, other creditors, and the bankruptcy court. Rather than conflict with § 501, the FDCPA supplements the procedural protections of the claims allowance process and helps promote the purposes of the Bankruptcy Code.
The Eleventh Circuit held in Crawford that the filing of a proof of claim in a bankruptcy proceeding is a "collection of debt" as that term is used in 15 U.S.C. § 1692a(6). Crawford, 758 F.3d at 1261. Moreover, it held that the filing of a proof of claim on a time-barred debt is "false, deceptive, or misleading" in violation of § 1692e, and "unfair or unconscionable" in
Congress enacted the FDCPA amidst the backdrop of "abusive, deceptive, and unfair debt collection practices" that "contribute[d] to the number of personal bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy." 15 U.S.C. § 1692(a). The FDCPA's purposes are "to eliminate abusive debt collection practices by debt collectors, to insure [sic] that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses." 15 U.S.C. § 1692(e).
In furtherance of these purposes, the FDCPA prohibits "[t]he false representation of . . . the character, amount, or legal status of any debt[,]" 15 U.S.C. § 1692e(2)(A), as well as "[t]he use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer." 15 U.S.C. § 1692e(10). In the context of the Bankruptcy Code's automatic claims allowance process, the filing of a proof of claim amounts to an assertion that the underlying claim is enforceable and that the claimant is entitled to be paid out of the bankruptcy estate—at the expense of other creditors. As discussed above, however, a time-barred claim is unenforceable within the meaning of the Bankruptcy Code, so a debt collector who knowingly files such a claim in bankruptcy is falsely asserting that it is entitled to be paid.
Likewise, the FDCPA prohibits the "use [of] unfair or unconscionable means to collect or attempt to collect any debt." 15 U.S.C. § 1692f. A debt collector who files a proof of claim on a debt it knows to be unenforceable unfairly games the system by taking advantage of the automatic claims allowance process in bankruptcy and camouflaging among the inundation of other claims filed. See Young, 789 F.3d at 879; Armstrong, 487 B.R. at 774. It is wrongfully asserting that it should be paid at the expense of creditors who hold enforceable claims and is basing that assertion on the opportunity to slip past the bankruptcy court's supervision unnoticed.
Bankruptcy is not a free-for-all that invites creditors to gorge themselves on the debtor's assets without regard to the merit or enforceability of their claims. Rather, bankruptcy is intended to offer an insolvent debtor a fresh start while equitably dividing the debtor's assets among creditors who hold meritorious and enforceable claims. See 11 U.S.C. § 502(b)(1). A creditor's lot in bankruptcy is famine, not feast, because the debtor's insolvency usually means that there will not be enough assets to make all of the creditors whole. A creditor who obtains payment via an undeserving proof of claim exacerbates this problem and undermines one of bankruptcy's key purposes by parasitically diluting the already meager shares of deserving creditors still further. See Avalos v. LVNV Funding, LLC (In re Avalos), 531 B.R. 748, 757 (Bankr.N.D.Ill.2015) (noting that "there is no good reason to allow proofs of claim for stale debt").
The Bankruptcy Code and Rules provide remedy for such conduct. As discussed above, the bankruptcy court may disallow an unenforceable proof of claim under § 502(b)(1). In addition, Bankruptcy Rule 9011 authorizes the bankruptcy court to impose sanctions on creditors who file proofs of claim "for any improper purpose" or who make claims or legal contentions that are not "warranted by existing law[.]" FED. R. BANKR. P. 9011(b)(1)-(2); see also Sekema, 523 B.R. at 653; In re Dansereau, 274 B.R. 686, 690 (Bankr.W.D.Tex. 2002) (imposing sanctions under either 11
If Bankruptcy Rule 9011 authorizes sanctions for the filing of stale proofs of claim, it follows that § 501(a) does not provide creditors an absolute right to file a proof of claim with impunity if it violates another rule or statute. Thus qualified, § 501(a) does not conflict with the Crawford court's application of the FDCPA. Instead, the FDCPA promotes the purposes of bankruptcy by providing an additional remedy for the abuse of the bankruptcy process by debt collectors. It protects debtors, creditors, and bankruptcy courts by helping to maintain the integrity of the automatic claims allowance process.
"When two statutes complement each other, it would show disregard for the congressional design to hold that Congress nonetheless intended one federal statute to preclude the operation of the other one." POM Wonderful LLC v. Coca-Cola Co., ___ U.S. ___, 134 S.Ct. 2228, 2238, 189 L.Ed.2d 141 (2014). As the foregoing discussion illustrates, the FDCPA complements the Bankruptcy Code both in purpose and in practice. There is no implicit repeal of the FDCPA in the claims allowance process; thus, there is no preclusion of FDCPA claims based on the filing of facially time-barred proofs of claim.
In holding that the Bankruptcy Code does not preclude the FDCPA, the Court acknowledges that it stands in opposition to a considerable body of contrary case law. The Defendants correctly point out that Crawford marked a radical change in the way courts considered the FDCPA's relationship with bankruptcy. At the time Crawford was decided, there were only four cases the Court is aware of that had held that a wrongfully filed proof of claim can form the basis of a FDCPA claim and that the Bankruptcy Code did not preclude the FDCPA; two of those cases had been reversed on appeal.
The number of cases holding that the Bankruptcy Code precludes the FDCPA is much less formidable.
The court in Johnson held that there was an irreconcilable conflict between the Bankruptcy Code and a FDCPA suit based on a stale proof of claim. Johnson, 528 B.R. at 473. Consequently, it dismissed the FDCPA claim. Id.
The Johnson court first determined that state law governs the scope of a claim. Id.
Having determined that the Bankruptcy Code provides a right to file a time-barred proof of claim, the Johnson court concluded it was in irreconcilable conflict with the FDCPA. Id. at 470. The court rejected the idea that a creditor could comply with the FDCPA by not filing a time-barred proof of claim:
Id. at 471.
This Court respectfully disagrees with the analysis in Johnson for two reasons. First, as discussed above, the Court disagrees that § 501(a) provides an absolute right to file a claim. Liberty Nat'l Life Ins. Co., on which the Johnson court relied, is a case that discusses application of a statute of repose, and the sentence relied on in Johnson is dicta comparing a statute of repose to a statute of limitations. See Liberty Nat'l Life Ins. Co., 825 So.2d at 765. Admittedly, there are procedural differences between limitation and repose, because limitation can be waived or tolled while repose cannot. However, a creditor barred by limitation has no more right to be paid than one barred by repose, and it has no more right to be paid in bankruptcy than it does in state court. See Travelers, 549 U.S. at 450, 127 S.Ct. 1199 (§ 502(b)(1) "is most naturally understood to provide that, with limited exceptions, any defense to a claim that is available outside of the bankruptcy context is also available in bankruptcy"); United States v. Kubrick, 444 U.S. 111, 117, 100 S.Ct. 352, 62 L.Ed.2d 259 (1979) ("Statutes of limitations. . . represent a pervasive legislative judgment that it is unjust to fail to put the adversary on notice to defend within a specified period of time and that `the right to be free of stale claims in time comes to prevail over the right to prosecute them.'" (quoting R.R. Telegraphers v. Ry. Express Agency, 321 U.S. 342, 349, 64 S.Ct. 582, 88 L.Ed. 788 (1944))). Yet, the potential for abuse by a creditor is even greater in bankruptcy than in state court because the debtor has the burden not only of objecting to the claim but also of proving the
Bankruptcy does not resurrect dead debt. The legal enforceability of a claim for bankruptcy purposes hinges on how that claim is treated under the Bankruptcy Code. Section 502(b)(1) is the operative statute, and there is no question that a time-barred claim is unenforceable and will be disallowed under it. Supra, Part IV, B, 1. Rather than being an enforceable property interest, as the Johnson court suggests, such a claim more closely resembles a counterfeit product that is exposed upon closer inspection and rejected. To say that § 501(a) allows such claims to be filed with impunity effectively writes Bankruptcy Rule 9011(b) out of existence.
Second, even if the Johnson court is correct that § 501(a) authorizes creditors to file time-barred claims, the Court disagrees with the conclusion in Johnson that an irreconcilable conflict with the FDCPA arises. The Johnson court finds conflict in an "authorization" by the Bankruptcy Code versus a restriction by the FDCPA. This characterization is certainly proper in the preemption context where a state restriction conflicts with a federal authorization or "right." E.g., Barnett Bank of Marion Cnty., N.A. v. Nelson, 517 U.S. 25, 31, 37, 116 S.Ct. 1103, 1108, 1111, 134 L.Ed.2d 237 (1996) (holding that a federal statute authorizing banks to sell insurance preempted a state law forbidding it); McCulloch v. Maryland, 17 U.S. 4 Wheat. 316, 360-62, 4 L.Ed. 579 (1819) (holding that a federal statute authorizing the operation of a federal bank preempts state taxation of that bank). However, preclusion is a different inquiry than preemption because a conflict between two federal statutes does not implicate federalism. There is no need to maintain the federal prerogative against a state restriction when there is no state restriction. The correct inquiry in determining whether one federal statute precludes another is the ability to comply with both. For example, in POM Wonderful LLC v. Coca-Cola Co., ___ U.S. ___, 134 S.Ct. 2228, 189 L.Ed.2d 141 (2014), the Supreme Court held that a Lanham Act claim alleging "unfair competition through misleading advertising or labeling" was not precluded by the Food, Drug, and Cosmetic Act even though the latter Act "authorized" the label at issue. POM Wonderful LLC, 134 S.Ct. at 2239. The Supreme Court noted in POM Wonderful that the two Acts "complement each other in major respects, for each has its own scope and purpose." Id. at 2238. The Lanham Act protects commercial interests against unfair competition, while the Food, Drug, and Cosmetic Act protects public health and safety. Id. Thus, it was possible for the defendant in POM Wonderful to comply with the Food, Drug, and Cosmetic Act while at the same time running afoul of the Lanham Act. The purposes of the Bankruptcy Code and the FDCPA are similarly complimentary of each other.
The Supreme Court "has not hesitated to give effect to two statutes that overlap, so long as each reaches distinct cases." J.E.M. Ag Supply, Inc. v. Pioneer Hi-Bred Int'l, Inc., 534 U.S. 124, 144, 122 S.Ct. 593,
Because the ability to comply with both statutes is the correct inquiry, the Court must reject the analysis set forth in Johnson. The Defendants could easily have complied with the FDCPA by not filing a time-barred claim. They could have complied by obtaining judgment in state court in a timely fashion and recording the judgment. They could even have complied by having the underlying creditor file the time-barred claim itself.
The Defendants argue that Crawford "was not a decision on the merits and thus, there is no binding mandate upon this Court." (Doc. 39 p. 16). The Defendants posit that because Crawford was an appeal involving a ruling on a motion to dismiss, pursuant to Rule 12(b)(6), it is not binding here. That argument was recently rejected in a case handed down by the District Court in the Northern District of Alabama. See Slaughter v. LVNV Funding, LLC, No. 14-MC-2050, 2015 WL 627954, *2 (N.D.Ala. Feb. 12, 2015) (citing Neitzke v. Williams, 490 U.S. 319, 109 S.Ct. 1827, 104 L.Ed.2d 338 (1989)). As that court succinctly stated, the procedural posture in Crawford "in no way detracts from the precedential value of the Eleventh Circuit's resolution of the underlying
The Defendants also argue that this Court should not apply the "least sophisticated consumer" standard in these cases because the Plaintiffs were all represented by counsel in their bankruptcy cases. In Miljkovic v. Shafritz & Dinkin, P.A., the Eleventh Circuit recently questioned whether the "least sophisticated consumer" standard should apply when the debt collection activity is directed to a consumer's
Because Crawford is binding, it forecloses the Defendants' remaining arguments. The Court rejects the Defendants' argument that Feggins's FDCPA "claim fails as a matter of law because the bankruptcy estate is not a consumer or a natural person" as it is contrary to the ruling in Crawford.
The Defendants argue, in Part VII of their motion for judgment on the pleadings, that they are entitled to dismissal of Feggins's complaint insofar as it relates to Claim No. 18. (Doc. 39, pp. 49-53). Moreover, the Defendants argue, in Part VIII of their memorandum, that the cases of Bryant (AP 14-1061) and Oliver (AP 14-1065) should be dismissed because the underlying bankruptcy cases have been dismissed. (Doc. 39, pp. 52-56). The Plaintiffs have conceded both issues and do not oppose the motion in either of these respects. (Doc. 50, pp. 17-18); supra notes 1 and 4.
Section 501 of the Bankruptcy Code does not provide an absolute right to file frivolous or groundless proofs of claim without consequence. Because there is no inherent conflict between § 501 and the FDCPA, the Bankruptcy Code does not preclude a cause of action under the FDCPA that is based on a stale proof of claim. Therefore, the Defendants' motion