As you may recall, in our July 2014 article “More Traps for Debt Collectors Attempting to Collect Time-Barred Debts,” the Eleventh Circuit surprised the collection industry in Crawford v. LVNV Funding, LLC by ruling that the filing of a proof of claim to collect a time-barred debt in a Chapter 13 bankruptcy violated the Fair Debt Collection Practices Act (FDCPA).
The Crawford decision triggered an onset of numerous new lawsuits as illustrated by the cases below, the circuits are currently split on the issue.
In LaGrone v. LVNV Funding, LLC and Resurgent Capital Services, the plaintiff alleged the defendants violated various provisions of the FDCPA when they filed a proof of claim subject to a limitations defense. The U.S. Bankruptcy Court for the Northern District of Illinois held “a claim in bankruptcy which is subject to a limitations defense does not make a claim's filing 'unfair or unconscionable' or 'false, deceptive, or misleading representations or means' of collecting a debt, as required to state a claim for relief under the FDCPA.”
In Walls v. Wells Fargo, the Ninth Circuit rejected an FDCPA claim because the bankruptcy code “provides its own remedy” for alleged bankruptcy code violations.
In Simmons v. Roundup Funding LLC, the Second Circuit ruled an alleged improper proof of claim filed in bankruptcy court cannot form the basis for a claim under the FDCPA.
In Gurganus v. Recovery Management Systems Corp., the plaintiff debtor filed a Chapter 13 bankruptcy case and within a few months the defendant, Recovery Management Systems Corp. (RMSC), filed a proof of claim. Neither the debtor nor the trustee objected to the claim. However, after Crawford was decided, the debtor filed an adversary proceeding against RMSC, alleging the filing of the proof of claim on an alleged time-barred debt violated the FDCPA. RMSC moved to dismiss the complaint, arguing the debtor's FDCPA claim was time-barred under the FDCPA's one-year statute of limitations. The bankruptcy court agreed and dismissed the complaint.
Cause for Concern
In Grandidier v. Quantum3 Group, LLC,the U.S. District Court for the Southern District of Indianadenied a motion to dismiss plaintiff's complaint related to the filing of a proof of claim on a time-barred debt. The court held the defendant's conduct in filing the proof of claim was an activity done in connection with the collection of a debt and, therefore, within the scope of the FDCPA.
In Patrick v. PYOD, LLC, the U.S. District Court for the Southern District of Indiana held the filing of a proof of claim on a time-barred debt violates the FDCPA.
Awaiting A Decision
In January 2015, the defendants in Crawford v. LVNV Funding, LLC filed a Petition for Writ of Certiorari to the Supreme Court. The petition seeks review of "Whether the court of appeals erred in holding that liability under the Fair Debt Collection Practices Act may be premised in the filing of a proof of claim in bankruptcy and determined using a least-sophisticated consumer standard." A response to the petition is due March 23, 2015.
We continue to monitor the decisions of courts interpreting the FDCPA's application in the bankruptcy courts and the implications on the collection industry. Feel free to call us to discuss the risks and rewards in continuing to file proofs of claim given the rapidly evolving legal climate.► Back to News & Resources