The Eleventh Circuit’s opinion in Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014), cert. denied, — U.S. –, 2015 WL 246891 (Apr. 20, 2015), was the first reported decision holding that a plaintiff may state a claim under the Fair Debt Collection Practices Act based on a creditor’s proof of claim in bankruptcy for a debt that is time-barred under state law. But just as the Eleventh Circuit’s decision in Crawford was aimed at stemming the tide of “proofs of claim on debts deemed unenforceable under state statutes of limitations,” another “deluge has swept through U.S. bankruptcy courts of late” in the form of copycat Crawford claims.
The tide may be turning, however, as two federal district courts recently dismissed nationwide class actions based on Crawford. In both cases, the courts answered the question that the Eleventh Circuit left open in the most famous footnote since Footnote 4 (at least in the world of FDCPA litigation): “Whether the [Bankruptcy] Code ‘preempts’ the FDCPA when creditors misbehave in bankruptcy.” Crawford, 758 F.3d at 1262 n.7.
In Johnson v. Midland Funding, LLC, No. 14-CV-0322-WS-C, 2015 WL 1345431 (S.D. Ala. Mar. 23, 2015), the plaintiff asserted FDCPA claims against Midland Funding, LLC, in a nationwide class action based on its filing of a proof of claim for a stale debt. Midland moved to dismiss Johnson’s claim and argued, among other things, that “the tension between the Bankruptcy Code and [the FDCPA] precludes the plaintiff from pursuing her claim” under the FDCPA. The district court agreed, noting that “the Code authorizes filing a proof of claim on a debt known to be stale, while the [FDCPA] (as construed by Crawford) prohibits that precise practice.” As the court explained, for “creditors under the Code that are also debt collectors under the Act, those contradictory provisions cannot possibly be given effect simultaneously.” To the court, “[a] clearer demonstration of irreconcilable conflict would be difficult to imagine,” and in the face of that conflict, “the Act must give way to the Code.”
The district court in Torres v. Asset Acceptance, LLC, No. 14-CV-6542, 2015 WL 1529297 (E.D. Pa. Apr. 7, 2015) reached a similar result. Though unconstrained by the Eleventh Circuit’s decision in Crawford, the court in Torres also found no guidance from the Third Circuit’s decision in Simon v. FIA Card Servs., N.A., 732 F.3d 259 (3d Cir. 2013). While Simon likewise involved the intersection of the FDCPA and the Bankruptcy Code, the two sets of overlapping claims in that case “involved (1) mutually prohibited conduct (yielding no conflict), and (2) contradictory obligations (yielding a direct conflict).” In Torres, on the other hand, the court recognized that “the Code invests creditors with the right—but not the obligation—to file time-barred proofs of claim, while the FDCPA would oblige creditors not to file them.” Reasoning that this “rights-versus-obligations dichotomy does not easily fit within the Simon court’s direct conflicts framework,” the court instead based its decision on “larger systemic concerns with respect to the two statutory schemes.”
Thus, the district court in Torres adopted the rationale of the Second Circuit’s decision in Simmons v. Roundup Funding, LLC, 622 F.3d 93 (2d Cir. 2010). There, the court held that a proof of claim “cannot serve as the basis for an FDCPA action” because there “is no need to protect debtors who are already under the protection of the bankruptcy court,” and because “[n]othing in either the Bankruptcy Code or the FDCPA suggests that a debtor should be permitted to bypass the procedural safeguards in the Code in favor of asserting potentially more lucrative claims under the FDCPA.” The Torres court agreed, and declined to “insert judicially created remedies into Congress’s carefully calibrated bankruptcy scheme, thus tilting the balance of rights and obligations between debtors and creditors.” Accordingly, the court held in no uncertain terms “that filing a time-barred proof of claim in bankruptcy court cannot form the basis for an FDCPA claim.”
If the decisions in Johnson and Torres are any indication, the floodgates may be closing on FDCPA claims based on time-barred proofs of claim in bankruptcy. But in the meantime, the Eleventh Circuit likely will have another chance to speak on the topic it previously declined to address, as the Supreme Court denied LVNV’s cert petition in Crawford and the plaintiff in Johnson already has filed a notice of appeal.
Balch attorneys Jason Tompkins and Chase Espy represented Midland Funding in the Johnson case and Asset Acceptance in the Torres case (with the assistance of Marshall Dennehey attorney Andrew Schwartz).