Robinson v. JH Portfolio Debt Equities, LLC (In re Robinson)
Docket: Case #15-30223; AP #16-03004
Court: United States Bankruptcy Court, W.D. Louisiana; July 28, 2016; Us Bankruptcy; United States Bankruptcy Court
The court conditionally granted the motion to dismiss the adversary proceeding initiated by Bernice Rena Robinson against JH Portfolio Debt Equities, LLC, JD Receivables, LLC, and Jeffrey S. Dunn, while denying the motion to strike and allowing the notice to withdraw the claim. The defendants filed proof of claim No. 10 for $760.00 related to a debt originally from World Finance Corporation of Louisiana, which had been charged off in 2009. Robinson included a claim to World Finance for $1,353.00 in her bankruptcy schedules, with the debt subject to a five-year prescriptive period under Louisiana law, which has since expired. As the plaintiffs did not contest the factual accuracy of Claim 10, the court noted that the debt might be unenforceable. The defendants' withdrawal of Claim 10 was opposed by the plaintiff. The matter was consolidated with the main bankruptcy case by Judge John W. Kolwe and included various filings from both parties. A hearing was held on July 21, 2016, and the court recognized the complexity of the legal issues involved, which are subject to differing interpretations among legal professionals. The excerpt also references the trading of consumer debt and highlights a satirical example of the ease of establishing a debt-buying business.
CARP obtained the personal information of nearly 9,000 individuals and had the liberty to pursue related debts. Oliver forgave these debts, which he termed the largest giveaway in television history. Such claims often become unenforceable due to statutes of limitations. The Fair Debt Collection Practices Act (FDCPA), enacted in 1977, aims to eliminate abusive debt collection practices and ensure fair competition among debt collectors, while promoting consumer protection. The Bankruptcy Reform Act of 1978 established a uniform federal bankruptcy law, allowing creditors to file time-barred claims under the Bankruptcy Code, which debtors can contest through a claims objection process. The plaintiff alleges that the defendants violated the FDCPA by filing a claim for a time-barred debt. There is judicial disagreement on the application of the FDCPA in bankruptcy cases, with some circuits holding it precluded by the Bankruptcy Code and others affirming its applicability. The Fifth Circuit has not yet made a ruling on this matter. The court has jurisdiction under 28 U.S.C. 1334(b) and related provisions, allowing it to hear core proceedings related to the Bankruptcy Code. The adversary proceeding includes both core and non-core disputes, with the claim objection categorized as a core proceeding, as it affects the administration of the Chapter 13 estate. In contrast, the FDCPA claim does not arise under the Bankruptcy Code, as it can be pursued independently of bankruptcy.
The FDCPA cause of action is categorized as non-core but related to the plaintiff's bankruptcy case, allowing the court to exercise jurisdiction under 28 U.S.C. 157(c)(1). The adversary proceeding could influence creditor payments under the confirmed bankruptcy plan. The court can hear the case but requires consent from all parties to issue a final judgment. In accordance with Stern v. Marshall, final judgment authority depends on whether the cause of action arises from the bankruptcy itself. The proceeding includes federal claims not necessarily resolved in the claims allowance process. However, under Wellness Int’l Network v. Sharif, parties can consent to a bankruptcy court's final judgment without Article III concerns. The plaintiff has consented, and defendant JH Portfolio has not objected, implying consent as they requested dismissal of the complaint. Should consent be contested, the memorandum can serve as a report and recommendation to the District Court.
Regarding procedural matters, JH Portfolio filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(1) and (6), and the plaintiff filed a motion to strike. The court must interpret the complaint favorably towards the plaintiff and assess the motion based solely on the complaint’s facts. To survive dismissal, the plaintiff must present sufficient factual allegations that make a plausible claim for relief.
In the context of claim withdrawal, JH Portfolio attempted to withdraw its proof of claim in the underlying bankruptcy case, prompting the debtor to move to strike the withdrawal. The presiding judge consolidated these issues into the adversary proceeding, ultimately denying the motion to strike and allowing JH Portfolio to withdraw its claim as per Federal Rule of Bankruptcy Procedure 3006, which permits a creditor to withdraw a claim as of right unless otherwise restricted.
A creditor cannot withdraw a proof of claim after an objection or complaint has been filed, or if they have participated significantly in the case, without a court order following a hearing with notice to relevant parties. The court's order will stipulate terms and conditions as deemed appropriate. If a claim is authorized to be withdrawn, it also withdraws any related acceptance or rejection of a plan unless stated otherwise by the court. In the current case, the court must determine the implications of JH Portfolio's claim withdrawal in relation to an ongoing adversary proceeding, particularly concerning potential violations of the Fair Debt Collection Practices Act (FDCPA). The court asserts that the withdrawal does not moot the FDCPA claims because any violation occurred when the claim was initially filed. The court cites precedent affirming that the case remains valid despite the withdrawal.
Additionally, JH Portfolio's motion to dismiss based on the plaintiff's alleged lack of standing is denied. The court references Spokeo, Inc. v. Robins, emphasizing that a concrete injury must exist. In this Chapter 13 case, the debtor incurs legal fees to object to a potentially time-barred claim, constituting an injury. The debtor's legal expenses are recognized under the Western District of Louisiana's standing order regarding presumptive fees, specifically a $250 ‘no look’ fee for uncontested claims. The confirmed bankruptcy plan does not allocate funds for these legal fees, which is critical as the plan only provides $14,327 for general unsecured claims.
An increase in debtor attorney fees would underfund the Chapter 13 plan, necessitating a modification that incurs additional attorney fees due to the defendants’ filing of a time-barred claim. Under the Fair Debt Collection Practices Act (FDCPA), a debt collector may face statutory damages and attorney fees even without proving actual damages, with statutory damages capped at $1,000 under 15 U.S.C. 1692(k). Case law establishes that actual damages are not required for statutory damages, and attorneys’ fees may be available alongside statutory penalties. The Supreme Court has clarified that "concrete" injuries can include intangible harms, which may be recognized as legally cognizable injuries based on historical context and Congressional judgment.
The plaintiff's main argument is that filing a proof of claim on a time-barred debt violates the FDCPA. Legal opinions are divided on this issue, with some courts viewing it as a per se violation and others arguing it cannot constitute an FDCPA violation. This Court maintains that the issue is more nuanced. It emphasizes the need to assess whether the FDCPA and Bankruptcy Code can operate together without implying a repeal of one by the other, aligning with the judicial preference against implied repeals of federal statutes. The Supreme Court has reinforced that when two statutes can coexist, they should both be regarded as effective unless there is clear Congressional intent to the contrary.
The coexistence of the Bankruptcy Code and the Fair Debt Collection Practices Act (FDCPA) has been affirmed by several courts, indicating that claims under the FDCPA are not precluded by the Bankruptcy Code. The Bankruptcy Code and the Real Estate Settlement Procedures Act (RESPA) also operate concurrently, as evidenced by cases such as Trevino v. HSBC Mortgage Services and Perkins v. LVNV Funding. RESPA mandates that mortgage servicers respond to written requests or notices of error within specified timeframes and conduct investigations, with penalties for noncompliance, including actual damages and potential additional damages of up to $2,000 for patterns of violation.
Similarly, the Bankruptcy Code provides mechanisms for disputing claims on home mortgages through objections to proofs of claim. Courts have generally ruled that the FDCPA offers an additional method for debtors to contest creditor actions without conflicting with the Bankruptcy Code, thus confirming that the FDCPA has not been implicitly repealed.
Moreover, while creditors can file claims that might be time-barred, debt collectors filing such claims in Chapter 13 bankruptcies may face FDCPA claims. The FDCPA's aim is to protect consumers from abusive debt collection practices and promote fair competition among debt collectors. To assess violations of the FDCPA, courts utilize the "least sophisticated consumer" standard, which considers the perspective of an average consumer who may not be well-versed in financial matters, aiming to shield all consumers from deceptive practices while also safeguarding debt collectors from unreasonable interpretations of their communications.
The court determined that the Fair Debt Collection Practices Act (FDCPA) is applicable in this case and outlined the necessary elements for a plaintiff to establish a claim under the FDCPA: 1) the plaintiff must be subject to collection activity related to consumer debt; 2) the defendant must qualify as a debt collector under the FDCPA; and 3) the defendant must have engaged in a prohibited act or omission. The plaintiff's complaint did not meet the third requirement. Specifically, the plaintiff, Ms. Robinson, accused the defendants of abusing her and her creditors through the filing of a false claim in her Chapter 13 bankruptcy. She alleged violations of 15 U.S.C. 1692d, which prohibits conduct that harasses, oppresses, or abuses individuals in debt collection.
The court analyzed the allegations under 15 U.S.C. 1692d and noted that the examples of prohibited conduct typically involve tactics meant to embarrass or frighten debtors. Citing the case LaGrone v. LVNV Funding, the court acknowledged that filing a proof of claim can be viewed as an indirect method of debt collection in bankruptcy. However, the mere act of filing a proof of claim alone does not constitute harassment or oppression. The court concluded that the filing of the claim could not be interpreted as causing the plaintiff suffering or humiliation, particularly as the bankruptcy filing itself is public record. The plaintiff's claims of oppression were deemed self-inflicted by disclosing the debt as “undisputed,” which allowed creditors to file claims. The court found that the complaint lacked sufficient allegations of harassment or abuse under 15 U.S.C. 1692d, resulting in a failure to state a valid claim for relief.
The plaintiff's complaint fails to establish a plausible claim under 15 U.S.C. § 1692e, which prohibits debt collectors from using false or misleading representations in debt collection. The plaintiff asserts that the defendants violated this provision by filing a claim for a time-barred debt, arguing that a claim constitutes a 'right to payment' and such a right is legally unenforceable after the statute of limitations expires. However, the court finds that the proof of claim accurately identifies the debt owed, including pertinent dates such as the charge-off and last payment, and does not misrepresent the debt's legal status. The court notes that in Louisiana, while time-barred debts cannot be enforced in court, they are not entirely extinguished, allowing the defendants to inform the plaintiff about the debt amount.
Similarly, the plaintiff's claim under 15 U.S.C. § 1692f, which addresses unfair or unconscionable debt collection practices, also fails. The court emphasizes that the proof of claim contains truthful information and complies with bankruptcy procedures, which differ from traditional debt collection actions due to the protection offered by the automatic stay upon filing for bankruptcy. The filing of a proof of claim is considered a standard creditor action within bankruptcy proceedings and does not constitute an unfair or unconscionable means of debt collection. Thus, the complaint does not present a valid basis for relief under either statutory provision.
Debtors can contest a creditor's claim through the claims objection process outlined in the Bankruptcy Code and Rules, specifically under 11 U.S.C. 502 and Fed. R. Bankr. P. 3007. While the filing of a proof of claim for a time-barred debt is permissible, it is not considered ‘unfair or unconscionable’ if a remedy exists for the debtor. The process allows debtors or other parties to object to such claims, and a Chapter 13 Trustee is appointed to review and object to improper claims, thereby protecting unrepresented debtors. The claims process in Chapter 13 is well-regulated and overseen by both the Court and the Trustee, with all claims available for public review and regular audits conducted.
The Court notes that although filing an accurate time-barred proof of claim does not violate the Fair Debt Collection Practices Act (FDCPA), if a creditor were to submit a false, fraudulent, or inaccurate claim, it could be actionable under the FDCPA. The plaintiff's failure to provide factual allegations to support claims under 15 U.S.C. 1692f results in dismissal.
Regarding the claim of abuse of process, the plaintiff argues that claim objections hinder the efficiency of bankruptcy administration and that attorneys lack incentive to monitor claims. The Court disagrees, asserting that objections to claims are straightforward and typically pursued when beneficial to debtors. The assertions made by the plaintiff do not reflect the reality of the claims objection process in Chapter 13 cases.
A percentage plan in a Chapter 13 bankruptcy allows general unsecured claims to receive a fixed percentage of their total claim amount. For instance, in a five percent plan, a $1,000 claim would yield a $50 payment to the creditor, with payments made over 36 to 60 months, typically after priority and secured debts are settled. Alternatively, a pot plan allocates a specific dollar amount to be distributed among general unsecured creditors after other debts are paid, without guaranteeing a specific return. This method provides certainty for the debtor regarding the total payment amount, simplifying the process as the debtor does not need to review individual claims or their valuations, making objections to inflated claims unnecessary.
Objections to time-barred claims are economically sensible in high payout plans, as successful objections can decrease the overall payment obligation. In contrast, in low percentage or small pot plans, the minimal benefit of objecting to claims often does not justify the administrative costs involved. The court recognizes that not objecting to time-barred claims aligns with economic realities, and such claims can still be paid per the confirmed plan unless disallowed.
In Louisiana, a time-barred claim remains valid unless a party raises the issue of prescription, which acts as a preemptory exception and can be waived if not asserted. The Bankruptcy Code aims to ensure fair distributions to creditors, where economic considerations influence decisions on whether to challenge claims. It is permissible for debtors, trustees, or interested parties to refrain from objecting to time-barred claims if the potential payout is minimal, fostering economic efficiency and facilitating settlements under Federal Rule of Bankruptcy Procedure 9019.
In Chapter 13 bankruptcy, the presence of a trustee provides an additional layer of oversight. The trustee, as well as any party in interest—including the debtor and creditors—can object to claims, supported by various bankruptcy rules and statutes (e.g., Fed. R. Bankr. P. 3007; 11 U.S.C. 502, 704(5), and 1302). The claims process is tightly regulated, with specific rules governing claim filing, evidentiary standards, deadlines, and objection procedures, ensuring it cannot be easily abused. The court maintains oversight throughout the claims allowance and objection process, making it unlikely for abuses to occur.
Additionally, 11 U.S.C. § 105(a) grants bankruptcy courts authority to issue necessary orders to prevent process abuse, with the Fifth Circuit affirming the courts' power to sanction vexatious conduct. However, any sanctions must be supported by a clear finding of bad faith, requiring clear and convincing evidence.
Sanctions for bad faith require evidence that a party's conduct has compromised the integrity of the judicial process. A party may be found to have acted in bad faith if it has deliberately abused the judicial system. In this case, the plaintiff failed to provide a plausible basis for claiming that the defendants acted in bad faith, resulting in a failure to establish an abuse of process claim. Consequently, the court conditionally grants a Motion to Dismiss for Failure to State a Claim but allows the plaintiff an opportunity to amend the complaint within twenty-one days, as permitted by Federal Rule of Civil Procedure 15(a)(2). After this period, the court will issue orders consistent with the memorandum and any amended complaint submitted. Additionally, the estimated payment calculations for Chapter 13 Trustee fees are noted, with the "no look" fee for post-confirmation modifications set at $500. The debtor's representation by counsel provides extra protection in the proceedings.
