In re Chaussee

• Decision Date: 18 December 2008
• Docket Number: Adversary No. 07-01266-KAO.,BAP No. WW-08-1114-PaJuKa.,Bankruptcy No. 07-11392-KAO.
• Citation: 399 B.R. 225
• Parties: In re Dawn J. CHAUSSEE, Debtor. B-Real, LLC, Appellant, v. Dawn J. Chaussee, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

Page 225

399 B.R. 225

In re Dawn J. CHAUSSEE, Debtor B-Real, LLC, Appellant, v. Dawn J. Chaussee, Appellee.

BAP No. WW-08-1114-PaJuKa.

Bankruptcy No. 07-11392-KAO.

Adversary No. 07-01266-KAO.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted October 17, 2008.

Filed December 18, 2008.

COPYRIGHT MATERIAL OMITTED

Linh K. Tran, Seattle, WA, for B-Real, LLC.

Jay S. Jump, Kent, WA, for Dawn J. Chaussee.

Before: PAPPAS, JURY and KAUFMAN,¹ Bankruptcy Judges.

OPINION

PAPPAS, Bankruptcy Judge.

I. INTRODUCTION

In this appeal, the Panel is called upon to decide an issue of first impression in our circuit: whether the act of filing a proof of claim in a bankruptcy case may, alone, subject the claimant to liability for violation of state and federal fair debt collection laws.

The appellee, chapter 13² debtor Dawn Chaussee ("Debtor"), commenced an adversary proceeding alleging that appellant B-Real, LLC ("B-Real") violated the Washington Consumer Protection Act, WASH. REV.CODE § 19.86, et seq. (West 2008) ("CPA") and the Fair Debt Collection Practices Act, 15 U.S.C. § 1601, et seq. (2008) ("FDCPA") by filing two proofs of claim in Debtor's bankruptcy case for debts Debtor maintains she did not owe and were time-barred under state law. B-Real appeals the bankruptcy court's order denying its motion to dismiss Debtor's complaint for failure to state a claim under Civil Rule 12(b)(6), incorporated by Rule 7012.

Based upon the Ninth Circuit's decisions in MSR Exploration, Ltd. v. Meridian Oil, Inc., 74 F.3d 910 (9th Cir.1996) and Walls v. Wells Fargo Bank, N.A., 276 F.3d 502 (9th Cir.2002), we conclude that the Code (1) preempts Debtor's state law CPA claim against B-Real, and (2) precludes her FDCPA claim. We therefore REVERSE the bankruptcy court's denial of B-Real's motion to dismiss and REMAND to the bankruptcy court for entry of an order dismissing Debtor's complaint.

II. FACTS

Debtor filed a chapter 13 petition and plan on March 29, 2007. Her five-year debt repayment plan proposed a six percent distribution to the holders of allowed unsecured claims.

NCO Portfolio Management, Inc., a collection agency, assigned two claims to B-Real: a Citibank credit card account in the amount of $5,269.05, and a Sears credit card account in the amount of $843.74. Both accounts were listed in the name of "Dawn Gonzales" and referenced a partial social security number of "XXX-XX-8514." B-Real maintains that it confirmed through the postal service and an internet web site³ that Debtor was also known as Dawn Gonzales. In addition, the last four digits of Debtor's social security number match those on the assigned accounts.

In July 2007, B-Real filed two unsecured proofs of claim in Debtor's bankruptcy case based upon the assigned accounts. The claims listed Dawn Gonzales as debtor/obligee and included no documentation for the claims other than an account summary listing the balances alleged to be due and referring to the last four digits of Debtor's social security number.

On September 17, 2007, Debtor filed an adversary proceeding complaint against B-Real, alleging it violated the CPA and FDCPA by filing the two proofs of claim when the debts were barred by the statute of limitations. She further alleged that B-Real's claims indicated that the account-debtor was "Dawn Gonzales," and that by filing the claims in her bankruptcy case, B-Real was attempting to collect debts she did not owe.

On October 8, 2007, B-Real moved to dismiss Debtor's complaint under Civil Rule 12(b)(6) contending that Debtor failed to state a claim for relief under the CPA or FDCPA because neither statute applied to the filing of proofs of claim in a bankruptcy case. B-Real further argued that the CPA was preempted by the Code's claims process. B-Real maintained that Debtor's exclusive remedy for disputing the validity of its proofs of claim in the bankruptcy case was to object to them.⁴

On November 16, 2007, as B-Real had suggested in its motion, Debtor objected to the allowance of B-Real's claims under § 502(b)(1).⁵ She alleged that the debts upon which the claims were based were not owed or, alternatively, were barred by the applicable state statutes of limitation. B-Real did not respond to this objection, and an order was entered by the bankruptcy court on December 18, 2007, sustaining the objection and disallowing B-Real's claims.

On March 5, 2008, the bankruptcy court conducted a hearing concerning B-Real's motion to dismiss Debtor's complaint. After further briefing from both parties, the court entered a Memorandum Decision on March 26, 2008, denying B-Real's motion in its entirety. The court concluded that Debtor had sufficiently pled claims against B-Real under both the CPA and FDCPA. The court distinguished the Ninth Circuit's decisions upon which B-Real relied and held that the Code neither preempted Debtor's state law CPA claim, nor precluded Debtor's FDCPA claim against B-Real.

An order denying B-Real's motion was entered on April 11, 2008. B-Real timely filed a notice of appeal and a request for leave to appeal the bankruptcy court's interlocutory order, which the Panel granted on July 6, 2008.

III. JURISDICTION

The bankruptcy court had jurisdiction over this action pursuant to 28 U.S.C. § 1334(b) and § 157(b)(2)(A) and (B). We have appellate jurisdiction under 28 U.S.C. § 158(a)(3) and (b).

IV. ISSUES

A. Whether the Code preempts Debtor's state law CPA claim.

B. Whether the Code precludes Debtor's federal FDCPA claim.

V. STANDARDS OF REVIEW

"A dismissal for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6) is reviewed de novo. All allegations of material fact in the complaint are taken as true and construed in the light most favorable to the plaintiff." Williams v. Gerber Prods. Co., 523 F.3d 934, 937 (9th Cir.2008) (quoting Stoner v. Santa Clara County Office of Educ., 502 F.3d 1116, 1120 (9th Cir.2007)); Naert v. Daff (In re Wash. Trust Deed Serv. Corp.), 224 B.R. 109, 112 (9th Cir. BAP 1998).

Whether state law is preempted by the Code is a question of law we also review de novo. MSR Exploration, 74 F.3d at 912.

We review issues of statutory construction and conclusions of law de novo. Ransom v. MBNA Am. Bank, N.A. (In re Ransom), 380 B.R. 799, 802 (9th Cir. BAP 2007). De novo review requires that we consider a matter anew, as if it had not been heard before, and as if no decision had been previously rendered. United States v. Silverman, 861 F.2d 571, 576 (9th Cir.1988).

VI. DISCUSSION

A. The CPA Claim

While it was the second claim for relief against B-Real in Debtor's complaint, we first dispose of Debtor's state law claim against B-Real under the CPA because the outcome is so clearly compelled.

The CPA prohibits "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce" in Washington. CPA § 19.86.020. Debtor's complaint alleges that B-Real violated the CPA by filing a proof of claim in the bankruptcy court based on a debt that she did not owe or that was time-barred. In analyzing Debtor's claim, we assume these allegations are true.⁶ Debtor's complaint did not specify which provisions of the CPA she alleges that B-Real had violated. For the alleged violation, Debtor seeks to recover treble damages and attorney's fees and costs from B-Real pursuant to CPA 19.86.090.⁷

B-Real contends that the bankruptcy court erred when it refused to dismiss Debtor's claim and decided that the Code did not preempt the CPA under these facts. We agree.

The preemption doctrine has its roots in the Supremacy Clause of the United States Constitution⁸ and is implicated only when there is a conflict between federal and state regulations. MSR Exploration, 74 F.3d at 913. Under this doctrine, state laws interfering with, or contrary to, federal law are preempted. See Perez v. Campbell, 402 U.S. 637, 652, 91 S.Ct. 1704, 29 L.Ed.2d 233 (1971). Our task in resolving the preemption issue here is to determine whether the CPA, as a state regulation, is consistent with the structure, purpose, and operation of the Code as a whole. Gade v. Nat'l Solid Wastes Mgmt. Ass'n, 505 U.S. 88, 98, 112 S.Ct. 2374, 120 L.Ed.2d 73 (1992). We conclude it is not.

The Ninth Circuit and this Panel have previously addressed whether the Code preempts state law substantive claims and remedies stemming from alleged misconduct by parties occurring in bankruptcy cases. Miles v. Okun (In re Miles), 430 F.3d 1083 (9th Cir.2005); MSR Exploration, 74 F.3d 910; Bassett v. Am. Gen. Fin., Inc. (In re Bassett), 255 B.R. 747 (9th Cir. BAP 2000), rev'd on other grounds, 285 F.3d 882 (9th Cir.2002).

In MSR Exploration, creditors filed proofs of claim in the debtor's chapter 11 bankruptcy case. The debtor objected to the claims, which were disallowed by the bankruptcy court. The debtor did not pursue sanctions, attorney's fees, or any other remedy in the bankruptcy court. Instead, after the debtor's reorganization plan was confirmed and substantially consummated, it sued the creditors for malicious prosecution in federal district court. MSR Exploration, 74 F.3d at 912. The district court dismissed the action and the Ninth Circuit affirmed, holding that the debtor's state law malicious prosecution claim against the creditors was completely preempted by the structure and purpose of the Code.

The court of appeals offered several justifications for its conclusion. First, it reasoned that in adopting 28 U.S.C. § 1334, which grants the federal district courts exclusive jurisdiction over bankruptcy matters, Congress intended to completely preempt state law malicious prosecution actions against creditors. Id. at 913-14.

Next, the court pointed to the "complex, detailed, and comprehensive provisions of the lengthy Bankruptcy Code" as evidence that Congress had created a "whole system under federal control which is designed to bring together and adjust all of the rights and...