Avalos v. LVNV Funding, LLC (In re Avalos)
| Decision Date | 12 June 2015 |
| Docket Number | Bankruptcy No. 13–bk–40865,Adversary No. 15–ap–91 |
| Citation | 531 B.R. 748 |
| Parties | In re: Rose I. Avalos, Debtor. Rose I. Avalos, Plaintiff v. LVNV Funding, LLC, and Resurgent Capital Services, LP, Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Jennifer A. Beardsley, Legal Assistance Foundation of Metropolitan, Chicago, IL, for Plaintiff.
William J. Connelly, Hinshaw & Culbertson LLP, Chicago, IL, for Defendants.
This Adversary Proceeding relates to the bankruptcy case filed by debtor-defendant Rose I. Avalos (“Debtor”) under Chapter 13 of the Bankruptcy Code. LVNV Funding, LLC (“LVNV”) and Resurgent Capital Services LP (“Resurgent,” collectively the “Claimants”) filed proofs of claim for debts that were past the statute of limitations. Avalos objected to the proofs of claim, which were subsequently disallowed. (Bankruptcy Dkts. 92 & 93.) She also filed this adversary proceeding seeking damages, alleging that filing the proofs of claim violated the Fair Debt Collection Practices Act (“FDCPA”) 15 U.S.C. § 1692 et. seq . The Claimants moved to dismiss this proceeding for failure to state a claim, arguing that filing a proof of claim based on a debt that is past the statute of limitations cannot constitute a violation of the FDCPA as a matter of law. But as found below, such a filing may violate the FDCPA, and accordingly, dismissal will be denied.
On a motion to dismiss under Rule 12(b)(6), all well-pleaded allegations in the complaint are taken as true and all reasonable inferences are drawn in favor of the non-moving party. Geinosky v. City of Chicago, 675 F.3d 743, 746 (7th Cir.2012). Documents attached to a complaint are considered part of the complaint. F.R.C.P. 10(c) [Rule 7010 Fed. R. Bankr. P.]; Bogie v. Rosenberg, 705 F.3d 603, 609 (7th Cir.2013) (citations omitted). The facts regarding the complained of conduct are considered as they are alleged in the Complaint, and are assumed to be true. Since deciding this motion involves the procedural history of the bankruptcy case in this court, judicial notice of that history may be taken. F.R. Evid. 201(c) ; F.R. Bankr. P. 9017 ; see In re Salem, 465 F.3d 767, 771 (7th Cir.2006).
The facts as alleged are simple. As part of its business practice, LVNV purchased credit card debt owed by Debtor. Resurgent services debts purchased by debt buyers such as LVNV, and services the debts here. After Debtor filed her chapter 13 petition, LVNV filed the proofs of claim in issue here on February 17, 2014. Proof of Claim 8 asserted credit card debt had been charged off in 2005, with the last payment and last transaction in September, 2007. Proof of Claim 9 asserts credit card debt had been charged off in 2005, with no last payment or last transaction asserted. Debtor has not used or paid either credit card account since 2007, at the latest. It was earlier determined that the applicable statute of limitations for credit card debt in Illinois is five years. (Bankruptcy case Dkts. 92 & 93.) Therefore, both claims were denied as barred by limitations when filed in the related bankruptcy case.
Subject matter jurisdiction for this proceeding lies under 28 U.S.C. § 1334. The district court may refer bankruptcy proceedings to a bankruptcy judge under 28 U.S.C. § 157, and this proceeding was thereby referred here by District Court Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. Venue lies under 28 U.S.C. § 1409.
This proceeding is not “core” under the Judicial Code because it neither “arises under” nor “arises in” a bankruptcy case. “Bankruptcy Judges may hear and determine ... all core proceedings arising under title 11, or arising in a case under title 11.” 28 U.S.C. § 157(b)(1). “If the proceeding does not invoke a substantive right created by the federal bankruptcy law and is one that could exist outside of bankruptcy it is not a core proceeding; it may be related to the bankruptcy because of its potential effect, but under section 157(c)(1) it is an “otherwise related” or non-core proceeding.” Barnett v. Stern, 909 F.2d 973, 981 (7th Cir.1990) (emphasis in the original).
This proceeding does not arise under title 11 because “[a] cause of action under the FDCPA ‘arises under’ Title 15, not under Title 11.”La G rone v. LVNV Funding, LLC, 525 B.R. 419, 421–22 (Bankr.N.D.Ill.2015) (Wedoff, J.) It does not arise in a case under title 11 because “[a]rising in” proceedings are those “that arise during the bankruptcy proceeding and concern the administration of the bankrupt estate, such as whether to discharge a debtor.” Zerand–Bernal Grp., Inc. v. Cox, 23 F.3d 159, 162 (7th Cir.1994). Rather, this proceeding is an action that could have independently been commenced as a civil action in the District Court under federal question jurisdiction. 28 U.S.C. § 1331 ; La G rone v. LVNV Funding, LLC, 525 B.R. at 422–23 (citing Buckley v. Bass & Assoc., 249 F.3d 678 (7th Cir.2001), or in a state court.
A proceeding is “related to” the bankruptcy case if it affects the “amount of money available for distribution or the allocation of property among creditors.” Elscint, Inc. v. First Wisconsin Fin. Corp . , (In re Xonics, Inc.), 813 F.2d 127, 131 (7th Cir.1987). The Debtor's FDCPA proceeding here is related to her Chapter 13 bankruptcy case because it could have an effect on payments to her creditors. As in LaGrone, Debtor's plan provides for a fixed amount to be paid to creditors. (Bankruptcy case Dkt. 31.) Therefore, as in LaGrone, any recovery Debtor receives from the FDCPA action could be a basis for increased plan payments under § 1329(a)(1) of the Code.
In a noncore proceeding, a bankruptcy judge may hear the proceeding and submit proposed findings of fact and conclusions of law for review by a District Judge. 28 U.S.C. § 157(c)(1). With consent of the parties, a bankruptcy judge may also enter final judgment. 28 U.S.C. § 157(c)(2) ; Wellness Int'l Network, Ltd. v. Sharif, ––– U.S. ––––, ––––, 135 S.Ct. 1932, 191 L.E.2d 911, No. 13–935, at *9 (“Applying these factors, we conclude that allowing bankruptcy litigants to waive the right to Article III adjudication of Stern claims does not usurp the constitutional prerogatives of Article III courts.”). The Claimants here have not stated whether they consent or not, nor are they required to do so until an Answer is filed. Rule 7012(b), F.R. Bankr. P. ( ). Whether there is such consent or not, an initial motion to dismiss ordinarily does not call for a final adjudication. LaGrone v. LVNV Funding, LLC, 525 B.R. 419, 422–23 (Bankr.N.D.Ill.2015). When appropriate, dismissal with prejudice can be recommended to the District Court. Therefore, the present motion to dismiss is within authority of a bankruptcy judge to decide.
A motion to dismiss under Rule 12(b)(6) [F.R.C.P., Rule 7012 F.R. Bankr. P.] tests the sufficiency of the complaint rather than the merits of the case. Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir.1990). “The consideration of a 12(b)(6) motion is restricted solely to the pleading, which consist generally of the complaint, any exhibits attached thereto, and supporting briefs.” Thompson v. Illinois Dep't of Prof'l Regulation, 300 F.3d 750, 753 (7th Cir.2002) ; Rule 10(c) [F.R.C.P.; Rule 7010 F.R. Bankr. P.]. All well-pleaded allegations of the complaint are assumed true and read in the light most favorable to the plaintiff. United Indep. Flight Officers, Inc. v. United Air Lines, Inc ., 756 F.2d 1262, 1264 (7th Cir.1985). If the complaint contains allegations from which a trier of fact may reasonably infer evidence as to necessary elements of proof available for trial, dismissal is improper. Sidney S. Arst Co. v. Pipefitters Welfare Educ. Fund, 25 F.3d 417, 421 (7th Cir.1994).
Claimants argue that the facts alleged—that the Claimants filed proofs of claim in the Debtor's bankruptcy case based on debts barred by the statute of limitations—do not constitute a ground for relief because filing such proofs of claim did not violate the FDCPA. However, the FDCPA provides that “A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt.” 15 U.S.C.A. § 1692e. Section 1692e goes on to enumerate examples of prohibited conduct “[w]ithout limiting the general application of the foregoing.” Id. In particular, the Complaint alleges that filing a proof of claim on a stale debt is a misrepresentation of the legal status of the debt (§ 1692e(2)(A) ), a threat to take action that cannot legally be taken (§ 1692e(5) ), and the use of a deceptive means to collect or attempt to collect a debt (§ 1692e(10) ).
There has been much litigation on the question of whether filing proofs of claim for stale debt violates the FDCPA. A recent opinion in this District by Judge Bucklo carefully explained the history as is relevant in the Seventh Circuit. Since the opinion is unpublished, the illuminating history is quoted here at length:
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Avalos v. LVNV Funding, LLC (In re Avalos), Bankruptcy No. 13-bk-40865
...531 B.R. 748In re: Rose I. Avalos, Debtor.Rose I. Avalos, Plaintiffv.LVNV Funding, LLC, and Resurgent Capital Services, LP, Defendants.Bankruptcy No. 13-bk-40865Adversary No. 15-ap-91.United States Bankruptcy Court, N.D. Illinois, Eastern Division.Signed June 12, 2015 [531 B.R. 749]Jennifer......