B-Real, LLC v. Rogers

• Decision Date: 19 May 2009
• Docket Number: Civil Action No. 09-15-JJB.
• Citation: 405 B.R. 428
• Parties: B-REAL, LLC v. Stephen Douglas ROGERS, et al.
• Court: U.S. District Court — Middle District of Louisiana

405 B.R. 428

B-REAL, LLC v. Stephen Douglas ROGERS, et al.

Civil Action No. 09-15-JJB.

United States District Court, M.D. Louisiana.

May 19, 2009.

RULING ON APPEAL

JAMES J. BRADY, District Judge.

B-Real LLC ("B-Real") brings this appeal of the bankruptcy court's interlocutory order denying its motion for summary judgment in Adversary Case 08-1011 (doc. 5). Stephen and Julie Rogers ("the Rogers") have responded (doc. 8) and B-Real has filed a reply (doc. 11). This Court has jurisdiction over the appeal pursuant to 28 U.S.C. § 158(a)(3).¹ Oral argument with respect to this appeal is not necessary.

Background

The Rogers filed a voluntary bankruptcy petition and B-Real filed three proofs of claim in that bankruptcy proceeding, each of which was based on an underlying debt that was prescribed under Louisiana law.² Instead of objecting to each of these claims within the bankruptcy proceeding, the Rogers filed an adversary proceeding against B-Real, alleging, inter alia, violations of the Fair Debt Collection Practices Act ("FDCPA"). In a motion to dismiss, B-Real argued that the FDCPA does not apply to filing of proofs of claim in bankruptcy proceedings. The bankruptcy court, relying on Randolph v. IMBS, Inc.,³ denied the motion to dismiss and found that "debtors may urge a FDCPA claim for alleged actions of B-Real in connection with their bankruptcy case."⁴ B-Real then brought a motion for summary judgment, seeking reconsideration of the bankruptcy court's determination regarding the application of the FDCPA and asserting that, in any case, it could not be considered a "debt collector" for purposes of the FDCPA. The bankruptcy court denied the motion for summary judgment.⁵ B-Real now seeks appellate review of the bankruptcy court's interlocutory order denying its motion for summary judgment. Both parties agree that the issues presented in this appeal should be reviewed by this Court de novo.

B-Real presents two issues for appeal before this Court. First, whether the Bankruptcy Code and Rules preclude application of the FDCPA to a claim arising from the filing of a proof of claim in a bankruptcy proceeding. Second, if not precluded, whether the filing of a proof of claim in a bankruptcy proceeding on a prescribed debt may constitute a violation of the FDCPA.

While the Fifth Circuit has not spoken on the first issue, the Ninth and Seventh Circuits have had the opportunity to do sol In Randolph v. IMBS, Inc., a collection agency contacted the debtor in violation of the discharge injunction after payments on the debtor's confirmed bankruptcy plan began.⁶ The debtor then brought suit under the FDCPA. The Seventh Circuit allowed the FDCPA claim, explaining that "overlapping and not entirely congruent remedial systems can coexist."⁷ In contrast, the Ninth Circuit in Walls v. Wells Fargo Bank, N.A., considering allegations that the discharge injunction had been violated when Wells Fargo continued to solicit and collect monthly mortgage payments after debtor's discharge, held that a debtor could not maintain simultaneous actions under both the Bankruptcy Code and the FDCPA because to do so would "circumvent the remedial scheme of the [Bankruptcy] Code . . .".⁸ The court in Walls went on to state that "[w]hile the FDCPA's purpose is to avoid bankruptcy, if bankruptcy nevertheless occurs, the debtor's protection and remedy remain under the Bankruptcy Code."⁹

Analysis

In the Rogers' adversary complaint, they allege that B-Real's action of filing proofs of claim on three time-barred debts violated 15 U.S.C. § 1692d, 15 U.S.C. § 1692e, and 15 U.S.C. § 1692f In opposition, B-Real argues that the filing of a proof of claim, even on an invalid debt, cannot potentially constitute a violation of the FDCPA; instead, B-Real asserts, the debtors' sole remedy lies within the Bankruptcy Code and its procedures for objecting to a filed claim. B-Real asserts that the "FDCPA and the Bankruptcy Code are not compatible in the area of filing a proof of claim, and therefore the Bankruptcy Code should govern the claims process."¹⁰ B-Real notes that a "claim" is defined broadly in the Bankruptcy Code as a "right to payment, whether or not such right is . . . disputed . . ."¹¹ B-Real asserts that under the Bankruptcy Code, any creditor may file a proof of claim and that it is the debtor's right to object to such claims under 11 U.S.C. § 502(b). If the debtor is successful in his objection, the claim will be disallowed. B-Real further points out that one of the enumerated reasons for claim disallowance in § 502(b) is that the "claim is unenforceable against the debtor . . ." and that one reason a claim would be deemed unenforceable is because the underlying debt is time-barred.¹² Thus, B-Real argues that it had the right to file a proof of claim on a prescribed debt, and that because such action is allowed under the Bankruptcy Code,¹³ that same action cannot constitute a violation of the FDCPA.

The Rogers assert that B-Real is fully aware of the prescriptive period in Louisiana and "has displayed a pattern and practice of filing claims for prescribed debts in Chapter 13 bankruptcy cases in the Bankruptcy Court for the Middle District of Louisiana."¹⁴ The Rogers acknowledge that the holdings of the Ninth Circuit support B-Real's position, but assert that Walls is distinguishable because it dealt with "an isolated incident of creditor misconduct that occurred after the conclusion of the bankruptcy case." ¹⁵ The Rogers assert that the reasoning of the Randolph Court is more persuasive and applicable, especially because it dealt with a violation of the automatic stay "during the pendency of a debtor's Chapter 13 bankruptcy case."¹⁶

In arguing that Randolph should not apply, B-Real asserts that the "Bankruptcy Court failed to distinguish the fact that Randolph involved a stay violation that occurred outside of the bankruptcy case— by sending a demand letter directly to the debtor—while the bankruptcy was pending, whereas, our case concerns the filing of claims within the bankruptcy case, and no other contact."¹⁷

This Court agrees with B-Real that the Bankruptcy Code provides a remedial scheme for objecting to a claim filed for a prescribed debt. A quick review of case law shows that many bankruptcy courts have disallowed such claims as "unenforceable against the debtor" under 11 U.S.C. § 504(b)(1).¹⁸ Thus, the Bankruptcy Code itself contemplates a creditor filing a proof of claim on a time-barred debt and the Bankruptcy Court disallowing such claim after objection from the debtor. It is difficult for this Court to understand how a procedure outlined by the Bankruptcy Code could possibly form the basis of a violation under the FDCPA.

However, this is exactly what the Rogers assert the Randolph Court held. This Court disagrees with this reading of Randolph and finds that the Seventh Circuit in that case allowed an FDCPA claim to go forward under specific facts not present in this instance.¹⁹ In Randolph, a potential violation of both the Bankruptcy Code and the FDCPA allegedly occurred when a creditor violated the post-discharge injunction. The Randolph Court correctly stated a general principle of law—that "overlapping and not entirely congruent remedial systems can coexist" and allowed two causes of action that did not irreconcilably conflict to go forward.²⁰ In this case however, the question is not whether the FDCPA and the Bankruptcy Code can co-exist in a vacuum; rather, the question is whether filing a proof of claim on a prescribed debt (an action permitted by the Bankruptcy Code) can potentially constitute a violation of the FDCPA This Court finds it cannot.

First, and as this Court has already noted, the Bankruptcy Code and applicable jurisprudence allow a creditor to file a proof of claim on a debt even though it may be later determined to be "unenforceable." One of the reasons Bankruptcy Courts have deemed a debt to be unenforceable is because the debt is determined to be time-barred or prescribed. This Court is wary of any ruling that impinges on a creditor's right to follow the procedural provisions of the Bankruptcy Code.

Second, the purpose of the FDCPA itself is not furthered by its application in this instance. "Debtors in bankruptcy proceedings do not need protection from abusive collection methods that are covered under the FDCPA because the claims process is highly regulated and court controlled."²¹ While the FDCPA's purpose is to protect unsophisticated consumers from unscrupulous debt collectors, that purpose is not implicated when a debtor is instead protected by the court system and its officers.²² As a related point, this Court also fails to see how the purpose of the Bankruptcy Code and Rules, which is to "secure the just, speedy, and inexpensive determination of every case and proceeding" is furthered by allowing a debtor to proceed with an FDCPA claim against a creditor whose only action is to file a proof of claim under the procedures set out in the Code.

Third, even considering the substantive provisions of the FDCPA upon which the debtors base their claims, this Court fails to discern any viable FDCPA violation. Section 1692d of the FDCPA prohibits a debt collector from engaging in "any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of any debt." The section lists examples such as threatening violence, using profanity, or calling the debtor continuously. B-Real's action of filing proofs of claim does not rise to a level commensurate to these example behaviors. Because B-Real engaged in an action which the Bankruptcy Code allows while subject to the bankruptcy court's oversight, this Court finds that such action's "natural consequence" could not possibly be harassing, oppressive, or abusive. Section 1692e(2)(A) forbids the "false representation of ... the legal status of any debt;" however, B-Real was not required to represent the...