Brimmage v. Quantum3 Grp. LLC (In re Brimmage)

• Citation: 523 B.R. 134
• Decision Date: 09 January 2015
• Docket Number: Adversary No. 14–00674.,Bankruptcy No. 13–29753.
• Parties: In re Samuel L. BRIMMAGE, Debtor. Samuel L. Brimmage, Plaintiff, v. Quantum3 Group LLC and Elite Recovery Acquisition, LLC, Defendants.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois

523 B.R. 134

In re Samuel L. BRIMMAGE, Debtor.

Samuel L. Brimmage, Plaintiff

v.Quantum3 Group LLC and Elite Recovery Acquisition, LLC, Defendants.

Bankruptcy No. 13–29753.

Adversary No. 14–00674.

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Signed Jan. 9, 2015.

David S. Yen, Legal Assistance Foundation, Chicago, IL, for Plaintiff.

David J. Frankel, Sorman & Frankel, Ltd., Chicago, IL, for Defendants.

Order Denying Motion to Dismiss (Docket No. 5)

JACQUELINE P. COX, Bankruptcy Judge.

Quantum3 Group LLC and Elite Recovery Acquisitions, LLC (collectively “Defendants”) brought this Motion to Dismiss the Complaint filed by the debtor, Samuel L. Brimmage. For the reasons stated below, the motion is denied.

I. Facts and Background

Samuel L. Brimmage (“Brimmage”) filed his Chapter 13 bankruptcy petition for relief on July 26, 2013. (Voluntary Petition, Bankruptcy Case No. 13–29753, Dkt. No. 1). Brimmage had a number of unsecured debts, one of which was to “Household Renaissance.” (Complaint, Adversary Proceeding No. 14–A–00674, Dkt. No. 1, ¶ 9). While Brimmage does not remember having an account with a company called “Household Renaissance,” he does admit to having incurred some debt in 2002 or 2003, which he believes was made to a company he knew by a different name. (Id. at ¶ 12). Brimmage admits that he later defaulted on this debt, which is consistent with the proof of claim that the Defendants filed in this case. (Id. at ¶ 12; Ex. A).

Elite Recovery Acquisitions, LLC is a national debt buyer who at some point acquired rights to collect on the aforementioned debt. (Id. at ¶ 10). Quantum3 Group LLC is an agent of Elite Recovery Acquisitions, LLC authorized to file proofs of claim on behalf of Elite Recovery Acquisitions, LLC. (Id. at ¶ 8). After Brimmage filed for bankruptcy, Quantum3 Group LLC filed a proof of claim on Elite Recovery Acquisitions' behalf, claiming that Elite Recovery is the owner of the debt and is entitled to collect $859.92 in principal and $291.71 in interest, for a total claim of $1,151.63. (Id. at ¶¶ 15, 18).

The debt itself was for personal, family or household purposes. (Id. at ¶ 13). Brimmage was unable to remember how the debt arose, but assumes that it was either a result of credit card transactions, or a contract for the sale of goods or services. (Id. at ¶¶ 22, 24). According to the proof of claim, the last transaction was on June 30, 2004, and the charge off date was June 30, 2004 as well. (Id. at Ex. A). Brimmage admits that he had not used or paid the debt on this account since June, 2004. (Id. at ¶ 17). The Defendants filed a proof of claim on this debt on September 13, 2013. (Id. at ¶ 15). In Illinois, the statute of limitation to sue to collect on a credit card account or on account of an oral contract is five years. 735 ILCS 5/13–205 ; Portfolio Acquisitions, LLC v. Feltman, 391 Ill.App.3d 642, 330 Ill.Dec. 854, 909 N.E.2d 876 (2009) (applying the five year oral contract statute of limitation to credit card debt in Illinois). The statute of limitations to sue for breach of contract on the sale of goods is four years. 810 ILCS 5/2–725.

Brimmage filed an adversary proceeding on September 12, 2014 claiming that the statute of limitations to collect on this debt expired before he filed for bankruptcy, making the debt stale. (Complaint, Adversary Proceeding No. 14–A–00674, Dkt. No. 1, ¶ 27). He further alleges that by filing a proof of claim to recover a stale debt, the Defendants have violated various provisions of the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §§ 1692 et seq. (Id. at ¶ 31). Here, he seeks to recover statutory damages, actual damages and attorney's fees. (Id. at p. 6). In a separate matter, Brimmage has objected to the Defendants' Claim. (Objection to Claim, Bankruptcy Case No. 13–29753, Dkt. No. 33). Defendants now bring this motion under Federal Rule of Civil Procedure 12(b)(6), made applicable by Federal Rule of Bankruptcy Procedure 7012, to dismiss the Complaint for failure to state a claim upon which relief can be granted. (Motion to Dismiss, Adversary Proceeding No. 14–A–00674, Dkt. No. 5). The motion has been fully briefed.

II. Standards

“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, ‘to state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 1949 (quoting Bell Atl., 550 U.S. at 556, 127 S.Ct. 1955 ). In ruling on a motion to dismiss, the court must accept all well-pleaded facts as true and construe the allegations of the complaint in the light most favorable to the plaintiff. Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir.2008). Dismissal is appropriate only if it is clear in the pleadings that no set of facts could be proven in support of the plaintiff's claims that would entitle him to the relief requested. Panaras v. Liquid Carbonic Indus. Corp., 74 F.3d 786, 791 (7th Cir.1996).

III. Discussion

The FDCPA is designed to “eliminate abusive debt collection practices by debt collectors, to insure those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote State Action to protect consumers against debt collection abuses.” 15 U.S.C. § 1692(e). Brimmage argues that by filing a time-barred claim, the Defendants have violated sections 1692e(2)(A), 1692e(5), and 1692e(10) of the FDCPA. (Complaint, Adversary Proceeding No. 14–A–00674, Dkt. No. 1, ¶ 31). Section 1692e states generally 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. § 1692e. The alleged violations include “false representation of ... the character, amount, or legal status of any debt,” § 1692e(2)(A), the “threat to take any action that cannot legally be taken,” § 1692e(5), and the “use of any false representation or deceptive means to collect or attempt to collect any debt.” § 1692e(10).

The Defendants argue that the adversary proceeding should be dismissed for failure to state a claim upon which relief can be granted. Specifically, they argue that filing a proof of claim is not a debt collection effort and therefore not subject to the FDCPA. (Memorandum, Adversary Proceeding No. 14–A–00674, Dkt. No. 6, p. 7). Alternatively, they argue that it is impossible to comply with the FDCPA in a bankruptcy proceeding where the Bankruptcy Code controls. (Memorandum, Adversary Proceeding No. 14–A–00674, Dkt. No. 6, p. 17). The Court will address both of these arguments in turn.

A. Is filing a proof of claim a form of debt collection?

Only representations or actions in connection with collection of debt fall under the FDCPA. See § 1692e. The Defendants provide a number of reasons why filing a proof of claim does not constitute a form of debt collection.

1. Proof of claim is an action to protect debt from discharge

The Defendants argue that the claims allowance process in bankruptcy is not the equivalent of debt collection outside of bankruptcy. (Memorandum, Adversary Proceeding No. 14–A–00674, Dkt. No. 6, p. 7). Without citing any supporting authority, the Defendants state that unlike a demand letter for payment or filing a complaint, “the filing of a proof of claim is a defensive action taken to preserve a debt against the unique remedy of discharge.” (Id. at p. 8). Moreover, a proof of claim is merely a statement setting forth a creditor's claim, and the creditor will only see payment after the claim is evaluated by a private trustee. (Id. at pp. 8–9).

While the aforementioned is a true representation of the claims allowance process in bankruptcy, it does not explain why the process cannot also be considered a form of debt collection. The Supreme Court has stated that when a creditor “files a proof of claim ... it is using a traditional method of collecting a debt.” Gardner v. State of New Jersey, 329 U.S. 565, 573, 67 S.Ct. 467, 91 L.Ed. 504 (1947). A proof of claim is prima facie evidence of a claim's existence and by filing it the creditor is requesting that the bankruptcy court enforce the asserted claim. Id. Moreover, a proof of claim is automatically granted when filed, 11 U.S.C. § 502(a), meaning that the claim holder is set to collect on the claim until an objection is both made and subsequently granted. In this regard the filing of a proof of claim is merely the bankruptcy analog of filing a complaint or sending a demand letter to recover on a debt outside of bankruptcy. Therefore, the Court rejects the Defendants' position that the claims allowance process is not a debt collection effort.

2. A proof of claim is not akin to a complaint filed in a civil action

The Defendants next argue that a proof of claim is not the same as filing a complaint in a civil action because if it were so the automatic stay would prevent creditors from filing them. (Memorandum, Adversary Proceeding No. 14–A–00674, Dkt. No. 6, pp. 9–11). However, this argument is irrelevant. The FDCPA does not apply solely to filing a complaint, but to “any false, deceptive, or misleading representation or means in connection with the collection of any debt.” 15 U.S.C. § 1692e (emphasis added). The court has already determined that the filing of a proof of claim is a form of debt collection, as such the FDCPA would apply regardless of whether or not the proof of claim was similar to a complaint.

3. Majority of Courts have held that the FDCPA does not apply to filing a proof of claim

The Defendants provide a series of cases from other jurisdictions which have held that filing a proof of claim is not subject to the FDCPA. (Memorandum,...