Broadrick v. LVNV Funding LLC (In re Broadrick)

• Decision Date: 19 June 2015
• Docket Number: Adv. Proc. No. 3:14–ap–90357,Case. No. 3:14–bk–00672
• Citation: 532 B.R. 60
• Parties: In re: Patricia Ann Broadrick, Debtor. Patricia Ann Broadrick Plaintiff, v. LVNV Funding LLC and Resurgent Capital Services L.P., Defendants.
• Court: U.S. Bankruptcy Court — Middle District of Tennessee

532 B.R. 60

In re: Patricia Ann Broadrick, Debtor.Patricia Ann Broadrick Plaintiff

v.LVNV Funding LLC and Resurgent Capital Services L.P., Defendants.

Case. No. 3:14–bk–00672

Adv. Proc. No. 3:14–ap–90357

United States Bankruptcy Court, M.D. Tennessee.

Signed June 19, 2015

Charles Ward Faquin, Law Offices of Charles W. Faquin PLC, James Alan Flexer, Law Offices of James Flexer, Nashville, TN, for Plaintiff.

Derek W. Edwards, Waller Lansden Dortch & Davis, Blake Roth, Waller Lansden Dortch & Davis, LLP, Nashville, TN, for Defendants.

MEMORANDUM OPINION

Randal S. Mashburn, U.S. Bankruptcy Judge

Filing a proof of claim in bankruptcy court is not automatically a violation of the Fair Debt Collection Practices Act (“FDCPA”) when the underlying debt cannot be collected because of an applicable statute of limitations. However, a so-called “stale” proof of claim is not necessarily protected from FDCPA exposure merely because it arises in the bankruptcy setting. Specific facts matter. Based on the stipulated facts of this case, a violation of the FDCPA is not apparent.

Courts are divided whether FDCPA liability is triggered when a creditor files a “stale claim”—one based on a debt that would not be enforceable under non-bankruptcy law because of the statute of limitations. Some courts have found that filing a stale claim is inherently “unfair” or “deceptive” and violates the FDCPA as a matter of law. Other courts are equally sure that the effect of the FDCPA stops at the door to the Bankruptcy court, precluding FDCPA liability in those circumstances.

A “cardinal principle” of statutory construction is that when there are two federal laws on the same subject, “the rule is to give effect to both.” U . S. v. Borden Co., 308 U.S. 188, 198, 60 S.Ct. 182, 84 L.Ed. 181 (1939). Many courts discussing the interaction of the Bankruptcy Code and the FDCPA have focused on whether one statute preempts or displaces the other on the issue of stale claims. However, it is possible to harmonize the two—or at least to make both function without doing extensive harm to either.

Avoiding overt friction between the two laws is accomplished by not using an overly expansive interpretation of the FDCPA in the special context of stale claims in bankruptcy. The FDCPA should not be read to usurp the claims allowance process in bankruptcy or to render bankruptcy provisions illogical. However, it is not necessary for the Bankruptcy Code to displace or preclude the FDCPA in every instance when a prohibited debt collection practice happens in a bankruptcy case.

An unnecessarily expansive reading of the FDCPA finds a violation based on the mere filing of a stale proof of claim without regard to the accuracy of the claim, the status of the underlying debt under nonbankruptcy law, or other facts. Such a liberal interpretation does not mesh easily with the structure of the Bankruptcy Code that expressly addresses unenforceable claims and provides remedies for those situations.

On the other hand, harmonizing the two statutes does not dictate that the FDCPA be totally removed from the toolbox of consumer protections when a debtor files bankruptcy. There may be numerous situations where the FDCPA has implications for actions taken by a creditor in the bankruptcy setting, but, with regard to stale debts, the FDCPA does not apply when a creditor merely (a) files an accurate proof of claim in a bankruptcy case, (b) when the proof of claim includes all the required information including the timing of the debt, (c) the applicable statute of limitations is one that does not extinguish the right to collect the debt but merely limits the remedies, and (d) no legal impediment to collection or factual circumstances exist that would invoke the FDCPA other than merely the applicability of a statute of limitations.

This is an adversary proceeding within the meaning of Federal Rule of Bankruptcy Procedure 7001, and this Court has jurisdiction pursuant to 28 U.S.C. § 1334. This is a core proceeding. The following constitute findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.

UNDISPUTED FACTS

On January 30, 2014, Patricia Ann Broadrick filed a Chapter 13 petition. (Stip. of Facts, at ¶ 1.). On June 9, 2014, proof of claim number 13 (the “Capital One Claim”) was filed in Broadrick's bankruptcy case. (Id. at ¶ 5.) The Capital One Claim asserts a debt in the amount of $797.30 arising from an obligation of Broadrick to Capital One Bank (USA), N.A. (Id. at ¶ 6.). The Capital One Claim provides that the last payment date and last transaction date were August 30, 2002 (Stip. of Facts, ¶ 8). Broadrick did not list the debt referenced in the Broadrick Claim (Stip. Of Facts, ¶ 9). On August 20, 2014, Broadrick filed a complaint (the “Broadrick Complaint”), objecting to the Capital One Claim and alleging violations of the FDCPA. (Broadrick v. LVNV Funding, LLC (In re Broadrick), No. 14–90357 (Bankr.M.D.Tenn. Aug. 20, 2014). The parties agreed to proceed on cross-motions for summary judgment.¹

DISCUSSION

A. Summary Judgment Standards

Rule 56 of the Federal Rules of Civil Procedure, as incorporated by Federal Rule of Bankruptcy Procedure 7056, mandates the entry of summary judgment “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine dispute as to any material fact and that the moving party is entitled to judgment as a matter of law.” In ruling on a motion for summary judgment, the court is not to “weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.” Browning v. Levy, 283 F.3d 761, 769 (6th Cir.2002) quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

The moving party bears the initial burden of showing that there is an absence of evidence to support the nonmoving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) quoting Adickes v. S.H. Kress & Co., 398 U.S. 144, 159, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). The burden then shifts to the nonmoving party to produce evidence that would support a finding in its favor. Anderson, 477 U.S. at 250–52, 106 S.Ct. 2505. This standard does not change when both parties move for summary judgment. Taft Broad. Co. v. U.S., 929 F.2d 240, 248 (6th Cir.1991) “When reviewing cross-motions for summary judgment, the court must evaluate each motion on its own merits and view all facts and inferences in the light most favorable to the nonmoving party.” Wiley v. U . S., 20 F.3d 222, 224 (6th Cir.1994). The Court finds no material facts are in dispute which would prevent this Court from ruling, at least in part, on the cross-motions for summary judgment.

B. The FDCPA Generally

Congress passed the FDCPA in 1977 with the stated purposes of eliminating “abusive debt collection practices,” ensuring “that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged,” and promoting “consistent State action to protect consumers against debt collection abuses.” 15 U.S.C. § 1692(e) ; Stratton v. Portfolio Recovery Assocs., LLC, 770 F.3d 443, 445 (6th Cir.2014) (purpose is to eliminate abusive debt collection practices by debt collectors.).² In furtherance of these purposes, the FDCPA bans a variety of debt collection practices and allows individuals to sue offending debt collectors.

The FDCPA is a consumer protection statute that “imposes open-ended prohibitions on, inter alia, false, deceptive, or unfair” debt-collection practices. Crawford v. LVNV Funding, LLC, 758 F.3d 1254, 1257 (11th Cir.2014) quoting Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 559 U.S. 573, 587, 130 S.Ct. 1605, 176 L.Ed.2d 519 (2010) (quotation marks and citations omitted). The purpose of the FDCPA is “to eliminate abusive debt collection practices by debt collectors.” Stratton, 770 F.3d at 445. The Sixth Circuit recently discussed the breadth of the FDCPA:

The Fair Debt Collection Practices Act is an extraordinarily broad statute” and must be construed accordingly The FDCPA is a strict-liability statute: A plaintiff does not need to prove knowledge or intent ... and does not have to have suffered actual damages.... Structured as such, the FDCPA functions both to protect the individual debtor and advance the declared federal interest in “eliminat[ing] abusive debt collection practices.... Strict liability places the risk of penalties on the debt collector that engages in activities which are not entirely lawful, rather than exposing consumers to unlawful debt-collector behavior without a possibility for relief.

Id. at 448–49 (citations omitted). The Act protects “all consumers,” the “shrewd” as well as the “gullible,” Fed. Home Loan Mortg. Corp. v. Lamar, 503 F.3d 504, 509 (6th Cir.2007) (internal quotation marks omitted), from practices that would mislead the “reasonable unsophisticated consumer,” one with some level of understanding and one willing to read the document with some care. Wallace v. Wash. Mut. Bank, FA., 683 F.3d 323, 327 (6th Cir.2012) ; Buchanan v. Northland Group, Inc., 776 F.3d 393 (6th Cir.2015).

The FDCPA prohibits “false, deceptive, or misleading representations or means in connection with the collection of any debt,” 15 U.S.C. § 1692e, and “unfair practices”—“unfair or unconscionable means to collect or attempt to collect any debt.” 15 U.S.C. § 1692f.³ Stratton, at 450. The applicable sections provide a list of unlawful conduct without limiting the general application of each section's broad prohibition of “false or misleading representations” and “unfair practices.” Id. §§ 1692e, 1692f. “Thus section 1692e forbids both ‘[t]he false representation of ... the character, amount, or legal status of any debt,’ § 1692e(2), and the ‘threat to take any action that cannot legally be taken,’ § 1692e(5), and section 1692f(l) prohibits ‘[t]he...