Jaley v. Am. Express Nat'l Bank (In re Jaley)
| Decision Date | 26 April 2019 |
| Docket Number | Case No. 18-21131-LSS,Adv. No. 19-00005 |
| Parties | IN RE: Mohan K. JALEY, Debtor. Mohan K. Jaley, Plaintiff, v. American Express National Bank, Defendant. |
| Court | U.S. Bankruptcy Court — District of Maryland |
Douglas N. Gottron, Morris Palerm, LLC, Rockville, MD, for Plaintiff.
Bradley T. Canter, The Law Offices of Ronald S. Canter, LLC, Rockville, MD, for Defendant.
Defendant, American Express National Bank, moves the Court to dismiss all of Plaintiff's causes of action remaining in this adversary proceeding pursuant to Federal Rule of Civil Procedure 12(b)(6), made applicable herein by Federal Rule of Bankruptcy Procedure 7012.1 Defendant also moves the Court to sanction Plaintiff pursuant to Federal Rule of Bankruptcy Procedure 9011(c).2 Plaintiff opposes both requests for relief.3 For the reasons stated below, the Court will grant Defendant's Motion to Dismiss (the "Motion to Dismiss") and deny its Motion for Sanctions (the "Motion for Sanctions").4
Plaintiff filed her Chapter 13 Voluntary Petition on August 21, 2018.5 The following month, Defendant filed two proofs of claim, Claim No. 4 and Claim No. 5, in Plaintiff's bankruptcy case.6 In Claim No. 4, Defendant asserted an unsecured credit card debt totaling $ 62,400.00. Plaintiff objected to Claim No. 4 on the ground that it was time-barred and unenforceable.7 Defendant did not file a timely response. The Court entered an order sustaining Plaintiff's claim objection and disallowing Claim No. 4.8
In Claim No. 5, Defendant asserted an unsecured credit card debt totaling $ 12,072.20. In response to Claim No. 5, Plaintiff initiated this adversary proceeding on January 3, 2019.9 Plaintiff asserted seven causes of action, six of which are class action causes of action. Count I, an objection to Claim No. 5 as unenforceable and time-barred, is the only individual cause of action. At the time she filed and served her initial complaint, Plaintiff filed and served a Motion for Partial Summary Judgment, seeking summary judgment as to Count I only.10 Defendant filed a response stating that it did not contest disallowance of Claim No. 5.11 Accordingly, the Court entered an Order Granting Summary Judgment as to Court I, which disallowed Claim No. 5.12
On February 13, 2019, Plaintiff filed an amended complaint (the "Amended Complaint").13 The relevant facts alleged in the Amended Complaint are: (1) Defendant extended a credit card to Plaintiff; (2) Plaintiff incurred debt to Defendant on that account (the "Debt"); (3) the Debt has been in default since June 30, 2015; and (4) Defendant filed Claim No. 5 based on the Debt. In the Amended Complaint, Plaintiff seeks certification of two classes. Class I being "All current and former debtors in any bankruptcy action pending, at any time, before the U.S. Bankruptcy Court for the District of Maryland in whose proceeding a proof of claim was submitted by [Defendant] on or after October 1, 2016, on a time barred consumer debt." Class II being a subset of Class I including only debtors in cases "in which any monies were paid out unto and/or received by [Defendant]." On behalf of those alleged classes, Plaintiff asserts five causes of action. Plaintiff seeks declaratory judgment that Defendant's practice of filing proofs of claims for time-barred debt is a violation of Maryland law. Plaintiff seeks an injunction enjoining Defendant from continuing such practice. Plaintiff asserts two causes of action for monetary damages asserting that such practice violates the Maryland Consumer Debt Collection Act ("MCDCA") and the Maryland Consumer Protection Act ("MCPA"). Finally, Plaintiff asserts that Defendant was unjustly enriched through such practice.
Defendant moves the Court to dismiss all of Plaintiff's remaining causes of action set forth in the Amended Complaint for failure to state a claim on which relief can be granted. Defendant argues that binding precedent upholds a creditor's right to file a proof of claim on stale debt. Defendant asserts that expiration of the limitations period terminates the remedy for nonpayment of a debt but does not extinguish the right to payment thereon. Plaintiff responds that, as of October 1, 2016, Maryland law provides for the termination of the right and remedy upon expiration of the applicable limitations period. Defendant also moves the Court to impose sanctions on Plaintiff, arguing that Plaintiff's class action causes of action are frivolous and harassing.
The instant motions present two distinct, yet related, issues to the Court. First, with respect to the Motion to Dismiss, the Court must determine whether Md. Cts. & Jud. Proc. Code Ann. § 5-1201 et seq . effectively extinguishes the right to payment on a debt following the expiration of the applicable statute of limitations. If not, the Court must determine, with respect to the Motion for Sanctions, whether Plaintiff's argument in the affirmative is nonfrivolous.
Federal Rule of Civil Procedure 12(b)(6) provides that the Court may dismiss a claim or defense for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). A motion to dismiss under Rule 12(b)(6) tests the sufficiency of a complaint; importantly, it does not resolve contests surrounding the facts, merits of the claim, or the applicability of defenses." Republican Party of N.C. v. Martin , 980 F.2d 943, 952 (4th Cir. 1992). "A motion to dismiss under Fed. R. Civ. P. 12(b)(6) will be granted if the allegations of the complaint, construed in the light most favorable to the plaintiff, fail as a matter of law to state a claim for which relief can be granted." FTC v. AmeriDebt, Inc ., 343 F. Supp. 2d 451, 459 (D. Md. 2004) (citing Carter v. Burch , 34 F.3d 257, 261 (4th Cir. 1994) ). The Court must accept as true all well-pleaded material allegations of the complaint and must liberally construe it as a whole. Id. (citing Edwards v. Johnston County Health Dep't , 885 F.2d 1215, 1217 n. 4 (4th Cir. 1989) ; Jenkins v. McKeithen , 395 U.S. 411, 421, 89 S.Ct. 1843, 23 L.Ed.2d 404 (1969) ).
"[A] complaint should not be dismissed for failure to state a claim unless it appears beyond a doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Id . (citing Conley v. Gibson , 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957) ). "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, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A complaint is plausible "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 . (citing Twombly , 550 U.S. at 556, 127 S.Ct. 1955 ). Plausibility does not require probability but does require something "more than a sheer possibility that the defendant acted unlawfully." Id.
Under Maryland law, "[a] civil action at law shall be filed within three years from the date it accrues." Md. Cts. & Jud. Proc. Code Ann. § 5-101. This three-year limitations period applies to credit card (i.e., contractual) debt. See Mumford v. Staton, Whaley and Price , 254 Md. 697, 255 A.2d 359, 361 (1969) (). "In breach of contract cases, a cause of action typically accrues at the time of the breach." Shailendra Kumar, P.A. v. Dhanda , 426 Md. 185, 43 A.3d 1029, 1035 (2012) (citing Jones v. Hyatt Insurance Agency, Inc. , 356 Md. 639, 741 A.2d 1099, 1104 (1999). Here, Plaintiff alleges that she defaulted on the Debt no later than June 30, 2015. Thus, the Court presumes that Defendant's Claim No. 5 against her accrued on that date. The limitations period on claims for nonpayment of the Debt expired June 30, 2018. As such, as of the petition date, the Debt was unenforceable against Plaintiff and subject to disallowance under 11 U.S.C. § 502(b)(1).
In Midland Funding, LLC v. Johnson , ––– U.S. ––––, 137 S. Ct. 1407, 197 L.Ed.2d 790 (2017), the Supreme Court addressed a circuit split over whether the filing of proof of claim on a time-barred debt violated the Fair Debt Collection Practices Act (the "FDCPA"). See generally In re Dubois, 834 F.3d 522, 533 (4th Cir. 2016) (). In essence, the FDCPA bars false, deceptive, misleading, unconscionable or unfair practices in connection with debt collection. See 15 U.S.C. §§ 1692e and 1692f. The Supreme Court concluded that "filing of a proof of claim that on its face indicates that the limitations period has run does not fall within the scope of any of the five relevant words of the [FDCPA]." Midland Funding , 137 S. Ct. at 1411. The Supreme Court reasoned that "[a] ‘claim’ is a ‘right to payment,’ " and that "[s]tate law usually determines whether a person has such a right." Id. (quoting 11 U.S.C. § 101(5)(A) ) ). The Supreme Court then held that "Alabama's law, like the law of many States, provides that a creditor has the right to payment of a debt even after the limitations period has expired." Id. In support of this conclusion, the Supreme Court cited a decision from the Maryland Court of Appeals, Potterton v. Ryland Group, Inc. , 289 Md. 371, 424 A.2d 761, 764 (1981).
In Potterton , a home buyer brought an action against the builder for breach of warranty. The builder argued that the applicable statute of limitations had expired. However, the court held that two letters sent by the builder to the buyers, wherein...
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