Johnson v. Midland Funding, LLC

• Decision Date: 23 March 2015
• Docket Number: Civil Action No. 14–0322–WS–C.
• Citation: 528 B.R. 462
• Parties: Aledia Q. JOHNSON, etc., Plaintiff, v. MIDLAND FUNDING, LLC, Defendant.
• Court: U.S. District Court — Southern District of Alabama

528 B.R. 462

Aledia Q. JOHNSON, etc., Plaintiff

v.MIDLAND FUNDING, LLC, Defendant.

Civil Action No. 14–0322–WS–C.

United States District Court, S.D. Alabama, Southern Division.

Signed March 23, 2015.

Earl P. Underwood, Jr., Fairhope, Kenneth J. Riemer, Mobile, AL, for Plaintiff.

Jason Brent Tompkins, Chase Tristan Espy, Birmingham, AL, for Defendant.

ORDER

WILLIAM H. STEELE, Chief Judge.

This matter is before the Court on the defendant's motion to dismiss. (Doc. 17). The parties have filed briefs in support of their respective positions, (Docs.17, 21, 22, 25, 27), and the motion is ripe for resolution. After careful consideration, the Court concludes the motion is due to be granted.

BACKGROUND

According to the complaint, (Doc. 1), the plaintiff filed for bankruptcy relief under Chapter 13. The defendant then filed a proof of claim that disclosed on its face that the claim is barred by the statute of limitations. The complaint alleges that this filing violated the Fair Debt Collection Practices Act (“the Act”), in that it was deceptive and misleading for purposes of 15 U.S.C. § 1692e and unfair and unconscionable for purposes of 15 U.S.C. § 1692f.

In Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir.2014), the Eleventh Circuit “consider[ed] whether a proof of claim to collect a stale debt in Chapter 13 bankruptcy violates” the Act and “answer[ed] this question affirmatively.” Id. at 1256–57. The defendant argues that dismissal nevertheless is required on two grounds: (1) “[a]ny claim Johnson might otherwise assert under the [Act] in this case is precluded by the Bankruptcy Code”; and (2) “[e]ven if Johnson's claim were not precluded by the Bankruptcy Code, she still fails to state a claim under the [Act].” (Doc. 17 at 5, 16).

DISCUSSION

“There is no burden upon the district court to distill every potential argument that could be made based upon the materials before it on summary judgment.” Resolution Trust Corp. v. Dunmar Corp., 43 F.3d 587, 599 (11th Cir.1995). The Court's review on this motion to dismiss is similarly limited to those arguments the parties have expressly advanced. E.g., Jurich v. Compass Marine, Inc., 906 F.Supp.2d 1225, 1228 (S.D.Ala.2012).

The defendant's second argument is essentially an extended and futile effort to deny and thereby avoid the ruling in Crawford. The only serious question presented by the defendant's motion is whether tension between the Bankruptcy Code (“the Code”) and the Act precludes the plaintiff from pursuing her claim under the Act.¹ That issue was not presented in Crawford, and the Eleventh Circuit expressly declined to consider it. 758 F.3d at 1262.

“The courts are not at liberty to pick and choose among congressional enactments, and when two statutes are capable of co-existence, it is the duty of the courts, absent a clearly expressed congressional intention to the contrary, to regard each as effective.” Morton v. Mancari, 417 U.S. 535, 551, 94 S.Ct. 2474, 41 L.Ed.2d 290 (1974) ; accord J.E.M. Ag Supply, Inc. v. Pioneer Hi–Bred International, Inc., 534 U.S. 124, 143–44, 122 S.Ct. 593, 151 L.Ed.2d 508 (2001). There are various ways of measuring and resolving the tension between federal statutes, but the parties agree to use the test requiring “irreconcilable conflict” between the provisions. (Doc. 17 at 4–5, 7, 16; Doc. 21 at 3, 7–12, 16, 18, 21; Doc. 22 at 1, 3, 7, 9).

Before deciding whether the Act and the Code are in irreconcilable conflict, the Court must determine what each provides. The Act, as construed by Crawford, provides that it is unlawful for a debt collector to file a proof of claim in a Chapter 13 proceeding knowing the claim to be time-barred.² As discussed below, the Code provides that it is permissible for a creditor to file such a proof of claim if expiration of the limitations period does not extinguish the creditor's right to payment under applicable state law.

“A creditor ... may file a proof of claim.” 11 U.S.C. § 501(a). Pursuant to this provision, “[w]hen a debtor declares bankruptcy, each of its creditors is entitled to file a proof of claim....” Travelers Casualty & Surety Co. of America v. Pacific Gas & Electric Co., 549 U.S. 443, 449, 127 S.Ct. 1199, 167 L.Ed.2d 178 (2007).

“In this title ... ‘claim’ means ... right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured....” 11 U.S.C. § 101(5)(A). Thus, if a creditor has a right to payment he has a claim, and if he has a claim he is entitled to file a proof of claim.

“The basic federal rule in bankruptcy is that state law governs the substance of claims....” Travelers, 549 U.S. at 450, 127 S.Ct. 1199 (internal quotes omitted). This flows naturally from the proposition that “property interests are created and defined by state law, and unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding.” Id. at 451, 127 S.Ct. 1199 (internal quotes omitted). “Accordingly, when the Bankruptcy Code uses the word ‘claim’—which the Code itself defines as a ‘right to payment,’ [citation omitted]—it is usually referring to a right to payment recognized under state law.” Id. Thus, if a creditor has a right to payment (i.e., a property interest) recognized by applicable state law despite the lapse of the limitations period, he has a claim for such time-barred debt and is entitled to file a proof of claim as to such time-barred debt.

The plaintiff identifies Alabama as providing the applicable state law. (Doc. 21 at 1 n. 1). In Alabama, a creditor's right to payment is not eliminated by a limitations bar.

Ex parte Liberty National Life Insurance Co., 825 So.2d 758, 765 (Ala.2007) (“[A] statute of limitations generally is procedural and extinguishes the remedy rather than the right ....”) (internal quotes omitted).³ Thus, the defendant has a right to payment of its time-barred debt and a consequent entitlement to file a proof of claim as to the time-barred debt.

The plaintiff, while ignoring the Court's analysis, insists that the Code does not “condon[e] ... the filing of proofs of claim on patently unenforceable debt.” (Doc. 21 at 8). According to the plaintiff, Section 101(5) requires a “bona fide ‘right to payment,’ ” which she defines as a “legally enforceable right.” (Id. at 2, 17).⁴ The defendant scoffs that the plaintiff has pulled this definition of a “right” from a legal dictionary. (Doc. 22 at 8). And so she has, but the Supreme Court itself, in construing Section 101(5), has declared that “[t]he plain meaning of a ‘right to payment’ is nothing more nor less than an enforceable obligation....” Pennsylvania Department of Public Welfare v. Davenport, 495 U.S. 552, 559, 110 S.Ct. 2126, 109 L.Ed.2d 588 (1990).⁵

Mr. Black⁶ provides seven definitions of a “right,” but the plaintiff quotes only one part of one definition. The entirety of that (fourth) definition reads as follows: “A legally enforceable claim that another will do or will not do a given act; a recognized and protected interest the violation of which is a wrong .” Black's Law Dictionary 1436 (9th ed. 2009). It is plain from this definition that “legally enforceable” means only that the law “recognize [s] and protect[s]” the interest giving rise to the claim, that is, that the claim is not a mere moral obligation or idiosyncratic opinion with which the law is not concerned. This dichotomy is made even clearer by Mr. Black's second definition, which defines a “right” as “[s]omething that is due to a person by just claim, legal guarantee, or moral principle....” Id. (emphasis added).⁷ It is equally plain that a right is “legally enforceable” in this sense whether or not the defendant can successfully assert an affirmative defense such as the statute of limitations.⁸ So long as the law recognizes and protects the interest at issue (here, the interest in being repaid a contractual debt), the resulting claim is legally enforceable even if the law's protection is not limitless in time or scope.

There is no indication that the Supreme Court has used the term “enforceable obligation” in any more restrictive sense than Mr. Black has used the parallel term “legally enforceable claim.” The question presented in Davenport was whether restitution obligations imposed in state criminal proceedings are “debts” as defined by 11 U.S.C. § 101(11). Because “debt” means “liability on a claim,” id., the Court looked to the definition of “claim.” The petitioners argued in part that a restitution order could not represent a “right to payment” because the obligation could not be enforced in civil proceedings but only by threatening the probationer with revocation. 495 U.S. at 558–59, 110 S.Ct. 2126. The Supreme Court did not regard this difference in “enforcement mechanism” as significant. Id. at 559–60, 110 S.Ct. 2126. Its statement that a right to payment is “nothing more nor less than an enforceable obligation” signifies only that a right to payment is legally enforceable however the law chooses to enforce it—by civil litigation or otherwise. The Davenport Court's reliance on legislative history to show that the Code “contemplates that all legal obligations of the debtor ... will be able to be dealt with in the bankruptcy case,” id. at 558, 110 S.Ct. 2126 (emphasis added, internal quotes omitted), further reflects that it used “enforceable obligation” only in Mr. Black's sense of an interest recognized and protected by law. Moreover, Davenport expressly recognizes that the Code's definitions of “claim” and “debt” are the “broadest possible,” id. at 558, 564, 110 S.Ct. 2126 (internal quotes omitted), and a definition of the embedded term “right to payment” that excludes obligations exposed to a limitations defense patently is not the broadest possible. Finally, to read Davenport as the plaintiff...