Midland Funding LLC v. Thomas
Decision Date | 13 August 2019 |
Docket Number | Civil Action No. 5:18-cv-00128 |
Citation | 606 B.R. 687 |
Parties | MIDLAND FUNDING LLC, and Midland Credit Management, Inc., Appellants-Defendants, v. Karen THOMAS, Gary L. Brooks, Jr., and Mary M. Gillespie-Brooks, individually and on behalf of a similarly situated class of individuals, Appellees-Plaintiffs. |
Court | U.S. District Court — Western District of Virginia |
Chase Tristian Espy, Pro Hac Vice, Jason B. Tompkins, Pro Hac Vice, Balch & Bingham LLP, Birmingham, AL, James Kerr Donaldson, Vandeventer Black, LLP, Timothy George Moore, Spotts Fain, PC, Richmond, VA, for Appellants-Defendants.
Beth Carole Driver, Grant David Penrod, Hannah White Hutman, Hoover Penrod PLC, Timothy Earl Cupp, Shelley Cupp Schulte, P.C., Harrisonburg, VA, Thomas Dean Domonoske, Consumer Litigation Associates, P.C., Newport News, VA, for Appellees-Plaintiffs.
This matter is on appeal from the bankruptcy court. In a consolidated adversary proceeding, Midland Funding LLC and Midland Credit Management, Inc. (Midland) moved to compel plaintiffs and putative class representatives Karen Thomas, Gary L. Brooks, and Mary M. Gillespie-Brooks to arbitrate their claims that Midland violated Federal Rule of Bankruptcy Procedure 3001 and the Fair Debt Collection Practices Act (FDCPA) by filing incorrect proofs of claim for defaulted credit card debt. The bankruptcy court denied Midland's motion, and Midland appealed to the district court. For the reasons set forth below, the court affirms the bankruptcy court's order that plaintiffs' request for sanctions pursuant to Bankruptcy Rule 3001 is not subject to arbitration. The court expresses no opinion on whether the FDCPA claim should be arbitrated because the bankruptcy court expressly reserved ruling on that issue. Midland further argues that the bankruptcy court erred when it did not grant its motion to strike the class allegations from plaintiffs' complaints, but the bankruptcy court did not rule on that issue, so the court lacks jurisdiction to address it.
In 2016, each of the three plaintiffs filed for Chapter 13 bankruptcy. See In re Thomas , Case No. 16-50396 (Bankr. W.D. Va.); In re Brooks , Case No. 16-50396 (Bankr. W.D. Va.) In June 2017, plaintiffs filed adversary complaints against Midland, alleging that Midland's standard practice of filing proofs of claim in Chapter 13 proceedings violates Rule 3001 and the FDCPA. Plaintiffs bring these claims as class action claims on behalf of similarly situated people. The two adversary complaints were consolidated by the bankruptcy court on September 28, 2017.1
In August 2017, Midland filed a motion to dismiss. On November 30, 2017, the bankruptcy court denied Midland's motion to dismiss the FDCPA claim but granted Midland's motion to dismiss the Rule 3001 claim because plaintiffs did not allege "sufficient facts in the complaint that demonstrate any amounts of expenses or attorney's fees resulting from the failure of Midland to comply with Rule 3001." (Dkt. No. 17, Record on Appeal 143.) However, the bankruptcy court granted plaintiffs leave to amend to correct this pleading deficiency. Plaintiffs filed their amended complaint on December 19, 2017.
(Id. ) Regarding the FDCPA claims in Count I, the bankruptcy court found it "appropriate to retain jurisdiction and determine whether the defendants violated procedural rules before deciding whether it is appropriate to submit the FDCPA implications of such alleged violation to arbitration." (Id. ) The bankruptcy court did not address or rule on the merits of Midland's motion to strike class action allegations. (Id. at 554–59.) The bankruptcy court's order states that "defendants' motion to compel arbitration, ECF Doc. No. 21, is DENIED ." (Id. at 561.)
Midland filed a timely notice of appeal from the bankruptcy court's order denying Midland's motion to compel arbitration. See Fed. R. Bankr. 8002(a)(1) (). An order favoring litigation over arbitration is immediately appealable pursuant to the Federal Arbitration Act (FAA). See 9 U.S.C. § 16(a)(1)(C) ; Chorley Enters., Inc. v. Dickey's Barbecue Rest., Inc. , 807 F.3d 553, 561 (4th Cir. 2015) ( ); Dillon v. BMO Harris Bank, N.A. , 787 F.3d 707, 713 (4th Cir. 2015) (). Therefore, the court has jurisdiction over Midland's appeal from the denial of its motion to compel arbitration. See In re EPD Inv. Co., LLC , 821 F.3d 1146, 1149 (9th Cir. 2016) ( ).
Midland argues that the court has jurisdiction over its motion to strike class action allegations. Unlike the denial of a motion to compel arbitration, however, there is no automatic right to an interlocutory appeal with respect to a motion to strike, and Midland did not move for leave of court to file an interlocutory appeal as to that issue. 28 U.S.C. § 158(a)(3) ( ); Fed. R. Bankr. 8004(a), (b) (§ 158(a)(3) ). the procedural requirements for requesting leave to appeal from an interlocutory under Midland argues that the court should exercise pendent appellate jurisdiction over the bankruptcy court's refusal to strike the class allegations. The doctrine of pendent appellate jurisdiction, however, cannot be used to append issues to an already existing interlocutory appeal. As the Fourth Circuit explained in a bankruptcy appeal where appellate jurisdiction over an interlocutory order denying a motion to compel arbitration was "authorized solely by 9 U.S.C. § 16(a)(1)(A)," to "apply the doctrine of pendent appellate jurisdiction in this context would be to sanction the conversion of a narrow, statutorily authorized interlocutory appeal into a full-blown appeal, precisely the effect that the ... Court [has] sought to avoid." Moses v. CashCall, Inc. , 781 F.3d 63, 80 (4th Cir. 2015) (citing Swint v. Chambers Cnty. Comm'n , 514 U.S. 35, 45, 115 S.Ct. 1203, 131 L.Ed.2d 60 (1995) ). Midland also argues that the court should treat its notice of appeal as a motion for leave to appeal and enter an order granting leave to appeal this issue. The court declines to do so because the bankruptcy court did not address the merits of Midland's argument that plaintiffs waived their right to pursue a class action. As a result, there is nothing for this court to review on appeal with respect to the class action allegations, and the court will not address that issue in this appeal.
In general, the standard of review of a bankruptcy appeal in district court is the same standard used when an appellate court reviews a district court proceeding. See 28 U.S.C. § 158(c)(2) ( ). The district court reviews the bankruptcy judge's findings of fact under the "clear error" standard. In re Taneja , 743 F.3d 423, 429 (4th Cir. 2014). In contrast, the bankruptcy court's conclusions of law are subject to de novo review. Id. The district court "may affirm, modify, or reverse a bankruptcy court's judgment, order, or decree or remand with instructions for further proceedings." Harman v. Levin , 772 F.2d 1150, 1153 n.3 (4th Cir. 1985).
Whether a bankruptcy court has discretion to deny a motion to compel arbitration is a question of law...
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