Nicholson v. Ecast Settlement Corp.

• Decision Date: 24 May 2019
• Docket Number: Case Number: 5:14-bk-04228-RNO
• Citation: 602 B.R. 295
• Parties: In re: Kimberly Ann NICHOLSON, Debtor(s) v. ECAST SETTLEMENT CORPORATION, assignee of Citibank, N.A., Creditor(s)
• Court: U.S. Bankruptcy Court — Middle District of Pennsylvania

602 B.R. 295

In re: Kimberly Ann NICHOLSON, Debtor(s)

v.ECAST SETTLEMENT CORPORATION, assignee of Citibank, N.A., Creditor(s)

Case Number: 5:14-bk-04228-RNO

United States Bankruptcy Court, M.D. Pennsylvania.

May 24, 2019

Patrick James Best, ARM Lawyers, Stroudsburg, PA, for Debtor.

Document No.: 78

OPINION ¹

Robert N. Opel, II, Chief Bankruptcy Judge

Claimant, a purported claim assignee, filed its Claim in Debtor's Chapter 13 bankruptcy. Subsequently, Debtor filed an Objection requesting the Claim be disallowed in its entirety. For the reasons stated below, Debtor's Objection is sustained, and the Claim is disallowed.

I. JURISDICTION

This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334. This is a core proceeding under 28 U.S.C. § 157(b)(2)(B).

II. FACTS AND PROCEDURAL HISTORY

On September 12, 2014, Kimberly Nicholson ("Debtor") filed her voluntary Chapter 13 bankruptcy petition. In her Schedule F, Debtor listed Citibank, N.A. ("Citibank") as an unsecured, nonpriority, undisputed creditor in the amount of $ 3,821.00 for a revolving consumer credit account with the account number having the last four digits of 1529.

On January 20, 2015, eCAST Settlement Corporation ("Claimant") filed Proof of Claim No. 5 ("Claim"). It asserts a claim of $ 3,937.42 for a credit card account which is identified by the last four digits of the account number, 1529. Additionally, attached to the Claim are a Statement of Claim ("Statement of Claim"), a Bill of Sale and Assignment between Claimant and Citibank ("Bill of Sale and Assignment"), and a pre-petition account statement ("Account Statement"), all of which allegedly provide that Citibank assigned the account underlying the Claim to Claimant.

On October 22, 2018, Debtor filed her Objection to the Claim ("Objection"). In her Objection, Debtor disputes that Citibank assigned her account to Claimant and alleges a lack of documentation for such an assignment. On that same day, Debtor sent a letter, pursuant to Federal Rule of Bankruptcy Procedure ("Rule") 3001(c)(3)(B), requesting Claimant produce additional information evidencing the account's underlying contract and assignment, but, allegedly, Claimant's response failed to produce the requested information. Due to this failure, Debtor argues that the Claim should be disallowed pursuant to 11 U.S.C. § 502(b)(1)² because the Claim is unenforceable under Pennsylvania state law.

On November 21, 2018, Claimant filed its Answer ("Answer"). The Answer contains multiple arguments that the Claim should be allowed. Additionally, Claimant attached a form Affidavit ("Affidavit") signed by an employee of Citibank which states that "the account ending in 1529 was sold to eCAST Settlement Corporation on or about 10/30/2014."

On December 11, 2018, a hearing was held on the Objection to the Claim ("December 11 Hearing"). At the December 11 Hearing, Claimant attempted to introduce the Affidavit into evidence to which Debtor objected arguing hearsay. Without ruling on this hearsay objection, Judge Thomas, who was then presiding over this case, set a briefing schedule and took the matter under advisement.

On January 1, 2019, Claimant filed its Brief in Support of its Answer ("Claimant's Brief"). On that same day, Debtor filed her Brief in Support of her Objection ("Debtor's Brief").

On February 13, 2019, this case was reassigned to me due to the untimely passing of Judge John J. Thomas. On March 13, 2019, the parties filed a Joint Statement for the Matter to be Decided Based on the Existing Record. The Objection is now ripe for decision.

III. DISCUSSION

In her Objection, Debtor alleges that Claimant never acquired the right to collect any debt Debtor owed to Citibank, and therefore, the Claim should be disallowed pursuant to § 502(b)(1) of the Bankruptcy Code and Pennsylvania state law. Debtor's Obj. to Proof of Claim No. 5 at 1-2, ECF No. 78. In support of her assertion, Debtor provides that she sent Claimant a Rule 3001(c)(3)(B) request demanding that Claimant provide her with the account agreement underlying the Claim and the purported assignment transferring the specific account to Claimant. Id. While Claimant did respond to this request, it was unable to provide the underlying contract between Debtor and Citibank or the assignment of the specific account from Citibank to Claimant. Br. in Supp. of Resp. to Debtor's Obj. to Proof of Claim No. 5 at 11-12, ECF No. 85. Regardless, Claimant brought the following arguments in favor of the allowance of the Claim: (1) the Claim satisfies Rule 3001(c)(3) ; (2) the Claim commands prima facie validity; (3) Debtor fails to show a basis for disallowance of the Claim pursuant to § 502(b)(1)-(9); (4) Claimant complied with Rule 3001(e)(1) in filing its post-petition assignment; (5) the state law theories of recovery of account stated, unjust enrichment, and promissory estoppel support a finding in favor of Claimant; (6) Claimant should not be penalized pursuant to Rule 3001(c)(2)(D) ; and (7) Debtor's scheduling of the debt underlying the Claim is an admission against interest.

Allowance or disallowance of a proof of claim is governed by § 502 and Rule 3001. In re Foy , 469 B.R. 209, 212 (Bankr. E.D. Pa. 2012). Under § 502(a), "[a] proof of claim filed in compliance with the Federal Rules of Bankruptcy Procedure is deemed allowed unless a party in interest objects." In re O'Brien , 440 B.R. 654, 666 (Bankr. E.D. Pa. 2010). Subsequently, § 502(b) provides that if a party in interest objects, the court "shall determine the amount of such claim ... as of the date of the filing of the petition, and shall allow such claim in such amount," subject to several exceptions. In re Milbourne , 557 B.R. 376, 388 (Bankr. E.D. Pa. 2016) ; see also 11 U.S.C.A. § 502(b)(1)-(9) (West). Bankruptcy courts resolve objections to proofs of claim by employing a burden shifting analysis.

The burden of proof for claims brought in the bankruptcy court under 11 U.S.C.A. § 502(a) rests on different parties at different times. Initially, the claimant must allege facts sufficient to support the claim. If the averments in his filed claim meet this standard of sufficiency, it is "prima facie " valid. In re Holm , 931 F.2d 620, 623 (9th Cir. 1991) (quoting 3 L. King, Collier on Bankruptcy § 502.02, at 502-22 (15th ed. 1991)). In other words, a claim that alleges facts sufficient to support a legal liability to the claimant satisfies the claimant's initial obligation to go forward. The burden of going forward then shifts to the objector to produce evidence sufficient to negate the prima facie validity of the filed claim. It is often said that the objector must produce evidence equal in force to the prima facie case. Id. ; see In re Windsor Communications Group, Inc. , 45 B.R. 770, 773 (Bankr. E.D. Pa. 1985). In practice, the objector must produce evidence which, if believed, would refute at least one of the allegations that is essential to the claim's legal sufficiency. If the objector produces sufficient evidence to negate one or more of the sworn facts in the proof of claim, the burden reverts to the claimant to prove the validity of the claim by a preponderance of the evidence. See In re WHET, Inc. , 33 B.R. 424, 437 (Bankr. D. Mass. 1983). The burden of persuasion is always on the claimant. Holm , 931 F.2d at 623 (quoting Collier § 502.02, at 502-22); Windsor Communications , 45 B.R. at 773.

In re Allegheny Int'l, Inc. , 954 F.2d 167, 173-74 (3d Cir. 1992).

A. The Claim is Prima Facie Valid

As stated above, the claimant bears the initial burden of proving the prima facie validity of its claim. In re Allegheny Int'l, Inc. , 954 F.2d at 173. However, in our case, Debtor is not disputing the prima facie validity of the Claim. Debtor's Br. in Supp. of Debtor's Obj. to Proof of Claim No. 5 at 5, ECF No. 86. I will therefore accept the Claim's prima facie validity.

B. Rule 3001(c), § 502(b), and State Law

The burden now shifts to Debtor to produce evidence sufficient to negate the prima facie validity of the Claim. To do so, Debtor argues that Claimant's failure to satisfy the requirements under Rule 3001(c)(3)(B) and Rule 3001(c)(1), coupled with Debtor's testimony at the December 11 Hearing, negates the prima facie validity of the Claim and therefore disallows the Claim in its entirety unless Claimant can meet its ultimate burden. Debtor's Br. in Supp. of Debtor's Obj. to Proof of Claim No. 5 at 4-6, ECF No. 86; see also In re Snedeker , 2018 WL 3583047 (Bankr. M.D. Pa. July 25, 2018).

1. Rule 3001(c)(3)(B) and Rule 3001(c)(1)

Rule 3001(c)(3)(B) provides:

(B) On written request by a party in interest, the holder of a claim based on an open-end or revolving consumer credit agreement shall, within 30 days after the request is sent, provide the requesting party a copy of the writing specified in paragraph (1) of this subdivision.

Rule 3001(c)(3)(B) allows a party in interest to request, from the claimant, a copy of the writing specified in Rule 3001(c)(1) within thirty days after the request is sent. Rule 3001(c)(1) provides:

(C) Supporting Information.

(1) Claim based on a writing.

Except for a claim governed by paragraph (3) of this subdivision, when a claim, or an interest in property of the debtor securing the claim, is based on a writing, a copy of the writing shall be filed with the proof of claim. If the writing has been lost or destroyed, a statement of the circumstances of the loss or destruction shall be filed with the claim.³

"The writing specified in Rule 3001(c)(1) is the writing on which the claim is based, which, in the context of Rule 3001(c)(3), would be the underlying open-end or revolving consumer credit agreement." In re Isherwood , 2019 WL 885876, at *3 (Bankr. D. Md. Feb. 20, 2019).

On October 22, 2018, and pursuant to Rule 3001(c)(3)(B), Debtor sent a letter to Claimant requesting the original signed cardholder agreement between Debtor and Citibank as well as the assignment transferring Debtor's specific account from...