Perkins v. LVNV Funding, LLC (In re Perkins)

• Decision Date: 08 July 2015
• Docket Number: Case No. GL 14–01029–jtg,Adv. Proc. No. 14–80213–jtg
• Citation: 533 B.R. 242
• Parties: In re: Roni S. Perkins, Debtor. Roni S. Perkins, Plaintiff, v. LVNV Funding, LLC and Resurgent Capital Services, Defendants.
• Court: U.S. Bankruptcy Court — Western District of Michigan

533 B.R. 242

In re: Roni S. Perkins, Debtor.

Roni S. Perkins, Plaintiff

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

Case No. GL 14–01029–jtg

Adv. Proc. No. 14–80213–jtg

United States Bankruptcy Court, W.D. Michigan.

Signed July 8, 2015

Robert W. Dietrich, Michael T. Brown, DIETRICH LAW FIRM, Lansing, Michigan, for Roni S. Perkins.

Nabil G. Foster, HINSHAW & CULBERTSON LLP, Chicago, Illinois, for LVNV Funding, LLC and Resurgent Capital Services, L.P.

MEMORANDUM DECISION REGARDING MOTION TO DISMISS UNDER FED. R. CIV. P. 12(b)(6)

John T. Gregg, United States Bankruptcy Judge

This matter is before the court on a Motion to Dismiss and brief in support thereof [Adv. Dkt. No. 15] (collectively, the “Motion to Dismiss”) filed by LVNV Funding, LLC (“LVNV”) and Resurgent Capital Services, L.P. (“Resurgent,” and together with LVNV, the Defendants”), defendants in the above-captioned adversary proceeding.¹ The issue before the court is whether the Defendants violated the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (the “FDCPA”) by filing a “stale” proof of claim in the underlying Chapter 13 bankruptcy case.² This issue has been addressed, without consensus, by bankruptcy courts, district courts, and at least one circuit court of appeals throughout the country. Some courts have held that the filing of a stale proof of claim is a per se violation of the FDCPA, while other courts have held that the filing of a stale proof of claim can never give rise to a violation under the FDCPA. This court believes the answer lies somewhere in between. For the following reasons, the court shall grant the Motion to Dismiss.

JURISDICTION

The federal district courts have “original and exclusive jurisdiction” over all cases under the Bankruptcy Code, but may refer bankruptcy cases to the bankruptcy courts.³ 28 U.S.C. § 157(a) ; 28 U.S.C. § 1334(a).⁴ Upon referral, bankruptcy courts are authorized to hear, determine, and enter appropriate orders and judgments in core proceedings “arising under” the Bankruptcy Code, or “arising in” a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(1).⁵ Proceedings “arising under” the Bankruptcy Code are proceedings that involve a cause of action created or determined by a statutory provision of the Bankruptcy Code. Mich. Emp't Sec. Comm'n v. Wolverine Radio Co. (In re Wolverine Radio Co.), 930 F.2d 1132, 1144 (6th Cir.1991) (citation omitted). Proceedings “arising in” a case under the Bankruptcy Code are proceedings that could only arise in a bankruptcy case and would have no existence outside of a bankruptcy case. Id. (citation omitted).

In this adversary proceeding, the relief sought neither arises under the Bankruptcy Code, nor does it arise in a case under the Bankruptcy Code. Rather, the causes of action in this adversary proceeding arise under the FDCPA. Similarly, this adversary proceeding is not a proceeding that can arise solely in the context of a bankruptcy case, because the causes of action may be pursued without the prerequisite of a bankruptcy filing. As such, this adversary proceeding is not a core proceeding.

Nonetheless, this court may exercise jurisdiction if the proceeding is “non-core, but related to” the bankruptcy. 28 U.S.C. § 157(c)(1). The Sixth Circuit Court of Appeals has stated that “ ‘[t]he usual articulation of the test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy.’ ” In re Wolverine Radio Co., 930 F.2d at 1142 (quoting Pacor, Inc. v. Higgins (In re Pacor), 743 F.2d 984, 994 (3d Cir.1984) ). Because the causes of action in this adversary proceeding could form the basis for increased payments to creditors under the plan previously confirmed by the Plaintiff [Dkt. No. 5] in her bankruptcy case, this adversary proceeding is non-core, but related to the Plaintiff's bankruptcy. See, e.g., Tolliver v. Bank of America (In re Tolliver), 464 B.R. 720, 732–33 (Bankr.E.D.Ky.2012) (related to jurisdiction because potential recovery from FDCPA claim could augment Chapter 13 estate); see also Browning v. Levy, 283 F.3d 761, 773 (6th Cir. 2002) (related to jurisdiction because potential recovery from legal malpractice claim would represent asset available for distribution to creditors).

Although the court may hear this adversary proceeding, it may not enter a final judgment or order unless all of the parties to the adversary proceeding consent. 28 U.S.C. § 157(c)(1)–(2). Absent consent, this court is required to submit proposed findings of fact and conclusions of law to the District Court, which the District Court reviews de novo . Id. ; see Boyd v. King Par, LLC, 2011 WL 5509873, at *1 (W.D.Mich. Nov. 10, 2011) (Bell, J.).

The authority of bankruptcy courts to adjudicate certain matters has a long history extending at least to Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), where the United States Supreme Court held that jurisdictional aspects of the Bankruptcy Reform Act of 1978 were unconstitutional. In response, Congress enacted new legislation, the Bankruptcy Amendments and Federal Judgeship Act of 1984, in an attempt to cure the constitutional defects in the Bankruptcy Reform Act. However, in 2011, the authority of the bankruptcy courts to enter a final judgment on certain matters was again challenged. See Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011).⁶ In Stern, the Supreme Court held that the bankruptcy court lacked authority under Article III of the Constitution to enter a final judgment as to a state common law counterclaim. Id. at 2611. Stern gave rise to a new term in bankruptcy parlance—a “Stern claim,” which is generally defined as a “claim designated for final adjudication in the bankruptcy court as a statutory matter, but prohibited from proceeding in that way as a constitutional matter.” Exec. Benefits Ins. Agency v. Arkison, –––U.S. ––––, 134 S.Ct. 2165, 2170, 189 L.Ed.2d 83 (2014).

Soon thereafter, bankruptcy courts and appellate courts were confronted with numerous challenges to the ability of the bankruptcy courts to enter a final judgment or order on Stern claims. One of these challenges was whether parties could consent to the entry of a final judgment or order by a bankruptcy court with respect to Stern claims. The Sixth Circuit held that they could not. See Waldman v. Stone, 698 F.3d 910, 918 (6th Cir.2012).

However, a circuit split arose when the Ninth Circuit held that bankruptcy courts could enter final judgments on Stern claims upon the consent of the parties. Exec. Benefits Ins. Agency v. Arkison, 702 F.3d 553, 567 (9th Cir.2012).

In 2014, the Supreme Court revisited Stern when it considered whether bankruptcy courts have the authority to even enter proposed findings of fact and conclusions of law with respect to Stern claims. Arkison, 134 S.Ct. 2165. The Court answered in the affirmative, holding that Stern claims should be treated as if they are the equivalent of claims in non-core, related to proceedings. Id. at 2174. The Court found it unnecessary, at that time, to determine whether parties could consent to final adjudication by bankruptcy courts of Stern claims and, by implication, claims in non-core, related to proceedings. Id. at 2170 n. 4.

Approximately one year after Arkison, the Supreme Court again revisited Stern . See Wellness Int'l Network, Ltd. v. Sharif, ––– U.S. ––––, 135 S.Ct. 1932, 191 L.Ed.2d 911 (2015). In Wellness, the Court effectively overruled Waldman, when it recognized that consent to the adjudication of claims in a non-core, related to proceeding need not be express:

Nothing in the Constitution requires that consent to adjudication by a bankruptcy court be express. Nor does the relevant statute, 28 U.S.C. § 157, mandate express consent; it states only that a bankruptcy court must obtain “the consent”—consent simpliciter —“of all parties to the proceeding” before hearing and determining a non-core claim. § 157(c)(2). And a requirement of express consent would be in great tension with our decision in Roell v. Withrow, 538 U.S. 580, 123 S.Ct. 1696, 155 L.Ed.2d 775 (2003)... The implied consent standard articulated in Roell supplies the appropriate rule for adjudications by bankruptcy courts under § 157. Applied in the bankruptcy context, that standard possesses the same pragmatic virtues—increasing judicial efficiency and checking gamesmanship—that motivated our adoption of it for consent-based adjudications by magistrate judges. See id., at 590, 123 S.Ct. 1696. It bears emphasizing, however, that a litigant's consent—whether express or implied—must still be knowing and voluntary. Roell makes clear that the key inquiry is whether “the litigant or counsel was made aware of the need for consent and the right to refuse it, and still voluntarily appeared to try the case” before the non-Article III adjudicator.

Id. at 1947–48.

After Wellness, it is clear that this court has the authority to enter a final judgment or order disposing of a non-core, related to proceeding upon the consent of the parties. The question, therefore, is whether the parties in this adversary proceeding have consented, expressly or implicitly, to final adjudication by this court.

In non-core, related to proceedings in this District “in which the parties timely object to the entry of a final judgment or order by the bankruptcy judge, the bankruptcy court shall file and serve proposed findings of fact and conclusions of law ...” LCivR 83.2(b) (emphasis added); see also Roell v. Withrow, 538 U.S. 580, 586, 123 S.Ct. 1696, 155 L.Ed.2d 775 (2003) (notification of right to refuse adjudication by non-Article III court is prerequisite to inference of consent). The Local Rules of the District Court thus notify the parties at the outset of an adversary proceeding that they have the right to decline to have the bankruptcy court...