Reed v. LVNV Funding, LLC
| Decision Date | 27 March 2015 |
| Docket Number | No. 14 C 8371,14 C 8371 |
| Citation | 181 F.Supp.3d 523 |
| Parties | Harvey Reed and Torrence Donnerson, individually and on behalf of all others similarly situated, Plaintiffs, v. LVNV Funding, LLC and Resurgent Capital Services, LP, Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
Angie K. Robertson, Mary Elizabeth Philipps, David J. Philipps, Philipps & Philipps, Ltd., Palos Hills, IL, for Plaintiff.
Eric D. Kaplan, Stacie Elaine Barhorst, Kaplan Papadakis & Gournis, LLP, Chicago, IL, Michael S. Poncin, Moss & Barnett PA, Minneapolis, MN, for Defendants.
Harvey Reed and Torrence Donnerson allege that Defendants violated the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692 et seq., by filing claims in their respective bankruptcy cases to collect credit card debts that fell outside the five-year statute of limitations in Illinois for such collection actions. See Portfolio Acquisitions, LLC v. Feltman, 391 Ill.App.3d 642, 330 Ill.Dec. 854, 909 N.E.2d 876, 884 (2009) ().
Defendants have filed a motion to dismiss arguing that Plaintiffs fail to state a claim upon which relief may be granted. I deny Defendants' motion to dismiss for the reasons stated below.
At the motion to dismiss stage, I must accept the Plaintiffs' factual allegations as true and draw all reasonable inferences in their favor. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).
In September 2003, Harvey Reed ("Reed") stopped making payments on a credit card issued by First Premier Bank. He repeated the pattern in September 2007 when he stopped paying a credit card issued by First Bank of Delaware. The banks charged-off Reed's accounts approximately six months after he stopped making payments on each card and sold the underlying debts to an unknown debt buyer. Defendant LVNV Funding, LLC ("LVNV") later purchased Reed's credit card debts.
On April 1, 2014, Reed petitioned for relief under Chapter 13 of the Bankruptcy Code. See In re Reed, No. 14–12120 (Bankr.N.D.Ill.). Resurgent Capital Services, LP ("Resurgent"), acting on LVNV's behalf, filed claims in Reed's bankruptcy case to collect the credit card debts he incurred in 2003 and 2007, respectively. Defendants valued the September 2003 claim at $600.07 and the September 2007 claim at $601.87. The bankruptcy court sustained Reed's objections, which asserted a statute of limitations defense to these two claims.
Torrence Donnerson ("Donnerson") alleges similar facts. At an unspecified time in the 1980s, he stopped making payments on a Citibank credit card. Citibank charged-off Donnerson's account on August 1, 1988 and sold the underlying debt to an unknown third party. LVNV later bought Donnerson's credit card debt.
On April 11, 2014, Donnerson filed for bankruptcy under Chapter 13 of the Code. See In re Donnerson, No. 14–13494 (Bankr.N.D.Ill.). On August 25, 2014, Resurgent filed a claim against Donnerson's bankruptcy estate on LVNV's behalf to collect the 1988 credit card debt valued at $396.85. The bankruptcy court sustained Donnerson's objection to this claim as barred under Illinois' five-year statute of limitations for collection actions on credit card debts.
Reed and Donnerson (collectively, "Plaintiffs") filed a class action suit against LVNV and Resurgent (collectively, "Defendants") alleging that the filing of time barred claims in their respective bankruptcy proceedings violated the following provision of the FDCPA:
15 U.S.C. § 1692e(5).
Defendants have moved to dismiss Plaintiffs' claim on the ground that filing a time-barred claim in bankruptcy is not a false, deceptive, or misleading debt collection practice under the FDCPA.1
"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.’ " Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ).
Whether the FDCPA prohibits debt collectors from filing time-barred claims in bankruptcy has produced a split between the Eleventh Circuit, on the one hand, and the Second and Ninth Circuits on the other. Compare Crawford v. LVNV Funding, LLC, 758 F.3d 1254, 1262 (11th Cir.2014) (), petition for cert. filed, 83 U.S.L.W. 3796 (U.S. Jan. 21, 2015) (No. 14–858), with Simmons v. Roundup Funding, LLC, 622 F.3d 93, 96 (2d Cir.2010) (); In re Chaussee, 399 B.R. 225, 235–41 (9th Cir. BAP 2008) (same). In the Second Circuit's view, "[t]here is no need to protect debtors who are already under the protection of the bankruptcy court, and there is no need to supplement the remedies afforded by [the] [B]ankruptcy [Code] itself." Simmons, 622 F.3d at 96. The remedies available to a debtor in bankruptcy who faces time-barred claims include (1) objecting to the claim under 11 U.S.C. § 502(a) and Bankruptcy Rule 3007 and (2) seeking sanctions against the would-be claimant under 11 U.S.C. § 105 and Bankruptcy Rule 9011(c). The Second and Ninth Circuits think these remedies are exclusive such that they preclude FDCPA suits premised on the filing of time-barred claims in bankruptcy.
The Seventh Circuit has not weighed in on whether filing a time-barred claim in bankruptcy is actionable under the FDCPA. But see Buckley v. Bass & Assoc., 249 F.3d 678, 681 (7th Cir.2001) (). I do not read Buckley to say that a claim filed in bankruptcy can never, under any circumstances, violate the FDCPA's ban on false, deceptive, or misleading debt collection practices. Buckley offers no rationale for such a rule, perhaps because the only holding in the case was that inquiring whether a debtor has filed for bankruptcy without including the disclosure required by 15 U.S.C. § 1692e(11) is not a per se violation of the FDCPA. Buckley mentioned the bankruptcy claims filing process in the context of discussing how a "have you filed for bankruptcy" inquiry might be construed—i.e., as "a prelude not to a dunning letter but to the filing of a claim in bankruptcy"—in a future case. Buckley, 249 F.3d at 681. In short, Buckley does not establish a per se rule that filing a claim in bankruptcy never violates the FDCPA no matter how false, deceptive, or misleading the claim might be.
The most relevant guidance from the Seventh Circuit on the question presented in this case comes from Randolph v. IMBS, Inc., 368 F.3d 726 (7th Cir.2004), which holds that the Bankruptcy Code and FDCPA provide overlapping remedies unless there is an "irreconcilable conflict between the statutes." Id . at 730 ; accord Simon v. FIA Card Servs., N.A., 732 F.3d 259, 274 (3d Cir.2013). Randolph went on to hold that a debtor who receives a dunning letter after filing for bankruptcy may sue under the FDCPA—on ground that the demand for payment is a false statement in light of the Bankruptcy Code's automatic stay on certain debt collection activities, 11 U.S.C. § 362(a) —notwithstanding the availability of contempt sanctions under the Bankruptcy Code, id. at § 362(k)(1). See Randolph, 368 F.3d at 730 ; contra Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 510–11 (9th Cir.2002). It was "easy" to enforce both the Bankruptcy Code's contempt provision and the FDCA's ban on false or misleading representations despite the existence of "operational differences" between the statutes. Randolph, 368 F.3d at 730 ; cf . Buckley, 249 F.3d at 681 ().
Randolph implicitly overruled two district court decisions holding that the Bankruptcy Code provides the exclusive means to challenge allegedly inflated claims filed in bankruptcy and precludes parallel FDCPA claims. See Gray–Mapp v. Sherman , 100 F.Supp.2d 810, 814 (N.D.Ill.1999) (Kennelly, J.); Baldwin v. McCalla, Raymer, Padrick, Cobb, Nichols & Clark, LLC , No. 98 C 4280, 1999 WL 284788, at *4 (N.D.Ill. Apr. 26, 1999) (Coar, J.).
Since Randolph, district courts in this circuit have generally declined to dismiss FDCPA suits that challenged the filing of time-barred claims in bankruptcy as a false, deceptive, or misleading debt collection practice.2 There are, however, two exceptions to this trend.3
The Seventh Circuit recently denied an interlocutory appeal petition asking the court to resolve the split over whether filing an untimely claim in bankruptcy is a false, deceptive, or misleading debt collection practice. See In re PYOD, LLC, No. 14–8028, Dkt. No. 6 (7th Cir. Nov. 21, 2014). I draw no inference about the Seventh Circuit's position on the underlying issue from its denial of this petition.
With this background in mind, I turn to the arguments raised in Defendants' motion to dismiss, many of which have been addressed by other courts.
Defendants' first argument is that Plaintiffs lack Article III standing because the bankruptcy court's disallowance of the time-barred claims means that the debtors suffered no injury.
This argument ignores the fact that the time-barred claims were disallowed only after Plaintiffs objected to the claims under Bankruptcy Rule 3007. To say that Plaintiffs did...
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