Robinson v. JH Portfolio Debt Equities, LLC (In re Robinson), Case #15–30223

• Decision Date: 28 July 2016
• Docket Number: Case #15–30223,AP #16–03004
• Citation: Robinson v. JH Portfolio Debt Equities, LLC (In re Robinson), 554 B.R. 800 (Bankr. W.D. La. 2016)
• Parties: In re: Bernice Rena Robinson, Debtor Bernice Rena Robinson, Plaintiff v. JH Portfolio Debt Equities, LLC, et al., Defendants
• Court: U.S. Bankruptcy Court — Western District of Louisiana

554 B.R. 800

In re: Bernice Rena Robinson, DebtorBernice Rena Robinson, Plaintiff

v.JH Portfolio Debt Equities, LLC, et al., Defendants

Case #15–30223

AP #16–03004

United States Bankruptcy Court, W.D. Louisiana, Monroe Division .

Signed July 28, 2016

Elijah Orum Young, Monroe, LA, for Debtor.

Theodore O. Bartholow, III, Armstrong Kellett Bartholow PLLC, Dallas, TX, Joseph Richard Moore, Elijah Orum Young, III, E. Orum Young Law, LLC, Monroe, LA, for Plaintiff.

John M. Frazier, Shreveport, LA, Stephen W. Sather, Barron & Newburger, P.C., Austin, TX, for Defendant.

ORDER CONDITIONALLY GRANTING MOTION TO DISMISS ADVERSARY PROCEEDING, DENYING MOTION TO STRIKE, ALLOWING NOTICE TO WITHDRAW CLAIM, AND GRANTING LEAVE TO AMEND COMPLAINT

JEFFREY P. NORMAN, UNITED STATES BANKRUPTCY JUDGE

I. INTRODUCTION

On April 25, 2016, plaintiff Bernice Rena Robinson (“Robinson”), who is the debtor in the underlying bankruptcy case, initiated this adversary proceeding against JH Portfolio Debt Equities, LLC (“JH Portfolio”), JD Receivables, LLC (“JD Receivables”) and Jeffrey S. Dunn (“Dunn”), alleging abuses in the proof of claim process. At controversy is proof of claim No. 10, (“Claim 10”) in the amount of $760.00 filed by the defendants on April 24, 2015. The account detail attached to the claim indicates the original creditor was World Finance Corporation of Louisiana, that the current creditor is JH Portfolio and/or JD Receivables, and that the debt was charged off by the original creditor on May 12, 2009. In her original schedules filed February 25, 2015 (Docket No. 1, pg. 17), the debtor lists on her Schedule F—Creditors Holding Unsecured Claims a claim to World Finance in the amount of $1353.00, and disclosed the consideration for the claim as a loan.

The prescriptive period in Louisiana for the type of debt on which Claim 10 is based is five years. In Louisiana, a statute of limitations is functionally equivalent to a “prescriptive period.” Promissory notes, whether negotiable or not, are subject to a prescriptive period of five years in Louisiana. La.Civ.Code art. 3498. It is uncontroverted that the prescription period on Claim 10 has expired and the plaintiff's pleadings do not indicate that Claim 10 is not factually accurate. Therefore, the defendants have filed a proof of claim on a debt older than five years, which is outside the Louisiana prescription period. Accordingly, the debt is potentially unenforceable under Louisiana law. While prescription accrues in Louisiana through the mere passage of the designated term, prescription cannot have effect unless affirmatively pled. Prescription in Louisiana is pled as a preemptory exception—basically as an affirmative defense. Under Louisiana law, prescription has no effect unless properly pled.

Defendant JH Portfolio has sought to withdraw Claim 10, which has drawn an objection from the plaintiff. In the Monroe Division of the Western District of Louisiana, the work division is such that a different judge is assigned to a Chapter 13 debtor's main bankruptcy case than the judge assigned to any associated adversary proceedings. In the main bankruptcy case, presiding Judge John W. Kolwe entered an order (Docket No. 32) referring certain matters in the main case to this Judge as the resolution may bear substantively on the resolution of the adversary complaint. Judge Kolwe's order consolidated into this adversary proceeding the Notice to Withdraw Claim filed by JH Portfolio (Docket No. 24), the Motion to Strike Notice to Withdraw Claim (Docket No. 26) filed by the debtor, and the Response of JH Portfolio (Docket No. 29) filed in the main bankruptcy case. Defendant JH Portfolio has filed a Motion to Dismiss and to Strike (Docket No. 19) in the instant adversary proceeding. A hearing on all of these matters was held on July 21, 2016.

The legal issues involved in these matters are such that reasonable minds may differ and on which learned jurists currently disagree. A great deal of consumer debt is traded—that is, the debts are bought and sold at a hefty discount. Original creditors sell uncollectable debts to a “debt collector” who then attempts to collect the debt. In 2016, political satirist John Oliver illustrated how easy it was to establish an unlicensed debt-buying business in Mississippi by forming via the internet Central Asset Recover Professionals, or CARP (named after the bottom feeding fish). Soon after CARP was founded, it purchased $15,000,000.00 in a portfolio of prescribed medical debt for $60,000.00. CARP acquired the names, current addresses and social security numbers of nearly 9,000 individuals in the portfolio and CARP was free to pursue the debt as it saw fit. Oliver later forgave the debt in what he called the largest giveaway in television history.

Eventually, these “stale” claims often become unenforceable under state law, typically because of a prescription period or a statute of limitations. In 1977, Congress enacted the Fair Debt Collection Practices Act (“FDCPA”) to “eliminate abusive debt collection practices by debt collectors, to ensure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State Action to protect consumers against debt collection abuses.” 15 U.S.C. § 1692(e).

A year later, the Bankruptcy Reform Act of 1978 was enacted, which replaced the former Bankruptcy Act of 1898. While it has been amended several times, it remains the uniform federal law that governs all bankruptcy cases. The Bankruptcy Code permits creditors to file time-barred claims. 11 U.S.C. § 502. However, a debtor may contest a creditor's claim through the claims objection process provided under the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure.

This adversary proceeding is based, in part, on the defendants' filing of a prescribed or time-barred proof of claim. Under a plain reading of the Bankruptcy Code, this is allowed. In her complaint, the plaintiff alleges the defendants violated the FDCPA by filing a proof of claim for a time-barred debt. 15 U.S.C. § 1692. In considering the applicability of the FDCPA to actions taken by creditors in and during a debtor's bankruptcy case, a court must decide whether the Bankruptcy Code precludes application of the FDCPA in bankruptcy cases altogether. Courts currently disagree on whether the FDCPA provides a remedy for debtors in bankruptcy. The federal appellate courts are currently evenly split on this issue. The Second,¹ Ninth,² and Eighth³ Circuits have generally held that the Bankruptcy Code precluded use of the FDCPA in bankruptcy cases. The Third,⁴ Seventh,⁵ and Eleventh⁶ are hold that the FDCPA is applicable in bankruptcy cases. The Fifth Circuit has not yet ruled on this issue.

II. JURISDICTION

The Court has jurisdiction over this contested matter pursuant to 28 U.S.C. §§ 1334(b), 151 and 157(a) and the United States District Court for the Western District of Louisiana's General Order of Reference of Bankruptcy Cases and Proceedings dated June 1, 2012. 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). 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. This particular adversary proceeding includes both core and non-core disputes.

The claim objection and abuse of process claims are core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) because it affects the administration of this Chapter 13 estate. These disputes are additionally core under the general “catch-all” language of 28 U.S.C. § 157(b)(2). See Southmark Corp. v. Coopers & Lybrand (In re Southmark Corp.), 163 F.3d 925, 930 (5th Cir.1999) (“[A] proceeding is core under section 157 if it invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case.”).

The FDCPA claim does not arise under the Bankruptcy Code or a case under the Bankruptcy Code. Rather, this causes of action 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, the FDCPA cause of action 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). 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 in her bankruptcy case, this adversary proceeding is non-core but related to the plaintiff's bankruptcy case.

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) and (2). Under Stern v. Marshall, the question of whether a bankruptcy court may enter a final judgment in a case depends on whether the cause of action stems from the bankruptcy itself or would necessarily be resolved in the claims allowance process. 564 U.S. 462, 131 S.Ct. 2594, 2618, 180 L.Ed.2d 475 (2011). This adversary proceeding contains non bankruptcy federal claims which would not necessarily be resolved in the claims allowance process. However, the Supreme Court recently held that parties may consent to the bankruptcy court's adjudication of a so-called Stern claim without implicating Article III issues “when the parties knowingly and voluntarily consent to adjudication by a bankruptcy judge.” Wellness Int'l Network v. Sharif , ––– U.S. ––––, 135 S.Ct. 1932, 1939, 191 L.Ed.2d 911 (2015). Assuming all parties consent, or impliedly...