Thomas v. Midland Funding, LLC (In re Thomas)
| Decision Date | 28 October 2020 |
| Docket Number | Case No. 16-50612,Adv. P. No. 17-05010,Case No. 16-50396 |
| Court | U.S. Bankruptcy Court — Western District of Virginia |
| Parties | In re: KAREN M. THOMAS, Debtor. In re: GARY L. BROOKS, JR. and MARY M. GILLESPIE-BROOKS, Debtors. KAREN M. THOMAS, GARY L. BROOKS, JR., and MARY M. GILLESPIE-BROOKS, Plaintiffs, v. MIDLAND FUNDING, LLC, and MIDLAND CREDIT MANAGEMENT, INC., Defendants. |
Before the Court is a motion for partial summary judgment filed by the defendants.1 This adversary proceeding is about practices of filing proofs of claim in chapter 13 bankruptcy cases. The plaintiffs allege that the defendants violated the Fair Debt Collections Practices Act("FDCPA") and filed proofs of claim which do not comply with Federal Rule of Bankruptcy Procedure 3001. Based on these alleged violations, the plaintiffs seek damages, costs, and attorney's fees. The defendants disagree. The defendants answered the complaint and filed a counterclaim against the plaintiffs for a declaratory judgment that they did not violate Rule 3001. At this stage, the defendants ask this Court to grant summary judgment in their favor as to the FDCPA counts contained in the plaintiffs' amended complaint as well as on two counts of its counterclaim complaint.2 The plaintiffs ask that the defendants' motion be denied. The parties have pled, and the Court held oral argument. The request is ripe for disposition, and the Court thus issues its ruling.
The plaintiffs—Karen Thomas, Gary Brooks, and Mary Gillespie-Brooks—are debtors in this Court. The defendants are creditors in each of the bankruptcy cases. This Bankruptcy Court has jurisdiction over these bankruptcy cases by virtue of 28 U.S.C. § 1334(a). The amended complaint concerns federal non-bankruptcy law (, the FDCPA) and Federal Rule of Bankruptcy Procedure 3001. The plaintiffs have consented to have this Court issue a final ruling in this adversary proceeding. See Am. Compl. ¶ 3, ECF Doc. No. 16. In their answer to the amended complaint, the defendants did not explicitly consent to the entry of a final order or judgment by this Court. See Fed. R. Bankr. P. 7012(b) (). Nevertheless, the defendants have requested this Court enter judgment as a matter of law in their favor as to Count I of the amended complaint, have consented to the entry of a final order on their counterclaim, and do not oppose the entry of a final order as to themotion for partial summary judgment on the counterclaim. See Mot. for Partial Summ. J., at 5 n.3, ECF Doc. No. 84. The defendants cannot reasonably suggest that they do not wish for this Court to rule on the motion and counterclaim they bring before this Court. With this in mind, the Court will issue its ruling on the motion for partial summary judgment by consent.
The plaintiffs' initial class action complaint described the proofs of claim that the defendants filed in these chapter 13 cases and the defendants' actions before and after they filed the proofs of claims. The Court determined that the complaint sufficiently pleaded, in Count I, a cause of action under the FDCPA (, 15 U.S.C. § 1692e and § 1692f). As to Count II, the Court concluded that the complaint was so unspecific as to the relief requested under Rule 3001 that it failed to state a cause of action. The Court granted leave to amend the complaint.
The plaintiffs amended the complaint. In the amended complaint, the plaintiffs recount how after they filed the initial complaint, the defendants amended the proofs of claim. The plaintiffs contend that the amended proofs of claim fail to adequately comply with Rule 3001. The plaintiffs assert that the defendants' practice of first filing claims that contain false statements, coupled with a practice of filing proofs of claim that do not comply with Rule 3001, not providing complete documentation in response to written requests made by a debtor, and only after service of an adversarial complaint related to the practice, filing amended, yet still deficient, proofs of claim demonstrates conduct which violates the FDCPA.
The defendants moved to dismiss the amended complaint and to compel arbitration. See ECF Doc. Nos. 20, 21. The Court granted the motion to dismiss Count I as to the claims under 15 U.S.C. § 1692e related to the amended proofs of claim. See ECF Doc. No. 46. The Court denied the motion to dismiss the counts under § 1692e as to the original proofs of claim. The Court deniedthe motion to dismiss the counts under § 1692f and under Rule 3001. The Court denied the motion to compel arbitration.3
Midland filed an answer to the amended complaint. The defendants deny the allegations and point out that all the same they amended the proofs of claim. They purport that the amended proofs of claim attach appropriate documentation and argue that the amended proofs of claim comply with Rule 3001 and do not violate the FDCPA. The defendants also continue to contend the violations of Rule 3001 as to the original proofs of claim do not subject them to sanctions or consequences.
As it sometimes happens, the parties to this dispute characterize the matters at issue in entirely different ways.
The defendants characterize the dispute as simply a question of whether noncompliance with Rule 3001 triggers the FDCPA ever or at all, and whether they are (now) in compliance with Rule 3001. According to the defendants, the complaint alleges a violation of Rule 3001 as the basis for whether the FDCPA has been violated. The defendants argue that the Supreme Court of the United States has concluded that the claims allowance process in bankruptcy is the appropriate and exclusive forum and mechanism to address defects and defenses to proofs of claim. In this way, the defendants insist the practice of filing clams which violate Rule 3001 cannot be a violation of the FDCPA. And so, because the plaintiffs complain of a violation of Rule 3001 as grounds for the FDCPA violation, and because a Rule 3001 violation is not an FDCPA violation, the plaintiffs cannot prevail as a matter of law. The defendants further contend that because they amended their proofs of claim in a manner resembling proofs of claim which other courts have allowed asacceptable under Rule 3001, then the Court should grant judgment as a matter of law to declare the amended proofs of claim as compliant with Rule 3001. Finally, defendants contend the Court should not sanction them for noncompliance with Rule 3001.
The plaintiffs, on the other hand, characterize the dispute as about a business practice designed to facilitate noncompliance with the bankruptcy rules related to creditors' claims for payment from a bankruptcy estate. As summarized in the plaintiffs' preliminary statement, the case is about the "Defendants' attempts to collect debts by filing proofs of claim in Plaintiffs' Chapter 13 bankruptcy cases that contained false statements about whether interest or fees were embedded in the claim amounts, and a business practice of not providing the contract documents nor chain of assignments when requested." Am. Compl. ¶ 1, ECF Doc. No. 16.
According to the plaintiffs, Midland deliberately purchased credit card debt of chapter 13 debtors. Then Midland filed in those chapter 13 cases proofs of claim containing false statements. The plaintiffs assert Midland knew it was filing proofs of claim falsely reporting that the amount claimed was entirely principal even though the amount claimed included interest, fees, and costs. The plaintiffs allege Midland knew that by reporting the interest, fees, and costs as principal it could avoid disclosing these items in an itemized statement as required by Rule 3001. The plaintiffs allege only after an adversary proceeding was filed against Midland did it amend the proofs of claim to correct its false statement, yet still Midland did not provide a complete breakdown of the interest, fees, and costs. The plaintiffs contend Midland knew that to file proofs of claim in bankruptcy cases, it must provide an itemization of fees, costs, and interest separate from principal. The plaintiffs allege Midland knew it purchased incomplete information (despite the seller having this information) to permit it to fully comply with the itemization requirement. On top of this, the plaintiffs assert Midland failed to provide the written contract with the proof ofclaim and that it regularly does not provide the credit card contract in response to a written request for it. All of this shows, according to the plaintiffs, an unfair or unconscionable means to collect a debt. The plaintiffs complain that a practice of filing false claims, failing to correct the claims unless litigation is filed against it, then intentionally failing to amend the claims in a manner that complies with the bankruptcy rules shows an intentional design to hinder debtors' efforts to obtain information required by the bankruptcy rules and otherwise is an unfair or unconscionable means to collect debts in the bankruptcy context. Not only that, the plaintiffs iterate how the original proofs of claim contained false statements in connection with the collection of a debt.
I. Motion for Partial Summary Judgment
Midland filed a motion seeking partial summary judgment. See Mot. for Partial Summ. J., ECF Doc. No. 84. Midland asserts that there are no genuine issues of material fact and that Midland is entitled to judgment as a matter of law on Count I of the plaintiffs' amended complaint, and partial summary judgment as to Count 1 and Count 2 of the defendants' counterclaim complaint. See id. ¶ 1. Midland summarizes the questions of law as:
(1) whether Plaintiffs' claims under the FDCPA are precluded by the claims-administration process prescribed by the Bankruptcy Code and...
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