Alabama law permits the creation of public corporations known as “improvement districts,” which can then issue bonds that are similar to bonds issued by a municipal corporation. These bonds can be used to finance improvements within the district. In Aliant Bank v. Four Star Investments, Inc., the Alabama Supreme Court allowed claims against the directors of one of these improvement districts to go forward despite claims of immunity. The Court also allowed certain fraud claims to go forward against the directors as well as other related individuals and entities. In addition to authorizing lenders to bring suit, the opinion also serves as a strong reminder that lenders should monitor their collateral and promptly investigate any signs of misconduct.
This week, the United States Supreme Court issued a key decision under the Fair Debt Collection Practices Act in a case litigated by Balch & Bingham lawyers, Jason Tompkins and Chase Espy. In Midland Funding, LLC v. Johnson, the Supreme Court resolved a circuit split over the issue of whether debt collectors who file bankruptcy proofs of claim for stale debts are subject to suit under the Fair Debt Collection Practices Act. Siding with Midland, one of the nation’s largest buyers of unpaid debt, the Supreme Court held that “filing a proof of claim that on its face indicates that the limitations period has run” is not actionable under the FDCPA, thereby avoiding a potential conflict between the FDCPA and the Bankruptcy Code. Although ostensibly limited to the bankruptcy context, the Johnson decision could potentially ripple into other FDCPA cases. In the meantime, though, Johnson will undoubtedly turn off the faucet for would-be FDCPA plaintiffs who had hoped to capitalize on what the Eleventh Circuit complained is a “deluge” of out-of-statute proofs of claim.
The Alabama Supreme Court recently held in Hanover Insurance Company v. Kiva Lodge Condominium Owners’ Association, Inc. (No. 1141331) that where a dispute is governed by a contract that requires arbitration the arbitrator must determine whether particular claims are time barred under the contract, not the courts.
The Eleventh Circuit recently held in Nicklaw v. CitiMortgage, Inc.(No. 15-14216) that a plaintiff lacks standing to sue a creditor where the plaintiff merely alleges that the creditor failed to timely record a mortgage satisfaction, as it is statutorily required to do, but does not allege any additional concrete injury.
Few issues involving the Fair Debt Collection Practices Act (FDCPA) are more hotly contested than whether filing a proof of claim on a time-barred debt violates the FDCPA. In bankruptcy, creditors have a right to file proofs of claim outlining the debt owed to them by the bankrupt debtor. In some instances, the statute of limitations for filing a lawsuit on that debt has run, and up until July 10, 2014, when the Eleventh Circuit Court of Appeals issued its decision in Crawford v. LVNV Funding, LLC, it was common practice to file a proof of claim on such a time-barred debt. Crawford—for the first time—likened the filing of a proof of claim to the filing of a lawsuit, finding that if one is wrongful, so is the other. After Crawford, debt collectors have faced a tidal wave of cases across the country, raising numerous defenses, one of which is res judicata. The argument goes like this: if a debt collector files a proof of claim to which neither the debtor nor the trustee objects and the court subsequently confirms the debtor’s plan, then a final judgment exists stating the debt is valid. Thus the debtor is barred by res judicata from further challenging the debt.
Despite a chorus of cases adopting this reasoning, the United States District Court for the Southern District of Georgia recently dealt a blow to the res judicata argument, finding that the grounds upon which the FDCPA claim was raised and the grounds upon which the proof of claim was confirmed were not sufficiently similar such that one could foreclose the other. For two years the so-called Crawford cases have raged; circuit splits exist; and this recent decision from the Southern District of Georgia shows that further disagreement is likely. Creditors and debt collectors alike should monitor the development of these cases to ensure they know how their claims will be treated in the bankruptcy courts.
Bankruptcy courts are currently divided on whether a debtor has a right to redeem property sold at a tax sale after the redemption period has run. The time for redemption depends on the law of the state where the property is located. In Alabama, for example, the statutory redemption period is three (3) years. Usually, a debtor must redeem by paying the full amount within the redemption period or be time barred. However, recent bankruptcy cases in Pennsylvania allowed debtors to treat tax purchasers as secured creditors, thereby permitting the debtors to pay the redemption amount as a secured claim over the life of a confirmed chapter 13 plan. See In re Gonzalez, Case No. 15-10628 (Bankr. E.D. Pa. May 18, 2016); In re Pittman, Case No. 14-17665 (Bankr. E.D. Pa. May 6, 2016). In these cases, the debtors filed chapter 13 petitions before the right of redemption expired under local law, but confirmation of their chapter 13 plans did not occur until after the redemption period would have expired. The rationale for this treatment is based on the view that a debtor’s right to redeem property after a tax sale resembles a mortgagor / mortgagee relationship with the tax purchaser. The opposing view—expressed by a California bankruptcy judge last year In re Richter, 525 B.R. 735 (Bankr. C.D. Cal. 2015)—is that the right of redemption following a tax sale is an asset of the debtor, rather than a claim. Until this issue is resolved by higher courts, tax sale purchasers should consult the law of their local jurisdiction so that they are not left waiting for years while a Chapter 13 debtor repays the redemption amount.
A recent decision by the Eleventh Circuit Court of Appeals holds that the statute of limitations for a missing disclosure claim under the Truth-In-Lending Act (“TILA”), 15 U.S.C. §1601, et seq., begins to run on the date the lender distributed its loan application to the prospective borrower. Further, in holding that the borrower “knew or should have known” of the alleged missing disclosures when she received her application, the court’s holding suggests that, at least in the Eleventh Circuit, equitable tolling will not apply to such claims as a matter of law.
In Barnes v. Compass Bank, No. 13-15918 (11th Cir. June 9, 2014), see attached opinion, the borrower claimed that her lender had omitted several of the required TILA disclosures when it provided her with an application for a home equity loan. The borrower brought suit within twelve months of closing on her home equity loan, but thirteen months after the lender had distributed the application. The trial court dismissed the borrower’s claim as time-barred on the face of the complaint, holding that TILA’s one year statute of limitations began to run on the date of distribution.
The borrower appealed. She argued that the statute of limitations should begin to run “from the date of the imposition of the first finance charge.” She also argued that fact issues regarding equitable tolling precluded dismissal. The borrower’s argument relied on Goldman v. First National Bank of Chicago, 532 F.2d 10 (7th Cir. 1976), where the Seventh Circuit held that the statute of limitations on a TILA claim involving an open-ended credit plan and “incomplete, inaccurate, or misleading disclosures” should begin to run on the date of the first finance charge.
The Eleventh Circuit rejected the borrower’s comparison to Goldman because she claimed missing disclosures, not misleading or inaccurate disclosures. The Court found that there was no information concerning the borrower’s claim that she could not have discovered when she received the application; instead, she “was aware, or should have been aware of the missing disclosures at the time” the application was handed to her. Barnes, at p. 5.
The Eleventh Circuit has long held that TILA claims are subject to equitable tolling in the appropriate circumstances. See Ellis v. General Motors Acceptance Corp., 160 F.3d 703, 708 (11th Cir. 1998). Those circumstances usually require that the defendant do something to prevent the plaintiff from discovering the wrongful conduct. Id. In holding that a borrower either knows or should know of missing disclosures at the time of the loan application, Barnes suggests omitting the disclosures is insufficient to prevent discovery and that equitable tolling will rarely, if ever, apply in such cases.
The prevailing party in this matter was represented by Balch & Bingham, LLP.