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.
Chase Espy practices primarily in the areas of appellate and financial services litigation, specializing in the defense of claims under the Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Reporting Act (FCRA), as well as other complex litigation, including class actions, business litigation, and § 1983 civil rights claims against local city governments.
Following the Eleventh Circuit’s decision in Bishop v. Ross Earle & Bonan, P.A., No. 15-12585, creditors and debt collectors should immediately review their practices to ensure that any communication to a debtor or a debtor’s attorney complies with the Fair Debt Collection Practices Act (FDCPA). This is especially true for FDCPA § 1692g(a)’s requirement that the debtor has a right to dispute the debt and that such dispute must be in writing.
From the moment it was published in July 2014, Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014)—the first reported appellate decision holding that a plaintiff may state a claim under the Fair Debt Collection Practices Act based on a creditor’s bankruptcy proof of claim for an out-of-statute debt—spawned a flurry of litigation both within and outside the Eleventh Circuit. Looking back, however, district courts have largely rebuffed attempts at expanding Crawford’s holding and have refused to sanction enterprising attempts at exporting the Eleventh Circuit’s decision to other jurisdictions. The fallout from Crawford is far from over, however, as several cases are now pending before the various Courts of Appeals, setting up a potential circuit split that could eventually make its way to the Supreme Court.
Most recently, in Castellanos v. Midland Funding, LLC, No. 2:15-CV-559, 2016 WL 25918, at *2 (M.D. Fla. Jan. 4, 2016), the court adopted what is quickly becoming the majority view. Like most of the other lower courts in the Eleventh Circuit that have considered the issue that the Crawford court did not address—“[w]hether the [Bankruptcy] Code ‘preempts’ the FDCPA when creditors misbehave in bankruptcy”—the district court in Castellanos concluded that “the FDCPA and the Bankruptcy Code are at an irreconcilable conflict because the FDCPA prohibits filing a time-barred claim while the Bankruptcy Code permits it. In such cases, the FDCPA must yield to the Bankruptcy Code, which already provides protections for debtors faced with stale proofs of claim” in the form of the bankruptcy claims-allowance process.”
Though the plaintiff in Castellanos has already appealed the dismissal of her FDPCA claims, the issue has already reached the Eleventh Circuit in the form of Johnson v. Midland Funding, LLC, 528 B.R. 462 (S.D. Ala. 2015). As the progenitor of Castellanos and the cases that it followed, the district court in Johnson was the first to confront the preclusion question that the Eleventh Circuit expressly left open. Chief Judge Steele held in Johnson that even if a debtor could otherwise state a claim under the FDCPA, any such claim irreconcilably conflicts with, and therefore is precluded by, the Bankruptcy Code, which gives all creditors (even those who are also debt collectors under the FDCPA) the express right to file a proof of claim for any debt for which they have a right to payment. In other words, “the Code authorizes filing a proof of claim on a debt known to be stale, while the [FDCPA] (as construed by Crawford) prohibits that precise practice,” and “those contradictory provisions cannot possibly be given effect simultaneously.” And in the face of that conflict, “the Act must give way to the Code.” Accordingly, the court dismissed the plaintiff’s would-be nationwide Crawford class action.
Meanwhile, a similar movement has been afoot in the other circuits in which plaintiffs have attempted to assert FDCPA claims in the same vein as Crawford. However, unlike federal district courts in Alabama, Florida, and Georgia, none of the lower courts in any other jurisdiction in the country is constrained by the Eleventh Circuit’s conclusion that filing a time-barred proof of claim is a per se violation of the FDCPA. To date, Crawford still stands alone in that regard. Thus, courts outside the Eleventh Circuit have been able to fashion their own ways of handling copycat Crawford claims without necessarily confronting the issue of whether application of the FDCPA to proofs of claim is precluded by the Bankruptcy Code, and several such cases have percolated their way up to the various Courts of Appeals.
For example, a bankruptcy court in the Sixth Circuit and a district court in the Eighth Circuit both reasoned that “the FDCPA should not be implicated with regard to stale debts when a creditor merely … files an accurate proof of claim … [that] includes all the required information including the timing of the debt … [and] the applicable statute of limitations is one that does not extinguish the right to collect the debt but merely limits the remedies.” Nelson v. Midland Credit Mgmt., Inc., No. 4:15-CV-00816-ERW, 2015 WL 5093437, at *3 (E.D. Mo. Aug. 28, 2015) (quoting In re Broadrick, 532 B.R. 60, 75 (Bankr. M.D. Tenn. 2015)). Now, both Courts of Appeals are set to review those decisions. At the same time, the Sixth Circuit’s Bankruptcy Appellate Panel will also be confronted with appeals in two other cases that followed the Broadrick court’s analysis—In re Deborah Ash and In re Candace Gabay, Nos. 16-8001 & 16-8002 (6th Cir. B.A.P. 2016).
Rather than base its decision on anything particular to proofs of claim, the district court in Torres v. Asset Acceptance, LLC, 96 F. Supp. 3d 541 (E.D. Pa. 2015) took a slightly different tack in dismissing yet another nationwide Crawford class action. In particular, the court opted to follow the rationale of an earlier decision from the Second Circuit, in which that court had more broadly held that a proof of claim “cannot serve as the basis for an FDCPA action” because there “is no need to protect debtors who are already under the protection of the bankruptcy court.” The Torres court agreed, and likewise declined to “insert judicially created remedies into Congress’s carefully calibrated bankruptcy scheme, thus tilting the balance of rights and obligations between debtors and creditors.” The plaintiff’s appeal in Torres is now pending before the Third Circuit Court of Appeals.
Related cases are also presently pending before the Fourth and Seventh Circuits. Regardless of how the issue shakes out in any given case, however, an ultimate showdown before the Supreme Court to decide the destiny of Crawford claims almost seems inevitable at this point. Until then, however, courts across the country appear to be coalescing around the view that the Bankruptcy Code either provides debtors with sufficient protection from potentially abusive debt collection practices, or that the Code provides creditors with the right to file proofs of claim even for stale debts notwithstanding the FDCPA.
To date, Balch attorneys Jason Tompkins and Chase Espy have handled and managed nearly 150 Crawford cases, including the above-referenced cases now pending before the Third, Eighth, and Eleventh Circuit Courts of Appeals and the Sixth Circuit Bankruptcy Appellate Panel, with the assistance of Geremy Gregory, Chris Heinss, and Jonathan Hoffmann of Balch, Joshua Dickinson of Spencer Fane, and Andrew Schwartz of Marshall Dennehey.
Though it eventually reached the Eleventh Circuit, the Court’s decision in Miljkovic v. Shafritz & Dinkin, P.A., — F. 3d. –, No. 14-13715, 2015 WL 3956570 (11th Cir. June 30, 2015), had its origins in Florida state court, where Publix Federal Credit Union obtained a judgment and continuing writ of garnishment against Nedzad Miljkovic after he had failed to repay his automobile loan. Miljkovic filed a claim of exemption from the garnishment, and Publix responded by filing a sworn opposition, serving discovery requests, and offering to settle the debt for less than the judgment amount. Miljkovic refused the settlement offer and responded to the discovery requests, but the garnishment was dissolved on Publix’s motion shortly thereafter.
Miljkovic sued Shafritz & Dinkin, P.A., and Mitchell A. Dinkin, attorneys for Publix, alleging that they had violated several provisions of the FDCPA, because they had “no factual basis” for opposing his claim of exemption and their sworn reply was a calculated effort to coerce a settlement. The district court granted the defendants’ motion to dismiss, concluding that Miljkovic failed to state a claim under the FDCPA because the defendants’ sworn opposition to his exemption claim was a mere procedural filing required by state law, and because it was directed to the state court and to his attorney, rather than to Miljkovic himself. Alternatively, the district court also found that even if the FDCPA did apply, he still had failed to state a claim under the FDCPA.
Miljkovic’s appeal from the district court’s dismissal presented the Eleventh Circuit with an issue of first impression: whether representations made in court filings by attorneys during the course of debt-collection litigation are actionable under the Fair Debt Collection Practices Act. Based on the plain language of the statute, the Court concluded that the FDCPA applies equally to conduct directed at a consumer’s attorney (or any other non-consumer), declining to follow cases from the Second, Third, Eighth, and Ninth Circuits.
As the Court explained, according to its plain language (and the Supreme Court’s decision in Heintz v. Jenkins, 514 U.S. 291 (1995)), the FDCPA applies to lawyers and law firms who regularly engage in debt-collection activity, and categorically prohibits abusive conduct in the course of collecting a debt, even when that activity involves litigation, and even when that conduct is directed at someone other than the debtor. Thus, “in the absence of statutory language to the contrary,” the Court declined to recognize an exemption from the FDCPA for conduct that otherwise would be actionable simply because it is directed at someone other than the consumer and reversed the district court’s holding that the FDCPA did not apply to the defendants’ conduct in opposing Miljkovic’s exemption claim.
On the other hand, the Court affirmed the district court’s alternative holding, agreeing that Miljkovic had failed to allege facts sufficient to state a claim under the FDCPA. First, the Court rejected Miljkovic’s claim under § 1692d, which prohibits conduct with the natural consequence of “harassing, abusing, or oppressing” the least sophisticated consumer. Though § 1692d proscribes such conduct generally, the statute also contains examples of prohibited conduct such as the “use of violence,” the “use of obscene or profane language,” and repeated phone calls intended to annoy or harass “any person at the called number.” In the context of litigation, the Eleventh Circuit previously had held that, absent conduct exhibiting a “tone of intimidation,” the mere filing of a collection lawsuit against a consumer does not fall within the ambit of § 1692d. Reasoning that the same was true of the defendants’ opposition to Miljkovic’s exemption, the Court held that he likewise failed to state a claim under § 1692d.
Miljkovic also claimed that the defendants had violated § 1692e(10), alleging that their opposition to his exemption claim constituted a “false representation or deceptive means” of collecting a debt because it lacked any “factual basis.” The Eleventh Circuit affirmed the district court’s dismissal, however, because the defendants’ oppositional statement was “not misleading or deceptive in the traditional sense,” in that it did not “misrepresent the nature or effect of the writ of garnishment,” “erroneously state the amount of the debt owed,” “incorrectly identify the holder of the alleged debt,” or “contain ‘false or deliberately ambiguous threats’ of future litigation.” Thus, the Court concluded that Miljkovic failed to allege that the defendants’ communication was deceptive or misleading to the least sophisticated consumer.
In doing so, the panel dodged the issue of whether the Eleventh Circuit should adopt the “competent lawyer” standard applied by the Seventh and Eighth Circuits for adjudging the deceptive capacity of communications with consumers’ attorneys. Because he had failed as a matter of law to show that the defendants’ conduct would be deceptive or misleading even to the least sophisticated consumer, Miljkovic was “necessarily unable to demonstrate that individuals held to a higher standard of competence, be it an attorney or a state court judge, could be misled or deceived by the sworn reply.” Accordingly, the Court declined to “adopt or reject” the “competent lawyer” standard, though it did acknowledge that the defendants had “reasonably” suggested that “the ‘least sophisticated consumer’ standard is inappropriate for evaluating the tendency of conduct or language to deceive or mislead a consumer’s attorney.”
Lastly, the Eleventh Circuit also affirmed the district court’s conclusion that Miljkovic failed to state a claim under § 1692f, which prohibits the use of “unfair or unconscionable means to collect or attempt to collect any debt.” Though Miljkovic had alleged that the defendants’ opposition was a bad faith attempt to coerce a settlement, the Court determined that his assertion was merely a legal conclusion that it was not required to accept as true. And “by failing to identify how the defendants’ conduct “was either unfair or unconscionable in addition to being abusive, deceptive, or misleading,” Miljkovic “fail[ed] to allege any conduct beyond that which he assert[ed] violates the other provisions of the FDCPA.” Thus, the Court held that he could not state a claim under § 1692f, often referred to as the FDCPA’s “catch-all” provision, because “a catch-all is not a free-for-all.”
The Eleventh Circuit’s decision in Miljkovic will no doubt be most remembered for its notable holding on an issue of first impression: that the FDCPA applies categorically to conduct falling within the plain language of the statute, even in the context of litigation, and even when the conduct in question is directed at someone other than the consumer. But it will likely be cited for much more. For example, though many district courts had reached the same conclusion, and while it did not expressly acknowledge it as another issue of first impression, the Eleventh Circuit had never before declared that, in order to state a claim for violation of § 1692f, a plaintiff must either allege improper acts specifically enumerated in that section or allege misconduct beyond that which allegedly violates some other provision of the FDCPA. Thus, even though the Court saved for another day whether the “competent lawyer” standard should apply to debt collectors’ communications with consumers’ attorneys, the Eleventh Circuit’s opinion in Miljkovic is still likely to prove instructive on the sufficiency of allegations necessary to sustain a claim under the FDCPA, not just in the course of litigation, but in other contexts, as well.
In Maignan v. Seterus, Inc., No. 14-CV-22488 (S.D. Fla. Feb. 11, 2015), the United States District Court for the Southern District of Florida found that an allegedly deceptive communication to a plaintiff’s attorney, as opposed to the plaintiff himself, is not actionable under either the federal Fair Debt Collection Practices Act (FDCPA) or its state counterpart, the Florida Consumer Collection Practices Act (FCCPA). Following a foreclosure action, Seterus, Inc., mailed a payoff statement to counsel for Ronald Maignan, which demanded a total amount and stated an interest rate higher than those contained in the final judgment in the foreclosure action. Maignan sued, contending that the payoff statement falsely represented the character, amount, or legal status of the loan, and that the defendant had unlawfully attempted to collect an amount not expressly authorized by the parties’ agreement or permitted by law.
Seterus moved to dismiss, arguing that the payoff statement was not actionable under either the FDCPA or the FCCPA because it was sent to Maignan’s counsel, rather than to Maignan himself. The district court agreed, and dismissed Maignan’s claims with prejudice. While courts ordinarily assess whether a communication runs afoul of the FDCPA from the standpoint of the “least sophisticated consumer,” the district court agreed that it makes little sense to apply this standard to communications sent to a consumer’s attorney, rather than to the consumer himself. Likewise, because great weight must be given to federal courts’ interpretation of the FDCPA when interpreting similar provisions of the FCCPA, the district court also found that the plaintiff’s FCCPA claim failed for the same reason.
The Eleventh Circuit’s opinion in Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014), cert. denied, — U.S. –, 2015 WL 246891 (Apr. 20, 2015), was the first reported decision holding that a plaintiff may state a claim under the Fair Debt Collection Practices Act based on a creditor’s proof of claim in bankruptcy for a debt that is time-barred under state law. But just as the Eleventh Circuit’s decision in Crawford was aimed at stemming the tide of “proofs of claim on debts deemed unenforceable under state statutes of limitations,” another “deluge has swept through U.S. bankruptcy courts of late” in the form of copycat Crawford claims.
The tide may be turning, however, as two federal district courts recently dismissed nationwide class actions based on Crawford. In both cases, the courts answered the question that the Eleventh Circuit left open in the most famous footnote since Footnote 4 (at least in the world of FDCPA litigation): “Whether the [Bankruptcy] Code ‘preempts’ the FDCPA when creditors misbehave in bankruptcy.” Crawford, 758 F.3d at 1262 n.7.
In Johnson v. Midland Funding, LLC, No. 14-CV-0322-WS-C, 2015 WL 1345431 (S.D. Ala. Mar. 23, 2015), the plaintiff asserted FDCPA claims against Midland Funding, LLC, in a nationwide class action based on its filing of a proof of claim for a stale debt. Midland moved to dismiss Johnson’s claim and argued, among other things, that “the tension between the Bankruptcy Code and [the FDCPA] precludes the plaintiff from pursuing her claim” under the FDCPA. The district court agreed, noting that “the Code authorizes filing a proof of claim on a debt known to be stale, while the [FDCPA] (as construed by Crawford) prohibits that precise practice.” As the court explained, for “creditors under the Code that are also debt collectors under the Act, those contradictory provisions cannot possibly be given effect simultaneously.” To the court, “[a] clearer demonstration of irreconcilable conflict would be difficult to imagine,” and in the face of that conflict, “the Act must give way to the Code.”
The district court in Torres v. Asset Acceptance, LLC, No. 14-CV-6542, 2015 WL 1529297 (E.D. Pa. Apr. 7, 2015) reached a similar result. Though unconstrained by the Eleventh Circuit’s decision in Crawford, the court in Torres also found no guidance from the Third Circuit’s decision in Simon v. FIA Card Servs., N.A., 732 F.3d 259 (3d Cir. 2013). While Simon likewise involved the intersection of the FDCPA and the Bankruptcy Code, the two sets of overlapping claims in that case “involved (1) mutually prohibited conduct (yielding no conflict), and (2) contradictory obligations (yielding a direct conflict).” In Torres, on the other hand, the court recognized that “the Code invests creditors with the right—but not the obligation—to file time-barred proofs of claim, while the FDCPA would oblige creditors not to file them.” Reasoning that this “rights-versus-obligations dichotomy does not easily fit within the Simon court’s direct conflicts framework,” the court instead based its decision on “larger systemic concerns with respect to the two statutory schemes.”
Thus, the district court in Torres adopted the rationale of the Second Circuit’s decision in Simmons v. Roundup Funding, LLC, 622 F.3d 93 (2d Cir. 2010). There, the court held that a proof of claim “cannot serve as the basis for an FDCPA action” because there “is no need to protect debtors who are already under the protection of the bankruptcy court,” and because “[n]othing in either the Bankruptcy Code or the FDCPA suggests that a debtor should be permitted to bypass the procedural safeguards in the Code in favor of asserting potentially more lucrative claims under the FDCPA.” The Torres court agreed, and declined to “insert judicially created remedies into Congress’s carefully calibrated bankruptcy scheme, thus tilting the balance of rights and obligations between debtors and creditors.” Accordingly, the court held in no uncertain terms “that filing a time-barred proof of claim in bankruptcy court cannot form the basis for an FDCPA claim.”
If the decisions in Johnson and Torres are any indication, the floodgates may be closing on FDCPA claims based on time-barred proofs of claim in bankruptcy. But in the meantime, the Eleventh Circuit likely will have another chance to speak on the topic it previously declined to address, as the Supreme Court denied LVNV’s cert petition in Crawford and the plaintiff in Johnson already has filed a notice of appeal.
Balch attorneys Jason Tompkins and Chase Espy represented Midland Funding in the Johnson case and Asset Acceptance in the Torres case (with the assistance of Marshall Dennehey attorney Andrew Schwartz).