Now that the Supreme Court has allowed debt collectors to file stale claims, the statute or the Bankruptcy Rules must be amended before courts can halt the practice, according to Bankruptcy Judge Dennis R. Dow of Kansas City, Mo.

In Midland Funding LLC v. Johnson, 137 S. Ct. 1407, 197 L. Ed. 2d 790, 85 U.S.L.W. 4239 (Sup. Ct. May 15, 2017), the Supreme Court held that a debt collector who files a claim that is “obviously” barred by the statute of limitations has not engaged in false, deceptive, misleading, unconscionable, or unfair conduct and thus does not violate the federal Fair Debt Collection Practices Act.

The U.S. Trustee mounted a frontal attack on a debt collector engaged in the business of filing proofs of claim where collection would be barred by the statute of limitations. In an adversary proceeding begun eight months before the high court decided Midland Funding, the U.S. Trustee alleged that regularly filing claims based on stale debts was a “systemic abuse of the bankruptcy process.”

The U.S. Trustee sought a nationwide injunction, a monitor, unspecified monetary damages, and sanctions for routinely filing stale claims. Despite finding the creditor’s “behavior disturbing,” Judge Dow dismissed the complaint while allowing the U.S. Trustee to proceed with objections to two stale claims.

Although critical of the creditor’s practices and procedures, the bulk of Judge Dow’s Sept. 1 opinion leads to the conclusion that the current state of the law and rules cannot be employed to outlaw so-called robo-signing or the filing of stale claims.

For example, Judge Dow found that the creditor’s “alleged process for preparing and reviewing claims fell short of the requirement of Official Form 10 and Bankruptcy Rule 9011.” Despite the fact that the creditor used “questionable practices,” the judge concluded that the facts did not lend to the imposition of sanctions, in part because the form was not amended until 2016 “to require that the individual signing the proof of claim personally review it.”

Judge Dow faulted the creditor’s elaborate robo-signing procedures because there was “no indication” that the person who signed the claims “knew if, or to what extent, that process was followed.” He also said it was “inconceivable that an individual could comply with the instructions for Official Form 10 without ever examining the claim.” Evidently, the same person’s signature appeared on about 54,000 claims.

Ultimately, the complaint failed to state a claim for sanctions, Judge Dow said, because the U.S. Trustee did not allege “bad faith in connection with its ‘robo signing’ practice,” because the propriety of the practice was at least debatable.

The U.S. Trustee was barred from seeking sanctions under Bankruptcy Rule 9011 for filing stale claims because he had “failed to abide by the safe harbor provisions of that rule.” Sanctions were similarly unavailable under Section 105 because the statutes of limitations in most states do not extinguish these types of claims. Also on the question of whether the filing of stale claims violates the Bankruptcy Code, Judge Dow said that the definition of “claim” is “extremely broad.”

Therefore, “considering applicable state law and the provisions of the Code,” Judge Dow decided that “creditors have the right to file such claims and that doing so is not sanctionable.” There is no violation of Rule 9011, he said, unless the creditor continues asserting the claim “after the statute of limitations has been raised.”

Locking the door after slamming it shut, Judge Dow said the U.S. Trustee would not be entitled to sanctions even if the creditor had been filing claims that did not comply with Rule 3001(c). The remedy for failure to file a claim in proper form, he said, is to strip the claim of its prima facie validity, “besides those enumerated in Rule 3001(c).”

The “other appropriate relief” allowed under the rule “does not include the disallowance of a claim.” Likewise, there is no independent cause of action for a violation of Rule 3001.

Putting his finger on the nub of the issue, Judge Dow held that the creditor’s behavior was “not sanctionable and may not be treated as such until changes are made either by Congress or the Rules Committee,” even though the creditor’s “conduct is unsettling and perhaps even distasteful or unseemly in some respects.” In addition, Judge Dow said he had “no power to grant relief which would purport to be binding as to claims filed and conduct occurring in cases other than ones before this Court.” Even if there were nationwide power, Judge Dow said he “would decline to exercise it.”