For consumers, good news came in the form of a district court decision in Florida on Feb. 3 showing that a debtor-friendly opinion from early this year is gaining traction beyond the Second Circuit.
District Judge Virginia M. Hernandez Covington is presiding over a lawsuit under the federal Fair Debt Collection Practices Act (FDCPA). The plaintiff alleged that dunning letters from a lender after she received her chapter 13 discharge violated the FDCPA. The lender filed a motion to dismiss and lost.
Citing a 2002 decision from the Ninth Circuit, the lender argued that the FDCPA was impliedly repealed as to bankrupts when Congress, two years later, adopted the Bankruptcy Code with its provisions dealing with violations of the automatic stay and the discharge injunction. Judge Covington rejected the argument, preferring to rely on Garfield v. Ocwen Loan Servicing LLC, where the Second Circuit held on Jan. 4 that the Bankruptcy Code did not “broadly repeal” the FDCPA for claims based on alleged violations of the discharge injunction. To read an analysis on Garfield, click here.
In Garfield, the Second Circuit was hemmed in by its own prior decision from 2010 in Simmons v. Roundup Funding, which barred FDCPA claims arising during the pendency of a bankruptcy. The Garfield panel allowed the FDCPA suit to proceed because the offending debt collection had occurred after discharge. Judge Covington followed Garfield on that issue as well, declining to follow lower courts that held to the contrary.
The plaintiff in Judge Covington’s case also asserted claims under Section 105 of the Bankruptcy Code for violation of the discharge injunction. She noted there is a conflict among the circuits as to whether there is a private right of action under Section 105.
Judge Covington sided with courts that find no claim under Section 105. Rather, they hold that a bankrupt’s recourse is to reopen the bankruptcy case, if necessary, and file a motion for contempt in bankruptcy court. Consequently, Judge Covington dismissed the Section 105 claim without prejudice.
Since bankruptcy jurisdiction is lodged in the district courts, this writer wonders why plaintiffs can’t combine FDCPA claims with contempt citations in one suit in district court. The creditor might try to have the contempt issue referred to the bankruptcy court, but in doing so, it is possible that the district judge might have the bankruptcy judge preside over the entire suit until it is ready for trial. It is also possible, although perhaps unlikely, that the bankruptcy court might have power to enter a final order in a combined suit if there is no jury trial.