Someday, the Supreme Court will grant certiorari to resolve a split among the circuits and decide whether the Bankruptcy Code supersedes the Fair Debt Collection Practices Act when a creditor violates the automatic stay by attempting to collect a pre-petition debt.
A case pending before District Judge J. Phil Gilbert of Benton, Ill., might be the vehicle, unless another lawsuit gets there first. Judge Gilbert’s case involved a creditor who sent a dunning letter and started a lawsuit in state court allegedly after receiving notice that the debtor had filed under chapter 13.
The debtor sued in Judge Gilbert’s court for violation of the FDCPA. The creditor-defendant filed a motion to dismiss and lost in an opinion on March 15.
There is a split of circuits, with the Ninth and Second Circuits holding that the Bankruptcy Code provides the exclusive remedy for a debtor alleging that a creditor violated the automatic stay. The Second Circuit retrenched somewhat in its Garfield opinion early this year, holding that a debtor with a discharge is entitled to sue under the FDCPA. To read about Garfield, click here.
The Seventh Circuit is on the opposite side as a result of its Randolph decision in 2004 holding that the statutes only “overlap” and lack any “irreconcilable conflict,” enabling debt collectors to comply with both simultaneously. The Third Circuit similarly found no implied repeal.
Given Randolph, Judge Gilbert had no difficulty denying the defendant’s motion to dismiss based on the notion that the Bankruptcy Code provides the sole remedy. He ruled on two other issues, both in favor of the debtor.
Judge Gilbert held that an “FDCPA claim is substantially different from a fraud claim,” thus invoking the Rule 8(a) pleading standard, not the heightened standard in Rule 9(b) on pleading fraud.
The creditor-defendant also attacked the complaint for not alleging a willful violation of the stay, as required by Section 362(k) of the Bankruptcy Code. Pointing out one of several reasons why debtors would prefer using the FDCPA, Judge Gilbert said that willfulness is not required for an FDCPA violation.
A case that may affect the ability to make claims under the FDCPA or even Section 362(k) was argued in the Supreme Court on Nov. 2. In Spokeo Inc. v. Robbins, the high court will decide whether Congress can confer standing to sue in federal court “based on a bare violation of a federal statute” when the plaintiff “suffers no concrete harm.”