Differing with the Second and Ninth Circuits, the Eleventh Circuit deepened an existing split of circuits, opening the door for the Supreme Court to decide whether the Bankruptcy Code impliedly repealed the federal Fair Debt Collection Practices Act to the extent of allowing debt collectors to file claims that are barred by statutes of limitations.
The ruling by Circuit Judge Beverly B. Martin on May 24 was not a surprise, because the Eleventh Circuit had held in 2014 in Crawford v. LVNV Funding LLC that filing a stale claim barred by a statute of limitations violates the FDCPA. In Crawford, the appeals court did not consider and explicitly left open the question of whether the later-adopted Bankruptcy Code impliedly repealed the FDCPA, thereby allowing the filing of claims based on stale debts.
Judge Martin’s opinion, which came down less than six weeks after oral argument, answered the unresolved question by holding that there is no irresolvable conflict between the two statutes because they “can be construed together in a way that allows them to coexist.”
While the Bankruptcy Code “certainly allows all creditors to file proofs of claim in bankruptcy cases,” Judge Martin said that the “Code does not at the same time protect those creditors from all liability.” Consequently, she said that a “particular subset of creditors – debt collectors – may be liable under the FDCPA for bankruptcy filings they know to be time-barred.” As a result, she reversed the lower court in two cases where District Judge William H. Steele from Mobile, Ala., dismissed FDCPA suits on the theory that the Bankruptcy Code allows the filing of stale claims.
The policy underpinning Crawford was impossible to ignore. In that case, the appeals court said it was bent on stemming what it called a “deluge” of claims filed in bankruptcy attempting to collect “debts deemed unenforceable under state statutes of limitations.”
Because they do not stand to benefit, debtors in chapter 7 cases have no incentive for objecting to stale claims. Given their meager compensation, chapter 7 trustees similarly may not object. Likewise, chapter 13 debtors with so-called pot plans also have no incentive for objecting to time-barred claims. Consequently, creditors with enforceable claims will have diminished recoveries. It is also noteworthy that an industry was created where a few companies pay miniscule sums to buy stale claims in bulk, knowing that even a few recoveries will make their businesses profitable.
Judge Steele declined to follow Crawford’s policy insinuation because, in his opinion, “[a] clearer demonstration of irreconcilable conflict would be difficult to imagine.” He analyzed Alabama law as meaning that the statute of limitations only extinguishes the remedy, not the debt itself. He then surveyed the Bankruptcy Code and its broad definition of “claim,” and concluded that it permits the filing of a claim barred by a statute of limitations. Judge Steele then held that the Bankruptcy Code impliedly repealed the FDCPA when it comes to filing stale claims.
On the issue of implied repeal, Circuit Judge Martin cited older Supreme Court authority for the proposition that implied repeal results when there is an “irreconcilable conflict” between two federal statutes. She then cited the Supreme Court’s 2007 National Association of Home Builders opinion for the principle that implied repeal is “not favored” and will not be presumed “unless the intention of the legislature to repeal is clear and manifest.”
Given that the FDCPA makes only debt collectors liable for filing stale claims, Judge Martin reversed Judge Steele because there is no “irreconcilable conflict” between the two statutes.
Although Judge Martin’s decision does not mention, cite or criticize the circuits that have held to the contrary, her opinion refutes the principal arguments espoused by those who believe there is implied repeal. The Eleventh Circuit is not alone. The Seventh Circuit held in Randolph in 2004 that the two statutes are not in irreconcilable conflict, although Randolph did not deal with stale claims; it involved FDCPA sanctions for violating the automatic stay.
The Eleventh Circuit decision therefore becomes a prime candidate for Supreme Court review. How soon that might occur is open to doubt because the losing debt collector can file a motion for rehearing en banc. The odds of success do not seem great because the circuit court denied en banc rehearing in Crawford, with no judge even requesting that the judges be polled. A certiorari petition was also denied. The new case is a better candidate for certiorari because Crawford did not raise the question of implied repeal.