Bankruptcy Judge Jeffrey P. Norman wrote the antidote to Crawford v. LVNV Funding LLC, the Eleventh Circuit case from 2014 holding that filing a time-barred proof of claim violates the federal Fair Debt Collection Practices Act, or FDCPA.
Although Judge Norman held in his July 28 opinion that the later-adopted Bankruptcy Code did not impliedly repeal the FDCPA, he ruled that filing a factually accurate and complete proof of claim did not state a claim for violation of the FDCPA.
Judge Norman, of Shreveport, La., pointed out how the circuit courts are evenly split, with no decision yet from the Fifth Circuit. Three circuits – the Second, Eighth and Ninth – hold that the Bankruptcy Code precludes asserting claims under the FDCPA, while the Third, Seventh and Eleventh Circuits allow FDCPA claims brought by debtors. The Second Circuit recently narrowed its prior decision by holding that a debtor who has received a discharge can mount an FDCPA claim. See Garfield v. Ocwen Loan Servicing LLC, 811 F.3d 86 (2d Cir. Jan. 4, 2016).
In the case before Judge Norman, a purchaser of time-barred debts filed a $760 claim. After the debtor initiated an adversary proceeding for violation of the FDCPA, the creditor filed a motion for leave to withdraw the claim, hoping that withdrawal would moot the FDCPA suit.
Judge Norman allowed withdrawal of the claim under Bankruptcy Rule 3006, but he held that the damage already had been done. Violation of the FDCPA occurred when the claim was filed, so that withdrawal of the claim did not moot the adversary proceeding.
While an FDCPA claim by a debtor is not categorically prohibited, Judge Norman reached what he called a “more nuanced” conclusion by holding that the creditor’s properly completed claim form did not lay out a plausible violation of the FDCPA.
He held that filing an accurate and complete claim does not represent harassment or abuse and does not entail the use of any “false, deceptive or misleading representation.” Since nothing in the proof of claim was untruthful, Judge Norman similarly held that it was not “unfair or unconscionable.”
Judge Norman did not say that a debtor can never assert a valid FDCPA claim based on a time-barred debt. He gave the debtor leave to amend her complaint, “if possible.”
In Crawford, 758 F.3d 1254, the Eleventh Circuit was bent on ending what it called a “deluge” of claims based on time-barred debts. The appeals court’s decision explained why the availability of claim objections and the duties of trustees did not obviate valid FDCPA suits. The circuit intended to prevent debtors and trustees from spending money objecting to stale claims. In those situations where objections are not economically warranted, the Eleventh Circuit wanted to ensure that recoveries by creditors with valid claims would not be diluted.
Although Judge Norman rebuts the arguments in Crawford, he does not address that case directly.
There are other significant holdings in Judge Norman’s opinion. He held that the creditor had impliedly consented to entry of final judgment by not raising a Stern objection before filing a motion to dismiss.
Under Spokeo Inc. v. Robins, 136 S. Ct. 1540, 194 L. Ed. 2d 635 (Sup. Ct. May 16, 2016), Judge Norman ruled that the debtor had constitutional standing by virtue of a “concrete and particularized” injury resulting at a minimum from incurring additional attorneys’ fees in expunging the claim.
To read ABI’s discussion of Garfield, click here. For Spokeo, click here.