A magistrate judge in Birmingham, Ala., wrote a sparkling opinion describing the claims that a former bankrupt can and cannot successfully assert for violation of the discharge injunction. He also explained how the district court can hear all the claims in one proceeding.
After a man got a chapter 7 discharge, a debt collector attempted to collect a discharged debt. The bankrupt filed suit in district court raising claims for contempt of the discharge injunction and for violating the federal Fair Debt Collection Practices Act, or FDCPA.
The debtor collector filed a motion to dismiss that Magistrate Judge John H. England, III denied on everything that mattered. The parties stipulated that Judge England could issue a final order, so there will be no review in district court.
To dismiss the FDCPA claim, the debt collector cited the Ninth Circuit’s 2002 decision in Walls for the proposition that the exclusive remedy for contempt is in the Bankruptcy Code. Saying that Walls was “unpersuasive” and had been criticized by several courts, Judge England pointed out how Walls held that the Bankruptcy Code preempted the FDCPA.
Properly, one federal statute does not preempt another. In the federal sphere, one act of Congress can only impliedly repeal, not preempt, another federal law, resulting in a different and higher standard than preemption. Judge England said that the issue in the case before him was decided by the Eleventh Circuit in May when the appeals court held in Johnson v. Midland Funding LLC that the Bankruptcy Code does not generally preclude FDCPA claims because there is no “irreconcilable conflict” between the two statutes. To read ABI’s discussion of Johnson, click here.
Judge England therefore denied the motion to dismiss the FDCPA claim. A claim under the FDCPA is more attractive for plaintiffs than a sanction for contempt because a successful suit automatically entitles the plaintiff to recover attorneys’ fees.
Next, the debt collector argued that the claim for contempt of the discharge injunction should have been brought by motion in bankruptcy court, not as part of a suit in district court.
Judge England agreed there is no private right of action for contempt. That did not mean, however, that a contempt proceeding could not proceed in district court, even though it probably should have been filed initially as a contested matter in bankruptcy court, he said.
Bankruptcy jurisdiction, he said, rests in the district court, with the bankruptcy court as a unit of the district court. Since the lawsuit was in the same district where the plaintiff had filed bankruptcy, Judge England withdrew the reference of the contempt proceeding in the interest of judicial economy to avoid holding two trials, one in district court under the FDCPA and the other in bankruptcy court for contempt.
Judge England did dismiss the claim under state law for unjust enrichment. That claim, he said, was preempted because it would give the plaintiff exactly the same relief as the contempt claim.
The debt collector’s case is not hopeless, at least not yet. In view of splits of circuits, the Supreme Court may grant certiorari this term in Johnson or a similar case to decide several questions under the FDCPA. To read ABI’s discussion about the prospects for granting certiorari, click here.