To avoid the statute of limitations under the federal Fair Debt Collection Practices Act, or FDCPA, a lawsuit must be filed within a year of the filing of a proof of claim based on a stale debt, according to Judge Jane S. Restani of the U.S. Court of International Trade, sitting by designation in district court in Montgomery, Ala.
To no avail, the debtor argued that the FDCPA’s one-year statute of limitations was tolled, on the theory that the FDCPA suit was recoupment or a compulsory counterclaim.
Before confirmation of a chapter 13 plan, the creditor filed a proof of claim based on a debt where collection would have been barred by the statute of limitations. Before confirmation, the debtor did not object to the time-barred claim. The debtor proceeded to complete payments under the plan, in the process paying the creditor almost $400 from his wages. The debtor then sued for an FDCPA violation and at the same time objected to allowance of the claim.
In her opinion on Aug. 9, Judge Restani upheld the bankruptcy court’s dismissal of the suit under the FDCPA’s statute of limitations.
Were the FDCPA suit a compulsory counterclaim or a claim in recoupment, the statute of limitations would not have applied. The FDCPA suit was neither, Judge Restani said.
For both recoupment and a compulsory counterclaim, the conduct must arise from the same transaction. The FDCPA claim failed that test because the debt arose from purchasing merchandise, whereas the FDCPA claim arose from the creditor’s collection activity.
Judge Restani also rejected the argument that the FDCPA claim was in the nature of setoff. She said that setoff is “more akin to permissive counterclaims,” which do not toll statutes of limitations.
The opinion implies that the FDCPA suit also would have failed because the debtor neither objected to the proof of claim nor filed the complaint before confirmation, even if the one-year statute of limitations would not yet have lapsed.
Judge Restani’s opinion was a product of the same lawsuit that resulted in Crawford v. LVNV Funding LLC, 758 F.3d 1254, the Eleventh Circuit opinion from 2014 holding that filing a time-barred proof of claim violates the FDCPA. In that opinion, the appeals court reversed the lower courts, which had dismissed the suit. On remand, the bankruptcy court again dismissed, this time under the statute of limitations, leading to Judge Restani’s affirmance.
There are now two circuit splits on the FDCPA. In Nelson v. Midland Credit Management Inc., the Eighth Circuit held on July 11 that filing a stale proof of claim does not violate the FDCPA. The circuit courts were already split on whether the Bankruptcy Code impliedly repealed the FDCPA. To read ABI’s discussion of Nelson, click here.
Judge Restani wrote another important bankruptcy decision in August when she held in Central Mississippi Credit Corp. v. Vaughn that a debtor’s attorneys’ fees should not be taken into consideration when assessing punitive damages for a willful violation of the automatic stay. To read ABI’s discussion of Mississippi Credit, click here.