The Supreme Court may have ruled that filing a stale claim in a bankruptcy case does not violate the federal Fair Debt Collection Practices Act, but Midland Funding LLC v. Johnson, 137 S. Ct. 1407, 197 L. Ed. 2d (2017), does not give creditors a free pass to file claims that are long barred by the statute of limitations, as explained by Bankruptcy Judge August B. Landis of Las Vegas.
In his March 31 opinion, Judge Landis socked the creditor with liability under Nevada’s fee-shifting statute. He is requiring the creditor to reimburse the debtor for attorneys’ fees incurred in successfully objecting to “frivolous” claims that were time barred by many years.
The Stale Claims
The entity that filed three claims had purchased them from the original creditors. Judge Landis said that the “Account Detail forms attached to the Claims also plainly show that both the charge off date by the original credit provider, and the last transaction on the relevant account, occurred more than a decade prior to the commencement of Debtor’s case.”
When the chapter 13 trustee did not object, the debtor filed an objection to the claims, citing Nevada’s six-year statute of limitations for contract claims. Judge Landis said that the claims “were all filed at a point in time when they were obviously barred by the applicable Nevada statute of limitations.”
Judge Landis expunged the claims, saying, “It isn’t even close” because the creditor “did not offer even a scintilla of evidence” to suggest that the claims should be allowed. Indeed, the creditor conceded that the claims were time barred.
Fee Shifting for Filing Time-Barred Claims
Sustaining the claim objection wasn’t the end of the story, because Judge Landis turned to the debtor’s request to recover attorneys’ fees under Nevada’s fee-shifting statute.
The Nevada statute, NRS 18.010, allows the prevailing party to recover attorneys’ fees when the claim “was brought or maintained without reasonable ground . . . .”
The statute goes on to say that the statute “shall” be “liberally construe[d] . . . in favor of awarding attorneys’ fees in all appropriate situations . . . to punish for and deter frivolous or vexatious claims and defenses because such claims and defenses overburden limited judicial resources, hinder the timely resolution of meritorious claims and increase the costs of engaging in business and providing professional services to the public.”
Judge Landis said that the “filing of multiple and obviously time barred claims in a Nevada Chapter 13 bankruptcy case is precisely the type of frivolous claim that overburdens the limited judicial resources of this Court, hinders the timely resolution of meritorious claims, and increases the costs of professional services rendered by debtor’s counsel to their clients in having to object.”
Midland Funding Is No Safe Harbor
In opposing the request for attorneys’ fees, the creditor heavily relied on the majority opinion in Midland Funding. There, the Supreme Court held 5/3 that a debt collector who files a claim that is “obviously” barred by the statute of limitations has not engaged in false, deceptive, misleading, unconscionable, or unfair conduct and thus does not violate the federal Fair Debt Collection Practices Act.
For starters, Judge Landis said that Midland Funding was “readily distinguishable.” The debtor in his court was seeking attorneys’ fees under state law, not by making a claim under the FDCPA.
Focusing on the dissenting opinion by Justice Sonia Sotomayor, Judge Landis saw Midland Funding as explaining why the debtor should be allowed to recover attorneys’ fees. He said that the “facts and issues in this case are the precise embodiment of the concerns described by Justice Sotomayor in her Midland Funding dissent, and they implicate each and every one of the concerns plainly expressed by the Nevada legislature” in the fee-shifting statute.
Judge Landis paraphrased Justice Sotomayor as saying that the filing of obviously stale claims in bankruptcy cases has become “common practice” among debt buyers, so much so that debt buyers have “‘deluge[d]’ the bankruptcy courts with claims ‘on debts deemed unenforceable under state statutes of limitations.’” Id. at 1418 (Sotomayor, J., dissenting), quoting Crawford v. LVNV Funding, LLC, 758 F.3d 1254, 1256 (11th Cir. 2014).
Channeling Justice Sotomayor, Judge Landis said that the practice of filing time-barred claims “is a systemic abuse of the bankruptcy system that overburdens the limited judicial resources available to debtors and creditors alike.” He therefore decided it was “proper to apply the fee shifting provisions of [the Nevada statute] in this case, such that [the creditor] bears the burden of the attorney’s fees Debtor incurred in successfully prosecuting her Oppositions to [the debtor’s] patently stale Claims.”
Judge Landis disallowed the claims and directed the debtor’s counsel to file a declaration setting out the cost of prosecuting the claim objections. He promised to enter another order fixing the amount of fees awarded to the debtor.
Recommendation
In response to Midland Funding, Congress should amend the Bankruptcy Code to sanction creditors for filing patently time-barred claims.
The Supreme Court may have ruled that filing a stale claim in a bankruptcy case does not violate the federal Fair Debt Collection Practices Act, but Midland Funding LLC v. Johnson, 137 S. Ct. 1407, 197 L. Ed. 2d (2017), does not give creditors a free pass to file claims that are long barred by the statute of limitations, as explained by Bankruptcy Judge August B. Landis of Las Vegas.
In his March 31 opinion, Judge Landis socked the creditor with liability under Nevada’s fee-shifting statute. He is requiring the creditor to reimburse the debtor for attorneys’ fees incurred in successfully objecting to “frivolous” claims that were time barred by many years.
The Stale Claims
The entity that filed three claims had purchased them from the original creditors. Judge Landis said that the “Account Detail forms attached to the Claims also plainly show that both the charge off date by the original credit provider, and the last transaction on the relevant account, occurred more than a decade prior to the commencement of Debtor’s case.”
When the chapter 13 trustee did not object, the debtor filed an objection to the claims, citing Nevada’s six-year statute of limitations for contract claims. Judge Landis said that the claims “were all filed at a point in time when they were obviously barred by the applicable Nevada statute of limitations.”
Judge Landis expunged the claims, saying, “It isn’t even close” because the creditor “did not offer even a scintilla of evidence” to suggest that the claims should be allowed. Indeed, the creditor conceded that the claims were time barred.