Garfield v. Ocwen Loan Servicing, LLC, No. 15-527 (2d Cir. 2016)

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Justia Opinion Summary

Plaintiff appealed the district court's judgment in favor of Ocwen and dismissal of plaintiff's complaint alleging various causes of action under the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. 1692. At issue is whether a debtor who has received a claim on a debt that has been discharged in a bankruptcy proceeding can sue the claimant in a district court under the FDCPA. The court concluded that the Bankruptcy Code does not broadly repeal the FDCPA for purposes of FDCPA claims based on conduct that would constitute alleged violations of the discharge injunction; none of plaintiff's individual FDCPA claims conflicts with the discharge injunction under the Bankruptcy Code; and, in regard to the claim of piecemeal litigation, the court concluded that the remote possibility of a need for clarification provides no basis for routing all FDCPA claims exclusively into the bankruptcy court. Accordingly, the court reversed and remanded with instructions to reinstate plaintiff's FDCPA claims against Ocwen.

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15-527 Garfield v. Ocwen Loan Servicing, LLC UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term 2015 Argued: October 20, 2015 Decided: January 4, 2016 Docket No. 15-527 - - - - - - - - - - - - - - - - - - - - - DONNA GARFIELD, Plaintiff-Appellant, 1 2 3 4 5 6 7 8 9 10 11 12 OCWEN LOAN SERVICING, LLC, Defendant-Appellee. - - - - - - - - - - - - - - - - - - - - - - 13 United States District Court for the Western District of New 14 York (Elizabeth A. Wolford, District Judge), dismissing 15 claims brought under the Fair Debt Collection Practices Act 16 for seeking to collect a debt discharged in bankruptcy, and 17 requiring the plaintiff to seek relief in the bankruptcy 18 court. 19 20 v. Before: NEWMAN, WINTER, and CABRANES, Circuit Judges. Appeal from the January 26, 2015, judgment of the Judgment reversed and case remanded with instructions to reinstate the FDCPA claims. 21 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Kenneth R. Hiller, Law Offices of Kenneth Hiller, PLLC, Amherst, NY, for Appellant. Gary Neal Smith, Houser & Alison, APC, Newark, NJ, for Appellee. (Daniel L. Geyser, Stris & Maher LLP, Los Angeles, CA, for amicus curiae National Association of Consumer Bankruptcy Attorneys, in support of Appellant.) JON O. NEWMAN, Circuit Judge. 17 The principal issue on this appeal is whether a 18 debtor who has received a claim on a debt that has been 19 discharged in a bankruptcy proceeding can sue the claimant 20 in a district court under the Fair Debt Collection Practices 21 Act (“FDCPA”) or must seek relief in the bankruptcy court. 22 The issue arises on an appeal by Plaintiff-Appellant Donna 23 Garfield from the January 26, 2015, judgment of the United 24 States District Court for the Western District of New York 25 (Elizabeth 26 Defendant-Appellee Ocwen Loan Servicing, LLC (“Ocwen”). The 27 judgment dismissed Garfield’s complaint alleging various 28 causes of action under the FDCPA. 29 30 A. Wolford, District Judge), in favor of We conclude that Garfield may pursue her FDCPA claims in a district court and therefore reverse and remand. 2 Background 1 2 The complaint alleges the following facts, which are 3 assumed to be true on this appeal from dismissal for failure 4 to state a claim on which relief can be granted. See Bell 5 Atlantic 6 Garfield obtained a mortgage from Ocwen’s predecessor-in- 7 interest, Litton Loan Servicing L.P. and became personally 8 obligated on a mortgage loan. Garfield failed to make 9 payments on the mortgage loan and filed for Chapter 13 10 Bankruptcy in the United States Bankruptcy Court for the 11 Western 12 proceedings, Ocwen acquired Garfield’s mortgage loan. Corp. v. District Twombly, of New 550 York. U.S. 544, During the 556 (2007). bankruptcy 13 Under her bankruptcy plan, Garfield paid the arrears on 14 her mortgage loan through monthly payments made during the 15 bankruptcy proceeding. Critical to the pending appeal, in 16 August 2013 she obtained a discharge of her entire personal 17 obligation for the mortgage loan.1 However, Garfield agreed 1 Garfield’s claim that her personal obligation on the mortgage debt was discharged is inferable from her complaint, but not precisely stated. The complaint alleges that Garfield’s “bankruptcy was discharged,” ¶ 14, and that Ocwen reported to Equifax that she “still owed the amount which was included in her Chapter 13 bankruptcy,” ¶ 19. Her brief in this Court explicitly alleges that her debt “had been discharged in her prior bankruptcy case,” Br. for Appellant 1, and that “the Bankruptcy Court entered an order discharging Plaintiff’s indebtedness on all of the debts 3 1 to pay $938 2 mortgaged property.2 Garfield 3 per month concedes to prevent that she foreclosure made only one of the monthly 4 payment after her bankruptcy discharge and that by March 5 2014 6 $6,672.34. In February 2014 Ocwen contacted Garfield and 7 demanded that she pay $21,825.15 or face foreclosure on her 8 home. Ocwen sent a delinquency notice in April 2014 for 9 $22,684.36. These amounts reflected both Garfield’s conceded the arrears for on her monthly post-bankruptcy obligation 10 arrears 11 mortgage loan arrears that had been discharged. Ocwen also 12 reported 13 amount. 14 In to Equifax July 2014, that monthly Garfield Garfield filed payments totaled owed her and the the discharged FDCPA complaint 15 against Ocwen in the United States District Court for the 16 Western District of New York. She alleged that Ocwen’s 17 attempt to collect the arrears on her mortgage loan, which listed on her bankruptcy petition, including her debt to Ocwen,” id. 3-4 (citing Complaint ¶ 14). 2 Ocwen contends that it is only the “servicer” of Garfield’s mortgage, “not the owner of the security instrument,” and “is not a secured creditor enforcing a valid security interest.” Br. for Appellee 27 n.8. Ocwen does not dispute that Garfield’s failure to make required payments risks foreclosure. 4 1 had been discharged,3 violated several provisions of the 2 FDCPA: 15 U.S.C. § 1692e, 15 U.S.C. § 1692e(2), 15 U.S.C. § 3 1692e(5), 15 U.S.C. § 1692e(8), 15 U.S.C. § 1692e(10), 15 4 U.S.C. § 1692e(11), 15 U.S.C. § 1692f, 15 U.S.C. § 1692f(1), 5 and 15 U.S.C. § 1692g(a)(3). 6 Garfield also alleged that Ocwen violated the FDCPA in 7 the manner it attempted to collect the post-bankruptcy 8 monthly 9 Specifically, she alleges (1) that Ocwen violated subsection mortgage which payments that owes. 11 warning,” during conversations with a debtor, and (2) that 12 Ocwen 13 communications a 30-day notice 14 dispute a debt, as required by subsection 1692g(a)(3). send within so-called she 1692e(11), to a concedes 10 failed requires she five days “mini-Miranda of its initial of a debtor’s right to 15 The District Court dismissed Garfield’s complaint. The 16 Court held that the Bankruptcy Code provides the exclusive 17 remedy for Garfield’s claim that Ocwen attempted to collect 3 The Bankruptcy Code’s discharge provision, 11 U.S.C. § 524, provides in relevant part that a discharge in bankruptcy “operates as an injunction against the commencement or continuation of an action, the employment of process, or an act[] to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharged of such debt is waived.” Id. § 524(a)(2). 5 1 an allegedly discharged debt.4 The Court also stated that, 2 even if the Code does not broadly preclude all FDCPA claims 3 for 4 Garfield’s particular FDCPA claims conflict with the Code’s 5 remedies and were therefore precluded. conduct that violates the discharge injunction, 6 Discussion 7 I. Implied Repeal of All FDCPA Provisions Invoked for Claims 8 After Discharge 9 The District Court held that the Bankruptcy Code 10 precludes all claims under the FDCPA for conduct that 11 violates a discharge injunction. Acknowledging Garfield’s 12 argument that the Supreme Court “should only rarely infer 13 statutory repeal,” the District Court ruled that “many of 14 Plaintiff’s 15 Bankruptcy Code’s discharge injunction provisions.” allegations directly conflict with the 16 When it is claimed that a later enacted statute creates 17 an irreconcilable conflict with an earlier statute, the 18 question is whether the later statute, by implication, has 19 repealed 20 statute. See National Ass’n of Home Builders v. Defenders of all or, more typically, 4 part of the earlier Specifically, it held that the appropriate means to redress conduct that violates the discharge injunction is a motion for contempt filed in the bankruptcy court under 11 U.S.C. § 105(a). 6 1 Wildlife, 551 U.S. 644, 662-63 (2007). Repeal by implication 2 is disfavored. “In the absence of some affirmative showing 3 of 4 justification for a repeal by implication is when the 5 earlier and later statutes are irreconcilable.” Morton v. 6 Mancari, 417 U.S. 535, 550 (1974). an intention to repeal, the only permissible 7 Where, as in this case, the later statute is the 8 Bankruptcy Code,5 a distinction must be made between claims 9 brought under the earlier statute during the pendency of a 10 bankruptcy proceeding and those brought after a discharge. 11 Four circuits have considered FDCPA claims brought during 12 the pendency of a bankruptcy proceeding. 13 Our Court has ruled that the FDCPA does not authorize 14 suit during the pendency of bankruptcy proceedings. See 15 Simmons v. Roundup Funding, LLC, 622 F.3d 93, 96 (2d Cir. 16 2010). This ruling appears to construe FDCPA provisions to 17 be 18 bankruptcy, rather than determine that such provisions have inapplicable when invoked 5 for claims made during The subsections of the FDCPA under which Garfield makes claims, with one exception discussed below, see note 11, infra, were enacted on September 20, 1977, and came into effect on March 20, 1978. See Pub. L. No. 95-109, §§ 807, 808, 809, 91 Stat. 874, 877, 879 (1977). The current version of the discharge injunction, 11 U.S.C. § 524(a), was enacted on November 6, 1978. See Pub. L. No. 95-958, 92 Stat. 2549, 2592 (1978). 7 1 been impliedly repealed by the provision of the Bankruptcy 2 Code authorizing a discharge injunction. See id. at 94. Our 3 Court’s opinion does not include the word “repeal.” 4 In Simmons, the debtors, while engaged in a bankruptcy 5 proceeding, objected to the amount of a creditor’s proof of 6 claim, which the bankruptcy court reduced. The debtors then 7 brought 8 creditor’s filing of an inflated proof of claim violated the 9 FDCPA. See id. The creditor moved to dismiss, arguing that 10 the Bankruptcy Code exclusively provides whatever remedies 11 exist for filing an inflated proof of claim. See id. 12 a putative class action, contending that the Affirming dismissal of the complaint, we said, “The 13 FDCPA is designed to protect 14 “[t]here is no need to protect debtors who are already under 15 the protection of the bankruptcy court.” Id. at 96 (emphasis 16 added). Noting that some courts had broadly rejected all 17 FDCPA claims (even claims filed after discharge) predicated 18 on acts alleged to have violated the Bankruptcy Code, we 19 observed that “[t]his broader rule has not been universally 20 accepted, and we are not compelled to consider it in this 21 case.” Id. at 96-97 n.2 (citation omitted).6 6 defenseless debtors” and In a non-precedential decision, Yaghobi v. Robinson, 145 F. App’x 697 (2d Cir. 2005), we affirmed the dismissal 8 1 The Ninth Circuit has ruled that the Bankruptcy Code 2 precludes FDCPA claims 3 bankruptcy proceedings. See Walls v. Wells Fargo Bank, N.A., 4 276 F.3d 502, 511 (9th Cir. 2002). This Court, like the 5 District Court in the pending appeal, appears to have said 6 “precludes” 7 provisions invoked for such claims have been repealed by 8 implication 9 discharge injunction. FDCPA with brought claims respect to to during reflect conduct the pendency that that the of FDCPA violates the 10 Two circuits have ruled to the contrary. In Randolph v. 11 IMBS, Inc., 368 F.3d 726, 728 (7th Cir. 2004), the debtors 12 brought 13 collect debts in violation of the automatic stay. The 14 creditors asserted that the Bankruptcy Code’s remedies for 15 violations of the automatic stay, see 11 U.S.C. § 362(h) 16 (now § 362(k)), precluded relief under the FDCPA. FDCPA claims against creditors for seeking to of claims, alleging violations of a discharge injunction, brought in a district court under the Bankruptcy Code’s contempt provision, 11 U.S.C. § 105(a), the Code’s discharge provision, id. § 524, the FDCPA, and state law provisions. After affirming dismissal of claims brought under the Bankruptcy Code’s provisions, we also affirmed the dismissal of “plaintiff’s parallel federal and state unfair debt collection practice claims,” adding, “We need not here decide whether debtors in bankruptcy can ever maintain such claims based on violations of the Bankruptcy Code,” noting the circuit split discussed above. See id. at 698. 9 1 The Seventh Circuit acknowledged that there were some 2 “operational differences between the statutes,” but stated 3 that these differences constituted “overlap” between the 4 statutes rather than “irreconcilable conflict,” id. at 730, 5 and that “[o]verlapping statutes do not repeal one another 6 by implication,” Id. at 731. “The Bankruptcy Code of 1986 7 does not work an implied repeal of the FDCPA, any more than 8 the latter Act implicitly repeals itself.” Id. at 732. 9 Judge Easterbrook helpfully assembled a chart comparing 10 the statutes’ differing treatment of conduct that violates 11 both the automatic stay and the FDCPA: Bankruptcy FDCPA Who Anyone Debt collector only Scienter Willfulness Strict liability (§ 1692e(2)(A) Defense None Bona fide error plus due care (§ 1692k(c)), or reliance on FTC opinion (§ 1692k(e)) Statutory Damages None $1,000 maximum (§ 1692k(a)(2)(A) 25 26 Compensatory Damages Yes Yes (§ 1692k(a)(1)) 27 28 Punitive Damages Yes No 29 30 Cap on Class Recovery No Yes (§ 1692k(a)(2)(B)(ii)) 12 13 14 15 16 17 18 19 20 21 22 23 24 10 Maximum recovery No Attorneys' fees to debtor No Yes (§ 1692k(a)(3)) Attorneys' fees to creditor No Yes (§ 1692k(a)(3)) 8 9 10 Statute of limitations None (laches defense only) One year (§ 1692k(d)) 11 Id. 1 2 3 4 5 6 7 Yes, $500,000 or 1% of net worth, whichever is less (§ 1692k(a)(2)(B)(ii)) 12 The Seventh Circuit concluded, “It is easy to enforce 13 both statutes, and any debt collector can comply with both 14 simultaneously.” Id. 15 The Third Circuit has also ruled against implied repeal 16 of FDCPA provisions invoked for claims brought during the 17 pendency of bankruptcy proceedings, see Simon v. FIA Card 18 Services, N.A., 732 F.3d 259, 274 (3d Cir. 2013), concluding 19 that the Bankruptcy Code effected “no broad preclusion” of 20 FDCPA claims, id. at 278. 21 The pending appeal concerns FDCPA claims brought after 22 discharge, the context 23 Simmons. Now facing the issue of implied repeal of FDCPA 24 provisions invoked for claims in the post-discharge context, 25 we conclude that the Bankruptcy Code does not broadly repeal 26 the FDCPA for purposes of FDCPA claims based on conduct that 27 would constitute we alleged explicitly violations 11 distinguished of the in discharge 1 injunction. No irreconcilable conflict exists between the 2 post-discharge remedies of the Bankruptcy Code and the 3 FDCPA. There is no reason to assume that Congress did not 4 expect these two statutory schemes to coexist in the post- 5 discharge context. The Seventh Circuit’s analysis of FDCPA 6 and Bankruptcy Code provisions, although leading that Court 7 to a result that differs from our Simmons decision in the 8 pre-discharge context, argues against preclusion of FDCPA 9 claims after discharge. At that point the former debtor no 10 longer has 11 Simmons, 622 F.3d at 96, which we deemed decisive on the 12 preclusion issue prior to discharge. Indeed, the Bankruptcy 13 Code provision concerning the discharge injunction, see 11 14 U.S.C. § 524(a)(2), does not explicitly create a cause of 15 action 16 provision provides such a remedy, see id. § 362(k).7 for the its “protection violation, of the whereas bankruptcy the court,” automatic stay 17 18 7 In noting this distinction, we do not decide whether the discharge injunction provision should be construed implicitly to create a cause of action for its violation, in addition to a contempt remedy. See 11 U.S.C. § 105(a); Bessette v. Avco Financial Services, Inc., 230 F.3d 439, 445 (1st Cir. 2000) (discharge injunction enforceable by contempt proceeding). 12 1 II. Implied Repeal of Specific FDCPA Provisions Invoked for 2 Claims After Discharge 3 Even though the Bankruptcy Code does not impliedly 4 repeal all FDCPA provisions to remedy conduct that violates 5 the discharge injunction, it might impliedly repeal some 6 specific provisions invoked to remedy such conduct. Ocwen 7 focuses first on Garfield’s claim that Ocwen’s failure to 8 provide a so-called “mini-Miranda” warning in its initial 9 communication violated subsection 1692e(11) of the FDCPA.8 10 This claim, Ocwen contends, irreconcilably conflicts with 11 the Bankruptcy Code’s post-discharge remedies. 12 In Simon, the Third Circuit held that the FDCPA could 13 not require the creditor to include a mini-Miranda warning 14 with 15 communication that included such a warning, sent prior to a its 8 examination notice and subpoenas because Subsection 1692e(11) prohibits “[t]he failure to disclose in the initial written communication with the consumer and, in addition, if the initial communication with the consumer is oral, in that initial oral communication, that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose, and the failure to disclose in subsequent communications that the communication is from a debt collector, except that this paragraph shall not apply to a formal pleading made in connection with a legal action.” 13 a 1 discharge, would constitute a collection attempt forbidden 2 by the automatic stay. See 732 F.3d at 279-80. Sending the 3 notice and subpoenas prior to discharge did not violate the 4 Bankruptcy Code. See id. The Third Circuit ruled that 5 subsection 1692e(11) conflicted with the Bankruptcy Code 6 because including the warning would violate the Code and 7 omitting it would violate the FDCPA. See id. at 280. 8 This holding in Simon, however, whether or not we would 9 agree with it, has no application to Garfield’s subsection 10 1692e(11) claim. Ocwen’s communication, even without a mini- 11 Miranda warning, was an attempt to collect a discharged debt 12 in violation of the Bankruptcy Code. The absence of a mini- 13 Miranda 14 conflict. 15 Two warning of also Garfield’s violated the FDCPA FDCPA. claims allege There that is no Ocwen 16 violated subsections 1692e(11) and 1692g(a)(3) in the manner 17 that Ocwen sought to collect Garfield’s delinquent post- 18 bankruptcy monthly payments, which she agreed to make to 19 avoid foreclosure. Subsection 1692g(a)(3) requires notice of 20 an opportunity to dispute a debt.9 Both of these subsections 9 Subsection 1692g(a)(3) provides: “Within five days after the initial communication with a consumer in connection with the collection 14 1 regulate Ocwen’s collection of debt that Garfield concedes 2 she owes. 3 Garfield alleges that Ocwen sent her a bill on March 4 17, 2014, for her monthly payment as well as her arrears for 5 post-discharge monthly payments missed from July 2013 to 6 February 2014. She claims that Ocwen violated the mini- 7 Miranda warning requirement of subsection 1692e(11) “during 8 conversations with [her],” and that it violated subsection 9 1692g(a)(3) by failing to send a 30-day right-to-dispute 10 notice within five days of the initial communication. These 11 alleged violations do not conflict with any provisions of 12 the Bankruptcy Code.10 13 of any debt, a debt collector shall . . . send the consumer a written notice containing . . . a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector . . . .” 10 Had there been a conflict, the analysis with respect to subsection 1692e(11) would differ from that applicable to the FDCPA as a whole because this subsection was substantially reworded in a 1996 amendment, see Pub. L. 104208 § 2305, 100 Stat. 3009 (Sept. 30, 1996), and therefore is a later statute compared to the injunction provision of the Bankruptcy Code. In the absence of a conflict, the sequence of these provisions need not be considered on the issue of implied repeal. 15 1 Ocwen challenges several of Garfield’s other FDCPA 2 claims on a somewhat perverse ground. These are Garfield’s 3 claims 4 1692e(8), 1692e(10), 1692f, and 1692f(1), all of which 5 regulate collection of 6 example, prohibits use 7 misleading representation or means in connection with the 8 collection 9 provisions conflict with the Bankruptcy Code because, by 10 regulating how to collect a debt, they imply that it can 11 collect the discharged debt, an action that the discharge 12 injunction prohibits. But, as Garfield responds, Ocwen can 13 avoid violating both the cited provisions and the Bankruptcy 14 Code simply by not attempting to collect the discharged 15 debt. And once Ocwen tries to collect the discharged debt, 16 it risks violation of both the cited provisions and the 17 Bankruptcy Code. Either way, there is no conflict. under of subsections any a 1692e, debt. of debt.” “any Ocwen 1692e(2), Subsection false, 1692e(5), 1692e, deceptive, contends that for or these 18 In sum, none of Garfield’s individual FDCPA claims 19 conflicts with the discharge injunction under the Bankruptcy 20 Code. 21 III. Piecemeal Litigation 22 23 The District Court ruled that, even if some of Garfield’s claims do not pose a conflict with the discharge 16 1 injunction, the 2 Garfield to bring them in the Bankruptcy Court. The District 3 Court relied on the “clear federal policy . . . [of] 4 avoidance of piecemeal adjudication,” Joint App’x at 39 5 (alteration 6 Conservation District v. United States, 424 U.S. 800, 819 7 (1976). That decision created a limited abstention doctrine 8 in the context of ongoing, parallel state proceedings, which 9 do not exist here. See id. at 817-18. in Court should original), dismiss citing them Colorado and require River Water 10 We do not rule out the unlikely possibility that in 11 adjudicating a debtor’s FDCPA claims, a district court might 12 consider it useful to stay its proceedings to permit the 13 plaintiff to seek clarification from a bankruptcy court as 14 to the proper interpretation of some aspect of that court’s 15 rulings, including the discharge injunction. But the remote 16 possibility of a need for such clarification provides no 17 basis for routing all FDCPA claims exclusively into the 18 bankruptcy court. 19 Conclusion 20 The judgment of the District Court is reversed, and the 21 case is remanded with instruction to reinstate Garfield’s 22 FDCPA claims against Ocwen. 17