Dubois v. Atlas Acquisitions LLC, No. 15-1945 (4th Cir. 2016)
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After Kimberly Adkins and Chaille Dubois filed separate Chapter 13 bankruptcy petitions in the Bankruptcy Court, Atlas filed proofs of claim in their bankruptcy cases based on debts that were barred by Maryland’s statute of limitations. At issue is whether Atlas violated the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. 1692 et seq., by filing proofs of claim based on time-barred debts. The court held that Atlas’s conduct does not violate the FDCPA because filing a proof of claim in a Chapter 13 bankruptcy based on a debt that is time-barred does not violate the FDCPA when the statute of limitations does not extinguish the debt. Accordingly, the court affirmed the judgment.
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PUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 15-1945 In Re: ERIC DUBOIS, Debtor. ---------------------CHAILLE DUBOIS, f/k/a Chaille Gaines, f/k/a Candace DuBois, f/k/a Candace Gaines, f/k/a Candi Gaines, f/k/a Candi DuBois; KIMBERLY ADKINS, Plaintiffs - Appellants, v. ATLAS ACQUISITIONS LLC, Defendant – Appellee, and TIMOTHY P. BRANIGAN; NANCY SPENCER GRISBY, Trustees. Appeal from the United States Bankruptcy Court for the District of Maryland, at Greenbelt. Thomas J. Catliota, Bankruptcy Judge. (15-00110; 14-28589) Argued: May 10, 2016 Decided: Before DIAZ, FLOYD, and THACKER, Circuit Judges. August 25, 2016 Affirmed by published opinion. Judge Floyd wrote the majority opinion, in which Judge Thacker joined. Judge Diaz wrote a dissenting opinion. ARGUED: Morgan William Fisher, LAW OFFICES OF MORGAN FISHER LLC, Annapolis, Maryland, for Appellants. Donald S. Maurice, Jr., MAURICE WUTSCHER, LLP, Flemington, New Jersey, for Appellee. ON BRIEF: Courtney L. Weiner, LAW OFFICES OF MORGAN FISHER LLC, Washington, D.C., for Appellants. Alan C. Hochheiser, BUCKLEY KING, LPA, Cleveland, Ohio, for Appellee. 2 FLOYD, Circuit Judge: Appellants Kimberly Adkins and Chaille Dubois filed separate Chapter 13 bankruptcy petitions in the Bankruptcy Court for the District of Maryland. Appellee Atlas Acquisitions LLC (Atlas) filed proofs of claim in their bankruptcy cases based on debts that were barred by Maryland’s statute of limitations. 1 The issue on appeal is whether Atlas violated the Fair Debt Collection Practices Act (FDCPA) by filing proofs of claim based on time-barred debts. We hold that Atlas’s conduct does not violate the FDCPA, and affirm the bankruptcy court’s dismissal of Appellants’ FDCPA claims and related state law claim. I. The facts of Appellants’ cases are similar. for Chapter 13 bankruptcy on August 29, 2014. proofs of claim in her case. Adkins filed Atlas filed two The first proof of claim indicated that Adkins owed Atlas $184.62 based on a loan that originated with payday lender Check N Go and that Atlas purchased from Elite Enterprise Services, LLC (Elite Enterprise) on September 1 “A proof of claim is a form filed by a creditor in a bankruptcy proceeding that states the amount the debtor owes to the creditor and the reason for the debt.” Covert v. LVNV Funding, LLC, 779 F.3d 242, 244 n.1 (4th Cir. 2015). 3 15, 2014. 2 The proof of claim identified the last transaction date on the account as May 19, 2009. claim payday Elite was for lender $390.00 Impact Enterprise identified September the 10, on last 2009. based Cash on a loan that and USA November that Atlas 18, 2014. transaction It is Atlas’s second proof of The date undisputed on originated with purchased from proof that that both of claim account debts as were beyond Maryland’s three-year statute of limitations when Atlas purchased and bankruptcy case. attempted to assert the debts in Adkins’s See Md. Code Ann., Cts. & Jud. Proc. § 5-101. Adkins neither listed the debts on her bankruptcy schedules nor sent a notice of bankruptcy to Atlas. Dubois filed for Chapter 13 bankruptcy on December 6, 2014. Atlas filed a proof of claim for $135.00 based on a loan that originated with payday lender Iadvance and that Atlas purchased from Elite Enterprise on January 5, 2015. The proof of claim identified the last transaction date on the account as October 18, 2008. It is undisputed that this debt was also beyond 2 Atlas asks the Court to strike any allegation that the loans in this appeal originated with payday lenders. However, the proofs of claim attached to Appellants’ complaints indicate that Atlas itself designated the debts “payday.” See J.A. 55, 140. Accordingly, we find this fact sufficiently alleged. See Goines v. Valley Cmty. Servs. Bd., No. 15-1589, ---F.3d---, 2016 WL 2621262, at *2 (4th Cir. May 9, 2016) (explaining that on motion to dismiss, courts may consider documents attached to complaint as exhibits). 4 Maryland’s attempted statute to of assert limitations the debt in when Atlas Dubois’s purchased bankruptcy and case. Dubois did not list the debt on her bankruptcy schedules nor did she send a notice of bankruptcy to Atlas. Adkins and against Atlas. barred and filing proofs Dubois filed separate adversary complaints Both objected to Atlas’s claims as being time- further of alleged claim on that Atlas stale violated debts. the FDCPA Appellants by sought disallowance of Atlas’s claims as well as damages, attorney’s fees, and costs under the FDCPA. 3 Atlas conceded that its claims were based on time-barred debts and stipulated to their disallowance. However, Atlas moved to dismiss Appellants’ FDCPA claims under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief could be granted. See Fed. R. Bankr. P. 7012(b) (incorporating Rule 12(b)(6) into adversary proceedings). After hearing court consolidated oral arguments, the bankruptcy concluded that filing a proof of claim does not constitute debt collection activity within the meaning of the FDCPA and granted Atlas’s motion to dismiss. Pursuant 28 U.S.C. § 158(d)(2), we 3 Dubois additionally alleged that Atlas violated the Maryland Consumer Debt Collection Act (MCDCA). Md. Code Ann., Com. Law § 14-201, et seq. The parties do not analyze the MCDCA separately from the FDCPA. Accordingly, neither do we. 5 permitted Appellants to appeal the bankruptcy court’s decision directly to this Court. We review the bankruptcy court’s dismissal of Appellants’ claims under Rule 12(b)(6) de novo. See, e.g., In re Mwangi, 764 F.3d 1168, 1173 (9th Cir. 2014); In re McKenzie, 716 F.3d 404, 412 (6th Cir. 2013). II. Before addressing the substance of Appellants’ claims, we provide a brief overview of the relevant statutes in this case: the Bankruptcy Code (the “Code”) and the FDCPA. A. “The principal purpose of the Bankruptcy Code is to grant a ‘fresh start’ to the ‘honest but unfortunate debtor.’” Marrama v. Citizens Bank, 549 U.S. 365, 367 (2007) (quoting Grogan v. Garner, 498 U.S. 279, 286, 287 (1991)). Through bankruptcy, the debtor’s assets are collected for equitable distribution among creditors and his remaining debts are discharged. See Covert v. LVNV Funding, LLC, 779 F.3d 242, 248 (4th Cir. 2015); In re Jahrling, 816 F.3d 921, 924 (7th Cir. 2016). A bankruptcy debtor must file with the bankruptcy court a list of creditors, a schedule of assets and liabilities, and a statement of the debtor’s financial affairs. 11 U.S.C. § 521(a)(1). "[B]eing all-inclusive on the schedules is consistent with the Code’s 6 principle of honest and full disclosure.” B.R. 670, 676 (Bankr. D.S.C. 2015). In re Vaughn, 536 Scheduling a debt notifies the creditor of the bankruptcy and of the creditor's opportunity to file a proof of claim asserting a right to payment against the debtor’s estate. See id. at 679; 11 U.S.C. § 501(a). The bankruptcy court may “allow” or “disallow” claims from sharing in the distribution of the bankruptcy estate. § 502. 11 U.S.C. In Chapter 13 proceedings, allowed claims are typically paid, either in whole or in part, out of the debtor’s future earnings pursuant to a repayment plan proposed by the debtor and confirmed by the bankruptcy court. See id. § 1322(a)(1); 4-501 Collier on Bankruptcy ¶ 501.01 (Collier). Upon completion of all payments under the plan, the bankruptcy court “grant[s] the debtor a discharge of all debts provided for by the plan or disallowed.” 11 U.S.C. § 1328(a). Thus, at the end of the process the debtor receives the “fresh start” contemplated by the Bankruptcy Code. B. Congress collection enacted practices the and FDCPA to to ensure eliminate that debt abusive debt collectors who refrain from such practices are not competitively disadvantaged. 15 U.S.C. § 1692(a), (e). The FDCPA regulates the conduct of “debt collectors,” defined to include “any person who uses any 7 instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” Id. § 1692a(6). Among other things, the FDCPA prohibits debt collectors from using “any false, deceptive, or misleading representation collection of any or debt,” means and in connection from the “unfair using with or unconscionable means to collect or attempt to collect any debt.” Id. §§ 1692e-1692f. The statute provides a non-exhaustive list of conduct that is deceptive or unfair (e.g., falsely implying that the debt collector is affiliated with the United States, id. § 1692e(1)). Debt collectors who violate the FDCPA are liable for actual damages, statutory damages of up to $1,000, and attorney’s fees and costs. See id. § 1692k(a). C. Federal courts have consistently held that a debt collector violates the FDCPA by filing a lawsuit or threatening to file a lawsuit to collect a time-barred debt. Funding, LLC, (collecting 758 cases), F.3d 1254, cert. denied, See Crawford v. LVNV 1259-60 135 S. (11th Ct. Cir. 1844 2014) (2015). Appellants contend that filing a proof of claim on a time-barred debt in a bankruptcy proceeding similarly violates the FDCPA. 8 Atlas counters that filing a proof of claim is not debt collection activity and is therefore not subject to the FDCPA. Alas further argues that, even if the FDCPA applies, filing a proof of claim provisions. on a time-barred debt does not violate its These arguments are addressed in turn. III. Atlas does not dispute that it is a debt collector but argues that filing a proof of claim does not constitute debt collection activity regulated by the FDCPA. See 15 U.S.C. § 1692e (prohibiting deceptive or misleading representations “in connection with (prohibiting the collection unfair or of claim is merely bankruptcy process.” any unconscionable attempt to collect any debt”). proof of a debt”); means id. “to § 1692f collect or Instead, Atlas contends that a “request to participate in the Appellee’s Br. 20. Determining whether a communication constitutes an attempt to collect a debt is a “commonsense inquiry” that evaluates the “nature of the parties’ relationship,” the “[objective] purpose and context of the communication[],” communication includes a demand for payment. and whether the Gburek v. Litton Loan Servicing LP, 614 F.3d 380, 385 (7th Cir. 2010); see also Olson v. Midland Funding, LLC, 578 F. App’x 248, 251 (4th Cir. 2014) (citing Gburek factors approvingly). 9 Here, the “only relationship between [the parties] [is] that of a debtor and debt collector.” Olson, 578 F. App’x at 251. Moreover, the “animating purpose” in filing a proof of claim is to obtain payment by sharing bankruptcy estate. in the distribution of the debtor’s See Grden v. Leikin Ingber & Winters PC, 643 F.3d 169, 173 (6th Cir. 2011); 4-501 Collier ¶ 501.01. This fits squarely within the Supreme Court’s understanding of debt collection for purposes of the FDCPA. See Heintz v. Jenkins, 514 U.S. 291, 294 (1995) (explaining that in ordinary English, an attempt to “collect a debt” is an attempt “to obtain payment or liquidation of it, either by personal solicitation or legal proceedings” 1990))). (quoting Black’s Law Dictionary (6th ed. Precedent and common sense dictate that filing a proof of claim is an attempt to collect a debt. explicit 263 demand for payment does not The absence of an alter that conclusion, Gburek, 614 F.3d at 382, nor does the fact that the bankruptcy court may ultimately disallow the claim. Atlas argues that treating a proof of claim as an attempt to collect automatic a debt stay would conflict provision. The with the automatic Bankruptcy stay Code’s provides that filing a bankruptcy petition “operates as a stay” of “any act to collect, arose assess, before § 362(a)(6). or the recover a claim commencement of against the the case.” debtor 11 that U.S.C. Atlas argues that if filing a proof of claim were 10 an act to collect debt, then such automatic stay, “an absurd result.” filing would violate the Appellee’s Br. 21. Atlas’s quandary is easily resolved as the automatic stay simply bars actions to collect debt outside of the bankruptcy proceeding. See, e.g., Cent. States, Se. & Sw. Areas Pension Fund v. Basic Am. Indus., Inc., 252 F.3d 911, 918 (7th Cir. 2001) (“‘[D]emanding’ payment from a debtor in bankruptcy other than in the bankruptcy proceeding itself is normally a violation of the automatic stay”); Campbell v. Countrywide Home Loans, Inc., 545 F.3d 348, 354 (5th Cir. 2008) (explaining that the automatic stay “merely suspends an action to collect the claim outside the procedural mechanisms of the Bankruptcy Code”). The automatic stay helps channel debt collection activity into the bankruptcy process. It does not strip such activity of its debt collection nature for purposes of the FDCPA. Finally, Atlas argues that filing a proof of claim is not an attempt to collect debt because the proof of claim is directed to the bankruptcy court and trustee rather than to the debtor. However, collection activity directed toward someone other than the debtor may still be actionable under the FDCPA. See, e.g., Sayyed v. Wolpoff & Abramson, 485 F.3d 226, 232-33 (4th Cir. 2007) (finding that FDCPA “plainly” applies to communications made by debt collector to debtor’s counsel rather than debtor); Horkey v. J.V.D.B. & Assocs., Inc., 333 F.3d 769, 11 774 (7th Cir. 2003) (finding that debt collector’s phone call to debtor’s co-worker was “in connection with the collection of a debt” where purpose of the call was to induce debtor to settle her debt). bankruptcy Although court, it a is proof done of with payment from the debtor’s estate. claim the is filed purpose of with the obtaining That the claim is paid by the debtor’s estate rather than the debtor personally is irrelevant for purposes of the FDCPA. See 15 U.S.C. §§ 1692e, 1692f (prohibiting the use of deceptive or unfair means to collect “any debt,” without specifying a payor). Accordingly, we find that filing a proof of claim is debt collection activity regulated by the FDCPA. IV. We next consider whether filing a proof of claim based on a debt that violates is the beyond FDCPA. the applicable Deciding this statute issue of limitations requires closer examination of the claims process in bankruptcy. The Federal Rules of Bankruptcy Procedure specify the form, content, and filing requirements for a valid proof of claim. See, e.g., Fed. R. Bankr. P. 3001. A properly filed proof of claim is prima facie evidence of the claim’s validity, and the claim is “deemed allowed” unless “a party in interest” objects. 11 U.S.C. § 502. The bankruptcy trustee and debtor are parties 12 in interest who may object. 4 Indeed, the trustee has a statutory duty to “examine proofs of claims and object to the allowance of any claim that is improper.” Id. § 704(a)(5). If objected to, the Code disallows claims based on timebarred debts. See id. § 502(b)(1) (stating that a claim shall be disallowed if it is “unenforceable against the debtor . . . under any agreement or applicable law”); id. § 558 (stating that the bankruptcy estate has “the benefit of any defense available to the debtor . . . including statutes of limitation”). As previously noted, debts that are “provided for by the plan or disallowed under section 502” may be discharged. Id. § 1328 (emphasis added). Appellants contend that the FDCPA should be applied to prohibit debt collectors from filing proofs of claim on timebarred debts. “claim” filing within claims Appellants argue that a time-barred debt is not a the on meaning of time-barred the debts 4 Bankruptcy is an Code abusive and that practice While the parties do not address the issue, it appears that creditors are also parties in interest who may object to a claim filed by another creditor. See, e.g., Adair v. Sherman, 230 F.3d 890, 894 n.3 (7th Cir. 2000) (“Parties in interest include not only the debtor, but anyone who has a legally protected interest that could be affected by a bankruptcy proceeding. Therefore, if one creditor files a potentially fraudulent proof of claim, other creditors have standing to object to the proof of claim.” (citation omitted)); In re Varat Enters., Inc., 81 F.3d 1310, 1317 n.8 (4th Cir. 1996) (“All creditors of a debtor are parties in interest.”). 13 because such claims are seldom objected to and therefore receive payment from the bankruptcy estate debtor and other creditors. to the detriment of the Atlas, meanwhile, argues that a time-barred debt is a valid “claim” and that filing such a claim should not be prohibited because only debts that are treated in the bankruptcy system may be discharged. A. The Bankruptcy Code defines the term “claim” broadly to mean a “right to payment, whether or not such right is reduced to judgment, matured, liquidated, unmatured, unliquidated, disputed, secured, or unsecured.” undisputed, fixed, contingent, legal, 11 U.S.C. § 101(5)(A). equitable, By using the “broadest possible definition,” the Code “contemplates that all legal obligations of the debtor, no matter how remote or contingent, will be able to be dealt with in the bankruptcy case,” thereby relief.” providing the debtor the “broadest possible H.R. Rep. No. 95–595, p. 309 (1977); S. Rep. No. 95– 989, p. 22 (1978). “[W]hen the Bankruptcy Code uses the word claim . . . it is usually referring to a right to payment recognized under state law.” Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Elec. Co., 549 U.S. 443, 451 (2007) (quotation omitted). Under Maryland law, the statute of limitations “does not operate to extinguish 14 [a] debt, but to bar the remedy.” Potterton v. Ryland Grp., Inc., 424 A.2d 761, 764 (Md. 1981) (quotation omitted); see also Higginbotham v. Pub. Serv. Comm’n of Md., 985 A.2d 1183, 1191 (Md. 2009) (“[W]e have regarded limitations as not denying the plaintiff’s right of right.” (quotation revived if existence. the action, but omitted)). debtor only Indeed, sufficiently the a exercise stale debt acknowledges of may the the be debt’s Potterton, 424 A.2d at 764; see also FTC, Time- Barred Debts (July 2013), https://www.consumer.ftc.gov/articles/ 0117-time-barred-debts (“Although the [debt] collector may not sue you to collect [a time-barred] debt, you still owe it. The collector can continue to contact you to try to collect . . . . [and] [i]n some states, if you pay any amount on a time-barred debt or even promise to pay, the debt is ‘revived.’”) (saved as ECF opinion attachment). Thus, under Maryland law, a time- barred debt still constitutes a “right to payment” and therefore a “claim” that the holder may file under the Bankruptcy Code. 5 5 Appellants suggest that “by filing proofs of claim on time-barred debt, Atlas is trying to trick debtors into unwittingly reviving the statute [of limitations].” Appellants’ Reply Br. 4. Regardless of whether this is Atlas’s intent, it is difficult to see how a creditor’s filing a proof of claim would constitute acknowledgement of the debt by the debtor, particularly when there is persuasive authority that a debtor does not revive a time-barred debt by listing it in his bankruptcy schedules. See, e.g., Biggs v. Mays, 125 F.2d 693, 697-98 (8th Cir. 1942); In re Povill, 105 F.2d 157, 160 (2d Cir. 1939). 15 Appellants note that a debt must be enforceable to constitute a claim, citing the Supreme Court’s statement that “[t]he plain meaning of a ‘right to payment’ is nothing more nor less than an enforceable obligation.” Pa. Dep’t of Pub. Welfare v. Davenport, 495 U.S. 552, 559 (1990). the Supreme Court’s statement to mean enforceable in court to be a claim. treats debts that are However, we do not read “contingent” that a debt must be Indeed, the Bankruptcy Code or “unmatured” as claims notwithstanding that such debts are not presently enforceable in court. 11 U.S.C. § 101(5)(A). Furthermore, in Davenport, the Supreme Court found restitution orders to be claims even though “neither the Probation Department nor the victim can enforce restitution obligations in civil proceedings.” Instead, such obligations are enforced by 495 U.S. at 558. the “substantial threat of revocation of probation and incarceration.” Id. It is also notable that while the Bankruptcy Code provides that time-barred debts are to be disallowed, see, e.g., 11 U.S.C § 558, the Code nowhere suggests that such debts are not to be filed in the first place. recently amended to Indeed, the Bankruptcy Rules were facilitate the assessment of a claim’s timeliness by requiring that claims such as the ones at issue in this appeal be filed with a statement setting forth the last transaction date, last payment date, and charge-off date on the account. Fed. R. Bankr. P. 3001, advisory committee notes to 16 2012 Amendments (discussing filing requirements for claims based on open-end or revolving consumer credit agreements). This Rule suggests the Code contemplates that untimely debts will be filed as claims but ultimately disallowed. Lastly, excluding time- barred debts from the scope of bankruptcy “claims,” and thus excluding them from the bankruptcy process, would frustrate the Code’s “intended effect to define the scope of the term ‘claim’ as broadly as possible,” 2-101 Collier ¶ 101.05, and thereby provide the debtor the broadest possible relief. we conclude that when the statute of Accordingly, limitations does not extinguish debts, a time-barred debt falls within the Bankruptcy Code’s broad definition of a claim. B. Next, we consider whether filing a proof of claim on a time-barred debt violates the FDCPA Bankruptcy Code permits such filing. notwithstanding that the As noted above, the FDCPA has been interpreted to prohibit filing a lawsuit on a timebarred debt. The rationale has been explained as follows: As with any defendant sued on a stale claim, the passage of time not only dulls the consumer’s memory of the circumstances and validity of the debt, but heightens the probability that she will no longer have personal records detailing the status of the debt. Indeed, the unfairness of such conduct is particularly clear in the consumer context where courts have imposed a heightened standard of care—that sufficient to protect the least sophisticated consumer. Because 17 few unsophisticated consumers would be aware that a statute of limitations could be used to defend against lawsuits based on stale debts, such consumers would unwittingly acquiesce to such lawsuits. And, even if the consumer realizes that she can use time as a defense, she will more than likely still give in rather than fight the lawsuit because she must still expend energy and resources and subject herself to the embarrassment of going into court to present the defense; this is particularly true in light of the costs of attorneys today. Kimber v. Fed. Fin. Corp., 668 F. Supp. 1480, 1487 (M.D. Ala. 1987); see also Crawford, 758 F.3d at 1260; Phillips v. Asset Acceptance, LLC, 736 F.3d 1076, 1079 (7th Cir. 2013). 6 We note at the outset a unique consideration in the bankruptcy context: if a bankruptcy proceeds as contemplated by the Code, a claim based on a time-barred debt will be objected to by thereby the trustee, stopping the disallowed, creditor 6 and from ultimately engaging in discharged, any further The Eleventh Circuit in Crawford is the only court of appeals to hold that filing a proof of claim on a time-barred debt in a Chapter 13 proceeding violates the FDCPA. 758 F.3d at 1256-57. The Eighth Circuit has “reject[ed] extending the FDCPA to time-barred proofs of claim,” Nelson v. Midland Credit Mgmt., Inc., No. 15-2984, 2016 WL 3672073, at *2 (8th Cir. July 11, 2016), and the Second Circuit has broadly held that “filing a proof of claim in bankruptcy court (even one that is somehow invalid) cannot constitute the sort of abusive debt collection practice proscribed by the FDCPA.” Simmons v. Roundup Funding, LLC, 622 F.3d 93, 95 (2d Cir. 2010). Other circuits are presently considering the issue. See, e.g., Owens v. LVNV Funding, LLC, No 14-cv-02083, 2015 WL 1826005 (S.D. Ind. Apr. 21, 2015), appeal docketed, No. 15–2044 (7th Cir. May 13, 2015); Torres v. Asset Acceptance, LLC, 96 F. Supp. 3d 541 (E.D. Pa. 2015), appeal docketed, No. 15–2132 (3d Cir. May 13, 2015). 18 collection activity. 7 claim is filed, If the debt is unscheduled and no proof of the collector may filing lawsuit. a debt lawfully continues pursue This is to exist collection and activity detrimental to the the debt apart from debtor and undermines the bankruptcy system’s interest in “the collective treatment of all of a debtor's creditors at one time.” Bankr. L. & Prac. 3d § 3:9. 1 Norton Clearly, then, when a time-barred debt is not scheduled the optimal scenario is for a claim to be filed and for the Bankruptcy Code to operate as written. Appellants complain, however, that trustees often lack the time and resources to examine each proof of claim and object to those that are based on time-barred debts. 17-18 (explaining trustees to that manage Maryland approximately has only 5,000 See Appellants’ Br. three cases per Chapter year, approximately 10 proofs of claim filed in each case). collectors like Atlas purportedly take advantage of 13 with Debt this by filing claims on stale debts in hopes that the claims will go unnoticed and receive some payment from the bankruptcy estate. When successful, these debt collectors reduce the amount of money available to legitimate creditors and may sometimes cause debtors to pay more into their Chapter 13 plans. 7 By contrast, raising a statute of limitations defense may defeat a lawsuit to collect a time-barred debt but would not extinguish the debt or necessarily prevent collection activity. 19 We appreciate the harm that can be wrought if time-barred claims go unnoticed. However the solution, in our view, is not to impose liability under the FDCPA that would categorically bar the filing of such claims, but to improve administration such that it operates as written. 8 the Code’s This may be accomplished, for example, by allocating additional resources to trustees or through action of the United States Trustee, who appoints and supervises all Chapter 13 trustees. 28 U.S.C. § 586. Another consideration that counsels against finding FDCPA liability is that, for most Chapter 13 debtors, the amount they pay into their bankruptcy plans is unaffected by the number of unsecured claims that are filed. do not enter unsecured into 100 creditors percent receive Chapter 13 debtors typically repayment only plans; partial thus, payment of their their claims, with the remainder being discharged. See 8-1328 Collier ¶ chapter 1328.02 (“Congress clearly contemplated 13 plans paying little or nothing on unsecured debts . . . .”). additional claims are filed, unsecured creditors receive As a smaller share of available funds but the total amount paid by 8 Indeed, if Appellants are correct that trustees are failing to fulfill their statutory duty to examine and object to improper claims, this is surely producing adverse consequences beyond the context of time-barred debts. 20 the debtor remains unchanged. Thus, from the perspective of most Chapter 13 debtors, it may in fact be preferable for a time-barred claim to be filed even if it is not objected to, as the debtor will likely pay the same total amount to creditors and the debt can be discharged. See In re Gatewood, 533 B.R. 905, 909 (8th Cir. BAP 2015) (explaining that “debtors have less at stake in enforcement claims of an allowance adverse than judgment they in a would when collection facing action” because the allowance of additional claims would not affect the total amount the debtor would pay). 9 Various other considerations also differentiate filing a proof of claim on a time-barred debt from filing a lawsuit to collect such debt. like the ones First, the Bankruptcy Rules require claims filed by Atlas to accurately state the last transaction and charge-off date on the account, making untimely claims easier to detect and relieving debtors from the burden of producing evidence to show that the claim is time-barred. 10 9 As noted above, the FDCPA was enacted in part to protect scrupulous debt collectors from unfair competition. However, bankruptcy creditors are sophisticated entities that may object to improper claims. Thus, we will not invoke the FDCPA solely on their behalf when, as discussed above, there are reasons not to do so on behalf of bankruptcy debtors. 10 There is no allegation that Atlas filed inaccurate proofs of claim. A debt collector who supplies false dates to obscure a claim’s staleness may well violate the FDCPA. However, we have no occasion to consider that issue today. 21 Second, a bankruptcy debtor is protected by a trustee and often by counsel who are responsible for objecting to improper claims even if, as Appellants argue, they currently do not always do so. Third, unlike a debtor who is unwillingly sued, a Chapter 13 debtor voluntarily initiates the bankruptcy case, diminishing concerns about the embarrassment the debtor may feel in objecting to a stale claim. In sum, the reasons why it is “unfair” sue and considerably “misleading” diminished to in the on a time-barred bankruptcy are where context, debt the debtor has additional protections and potentially benefits from having the debt treated in the bankruptcy process. Lastly, Appellants concede that a debt collector would not violate the FDCPA by filing a proof of claim on a time-barred debt that the debtor had scheduled and did not designate as “disputed.” Appellants explain that scheduling a debt as undisputed is an “invitation to participate” because it provides “‘notice to a creditor that its debt will be paid . . . in accordance with the filed proof of claim, process, and other bankruptcy provisions.’” n.14 (quoting Vaughn, 536 B.R. at 678). claims Appellants’ Br. 28 However, such notice is sent whether a scheduled debt is disputed or not. time-barred debt that is disputed objection is less Moreover, a likely to be inadvertently allowed. Thus, we see no reason to attach FDCPA liability filed to a claim on 22 a time-barred debt that is scheduled as disputed. Finally, the interests in discharge and collective treatment of claims discussed above convince us that FDCPA liability should not attach where a debtor fails to schedule a time-barred debt. We conclude that filing a proof of claim in a Chapter 13 bankruptcy based on a debt that is time-barred does not violate the FDCPA when the statute of limitations does not extinguish the debt. 11 V. For the foregoing reasons, we affirm the district court’s dismissal of Appellants’ FDCPA and MCDCA claims. AFFIRMED 11 In light of this decision, we do not reach Atlas’s argument that the Bankruptcy Code precludes the FDCPA and preempts the MCDCA from applying to the filing of a proof of claim. 23 DIAZ, Circuit Judge, dissenting: I join Part III of the majority opinion, which concludes that filing a proof of claim is debt-collection activity regulated by the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq. And while I agree that Atlas’s time-barred claim is a “claim” under the Bankruptcy Code (as the majority concludes in Part IV.A), I cannot consistent with the Collection Act seq.). 1 and agree FDCPA (MCDCA), Md. that (or Code Atlas’s the Maryland Ann., tries to collect by filing proofs Consumer Law is Debt § 14-201 et Bankruptcy Code automatically 11 U.S.C. § 502. of claim in their As Atlas concedes, these claims should fail—the debt is unenforceable in court. claims. Com. conduct Atlas buys the time-barred debt of people in bankruptcy bankruptcy proceedings. the alleged But, absent objection, allows all properly filed So Atlas plays the odds, representing itself as entitled to part of the debtors’ estates. If someone notices the claims and objects, as happened here, Atlas grins sheepishly—“You the claim is Atlas uses the bankruptcy court to garner a payoff on unenforceable debts. In meritless. But caught if the me!”—and claim admits slips 1 that through, I join the majority in analyzing the FDCPA and MCDCA claims together, as the parties do. 24 my view, this sharp practice is misleading and unfair to debtors and other creditors, and it gives rise to a cause of action under the FDCPA. Moreover, I would hold that the Bankruptcy Code does not impliedly repeal the FDCPA or preempt the MCDCA. Accordingly, I would vacate the opinion of the district court and remand for further proceedings. I. The FDCPA aims to “protect[] consumers from abusive and deceptive practices by debt collectors, and . . . debt collectors from competitive disadvantage.” non-abusive United States v. Nat’l Fin. Servs., Inc., 98 F.3d 131, 135 (4th Cir. 1996). The statute including prohibits the use of a wide “any variety false, of collection deceptive, or tactics, misleading representation or means” of debt collection, 15 U.S.C. § 1692e, and “unfair or unconscionable means to collect or attempt to collect any debt,” § 1692f. Although the FDCPA enumerates specific examples of these broad general prohibitions, it application.” does so Id. “[w]ithout For limiting example, “[t]he [their] false representation of . . . the character, amount, or legal status of any debt” is a specific violation of the general ban on false, deceptive, or misleading representations. 25 § 1692e(2)(A). But Congress chose not to limit the general prohibitions, to “enable the courts, where appropriate, to proscribe improper conduct which is not specifically addressed.” other Stratton v. Portfolio Recovery Assocs., LLC, 770 F.3d 443, 450 (6th Cir. 2014) (quoting S. Rep. No. 95-382 at 4 (1977), as reprinted in 1977 U.S.C.C.A.N. 1695, 1698). One such court-imposed proscription applies to lawsuits to collect time-barred debt. Crawford v. LVNV Funding, LLC, 758 F.3d 1254, 1259-60 & n.6 (11th Cir. 2014) (citing cases). lawsuits First, point raise the we two “least view major concerns sophisticated FDCPA in the consumer consumer”—from communications, see context. whose Russell v. Such vantage Absolute Collection Servs., Inc., 763 F.3d 385, 394 (4th Cir. 2014)—may be unaware of the existence of a statute-of-limitations defense and may therefore “unwittingly acquiesce to such lawsuits,” Kimber v. Fed. Fin. Corp., 668 F. Supp. 1480, 1487 (M.D. Ala. 1987). Second, “the passage of time not only dulls the consumer’s memory of the circumstances and validity of the debt, but heightens the probability that [the consumer] will no longer have personal records detailing the status of the debt.” Phillips v. Asset Acceptance, LLC, 736 F.3d 1076, 1079 (7th Cir. 2013) (quoting Kimber, 668 F. Supp. at 1487). These same considerations support recognizing FDCPA liability for filing time-barred claims on unscheduled debts in 26 bankruptcy. 2 Crawford, 758 F.3d at 1260-61. But see Nelson v. Midland Credit Mgmt., Inc., No. 15-2984, 2016 WL 3672073, at *2 (8th Cir. July 11, 2016) (published opinion) (refusing to “extend[] the FDCPA to time-barred proofs of claim” because the Bankruptcy Code’s “protections against harassment and deception satisfy the relevant concerns of the FDCPA”). Here, where the proofs of claim provide enough information to determine the debt is time barred, importance. An the first consideration unsophisticated debtor is of reviewing particular a proof of claim may be unaware of the statute-of-limitations defense and— perhaps not accurately appreciating listed the legal last-transaction significance and charge-off of even dates—may nevertheless “acquiesce” to the claims. While some courts have found the role of the bankruptcy trustee in weeding out time-barred claims critical in distinguishing the bankruptcy context from civil lawsuits, see, e.g., Nelson, 2016 WL 3672073, at *2, I am not persuaded. best, a trustee’s debt collector time. At who worst, files the such debt a claim collector At wastes the catches the trustee asleep at the switch and collects on an invalid claim to 2 As the debtors concede, their case might be different had they scheduled these debts with the bankruptcy court, an action that might be seen as an invitation to a creditor to file a claim. 27 the detriment of other creditors and, in many cases, the debtor. In either case, the debt collector misleadingly represents to the debtor that it is entitled to collect through bankruptcy when it is not. Moreover, there is reason to doubt the efficacy of trustee as a vigilant steward of the debtor’s estate. the See, e.g., In re Edwards, 539 B.R. 360, 365 (Bankr. N.D. Ill. 2015) (“Chapter 13 trustees in this district do not object to proofs of claim based on statute of limitations defenses. This is not surprising affirmative defenses virtually because would objecting require every trustees unsecured impracticable.”). to proof claims based to examine of claim, on the details which is of simply Indeed, if trustees performed their duties flawlessly, Atlas would have little incentive to engage in its scheme. Like filing a lawsuit on time-barred debt, Atlas’s alleged debt-collection activity in this case is precisely the sort of unfair and misleading practice that Congress intended the courts to recognize as a violation. After the debtors entered bankruptcy, Atlas bought their debts, or rather, as the bill of sales said, “charged-off receivables.” J.A. 58, 132, 143. All of these charged-off debts were more than five-years old, well outside Maryland’s Nevertheless, Atlas three-year filed proofs 28 statute of claim of to limitations. recover the unenforceable debts in the bankruptcy court. The relevance of the statute of limitations was not lost on Atlas, which included the following notice on two of the three proof-of-claim forms it filed: “This proof of claim is being filed pursuant to 11 USC Secs. 101(5), 501(a) and 502(b) as said claim may be outside of the statute of limitations.” J.A. 55, 140. Section 502(b) explains that if a claim is objected to, the court will allow the claim “except to the extent that . . . such claim is unenforceable against the debtor and the property of the debtor, under any agreement or applicable law.” § 502(b)(1). In short, Atlas knew exactly what it was doing—exploiting a weakness in the bankruptcy system and preying on potential error to collect on debts where it should not. purpose of bankruptcy by The practice subverts a core diverting estate assets from the creditors entitled to receive them. Atlas rather stunningly argues that it is doing a public service: “[B]ut for Atlas’ filing of its proofs of claim, those debts would not be subject to discharge and at the conclusion of Appellants’ chapter 13 cases, Atlas could restart collection activity with respect thereto so long as it does not otherwise violate the FDCPA.” Appellee’s Br. at 40. Really? While the statement is literally true, the (unintended) possibility that the time-barred debts will be disallowed and discharged hardly justifies Atlas’s tactics. Moreover, that the debtors did not 29 schedule the debts is some evidence that collection efforts have stopped. And it would not be surprising if they had; the time for enforcement has passed, and the combination of the statute of limitations and the FDCPA seriously collector can do to recover old debts. limits what a debt Ideally, debtors would remember all their old debts, realize they were time barred, schedule them as disputed, and see that they were disallowed. But the FDCPA asks what the least sophisticated consumer would do, not the ideal one. Atlas’s conduct games the bankruptcy process; it does not ensure its integrity. Accordingly, I would hold that Atlas’s conduct constitutes a violation of the FDCPA. Such a holding would not impose a great burden on debt collectors. “[A] debt collector is not liable in an action brought under the [FDCPA] if [it] can show ‘the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.’” Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 559 U.S. 573, 576 (2010) (quoting 15 U.S.C. § 1692k(c)). can avoid procedure FDCPA to liability screen by Atlas and other debt collectors putting unscheduled, in place time-barred a reasonable claims—if Atlas already has such a procedure, it can prove it in the district court. 30 II. Because the majority determines that the FDCPA does not reach Atlas’s conduct, it does not address the question whether— if the FDCPA on its own terms would apply to the filing of timebarred claims—the Bankruptcy Code nevertheless precludes such an action. To compatible, principles. determine we whether employ two ordinary federal statutory statutes are interpretation See POM Wonderful LLC v. Coca-Cola Co., 134 S. Ct. 2228, 2236 (2014). Because the circuits are split on this issue and the arguments have been made extensively on both sides, I explain briefly my position that the two statutes do not that the conflict in this instance. The Second Bankruptcy Roundup and Code precludes Funding, (rejecting an Ninth LLC, FDCPA 622 claim Circuits certain F.3d have FDCPA 93, brought concluded suits. 95-96 during (2d the Simmons Cir. v. 2010) pendency of bankruptcy proceedings for the filing of an inflated proof of claim); Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 510-11 (9th Cir. 2002) (barring an FDCPA claim for post-bankruptcy debt collection in violation of the discharge order). Both rely on the comprehensive provisions and protections of the Bankruptcy Code to hold that it leaves no room for FDCPA claims. 622 F.3d at 96; Walls, 276 F.3d at 510. 31 Simmons, The Third, Seventh, and Eleventh Circuits have rejected the notion that FDCPA actions may not be brought in the context of bankruptcy. 14116, 2016 Johnson v. Midland Funding LLC, Nos. 15-11240, 15WL 2996372, at *6 (11th Cir. May 24, 2016) (published opinion) (holding that the Bankruptcy Code does not impliedly repeal FDCPA actions for filing proofs of claim on time-barred debt); Simon v. FIA Card Servs., N.A., 732 F.3d 259, 274 (3d Cir. 2013) (permitting an FDCPA claim for the violation of the Bankruptcy Code’s subpoena requirements); Randolph v. IMBS, Inc., 368 F.3d 726, 730-31 (7th Cir. 2004) (comparing the FDCPA and Bankruptcy Code and concluding they are compatible). In the view of these contradict one conflict” because simultaneously.” courts, another, “any the nor debt statutes are they collector can do in not expressly “irreconcilable comply with both Randolph, 368 F.3d at 730; accord Johnson, 2016 WL 2996372, at *5-6; Simon, 732 F.3d at 273-74; see also Nat’l Ass’n of Home Builders v. Defs. of Wildlife, 551 U.S. 644, 662 (2007) (“While a later enacted statute . . . can sometimes operate to amend or even repeal an earlier statutory provision . . . , ‘repeals by implication are not favored’ and will not be presumed unless the ‘intention of the legislature to repeal [is] clear and manifest.’” (third alteration in original) (quoting Watt v. Alaska, 451 U.S. 259, 267 (1981))). 32 I would side with the view of the Third, Seventh, Eleventh Circuits, at least on the facts of this case. and Atlas does not argue that the Bankruptcy Code expressly bars FDCPA remedies. Instead, it contends the statutes are irreconcilable: “[W]hat [the debtors] allege is prohibited by the FDCPA (the filing of a proof of claim with respect to a ‘stale’ debt) is expressly permitted by the Bankruptcy Code.” 34. But this argument is easily Appellee’s Br. at answered: Because the Bankruptcy Code does not obligate a creditor to file a proof of claim, a debt collector such as Atlas can comply with both statutes by not filing unscheduled, time-barred proofs of claim. See Johnson, 2016 WL 2996372, at *6; Randolph, 368 F.3d at 730. 3 This conclusion is buttressed by our holding, in a somewhat different posture, that an FDCPA claim may be brought during bankruptcy proceedings. Covert v. LVNV Funding, LLC, 779 F.3d 242, 246-48 (4th Cir. 2015). under the FDCPA bankruptcies, and alleging In Covert, debtors filed suit MCDCA that after a the creditor completion had of their unlawfully filed proofs of claim without a debt-collection license. Id. at 245. We found the claims barred by res judicata because the debtors failed to raise them during the bankruptcy. 3 Id. at 247-48. For similar reasons, I would hold that the Bankruptcy Code does not preempt the MCDCA. 33 Because res judicata applies to unraised claims only if they “could have been adjudicated in an earlier action,” id. at 246, we necessarily determined that the debtors “could . . . have brought their affirmative claims for damages [under the FDCPA and MCDCA] during the bankruptcy process under Federal Rule of Bankruptcy Procedure 7001(1), which provides that ‘a proceeding to recover money or property’ may be brought as an adversary action,” id. at 248. Similarly, I would hold that the Bankruptcy Code does not preclude or preempt the filing of the FDCPA and MCDCA claims in this case. III. Because I believe the debtors state a claim under the FDCPA (and MCDCA), I would reverse and remand for further proceedings. 34
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