Another district court has declined to follow the 11th Circuit’s holding in Crawford v. LVNV Funding LLC. On a motion for summary judgment, the Western District of Missouri granted summary judgment in favor of LVNV Funding in an adversary proceeding alleging that LVNV’s filing of a time barred proof of claim violated the FDCPA. Dunaway v. LVNV Funding, LLC, Adv. Pro. No. 14-4132 (W. D. MO. May 19, 2015). This at least the sixth decision in recent months in which courts have outright refused to follow or have harshly criticized the rationale of Crawford. See Elliott v. Cavalry Invs., 2015 U.S. Dist. LEXIS 2423 (S.D. Ind. Jan. 9, 2015); Donaldson v. LVNV Funding, LLC, 2015 U.S. Dist. LEXIS 45134 (S.D. Ind. Apr. 7, 2015); Torres v. Asset Acceptance, LLC, C.A. 2015 U.S. Dist. LEXIS 45094 (E.D. Pa. Apr. 7, 2015); Torres v. Cavalry SPV I, LLC, 2015 U.S. Dist. LEXIS 45087 (E.D. Pa. Apr. 7, 2015); Owens v. LVNV Funding, LLC, 2015 U.S. Dist. LEXIS 52680 (S.D. Ind. Apr. 21, 2015). We are advised that both Owens (7th Circuit) and Torres (3rd Circuit) are on appeal.
In Crawford, the debtor commenced an adversary proceeding against a debt buyer, alleging that the filing of a time barred proof of claim violated the automatic stay and the FDCPA. The debt buyer ultimately withdrew the proof of claim; however, the adversary proceeding proceeded forward. The Bankruptcy Court granted LVNV’s motion to dismiss holding that the filing of a proof of claim, even one on time barred debt, did not constitute a violation of the FDCPA. The district court affirmed. On appeal, the Eleventh Circuit reversed, holding that the filing of a proof of claim was an attempt to collect a debt and that the filing of a proof of claim for time barred debt violated the FDCPA. In so holding, the court seemed to take issue with the fact that an otherwise uncollectible debt would result in some recovery under the Chapter 13 plan. “Such a distribution of funds to debt collectors with time-barred claims then necessarily reduces the payments to other legitimate creditors with enforceable claims.” Crawford, 758 F.3d at 1261. Additionally, the court premised its reversal on the notion that “a debt collector’s filing of a time-barred proof of claim creates the misleading impression to the debtor that the debt collector can legally enforce the debt.” Id. Recently, the Supreme Court refused to hear Crawford.
In Dunaway, LVNV filed a proof of claim which included in its attachment: (a) the name of the party from whom LVNV purchased the debt; (b) the date of charge off; (c) the date of last payment; and (d) the last transaction date. The debtor objected to the claim and the objection (as amended by the debtor) was granted. The debtor additionally filed an adversary proceeding alleging that by filing the proof of claim, the creditor violated 15 U.S.C. §§1692d, e and f. On summary judgment, the court first acknowledged that the filing of a proof of claim is action taken in connection with collection of a debt. In addressing the argument, the court stated that “[a] proof of claim, of course, is intended to result in some recovery for the creditor on the debt set out in the proof of claim, and so filing a proof of claim would be within the ordinary meaning of “debt collection.” Dunaway, Slip OP. at 7. However, while filing a proof of claim is an action to collect a debt, it is “well established that the automatic stay does not prohibit actions taken in the bankruptcy case itself.” Id.
The court then turned to the specific provisions of the FDCPA asserted by the debtor and determined:
- The filing of a time barred proof of claim does not violate 15 U.S.C. §1692d. Section 1692d generally prohibits a debt collector from engaging in conduct the natural consequences of which is to harass, oppress, or abuse any person in connection with the collection of a debt. The court held that “there is no “threat” in a proof of claim that accurately reflects information about an unsecured debt the debtor has listed on his own schedules. “It is neither a lawsuit nor a threat of a lawsuit; it’s a statement that a debt exists…and there is no prohibition in the Bankruptcy Code against filing a proof of claim on an unsecured, stale debt.” Id. at 8 (internal citations omitted).
- The filing of a time barred proof of claim does not violate 15 U.S.C. §1692e. Section 1692e generally prohibits a debt collector from using any false, deceptive, or misleading representation or means in connection with the collection of a debt. While the court agreed that the filing of a proof of claim was an attempt to collect a debt, the court noted that the proof of claim accurately reflected information on the debt and that there was nothing false, misleading or deceptive on the face of the proof of claim. Moreover, the court noted that the debtor has listed the debt on their schedules. Additionally, “[t]he argument that filing a proof of claim on a time-barred debt mischaracterizes the legal state of the debt also fails because a debt that is legally enforceable or uncollectible is not extinguished; the money is still owed and only the creditor’s remedies are regulated.” Id. at 9.
- The filing of a time barred proof of claim did not violate 15 U.S.C. §1692f. Section 1692f generally prohibits unfair or unconscionable debt collection activities. The court noted that there was nothing unfair or unconscionable in the filing of a truthful and accurate proof of claim on a debt that is known to the debtor.
The court then went on to distinguish the act of filing a proof of claim from the filing of a lawsuit on a time barred debt. “[T]he deception and unfairness of untimely lawsuits is not present in the bankruptcy claims process.” Id at 11. The representations in a proof of claim are made to the court not directly to the debtor and in most cases, the debtor is represented by counsel “who can both advise them about the existence of a statute of limitations defense and file an objection if the trustees does not. The process of filing an objection to a proof of claim is much simpler and more streamlined than defending a civil lawsuit.” Id. Additionally, the court observed that a debtor in bankruptcy has much less at stake with the allowing of a proof of claim than a defendant facing a potential judgment. The court concluded that “the present statutes and procedural rules do not preclude… [the filing of claims barred by the statute of limitations] by creditors. Until the Bankruptcy Code is amended…or the procedural rules modified to render such claims invalid, creditors such as these defendants are entitled to file proofs of claim even for stale debts.” Id. at 13.