Last week, the Supreme Court agreed to hear Midland Funding v. Johnson and resolve the split in the circuits over whether the filing of a time barred proof of claim violates the FDCPA and whether the Bankruptcy Code preempts the FDCPA regarding proofs of claim. As many know, Johnson was the Eleventh Circuit’s encore act to Crawford v. LVNV in which it not only supported its position in Crawford but expanded it by addressing the issue left unanswered in Crawford: whether the Bankruptcy Code preempts the FDCPA where the debt collector files a proof of claim on a debt it knows to be time barred. Johnson v. MidlandFunding, LLC, C.A. No. 15-11240, 2016 U.S. App. LEXIS 9478 (11th Cir. May24, 2016).
Recap of Johnson
In Johnson, the Court answered that question in the negative, finding that the Bankruptcy Code does not preempt the FDCPA. Instead, “[t]he FDCPA easily lies over the top of the Code’s regime, so as to provide an additional lawyer of protection against a particular kind of creditor.” Johnson at *15. In its analysis, the Court found that the Bankruptcy Code and FDCPA “differ in their scopes, goals, and coverage, and can be construed together in a way that allows them to coexist.” Johnson at *13-14. The court concluded that the two statutes could be reconciled because “they provide different protections and reach different actors.” Johnson at *14. While the Bankruptcy Code allows creditors to file proofs of claim even with respect to time barred debt, it does not require that they do so. While “creditors can file proofs of claim they know to be barred by the relevant statute of limitations, those creditors are not free from all consequences of filing these claims.” Johnson at *10. The court read the statutes together as “providing different tiers of sanctions for creditor misbehavior in bankruptcy.” Johnson at *15 The Court was adamant that regardless of the circumstances if a debt collector, as defined by the FDCPA, “files a proof of claim for a debt that the debt collector knows to be time-barred, that creditor must still face the consequences imposed by the FDCPA for a ‘misleading’ or ‘unfair’ claim.” Johnson at *16.
The Aftermath of Johnson and Crawford
Since Johnson, two more circuits have weighed in on the proof of claim issue. In Owens v. LVNV Funding, LLC, the Seventh Circuit held that in states where the statute of limitations does not extinguish the debt, the filing of a time barred proof of claim does not give rise to an FDCPA claims where the proof of claim does not contain inaccurate information and where the defendant has not otherwise engaged in deceptive or misleading debt collection practices. Owens v. LVNV Funding, LLC, 2016 U.S. App. LEXIS 14706 (7th Cir. Aug. 10, 2016). Two weeks later, the Fourth Circuit followed suit holding that the filing of a time barred proof of claim does not violate the FDCPA when the statute of limitations does not extinguish the debt. Dubois v. Atlas Acquisitions, No. 15-1495, 2016 U.S. App. LEXIS, *22-23 (4thCir. Aug. 25, 2016).
The circuits have also taken opposite positions on the issue of preemption. While the Johnson court held that the Bankruptcy Code does not preempt the FDCPA, other circuits have disagreed. It has long been the Ninth Circuit’s position that the Bankruptcy Code preempts the FDCPA in a bankruptcy setting. Walls v. Wells Fargo Bank, 276 F.3d 502 (9th Cir. 2002). The Second Circuit similarly held in Simmons v. Roundup Funding, LLC, 622 F.3d 93 (2nd Cir. 2010) that the proof of claims process is solely the dominion of the Bankruptcy Code. The Third and Seventh Circuits meanwhile have taken the contrary position, holding that the Bankruptcy Code does not preempt the FDCPA. See Randolph v. IMBS, Inc. 368 F.3d 726 (7th Cir. 2004); Simon v. FIA Card Servs., 732 F.3d 259 (3d Cir. 2013).
Johnson in the Supreme Court
The significance of the issues and the divisiveness of the issues led both the petitioner and respondent in Johnson to agree that the issues presented were worthy of the Supreme Court’s attention. The parties’ agreement fast tracked the courts’ consideration of the petition.
The issues certified for appeal are: (a) whether the filing of a an accurate proof of claim for an unextinguished time barred debt in a bankruptcy proceeding violates the FDCPA; and (b) whether the Bankruptcy Code, which governs the filing of proofs of claim in bankruptcy, precludes the application of the FDCPA to the filing of an accurate proof of claim on an unextinguished time-barred debt. Currently, the petitioner’s brief is due the end of November.