Recent decisions out of the 7th and 8th Circuit dismissing FDCPA complaints for filing time-barred proofs of claim put further distance between the majority position and the 11th Circuits minority opinion in Crawford. In Gatewood, the debtor brought an adversary proceeding against a creditor for filing a proof of claim for medical debt that was otherwise time-barred due to the expiration of the statute of limitations. Gatewood v. CP Medical, LLC, Case No. 15-6008 (8th Cir. Jul. 10, 2015). The debtor accused the creditor of engaging in “false, deceptive, misleading, unfair and unconscionable” debt collection practices. Slip Op. at 2-3. While the 11th Circuit might agree with the debtor in Gatewood, the 8th Circuit took a contrary position, noting that the FDCPA “simply prohibits false, misleading, deceptive, unfair or unconscionable debt collection practices. Filing in a bankruptcy court an accurate proof of claim containing all the required information, including the timing of the debt, standing alone, is not a prohibited debt collection practice.” Slip Op. at 10. (emphasis added).
Most courts, including the 11th Circuit, employ a “least sophisticated consumer” standard to determine whether a debt collector’s conduct is “deceptive,” “misleading,” “unconscionable,” or “unfair” under the statute. As such, the court must evaluate “whether the ‘least sophisticated consumer’ would have been deceived” by the debt collector’s conduct. Crawford v. LVNV Funding, LLC 758 F.3d 1254, 1258 (11th Cir. 2014). Understandably, this standard is often adopted as unsophisticated consumers are frequently unrepresented by counsel when faced with deceptive collection activities raised in a state court complaint. However, such is not the case in bankruptcy as debtors are regularly represented by counsel. A point driven home by the 7th Circuit in Birtchman.
In Birtchman, the court found the “least sophisticated standard” inapplicable, and, instead, adopted a “competent lawyer” standard and, when applied, found that a competent lawyer “would undoubtedly be aware of the statute of limitations defense that is common in most areas of law and permitted by the Bankruptcy Code.” The Court also noted that even if the debtor were not represented by counsel, the Chapter 13 Trustee is obligated under the Bankruptcy Code to examine all proofs of claim and object to the allowance of any claim that is improper. Thus, further mitigating the danger to debtor’s falling victim to deceptive collection practices. 11 U.S.C. §§ 1302 and 704(a)(5).
Interestingly, the 11th Circuit’s decision in Crawford was based, in large part, on a prior 7th Circuit decision: Phillips v. Asset Acceptance, LLC, 736 F.3d 1076, 1079 (7th Cir. 2013). The Crawford decision applied the reasoning from Phillips which concluded that if it violates the FDCPA to file a state-court action to collect a time-barred debt, it equally violates the FDCPA to file a proof of claim in a bankruptcy proceeding regarding a time-barred debt. However, as Birtchman points out, the “Seventh Circuit has made clear after Phillips that they have ‘not held that it is automatically improper for a debt collector to seek repayment of time-barred debts.’”
The Birtchman court further distinguished itself from Phillips and, by extension, Crawford, by dismissing the second main concern and rationale expressed in both cases – that a consumer will likely concede or settle rather than oppose and fund a defense to a suit raised in state court. Conversely, in the context of a Chapter 13, it is the debtor who initiates the case and subjects himself to a legal proceeding, and is likely represented by counsel throughout the duration of the case. Moreover, there are defenses built into the Bankruptcy Code to help protect debtors from being deceived or repaying improper claims.
For now, the Crawford decision remains an outlier and creditors thinking about filing claims in bankruptcy courts in Florida, Alabama and Georgia must consider the possibility of defending an FDCPA action. If necessary, a defense should raise the applicability of the “competent lawyer” standard and promote the added protections built into the Bankruptcy Code that mitigate the concerns raised in the collections statute. Since the Supreme Court recently denied the Petition for Writ of Certiorari in Crawford, we’re left with a split between the circuits which expands the 11th’s Circuit scope for FDCPA actions to include proofs of claim. However, the debtor in Birtchman has appealed the 7th Circuit’s decision, and an affirmance of the lower court’s ruling that further undermines the 11th Circuit’s reliance on Phillips could create enough persuasive authority for a creditor defending an FDCPA claim in one of these states to convince the 11th Circuit to reconsider its position.