Chorba v. Quantum3 Grp. LLC (In re Chorba)

582 B.R. 380

IN RE: Jacqueline CHORBA, Debtor.

Jacqueline Chorba, Plaintiff,

v.Quantum3 Group LLC, et al., Defendants.

Case No. 17–16032–MMH

Adv. No. 17–00380–MMH

United States Bankruptcy Court, D. Maryland, at Baltimore.

Signed March 8, 2018

Michael Patrick Coyle, The Coyle Law Group LLC, Columbia, MD, for Plaintiff.

Bradley T. Canter, The Law Offices of Ronald S. Canter, LLC, Rockville, MD, for Defendants.

MEMORANDUM OPINION

MICHELLE M. HARNER, U.S. BANKRUPTCY JUDGE

A creditor holding a right to payment under applicable nonbankruptcy law generally may file a proof claim in a debtor's bankruptcy case under section 501 of the U.S. Bankruptcy Code.¹ The U.S. Supreme Court recently explained that a creditor might file such a proof of claim even if the claim underlying the right to payment is time barred under applicable nonbankruptcy law. See Midland Funding, LLC v. Johnson , ––– U.S. ––––, 137 S.Ct. 1407, 1412, 197 L.Ed.2d 790 (2017). As the Supreme Court observed in Midland Funding , the Code does not limit the definition of claim in section 101(5) to an enforceable claim, and it specifically recognizes that an unenforceable claim may be disallowed in accordance with section 502. Id. The Supreme Court's decision in Midland Funding underscores the stark distinction in the Code between the filing of a proof of claim and the ultimate allowance of that claim in the debtor's bankruptcy case.

Before the Court in this adversary proceeding is a Motion to Dismiss that requires the Court to analyze several of the principles articulated by the Supreme Court in Midland Funding .² Specifically, Jacqueline Chorba, the above-captioned debtor and the plaintiff in this adversary proceeding (the "Plaintiff"), alleges that Quantum3 Group, LLC and MOMA Funding, LLC (collectively, the "Defendants") are unlicensed debt collectors under the Maryland Collection Agency Licensing Act and that, as such, the Defendants' proofs of claim in this chapter 13 case violate the Maryland Consumer Debt Collection Act and the Maryland Consumer Protection Act. By her Amended Complaint, the Plaintiff seeks damages, attorney's fees, and disallowance of the Defendants' proofs of claim. The Defendants, on the other hand, assert that the Plaintiff's Amended Complaint is barred by her confirmed chapter 13 plan and the doctrine of res judicata or that, alternatively, their proofs of claim are permissible under Midland Funding and that the Plaintiff's state law claims are preempted by the Code. Under either argument, the Defendants posit that the Plaintiff has failed to state a claim upon which relief can be granted and, thus, request dismissal of the Plaintiff's Amended Complaint under Federal Rule of Civil Procedure 12(b)(6), as made applicable to this adversary proceeding by Federal Rule of Bankruptcy Procedure 7012.

The Defendants' proofs of claim are based on defaulted debt purchased from Synchrony Bank. At the time of plan confirmation in this case, no party had objected to the Defendants' proofs of claim. The confirmation of the chapter 13 plan was not, however, an adjudication of the claims on the merits. As several courts have noted, the plan confirmation process and the claims allowance process serve two different functions in a bankruptcy case and one does not necessarily foreclose the other. The Court thus finds no basis to bar the Plaintiff's claims under the doctrine of res judicata. Moreover, under Midland Funding and as further explained below, the Defendants' proofs of claim, based on their right to payment on the purchased debt, can stand, subject to the claims allowance process. In that process, the Plaintiff may challenge the claims, as she has done in Count III of the Amended Complaint. To the extent the claims are unenforceable under Maryland law, they are subject to disallowance under section 502(b) of the Code. Nevertheless, under relevant case law, the claims asserted in Counts I and II of the Amended Complaint alleging that the Defendants violated Maryland law by filing their proofs of claim are preempted by the Code. Accordingly, the Court will enter an Order granting in part, and denying in part, the Defendants' Motion to Dismiss.

I. Relevant Background

The Plaintiff filed for protection under chapter 13 of the Code on March 1, 2017. She simultaneously filed her chapter 13 plan, which the Court confirmed on October 17, 2017. No party objected to the Plaintiff's plan. That plan provides, among other things, that general unsecured creditors "will be paid pro rata" and that "[t]he amount of each claim to be paid under the plan will be established by the creditor's proof of claim or superseding Court order." ECF 2, Case No. 17–16032, ¶¶ 2(f), 3.

The Defendants filed two proofs of claim in the Plaintiff's chapter 13 case in June 2017. The first claim is filed as Claim No. 5 in the amount of $3,442.39. The second claim is filed as Claim No. 6 in the amount of $1,530.08 (collectively with Claim No. 5, the "Proofs of Claim"). The Proofs of Claim reflect the defaulted debt purchased from Synchrony Bank.

On October 9, 2017, the Plaintiff commenced this adversary proceeding by filing a two-count Complaint against the Defendants (the "Original Complaint"). Count I of the Original Complaint alleges that the Defendants violated the Maryland Consumer Debt Collection Act (the "Debt Collection Act")³ by filing the Proofs of Claim because the Defendants are unlicensed debt collectors under the Maryland Collection Agency Licensing Act (the "Licensing Act").⁴ Count II of the Original Complaint alleges that such conduct is a per se violation of the Maryland Consumer Protection Act (the "Consumer Protection Act").⁵ Both counts seek compensatory and punitive damages and attorney's fees. The Defendants filed a Motion to Dismiss the Original Complaint on November 3, 2017. The Plaintiff then filed an Amended Complaint against the Defendants (the "Amended Complaint"), making minor changes to the first two counts described above and adding Count III, which asserts an objection to, and seeks disallowance of, the Proofs of Claim. The Defendants thereafter filed a Motion to Dismiss the Amended Complaint (the "Motion to Dismiss"), and the Plaintiff filed a response thereto.⁶

The Court held a hearing on the Motion to Dismiss and the related pleadings on January 17, 2018. This Memorandum Opinion summarizes the Court's findings of fact and conclusions of law with respect to the Motion to Dismiss.

II. Jurisdiction and Legal Standards

The Court has jurisdiction over this proceeding pursuant to 28 U.S.C. § 1334, 28 U.S.C. § 157(a), and Local Rule 402 of the United States District Court for the District of Maryland. This proceeding is a "core proceeding" under 28 U.S.C. § 157(b)(2).

Civil Rule 12(b) permits the filing of a motion to assert certain defenses, including that the complaint "fails to state a claim upon which relief may be granted."

Fed. R. Civ. R. 12(b)(6). A motion to dismiss under Civil Rule 12(b)(6)"tests the legal sufficiency of a complaint to determine whether the plaintiff has properly stated a claim; ‘it does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses.’ " Hall v. Greystar Management Servs., L.P. , 637 Fed.Appx. 93, 99 (4th Cir. 2016) (quoting Republican Party of N.C. v. Martin , 980 F.2d 943, 952 (4th Cir. 1992) ). The Court must "accept the well-pled allegations of the complaint as true, and we construe the facts and reasonable inferences derived therefrom in the light most favorable to the plaintiff." Ibarra v. United States , 120 F.3d 472, 474 (4th Cir. 1997). To survive a motion to dismiss under Civil Rule 12(b)(6), the complaint must plead facts that surpass speculation and " ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ).

Section 501 of the Code provides, in pertinent part, that "[a] creditor or an indenture trustee may file a proof of claim." 11 U.S.C. § 501(a). That claim is deemed allowed in the bankruptcy case, unless the trustee or a party in interest objects to the claim. See 11 U.S.C. § 502(a). If an objection is filed, section 502(b) of the Code requires the Court to determine the amount of the claim and to disallow the claim under certain circumstances, including to the extent that "such claim is unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured;...." 11 U.S.C. § 502(b)(1).

III. Analysis

The Amended Complaint basically argues that the Defendants' act of filing the Proofs of Claim constitutes an act to collect a debt or enforce a right in violation of state law.⁷ It also seeks to disallow the Proofs of Claim in their entirety. The state law at issue involves the collection of consumer debt in the state of Maryland. The Licensing Act requires "collection agencies" doing business in Maryland to comply with certain licensing requirements.⁸ MD. CODE ANN., BUS. REG. § 7–301(a) ("a person must have a license whenever the person does business as a collection agency in the State"). The Debt Collection Act prohibits various conduct, including collection activities that "[c]laim, attempt, or threaten to enforce a right with knowledge that the right does not exist." MD. CODE ANN., COM. LAW § 14–202. A violation of the Debt Collection Act is, in turn, a per se violation of the Consumer Protection Act. See MD. CODE ANN., COM. LAW § 13–301(14)(iii). Maryland courts have determined that "a consumer who has been sued by an unlicensed debt collector may seek damages under the Consumer Debt Collection Act and the Consumer Protection Act." Ramsay v. Sawyer Prop. Mgmt. of Maryland, LLC , 2016 WL 6583892, at *8 (Md. Ct. Spec. App. Nov. 4, 2016) (citations omitted).

The Defendants do not contend they are licensed...