Glenn v. Cavalry Invs. LLC (In re Glenn)

542 B.R. 833

In re: Darryl Glenn, Debtor.

Darryl Glenn, Plaintiff,

v.Cavalry Investments LLC, Defendant.

Case No. 14bk31070

Adversary No. 15ap00560

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Signed January 5, 2016

Rusty A. Payton, PaytonDann, Chicago, IL, Attorney for Debtor/Plaintiff.

Coleman J. Braun and Daniel B. Nora, McGinnis Wutscher Beiramee LLP, Chicago, IL, Attorney for Defendant.

MEMORANDUM DECISION

TIMOTHY A. BARNES, Judge

The matter before the court arises out of the Motion to Dismiss Adversary Proceeding [Adv. Dkt. No. 15] (the "Motion to Dismiss ") filed by Cavalry Investments, LLC ("Cavalry "),¹ seeking dismissal of the Adversary Complaint Objecting to Proof of Claim and for Damages for Violation of the Fair Debt Collection Practices Act and for Fraud on the Court [Adv. Dkt. No. 1] (the "Complaint "), filed by Darryl Glenn (the "Debtor ").

The Complaint asserts a recent cause célèbre in the bankruptcy courts,² that the filing in a bankruptcy proceeding of a proof of claim on account of a time-barred debt violates the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq . (the "FDCPA "), and thus is not only sanctionable, but fraudulent.

This question, whether the filing of a proof of claim on account of a time-barred debt violates the FDCPA, is presently under consideration by the United States Court of Appeals for the Seventh Circuit. See, e.g., Owens v. LVNV Funding, Appeal No. 15–2044 (7th Cir. filed May 13, 2015). In many instances, as a result, the parties have asked this court to stay ruling pending the Seventh Circuit's decision. In this matter, however, the parties have requested that the court rule. Given that the Seventh Circuit has not yet ruled on this specific issue, therefore, the court is left with making its way through the extant law.

That law is becoming voluminous. In this district alone, a number of recent cases have come down, and those cases are fairly split on the question. Compare Robinson v. eCast Settlement Corporation, Case No. 14cv8277, 2015 WL 494626, at *3–4 (N.D.Ill. Feb. 3, 2015) (Shah, J.) (holding that such FDCPA claims fail to state a claim); Murff v. LVNV Funding, LLC (In re Murff ), Case No. 13bk44431, Adv. No. 14ap00790, 2015 WL 3690994, at *5 (Bankr.N.D.Ill. June 15, 2015) (Goldgar, J.) (same); LaGrone v. LVNV Funding LLC and Resurgent Capital Services (In re LaGrone ), 525 B.R. 419, 425–26 (Bankr.N.D.Ill.2015) (Wedoff, J.) (same) with Taylor v. Galaxy Asset Purchasing, LLC, 108 F.Supp.3d 628, 630–32 (N.D.Ill.2015) (Darrah, J.); Reed v. LVNV Funding, LLC, Case No. 14cv8371, 2015 WL 1510375, at *4–5 (N.D.Ill. Mar. 27, 2015) (Bucklo, J.); Taylor v. Midland Funding, LLC, 94 F.Supp.3d 941, 947 (N.D.Ill.2015) (Guzman, J.); Davenport v. Cavalry Investments, LLC (In re Davenport ), Case No. 14bk30261, Adv. No. 15ap00559, 2015 WL 8746384, at *2–3 (Bankr.N.D.Ill.Dec. 14, 2105) (Doyle, J.) (holding that there is or may be a justiciable legal claim); Edwards v. LVNV Funding, LLC and Resurgent Capital Services, LP (In re Edwards ), 539 B.R. 360, 367 (Bankr.N.D.Ill.2015) (Doyle, J.) (same); Avalos v. LVNV Funding, LLC (In re Avalos ), 531 B.R. 748, 756–57 (Bankr.N.D.Ill.2015) (Schmetterer, J.) (same); Brimmage v. Quantum3 Group LLC and Elite Recovery Acquisition, LLC (In re Brimmage ), 523 B.R. 134, 142 (Bankr.N.D.Ill.2015) (Cox, J.) (same).

Outside of this district but still within the Seventh Circuit, the courts are also split on the question. Compare Donaldson v. LVNV Funding, LLC, 97 F.Supp.3d 1033, 1039–40 (S.D.Ind.2015) (proofs of claims that do not misrepresent time-barred debt are not misleading) with Patrick v. P yod , LLC, Resurgent Capital Services, LP, 39 F.Supp.3d 1032, 1036 (S.D.Ind.2015) (even proofs of claims that do not misrepresent time-barred debt are misleading); In re Sekema, 523 B.R. 651, 654–55 (Bankr.N.D.Ind.2015) (sanctioning a creditor for filing a claim on a time-barred debt).

Going even further afield, one quickly sees that the issue is a national one, and that the courts are equally divided outside of the Seventh Circuit. Compare Sim m ons v. Roundup Funding, LLC, 622 F.3d 93, 96 (2nd Cir.2010) ( "The FDCPA is designed to protect defenseless debtors and to give them remedies against abuse by creditors. There is no need to protect debtors who are already under the protection of the bankruptcy court, and there is no need to supplement the remedies afforded by bankruptcy itself."); Gatewood v. CP Medical, LLC (In re Gatewood ), 533 B.R. 905, 910 (8th Cir. BAP 2015) ("The FDCPA does not prohibit all debt collection practices. Instead, it simply prohibits false, misleading, deceptive, unfair, or unconscionable debt collection practices."); B–Real, LLC v. Chaussee (In re Chaussee ), 399 B.R. 225, 241 (9th Cir. BAP 2008) ("[W]e are convinced that the Code and Rules are up to the task of compensating a debtor for any damages or costs occasioned by, and to punish and deter, those who would abuse the bankruptcy claims process.") with Crawford v. LVNV Funding, LLC, 758 F.3d 1254, 1261–62 (11th Cir.2014) (The "filing of a time-barred proof of claim against [the debtor] in bankruptcy was 'unfair,' 'unconscionable,' 'deceptive,' and 'misleading' within the broad scope of § 1692e and § 1692f [of the FDCPA].").

Thus, as it stands now, neither direct authority on point nor a clear majority rule exists. With this in mind, the court considers the matter at bar.

A. Background

The facts in this matter, insofar as they relate to the Motion to Dismiss, are not in dispute.³ The Debtor is a natural person who resides in Chicago, Illinois. On August 25, 2014 (the "Petition Date "), the Debtor voluntarily commenced, under chapter 13 of title 11 of the United States Code, 11 U.S.C. § 101, et seq . (2012, as amended) (the "Bankruptcy Code "), the above-captioned bankruptcy case.

In the Debtor's bankruptcy case, a deadline for the submission of claims (the "Bar Date ") was set for February 17, 2015. Notice of the Bar Date was generated on August 26, 2014, by way of the "Notice of Commencement of Case Under the Bankruptcy Code, Meeting of Creditors, and Fixing of Dates." Official Form 9I [Dkt. No. 8] (the "Bar Date Notice ").⁴ A copy of the Bar Date Notice was sent electronically to Cavalry on August 27, 2014. BNC Certificate of Notice [Dkt. No. 10].

On August 26, 2014, Cavalry filed its Proof of Claim on Official Form 10.⁵ In the addenda to the Proof of Claim, Cavalry clearly set forth the criteria required by Rule 3001 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules " and as to a specific Bankruptcy Rule, "Bankruptcy Rule ––––"), including the specific requirements of Bankruptcy Rule 3001(c)(3). This subsection requires detailed information in relation to open-end or revolving consumer credit agreements. The legislative notes to this subsection state that:

Except with respect to claims secured by a security interest in the debtor's real property (such as a home equity line of credit), paragraph (3) specifies information that must be provided in support of a claim based on an open-end or revolving consumer credit agreement (such as an agreement underlying the issuance of a credit card). Because a claim of this type may have been sold one or more times prior to the debtor's bankruptcy, the debtor may not recognize the name of the person filing the proof of claim. Disclosure of the information required by paragraph (3) will assist the debtor in associating the claim with a known account. It will also provide a basis for assessing the timeliness of the claim. The date, if any, on which the account was charged to profit and loss ("charge-off" date) under subparagraph (A)(v) should be determined in accordance with applicable standards for the classification and account management of consumer credit.

Fed. R. Bankr.P. 3001(c) advisory committee's note to 2012 Amendment II (emphasis added). Official Form 10, the Proof of Claim form, provides specific instructions regarding compliance with Bankruptcy Rule 3001(c).

Among the information contained in Cavalry's Proof of Claim, as required by Bankruptcy Rule 3001, was that the last activity on the account was May 24, 2002 and that the account had been charged off on October 21, 2002, each more than ten years prior to the Petition Date. The amount claimed by Cavalry was $359.16.

On December 8, 2014, the court entered an order confirming the Debtor's chapter 13 plan [Dkt. Nos. 17 and 9, respectively]. While the plan did not provide for treatment of the Cavalry Proof of Claim specifically, Section E.8 of the plan did provide for a modest recovery to allowed general unsecured claims.

On July 7, 2015, the Debtor objected to Cavalry's Proof of Claim [Dkt. No. 22] (the "Objection ").⁶ While the Objection made broad-sweeping allegations regarding the state of the time-bar on the debt underlying Cavalry's claim, Cavalry did not respond to the Objection or appear at the hearings on the Objection held on August 17, 2015 and August 31, 2015. On August 31, 2015, the court entered an order sustaining the Debtor's Objection to Cavalry's Proof of Claim [Dkt. No. 27].

On August 6, 2015, before the Objection was heard, the Debtor commenced the above-captioned adversary and one materially identical adversary against another creditor, LVNV Funding, LLC. On October 8, 2015, Cavalry filed the Motion to Dismiss. On October 16, 2015, the Debtor filed Plaintiff's Response to Motion to Dismiss [Adv. Dkt. No. 16], and after an initial hearing and the entry of a scheduling order [Adv. Dkt No. 20], Cavalry's Reply in Further Support of Its Motion to Dismiss Adversary Proceeding [Adv. Dkt. No. 21] was filed on November 5, 2015.

The Motion to Dismiss is, therefore, fully briefed. Counsel to the Debtor and counsel to Cavalry appeared on November 18, 2015 and again on December 17, 2015 on the fully briefed Motion to Dismiss, where both parties argued their positions extensively.

B. The Complaint

The Complaint in this matter pleads in three...