Gurganus v. Recovery Sys. Mgmt. Sys. Corp. (In re Gurganus)

In re: Jerry Lee Gurganus and Heather Dawn Gurganus, Debtors.

Jerry Lee Gurganus and Heather Dawn Gurganus, Plaintiffs, v. Recovery Systems Management Systems Corporation as agent for

Portfolio Investments II, LLC, et al., Defendants.

Case No.: 13-70114-BGC-13

A.P. No.: 14-70054

UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF ALABAMA WESTERN DIVISION

January 5, 2015

Memorandum Opinion on Recovery Management Systems Corporation's Motion to Dismiss Complaint

I. Background

The Plaintiffs-debtors' complaint alleges that the Defendants violated the Fair Debt Collection Practices Act (FDCPA) by filing a proof of claim in the debtors' pending case where the statute of limitations on the debt that served as the basis for that claim allegedly had expired. As support for their complaint, the Plaintiffs-debtors rely on the recent decision of the Court of Appeals for the Eleventh Circuit in Crawford v. LVNV Funding, LLC, et al., 758 F.3d 1254 (11th Cir. 2014) which held that the filing of a time-barred proof of claim in a bankruptcy case was a violation of the FDCPA.

The specific matters before the Court are the Plaintiffs-debtors' Complaint Seeking Damages in Adversary Proceeding for Violation of the Fair Debt Collection Practices Act (A.P. Docket No. 1) and the Defendants' Recovery Management Systems Corporation's Motion to Dismiss Complaint Seeking Damages in Adversary Proceeding and Memorandum of Law in Support Thereof (A.P. Docket No. 6).

A hearing was held on November 19, 2014. Appearing were: Grant McNutt for the Plaintiffs-debtors; Alan D. Leeth, attorney for the Defendants (specifically for Recovery Management Systems); and Mac Halcomb, the attorney for the Chapter 13 Trustee.¹

II. Findings of Fact

The facts necessary to resolve the dispositive issue are simple and not disputed.

The debtors filed the pending Chapter 13 case on January 24, 2013. Case Docket No. 1. The Defendants filed a proof of claim for Claim No. 18 on May 12, 2013. That proof of claim included a debt for which the applicable three-year statute of limitations for the debt may have expired, and therefore, collection of it may have been time-barred.

Contending that the statute of limitations had expired, and pursuant to Crawford, the Plaintiffs-debtors filed the pending complaint against the Defendants on September 23, 2014, arguing that the Defendants attempted to collect a time-barred debt in violation of the FDCPA. A.P. Docket No. 1. The Defendants withdrew Claim No. 18 within a week on October 3, 2014. Case Docket No. 29. No payments were made on the claim before it was withdrawn.

The Defendants filed the pending motion to dismiss on October 23, 2014, A.P. Docket No. 6. In it they contend that because the Plaintiffs did not file their complaint within the one-year statute of limitations that applies to actions brought under the FDCPA, 15 U.S.C. § 1692k(d), the complaint does not state a claim for relief, and thus must be dismissed.

III. Issue

The threshold and dispositive issue is: Were the Plaintiffs barred by the one-year FDCPA statute of limitations from filing their complaint against the Defendants?² As explained below, this Court finds that they were.

IV. Parties' Positions

The parties do not dispute that the Plaintiffs filed their complaint in regard to the specific debt represented by Claim No. 18 more than a year after the Defendants filed Claim No. 18.

If that year is considered the one-year FDCPA statute of limitations, and it did in fact expire, the Plaintiffs contend that their, "adversary proceeding serves as a counterclaim to the proof of claim filed by the defendant..." and therefore is not subject to the one-year limitation. Plaintiff's Reply Brief to Defendants' Motion to Dismiss at 7-8, filed December 12, 2014, A.P. Docket No. 13.

The Plaintiffs rely on In re Ferris, 764 F.2d 1475 (11th Cir. 1985), the preeminent opinion in this Circuit on this point. Based on Ferris, the Plaintiffs argue that as a counterclaim, especially as a mandatory counterclaim, its complaint is not subject to the one-year FDCPA statue of limitations.³

The Defendants contend that pursuant to the standards adopted by the Supreme Court of the United States in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), the Plaintiffs' complaint should be dismissed.

The basis of the Defendants' motion to dismiss is that the Plaintiffs were barred from filing the pending complaint because the one-year FDCPA statute of limitations had expired. Factually the Defendants contend that when the proof of claim for Claim No. 18 was filed on May 12, 2013, the one-year statute on the Plaintiffs' FDCPA claim began to run on May 13, 2013, the day after Claim No. 18 was filed or on May 16, 2013, that claim was served on the Plaintiffs. From either date, the Defendants argue that because the Plaintiffs did not file their complaint regarding the filing of Claim No. 18 until September 23, 2014, the one-year FDCPA statute of limitations had expired.

V. Applicable Law

A. Motions to Dismiss

This Court stated in Austin v. BFW Liquidation, LLC (In re BFW Liquidation, LLC), 471 B.R. 652 (Bankr. N.D. Ala. 2012) that:

The per curiam opinion in Stillwell v. Allstate Ins. Co., 663 F.3d 1329 (11th Cir.2011) explains, "To survive a 12(b)(6) motion to dismiss, 'a complaint must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." ' Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). This plausibility standard 'asks for more than a sheer possibility that a defendant has acted unlawfully.' Id." Id. at 1333.

Id. at 661. This Court has applied that standard in the current proceeding.

B. FDCPA Statute of Limitations

There is no issue that the statute of limitations on FDCPA actions is one year. 15 U.S.C. § 1692k(d). Consequently, all such actions must be brought within that time.⁴

As stated above, the debtors filed the pending Chapter 13 case on January 24, 2013. The Defendants filed the proof of claim for which the Plaintiffs' claim a violation ofthe FDCPA on May 12, 2013. The Plaintiffs-debtors filed the pending complaint against the Defendants on September 23, 2013.

Therefore, if the Plaintiffs' proposed "counterclaim" exception to the FDCRA one-year statute of limitations does not apply, the complaint was barred by the one-year statute, and the Defendants' motion to dismiss is due to be granted.

C. FDCPA Counterclaims

The Plaintiffs' "defense" to the Defendants' claim that the statute of limitations expired before the Plaintiffs filed the pending complaint, is that their complaint, as a response to the Defendants' filing of a proof of claim in a bankruptcy case, is a counterclaim that is not barred by a statute of limitations. As stated above, the Plaintiffs rely on the opinion of the Court of Appeals for the Eleventh Circuit in In re Ferris, 764 F.2d 1475 (11th Cir. 1985) for this position. That opinion, as quoted in the Plaintiffs' reply to the motion to dismiss explains:

The case of Gibson v. Parish, 360 Fed. Appx. 974, 978-979 (10th Cir. 2010) is instructive in discussing how an adversary proceeding initiated in response to a proof of claim serves as a counterclaim. In Gibson, the Tenth Circuit cites to Eleventh Circuit authority in holding:

"In [the case of] In re Ferris, 764 F.2d 1475 (11th Cir. 1985), the Eleventh Circuit agreed that a similar claim brought by a debtor was 'in the nature of a counterclaim against the [proof of] claim filed by' a creditor in a bankruptcy case. Id. at 1477. In Kline v. Zueblin (In re American Export Group International Services, 167 B.R. 311 (Bankr. D.C. 1994), the court held that a proof of claim is 'analogous to a complaint filed in the District Court' and thus a 'proof of claim is properly viewed as a complaint and the debtor's adversary proceeding as a counterclaim to that complaint.' Id. at 313; accord In re Answerfone, 67 B.R. 167, 168 (Bankr. E.D. Ark. 1986); In re Mktg. Res. Int'l Corp., 43 B.R. 71, 72 (Bankr. E.D. Pa. 1984). These cases rely in part on 28 U.S.C. § 157(b)(2)(C), which defines 'core' bankruptcy proceeding to include 'counterclaims by the estate against persons filing claims against the estate.'"

Plaintiff's Reply Brief to Defendants' Motion to Dismiss at 7-8, Docket No. 13.

In the context of Ferris, this Court agrees and has held so in at least two reported opinions.⁵

In Davis v. Wells Fargo (In re Davis), Case No. 10-03274, A.P. No. 10-00083, 2011 WL 2458084 (Bankr. N.D. Ala. Jun 16, 2011), reversed on other grounds, Davis v. Wells Fargo Financial Alabama Inc., Case No. 11-CV-02766-WMA, 2011 WL 12544180 (N.D. Ala. Dec 08, 2011) this Court described the type of cause of action relied on here by the Plaintiffs. It wrote:

II. CONCLUSIONS OF LAW

Wells Fargo contends that Ms. Davis' TILA recoupment counterclaim is barred by the applicable 1 year statute of limitations.

Ms. Davis contends that TILA permits prosecution of claims based on its provisions for purposes of setoff and recoupment beyond the expiration of the limitations period.

The applicable statute provides as follows:

Any action under this section may be brought in any United States district court, or in any other court of competent jurisdiction, within one year from the date of the occurrence of the violation or, in the case of a violation involving a private education loan (as that term is defined in section 1650(a) of this title), 1 year from the date on which the first regular payment of principal is due under the loan. This subsection does not bar a person from asserting a violation of this subchapter in an action to collect the debt which was brought more than one year from the date of the occurrence of the violation as a matter of defense by recoupment or set-off in such action, except as otherwise provided by State law.

15 U.S.C.A. § 1640(e)(emphasis added).

A. Recoupment

The Eleventh

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