Humes v. LVNV Funding, L.L.C. (In re Humes)

496 B.R. 557

In re Shawn Michael HUMES and Shirley Jean Humes, Debtors.Shawn Michael Humes, Plaintiff

v.LVNV Funding, L.L.C., Hosto, Buchan, Prater & Lawrence, P.L.L.C., Defendants.

Bankruptcy No. 3:10–bk–12140 E.

Adversary No. 3:11–ap–01016.

United States Bankruptcy Court,

E.D. Arkansas,

Jonesboro Division.

July 17, 2013.

Kathy Cruz, The Cruz Law Firm, P.L.C., Annabelle Lee Patterson, Annabelle Lee Patterson, PLC, Hot Springs, AR, Joel G. Hargis, Crawley & DeLoache, PLLC, Jonesboro, AR, for Plaintiff.

William P. Dougherty, Attorney at Law, Little Rock, AR, for Defendants.

MEMORANDUM OPINION AS TO CORE CLAIMS AND PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW AS TO NONCORE CLAIMS

AUDREY R. EVANS, Bankruptcy Judge.

+-----------------+
¦Table of Contents¦
+-----------------¦
¦                 ¦
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+----------------------------------+
¦PROCEDURAL BACKGROUND         ¦564¦
+------------------------------+---¦
¦                              ¦   ¦
+------------------------------+---¦
¦OVERVIEW                      ¦565¦
+------------------------------+---¦
¦                              ¦   ¦
+------------------------------+---¦
¦JURISDICTION                  ¦565¦
+------------------------------+---¦
¦                              ¦   ¦
+------------------------------+---¦
¦FACTS                         ¦568¦
+------------------------------+---¦
¦                              ¦   ¦
+------------------------------+---¦
¦DISCUSSION                    ¦575¦
+------------------------------+---¦
¦                              ¦   ¦
+----------------------------------+

+-----------------------------------------------+
¦  ¦I.  ¦Vicarious Liability               ¦575 ¦
+--+----+----------------------------------+----¦
¦  ¦    ¦                                  ¦    ¦
+--+----+----------------------------------+----¦
¦  ¦II. ¦Fair Debt Collection Practices Act¦576 ¦
+-----------------------------------------------+

+----------------------------------------------------------------------------+
¦    ¦      ¦A.  ¦Violations Based on the Orange Paper and the Phone  ¦577   ¦
¦    ¦      ¦    ¦Conversation                                        ¦      ¦
+----+------+----+----------------------------------------------------+------¦
¦    ¦      ¦B.  ¦Violations Based on the Amount of the Debt          ¦580   ¦
+----+------+----+----------------------------------------------------+------¦
¦    ¦      ¦C.  ¦Damages for FDCPA Violations                        ¦581   ¦
+----------------------------------------------------------------------------+

+----------------------------------------------------------+
¦   ¦    ¦                                           ¦     ¦
+---+----+-------------------------------------------+-----¦
¦   ¦III.¦Arkansas Fair Debt Collection Practices Act¦583  ¦
+---+----+-------------------------------------------+-----¦
¦   ¦    ¦                                           ¦     ¦
+---+----+-------------------------------------------+-----¦
¦   ¦IV. ¦Arkansas Deceptive Trade Practices Act     ¦584  ¦
+---+----+-------------------------------------------+-----¦
¦   ¦    ¦                                           ¦     ¦
+---+----+-------------------------------------------+-----¦
¦   ¦V.  ¦Breach of Contract                         ¦585  ¦
+---+----+-------------------------------------------+-----¦
¦   ¦    ¦                                           ¦     ¦
+---+----+-------------------------------------------+-----¦
¦   ¦VI. ¦Fraud and Misrepresentation                ¦586  ¦
+---+----+-------------------------------------------+-----¦
¦   ¦    ¦                                           ¦     ¦
+---+----+-------------------------------------------+-----¦
¦   ¦VII.¦Objection to Proof of Claim                ¦587  ¦
+----------------------------------------------------------+

+-------------------------------------------+
¦  ¦   ¦A.¦Defective Service           ¦587 ¦
+--+---+--+----------------------------+----¦
¦  ¦   ¦B.¦Miscalculation of the Debt  ¦588 ¦
+-------------------------------------------+

+----------------------------------------------------------------+
¦   ¦     ¦                                               ¦      ¦
+---+-----+-----------------------------------------------+------¦
¦   ¦VIII.¦Avoidance of Lien                              ¦588   ¦
+----------------------------------------------------------------+

+----------------------------------+
¦                              ¦   ¦
+------------------------------+---¦
¦CONCLUSION                    ¦589¦
+----------------------------------+

PROCEDURAL BACKGROUND

On January 28, 2011, Shawn Michael Humes (the “Plaintiff” or “Humes”) filed this adversary proceeding against LVNV Funding, L.L.C. (“LVNV”), and Hosto, Buchan, Prater & Lawrence, P.L.L.C. (“Hosto”) (collectively, the “Defendants”). In an Amended Complaint, filed March 24, 2011, the Plaintiff alleges that one or both of the Defendants: (1) violated the Fair Debt Collection Practices Act, codified at 15 U.S.C. §§ 1692, et seq. (“FDCPA”); (2) violated the Arkansas Fair Debt Collections Practices Act, codified at Ark.Code Ann. §§ 17–24–501, et seq. (“AFDCPA”); (3) violated the Arkansas Deceptive Trade Practices Act, codified at Ark.Code Ann. §§ 4–88–101, et seq. (“ADTPA”); (4) breached a contractual agreement between the parties; and (5) committed the torts of fraud and misrepresentation. Additionally, the Plaintiff moved the Court to disallow the proof of claim filed by LVNV in the Plaintiff's bankruptcy case, pursuant to 11 U.S.C. § 502(b)(1) of the Bankruptcy Code (“Code”) and that the Court avoid any judgment lien under Code § 522(h) that the Defendants may have obtained.

On December 20, 2011, the Court entered an Order Denying Motion For Summary Judgment (the “Summary Judgment Order”) in favor of the Plaintiff, Humes v. LVNV Funding, L.L.C. (In re Humes), 468 B.R. 346 (Bankr.E.D.Ark.2011), and on January 11, 2013, the Court held a trial on the Plaintiff's claims. Joel G. Hargis appeared on behalf of the Plaintiff, who was also present. William P. Dougherty appeared on behalf of the Defendants. At the conclusion of the trial, the parties agreed to file briefs of their closing arguments by January 18, 2013. Before adjourning, the Court raised the issue of whether some of the Plaintiff's claims were noncore. The Court asked defense counsel if his clients consented to the Court's entry of a final judgment on the merits of any noncore claim and he requested that he be allowed to file a written decision with the Court. The Court granted that request, and on January 15, 2013, defense counsel filed a letter with the Court requesting that the Court submit proposed findings of fact and conclusions of law to the District Court to review de novo.

OVERVIEW

Humes incurred credit card debt with Citibank USA, N.A. (“Citi”). Citi assigned the debt to LVNV, and LVNV hired Hosto to collect it. Humes maintains that the debt was repaid. On behalf of LVNV, Hosto filed a lawsuit against Humes in the District Court of Lawrence County, Arkansas, No. CIV–08–215 (the “State Court Lawsuit”). Hosto served Humes with the complaint which had an orange piece of paper (the “Orange Paper”) attached to it. The Orange Paper listed Hosto's phone number accompanied by the statement that calling “may avoid the necessity of you appearing in Court or filing an Answer.” Humes called Hosto and spoke with a Hosto employee. Humes maintains that the employee told him that the lawsuit would “go away” if he entered into a monthly payment plan with Hosto. Hosto argues that it never had a payment plan with Humes. However, it is undisputed that after the phone conversation, Humes made 12 monthly payments to Hosto. It is also undisputed that Hosto obtained a default judgment ¹ in State Court (the “Judgment”) only nine days after Humes made his second monthly payment. While Humes made monthly payments, Hosto registered the Judgment. Humes made his 12th monthly payment in November 2009, and Hosto obtained a writ of garnishment in March 2010. Hosto then garnished Humes's bank accounts (the “Garnishment”), depriving Humes of the financial means to support his family. Humes first became aware that his accounts were frozen after his wife's debit card was declined as she was attempting to buy groceries for the family. Despite being current on his secured financial obligations and having little unsecured debt, Humes filed bankruptcy to get his account funds released.

After carefully scrutinizing the record and the evidence presented at trial, the Court finds that: (1) Hosto told Humes that the State Court Lawsuit would “go away” by entering into a payment plan with Hosto; (2) Humes entered into a payment plan with Hosto in reliance on Hosto's statement that the State Court Lawsuit would “go away” as a result; (3) Hosto breached the payment plan agreement with Humes; and (4) Hosto deceived Humes into not defending the State Court Lawsuit. Additionally, the Court finds that Hosto violated multiple provisions of the FDCPA and that Hosto committed common law fraud. As a result of Hosto's actions, the Court finds that Humes has incurred damages because he lost the right to counsel and the right to defend in the State Court Lawsuit. The entry of the Judgment damaged Humes's credit rating. Finally, Humes suffered emotional distress for which he should be compensated. The bases of the Court's findings will be explained below after the Court addresses jurisdiction.

JURISDICTION

The parties agree that the bankruptcy court has jurisdiction over Humes's claims; the Defendants disagree that the bankruptcy court has the authority to enter a final judgment on Humes's claims. The Defendants have not consented to the Court's entry of a final judgment on any of Humes's claims, even though this adversaryproceeding involves both core and noncore claims. The bankruptcy court has the authority to enter a final judgment on...