In re Gorman

495 B.R. 823

In re Robert Dale GORMAN, Clara Marie Gorman, Debtors.

No. 10–16622.

United States Bankruptcy Court,

E.D. Tennessee,

Southern Division.

May 23, 2013.

Richard L. Banks, Richard Banks & Associates, P.C., Cleveland, TN, for the Debtors.

MEMORANDUM

SHELLEY D. RUCKER, Bankruptcy Judge.

The Debtors objected to the claim filed by Resurgent Capital Services as servicing agent for LVNV Funding, LLC (“Claimant”), its successors and assigns, as assignee of Capital One. Their objection requires this court to determine whether a claim for recovery of a consumer credit card debt should be disallowed under 11 U.S.C. § 502(b)(1) because the proof of claim, as filed, fails to prove how the Claimant came to be the holder of the debt. As part of that determination, the court must consider whether the Debtors have raised a valid objection or have requested disallowance merely for failure to comply with Bankruptcy Rule 3001(b) and (c)(1). That distinction impacts whether the court should exercise its discretion under Fed. R. Bankr.P. 7055 and grant a default judgment for the relief requested. For the reasons discussed below, the court concludes that it is not appropriate to exercise its discretion. However, the court will allow the Debtors to amend their objection to renew withdrawn grounds or to add other bases or to provide an affidavit which raises a factual dispute with the facts stated in the proof of claim.

In support of its ruling, the court makes the following findings of fact and conclusions of law based on Fed. R. Bankr.P. 7052 made applicable to contested matters by Fed. R. Bankr.P. 9014. This court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and § 157(b)(2)(B).

I. Facts

Claimant, through a servicer, filed proof of claim no. 11 for $365.06 on February 23, 2011. The proof of claim reflects that the basis for the debt was a MasterCard with an account number ending in 6639. It reflects that Resurgent Capital Services, LLC is the servicer for LVNV Funding, LLC and that Claimant LVNV Funding, LLC is the assignee of “Capital One.” The Claimant attached a one page statement that provides an account number, the amount of the debt, and the date the debt was charged off by the “original creditor.” That charge off date is January 5, 1999. There is a place on the statement for the last transaction date but it is left blank. The statement has no separate signature which would indicate who is representing these facts. The statement does have a legend at the bottom that states with respect to the amount of the claim,

[i]nformation on this account was obtained from the data files received from the assignor and other information such as Bankruptcy Court records.

The assignor has verified that the balance recorded above is the balance of the account as of the filing date of the bankruptcy and does not include post petition interest, late fees, return check fees, charges representing credit protection plan fees or insurance fees or other charges.

Proof of Claim No. 11. The term assignor is not defined. The original creditor is not identified. The statement identifies the “Current Creditor” as “LVNV Funding, LLC as assignee of Capital One,” and the “Creditor from whom the debt was purchased” as “Capital One.” As for proof of the assignment, the Claimant attached no copy of an assignment from Capital One to LVNV Funding, LLC. There is a bill of sale attached which references a Purchase and Sale Agreement for Accounts between Capital One Bank, as “Seller,” and Resurgent Acquisition II, LLC, as “Buyer” of the accounts listed on the “Schedule attached.” Claimant has not attached a schedule of accounts showing that the Debtors' account was one of the ones assigned.

The Debtors objected to the claim on December 19, 2012. The objection alleges three bases for the disallowance of the claim. First, the Debtors allege that the claim is barred by the statute of limitations. Second, the Debtors object that “[t]he documentation as to ownership of this claim by LVNV Funding LLC is not attached to the claim.” Third, the Debtors allege that “[a] power of attorney is not attached to the claim establishing the appropriate agency relationship for Resurgent Capital Services authority to file this claim.” [Doc. No. 43, Objection to Claim 11 at 2]. The Debtors did not list Capital One, Capital One Bank, MasterCard, Resurgent Acquisition II, LLC or LVNV Funding, LLC as a creditor on their initial Schedules. [Doc. No. 1, Schedule F]. On December 6, 2012, the Debtors amended Schedule F and added LVNV Funding, LLC as a creditor and stated $365.06 was the amount of the claim. They also listed the claim as disputed. [Doc. No. 41, Amended Schedule F].

The trustee has paid $52.16 on the unsecured claim pursuant to a modified plan confirmed on June 17, 2011, but he has made no payments to Claimant while the objection has been pending.

The Debtors served the Claimant with the objection and provided 30 days' notice of the hearing. The hearing was set originally for January 31, 2013 but was continued to March 14, 2013. On February 7, 2013, the court requested briefs in support of the Debtors' objection. In their brief the Debtors argue that the failure to provide supporting documentation raises a legal argument as to “standing /real party in interest.” [Doc. No. 50, Brief in Support of Objection to Claim No. 11, at 3 (“Brief”) ]. They also argue that the failure to attach a power of attorney raises legal issues of standing, real party in interest and the validity of the agency relationship. No response has been filed, and no one appeared on the Claimant's behalf at the hearing held on March 14, 2013. At the hearing on March 14, 2013 the Debtors' attorney announced the withdrawal of all objections except lack of documentation for the assignment.

The Debtors filed a Supplemental Brief on April 5, 2013. It included a spreadsheet referencing over 200 proofs of claim which had been disallowed or were under consideration in three divisions of the United States Bankruptcy Court for the Eastern District of Tennessee. Of these, 39 had been filed by Resurgent Capital Services. The spreadsheet was filed in support of the Debtors' contention that all of these claims were filed without the documentation required by Bankruptcy Rule 3001(c) and are detrimental to the administration of Chapter 13 plans in the system.

II. Debtors' Argument for Disallowance

The Debtors argue that the failure of the Claimant to attach supporting documents which reflect its ownership of the claim or the executing party's standing to sign the proof of claim are violations of Fed. R. Bank. P. 3001(b) and (c)(1). Since that rule requires the attachment of supporting documents, they argue that the failure to attach any written documents supporting the Claimant's standing as owner of the claim or evidencing the filer's representative authority to execute the proof of claim deprives the proof of claim of the evidentiary presumption that the claim is valid and is owed in the amount stated in the proof of claim. Fed. R. Bankr.P. 3001(e). Without that presumption, the Debtors urge the court to look directly to state law to determine whether the Claimant has the burden of proof to “show an unbroken chain of assignment.” Brief at 6. If the Claimant has that burden, then the proof of claim should be disallowed as “insufficient on its face.” To require more from the Debtors inappropriately shifts the burden of proof to them and lowers the burden for the Claimant to a level below what state law imposes. Here, the Debtors have listed the debt as disputed and are not estopped from challenging the claim. Finally, the Debtors urge the court to adopt a rule requiring appropriate documentation in order to impose a burden on the creditors to discourage the filing of large numbers of claims which the creditors do not defend and which are ultimately disallowed. The Debtors note that 98% of the claims on the spreadsheet were disallowed.

The court finds there is support for most of the Debtors' argument, but it is the minority view. In re Richter, 478 B.R. 30 (Bankr.D.Colo.2012). Because the Sixth Circuit has signaled its approval of the majority view, the court must reject the Debtors' argument. B–Line, LLC v. Wingerter (In re Wingerter), 594 F.3d 931, 941 (6th Cir.2010). An allegation of lack of documentation is not a valid objection even if the Debtors re-characterize it as an objection to standing. A valid objection to standing must raise a factual dispute about who is the holder of the claim. The Debtors must allege that, to the best of their knowledge, information, and belief, either (a) they owe someone else or (b) they do not owe the obligation at all. In addition the court does not find support for holding otherwise based on the Debtor's desire to impose a heavier burden on creditors in order to lighten the Debtors' burden to review the proofs of claims which have been filed, especially when the burden is imposed by the Bankruptcy Code and Rules.

III. Default Judgment—Fed. R. Civ. P. 55 and Fed. R. Bankr.P. 7055

In this case, the Debtors set their objection to the proof of claim for hearing.¹ There is no affidavit attached to the objection. The Debtors rely on their contentions in the objection, the statement in Amended Schedule F that the debt, listed for the exact amount claimed, is disputed, and their arguments in their Brief. The Claimant has not responded in writing to the objection nor did it appear at the hearing. The court, therefore, has before it a contested matter to which no answer has been filed. Fed. R. Bankr.P. 9014(c) authorizes the court to apply Fed. R. Bankr.P. 7055 to this contested matter. Rule 7055 incorporates Fed.R.Civ.P. 55.

Under Fed.R.Civ.P. 55, the court may grant a judgment provided that the claimant has been served and notice of the hearing in which the relief will be granted has been provided more than 30 days prior to the hearing date. Fed. R....