Martin v. Quantum3 Grp. (In re Martin), Case No.: 13-12528-JDW

545 B.R. 164

In re: Karen L. Martin, Debtor.

Karen L. Martin, Plaintiff,

v.Quantum3 Group, Defendant.

Case No.: 13-12528-JDW

A.P. No.: 14-01058-JDW

United States Bankruptcy Court, N.D. Mississippi.

Signed October 9, 2015

Frank H. Coxwell, III, Coxwell & Associates, PLLC, Jackson, MS, Lead Attorney, William L. Fava, Southaven, MS, Lead Attorney, for Plaintiff.

Keith M. Benit, Chaffe McCall, L.L.P., New Orleans, LA, for Defendant.

MEMORANDUM OPINION AND ORDER

Judge Jason D. Woodard, United States Bankruptcy Judge

This matter comes before the Court on the Motion to Dismiss Adversary Proceeding and Brief in Support of the Motion to Dismiss (collectively, the "Motion")(A.P.Dkt.# 4, 10),¹ filed in the above-styled adversary proceeding by defendant Quantum3 Group (the "Defendant"). The debtor-plaintiff Karen L. Martin (the "Plaintiff) filed a Response to Motion to Dismiss with an accompanying Brief in Support of the Response to Motion to Dismiss (collectively, the "Response")(A.P.Dkt.# 9). The Defendant filed a reply brief on November 5, 2014 (the "Reply")(A.P. Dkt.# 10). An initial hearing was held on November 14, 2014, at which time counsel for the respective parties appeared and presented argument.

This adversary proceeding is based on the Defendant's filing of an allegedly time-barred proof of claim in the Plaintiffs underlying bankruptcy case. In her complaint, the Plaintiff alleges that the Defendant's actions in filing a proof of claim for a time-barred debt are in violation of the Fair Debt Collection Practices Act ("FDCPA"), found at 15 U.S.C. § 1692 (the "Complaint")(A.P.Dkt.# l). At the November hearing, the Court determined that it should resolve the threshold issue of the applicable statute of limitations for the debt at issue before considering the applicability of the FDCPA. The parties filed a joint stipulation of facts regarding the statute of limitations issue (A.P.Dkt.# 14), but both parties declined to file a supplemental brief. The Court took the statute of limitations issue under advisement and then issued a Memorandum Opinion and Order, concluding that because the Mississippi statute of limitations applied to the debt, the proof of claim was time-barred and due to be disallowed (A.P.Dkt.# 15). Accordingly, the Motion to Dismiss was denied, in part, as to the statute of limitations issue, and a hearing on the FDCPA issue was set for May 13, 2015, and later continued to June 10, 2015, at the request of the parties (A.P.Dkt.# 23).

On the Defendant's motion, the Court entered an order permitting supplemental briefing only as to the FDCPA issue (A.P.Dkt.# 20), and the Defendant filed a supplemental brief on April 29, 2015 (A.P.Dkt.# 22). The hearing on the Motion regarding the FDCPA issue was held on June 10th, at which time counsel for the respective parties appeared and presented argument. At the conclusion of the hearing, the Court took the matter under advisement.

In the Complaint, Plaintiff alleges that the Defendant's filing of a timebarred proof of claim constitutes a violation of the FDCPA. The Defendant seeks dismissal of this adversary proceeding, arguing in the Motion that the FDCPA does not apply in bankruptcy cases, because the provisions of Title 11 of the United States Code (the "Bankruptcy Code") preclude it. The Defendant further argues that even if the FDCPA is not entirely precluded by the Bankruptcy Code, the filing of an otherwise valid, but time-barred, proof of claim in a bankruptcy case does not violate the FDCPA. For the reasons set forth below, the Motion is due to be granted.

I. JURISDICTION

This Court has jurisdiction pursuant to 28 U.S.C. §§ 151, 157(a) and 1334(b) and the United States District Court for the Northern District of Mississippi's Order of Reference of Bankruptcy Cases and Proceedings Nunc Pro Tunc Dated August 6, 1984. This is a core proceeding arising under Title 11 of the United States Code as defined in 28 U.S.C. § 157(b)(2)(A), (B), (C) and (O).

II. LEGAL STANDARD

The Motion was filed under Rule 12(b)(6) of the Federal Rules of Civil Procedure² for the Complaint's alleged failure to state a claim upon which relief can be granted. In evaluating whether a complaint fails to state a claim, the Court must construe the Complaint liberally in favor of the plaintiff as the non-moving party and assume the truth of all well-pleaded facts. Stokes v. Gann, 498 F.3d 483, 484 (5th Cir.2007). The Court must assess the Motion only on "the facts stated in the complaint and the documents either attached to or incorporated in the complaint." Lovelace v. Software Spectrum, Inc ., 78 F.3d 1015, 1017 (5th Cir.1996). In order to survive a motion to dismiss, "a plaintiff must plead sufficient ‘facts to state a claim to relief that is plausible on its face.’ " Ferguson v. Bank of New York Mellon Corp., 802 F.3d 777, 780 (5th Cir.2015) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) and Ashcroft v. Iqbal, 556 U.S. 662, 677, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ).

The parties agree on the facts of this case. In its prior order, the Court concluded that the Mississippi statute of limitations applies and the debt in question is time-barred. The remaining issue—whether or not the filing of a proof of claim for an otherwise accurate, but time-barred, debt constitutes a violation of the FDCPA—is solely a question of law. As set forth in more detail below, the Court concludes that the Bankruptcy Code precludes the FDCPA with regard to otherwise accurate, but time-barred, proofs of claim. Accordingly, even taking all of the allegations of the Complaint as true and in the light most favorable to the Plaintiff, the Complaint fails to state a claim upon which relief may be granted, and the Motion is due to be granted.

III. ANALYSIS

This case concerns "a comparison of the obligations imposed by one statute [the FDCPA] with the rights conferred by another [the Bankruptcy Code]." Johnson v. Midland Funding, LLC, 528 B.R. 462, 471 (S.D.Ala.2015). As in Johnson, the Plaintiff is "insisting that the Defendant comply with the [FDCPA] by surrendering its right under the [Bankruptcy] Code to file a proof of claim on a time-barred debt."³ This creates an irreconcilable conflict between the statutes with regard to this issue, and thus the FDCPA is precluded by the Bankruptcy Code in this limited instance, and this adversary proceeding will be dismissed.

A. FDCPA

Congress enacted the FDCPA "to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses." 15 U.S.C. § 1692(k). Among other things, the FDCPA prohibits debt collectors from using "any false, deceptive or misleading representation or means in connection with the collection of any debt,"⁴ including "the threat to take any action that legally cannot be taken,"⁵ as well as using "unfair or unconscionable means to collect or attempt to collect any debt."⁶ "The FDCPA does not prohibit all debt collection practices," just those that are false, misleading, deceptive, unfair, or unconscionable. Gatewood v. CP Medical, LLC (In re Gatewood), 533 B.R. 905, 910 (8th Cir. BAP 2015). The FDCPA protects "unsophisticated consumers from unscrupulous debt collectors," while the Bankruptcy Code provides different protections that are unavailable to debtors outside of bankruptcy. Id. at 909 (citing Dunaway v. LVNV Funding LLC (In re Dunaway), 531 B.R. 267, 273 (Bankr.W.D.Mo.2015) ). In considering the applicability of the FDCPA to actions taken by creditors in and during a debtor's bankruptcy case, a court must first decide whether or not the Bankruptcy Code precludes application of the FDCPA in bankruptcy cases altogether.

B. Preclusion, Generally

The fundamental question in deciding whether or not the FDCPA is entirely precluded by the Bankruptcy Code is whether or not the enactment of the Bankruptcy Code implicitly repealed the FDCPA in bankruptcy cases. As a general rule, "repeals by implication are not favored."

Posadas v. Nat'l City Bank of New York, 296 U.S. 497, 503, 56 S.Ct. 349, 80 L.Ed. 351 (1936). Instead, "[t]he whole question depends on the intention of [C]ongress as expressed in the statutes." United States v. Mitchell, 109 U.S. 146, 150, 3 S.Ct. 151, 27 L.Ed. 887 (1883). "An implied repeal will only be found where provisions in two statutes are in ‘irreconcilable conflict,’ or where the latter Act covers the whole subject of the earlier one and ‘is clearly intended as a substitute.’ " Branch v. Smith, 538 U.S. 254, 273, 123 S.Ct. 1429, 155 L.Ed.2d 407 (2003) (quoting Posadas, 296 U.S. at 503, 56 S.Ct. 349 ).

C. Circuit Split as to Preclusion of FDCPA in Bankruptcy

Four Circuit Courts of Appeals have addressed the question of whether the Bankruptcy Code generally precludes application of the FDCPA in bankruptcy cases. Although the Fifth Circuit has yet to decide the question, the opinions of those courts that have considered the issue provide considerable guidance.

1. Bankruptcy Code Generally Precludes FDCPA.

Two Circuit Courts of Appeals have resolved the question in favor of preclusion. First, the Ninth Circuit Court of Appeals held that the FDCPA was precluded by the Bankruptcy Code, and thus is inapplicable within a bankruptcy case. Walls v. Wells Fargo Bank, N.A., 276 F.3d 502 (9th Cir.2002). The court concluded that since the debtor's FDCPA claim was based on an alleged violation of the § 524 discharge injunction, she was limited to the remedy provided by the Bankruptcy Code for violation of § 524: civil contempt under § 105. Id. at 510. In so holding, the court observed without citation that Congress "inten[ded] to create a whole system under federal control ... to adjust all of the rights and duties of creditors" and debtors. Id. The court concluded that once a debtor files bankruptcy,...