Midland Funding, LLC v. Johnson

137 S.Ct. 1407

197 L.Ed.2d 790

MIDLAND FUNDING, LLC, Petitioner

v.Aleida JOHNSON.

No. 16–348.

Supreme Court of the United States

Argued Jan. 17, 2017.

Decided May 15, 2017.

Kannon K. Shanmugam, Washington, DC, for Petitioner.

Daniel L. Geyser, Los Angeles, CA, for Respondent.

Sarah E. Harrington, for the United States as amicus curiae, by special leave of the Court, supporting the respondent.

Jason B. Tompkins, Chase T. Espy, Balch & Bingham LLP, Birmingham, AL, Kannon K. Shanmugam, Allison B. Jones, Masha G. Hansford, Katherine A. Petti, William T. Marks, Williams & Connolly LLP, Washington, DC, for Petitioner.

Earl P. Underwood, Jr., Kenneth J. Riemer, Underwood & Riemer, P.C., Fairhope, AL, Peter K. Stris, Brendan S. Maher, Dana Berkowitz, Daniel L. Geyser, Douglas D. Geyser, Stris & Maher LLP, Los Angeles, CA, Radha A. Pathak, Whittier Law School, Costa Mesa, CA, for Respondent.

Justice BREYER delivered the opinion of the Court.

The Fair Debt Collection Practices Act, 91 Stat. 874, 15 U.S.C. § 1692 et seq., prohibits a debt collector from asserting any "false, deceptive, or misleading representation," or using any "unfair or unconscionable means" to collect, or attempt to collect, a debt, §§ 1692e, 1692f. In this case, a debt collector filed a written statement in a Chapter 13 bankruptcy proceeding claiming that the debtor owed the debt collector money. The statement made clear, however, that the 6–year statute of limitations governing collection of the claimed debt had long since run. The question before us is whether the debt collector's filing of that statement falls within the scope of the aforementioned provisions of the Fair Debt Collection Practices Act. We conclude that it does not.

I

In March 2014, Aleida Johnson, the respondent, filed for personal bankruptcy under Chapter 13 of the Bankruptcy Code (or Code), 11 U.S.C. § 1301 et seq., in the Federal District Court for the Southern District of Alabama. Two months later, Midland Funding, LLC, the petitioner, filed a "proof of claim," a written statement asserting that Johnson owed Midland a credit-card debt of $1,879.71. The statement added that the last time any charge appeared on Johnson's account was in May 2003, more than 10 years before Johnson filed for bankruptcy. The relevant statute of limitations is six years. See Ala. Code § 6–2–34 (2014). Johnson, represented by counsel, objected to the claim; Midland did not respond to the objection; and the Bankruptcy Court disallowed the claim.

Subsequently, Johnson brought this lawsuit against Midland seeking actual damages, statutory damages, attorney's fees, and costs for a violation of the Fair Debt Collection Practices Act. See 15 U.S.C. § 1692k. The District Court decided that the Act did not apply and therefore dismissed the action. The Court of Appeals for the Eleventh Circuit disagreed and reversed the District Court. 823 F.3d 1334 (2016). Midland filed a petition for certiorari, noting a division of opinion among the Courts of Appeals on the question whether the conduct at issue here is "false," "deceptive," "misleading," "unconscionable," or "unfair" within the meaning of the Act. Compare ibid. (finding the Fair Debt Collection Practices Act applicable) with In re Dubois, 834 F.3d 522 (C.A.4 2016) (finding the Act inapplicable); Owens v. LVNV Funding, LLC, 832 F.3d 726 (C.A.7 2016) (same); and Nelson v. Midland Credit Management, Inc., 828 F.3d 749 (C.A.8 2016) (same). We granted the petition. We now reverse the Court of Appeals.

II

Like the majority of Courts of Appeals that have considered the matter, we conclude that Midland's filing of a proof of claim that on its face indicates that the limitations period has run does not fall within the scope of any of the five relevant words of the Fair Debt Collection Practices Act. We believe it reasonably clear that Midland's proof of claim was not "false, deceptive, or misleading." Midland's proof of claim falls within the Bankruptcy Code's definition of the term "claim." A "claim" is a "right to payment." 11 U.S.C. § 101(5)(A). State law usually determines whether a person has such a right. See Travelers Casualty & Surety Co. of America v. Pacific Gas & Elec. Co., 549 U.S. 443, 450–451, 127 S.Ct. 1199, 167 L.Ed.2d 178 (2007). The relevant state law is the law of Alabama. And Alabama's law, like the law of many States, provides that a creditor has the right to payment of a debt even after the limitations period has expired. See Ex parte HealthSouth Corp., 974 So.2d 288, 296 (Ala.2007) (passage of time extinguishes remedy but the right remains); see also, e.g., Sallaz v. Rice, 161 Idaho 223, ––––, 384 P.3d 987, 992–993 (2016) (similar); Notte v. Merchants Mut. Ins. Co., 185 N.J. 490, 499–500, 888 A.2d 464, 469 (2006) (similar); Potterton v. Ryland Group, Inc., 289 Md. 371, 375–376, 424 A.2d 761, 764 (1981) (similar); Summers v. Connolly, 159 Ohio St. 396, 400–402, 112 N.E.2d 391, 394 (1953) (similar); De Vries v. Secretary of State, 329 Mich. 68, 75, 44 N.W.2d 872, 876 (1950) (similar); Fleming v. Yeazel, 379 Ill. 343, 344–346, 40 N.E.2d 507, 508 (1942) (similar); Fidelity & Cas. Co. of N.Y. v. Lackland, 175 Va. 178, 185–187, 8 S.E.2d 306, 309 (1940) (similar); Insurance Co. v. Dunscomb, 108 Tenn. 724, 728–731, 69 S.W. 345, 346 (1902) (similar); but see, e.g., Miss. Code Ann. § 15–1–3(1) (2012) (expiration of the limitations period extinguishes the remedy and the right); Wis. Stat. § 893.05 (2011–2012) (same).

Johnson argues that the Code's word "claim" means "enforceable claim." She notes that this Court once referred to a bankruptcy "claim" as "an enforceable obligation." Pennsylvania Dept. of Public Welfare v. Davenport, 495 U.S. 552, 559, 110 S.Ct. 2126, 109 L.Ed.2d 588 (1990). And, she concludes, Midland's "proof of claim" was false (or deceptive or misleading) because its "claim" was not enforceable. Brief for Respondent 22; Brief for United States as Amicus Curiae 18–20 (making a similar argument).

But we do not find this argument convincing. The word "enforceable" does not appear in the Code's definition of "claim." See 11 U.S.C. § 101(5). The Court in Davenport likely used the word "enforceable" descriptively, for that case involved an enforceable debt. 495 U.S., at 559, 110 S.Ct. 2126. And it is difficult to square Johnson's interpretation with our later statement that "Congress intended ... to adopt the broadest available definition of ‘claim.’ " Johnson v. Home State Bank, 501 U.S. 78, 83, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991).

It is still more difficult to square Johnson's interpretation with other provisions of the Bankruptcy Code. Section 502(b)(1) of the Code, for example, says that, if a "claim" is "unenforceable," it will be disallowed. It does not say that an "unenforceable" claim is not a "claim." Similarly, § 101(5)(A) says that a "claim" is a "right to payment," "whether or not such right is ... fixed, contingent, ... [or] disputed ." If a contingency does not arise, or if a claimant loses a dispute, then the claim is unenforceable. Yet this section makes clear that the unenforceable claim is nonetheless a "right to payment," hence a "claim," as the Code uses those terms.

Johnson looks for support to other provisions that govern bankruptcy proceedings, including § 502(a) of the Bankruptcy Code, which states that a claim will be allowed in the absence of an objection, and Rule 3001(f) of the Federal Rules of Bankruptcy Procedure, which states that a properly filed "proof of claim ... shall constitute prima facie evidence of the validity and amount of the claim." But these provisions do not discuss the scope of the term "claim." Rather, they restate the Bankruptcy Code's system for determining whether a claim will be allowed. Other provisions make clear that the running of a limitations period constitutes an affirmative defense, a defense that the debtor is to assert after a creditor makes a "claim." §§ 502, 558. The law has long treated unenforceability of a claim (due to the expiration of the limitations period) as an affirmative defense. See, e.g., Fed. Rule Civ. Proc. 8(c)(1) ; 13 Encyclopaedia of Pleading and Practice 200 (W. McKinney ed. 1898). And we see nothing misleading or deceptive in the filing of a proof of claim that, in effect, follows the Code's similar system.

Indeed, to determine whether a statement is misleading normally "requires consideration of the legal sophistication of its audience." Bates v. State Bar of Ariz., 433 U.S. 350, 383, n. 37, 97 S.Ct. 2691, 53 L.Ed.2d 810 (1977). The audience in Chapter 13 bankruptcy cases includes a trustee, 11 U.S.C. § 1302(a), who must examine proofs of claim and, where appropriate, pose an objection, §§ 704(a)(5), 1302(b)(1) (including any timeliness objection, §§ 502(b)(1), 558 ). And that trustee is likely to understand that, as the Code says, a proof of claim is a statement by the creditor that he or she has a right to payment subject to disallowance (including disallowance based upon, and following, the trustee's objection for untimeliness). §§ 101(5)(A), 502(b), 704(a)(5), 1302(b)(1). (We do not address the appropriate standard in ordinary civil litigation.)

III

Whether Midland's assertion of an obviously time-barred claim is "unfair" or "unconscionable" (within the terms of the Fair Debt Collection Practices Act) presents a closer question. First, Johnson points out that several lower courts have found or indicated that, in the context of an ordinary civil action to collect a debt, a debt collector's assertion of a claim known to be time barred is "unfair." See, e.g., Phillips v. Asset Acceptance, LLC, 736 F.3d 1076, 1079 (C.A.7 2013) (holding as much); Kimber v. Federal Financial Corp., 668 F.Supp. 1480, 1487 (M.D.Ala.1987) (same); Huertas v. Galaxy Asset Management, 641 F.3d 28, 32–33 (C.A.3 2011) (indicating as much); Castro v. Collecto, Inc., 634 F.3d 779, 783 (C.A.5 2011) (same); Freyermuth v. Credit Bureau Servs., Inc., 248 F.3d 767, 771 (C.A.8 2001) (same).

We are not...