Courts Continue to Push Back on the Crawford Proof of Claim Decision

Two more courts have weighed in this week on whether filing a proof of claim on a time barred debt is a violation of the FDCPA.  With a resounding “no”, the Eastern District of Pennsylvania and the Southern District of Indiana both declined to follow Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11^th Cir. 2014).   See Donaldson v. LVNV Funding, LLC, C.A. No. 1:14-cv-01979-LJM-TAB (S.D. Ind. Apr. 7, 2015); Torres v. Asset Acceptance, LLC, C.A. No. 2:14-cv-6542-ER (E.D. Pa. Apr. 7, 2015); Torres v. Cavalry SPV I, LLC, C.A. No. 2:14-cv-5915-ER (E.D. Pa. Apr. 7, 2015).

In each case, the debtor claimed that by filing proofs of claim, the creditor violated 1692e by making a false representation of the character, amount or legal status of the debts, by threatening to take an action that cannot legally be taken, and by using false representation or deceptive means to collect or attempt to collect the debts because the debts were not legally enforceable.  The debtors further contended the creditor violated 1692f by using an unfair or unconscionable means to collect or attempt to collect the debts. 

Donaldson v. LVNV Funding, LLC                                                                                                                

In Donaldson, the court took a pragmatic viewpoint.  It held that while a proof of claim is an action to collect a debt, “a proof of claim that accurately reflects data about the debt, including the date of last payment, is not false, deceptive or misleading on its face.”  Donaldson, Slip Op. at 8.  The court went on to debunk the debtor’s argument that the proof of claim was a threat to take an action that cannot be legally taken by noting that

 

there is no “threat” in a proof of claim that accurately reflects information about an unsecured debt that that the debtor has listed himself on his schedules.  It is neither a lawsuit nor a threat of a lawsuit; it’s a statement that a debt exists and its amount and there is no prohibition in the Bankruptcy Code against filing a proof of claim on an unsecured, stale debt.  Rather the Bankruptcy Code states that such debts are allowed, unless objected to by any party interest, which clearly includes the trustee or the debtor and should be disallowed if it is unenforceable under applicable law.

 

Id. at 9.  The court also held that the filing of the proof of claim was neither and unfair nor an unconscionable means to collect a debt.  The court noted that a proof of claim is a document created by statute and rule and filed in a forum with additional safeguards to protect consumers, namely the provisions of the automatic stay, the provisions for claim objections, the appointment of a trustee, and representation of an attorney.  The court therefore determined that the unsophisticated consumer standard, which was applied in Crawford, has no application in this context.

Torres v. Asset Acceptance, LLC and Torres v. Cavalry SPV I, LLC

In the Torres matters, the court noted the split in circuits which had previously reviewed the issue.  In reviewing Crawford from the Eleventh Circuit, as well as the Second Circuit’s decision in Simmons v. Roundup Funding, LLC, 622 F.3d 93 (2d Cir. 2010), the court focused on whether the consumer was adequately protected by the provisions of the Bankruptcy Code and the mechanisms in place to protect consumers from abuses.  The court sided with the Second Circuit concluding that the Bankruptcy Code adequately protects debtors from proofs of claim abuses.  The court noted that the Bankruptcy Code provides adequate remedies to address creditor misconduct and noted there is “no risk that the debtor will be tricked into settling a time-barred debt in order to avoid a lawsuit when, as here, she is already party to a legal proceeding that she initiated in order to “settle” her outstanding debts.” Torres v. Asset Acceptance, LLC, footnote 10. 

As an update on Crawford, we previously reported that LVNV Funding had filed a petition for writ of certiorari, appealing the 11^th Circuit’s decision.  The matter is scheduled for conference before the justices on April 17, 2015. We therefore can expect a ruling on the petition for writ by the end of April.