Monday, February 23, 2015

Petition for Writ of Certiorari Has Been Filed Seeking to Overturn Crawford v. LVNV Funding, LLC

A petition for writ of certiorari has been filed seeking to overturn the Eleventh Circuit’s decision in Crawford v. LVNV Funding, LLC.  The petition, if granted, may have wider implications than simply determining whether filing a proof of claim on time barred debt violates the FDCPA. In Crawford, the debtor commenced an adversary proceeding against a debt buyer, alleging that the filing of a time barred proof of claim violated the automatic stay and the FDCPA.  The debt buyer ultimately withdrew the proof of claim; however, the adversary proceeding proceeded forward.  The Bankruptcy Court granted LVNV’s motion to dismiss holding that the filing of a proof of claim, even one on time barred debt, did not constitute a violation of the FDCPA.  The district court affirmed. On appeal, the Eleventh Circuit reversed, holding that the filing of a proof of claim was an attempt to collect a debt and that the filing of a proof of claim for time barred debt violated the FDCPA.  In so holding, the court seemed to take issue with the fact that an otherwise uncollectible debt would result in some recovery under the Chapter 13 plan. “Such a distribution of funds to debt collectors with time-barred claims then necessarily reduces the payments to other legitimate creditors with enforceable claims.”  Crawford, 758 F.3d at 1261.   Additionally, the court premised its reversal on the notion that “a debt collector’s filing of a time-barred proof of claim creates the misleading impression to the debtor that the debt collector can legally enforce the debt.”  Id.  Moreover, the court applied the least sophisticated consumer standard even though Crawford was represented by counsel.
The well written petition calls the court’s attention to the numerous problems presented by the Eleventh Circuit’s opinion in Crawford:

1.        It is inconsistent with the uniform prior case law which held that a proof of claim in bankruptcy cannot serve as the basis for an FDCPA claim.  The petition points to the fact that the Eleventh Circuit’s opinion is in direct conflict with the three other circuits that have reviewed this issue.

2.       Crawford created a further divide amongst the circuits as to whether FDCPA liability can be premised upon actions in bankruptcy.  The petition points to the Supreme Court’s prior decision in Kokoszka v. Belford, in which the Supreme Court established the interpretative framework for assessing the scope of the Consumer Credit Protection Act (out of which the FDCPA was passed as an amendment to the CCPA) in the context of a bankruptcy.  “In enacting the CCPA, the Court concluded, there was “no indication” that “Congress intended drastically to alter the delicate balance of a debtor’s protections and obligations during the bankruptcy procedure.””  The petition, while noting the current split in decisions amongst the circuits as to Kokoszka’s application, underscores the need for clarity from the Supreme Court. The petition goes to great lengths to point out that the Eleventh Circuit’s extension of the FDCPA into the bankruptcy context is inconsistent with the stated purpose and text of the FDCPA. The petition points out that the filing of a proof of claim cannot be debt collection regulated by the FDCPA because the FDCPA applies only to attempts to collect an obligation from a natural person.  Proofs of claim, on the other hand, are vehicles for making claims against the bankruptcy estate, which is a separate and distinct entity from the debtor.

3.       Bringing even wider implications, the petition seeks a ruling on the standard for evaluating communications to attorneys under the FDCPA.  The petition points to the Eleventh Circuit’s holding that a least sophisticated consumer standard governs FDCPA claims arising from the filing of a proof of claim in bankruptcy.  The petition points to the fact that the circuits are widely split as to the proper standard to be applied to communications to attorneys under the FDCPA.

4.     The petition further points to the practical problems presented by the Eleventh Circuit’s opinion.  Included among the many pointed out by the petition, if proofs of claim are by their very nature debt collection activities, then the very filing of a proof of claim violates the automatic stay.  Additionally, if the filing of a proof of claim is debt collection, then all the other provisions of the FDCPA must also apply, including the notice and debt validation procedures of the FDCPA.

The petition is well worth the read and can be found here:  Amicus briefs have been filed by at least three other interested organizations.  The consumer’s response brief is due March 23, 2015. 



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