Court Dismisses Pre-Petition FDCPA and FCRA Claims Which Were Not Listed in Bankruptcy

For plaintiffs and defendants alike the moral of the story is check the bankruptcy schedules before litigating consumer protection claims.  In Orkies v. Midland Funding, LLC, C.A. No. 3:14-cv-294 (W.D. Ky. Feb. 24, 2015) a district court dismissed plaintiff’s FDCPA and FCRA claims as judicial estopped because the plaintiff failed to disclose the pre-petition claims in Schedule B of her prior bankruptcy petition.

In October of 2013, plaintiff discovered a negative entry on her credit report by Midland Funding (“Midland”).  Plaintiff claims this negative entry violated the FCRA and FDCPA.  A month after discovering the issue, plaintiff filed a Chapter 7 bankruptcy.  While plaintiff listed the Midland debt in her petition, she did not disclose the FCRA and FDCPA claims as contingent, unliquidated claims in Schedule B of her petition.  Plaintiff received her discharge and then, using the same counsel who filed her bankruptcy, brought the FCRA and FDCPA claims in district court.  Midland filed a Motion to Dismiss asserting plaintiff’s claims were barred by judicial estoppel. Within hours, plaintiff moved to reopen the bankruptcy and amend her schedules to reflect the claims.  Once the trustee abandoned the claims and the bankruptcy was re-closed, she responded to the Motion to Dismiss, indicating generally that the omission on the schedules was through inadvertence and mistake.

The court held that despite plaintiff’s efforts to retroactively fix the problem, her claims were judicially estopped.  In “failing  to include the claim in her original filings upon which the bankruptcy court relied in affording her a discharge,…[plaintiff] has now taken a contrary position in asserting her claim in this action and that she has not done so in good faith.  There is a complete absence of evidence of mistake or inadvertence with respect to the omission in the bankruptcy petition.”  “The filing of a motion to reopen after Midland moved to dismiss the case is insufficient to “fix her filings”…and thus we conclude that Orkies is judicially estopped from pursuing her claim against Midland in this action.”

This dismissal, as well as the Fourth Circuit’s recent opinion in Covert v. LVNV Funding, C.A. No. 14-1016 (4^th Cir. Mar. 3, 2015) (see our prior post), reflect the courts’ increasing scrutiny as to the convergence of bankruptcy and consumer protection issues and should be seen as a positive by the consumer financial services industry.