On April 20, 2015, the United States Supreme Court denied Defendants’ petition for certiorari in Crawford v. LVNV Funding, declining to take up the issue of whether liability under the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692 et seq., may be premised on the filing of a proof of claim in bankruptcy. The Supreme Court’s denial of certiorari leaves consumers, debt collectors, and their attorneys with the Eleventh Circuit Court of Appeals’ debtor-friendly decision in Crawford, permitting recovery under the FDCPA where a proof of claim has been filed on a stale debt.
The Defendants’ petition for certiorari to the Supreme Court in Crawford arose out of the Eleventh Circuit’s July 10, 2014 holding that the mere filing of a proof of claim on a time-barred debt, in compliance with the provisions of the Bankruptcy Code, can trigger liability under the FDCPA. Crawford created conflict among the federal circuits and represented a dramatic shift in law, as the Eleventh Circuit Court of Appeals became the first Circuit Court of Appeals to extend the FDCPA’s application to the filing of proofs of claim in a bankruptcy action. Prior to the Eleventh Circuit’s decision, district courts in the Second, Third, Seventh, and Ninth Circuits had all held that the Bankruptcy Code precluded the FDCPA in the context of a proof of claim.
Crawford was initiated in the United States Bankruptcy Court for the Middle District of Alabama. Plaintiff, Stanley Crawford, incurred a debt owed to a furniture company in 2001; the statute of limitations for the enforcement of that debt expired in 2004. Subsequently, in 2008, Mr. Crawford filed for Chapter 13 bankruptcy. During the bankruptcy proceeding, LVNV Funding, a company affiliated with the debt buyer who had purchased the debt, filed a timely proof of claim despite the fact that the limitation period on the debt had expired. In response, Mr. Crawford filed an adversary proceeding against LVNV Funding, alleging that attempting to claim Crawford’s time-barred debt violated the FDCPA. The bankruptcy judge dismissed Plaintiff’s claim in its entirety, and upon appeal, the district court affirmed.
In taking up the appeal the Eleventh Circuit tackled an issue it characterized as a “deluge” that had “swept through the U.S. bankruptcy courts," namely, that consumer debt buyers armed with hundreds of delinquent accounts purchased from creditors were filing proofs of claim on debts deemed unenforceable under state statutes of limitation. Specifically, the Court considered whether a proof of claim to collect a stale debt in bankruptcy violates the FDCPA. It ultimately answered that question in the affirmative, holding that a debt collector’s filing such a claim creates the misleading impression to the debtor that the debt collector can legally enforce the debt, and thus doing so is “unconscionable,” “deceptive,” and “misleading,” in violation of §§ 1692e and 1692f of the FDCPA. Filing time-barred proofs of claim, the Court reasoned, also reduces funds available to creditors with legitimate claims and wastes judicial resources.
Crawford represents the difficult interplay between the FDCPA and the Bankruptcy Code, which has been the subject of numerous recent consumer protection lawsuits across the United States and has caused jurisdictional divides. On the broadest level, the federal Circuit Courts of Appeals are split over the important consumer bankruptcy question of whether the Bankruptcy Code “precludes” the FDCPA generally, meaning that a debtor cannot simultaneously seek redress under both federal statues when they intersect. The Second and Ninth Circuits have held that the Bankruptcy Code does in fact displace the FDCPA in a bankruptcy context, while the Third and Seventh Circuits have found the opposite. These latter decisions hold that, to the extent the FDCPA and the Bankruptcy Code can be reconciled, both statutes should be enforced.
Notably, the Eleventh Circuit in Crawford did not address whether an irreconcilable conflict exists between the Bankruptcy Code and the FDCPA, such that the former precludes the latter, and consequently the issue was not up for certiorari before the Supreme Court. Yet in the more narrow proof of claim context, the Eleventh Circuit’s ruling in Crawford and the Supreme Court’s decision not to take up the issue will likely result in increased litigation against debt collectors under the FDCPA. Moreover, as plaintiffs test the scope of Crawford, other courts are beginning to follow the decision, citing to the Eleventh Circuit’s reasoning in reaching the same conclusion.