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Hot off the Press - Midland Funding, LLC v. Johnson (U.S. Supreme
Held (5-3): The filing of a proof of claim that is obviously time barred is not afalse, deceptive, misleading, unfair, or unconscionable debt collectionpractice within the meaning of the Fair Debt Collection Practices Act.
Some of the more interesting statements from the majority:
1."Midlands filing of aproof of claim that on its face indicates that the limitationsperiod has run does not fall within the scope of any of thefive relevant words of the Fair Debt Collection PracticesAct."
ds proof ofclaim was not false, deceptive, or misleading. Midlandsproof of claim falls within the Bankruptcy Codes definitionof the term claim. A claim is a right to payment.11 U. S. C. 101(5)(A)."
3. "The passage of time extinguishes remedy but the right remains [cite]."
4."...101(5)(A) says that a claim right is . . . fixed, contingent,. . . [or] disputed.
5."...[t]he running ofa limitations period constitutes an affirmative defense, adefense that the debtor is to assert after a creditor makesa claim. 502, 558".
6. "The trustee normallybears the burden of investigating claims and pointingout that a claim is stale."
7. "The BankruptcyCode...creates and maintainswhat we have called the delicate balance of a debtorsprotections and obligations. [That delicate balance would be upset if we were to] "...require creditors (who assert aclaim) to investigate the merits of an affirmative defense(typically the debtors job to assert and prove) lest thecreditor later be found to have known the claim was untimely.The upshot could well be added complexity,changes in settlement incentives, and a shift from thedebtor to the creditor the obligation to investigate thestaleness of a claim."
8. "Unlike the United States, we do not believe that theAdvisory Committee on Rules of Bankruptcy Proceduresettled the issue when it promulgated Bankruptcy Rule9011. The Committee, in considering amendments to theFederal Rules of Bankruptcy Procedure in 2009, specificallyrejected a proposal that would have required a creditor tocertify that there is no valid statute of limitations defense...It did so in part because the working group did not want toimpose an affirmative obligation on a creditor to make aprefiling investigation of a potential time-bar defense.Ibid. In rejecting that proposal, the Committee did notethat Rule 9011 imposes a general cumstancesto determine . . . that a claim is warranted byexisting law and that factual contentions have evidentiarysupport, and to certify as much on the proof of claim. Id.,at 87. The Committee also acknowledged, however, thatthis requirement would not addres[s] the statute of limitationissue, but would only ensure the accuracy of theinformation provided."
9. "We recognize that one Bankruptcy Court has held thatfiling a time-barred claim without a prefiling investigationof a potential time-bar defense merits sanctions underRule 9011. In re Sekema, 523 B. R. 651, 654 (Bkrtcy. Ct.ND Ind. 2015). But others have held to the contrary. See,e.g., In re Freeman, 540 B. R. 129, 143144 (Bkrtcy. Ct.ED Pa. 2015); In re Jenkins, 538 B. R. 129, 134136(Bkrcty. Ct. ND Ala. 2015); In re Keeler, 440 B. R. 354,366369 (Bkrtcy. Ct. ED Pa. 2009); see also In re Andrews,394 B. R. 384, 387388 (Bkrtcy. Ct. EDNC 2008) (recognizingthat [m]any courts have . . . found that sanctions[under Rule 9011] were not warranted for filing staleclaims)."
Sotomayer's dissent pointed out certain flaws in the majority's reasoning:
1. "...debt buyers [who typically purchase stale debt for pennies on the dollar] have won billions of dollars in default judgmentssimply by filing suit and betting that consumerswill lack the resources to respond."
2. "The FDCPAs prohibitions on misleadingrticular practice.Every court to have considered the question has held thatbarred debt violates the FDCPA."
3.[This practice of filing time-barred claims] en to trusteesand debtors to object even to frivolous claimsespeciallygiven that filing an objection is costly, time consuming,and easy to overlook."
4. "The Government, which overseesbankruptcy trustees, tells us that trustees cannot realisticallybe expected to identify every time-barred . . . claimfiled in every bankruptcy.
5. "The majority also suggests that the rulesof bankruptcy help guide the evaluation of claims. Ibid.But the rules of bankruptcy in fact facilitate the allowanceof claims: Claims are automatically allowed and made partof a plan unless an objection is made. See 11 U. S. C.502(a). A debtor is arguably more vulnerable in bankruptcy
6. "There is no benefit to anyone in such a proceeding
One other observation to note (but I'm not sure that is an an important consideration given the broad statements of the opinion): This was in the context of a Chapter 13 case.
Gary R. WallaceLaw Office of Gary R. Wallace10801 National Boulevard, Suite 100Los Angeles, CA 90064Email: garyrwallace@ymail.comOffice: (310) 571-3511
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