In a 2014 decision rued by debt collectors everywhere, the Eleventh Circuit in Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014) ruled that filing a proof of claim to collect a time-barred debt in a Chapter 13 bankruptcy violated the Fair Debt Collection Practices Act (“FDCPA”). Not surprisingly, the Crawford decision spawned a tidal wave of copycat claims based on the simple act of filing a proof of claim on a stale debt.
A federal district court in Alabama just sidestepped Crawford, finding that the Bankruptcy Code (the “Code”) and the FDCPA were in conflict on this issue and the Code wins! Johnson v. Midland Funding, LLC, No. 1:14-cv-00322-WS-C, Doc. #28 (S.D. Ala. March 24, 2015). In Johnson, the plaintiff filed for bankruptcy relief under Chapter 13. The defendant then filed a proof of claim that disclosed on its face that the claim is barred by the statute of limitations. The plaintiff subsequently sued the defendant, alleging that the filing of the proof of claim was deceptive and misleading under 15 U.S.C. § 1692e and unfair and unconscionable under 15 U.S.C. § 1692f.
The defendant filed a motion to dismiss, arguing in part that the plaintiff’s FDCPA claim was precluded by the Code. The district court recognized the clear holding of Crawford, but framed the question to be whether “tension” between the Code and the FDCPA precludes the plaintiff’s FDCPA claim. Importantly, the Johnson court noted that this issue was not presented or decided by the Eleventh Circuit in Crawford. The Johnson court found that there was an irreconcilable conflict between the Code and the FDCPA because a creditor can properly file a proof of claim on a time-barred debt under the Code as long as the underlying debt has not been extinguished under state law, but the same creditor cannot file the proof of claim without violating the FDCPA, as construed by Crawford. In effect, the Johnson court found that the FDCPA negated the Code, giving rise to an irreconcilable conflict that required that the FDCPA “give way” to the Code.
The Johnson decision gives debt collectors a powerful argument to defeat FDCPA claims based on filing a proof of claim on a time-barred debt provided that the underlying debt is still valid under applicable state law.