The Second Circuit has held
that an allegedly inflated proof of claim cannot form the basis for a claim
under the Fair Debt Collection Practices Act. Simmons v. Roundup Funding,
No. 09-4984 (2nd Cir. 10/5/10). The opinion can be found here.
In Simmons, Roundup
Funding filed a proof of claim for $2,039.21. After a hearing on claims
objection, the court reduced the claim to $1,100.00, the amount that the
debtors acknowledged to be owed.
Having achieved victory on the
claims objection, the Debtors then sought to bring a class action under the
FDCPA. The District Court was not impressed and not only dismissed the action,
but awarded attorney's fees against the Debtors. The Second Circuit affirmed
the dismissal, but reversed the award of attorney's fees.
The Court wrote:
Federal courts have
consistently ruled that filing a proof of claim in bankruptcy court (even one
that is somehow invalid) cannot constitute the sort of abusive debt collection
practice proscribed by the FDCPA, and that such a filing therefore cannot serve
as the basis for an FDCPA action (citations omitted).
We join these courts. The FDCPA
is designed to protect defenseless debtors and to give them remedies against
abuse by creditors. There is no need to protect debtors who are already under
the protection of the bankruptcy court, and there is no need to supplement the
remedies afforded by bankruptcy itself.
Slip Opinion, at 5-6.
It is interesting that the
Court did not cite any provision of the FDCPA in affirming the dismissal. While
the Fair Debt Collection Practices Act is designed to protect "defenseless
debtors" from voracious collectors, this is typically not a requirement
under the statute. The omission of a word or two can be the basis for an action
regardless of whether the debtor was defenseless or not.
While the opinion achieves a
common sense result, other courts have held that violations of the Bankruptcy
Code may result in a claim under the FDCPA. Randolph vs. IMBS, Inc., 368
F.3rd 726 (7th Cir. 2004). The Randolph case
allowed a debtor to bring an FDCPA claim based upon a violation of the
discharge, holding that the Bankruptcy Code could not preempt the FDCPA. The
distinction here may be between acts which take place outside of bankruptcy
(such as violations of the discharge) and acts which take place within the
bankruptcy court (such as filing a proof of claim). Unfortunately, the
rationale is not stated as clearly as it could have been.
at A Texas Bankruptcy Lawyer's Blog