SIMMONS v. ROUNDUP FUNDING, LLC

Citation Codes

Equivalent Citations

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Docket Number

Docket No. 09-4984-cv.

Attorney(S)

Joshua N. Bleichman, Law Offices of Joshua N. Bleichman, Spring Valley, NY, for Plaintiffs-Cross-Defendants-Appellants. Paul William Mahler, Malen Associates, P.C., Westbury, NY, for Defendant Appellee Malen Associates. Linh K. Tran, Seattle, WA, for Defendant-Counter-Claimant-Appellee Roundup Funding, LLC.

Judges

Dennis G. Jacobs

Acts

Commerce And Trade — Consumer Credit Protection — Debt Collection Practices — Congressional Findings And Declaration Of Purpose
Commerce And Trade — Consumer Credit Protection — Debt Collection Practices — Civil Liability
Commerce And Trade — Consumer Credit Protection — Debt Collection Practices — False Or Misleading Representations
Bankruptcy — General Provisions — Power Of Court
Bankruptcy — Adjustment Of Debts Of An Individual With Regular Income — The Plan — Revocation Of An Order Of Confirmation

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Smart Summary

Factual and Procedural Background

Lamont and Melissa Simmons filed for bankruptcy protection in October 2007. In December 2007, Roundup Funding, LLC ("Roundup") filed a proof of claim in the amount of $2,039.21 in the Simmons’ bankruptcy proceeding. The Simmons objected to this claim, and Roundup's counsel, Malen Associates ("Malen"), filed a response allegedly lacking relevant information. At a bankruptcy court hearing on April 17, 2008, the claim was reduced to $1,100, the amount the Simmons conceded they owed.

On July 10, 2008, the Simmons initiated a putative class action against Roundup and Malen, alleging violations of the Fair Debt Collection Practices Act ("FDCPA") based on the allegedly inflated proof of claim. After an amended complaint was filed, Malen and Roundup moved to dismiss under Rule 12(b)(6), arguing that filing an inflated proof of claim in bankruptcy court cannot support an FDCPA claim as a matter of law. The district court granted the motions to dismiss and awarded attorneys' fees and costs to the defendants. The Simmons appealed.

Legal Issues Presented

Whether the filing of an inflated proof of claim in bankruptcy court can constitute a violation of the FDCPA.
Whether the district court erred in awarding attorneys' fees and costs to the defendants based on a finding of bad faith under 15 U.S.C. § 1692k(a)(3).

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Vietnam Assn. for Victims of Agent Orange v. Dow Chem. Co., 517 F.3d 104 (2d Cir. 2008)	Standard of review for Rule 12(b)(6) motions: de novo review.	Applied to review the district court’s dismissal of the complaint.
15 U.S.C. § 1692e and § 1692e(2)(A)	Prohibition on false, deceptive, or misleading representations by debt collectors, including misrepresenting the amount of a debt.	Interpreted to determine whether filing an inflated proof of claim violates the FDCPA.
Jacobson v. Healthcare Fin. Servs., 516 F.3d 85 (2d Cir. 2008)	Purpose of the FDCPA to eliminate abusive debt collection practices and protect debt collectors who comply with the law.	Supported the court’s understanding of the FDCPA’s purpose and scope.
BReal, LLC v. Rogers, 405 B.R. 428 (M.D. La. 2009)	Filing a proof of claim in bankruptcy court, even if invalid, is not an abusive debt collection practice under the FDCPA.	Adopted to conclude that a proof of claim cannot form the basis of an FDCPA claim.
Middlebrooks v. Interstate Credit Control, Inc., 391 B.R. 434 (D. Minn. 2008)	Filing a proof of claim in bankruptcy court cannot support an FDCPA action.	Followed in holding that such filings do not violate the FDCPA.
Gray-Mapp v. Sherman, 100 F.Supp.2d 810 (N.D. Ill. 1999)	Same as above regarding proof of claim filings and FDCPA claims.	Relied upon to support the court’s ruling.
Baldwin v. McCalla, 1999 WL 284788 (N.D. Ill. 1999)	Bankruptcy Code provides remedies for fraudulent proofs of claim; FDCPA is not a substitute.	Referenced to emphasize the Bankruptcy Code’s exclusive remedial scheme.
11 U.S.C. §§ 105, 1330	Bankruptcy Code provisions governing remedies for fraudulent or defective proofs of claim.	Noted as the proper statutory framework for addressing wrongful claims.
Walls v. Wells Fargo Bank, N.A., 276 F.3d 502 (9th Cir. 2002)	Bankruptcy Code remedies preclude FDCPA claims based on bankruptcy proceedings.	Used to support the conclusion that the FDCPA does not override bankruptcy remedies.
Mace v. Van Ru Credit Corp., 109 F.3d 338 (7th Cir. 1997)	FDCPA designed to protect debtors from abusive collection practices disrupting their lives.	Supported the court’s view that bankruptcy debtors are already protected by bankruptcy procedures.

Court's Reasoning and Analysis

The court began by reviewing the district court’s dismissal de novo. It noted that the FDCPA prohibits false or misleading representations by debt collectors, including misrepresenting the amount of debt. However, the court observed that federal courts have consistently held that filing a proof of claim in bankruptcy court—even if inflated or invalid—does not constitute an abusive debt collection practice under the FDCPA.

The court reasoned that bankruptcy proceedings provide a comprehensive and regulated framework for debt disputes, including remedies for wrongful proofs of claim, such as revocation of fraudulent claims and contempt powers. Therefore, there is no need for the FDCPA to supplement these protections, as debtors in bankruptcy are already shielded by the court system.

The court aligned with prior decisions emphasizing that the FDCPA’s purpose—to protect unsophisticated consumers from abusive debt collectors—is not implicated when debtors are protected by the bankruptcy process. The court rejected the Simmons’ attempt to bypass the Bankruptcy Code’s remedial scheme by asserting an FDCPA claim based on the proof of claim filing.

Regarding attorneys' fees awarded by the district court for bad faith, the court found that while the claim was meritless, the legal question was unsettled in the circuit prior to this opinion. Accordingly, the assertion of the claim alone did not establish bad faith, and the court vacated the award of attorneys’ fees and costs related to the motions to dismiss. Nonetheless, the court found the Simmons’ conduct careless and awarded reasonable costs of the appeal to the defendants.

Holding and Implications

The court affirmed the district court’s dismissal of the Simmons’ FDCPA claim. It held that an inflated proof of claim filed in bankruptcy court cannot serve as a basis for an FDCPA action.

The court vacated the district court’s award of attorneys’ fees and costs related to the motions to dismiss, concluding that the claim’s meritlessness did not alone demonstrate bad faith given the unsettled legal question.

The court granted reasonable costs of the appeal to the defendants due to the Simmons’ careless litigation conduct.

This decision directly affects the parties by terminating the FDCPA claim and modifying the fee award, but it does not establish a new precedent beyond clarifying that proof of claim filings in bankruptcy are not actionable under the FDCPA.

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Lamont B. SIMMONS, Melissa R. Simmons, on behalf of themsel v. s and all others similarly situated, Plaintiffs-Cross-Defendants-Appellants,

DENNIS JACOBS, Chief Judge:

Lamont and Melissa Simmons ("the Simmons") allege that an inflated proof of claim filed by a creditor in their bankruptcy proceeding constituted a violation of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692 et seq. They appeal from a judgment of the United States District Court for the Southern District of New York (Sweet, J.), dismissing their complaint on the pleadings. We hold that such a proof of claim cannot form the basis for a claim under the FDCPA, and therefore we affirm.

The Simmons sought protection in bankruptcy in October 2007. In December 2007, Roundup Funding, LLC ("Roundup") filed a proof of claim for a debt in the claimed amount of $2,039.21. The Simmons filed an objection, and Roundup's counsel, Malen Associates ("Malen"), filed a response (which, it is alleged, included no relevant information). At a hearing on April 17, 2008, the bankruptcy court reduced the Roundup claim to $1,100, the amount the Simmons conceded they owed.

On July 10, 2008, the Simmons brought a putative class action against Roundup and Malen, alleging that they had violated the FDCPA by misrepresenting the amount of the Simmons's debt. An amended complaint reflected the same underlying theory.

Malen and Roundup moved to dismiss under Rule 12(b)(6) on the ground that an inflated proof of claim in bankruptcy court cannot form the basis for an FDCPA action as a matter of law, and also sought costs and attorneys' fees pursuant to 15 U.S.C. § 1692k(a)(3). Their motions to dismiss and their requests for attorneys' fees and costs were granted by the district court, Simmons v. Roundup Funding, LLC, No. 08-CV-6263, 2009 WL 3049586, 2009 U.S. Dist. LEXIS 87383 (S.D.N.Y. Sept. 22, 2009), and the Simmons's appeal followed.

It is unclear from their briefs whether the Simmons are appealing the dismissal of their claim as well as the grant of attorneys' fees and costs or just the latter. Their lawyer failed to clarify the point when asked to do so at oral argument. However, the Simmons's brief at one point states that the district court "erred . . . in . . . dismissing the Plaintiff's [sic] case"; so we divine that they appeal the dismissal.

II A

"We review a district court's grant of a motion to dismiss under Rule 12(b)(6) de novo." Vietnam Assn. for Victims of Agent Orange v. Dow Chem. Co., 517 F.3d 104, 115 (2d Cir. 2008) (internal quotation marks omitted).

"A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt." 15 U.S.C. § 1692e. Among other things, the FDCPA bars misrepresentation of "the character, amount, or legal status of any debt." Id. § 1692e(2)(A).

"Congress acted with the aim of eliminating abusive practices in the debt collection industry, and also sought to ensure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged. These purposes inform the FDCPA's many provisions." Jacobson v. Healthcare Fin. Servs., 516 F.3d 85, 89 (2d Cir. 2008) (internal quotation marks omitted) (citing 15 U.S.C. § 1692(e) ("It is the purpose of this subchapter to eliminate abusive debt collection practices by debt collectors. . . . ")).

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. See, e.g., BReal, LLC v. Rogers, 405 B.R. 428, 431-32 (M.D.La. 2009) ("[T]he Bankruptcy Code itself contemplates a creditor filing a proof of claim on a time barred debt and the Bankruptcy Court disallowing such claim after objection from the debtor. It is difficult for this Court to understand how a procedure outlined by the Bankruptcy Code could possibly form the basis of a violation under the FDCPA."); Middlebrooks v. Interstate Credit Control, Inc., 391 B.R. 434, 437 (D.Minn. 2008) (holding that an FDCPA action cannot be premised on the filing of a proof of claim in bankruptcy court); Gray-Mapp v. Sherman, 100 F.Supp.2d 810, 813-14 (N.D.III. 1999) (same); Baldwin v. McCalla, No. 98-C-4280, 1999 WL 284788, at *S-4, 1999 U.S. Dist. LEXIS 6933, at *10-11 (N.D.III. Apr. 19, 1999) (same).

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.

"The FDCPA . . . was designed to protect against the abusive debt collection practices likely to disrupt a debtor's life." Mace v. Van Ru Credit Corp., 109 F.3d 338, 343 (7th Cir. 1997). "Debtors in bankruptcy proceedings do not need protection from abusive collection methods that are covered under the FDCPA because the claims process is highly regulated and court controlled. While the FDCPA's purpose is to protect unsophisticated consumers from unscrupulous debt collectors, that purpose is not implicated when a debtor is instead protected by the court system and its officers." BReal, 405 B.R. at 432 (footnote omitted) (internal quotation marks omitted). Thus debtors are protected in bankruptcy proceedings — and by discharge afterward.

Bankruptcy provides remedies for wrongfully filed proofs of claim. "It is beyond cavil that past bankruptcy practice, as well as explicit Bankruptcy Code provisions, have left the remedy for fraudulent and otherwise defective proofs of claim to the Bankruptcy Code." Baldwin, 1999 WL 284788, at *4, 1999 U.S. Dist. LEXIS 6933, at *14 (referencing 11 U.S.C. §§ 105, 1330); see also Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 510 (9th Cir. 2002) ("Nothing in either [the Bankruptcy Code or the FDCPA] persuades us that Congress intended to allow debtors to bypass the Code's remedial scheme when it enacted the FDCPA. While the FDCPA's purpose is to avoid bankruptcy, if bankruptcy nevertheless occurs, the debtor's protection and remedy remain under the Bankruptcy Code."). These remedies include revocation of fraudulent proofs of claim and the court's contempt power. See Baldwin, 1999 WL 284788, at *4, 1999 U.S. Dist. LEXIS 6933, at *14. Without seeking these remedies, the Simmons filed suit under the FDCPA. "Nothing in either the Bankruptcy Code or the FDCPA suggests that a debtor should be permitted to bypass the procedural safeguards in the Code in favor of asserting potentially more lucrative claims under the FDCPA. And nothing in the FDCPA suggests that it is intended as an overlay to the protections already in place in the bankruptcy proceedings." Gray-Mapp, 100 F.Supp.2d at 814.

As the district court held, the filing a proof of claim in bankruptcy court cannot form the basis for an FDCPA claim.

Some courts have ruled more broadly that no FDCPA action can be based on an act that violates any provision of the Bankruptcy Code, because such violations are dealt with exclusively by the Bankruptcy Code. See, e.g., Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 510 (9th Cir. 2002); Diamante v. Solomon Solomon, P.C., 1:99-CV-1339, 2001 WL 1217226, at *6, 2001 U.S. Dist. LEXIS 14818, at *18 (N.D.N.Y. Sept. 18, 2001); Kibler v. WFS Fin., CV-00-5217, 2000 WL 1470655, at *10, 2000 U.S. Dist. LEXIS 9131, at *33 (C.D.Cal. Sept. 12, 2000). This broader rule has not been universally accepted, see Randolph v. IMBS, Inc., 368 F.3d 726, 732-33 (7th Cir. 2004), and we are not compelled to consider it in this case.

"On a finding by the court that an action under this section was brought in bad faith and for the purpose of harassment, the court may award to the defendant attorney's fees reasonable in relation to the work expended and costs." 15 U.S.C. § 1692k(a)(3). "[W]e review for abuse of discretion a district court's decision to award attorneys' fees to a defendant pursuant to the FDCPA." Jacobson, 516 F.3d at 96. The district court granted motions by Roundup and Malen for costs and attorneys' fees related to the motions to dismiss. The finding that this action was brought "in bad faith and for the purpose of harassment," see 15 U.S.C. § 1692k(a)(3), seems to have been premised upon the conclusion that this action was meritless and properly dismissed on the pleadings. While we agree with the district court's ruling on the merits of the claim, see supra Part II, the merits turned on a question of law that was, until this opinion, undecided in this Circuit. The assertion of the claim did not by itself prove bad faith. Accordingly, we vacate the judgment insofar as it grants Malen and Roundup attorneys' fees and costs related to the motions to dismiss.

Notwithstanding our vacatur, we cannot disagree with the district court's, characterization that the Simmons were "careless" in their pursuit of this action below, Simmons, 2009 WL 3049586 at *1, 2009 U.S. Dist. LEXIS 87383, at *2, and continue to be so here. Therefore, we grant reasonable costs of this appeal in favor of Malen and Roundup.

* * *

For the foregoing reasons, we affirm the district court's dismissal of the Simmons's claim, vacate the grant of attorneys' fees and costs related to the motions to dismiss, and grant Malen and Roundup reasonable costs of this appeal.