Eighth Circuit Rejects Crawford Decision on Stale Claims

Stephen W. Sather
Barron & Newburger, P.C.
Austin, TX

Creating a circuit split, the Eighth Circuit has rejected the Eleventh Circuit’s Crawford ruling that filing a time-barred claim violates the FDCPA.    Nelson v. Midland Credit Management, Inc., No. 15-2984 (8th Cir. 7/11/16).
What Happened
In a scenario that has played out dozens of times in the past two years, a debtor filed chapter 13 and a creditor filed a proof of claim on a debt that was outside the statute of limitations.   Rather than simply objecting to the claim, the Debtor filed suit for violation of the FDCPA.   The District Court dismissed the case for failure to state a cause of action, resulting in an appeal to the Court of Appeals.   The Eighth Circuit affirmed.
How the Court Ruled
Under the FDCPA, a debt collector is not prohibited from attempting to collect a debt which is beyond the statute of limitations.   However, the debt collector cannot file suit or threaten to file suit.  In Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014), the Eleventh Circuit found that filing a proof of claim was similar to filing suit to collect a debt.    The Eighth Circuit disagreed, distinguishing Crawford in four short paragraphs.
Crawford, however, ignores the differences between a bankruptcy claim and actual or threatened litigation. In Freyermuth, this court held that a defendant’s FDCPA liability turns on “whether an unsophisticated consumer would be harassed, misled or deceived by” the debt collector’s acts. (citation omitted). The bankruptcy process protects against such harassment and deception. Unlike defendants facing a collection lawsuit, a bankruptcy debtor is aided by “trustees who owe fiduciary duties to all parties and have a statutory obligation to object to unenforceable claims.”  (citation omitted).

Defending a lawsuit to recover a time-barred debt is more burdensome than objecting to a time-barred proof of claim. “[T]he Bankruptcy Code provides for a claims resolution process involving an objection and a hearing to assess the amount and validity of the claim . . . [that] is generally a more streamlined and less unnerving prospect for a debtor than facing a collection lawsuit.” (citation omitted). Because a proof of claim does not expand the pool of available funds in bankruptcy, debtors have less at stake than a collection defendant. Rather, an unsecured creditor likely shares only “pro rata in the distribution of the pool of available funds and see[s] the unpaid portion of its claim discharged.” (citation omitted).

These protections against harassment and deception satisfy the relevant concerns of the FDCPA. “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.” (citation omitted).

This court rejects extending the FDCPA to time-barred proofs of claim. An accurate and complete proof of claim on a time-barred debt is not false, deceptive, misleading, unfair, or unconscionable under the FDCPA. The district court properly dismissed for failure to state a claim.

 Opinion, pp. 4-5.
What It Means

When Crawford came out, entrepreneurial debtor’s lawyers seized upon it as a means to cleanse the bankruptcy system of stale claims while generating fees for themselves.    Indeed, one bankruptcy court in rural Louisiana has at least nineteen Crawford adversary proceedings pending.    
However, the Crawford decision has been slow to catch on outside of the Eleventh Circuit.   Numerous bankruptcy courts and district courts have rejected Crawford, although a handful of courts have adopted it.   This has led to splits within the same district in same instances.    There should be more appellate decisions coming down.   The Fourth Circuit heard oral argument in Dubois v. Atlas Acquisitions, Case No. 15-1945, on May 11, 2016, and the Seventh Circuit heard Birthchman v. LVNV Funding, LLC, No. 15-2044, on June 1, 2016.    As a result, there should be decisions from at least four circuits by years-end.    This increases the chance that the issue will make it to the Supreme Court before long.

Note:  Wanda Borges and I will be discussing Nelson v. Midland Credit Management and other noteworthy FDCPA decisions at the joint IACC/CLLA Meeting in Napa, CA on July 19, 2016.

Source: CLLA
Eighth Circuit Rejects Crawford Decision on Stale Claims

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