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Midland Funding, LLC v. Johnson

United States Supreme Court

May 15, 2017

MIDLAND FUNDING, LLC, PETITIONER
v.
ALEIDA JOHNSON

          Argued January 17, 2017

         CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT

         Petitioner Midland Funding filed a proof of claim in respondent Johnson's Chapter 13 bankruptcy case, asserting that Johnson owed Midland credit-card debt and noting that the last time any charge appeared on Johnson's account was more than 10 years ago. The relevant statute of limitations under Alabama law is six years. Johnson objected to the claim, and the Bankruptcy Court disallowed it. Johnson then sued Midland, claiming that its filing a proof of claim on an obviously time-barred debt was "false, " "deceptive, " "misleading, " "unconscionable, " and "unfair" within the meaning of the Fair Debt Collection Practices Act, 15 U.S.C. §§1692e, l692f. The District Court held that the Act did not apply and dismissed the suit. The Eleventh Circuit reversed.

         Held: The filing of a proof of claim that is obviously time barred is not a false, deceptive, misleading, unfair, or unconscionable debt collection practice within the meaning of the Fair Debt Collection Practices Act. Pp. 2-10.

(a) Midland's proof of claim was not "false, deceptive, or misleading." The Bankruptcy Code defines the term "claim" as a "right to payment, " 11 U.S.C. §101(5)(A), and state law usually determines whether a person has such a right, see Travelers Casualty & Surety Co. of America v. Pacific Gas & Elec. Co., 549 U.S. 443, 450-451. The relevant Alabama law provides that a creditor has the right to payment of a debt even after the limitations period has expired.
Johnson argues that the word "claim" means "enforceable claim." But the word "enforceable" does not appear in the Code's definition, and Johnson's interpretation is difficult to square with Congress's intent "to adopt the broadest available definition of 'claim, '" Johnson v. Home State Bank, 501 U.S. 78, 83. Other Code provisions are still more difficult to square with Johnson's interpretation. For example, §502 (b)(1) says that if a "claim" is "unenforceable" it will be disallowed, not that it is not a "claim." Other provisions make clear that the running of a limitations period constitutes an affirmative defense that a debtor is to assert after the creditor makes a "claim." §§502, 558. The law has long treated unenforceability of a claim (due to the expiration of the limitations period) as an affirmative defense, and there is nothing misleading or deceptive in the filing of a proof of claim that follows the Code's similar system.
Indeed, to determine whether a statement is misleading normally "requires consideration of the legal sophistication of its audience, " Bates v. State Bar of Ariz., 433 U.S. 350, 383, n. 37, which in a Chapter 13 bankruptcy includes a trustee who is likely to understand that a proof of claim is a statement by the creditor that he or she has a right to payment that is subject to disallowance, including disallowance based on untimeliness. Pp. 2-5.
(b) Several circumstances, taken together, lead to the conclusion that Midland's proof of claim was not "unfair" or "unconscionable" within the terms of the Fair Debt Collection Practices Act.
Johnson points out that several lower courts have found or indicated that, in the context of an ordinary civil action to collect a debt, a debt collector's assertion of a claim known to be time barred is "unfair." But those courts rested their conclusions upon their concern that a consumer might unwittingly repay a time-barred debt. Such considerations have significantly diminished force in a Chapter 13 bankruptcy, where the consumer initiates the proceeding, see §§301, 303(a); where a knowledgeable trustee is available, see §1302(a); where procedural rules more directly guide the evaluation of claims, see Fed. Rule Bkrtcy. Proc. 3001(c)(3)(A); and where the claims resolution process is "generally a more streamlined and less unnerving prospect for a debtor than facing a collection lawsuit, " In re Gate-wood, 533 B. R. 905, 909.
Also unpersuasive is Johnson's argument that there is no legitimate reason for allowing a practice like this one that risks harm to the debtor. The bankruptcy system treats untimeliness as an affirmative defense and normally gives the trustee the burden of investigating claims to see if one is stale. And, at least on occasion, the assertion of even a stale claim can benefit the debtor.
More importantly, a change in the simple affirmative-defense approach, carving out an exception, would require defining the exception's boundaries. Does it apply only where a claim's staleness appears on the face of the proof of claim? Does it apply to other affirmative defenses or only to the running of the limitations period? Neither the Fair Debt Collection Practices Act nor the Bankruptcy Code indicates that Congress intended an ordinary civil court applying the Act to determine answers to such bankruptcy-related questions. The Act and the Code have different purposes and structural features. The Act seeks to help consumers by preventing consumer bankruptcies in the first place, while the Code creates and maintains the "delicate balance of a debtor's protections and obligations, " Kokoszka v. Belford, 417 U.S. 642, 651. Applying the Act in this context would upset that "delicate balance."
Contrary to the argument of the United States, the promulgation of Bankruptcy Rule 9011 did not resolve this issue. Pp. 5-10.

823 F.3d 1334, reversed.

          BREYER, J., delivered the opinion of the Court, in which ROBERTS, C. J., and Kennedy, Thomas, and Alito, JJ., joined. Sotomayor, J., filed a dissenting opinion, in which GINSBURG and KAGAN, JJ., joined. GORSUCH, J., took no part in the consideration or decision of the case.

          OPINION

          BREYER, JUSTICE

         The Fair Debt Collection Practices Act, 91 Stat. 874, 15 U.S.C. §1692 et seq., prohibits a debt collector from asserting any "false, deceptive, or misleading representation, " or using any "unfair or unconscionable means" to collect, or attempt to collect, a debt, §§1692e, l692f. In this case, a debt collector filed a written statement in a Chapter 13 bankruptcy proceeding claiming that the debtor owed the debt collector money. The statement made clear, however, that the 6-year statute of limitations governing collection of the claimed debt had long since run. The question before us is whether the debt collector's filing of that statement falls within the scope of the aforementioned provisions of the Fair Debt Collection Practices Act. We conclude that it does not.

         I

         In March 2014, Aleida Johnson, the respondent, filed for personal bankruptcy under Chapter 13 of the Bankruptcy Code (or Code), 11 U.S.C. §1301 et seq, in the Federal District Court for the Southern District of Alabama. Two months later, Midland Funding, LLC, the petitioner, filed a "proof of claim, " a written statement asserting that Johnson owed Midland a credit-card debt of $1, 879.71. The statement added that the last time any charge appeared on Johnson's account was in May 2003, more than 10 years before Johnson filed for bankruptcy. The relevant statute of limitations is six years. See Ala. Code §6-2-34 (2014). Johnson, represented by counsel, objected to the claim; Midland did not respond to the objection; and the Bankruptcy Court disallowed the claim.

         Subsequently, Johnson brought this lawsuit against Midland seeking actual damages, statutory damages, attorney's fees, and costs for a violation of the Fair Debt Collection Practices Act. See 15 U.S.C. § 1692k. The District Court decided that the Act did not apply and therefore dismissed the action. The Court of Appeals for the Eleventh Circuit disagreed and reversed the District Court. 823 F.3d 1334 (2016). Midland filed a petition for certiorari, noting a division of opinion among the Courts of Appeals on the question whether the conduct at issue here is "false, " "deceptive, " "misleading, " "unconscionable, " or "unfair" within the meaning of the Act. Compare ibid. (finding the Fair Debt Collection Practices Act applicable) with In re Dubois, 834 F.3d 522 (CA4 2016) (finding the Act inapplicable); Owens v. LVNV Funding, LLC, 832 F.3d 726 (CA7 2016) (same); and Nelson v. Midland Credit Management, Inc., 828 F.3d 749 (CA8 2016) (same). We granted the petition. We now reverse the Court of Appeals.

         II

         Like the majority of Courts of Appeals that have considered the matter, we conclude that Midland's filing of a proof of claim that on its face indicates that the limitations period has run does not fall within the scope of any of the five relevant words of the Fair Debt Collection Practices Act. We believe it reasonably clear that Midland's proof of claim was not "false, deceptive, or misleading." Midland's proof of claim falls within the Bankruptcy Code's definition of the term "claim." A "claim" is a "right to payment." 11 U.S.C. §101(5)(A). State law usually determines whether a person has such a right. See Travelers Casualty & Surety Co. of America v. Pacific Gas & Elec. Co., 549 U.S. 443, 450-451 (2007). The relevant state law is the law of Alabama. And Alabama's law, like the law of many States, provides that a creditor has the right to payment of a debt even after the limitations period has expired. See Ex parte HealthSouth Corp., 974 S. 2d 288, 296 (Ala. 2007) (passage of time extinguishes remedy but the right remains); see also, e.g., Sallaz v. Rice, 161 Idaho 223, __, 384 P.3d 987, 992-993 (2016) (similar); Notte v. Merchants Mut. Ins. Co., 185 N. J. 490, 499-500, 888 A.2d 464, 469 (2006) (similar); Potterton v. Ryland Group, Inc., 289 Md. 371, 375-376, 424 A.2d 761, 764 (1981) (similar); Summers v. Connolly, 159 Ohio St. 396, 400-402, 112 N.E.2d 391, 394 (1953) (similar); DeVries v. Secretary of State, 329 Mich. 68, 75, 44 N.W.2d 872, 876 (1950) (similar); Fleming v. Yeazel, 379 111. 343, 344-346, 40 N.E.2d 507, 508 (1942) (similar); Fidelity & Cas. Co. of N.Y. v. Lackland, 175 Va. 178, 185-187, 8 S.E.2d 306, 309 (1940) (similar); Insurance Co. v. Dunscomb, 108 Tenn. 724, 728-731, 69 S. W. 345, 346 (1902) (similar); but see, e.g., Miss. Code Ann. §15-1-3(1) (2012) (expiration of the limitations period extinguishes the remedy and the right); Wis.Stat. §893.05 (2011-2012) (same).

         Johnson argues that the Code's word "claim" means "enforceable claim." She notes that this Court once referred to a bankruptcy "claim" as "an enforceable obligation." Pennsylvania Dept. of Public Welfare v. Davenport, 495 U.S. 552, 559 (1990). And, she concludes, Midland's "proof of claim" was false (or deceptive or misleading) because its "claim" was not enforceable. Brief for Respondent 22; Brief for United States as Amicus Curiae 18- 20 (making a similar argument).

         But we do not find this argument convincing. The word "enforceable" does not appear in the Code's definition of "claim." See 11 U.S.C. §101(5). The Court in Davenport likely used the word "enforceable" descriptively, for that case involved an enforceable debt. 495 U.S., at 559. And it is difficult to square Johnson's interpretation with our later statement that "Congress intended ... to adopt the broadest ...


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