FDCPA and Bankruptcy Law Not Necessarily Mutually Exclusive

The Third Circuit found that a debtor may maintain an action under the FDCPA even though the conduct giving rise to the claim is also addressed by bankruptcy rules. Simon v. FIA Card Services (In re Simon), No. 12-3393 (3d Cir. Oct. 7, 2013).

The case arose when the debt collector (FIA), through counsel, sent a letter and notice to the chapter 7 debtors informing them that the FIA was contemplating filing an adversary proceeding to challenge the dischargeability of their credit card debt. It offered to forego the proceeding if the debtors agreed to stipulate to the debt’s nondischargeability or pay a reduced balance on the debt. The letter included a notice of examination under Rule 2004. The letter was received by the debtors’ counsel. The debtors filed an adversary proceeding seeking to quash the subpoena and alleging violation of the FDCPA. The bankruptcy court granted the motion to quash and found that it lacked subject matter jurisdiction over the FDCPA claim.

The debtors then filed suit in the Federal District Court of New Jersey against the FIA and its counsel (hereinafter FIA) alleging that the letter was in violation of the FDCPA as constituting false, deceptive, and misleading collection practices. 15 U.S.C. § 1692e(5). The district court dismissed the case on the basis that the action was precluded by the Bankruptcy Code, and on the alternative basis that the facts did not show a violation of the FDCPA. Simon v. FIA Card Servs., N.A., Civ. No. 12-518, 2012 WL 2891080 (D. N.J. July 16, 2012).

On appeal to the third circuit, the debtors argued that the letter violated sections 1692e(5) and (13) of the FDCPA by failure to comply with Bankruptcy Rule 9016 (which incorporates Civil Rule 45) in four ways:

1) failing to send the letter directly to the debtors in violation of Civil Rule 45(b)(1),

2) setting FIA counsel’s office as the location for taking information rather than the debtors location in violation of CR 45(a)(2)(B)—this issue was not pursued on appeal

3) failing to include in the letter the text of CR 45(c) and (d) in violation of CR 45(a)(1)(A)(iv), and

4) failing to specify how the Rule 2004 information was to be recorded in violation of CR 45(a)(1)(B).

Additionally, the FIA failed to disclose in the letter that “the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose” as required by section1692e(11).

As a threshold matter, the court rejected the FIA’s position that the FDCPA was not applicable because the letter was not an attempt to collect a debt. Under the reasoning of Allen ex rel. Martin v. LaSalle Bank, N.A., 629 F.3d 364 (3d Cir. 2011), a letter from an attorney conveying “information regarding a debt” constitutes a debt collection attempt even if no demand for payment is explicitly made. See also Grden v. Leikin Ingber & Winters PC, 643 F.3d 169 (6th Cir. 2011); McCollough v. Johnson, Rodenburg & Lauinger, LLC, 637 F.3d 939 (9th Cir. 2011); Gburek v. Litton Loan Servicing LP, 614 F.3d 380 (7th Cir. 2010); Sayyed v. Wolpoff & Abramson, 485 F.3d 226 (4th Cir. 2007). “The letter and notice were an attempt to collect the Simons’ debt through the alternatives of settlement — including by partial payment — or gathering information to challenge dischargeability. The absence of an explicit payment demand does not take the communication outside the FDCPA.”

Having found that the FDCPA applies to the facts of this case, the court went on to reject the debtors’ argument that the failure to specify the method of recording the Rule 2004 information violated Bankruptcy Rule 9016 because the nature of a Rule 2004 examination is different from a deposition and does not require that the method of recording be specified. It also found that the issue of the location of the Rule 2004 examination was sufficiently flexible as to be in compliance with the rules. Therefore, the circuit court affirmed the district court’s dismissal of those claims.

Turning to whether the Bankruptcy Code precludes the FDCPA claims based on the Rule-violation issues of failure to serve the subpoenas directly on the individuals subpoenaed and failure to include the text of CR 45(c)-(d) in the letter, the court stated, “[w]e have not previously addressed whether, or to what extent, an FDCPA claim can arise from a debt collector’s communications to a debtor in a pending bankruptcy proceeding.” It discussed the approaches taken by other courts finding that they range from categorical preclusion to case-by-case analyses. Compare Simmons v. Roundup Funding, LLC, 622 F.3d 93 (2d Cir. 2010); Walls v. Wells Fargo Bank, N.A., 276 F.3d 502 (9th Cir. 2002); and B-Real, LLC v. Chaussee (In re Chaussee), 399 B.R. 225 (9th Cir. B.A.P. 2008) (finding that FDCPA claims were precluded by the Bankruptcy Code), with Randolph v. IMBS, Inc., 368 F.3d 726 (7th Cir. 2004) (finding the FDCPA claims not precluded).

The court rejected the categorical approach of implied repeal set forth by the Ninth Circuit under which an FDCPA claim cannot be based on conduct in a bankruptcy case. Rather, the court agreed with the approach in Randolph. In that case, the seventh circuit stated that “[w]hen two federal statutes address the same subject in different ways, the right question is whether one implicitly repeals the other.” The Simon court further relied on Supreme Court cases discussing repeal of one federal statute by another, finding that a federal statute may be applied even where there is another, bankruptcy-specific, federal statute covering the same ground. Connecticut National Bank v. Germain, 503 U.S. 249 (1992). Repeal requires either an “irreconcilable conflict between the statutes or a clearly expressed legislative decision that one replace the other.” Where it is possible for a debt collector to comply with the proscriptions of both statutes, preclusion is not found. “The proper inquiry . . . is whether the FDCPA claim raises a direct conflict between the Code or Rules and the FDCPA, or whether both can be enforced.” See J.E.M. Ag Supply, Inc. v. Pioneer Hi-Bred Intern., Inc., 534 U.S. 124, 143–44 (2001). Citing Heintz v. Jenkins, 514 U.S. 291 (1995), the Simon court said, “[t]he Supreme Court has also been reluctant to limit the FDCPA because other, preexisting rules and remedies may also apply to the conduct alleged to violate the Act.”

Having found that there is no categorical conflict between the FDCPA and the Bankruptcy Code which would compel a finding of preclusion, the court went on to determine whether the facts before it demonstrated an irreconcilable conflict. The debtors’ remaining claims under section 1692e(5) and (13) related to the sufficiency of the subpoena for the Rule 2004 examination. Although the Bankruptcy rules cover how a party must be noticed for a Rule 2004 examination and provides actions a subpoenaed party may take in the event of the other party’s noncompliance, the court found it was possible to comply with both the relevant bankruptcy rules and the FDCPA. Further, the bankruptcy consequences of failure to comply do not conflict in any way with the consequences imposed by the FDCPA. Conformance with one does not compel non-compliance with the other. Therefore, with respect to section 1692e(5) and (13), the issues surrounding the adequacy of the subpoena, the court reversed the district court’s dismissal.

The same was not true with respect to the debtors’ claim under 1692e(11). There, the debtors complained that the letter sent by the FIA failed to include the requisite language that the “the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose.” Use of this language has been found to constitute a violation of bankruptcy’s automatic stay. See, e.g., Maloy v. Phillips, 197 B.R. 721, 723 (M.D. Ga. 1996); Divane v. A & C Elec. Co., Inc., 193 B.R. 856, 859 (N.D. Ill. 1996); Hubbard v. Nat’l Bond & Collection Assoc., Inc., 126 B.R. 422, 428–29 (D. Del. 1991). Compliance with one statute would necessarily result in noncompliance with the other. Therefore, the claim was properly dismissed.

Simon Opinion