Bankruptcy
| Publication year | 2018 |
Bankruptcy
John T. Laney III
William J. Diehl
[Page 1033]
This Article surveys opinions decided in 2017 that will impact bankruptcy law practice in the Eleventh Circuit. These decisions come from the Supreme Court of the United States, the United States Court of Appeals for the Eleventh Circuit, United States District Courts, and Bankruptcy Courts. While courts in the Eleventh Circuit have addressed other important questions pertinent to bankruptcy law, this Article focuses on select decisions that the Authors believe will have the greatest impact on the readers' practices. The Article first updates cases cited in last year's annual survey. The Article continues by discussing cases involving bankruptcy courts' jurisdiction, appeals of bankruptcy court orders, abuse in Chapter 71 cases, treatment of secured claims in Chapter 132 plans, and finally, dischargeability.
Last year's survey discussed two cases that have received subsequent appellate review.3 The Supreme Court of the United States granted certiorari to resolve the circuit split created by the United States Court of Appeals for the Eleventh Circuit's decision in Midland Funding, LLC
[Page 1034]
v. Johnson.4 Additionally, the Eleventh Circuit reconsidered its decision in Slater v. U.S. Steel Corp.,5 in an en banc proceeding.6 Each of these cases is discussed in the following subsections.
A. Stale Debt Collection
In Midland Funding LLC v. Johnson,7 the Supreme Court reversed the United States Court of Appeals for the Eleventh Circuit.8 The Supreme Court held that filing a proof of claim for a time-barred debt is permitted by Title 11 of the United States Code (Code)9 and does not impose liability under the Fair Debt Collection Practices Act (FDPCA).10 To briefly summarize the issues before the Supreme Court, this litigation arose when Midland Funding, LLC, a delinquent-debt purchaser, filed a proof of claim in the debtor's Chapter 13 case.11 The debt alleged in the proof of claim originated more than ten years before the debtor filed her bankruptcy petition.12 Accordingly, Alabama's statute of limitations prevented the creditor from collecting the debt through a state court action.13 Outside of bankruptcy, the FDCPA's prohibition on using "false, deceptive or misleading representation or means in connection with collection of debt"14 may impose liability on a creditor using a legal proceeding to collect a time-barred debt.15
[Page 1035]
In Crawford v. LVNV Funding, LLC,16 the Eleventh Circuit found that filing a proof of claim on time-barred debt to recover through Chapter 13 distributions similarly violated the FDCPA.17 The court in Crawford, however, declined to determine whether its ruling placed the FDCPA in irreconcilable conflict with the Bankruptcy Code, and accordingly, whether one statute precluded the other.18 The Eleventh Circuit ultimately addressed this issue in Johnson v. Midland Funding, LLC.19 There, the court found the FDCPA and the Code were not in conflict.20 Rather, the court determined that although the Code permits creditors to file proofs of claim for time-barred debt, it does not "free [debt-collectors] from all consequences of filing these claims."21 Accordingly, the FDCPA's prohibitions on "false, deceptive, or misleading representation[s]" were applicable to debt collectors' proofs of claim in bankruptcy proceedings.22
On appeal, the Supreme Court circumvented the question of whether the FDCPA and Bankruptcy Code were in irreconcilable conflict.23 Instead, the Court focused on two issues: (1) whether seeking distribution through filing a proof of claim on a time-barred debt could be either false, deceptive, or misleading (within the meaning of 15 U.S.C. § 1692e); and (2) whether filing such a proof of claim was an "unfair or unconscionable means" of collecting a debt (within the meaning § 1692f).24 The Court first addressed the argument that filing a proof of claim to collect a time-barred debt was false, deceptive, or misleading.25 In its analysis, the Court cited numerous state court opinions explaining the nature of a statute of limitation defense.26 These many opinions, the Court noted, explain that the statute of limitation defense provides an affirmative defense to judicial enforcement of a debt but does not extinguish the right to payment.27 Rather, a creditor retains that right even if the affirmative
[Page 1036]
defense would defeat any judicial action to collect the debt.28 Given the nature of time-barred debt, the Court determined that these rights to payment fit within the Code's broad definition of a claim, which does not require a claim to be reduced to judgment.29 Therefore, the Court concluded that if the Code allows a creditor to file a time-barred proof of claim, filing the claim cannot be false, deceptive, or misleading and, thus, cannot impose liability under the FDCPA.30
Second, the Court considered whether filing a proof of claim on a time-barred debt is unfair or unconscionable.31 To begin addressing this question, the Court assumed-without deciding the issue-that filing a civil suit to collect time-barred debt is unfair or unconscionable and would expose a debt collector to liability under the FDCPA.32 The Court, however, distinguished civil collection proceedings from a bankruptcy proceeding, noting that a consumer voluntarily initiates a Chapter 13 proceeding.33 Additionally, the Court noted that Federal Rule of Bankruptcy Procedure 300134 provides a streamlined process for resolving disputed claims, and the Code requires a Chapter 13 trustee to review all claims filed.35 These procedural safeguards, the Court reasoned, "make it considerably more likely that an effort to collect upon a [time-barred debt] in bankruptcy will be met with resistance, objection, and disallowance."36 Accordingly, the Court could not hold filing a proof of claim on a stale debt was unconscionable.37
In a dissent authored by Justice Sotomayor, a three-justice minority argued that filing a proof of claim on a time-barred debt is unfair and unconscionable and that the FDCPA's prohibitions should apply in bankruptcy proceedings.38 The dissent began by describing debt buyers'
[Page 1037]
general operating procedure: where debt collectors purchase time-barred accounts for "pennies on the dollar" and use civil actions to collect these accounts in the "hope . . . that consumers will fail either to invoke the statute of limitations or to respond at all."39 Despite the FDCPA's success in "beat[ing] back" the practice of filing state-court actions on time-barred debt, the dissent feared bankruptcy courts have become debt buyers' "new forum" for seeking repayment on these debts.40 Although the majority's opinion relied on procedural and administrative differences between these forums, the dissent noted that none of these distinctions supported "the weight [the majority] placed on it."41 For example, Chapter 13 trustees in practice are unable to examine and identify each time-barred claim in every bankruptcy case assigned to the trustee.42 Given these obstacles, the dissent concluded by stating, "It takes only the common sense to conclude that one should not be able to profit on the inadvertent inattention of others. It is said that the law should not be a trap for the unwary. Today's decision sets just such a trap."43
B. Judicial Estoppel
After Judge Tjoflat's lengthy concurrence in Slater v. U.S. Steel Corp.44 encouraged the Eleventh Circuit to reconsider its holdings on judicial estoppel,45 the court reheard the case en banc.46 As last year's survey explained in more detail,47 the plaintiff and debtor in Slater I filed a sex and race discrimination suit against U.S. Steel, her former employer. Subsequently, she filed a Chapter 7 bankruptcy but failed to disclose her lawsuit against U.S. Steel in the petition. As a result, U.S. Steel argued judicial estoppel prevented Slater from asserting her claim and moved for summary judgement.48 The United States District Court for the Northern District of Alabama found Slater knew about her civil claims against U.S. Steel at the time of filing her petition, and accordingly, the
[Page 1038]
doctrine of judicial estoppel prohibited Slater from pursuing the claim.49 On appeal, the Eleventh Circuit determined its precedent required the district court to apply judicial estoppel.50
Though many federal courts have acknowledged judicial estoppel limits abuse where litigants have presented contrary facts to a tribunal, many have struggled in delineating the exact boundaries of the doctrine. The Supreme Court recognized judicial estoppel in New Hampshire v. Maine,51 but declined to establish an "exhaustive formula" for determining whether to apply the doctrine.52 Instead, the Court recognized common factors other courts of appeal have used to determine whether invoking judicial estoppel is appropriate.53 Still, federal courts have announced different iterations of the doctrine.54 Opinions by the Eleventh Circuit have distilled the doctrine's factors to a two-part test.55 "First, it must be shown that the allegedly inconsistent positions were made under oath in a prior proceeding."56 Secondly, the movant must show the party offering inconsistent positions intended to make "a mockery of the judicial system."57 As to the second element, the court must find that the party intentionally made contradictory representations, not that the inconsistent statements were made in error or were inadvertent.58 Though this appears to present a question of fact, Eleventh Circuit case law directed trial courts to infer intent unless the debtor lacked knowledge of the undisclosed assets or had no motive to
[Page 1039]
conceal them.59 Consequently, judicial estoppel in the bankruptcy context often prevented the debtor or the bankruptcy estate from recovering an undisclosed asset unless the debtor did not know of...
To continue reading
Request your trial