Trial Practice and Procedure

• Publication year: 2017

Trial Practice and Procedure

John O'Shea Sullivan

Ashby K. Fox

Tala Amirfazli

[Page 1077]

Trial Practice and Procedure

by John O'Shea Sullivan^*

Ashby K. Fox^**

and Tala Amirfazli^***

I. Introduction

The 2016 survey period yielded noteworthy decisions relating to federal trial practice and procedure in the United States Court of Appeals for the Eleventh Circuit,¹ several of which involved issues of first impression. This Article analyzes recent developments in the Eleventh Circuit, including significant rulings in the areas of statutory interpretation and class actions.

II. Statutory Interpretation

A. The Bankruptcy Code Does Not Shield a Debt Collector From

[Page 1078]

Liability Under the FDCPA For Filing a Proof of Claim on a Debt It Knows to be Time-Barred.

In Johnson v. Midland Funding, LLC,² the Eleventh Circuit resolved an apparent tension between the Bankruptcy Code and the Fair Debt Collection Practices Act (FDCPA),³ holding that the Bankruptcy Code provision allowing creditors to file proofs of claim for debts which appeared on their face to be time-barred did not preclude liability under the FDCPA for debt collectors filing proofs of claim for debts they knew to be time-barred.⁴

The consolidated appeal arose when two individual plaintiffs (the Debtors) sued their respective creditors (the Creditors) under the FDCPA after the Creditors filed proofs of claim seeking to collect on time-barred debts in the Debtors' Chapter 13 bankruptcy cases.⁵ Even though the statutes of limitation on the debts were six years,⁶ the date of the last transactions on the subject accounts for both Debtors was more than six years before the Debtors filed for bankruptcy.⁷ Both Debtors alleged that the Creditors violated the FDCPA by filing proofs of claim for debts on which the statutes of limitation had run.⁸

Page 1079

Finding an irreconcilable conflict between the provision of the Bankruptcy Code authorizing a creditor to file a proof of claim on a debt that is time-barred, and the FDCPA which makes it unlawful for a debt collector to attempt to collect a debt known to be time-barred, the District Court for the Southern District of Alabama dismissed both FDCPA lawsuits,⁹ and the two cases were consolidated on appeal.¹⁰ On appeal, the Debtors argued that the district court's analysis conflicted with the Eleventh Circuit's prior analysis and holding in Crawford v. LVNV Funding, LLC,¹¹ wherein the Eleventh Circuit held that "a debt collector violates the FDCPA by knowingly filing a proof of claim in a bankruptcy proceeding on a debt that is time-barred."¹² In Crawford, the Eleventh Circuit left open the question of whether the Bankruptcy Code preempts the FDCPA when creditors misbehave in bankruptcy.¹³ Because the parties

[Page 1080]

in Crawford did not raise the issue of whether the Bankruptcy Code displaces or preempts the FDCPA provisions making it unlawful to file a proof of claim known to be time-barred, the district court in Crawford artfully dodged this issue and the Eleventh Circuit in Crawford declined to address it on appeal.¹⁴

In Johnson, the Eleventh Circuit answered the question left open in Crawford, explaining that although the Bankruptcy Code allows creditors to file proofs of claim in Chapter 13 cases on debts known to be time-barred, this provision of the Bankruptcy Code can be read together with the FDCPA because "when a particular type of creditor—a designated 'debt collector' under the FDCPA—files a knowingly time-barred proof of claim in a debtor's Chapter 13 bankruptcy, that debt collector will be vulnerable to a claim under the FDCPA."¹⁵

The Eleventh Circuit determined that the FDCPA and the Bankruptcy Code "differ in their scopes, goals, and coverage, and can be construed together in a way that allows them to coexist."¹⁶ The court disagreed with

[Page 1081]

the district court's conclusion that there was obvious tension between the Bankruptcy Code and the FDCPA, and rejected the district court's application of implied repeal to support its finding that a creditor's right to file a time-barred claim under the Bankruptcy Code precluded debtors from challenging that practice as an FDCPA violation in Chapter 13 cases.¹⁷

Instead, the Eleventh Circuit reconciled the statutes by holding that the Bankruptcy Code does not preclude an FDCPA claim in Chapter 13 cases when a debt collector files a proof of claim it knows to be time-barred.¹⁸ In so holding, the court noted that the Bankruptcy Code allows all creditors to file proofs of claim, while the FDCPA "dictates the behavior of only 'debt collectors' both within and outside of bankruptcy."¹⁹ Further, the court explained that in a Chapter 13 bankruptcy proceeding, if a creditor files a time-barred proof of claim, the bankruptcy trustee may object to the claim, the bankruptcy court can deny payment of the claim,²⁰ and the bankruptcy court may "'issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of [the Code],' such as issuing sanctions against a party for misbehavior."²¹ In contrast, the FDCPA "kicks in" only under certain limited circumstances and provides "an additional layer of protection against a particular kind of creditor."²² In sum, the Eleventh Circuit found that the FDCPA and the

[Page 1082]

Bankruptcy Code can coexist, and that its holding that the Bankruptcy Code does not preclude an FDCPA claim in the bankruptcy context "does not infringe any creditor's ability to file a claim in a debtor's bankruptcy proceeding," but instead promotes Congress's intent to protect debtors from unfair or misleading claims by debt collectors.²³ The United States Supreme Court granted certiorari on October 11, 2006, in Midland Funding, LLC v. Johnson²⁴ and subsequently reversed the Eleventh Circuit's decision.²⁵

B. A Foreign Defendant Cannot Be Properly Served With Process By Federal Express Without Prior Court Authorization.

In De Gazelle Group, Inc. v. Tamaz Trading Establishment,²⁶ the Eleventh Circuit reversed the district court's denial of the defendant's motion to vacate a $2.5 million default judgment against it under Federal Rule of Civil Procedure 60(b)(4)²⁷ for insufficient service of process, concluding that delivery of service of process to the defendant, a foreign corporation, by Federal Express (FedEx) was not authorized by the Federal Rules, and the plaintiff had not received prior court authorization to serve the defendant using that method.²⁸

[Page 1083]

The plaintiff, De Gazelle Group, Inc. (De Gazelle), a Florida corporation, filed a breach of contract action against Tamaz Trading Establishment (Tamaz), a Saudi Arabian company. The plaintiff served Tamaz with process by sending a summons and complaint by FedEx to Tamaz's post office box in Saudi Arabia, addressed to Tamaz's registered agent.²⁹ Tamaz did not file any response, and De Gazelle moved for a default judgment. After the magistrate judge denied De Gazelle's initial motion for default judgment,³⁰ De Gazelle filed a motion seeking authorization to serve Tamaz with process via FedEx.³¹ The magistrate judge determined that because Tamaz was aware of the lawsuit, it would not be prejudiced by any irregularities in De Gazelle's method of serving process. Thus, the magistrate judge granted De Gazelle's request to deliver service of process to Tamaz by FedEx, and found that service had been retroactively effected on September 21, 2013.³² The district court then entered a final default judgment against Tamaz, and later denied Tamaz's Rule 60 motion to vacate the default judgment as void for lack of service.³³

[Page 1084]

Tamaz argued on appeal that De Gazelle had failed to comply with Federal Rule of Civil Procedure 4(f)(3),³⁴ and that the district court erred in concluding that De Gazelle effected proper service via FedEx prior to seeking court authorization.³⁵ The Eleventh Circuit agreed with Tamaz, stating that "[b]efore a federal court may exercise personal jurisdiction over a defendant . . . there must be authorization for service of summons on the defendant."³⁶ The Court further explained that when De Gazelle sent the complaint and summons via FedEx to Tamaz on September 21, "it was not acting pursuant to a court order."³⁷ The court further found that the magistrate judge's reliance on Tamaz's registered agent having

[Page 1085]

actual notice of the lawsuit was misplaced, because "notice does not confer personal jurisdiction on a defendant when it has not been served in accordance with Rule 4."³⁸ Accordingly, the Eleventh Circuit concluded that the district court erred in finding that Tamaz was properly served on September 21, and reversed the order denying Tamaz's motion to vacate the default judgment.³⁹

C. An Assignee Cannot be Held Liable Under the Truth in Lending Act for a Servicer's Failure to Provide the Borrower with a Payoff Balance.

In Evanto v. Federal National Mortgage Ass'n,⁴⁰ the Eleventh Circuit held, as a matter of first impression, that because a mortgage servicer's failure to provide a borrower with a requested payoff balance is not a violation "apparent on the face of the disclosure statement," an assignee cannot be held liable under the Truth in Lending Act (TILA)⁴¹ for the servicer's failure to provide the payoff balance.⁴² The plaintiff borrower (Evanto) filed a lawsuit against the assignee defendant (Fannie Mae) after the loan servicer (Green Tree) purportedly failed to provide Evanto with his requested payoff balance after foreclosure proceedings were initiated against him.⁴³ The United States District Court for the Southern District of Florida granted Fannie Mae's motion to dismiss Evanto's lawsuit, and Evanto appealed.⁴⁴

[Page 1086]

The Eleventh Circuit's analysis in Evanto involved two subsections of TILA—15 U.S.C. § 1639g⁴⁵ and § 1641(e)(1).⁴⁶ The court held that Evanto could initiate an action against Fannie Mae, the assignee, for violation of TILA's requirement that an accurate payoff balance be provided...