LVNV Funding, LLC et al v. Feggins, et al (JOINT ASSIGN)

Filing 15

OPINION AFFIRMING THE DECISION OF THE BANKRUPTCY COURT, as further set out. Signed by Honorable Judge Bernard A. Friedman on 9/2/16. (djy, )

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF ALABAMA
SOUTHERN DIVISION

LVNV FUNDING, LLC, et al.,

Chapter 13 No. 13-11319
Adversary Proceeding No. 14-01049

Appellants,
Civil Action. No. 15-cv-00893
HON. BERNARD A. FRIEDMAN

vs.
WILLIAM HENRY FEGGINS, et al.,
Appellees.
_______________________________/

OPINION AFFIRMING THE DECISION OF THE BANKRUPTCY COURT
This matter is presently before the Court on LVNV Funding, LLC’s and Resurgent
Capital Services, L.P.’s appeal from the Bankruptcy Court’s Memorandum Decision and Judgment,
entered in this consolidated adversary proceeding on November 20, 2015. Both sides have filed
their appellate briefs. Pursuant to Fed. R. Bankr. P. 8019(b)(3), the Court shall decide this appeal
without a hearing. For the following reasons, the Court shall affirm the decision of the Bankruptcy
Court.
I. Background
This appeal stems from a consolidation of five adversary proceedings1 filed by
Williams Henry Feggins (AP 14-1049), Ray C. Balcom (AP 14-1060), Donnie L. Chandler (AP 141062), Cynthia Gamble Grant (AP 14-1063), and Robert W. Henson (AP 14-1064) (collectively
“appellees”). In each case, plaintiffs filed a voluntary Chapter 13 petition, and LVNV Funding,
LLC, and Resurgent Capital Services, L.P. (collectively “appellants”) filed one or more proofs of

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There were initially eight individual adversary proceedings. However, the adversary
proceedings brought by Brandy Ward, Krista R. Oliver, and Robert R. Bryant have been voluntarily
dismissed.

claim for time-barred debts. Each appellee then filed an adversary proceeding, alleging that
appellants violated the Fair Debt Collection Practices Act (“FDCPA”) by filing a proof of claim on
a debt appellants knew to be time-barred.
The consolidated adversary action proceeded to trial, where the Bankruptcy Court
heard testimony from the following witnesses: Chapter 13 Trustee Curtis Reding; appellees Feggins,
Henson, Chandler, and Grant; attorneys Christopher Stanfield and Rafael Gil, III; and Lisa Landreth,
an employee of appellant Resurgent Capital Services, L.P. Appellants did not dispute that they had
filed proofs of claim on time-barred debts, nor did they dispute that they are “debt collectors” as that
term is defined in the FDCPA.
At the close of each parties’ case, appellants filed a motion for judgment on partial
findings. On November 20, 2015, the Bankruptcy Court denied these motions. Having determined
appellants’ liability for having filed proofs of claim for time-barred debts and disposing of their legal
defenses, the Bankruptcy Court awarded each plaintiff $1,000 in statutory damages, plus costs and
attorney fees. This appeal followed.
II. Standard of Review
“[T]he district court functions as an appellate court in reviewing bankruptcy decisions
. . . .” In re Piper Aircraft Corp., 362 F.3d 736, 738 (11th Cir. 2004). “A bankruptcy court’s
conclusions of law are reviewed de novo while its findings of fact are reviewed under the clearly
erroneous standard.” In re Gunn, 387 B.R. 856, 860 (M.D. Ala. 2008) (citing Gen. Trading Inc. v.
Yale Materials Handling Corp., 119 F.3d 1485, 1494 (11th Cir. 1997)).
III. Issues on Appeal
Appellants have briefed the following 11 issues on appeal:

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1. Did the Bankruptcy Court err in ruling that the Bankruptcy Code
forbids the filing of a proof of claim for a debt that was out-ofstatute?
2. Did the Bankruptcy Court err in ruling that there was no
irreconcilable conflict between the Bankruptcy Code and the
FDCPA?
3. Did the Bankruptcy Court err in applying Crawford v. LVNV
Funding, LLC retroactively to the appellants?
4. Did the Bankruptcy Court err in holding that the FDCPA applies
to communications to the Bankruptcy Estate, though it is not a
“natural person” as defined by the FDCPA?
5. Did the Bankruptcy Court err in applying the least-sophisticated
consumer standard to the communications in this matter?
6. Did the Bankruptcy Court err in holding that the proofs of claim
were “unfair,” “unconscionable,” or a “false, deceptive, or
misleading representation or means” in violation of the FDCPA?
7. Is it inequitable for appellees to voluntarily petition for
bankruptcy, invite creditors to participate in the process, and then
allege they were deceived by creditor’s participation?
8. Did the Bankruptcy Court incorrectly hold that the “first-filed
rule” does not apply to the claims of appellees?
9. Did the Bankruptcy Court err in denying appellants’ motion to
dismiss Ray Balcom when he failed to attend trial despite being
served with a subpoena?
10. Did the Bankruptcy Court err when it held that appellees
established a prima facie violation of the FDCPA?
11. Did the Bankruptcy Court incorrectly hold that appellants were
not protected by the bona fide error defense?
IV. Law and Analysis
The majority of the issues raised in this appeal are resolved by looking no further than
Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014), and Johnson v. Midland Funding,
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LLC, 823 F.3d 1334 (11th Cir. 2016). Crawford stated in relevant part:
Given our precedent, we must examine whether LVNV’s conduct –
filing and trying to enforce in court a claim known to be time-barred
– would be unfair, unconscionable, deceiving, or misleading towards
the least-sophisticated consumer. See id. at 1193–94; see also Jeter,
760 F.2d at 1172–78.
***
The reason behind LVNV’s practice for filing time-barred proofs of
claim in bankruptcy court is simple. Absent an objection from either
the Chapter 13 debtor or the trustee, the time-barred claim is
automatically allowed against the debtor pursuant to 511 U.S.C. §
502(a)-(b) and Bankruptcy Rule 3001(f). As a result, the debtor must
then pay the debt from his future wages as part of the Chapter 13
repayment plan, notwithstanding that the debt is time-barred and
unenforceable in court.
***
LVNV acknowledges, as it must, that its conduct would likely subject
it to FDCPA liability had it filed a lawsuit to collect this time-barred
debt in state court. Federal circuit and district courts have uniformly
held that a debt collector’s threatening to sue on a time-barred debt
and/or filing a time-barred suit in state court to recover that debt
violates §§ 1692e and 1692f. See Phillips v. Asset Acceptance, LLC,
736 F.3d 1076, 1079 (7th Cir.2013) (explaining that a debt collector’s
filing of a time-barred lawsuit to recover a debt violates the FDCPA);
see also Huertas v. Galaxy Asset Mgmt., 641 F.3d 28, 32–33 (3d
Cir.2011) (indicating that threatened or actual litigation to collect on
a time-barred debt violates the FDCPA, but finding no FDCPA
violation because the debt-collector never pursued or threatened
litigation); Castro v. Collecto, Inc., 634 F.3d 779, 783, 787 (5th
Cir.2011) (collecting cases and indicating that threatened or actual
litigation to collect a time-barred debt “may well constitute a
violation of [§ 1692e],” but ultimately concluding that no FDCPA
violation occurred because the debt was not time-barred under the
applicable statute of limitation); Freyermuth v. Credit Bureau Servs.,
248 F.3d 767, 771 (8th Cir.2001) (same as Huertas, supra ); cf.
McCollough v. Johnson, Rodenburg & Lauinger, LLC, 637 F.3d 939,
947–49 (9th Cir.2011) (affirming summary judgment in favor of the
consumer after the debt collector filed a time-barred lawsuit to
recover a debt).
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***
Similar to the filing of a stale lawsuit, a debt collector’s filing of a
time-barred proof of claim creates the misleading impression to the
debtor that the debt collector can legally enforce the debt. The “least
sophisticated” Chapter 13 debtor may be unaware that a claim is time
barred and unenforceable and thus fail to object to such a claim.
Given the Bankruptcy Code’s automatic allowance provision, the
otherwise unenforceable time-barred debt will be paid from the
debtor’s future wages as part of his Chapter 13 repayment plan. Such
a distribution of funds to debt collectors with time-barred claims then
necessarily reduces the payments to other legitimate creditors with
enforceable claims. Furthermore, filing objections to time-barred
claims consumes energy and resources in a debtor's bankruptcy case,
just as filing a limitations defense does in state court. For all of these
reasons, under the “least-sophisticated consumer standard” in our
binding precedent, LVNV’s filing of a time-barred proof of claim
against Crawford in bankruptcy was “unfair,” “unconscionable,”
“deceptive,” and “misleading” within the broad scope of § 1692e and
§ 1692f.
Id. at 1259–61. Johnson further elaborated on Crawford:
In Crawford, this Court faced a question nearly identical to the one
we consider here: “whether a proof of claim to collect a stale debt in
Chapter 13 bankruptcy violates the [FDCPA].” 758 F.3d at 1256. We
concluded there was an FDCPA violation in Crawford, based on
“[t]he FDCPA's broad language, our precedent, and the record.” Id.
at 1257.
The Crawford panel first looked to the language of the FDCPA,
which prohibits a “false, deceptive, or misleading representation,” 15
U.S.C. § 1692e, or “unfair or unconscionable means,” id. § 1692f, to
collect on a debt. 758 F.3d at 1258. Because of the ambiguity in these
terms, the Court adopted a “‘least-sophisticated consumer’ standard”
to evaluate whether a debt collector’s conduct was deceptive under
the FDCPA. Id. It then concluded that “[s]imilar to the filing of a
stale lawsuit,” which is prohibited by the FDCPA for debts on which
the statute of limitations has run, “a debt collector’s filing of a
time-barred proof of claim creates the misleading impression to the
debtor that the debt collector can legally enforce the debt.” Id. at
1261. This impression causes problems because “[t]he ‘least
sophisticated’ Chapter 13 debtor may be unaware that a claim is time
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barred and unenforceable and thus fail to object to such a claim.” Id.
Then when the debtor fails to object, the time-barred debt becomes
part of the debtor’s repayment plan, which would “necessarily
reduce[] the payments to other legitimate creditors with enforceable
claims.” Id. Thus Crawford held that the practice of filing
time-barred proofs of claim was misleading under the FDCPA. Id.
In a footnote, the panel said it “decline[d] to weigh in on a topic the
district court artfully dodged: Whether the Code ‘preempts’ the
FDCPA when creditors misbehave in bankruptcy.” Id. at 1262 n. 7.
The Court said it “need not address this issue” because the claimant
there “argue[d] only that its conduct does not fall under the FDCPA,
or, alternatively, did not offend the FDCPA’s prohibitions” and it
“d[id] not contend that the Bankruptcy Code displaces or ‘preempts’
§§ 16923 and 1692f of the FDCPA.” Id.
We now answer the question left open in Crawford. The Bankruptcy
Code does not preclude an FDCPA claim in the context of a Chapter
13 bankruptcy when a debt collector files a proof of claim it knows
to be time-barred. We recognize that the Code allows creditors to file
proofs of claim that appear on their face to be barred by the statute of
limitations. However, 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. Our
examination of these statutes leads us to conclude that the Code and
the FDCPA can be read together in a coherent way.
Id. at 1337–38.2
Appellants attempt to escape the holding in Crawford – that a debt collector violates
the FDCPA when it files a proof of claim in a Chapter 13 bankruptcy case on a debt it knows to be
time-barred – by arguing that the Bankruptcy Court should not have applied Crawford retroactively.
The Eleventh Circuit’s decision in Glazner v. Glazner, 347 F.3d 1212 (11th Cir. 2003), dictates the
analysis that a court must undergo in determining whether to retroactively or prospectively apply
a new rule of law:

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Johnson renders moot the first two issues briefed by appellants.
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[u]nder Chevron Oil, a court must look to the following factors to
determine whether to reject retroactive application of a new decision
in favor of purely prospective application:
First, the decision to be applied nonretroactively must
establish a new principle of law, either by overruling
clear past precedent on which litigants may have
relied or by deciding an issue of first impression
whose resolution was not clearly foreshadowed....
Second ... [a court must look] to the prior history of
the rule in question, its purpose and effect, and
whether retrospective operation will further or retard
its operation.... [Third, a court must look to] the
inequity imposed by retroactive application....
Id. at 1216 (quoting Chevron Oil Co. v. Huson, 404 U.S. 97, 106-07 (1971)).
Appellants argue that the Bankruptcy Court erred because it did not apply the
Chevron Oil factors before deciding to apply Crawford retroactively. The Bankruptcy Court,
however, was not announcing a new rule of law. In cases where a court must determine whether a
prior decision should be applied retroactively, the Supreme Court’s decisions in Harper v. Virginia
Dept. of Taxation, 509 U.S. 86 (1993) and James B. Beam Distilling Co. v. Georgia, 501 U.S. 529
(1991) are controlling. As summarized by Glazner,
[i]n Harper and Beam, the Supreme Court rejected modified
prospectivity in civil cases. Harper, 509 U.S. at 94–99, 113 S.Ct. at
2516–2518; Beam, 501 U.S. at 534–544, 111 S.Ct. at 2442–2448.
Harper and Beam both dealt with the question of whether a rule
announced and applied retroactively in a prior case should be applied
under pure retroactivity (i.e., retroactive in all cases) or modified
prospectivity (i.e., retroactive only in some cases) in subsequent
cases. The main principle for which Harper and Beam stand is that
once a court applies a newly announced rule to the parties before it,
all other courts must apply that rule to all pending cases.
Reynoldsville Casket Co. v. Hyde, 514 U.S. 749, 752, 115 S.Ct. 1745,
1748, 131 L.Ed.2d 820 (1995).
Id. at 1217–18 (emphasis added).

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In a nearly identical case, In re Holloway, 538 B.R. 137 (Bankr. M.D. Ala. 2015),
the Bankruptcy Court found that it was bound to apply Crawford retroactively because:
[o]nly a court announcing a new rule of law may choose not to apply
that rule retroactively under Chevron Oil, and if it so chooses it must
not apply the new rule to the litigants before it. If a court is not
announcing a new rule of law, but rather is following an existing rule,
it must apply that rule retroactively if the court that announced the
rule applied it to the litigants before it.
Id. at 141.
The Court agrees with the analysis in In re Holloway and is bound by the Supreme
Court’s holdings in Beam, Harper, and Reynoldsville Casket Co. As such, the Bankruptcy Court
was bound to apply Crawford , and neither this Court nor appellants can avoid its application.3 The
facts in this case are no different than those in Crawford. Appellants are debt collectors that
admittedly sought to collect time-barred debts from each of the plaintiffs by filing one or more
proofs of claim in each debtor’s Chapter 13 case. Appellants filed these proofs of claim knowing
these debts were time-barred. Under these facts, Crawford is inescapable. By demonstrating at trial
that appellants filed proofs of claim on debts that were clearly time-barred in each of the debtor’s
Chapter 13 case, appellees proved a violation of the FDCPA.
Appellants remaining arguments do change this outcome. Appellants argue that (A)
its actions are protected by the FDCPA’s bona fide error defense; (B) Balcom’s adversary
proceeding should have been dismissed when he failed to attend trial; and (C) the consolidated
adversary proceeding should be dismissed in its entirety because the plaintiffs lack standing under

3

Issues four through seven briefed in this appeal are, yet again, more attempts by appellants
to avoid application of Crawford. Having reviewed these arguments, the Court finds them frivolous,
as finding merit in any of these arguments would require the Court to disregard the clearly
established precedent in Crawford.
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the first-filed rule to pursue their claims. Although none of these issues is meritorious, the Court
will briefly address each in turn.
A. The Bona Fide Error Defense
Appellants argue they are entitled to the bona fide error defense, which states that
“[a] debt collector may not be held liable in any action brought under [the FDCPA] if the debt
collector shows by a preponderance of evidence that the violation was not intentional and resulted
from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid
any such error.” 15 U.S.C. § 1692k(c). A defendant asserting a bona fide error defense must show
by a preponderance of evidence that its violation of the FDCPA “(1) was not intentional; (2) was
a bona fide error; and (3) occurred despite the maintenance of procedures reasonably adapted to
avoid any such error.” Edwards v. Niagara Credit Solutions, Inc., 584 F.3d 1350, 1352-53 (11th
Cir. 2009). Importantly, the Supreme Court has held “that the bona fide error defense in § 1692k(c)
does not apply to a violation of the FDCPA resulting from a debt collector’s incorrect interpretation
of the requirements of that statute.” Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 559
U.S. 573, 604-05 (2010).
Appellants argue that the Jerman decision does not prevent them from asserting the
bona fide error defense because appellants “did not wrongly understand existing law,” as the law
changed and they “could not have misinterpreted something that previously did not exist.”
Appellants’ Br. at 59. Although appellants argue the semantics of the Supreme Court’s holding in
Jerman, they cannot avail themselves of the bona fide error defense, as the defense “does not apply
to a violation of the FDCPA resulting from a debt collector’ incorrect interpretation of the
requirements of the statute.” Jerman, supra.

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B. Ray Balcom’s Failure to Comply with a Subpoena
Appellants also argue that the Bankruptcy Court should have dismissed Ray
Balcom’s adversary proceeding because, despite being served a subpoena, he failed to appear for
trial. In declining to do so, the Bankruptcy Court cited the following three reasons:
First, Balcom’s testimony was unnecessary to prove his own case-inchief because his counsel submitted documents raising a prima facie
violation of the FDCPA. . . . Second, the other Plaintiffs testified at
trial, and the Court infers Balcom would have testified substantially
as they did. Third, and most importantly, it is clear from the
Defendants’ examination of the other Plaintiffs that the Defendants
wanted Balcom’s testimony to support their contention that he was
not misled or harmed in any way and that there was no violation of
the FDCPA. However, FDCPA claims are decided under an
objective standard and Balcom’s subjective testimony would have
been unnecessary and irrelevant. . . . The Defendants articulated no
persuasive reason for why Balcom’s testimony would have been
probative of any issue at trial. Therefore, the Court will not dismiss
Balcom’s case for his non-compliance with the Defendants’
subpoena.
Memorandum & Decision, Docket Entry 1-4, 4.
A court has discretion to “hold in contempt a person who, having been served, fails
without adequate excuse to obey the subpoena or an order related to it.” Fed. R. Civ. P. 45(g); Fed.
R. Bankr. P. 9016. “[T]he determination of certain matters committed to the discretion of the
bankruptcy court is reviewed for abuse of discretion.” HDR Architecture, P.C. v. Maguire Group
Holdings, 523 B.R. 879, 886 (S.D. Fla. Dec. 24, 2014). “A bankruptcy court abuses its discretion
when is ruling is founded on an error of law or on misapplication of the law to the facts.” Park Nat’l
Bank v. Univ. Ctr. Hotel, Inc., 2007 WL 604936, at *1 (N.D. Fla. Feb. 22, 2007).
The Bankruptcy Court did not abuse its discretion when it denied appellants’ motion
to dismiss Balcom’s adversary proceeding. The Bankruptcy Court articulated three reasons for its

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decision, none of which demonstrate that its ruling was founded on an error of law.
C. The First-Filed Rule
Appellants argue that the consolidated adversary proceeding should have been
dismissed under the “first-filed rule,” which
provides that when parties have instituted competing or parallel
litigation in separate courts, the court initially seized of the
controversy should hear the case. Merrill Lynch, Pierce, Fenner &
Smith, Inc. v. Haydu, 675 F.2d 1169, 1174 (11th Cir.1982). Thus, we
have held that “[w]here two actions involving overlapping issues and
parties are pending in two federal courts, there is a strong
presumption across the federal circuits that favors the forum of the
first-filed suit under the first-filed rule.” Manuel, 430 F.3d at 1135
(citations omitted). The first-filed rule not only determines which
court may decide the merits of substantially similar cases, but also
generally establishes which court may decide whether the second
filed suit must be dismissed, stayed, or transferred and consolidated.
See Mann Mfg., Inc. v. Hortex, Inc., 439 F.2d 403, 408 (5th
Cir.1971); Sutter Corp. v. P & P Industries, Inc., 125 F.3d 914, 920
(5th Cir.1997) (citing Mann Mfg., 439 F.2d at 408).
Collegiate Licensing Co. v. Am. Cas. Co. of Reading, Pa., 713 F.3d 71, 78 (11th Cir. 2013). Further,
[t]he purpose of the rule is “to avoid the waste of duplication, to
avoid rulings which may trench upon the authority of sister courts,
and to avoid piecemeal resolution of issues that call for a uniform
result.” West Gulf Maritime Ass’n v. ILA Deep Sea Local 24, 751
F.2d 721, 729 (5th Cir.1985). Moreover, it simply promotes judicial
efficiency. That said, “the first-filed rule should not be applied too
rigidly or mechanically and a District Court may in its discretion
decline to follow the first-filed rule if following it would frustrate
rather than further these purposes.” United States v. 22.58 Acres of
Land, 2010 WL 4311254, *5 (M.D.Ala.2010) (citing Alltrade, Inc.
v. Uniweld Prods, Inc., 946 F.2d 622, 628 (9th Cir.1991)).

Goldsby v. Ash, No. 2:09-CV-975-TFM, 2010 WL 1658703, at *2 (M.D. Ala. Apr. 22, 2010).
Appellants argue that the first-filed rule should have barred the appellees’ adversary
proceedings because a prior Crawford-like class action lawsuit had been filed against appellants in
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the U.S. District Court for the Southern District of Alabama. Although the class had yet to be
certified, appellants argue that the appellees were “necessarily still a party to that [class action]
lawsuit regardless of any future intentions they might have” to opt out. Appellants’ Br. at 56. As
such, appellants argue that “[appellees had] no standing to bring this matter” and the Bankruptcy
Court should have dismissed their complaints. Id.
Appellants’ argument is flawed for multiple reasons. First, the first-filed rule has
nothing to do with a party’s standing. Second, dismissal would not have been the appropriate
remedy, as “[t]he well-marked and well-beaten path in these circumstances is to stay, not dismiss,
this second-filed action while [the movant] (if it chooses to do so) litigates the applicability of the
first-filed doctrine in the [first-filed forum].” DermaMed Techs. Corp. v. Passmore Labs, 2011 WL
1753196, *9 (S.D. Ala. Apr. 21, 2011). And third, appellants’ argument erroneously assumes the
Bankruptcy Court was bound to “rigidly or mechanically” apply the first-filed rule. Whether to
apply the first-filed rule is discretionary – and the Bankruptcy Court had good reasons not to apply
the rule. The purpose of the rule would not have been advanced by applying it to the instant matter,
as there was no danger of “trench[ing] upon the authority of sister courts” because at the time the
issue was raised in the Bankruptcy Court, no class had yet been certified in the other court. For the
same reason, there was no danger of “duplication.” For these reasons, the Bankruptcy Court did not
abuse its discretion in declining to apply the first-filed rule.

V. Conclusion
Despite appellants’ many arguments to avoid Crawford and Johnson, these decisions
are binding on this Court. Under Crawford, the appellants violated the FDCPA by filing proofs of

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claim in the Chapter 13 cases on debts that were known to be time-barred. As such, and for the
aforementioned reasons, the Court affirms the Bankruptcy Court’s Memorandum Decision and
Judgment, entered in this consolidated adversary proceeding on November 20, 2015.

S/ Bernard A. Friedman______________
BERNARD A. FRIEDMAN
SENIOR UNITED STATES DISTRICT JUDGE
SITTING BY SPECIAL DESIGNATION
Dated: September 2, 2016
Detroit, Michigan

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