McGregor v. Asset Acceptance LLC

Filing 4

MEMORANDUM OPINION. Signed by Judge R David Proctor on 6/16/2015. (AVC)

FILED
2015 Jun-16 AM 10:19
U.S. DISTRICT COURT
N.D. OF ALABAMA

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
EASTERN DIVISION

VERONICA G. McGREGOR,
Plaintiff,
v.
ASSET ACCEPTANCE, LLC,
Defendant.

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Case No.: 1:15-mc-00143-RDP

MEMORANDUM OPINION
Before the court is Plaintiff’s Motion for Withdrawal of Reference (Doc. 1-1), filed
December 27, 2014. For the reasons discussed below, the court concludes that the motion is due
to be granted.
I.

Background
This adversary proceeding arises from Plaintiff Veronica G. McGregor’s allegations that

Defendant Asset Acceptance, by and through counsel, made certain unlawful statements (i.e.,
false and misleading representations regarding a debt that was previously paid and discharged
through Plaintiff’s bankruptcy case) to Plaintiff’s contemplated lender, Mutual Savings Credit
Union, while Plaintiff and her husband were pursuing the purchase of a home. (Doc. 1-2, ¶ 2).1
According to Plaintiff’s Complaint, the representations of Defendant’s attorneys’ resulted
in multiple violations of the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692 et
seq. (Counts One through Four), and a discharge violation under 11 U.S.C. § 1328(a) (Count
Five). (Doc. 1-2, at ¶¶ 1, 48-69). Plaintiff demanded a jury trial. (Doc. 1-1, at 2). On January
1

Specifically, Plaintiff’s Complaint alleges that Defendant falsely claimed that a judgment lien survived
Plaintiff’s bankruptcy, and that in its letter, Defendant offered to release the lien if a $3,000 payment was made
toward interest that had accrued on the judgment. (See Doc. 1-2, at ¶¶ 34-42).

26, 2015, Plaintiff filed a Motion for Withdrawal of Reference. (Doc. 1). The Motion has been
fully briefed and is ripe for decision. (Docs. 2, 3).
II.

Discussion
Plaintiff requests the court to withdraw the reference with respect to this adversary

proceeding for three reasons: (1) resolution of this matter will require the court to substantially
and materially consider the FDCPA; (2) discharge allegations arises out of the same facts and
circumstances as those forming the basis of the alleged FDCPA violations; and (3) Plaintiff has
demanded a jury trial. (See Doc. 1-1, ¶¶ 2-4).
District courts possess “original and exclusive jurisdiction of all cases under title 11” of
the Bankruptcy Code. 28 U.S.C. § 1334(a). District courts are permitted, however, to refer all
cases to the bankruptcy court to the extent that they arise under, arise in, or relate to a case under
Title 11. Id. at § 157(a). This court has entered such a general order of reference. See United
States v. ILCO, Inc., 48 B.R. 1016, 1020 (N.D. Ala. 1985). The reference that applies to this
Chapter 13 case, however, is not absolute. Title 28 U.S.C. § 157(d) provides for the withdrawal
of the reference under limited circumstances, either as a mandatory matter or as a permissive
matter. The court addresses each theory in turn, and for the reasons outlined below, the court
agrees that withdrawal of the reference here is appropriate.
A.

Mandatory Withdrawal

Plaintiff argues that the court is required to withdraw the reference in this proceeding
because resolution of Plaintiff’s FDCPA claims involves substantial and material consideration
of federal non-Bankruptcy Code law.2 The court agrees.

2

As an initial matter, Count Five of Plaintiff’s Complaint, alleging a violation of a bankruptcy court’s
discharge injunction, does not provide a basis for a mandatory withdrawal. A discharge violation is unquestionably
a core proceeding pursuant to 28 U.S.C. § 157(b)(2), and therefore the bankruptcy court has jurisdiction to
adjudicate the claim pursuant to 28 U.S.C. §§ 157(b) and 1334, and has authority to enter a final order with respect

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Mandatory withdrawal by a district court is required “if the court determines that
resolution of the proceeding requires consideration of both title 11 and other laws of the United
States regulating organizations or activities affecting interstate commerce.” 28 U.S.C. § 157(d).
Some courts, citing the statute’s plain language, have held that withdrawal is required if any
consideration of a non-Title 11 federal law is necessary to resolve a dispute. See, e.g., In re
Kiefer, 276 B.R. 196, 199 (E.D. Mich. 2002). However, district courts within the Eleventh
Circuit have found that “withdrawal should be granted only if the current proceeding could not
be resolved without substantial and material consideration of the non-Code federal law.” See,
e.g., Birgans v. Magnolia Auto Sales, Case No. 5:12-mc-03830-CLS, 2012 WL 6000339, *2
(N.D. Ala. Nov. 30, 2012) (citation omitted); In re Price, Case No. 2:06-mc-3317-MHT, 2007
WL 2332536, at *2 (M.D. Ala. Aug. 13, 2007); Abrahams v. Phil-Con Servs., LLC, Case No.
2:10-cv-00326-WS-N, 2010 WL 4875581, *2 (S.D. Ala. Nov. 23, 2010). Under this approach,
in order for withdrawal to be warranted, “the issues in question [must] require more than the
mere application of well-settled or ‘hornbook’ non-bankruptcy law; significant interpretation of
the non-Code statute must be required.” Abrahams, 2010 WL 4875581, at *2 (citation omitted).
This court, in line with other courts in this circuit, will follow this principal in addressing each of
Plaintiff’s arguments.
It is beyond dispute that the FDCPA is a non-title 11 federal law which affects interstate
commerce. 15 U.S.C. § 1692a(6). Therefore, whether withdrawal is required turns on whether
substantial and material consideration of the FDCPA is necessary to resolve the dispute.3

thereto. See In re Johnson, No. 03-41916-JJR-13, 2010 WL 3909226, at *1 (Bankr. N.D. Ala. Sept. 30, 2010).
Accordingly, Plaintiff’s discharge violation does not implicate a mandatory withdrawal, nor does Plaintiff argue that
it does. (See Doc. 1-2, ¶ 3; Doc. 3, at 4-5). Instead, for the reasons outlined below, whether this court is required to
withdraw the reference turns on Plaintiff’s FDCPA allegations.
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Plaintiff argues that any application of bankruptcy law in this case is relatively straightforward (Doc. 3 at
2), and Defendant counters that resolution of Plaintiff’s claims requires a substantial and material consideration of

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Although the resolution of Plaintiff’s FDCPA claims undoubtedly involves the resolution
of various state and bankruptcy law issues,4 if each of these non-federal, threshold issues are
resolved in Plaintiff’s favor, the case will be resolved by answering the following question: did
Defendant violate the FDCPA when it told Plaintiff’s potential lender that a judgment lien
survived her bankruptcy, which Defendant would release for $3,000 as payment for the interest
that had accrued on the judgment. (See Doc. 2, at 3). According to Plaintiff’s Complaint,
Defendant’s representations violated the FDCPA’s provisions prohibiting certain false and
misleading representations regarding Plaintiff’s debt. (Doc. 1-2, at ¶¶ 1, 48-69); see 15 U.S.C.
§§ 1692e(2), (10), 1692f(6).
The court has no trouble concluding that this issue extends beyond the application of
well-settled, non-bankruptcy law.
interpretation of the FDCPA.

Resolution of the ultimate issue requires significant

That is, the court must consider whether a defendant’s

communications with a third party may be actionable under 15 U.S.C. § 1692e. (See Doc. 3, at
3-4). If Defendant’s representations to Mutual Savings Credit Union are not actionable, Plaintiff
has no basis for her FDCPA claims. On this question, Plaintiff points to the unsettled nature of

bankruptcy and state law (Doc. 2, at 4-5). However, these issues are not dispositive of the current Motion. In this
case, whether withdrawal is required turns on whether “substantial and material consideration” of the FDCPA (i.e.,
the non-code law involved here) will be necessary to the resolution of the dispute.
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In Count One, Plaintiff alleges that Defendant made “false representation[s] of the amount and legal status
of the debt,” in part because she claims that she “owned no equity in any property[,] [and so] the unsecured creditors
were not entitled to any interest on their claimed debts.” (Doc. 11, ¶¶ 50-51). In Count Two, Plaintiff alleges that
Defendant misrepresented the effect of her payment on its proof of claim on the survival of its underlying judicial
lien. (Id. at ¶¶ 55-59). In Count Three, Plaintiff alleges, in relevant part, that Defendant’s “recorded judgment could
not attach to anything . . . [s]ince Plaintiff never owned any property that could be charged with payment of the
judgment.” (Id. at ¶ 61). Finally, in Count Four, Plaintiff alleges that Defendant misrepresented facts when “telling
Mutual Savings’ representative over the phone that the judgment lien would ‘follow’ Plaintiff or attach to property
acquired after her bankruptcy discharge.” (Id. at ¶ 68).
According to Defendant, it necessarily follows that, in order to assess the merits of Plaintiff’s claims, the
court must: (1) determine whether Defendant’s judgment lien could have attached to any of Plaintiff’s property
prior to the filing of her issue of bankruptcy petition, and, if so, which class of creditors could claim interest; and (2)
analyze Alabama law on the attachment and existence of judgment liens. (Doc. 2, at 5).

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whether the FDCPA requires misrepresentations be made directly to the debtor, argues that there
are no controlling decisions,5 and that a circuit split exists on the issue.6 (Doc. 3, at 3).

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The court’s research confirms that the Eleventh Circuit has not yet spoken directly on the issue.

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A review of the case law confirms Plaintiff’s observation regarding a split in the circuits. As noted in
more detail below, Sixth Circuit case law appears to favor Plaintiff’s position that certain third-party
communications may be actionable under the FDCPA; however, case law from the Second, Seventh, and Eighth
Circuits provides that only statements directed to the debtor are actionable.
In Bridge v. Ocwen Fed. Bank, FSB, 681 F.3d 355 (6th Cir. 2012), a borrower and her husband brought an
FDCPA action alleging that a mortgage lender, its purported assignee, and loan servicer improperly failed to
acknowledge payments and engaged in improper collection practices. Id. at 355. The Sixth Circuit held that
allegations that the defendant debt collectors “impermissibly communicated with third parties concerning [the
plaintiff’s] asserted outstanding debt, . . . and that [the defendants] have falsely reported the amount of debt [that
plaintiff and her husband] owe (or don’t owe) to the credit reporting agencies and to other parties” was sufficient to
state a plausible claim for relief under sections 1692c and 1692e. Id. at 363.
Contrary to the decision in Bridge, in Kropelnicki v. Siegal, 290 F.3d 118, 130 (2d Cir. 2002), the Second
Circuit held that a plaintiff could not sustain a cause of action under the FDCPA based on a communication that was
not directed at the debtor. Id. at 123. In Kropelnicki, debt collectors sought repayment on an unpaid balance due on
a credit card held by the plaintiff’s daughter, and on which the plaintiff was liable as a “supplemental cardholder.”
Id. at 123. During the debt collection, the defendants sent a letter addressed to plaintiff’s daughter, who lived at
plaintiff’s house, informing the daughter that a judgment had been entered against her (the daughter) on the
outstanding debt. Id. at 124. Subsequently, the plaintiff attempted to assert a claim under § 1692e, alleging that
defendants’ letter contained “false, deceptive or misleading representations made in connection with the collection
of [their] debt.” Id. at 129-30. The Second Circuit concluded that “[i]n order to make out this claim, [the plaintiff]
must first show that the letter was a communication to her. This she cannot do because the letter was only addressed
to [plaintiff’s daughter], and was therefore not a communication with [the plaintiff] at all.” Id. at 130; see also
Schuh v. Druckman & Sinel, LLP, 751 F. Supp. 2d 542, 548 (S.D.N.Y. 2010) (stating “a plaintiff cannot prevail in a
claim under the FDCPA merely by showing that the communication from the debt collector conveying information
about a debt was transmitted to just anybody. Rather, the plaintiff ‘must first show that the [communication] was a
communication . . . to the debtor herself.’ ” (quoting Kropelnicki, 290 F.3d at 548)).
Similarly, O’Rourke v. Palisades Acquisition XVI, LLC, 635 F.3d 938, 941-42 (7th Cir. 2011), the Seventh
Circuit held that a plaintiff could not sustain a § 1692e cause of action against a debt collector based on a third-party
communication. Id. at 943-44. In O’Rourke, the plaintiff attempted to base a FDCPA claim on an allegedly false
statement made by the defendant debt collector to a state court judge. Id. at 940-41. The dispute began when
defendant debt collector brought a state court action to collect on an unpaid credit card balance. Id. at 939.
Attached to defendants’ state court complaint was an exhibit that closely resembled a credit card statement listing
the balance the plaintiff owed and placing the defendant in the place of the issuer. Id. at 939. The plaintiff sued in
federal court claiming that the attachment violated the FDCPA, 15 U.S.C. § 1692e(2), (10). See id. at 939, 941.
Atypically, the plaintiff claimed that the attachment was actionable because it was meant to mislead the state court
judge. Id. at 939. The Seventh Circuit engaged in a substantial interpretation of the FDCPA, concluding in relevant
part:
As a general matter, [the FDCPA] and its protections do not extend to third parties. Although
courts have extended [the FDCPA’s] prohibitions to some statements made to a consumer’s
attorney, and to others who can be said to stand in the consumer’s shoes, none has extended [the
FDCPA] to persons who do not have a special relationship with the consumer. [T]he Act is limited
to protecting consumers and those who have a special relationship with the consumer -- such that
the Act is still protecting the consumer -- from statements that would mislead these consumers.
The Act is not similarly interested in protecting third parties.
By drawing the line at communications directed at consumers -- “any natural person obligated or
allegedly obligated to pay any debt” -- and those who stand in their shoes, [the FDCPA] fits its
purpose: protecting consumers. This gives consumers the full breadth of protection that [the

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It would be, of course, improper for this court to weigh in on the merits of this circuit
split here; rather, the court merely recognizes that (1) the split exists, (2) the Eleventh Circuit has
not yet weighed in on the question, and (3) the answer to the question is most likely dispositive
of the relevant claims asserted here. Therefore, because this proceeding will likely require a
substantial and material consideration of the FDCPA, the court must withdraw the reference.
B.

Permissive Withdrawal

Even if withdrawal is not required as to any of Plaintiff’s claims, the court concludes it
should exercise its discretion to permissively withdraw all five counts of Plaintiff’s Complaint.7
Section 157(d) permits the district court to withdraw, “in whole or in part, any case or
proceeding referred under this section, on its own motion or on timely motion of any party, for

FDCPA] permits and keeps us from reading into [the FDCPA] whatever implausible ends [the
plaintiff’s] lawyers can conjure up. This also avoids the arbitrary “class designation” of whether
the third party has “an extremely consequential role in the debt collection process.” And it keeps
us safe from the practical difficulty of parsing claims about whether a communication directed at a
third party is actionable. Thus, we read [the FDCPA’s] protections as extending to consumers and
those who stand in the consumer’s shoes and no others.
O’Rourke, 635 F.3d at 943-44 (internal footnotes and citations omitted).
Finally, the Eighth Circuit has also spoken plainly to the issue. “The weight of authority applying section
1692e does so in the context of a debt collector making a false, deceptive, or misleading representation to the
plaintiff.” Volden v. Innovative Fin. Sys., Inc., 440 F.3d 947, 954 (8th Cir. 2006) (emphasis in the original) (the false
statements at issue were not made to the consumer but between a check guarantee company and a returned-check
processor); see also Hemmingsen v. Messerli & Kramer, P.A., 674 F.3d 814, 818 (8th Cir. 2012). Although neither
the Second, Sixth, Seventh, or Eighth Circuits have spoken directly to the factual circumstance presented here, their
case law reflects different interpretations of the FDCPA.
7

Notwithstanding Defendant’s arguments otherwise, the court is authorized by 28 U.S.C. § 157(d) to
withdraw not only Plaintiff’s FDCPA violations, but her claim regarding alleged related discharge violations.
Inexplicably, Defendant repeatedly asserts that “only the Bankruptcy Court has jurisdiction to address the violation
of the discharge injunction [Plaintiff] asserts in Count 5.” (Doc. 2, at 1 (emphasis in original)). To the contrary, the
federal district court has original but not exclusive jurisdiction of “all civil proceedings arising under title 11, or
arising in or related to cases under title 11.” 28 U.S.C. § 1334(b). Pursuant to 28 U.S.C. § 157(a), the district court
has discretion to refer to the bankruptcy judge “any or all cases under title 11 and any or all proceedings arising
under title 11 or arising in or related to a case under title 11.” As discussed above, this district has issued a general
order of reference automatically referring to the bankruptcy judges for the district “all cases under title 11 and all
proceedings arising under title 11 or arising in or related to a case under title 11.” See ILCO, Inc., 48 B.R. at 1020.
Once referred, 28 U.S.C. § 157(d) authorizes the court to withdraw any reference for cause shown. It is not disputed
that Plaintiff’s discharge violation “arises under title 11.” Therefore, under 28 U.S.C. § 157(d), as a matter initially
“referred under this section” (i.e., § 157), the district court is authorized to withdraw Plaintiff’s discharge claim
(which alleges a violation of 11 U.S.C. § 1328(a)) for good cause.

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cause shown.” 28 U.S.C. § 157(d).

“The decision whether to withdraw the reference is

committed to the district court’s discretion.” Abrahams, 2010 WL 4875581, at *3 (citing In re
Tate, Case No. 09-cv-0039, 2010 WL 320488 at *8 (S.D. Ala. Jan. 18, 2010)). In determining
whether there is cause for withdrawal of a reference, the Eleventh Circuit directs the courts to
“consider such goals as advancing uniformity in bankruptcy administration, decreasing forum
shopping and confusion, promoting the economical use of the parties’ resources, and facilitating
the bankruptcy process.” Dionne v. Simmons (In re Simmons), 200 F.3d 738, 742 (11th Cir.
2000) (quoting In re Parklane/Atl. Joint Venture, 927 F.2d 532, 536 n.5 (11th Cir. 1991);
Holland Am. Ins. Co. v. Succession of Roy, 777 F.2d 992, 998 (5th Cir. 1985)). “Additional
factors that may be considered include: (1) whether the claim is core or non-core; (2) efficient
use of judicial resources; (3) a jury demand; and (4) prevention of delay.” Price, 2007 WL
2332536, at *2; BankUnited Fin. Corp. v. FDIC, 436 B.R. 216, 220 (S.D. Fla. 2010).
Plaintiff has demonstrated sufficient cause to withdraw each count of Plaintiff’s
Complaint. As discussed in more detail above, Plaintiff’s FDCPA claims are indisputably noncore, and it is at least arguable that the court will be required to interpret a non-Code statute in
deciding those claims. To the extent that this court will decide Plaintiff’s FDCPA claims, with
respect to the discharge violation claim, judicial economy favors not severing Plaintiff’s
Complaint.

(See Doc. 2, at 3 (“All five of [Plaintiff’s] claims are based upon the same

conduct . . . .”)). In addition, it is in the interest of all parties for the court to take up Plaintiff’s
allegation regarding discharge violations in order to provide uniform rulings and prevent the
needless confusion and delay that would likely result from separate proceedings. Plaintiff’s
bankruptcy estate is closed. Allowing the bankruptcy court to hear Plaintiff’s claims would do
little, if anything, to facilitate the bankruptcy process. Finally, Plaintiff has made a jury demand

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(Doc. 1-1, at ¶ 2), which also counsels in favor of withdrawal. Although no single factor applied
here is dispositive, taken together, all the factors weigh in favor of the court permitting
withdrawal. Therefore, having determined that Plaintiff has presented sufficient cause, the court
concludes that it should exercise its discretion and withdraw all five counts of Plaintiff’s
Complaint. (Doc. 1-2).
III.

Conclusion
For the reasons stated above, Plaintiff’s Motion to Withdraw the Reference (Doc. 1) is

due to be granted.
A separate order will be entered.
DONE and ORDERED this June 16, 2015.

_________________________________
R. DAVID PROCTOR
UNITED STATES DISTRICT JUDGE

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