Truss et al v. LVNV Funding LLC et al
MEMORANDUM OPINION that 1 Motion to Withdraw the Reference is due to be denied without prejudice. Signed by Judge Abdul K Kallon on 5/26/2015. (YMB)
2015 May-26 PM 02:45
U.S. DISTRICT COURT
N.D. OF ALABAMA
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
TERRY DEWAYNE TRUSS and
LEVORICA ANDRILLE TRUSS,
LVNV FUNDING, LLC, and SUSAN }
Case No.: 2:14-mc-02052-AKK
This matter is before the court on Defendants’ Motion to Withdraw the
Reference. Doc. 1. For the reasons discussed below, the court will deny the
Plaintiffs Terry DeWayne Truss and LeVorica Andrille Truss filed for
Chapter 13 bankruptcy protection on June 19, 2014. Doc. 1-6 at 2. On June 26,
2014, Resurgent Capital Services, acting as agent of defendant LVNV Funding,
LLC, filed a proof of claim. Doc. 4-1 at 2, 4.The proof of claim listed an unsecured
amount of $393.65 and a charge off date of January 13, 2006. Id. at 4. Plaintiffs
filed this adversary proceeding in the Bankruptcy Court asserting only violations of
the Fair Debt Collection Practices Act (“FDCPA”). Doc. 1-1 at 3–5. Defendants
moved the District Court for the Northern District of Alabama to withdraw the
reference and relieve the Bankruptcy Court of jurisdiction pursuant to 28 U.S.C. §
157(d) and Federal Rule of Bankruptcy Procedure 5011. Doc. 1.
District courts possess “original and exclusive jurisdiction of all cases under
title 11” of the Bankruptcy Code. 28 U.S.C. § 1334(a) (2012). District courts are
permitted, however, to refer all cases to the bankruptcy court to the extent that they
arise under Title 11, arise in Title 11, or relate to a case under Title 11. 28 U.S.C. §
157(a) (2012). This court has entered such a general order of reference. See Bank
United v. Manley, 273 B.R. 229, 234 n.10 (N.D. Ala. 2001).
The reference that applies to this Chapter 13 case, however, is not absolute
because 28 U.S.C. § 157(d) provides for its withdrawal under limited
circumstances, either as a mandatory matter or as a permissive matter. The district
court is required to withdraw a proceeding “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 a
resolution of the dispute. See, e.g., In re Kiefer, 276 B.R. 196, 199 (E.D. Mich.
2002). Most courts, however, 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.’” Birgans v. Magnolia Auto Sales,
Case No. 5:12-mc-03830-CLS, 2012 WL 6000339, *2 (N.D. Ala. Nov. 30, 2012)
(quoting Matter of Vicars Ins. Agency, Inc., 96 F.3d 949, 952 (7th Cir. 1996));
Abrahams v. Phil-Con Services, LLC, Case No. 2:10-cv-00326-WS-N, 2010 WL
4875581, *2 (S.D. Ala. Nov. 23, 2010). This is the approach taken by all of the
district courts within the Eleventh Circuit that have considered the issue. Under
this approach, for withdrawal to be warranted, “‘the issues in question [must]
require more than the mere application of well-settled or “hornbook” nonbankruptcy law; significant interpretation of the non-Code statute must be
required.’” Abrahms, 2010 WL 4875581 at *2 (quoting Vicars, 96 F.3d at 953).
This court, in line with the other courts in this circuit, will follow the latter
approach. The FDCPA is undisputedly a non-Title 11 federal law impacting
interstate commerce, particularly when the use of an “instrumentality of interstate
commerce” is a definitional requirement for regulation under the statute. 15 U.S.C.
§ 1692a(6) (2012). Whether withdrawal is required, then, turns on whether
substantial and material consideration of the FDCPA will be necessary to the
resolution of the dispute.
Plaintiffs point to the Eleventh Circuit’s recent holding in Crawford v. LVNV
Funding, LLC, and argue that the court’s inquiry will not require substantial and
material consideration of the FDCPA because the Eleventh Circuit has decided the
issue. Doc. 3 at 4–5. In Crawford, the Eleventh Circuit held that the filing of a
proof of claim to collect a stale debt in a Chapter 13 bankruptcy violates the
FDCPA. 758 F.3d 1254, 1256 (11th Cir. 2014). The Crawford plaintiff sued
LVNV regarding the exact same conduct as in this case—filing a proof of claim
for a time-barred debt. Id. at 1257. LVNV moved to dismiss the adversary
proceeding, asserting that the FDCPA does not forbid its alleged conduct. Id. The
bankruptcy and district courts agreed with LVNV, but the Eleventh Circuit
reversed and remanded. Id. The circuit court unequivocally held that “[t]he
FDCPA’s broad language, our precedent, and the record compel the conclusion
that defendants’ conduct violated a number of the Act’s protective provisions.” Id.
Undeterred by that holding, Defendants present two arguments attempting to
establish that, even in light of Crawford, substantial and material consideration of
the FDCPA is required to resolve Plaintiffs’ claims. First, Defendants contend that
“the issue before the Eleventh Circuit [in Crawford] was the sufficiency of the
pleadings under a Rule 12(b)(6) motion, and not the ultimate merits of the case.”
Doc. 4 at 4. According to Defendants, because the appellate opinion in Crawford
was not a final determination on the merits, and as the Eleventh Circuit
purposefully did not resolve certain initial issues (but left those for the district
court to rule upon), Crawford cannot be relied upon for a withdrawal analysis
under the FDCPA. This court disagrees because Defendants’ argument does not
properly account for the Eleventh Circuit’s plain language in Crawford.
In its Crawford decision, the Eleventh Circuit expressly held that the filing
of a proof of claim to collect a stale debt in a Chapter 13 bankruptcy violates the
FDCPA. Id. at 1256. The procedural posture of that case does not change the fact
that it is binding precedent. A Rule 12(b)(6) motion presents a proper vehicle for
the resolution of a question of law. See Neitzke v. Williams, 490 U.S. 319, 328
(1989) (“When a complaint raises an arguable question of law which the district
court ultimately finds is correctly resolved against the plaintiff, dismissal on Rule
12(b)(6) grounds is appropriate … .”). While factual issues remained in Crawford
and warranted a remand of the action for further proceedings (instead of remand
for an entry of judgment), 758 F.3d at 1262, this posture in no way detracts from
the precedential value of the Eleventh Circuit’s resolution of the underlying legal
issues and, in any event, does not relieve this court from being bound by that
analysis. Therefore, this court finds that Defendants’ first argument, that Crawford
cannot sufficiently guide this court’s analysis to the same conclusion, is unavailing.
Defendants’ second argument concerns the issue of whether the Bankruptcy
Code preempts the FDCPA when creditors misbehave in the bankruptcy context.
Doc. 4 at 6-8. This argument likewise fails. First, Defendants have not directly
raised the issue here and do not seek a ruling from this court on the issue. Rather,
Defendants merely state that “the Crawford opinion produced disparities between
the Bankruptcy Code and the FDCPA[,] and such disparities are complicated
interpretive issues of first impression,” which require “substantial and material”
consideration of the FDCPA. Doc. 4 at 6 (internal quotation marks omitted). Thus,
according to Defendants, whether the Bankruptcy Code “preempts” the FDCPA is
an “example of a ‘complicated interpretive issue  of first impression.’” Id.
(emphasis added) (internal quotation marks omitted). To be clear, Defendants
explicitly state the matter is not before the court: “By presenting Patrick,” a case
that “addressed the preemption issue between the FDCPA and the Bankruptcy code
. . . Plaintiff[s] [are] in essence asking this court to rule on a matter not presently
before it.” Doc. 4 at 7.
The court is aware that at least one circuit has held that the Bankruptcy Code
broadly precludes remedies under the FDCPA for actions taken in bankruptcy. See
Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 510 (9th Cir. 2002). And another
court of appeals has held that the Bankruptcy Code precludes remedies under the
FDCPA for wrongfully filed proofs of claim. See Simmons v. Roundup Funding,
LLC, 622 F.3d 93, 96 (2nd Cir. 2010). However, the court finds that the parties
have not placed the preemption issue before the court at this juncture. Moreover,
any analysis of the interplay between the Bankruptcy Code and the FDCPA will
undoubtedly require a close look at the Bankruptcy Code, which, in actuality,
makes the bankruptcy court best situated to undertake that analysis (if a party
raises the issue). Thereafter, the issue may be raised before this court on any appeal
from the bankruptcy court’s decision. As such, the court finds that mandatory
withdrawal is not warranted at this time.
The second type of withdrawal contemplated by section 157(d) is permissive
withdrawal. When determining whether adequate cause exits to withdraw a case
from bankruptcy court, a district court should consider: “(1) the advancement of
uniformity in bankruptcy administration; (2) decreasing forum shopping and
confusion; (3) promoting the economical use of the parties’ resources; and (4)
facilitating the bankruptcy process.” In re Childs, 342 B.R. 823, 827 (Bankr. M.D.
Ala. 2006). Additionally, the court should consider: “(1) whether the claim is core
or non-core; (2) efficient use of judicial resources; (3) a jury demand; and (4)
prevention of delay.” In re Childs, 324 B.R. at 827.
Defendants argue that Plaintiffs’ FDCPA claim is non-core, but the court is
not persuaded. Plaintiffs’ FDCPA claim is asserted in response to Defendants
filing a proof of claim in their bankruptcy case, and would not exist but for that
claim. Moreover, this case is readily distinguishable from In re Shortsleeve, 349
B.R. 297 (M.D. Ala. 2006), on which Defendants rely. The claims in that case
arose after the debtor’s bankruptcy was discharged, and not during the pendency of
the bankruptcy proceedings; therefore, the claims could not “conceivably have an
effect on the estate being administered in bankruptcy.” Id. at 300 (quoting Miller v.
Kemira, Inc., (In re Lemco Gypsum, Inc.), 910 F.2d 784 (11th Cir. 1990)). If
Plaintiffs succeeds on their FDCPA claims in the instant case and receive a money
judgment, without question the judgment will become an asset of the estate. See In
re Peed, Case No. 1:09-bk-15486, 2014 WL 2987637 (Bankr. S.D. Ala. July 1,
2014). Thus, the court finds that the adversary proceeding is inextricably related to
Given the court’s determination that the FDCPA claim is inextricably related
to the bankruptcy proceeding, an additional factor guides the court’s determination
that withdrawal of the bankruptcy reference at this point would not promote the
economical use of the parties’ resources, facilitate the bankruptcy process, or be an
efficient use of judicial resources. A putative class action has been filed in the
United States District Court for the Southern District of Alabama, wherein the
parties and counsel seek to represent a class defined as all consumers in the United
States who filed Chapter 13 bankruptcy in which Defendant LVNV filed one or
more proofs of claim for a debt that was barred by the statute of limitations. Brock
v. Resurgent Capital Services, LP, and LVNV Funding, LLC, Case No. 1:14-cv00324-WS-M (S.D. Ala.). Defendant LVNV has already sought to stay numerous
actions in the bankruptcy courts across this state until such time as a class
certification decision is made, and plaintiffs have an opportunity to opt out of the
Brock Class Action.
Given the numerous filings throughout the Alabama
bankruptcy courts (in cases with identical claims), the court finds that leaving the
bankruptcy reference in place will advance several important interests, including,
but not limited to, encouraging uniformity in bankruptcy administration,
decreasing confusion, promoting the economical use of the parties’ resources, and
facilitating the bankruptcy process.
For the reasons stated above, Defendants’ Motion to Withdraw the
Reference, doc. 1, is due to be denied without prejudice. The court will enter a
separate order consistent with this opinion.
DONE the 26th day of May, 2015.
ABDUL K. KALLON
UNITED STATES DISTRICT JUDGE
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