Engelby v. I.C. System, Inc.
Filing
38
ORDER denying 24 Motion to Dismiss. (Written Opinion) Signed by Judge Patrick J. Schiltz on 3/27/2018. (CLG)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
CHAD D. ENGELBY,
Case No. 17‐CV‐0296 (PJS/FLN)
Plaintiff,
v.
ORDER
I.C. SYSTEM, INC., a Minnesota
corporation,
Defendant.
Michael J. Sheridan, ATLAS LAW FIRM, LLC, for plaintiff.
Sean P. Flynn, GORDON & REES LLP, for defendant.
Plaintiff Chad D. Engelby filed a petition for relief under Chapter 7 of the United
States Bankruptcy Code. Among the debts that he sought to have discharged was a
debt to Molldrem Family Dentistry (“Molldrem”). After Engelby filed his petition,
Molldrem hired defendant I.C. System, Inc. (“ICS”) to collect Engelby’s debt. ICS sent
three letters to Engelby—two while his bankruptcy proceedings were pending and one
after his debt to Molldrem had been discharged by the bankruptcy court.
Engelby brings this action against ICS, alleging that each of ICS’s letters violated
the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692 et seq. This matter is
before the Court on ICS’s motion to dismiss Engelby’s amended complaint. ECF No. 24.
ICS argues that it cannot be held liable under the FDCPA because it did not know that
Engelby had filed for bankruptcy or that his debt had been discharged. ICS further
argues that Engelby is judicially estopped from pursuing his FDCPA claims because he
did not disclose those claims during the bankruptcy proceedings. For the reasons that
follow, the Court finds that both of ICS’s arguments are meritless, and therefore denies
ICS’s motion to dismiss.
I. BACKGROUND
Engelby became indebted to Molldrem in the amount of $825.60. ECF No. 16,
Am. Compl. (“Compl.”) ¶ 6. On April 21, 2016, Engelby filed a Chapter 7 petition in the
United States Bankruptcy Court for the District of Minnesota. Id. ¶ 8. Engelby
identified Molldrem as one of his creditors. Id. ¶ 9; see also ECF No. 26, Flynn Decl.
Ex. 1, Bankr. Pet., Sched. F (listing a debt of $826.00 to Molldrem on account 4500).
Three days later, the clerk of the bankruptcy court mailed a Notice of Chapter 7
Bankruptcy Case to Molldrem (and Engelby’s other creditors). Compl. Ex. A. That
notice informed Molldrem that “[t]he filing of the case imposed an automatic stay
against most collection activities.” Id. The notice specifically warned Molldrem that it
could not “try to collect from [Engelby]” or “demand repayment from [him] by mail,
phone, or otherwise.” Id.
In July 2016, Molldrem hired ICS to collect the debt from Engelby. Id. ¶ 7; see
also ECF No. 25 at 2. Molldrem apparently did not inform ICS that Engelby had filed
for bankruptcy or that the automatic stay barred collection activities against him. ICS
‐2‐
sent letters to Engelby on July 9, 2016, and July 29, 2016, both demanding that he repay
his debt to Molldrem. Compl. ¶ 12; see also id. Ex. B. Engelby did not respond.
The bankruptcy court issued an Order for Discharge on August 11, 2016. Id.
¶ 14; see also Flynn Decl. Ex. 3. On August 12, 2016, ICS sent Engelby yet another letter
demanding that he repay his debt to Molldrem. Compl. ¶ 15; see also id. Ex. C. Of
course, that debt no longer existed, as it had been discharged the previous day by the
bankruptcy court. But ICS was apparently unaware of that fact.
Engelby brings this action against ICS, alleging that ICS violated multiple
provisions of the FDCPA when it sent demand letters to him on July 9, July 29, and
August 12, 2016. ICS now moves to dismiss Engelby’s amended complaint for failure to
state a claim.
II. ANALYSIS
A. Standard of Review
To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a
complaint must “state a claim to relief that is plausible on its face.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007). Although the factual allegations in the complaint
need not be detailed, they must be sufficient to “raise a right to relief above the
speculative level.” Id. at 555. In assessing the sufficiency of the complaint, the Court
may disregard legal conclusions that are couched as factual allegations. See Ashcroft v.
‐3‐
Iqbal, 556 U.S. 662, 678‐79 (2009). The Court must, however, accept as true all of the
factual allegations in the complaint and draw all reasonable inferences in the plaintiff’s
favor. See id. at 678.
Ordinarily, if the parties present, and the Court considers, matters outside of the
pleadings, the motion must be treated as a motion for summary judgment. Fed. R. Civ.
P. 12(d). But the Court may consider materials that are necessarily embraced by the
complaint, as well as any exhibits attached to the complaint, without converting the
motion into one for summary judgment. Mattes v. ABC Plastics, Inc., 323 F.3d 695, 697
n.4 (8th Cir. 2003); see also Kushner v. Beverly Enters., Inc., 317 F.3d 820, 831 (8th Cir. 2003)
(“‘When deciding a motion to dismiss, a court may consider the complaint and
documents whose contents are alleged in a complaint and whose authenticity no party
questions, but which are not physically attached to the pleading.’”) (citation omitted).
B. FDCPA Claims
Engelby alleges that ICS violated the FDCPA when it sent collection letters to
him on July 9, July 29, and August 12, 2016. Engelby relies on multiple provisions of the
FDCPA, but only one of those provisions needs to be discussed, because the Court must
deny ICS’s motion if Engelby has pleaded a plausible claim under any provision of the
FDCPA.
‐4‐
Under the FDCPA, a “debt collector” may not “use any false, deceptive, or
misleading representation or means in connection with the collection of any debt.” 15
U.S.C. § 1692e.1 The FDCPA sets forth a non‐exclusive list of acts that violate this
provision, including the making of a “false representation of the character, amount, or
legal status of any debt.” 15 U.S.C. § 1692e(2)(A).
Each of the three letters sent to Engelby by ICS asserted that Engelby’s debt to
Molldrem was due, and each of the letters demanded that Engelby repay that debt. But
at the time of the July 9 and July 29 letters, Engelby’s debt to Molldrem was not due
because of the automatic stay. And at the time of the August 12 letter, Engelby’s debt to
Molldrem was not due because that debt had been discharged by the bankruptcy court.
It seems clear, then, that the three letters misrepresented the legal status of Engelby’s
debt to Molldrem in violation of § 1692e(2)(A). See Randolph v. IMBS, Inc., 368 F.3d 726,
728 (7th Cir. 2004) (“[A] demand for immediate payment while a debtor is in
bankruptcy (or after the debt’s discharge) is ‘false’ in the sense that it asserts that money
is due, although, because of the . . . discharge injunction, it is not.” (internal citations
omitted)); Eide v. Colltech, Inc., 987 F. Supp. 2d 951, 962‐63 (D. Minn. 2013) (“Sending a
collection letter indicating that a certain debt is due and payable when the debt has
1
ICS does not dispute that it is a “debt collector.” See 15 U.S.C. § 1692a(6). Nor
does ICS dispute that Engelby owed a “debt” to Molldrem. See 15 U.S.C. § 1692a(5).
‐5‐
actually been discharged in bankruptcy constitutes a false representation about the legal
status of the debt, and is a violation of the FDCPA under the plain language of the
statute.”).
ICS does not dispute that its letters mischaracterized the legal status of Engelby’s
debt. ICS argues, however, that it nevertheless cannot be held liable under the FDCPA
for two reasons. First, ICS argues that it cannot be held liable under the FDCPA
because at the time that it sent the letters it did not know that Engelby had filed for
bankruptcy or that his debt had been discharged. Second, ICS argues that Engelby is
judicially estopped from pursuing his FDCPA claims because he did not disclose those
claims during the Chapter 7 proceedings. The Court will address each defense in turn.
1. Lack of Notice
ICS asserts—and Engelby does not dispute—that ICS was not aware of Engelby’s
bankruptcy proceedings, and thus ICS was not aware of the automatic stay or the
eventual discharge of Engelby’s debt to Molldrem. ICS further argues that “[d]ue to the
lack of notice of the bankruptcy and discharge, ICS could not have willfully and
knowingly violated the automatic stay and discharge injunction by communicating
with Plaintiff and therefore did not violate the FDCPA.” ECF No. 25 at 2. The Court
disagrees.
‐6‐
Engelby could have sued ICS under the Bankruptcy Code for violating the
automatic stay and could have sought to hold ICS in contempt of court for attempting
to collect a discharged debt. See 11 U.S.C. § 362(a)(6) (the filing of a bankruptcy petition
operates as a stay on “any act to collect, assess, or recover a claim against the debtor that
arose before the commencement of the case”); 11 U.S.C. § 524(a)(2) (a discharge of a
debt in a bankruptcy proceeding “operates as an injunction against the commencement
or continuation of an action, the employment of process, or an act, to collect, recover or
offset any such debt as a personal liability of the debtor”). Had Engelby done so,
Engelby could not have collected damages unless he was able to prove that ICS acted
willfully. See 11 U.S.C. § 362(k)(1) (providing damages to “an individual injured by any
willful violation of a [bankruptcy‐related] stay”); In re Emmons, 349 B.R. 780, 793 (Bankr.
W.D. Mo. 2006) (“[W]illful violations of the discharge injunction are punishable by
contempt. . . . A creditor found in contempt for having willfully violated the discharge
injunction is subject to an award of actual damages including attorneys fees.”). Thus,
ICS’s lack of knowledge of the bankruptcy proceedings would have been a defense to
an action under the Bankruptcy Code.
But Engelby has not sued ICS under the Bankruptcy Code. Instead, he has sued
Engelby under the FDCPA. Section 1692e(2)(A) is a strict‐liability provision. To recover
under § 1692e(2)(A), a plaintiff need establish only that the defendant made a “false
‐7‐
representation of the character, amount, or legal status of any debt.” A plaintiff is not
required to prove that the defendant knew that the representation was false. See
Randolph, 368 F.3d at 730 (“§ 1692e(2)(A) creates a strict‐liability rule. Debt collectors
may not make false claims, period.”); see also Clark v. Capital Credit & Collection Servs.,
Inc., 460 F.3d 1162, 1176 (9th Cir. 2006); Gearing v. Check Brokerage Corp., 233 F.3d 469,
472 (7th Cir. 2000); Russell v. Equifax A.R.S., 74 F.3d 30, 36 (2d Cir. 1996).
This principle is applied in Turner v. J.V.D.B. & Assocs., Inc., 330 F.3d 991 (7th Cir.
2003), a case that closely resembles this one. In Turner, the plaintiff sued a debt collector
under § 1692e for attempting to collect a debt that had been discharged in bankruptcy.
The debt collector (J.V.D.B.) argued—as ICS argues here—that the debt collector could
not be held liable under § 1692e because it was not aware that the plaintiff’s debt had
been discharged. The district court agreed with the debt collector, but the Seventh
Circuit reversed:
Although J.V.D.B. was unaware of the bankruptcy, under
§ 1692e ignorance is no excuse. This circuit has held that
Ҥ 1692e applies even when a false representation was
unintentional.” Gearing v. Check Brokerage Corp., 233 F.3d
469, 472 (7th Cir. 2000) (citing Russell v. Equifax A.R.S., 74
F.3d 30, 33 (2d Cir. 1996) (because the Act imposes strict
liability, a consumer need not show intentional conduct by
the debt collector to be entitled to damages)). Moreover, our
test for determining whether a debt collector violated
§ 1692e is objective, turning not on the question of what the
debt collector knew but on whether the debt collector’s
communication would deceive or mislead an
‐8‐
unsophisticated, but reasonable, consumer. . . . Regarding
§ 1692e, then, it was legal error for the district court to treat
J.V.D.B.’s lack of knowledge as determinative and to grant
summary judgment on that basis.
330 F.3d at 995 (some internal citations omitted). Thus, ICS can be held liable to
Engelby under § 1692e(2)(A) regardless of whether it knew that it was making false
representations.2
All may not be lost for ICS, however. ICS will not be held liable to Engelby if it
can “show[] 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. At this point, though,
ICS has neither pleaded nor attempted to establish a bona fide error defense.3
2
There is a split in the circuits regarding whether 11 U.S.C. § 362 (which requires
a showing of willfulness) and 15 U.S.C. § 1692e (which does not) are in conflict, such
that the Bankruptcy Code should be deemed to have displaced the FDCPA. Compare
Randolph, 368 F.3d at 730‐32 (finding no implied repeal of the FDCPA), with Walls v.
Wells Fargo Bank, N.A., 276 F.3d 502, 504 (9th Cir. 2002) (finding such a repeal).
Although the Eighth Circuit has not addressed the issue, this Court—and, as far as this
Court can determine, the other district courts in the Eighth Circuit that have addressed
the issue—have agreed with Randolph that the Bankruptcy Code does not work an
implied repeal of the FDCPA. See, e.g., Drnavich v. Cavalry Portfolio Serv., LLC,
No. 05‐CV‐1022 (PAM/RLE), 2005 WL 2406030, at *2 (D. Minn. Sept. 29, 2005) (“This
Court finds most persuasive the detailed analysis and thorough reasoning of the
Seventh Circuit in Randolph. The Court agrees that the Bankruptcy Code and the
FDCPA do not irreconcilably conflict with each other so as to repeal the FDCPA by
implication.”).
3
ICS argues in its reply brief that § 1692e(2)(A) establishes liability only for
(continued...)
‐9‐
2. Judicial Estoppel
ICS also argues that Engelby is judicially estopped from pursuing his FDCPA
claims. ICS argues that Engelby had an affirmative duty to disclose all assets—
including contingent and unliquidated claims—in the bankruptcy proceedings. ICS
further argues that, because Engelby received the July 9 and July 29 letters while the
bankruptcy proceedings were pending, Engelby had a duty to disclose his FDCPA
claims related to those letters.4 ICS concludes that, because Engelby did not disclose
any potential FDCPA claims to the bankruptcy court, “under the principle of judicial
3
(...continued)
material misrepresentations and that its misrepresentations were not material because
Engelby could have consulted with the trustee and the trustee would have told him that
his debt to Molldrem was not due. ECF No. 30 at 3‐5. ICS’s argument is not properly
before the Court, however, because it was made for the first time in a reply brief. See
Torspo Hockey Int’l, Inc. v. Kor Hockey Ltd., 491 F. Supp. 2d 871, 878 (D. Minn. 2007)
(“[F]ederal courts do not, as a rule, entertain arguments made by a party for the first
time in a reply brief[.]”); see also Smith v. United States, 256 F. App’x 850, 852 (8th Cir.
2007) (“[T]he district court did not err in dismissing claims raised for the first time in a
. . . reply brief.”); Navarijo‐Barrios v. Ashcroft, 322 F.3d 561, 564 n.1 (8th Cir. 2003) (“It is
well settled that we do not consider arguments raised for the first time in a reply
brief.”). That said, the Court doubts that the materiality of a misrepresentation depends
on whether the debtor can consult a third party about the accuracy of the statement. If
that were the case, a misrepresentation would almost never be material, because a
debtor can almost always consult a third party (such as a lawyer).
4
ICS does not have a coherent judicial‐estoppel theory with respect to the
August 12 letter, which was not sent until after the bankruptcy proceedings were
terminated.
‐10‐
estoppel, Plaintiff waived his right to bring these claims post‐bankruptcy in the District
Court.” ECF No. 25 at 7.5 Again, the Court disagrees.
Engelby filed for bankruptcy protection under Chapter 7. The Bankruptcy Code
is clear that, in both Chapter 7 and Chapter 13 proceedings, the estate initially consists
of “all legal or equitable interests of the debtor in property as of the commencement of
the case.” 11 U.S.C. § 541(a)(1). Likewise, in both Chapter 7 and Chapter 13
proceedings, the estate also includes “[a]ny interest in property that the estate acquires
after the commencement of the case.” 11 U.S.C. § 541(a)(7) (emphasis added). But only
in Chapter 13 cases—and not in Chapter 7 cases—does the estate include “property . . .
that the debtor acquires after the commencement of the case but before the case is closed,
dismissed, or converted to a case under chapter 7[.]” 11 U.S.C. § 1306(a)(1) (emphasis
added). All of this was recently and succinctly explained by the Fifth Circuit:
Chapter 13 is a “wholly voluntary alternative to Chapter 7,”
which permits a debtor “to retain his property if he
proposes, and gains court confirmation of, a plan to repay
his debts.” [Harris v. Viegelahn, 135 S. Ct. 1829, 1835 (2015).]
5
As this sentence reflects, ICS often conflates distinct legal concepts. Sometimes
ICS argues that Engelby is judicially estopped from pursuing his FDCPA claims. Other
times ICS argues that Engelby waived his FDCPA claims. And other times ICS argues
that Engelby does not have standing to bring his FDCPA claims. These are distinct
legal doctrines, but they are often blurred together by ICS, as in the sentence quoted
above. It does not matter, though, as ICS cannot successfully resort to any of these
doctrines given the Court’s holding that Engelby’s FDCPA claims were not part of the
estate and that Engelby had no duty to disclose them.
‐11‐
By filing under Chapter 13, the debtor agrees that the
property he acquires after filing for bankruptcy will become
property of the bankruptcy estate under § 1306(a)(1). Id. On
the other hand, “Chapter 7 allows a debtor to make a clean
break from his financial past.” Harris, 135 S.[ ]Ct. at 1835. A
Chapter 7 debtor “is able to make a ‘fresh start’ by shielding
from creditors his postpetition earnings and acquisitions.”
Id. It follows logically that a new property interest the
debtor acquires after filing for bankruptcy becomes part of
the estate in a Chapter 13 case but does not become part of
the estate in a Chapter 7 case . . . .
In re Hawk, 871 F.3d 287, 295‐96 (5th Cir. 2017).
Engleby’s FDCPA claims against ICS were clearly not part of the bankruptcy
estate. Engelby filed for bankruptcy on April 21, 2016. ICS was not hired by Molldrem
—and ICS did not violate the FDCPA by sending letters to Engelby—until three months
later. Clearly, then, Engelby’s FDCPA claims did not exist “as of the commencement of
the case.” 11 U.S.C. § 541(a)(1). Moreover, because Engelby filed for Chapter 7
bankruptcy (not Chapter 13 bankruptcy), and because the right to sue ICS for violating
Engelby’s rights was an interest that Engelby (not the estate) acquired, Engelby’s
FDCPA claims did not later become a part of the estate.
ICS nevertheless argues that Engelby’s FDCPA claims should be considered part
of the estate because they are “sufficiently rooted in the pre‐bankruptcy past.” ECF
No. 36 at 3 (quoting Segal v. Rochelle, 382 U.S. 375, 379‐380 (1996)). ICS relies primarily
on In re Wisconsin Barge Lines, Inc., 91 B.R. 65 (Bankr. E.D. Mo. 1988). In that case, the
‐12‐
corporate debtors filed for Chapter 11 bankruptcy. While the bankruptcy proceedings
were pending, the debtors were charged with violating federal environmental laws.
The debtors pleaded guilty and were fined. Those fines were deemed to be claims
against the debtors. A dispute then arose over whether the indebtedness created by
those claims was dischargeable—and that, in turn, depended in part on whether the
claims had been made pre‐petition or post‐petition. The bankruptcy court found that
“the fines imposed upon the Debtors are pre‐petition claims because the conduct giving
rise to these claims occurred before the filing of the bankruptcy petition.” Id. at 68.
On the basis of Wisconsin Barge, ICS argues that Engleby’s FDCPA claims should
be considered part of the bankruptcy estate:
Here, even though the injury arguably accrued post‐petition,
the claim is sufficiently rooted in Plaintiff’s pre‐bankruptcy
past to make the FDCPA claims property of the bankruptcy
estate. Specifically, the debt that ICS was seeking to collect
was incurred by Plaintiff pre‐petition. The creditor‐debtor
relationship was established pre‐petition. Similar to the
scenario in Wisconsin Barge, supra, the alleged injury was not
quantified until after the bankruptcy filing when the letters
were sent. However, as the court held in Wisconsin Barge
held [sic], the fact that the claim was quantified
post‐petition, does not make Plaintiff’s FDCPA claim a
post‐petition claim because the claim was sufficiently rooted
in Plaintiff’s pre bankruptcy past because that was when the
creditor‐debtor relationship was created.
ECF No. 36 at 4. Therefore, ICS reasons, Engelby was legally obligated to disclose his
claims, and because he did not, he is now judicially estopped from pursuing them.
‐13‐
The flaws in ICS’s argument are readily apparent. As ICS itself recognizes,
“‘[a] claim is considered to arise, for bankruptcy purposes, at the time when acts giving
rise to the alleged liability were performed.’” Id. at 3 (quoting In re Transp. Sys. Int’l, 110
B.R. 888, 894 (D. Minn. 1990)). In Wisconsin Barge, the “acts giving rise to the alleged
liability”—that is, the violations of the environmental laws—occurred before the
bankruptcy petition was filed. Here, the “acts giving rise to the alleged liability”—that
is, ICS’s violations of the FDCPA—occurred after Engelby’s bankruptcy petition was
filed. This is not a case in which an unlawful act occurs prior to the filing of a petition,
but no injury occurs—or no injury is “quantified”—until after the filing of the petition.
Instead, this is a case in which the unlawful acts themselves did not occur until after the
filing of the petition. Indeed, one of the unlawful acts—the mailing of the August 12
letter—did not occur until after the bankruptcy proceedings were concluded. (It is a
measure of the implausibility of ICS’s position that ICS would define as part of the
bankruptcy estate a cause of action arising out of an unlawful act that occurred after the
bankruptcy proceedings terminated.)
ICS was not a creditor of Engelby’s. Engelby had no relationship whatsoever
with ICS until, three months after Engelby filed for bankruptcy, Molldrem hired ICS to
collect Engelby’s debt. Hence, at the time that Engelby filed his bankruptcy petition,
Engelby had no claims against ICS—not even “future, non‐possessory, contingent,
‐14‐
speculative, [or] derivative claims[.]” ECF No. 36 at 3. Not until three months later,
when ICS violated the FDCPA by mailing letters that misrepresented the status of
Engelby’s debt, did Engelby have a claim against ICS.
In short, Engleby’s FDCPA claims against ICS are analytically indistinguishable
from claims that he would have against, say, a negligent driver who injured him in a car
accident that occurred after the petition was filed, or an employer who failed to pay him
for hours worked after the petition was filed. None of these claims would be part of the
estate, nothing would require Engelby to disclose them, and nothing would preclude
Engelby from pursuing them now. Cf. In re Klein‐Swanson, 488 B.R. 628, 633 (B.A.P. 8th
Cir. 2013) (finding that post‐petition bonuses received by a debtor in recognition of pre‐
petition services were not “sufficiently rooted” in the pre‐bankruptcy past because at
the time of the filing of the Chapter 7 petition the debtor had no legal right to the
discretionary bonuses).
One of the cases cited by ICS is instructive. In Ortega v. Bel Fuse, Inc., 546 B.R. 468
(S.D. Fla. 2016), a debtor filed a Chapter 7 petition and then filed a lawsuit against his
employer to collect wages due under the Fair Labor Standards Act (“FLSA”). In his
complaint, the debtor sought wages related both to work done pre‐petition and to work
done post‐petition. The parties agreed that the pre‐petition claims should be dismissed
“as the bankruptcy trustee from [the debtor’s] Chapter 7 proceeding is the only party
‐15‐
with standing to bring those claims.” Id. at 470. With respect to the post‐petition
claims, however, the court held that the debtor was not judicially estopped from
asserting his claims:
[U]nlike a case filed under Chapter 11 or 13, the Chapter 7
debtor retains possession of property—or legal
claims—acquired after he files his bankruptcy petition.
. . . [T]he incidents giving rise to [the debtor’s] claims
occurred partially before and partially after the filing of his
petition. The incidents that occurred after [the debtor] filed
his petition are not sufficiently “rooted in the
pre‐bankruptcy past” because . . . a discrete FLSA cause of
action is created each time an employer issues a paycheck
that fails to pay overtime compensation.
Id. at 470, 472 (“[E]very paycheck issued to [the debtor] after he filed for bankruptcy . . .
created a distinct post‐petition FLSA cause of action which cannot be included in [the
debtor’s] Chapter 7 bankruptcy estate.”). Likewise here, a discrete cause of action
under the FDCPA arises each time a debt collector makes a false representation
regarding the legal status of a debt.
Finally, the Court disagrees with Abuan v. JPMorgan Chase & Co., No. 13‐CV‐1315
L(JMA), 2013 WL 5522221 (S.D. Cal. Oct. 3, 2013), on which ICS heavily relies. The
Abuan court held that a debtor was judicially estopped from pursuing claims under the
Telephone Consumer Protection Act and other statutes against a creditor who had
unlawfully attempted to collect its debt after the debtor filed for Chapter 7 bankruptcy.
‐16‐
The case is distinguishable; there, the debtor and creditor had a relationship that began
before the bankruptcy petition was filed, whereas here Engelby and ICS had no such
relationship. But the case is also unpersuasive.
Abuan relied primarily on Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778 (9th
Cir. 2001), a decision about the failure of a debtor to disclose a contingent claim that he
possessed at the time that he filed for bankruptcy. As described above, however, the
Bankruptcy Code treats such a claim differently than a claim that arises after a debtor
files for bankruptcy. When the debtor pointed this out, the Abuan court did not respond
by engaging in statutory analysis or parsing the many judicial decisions supporting the
debtor’s position. Instead, the Abuan court simply said (with virtually no explanation)
that allowing the debtor to pursue her claim would undermine the integrity of the
bankruptcy system. Abuan, 2013 WL 5522221, at *3.
This Court respectfully suggests that it is the Abuan decision that undermines the
bankruptcy system. As the Supreme Court has explained:
Chapter 7 allows a debtor to make a clean break from his
financial past, but at a steep price: prompt liquidation of the
debtor’s assets. . . . Crucially, however, a Chapter 7 estate
does not include the wages a debtor earns or the assets he
acquires after the bankruptcy filing. § 541(a)(1). Thus, while
a Chapter 7 debtor must forfeit virtually all his prepetition
property, he is able to make a “fresh start” by shielding from
creditors his postpetition earnings and acquisitions.
‐17‐
Harris, 135 S. Ct. at 1835 (emphasis added). It is difficult to understand how a Chapter 7
debtor’s failure to disclose a cause of action that he acquires after filing for bankruptcy
could threaten the integrity of a system that is intended to give him “a ‘fresh start’ by
shielding from creditors his postpetition . . . acquisitions.” Id.6
* * * * *
In sum, the Court finds that Engelby has pleaded plausible claims that ICS
violated § 1692e(2)(A) of the FDCPA when it sent collection letters to him on July 9,
July 29, and August 12, 2016. The Court further finds that Engelby’s FDCPA claims
were not part of the bankruptcy estate, that Engelby had no duty to disclose those
claims, and that Engelby is not foreclosed from pursuing those claims in this action.
ICS’s motion to dismiss is therefore denied.
6
The Abuan court also did not mention the practical consequences of its holding.
If a debtor in a Chapter 7 proceeding must disclose every asset that comes into his
possession post‐petition, then the debtor would have to amend his schedule any time
that he received a paycheck or a gift.
‐18‐
ORDER
Based on the foregoing, and on all of the files, records, and proceedings herein,
IT IS HEREBY ORDERED THAT defendant’s motion to dismiss [ECF No. 24] is
DENIED.
Dated: March 27, 2018
s/Patrick J. Schiltz
Patrick J. Schiltz
United States District Judge
‐19‐
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?