Second Circuit Holds that the Discharge Injunction Provisions of the Bankruptcy Code do not Repeal Post Discharge Claims Under the Fair Debt Collection Practices Act

— by Matthew Schutte

Case: Garfield v. Ocwen Loan Servicing, LLC, 2016 U.S.  App. LEXIS 3 (2d Cir. 2016)

Abstract: Plaintiff borrower appealed from District Court’s dismissal of her post discharge Fair Debt Collection Practices Act claims against Defendant loan servicer. The Second Circuit held that the discharge injunction provision of the Bankruptcy Code does not broadly or impliedly repeal FDCPA claims in the post discharge context.

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Plaintiff borrower was a former Chapter 13 debtor. Plaintiff sued Defendant loan servicer, alleging that Defendant violated various provisions of the Fair Debt Collection Practices Act (FDCPA) when it tried to collect a debt on her mortgage that had previously been discharged in bankruptcy proceedings. The United States District Court for the Western District of New York granted Defendant’s motion to dismiss for failure to state a claim on the ground that the exclusive remedy for Defendant’s alleged conduct was under the discharge injunction provision in §524(a) of the Bankruptcy Code.

In reviewing the District Court’s dismissal of Plaintiff’s claim, the Second Circuit had to address four issues of first impression: (1) whether § 524(a) of the Bankruptcy Code broadly repeals the FDCPA in the context of FDCPA claims based on conduct that would constitute a violation of the Bankruptcy Code’s discharge injunction; (2) whether § 524(a) of the Bankruptcy Code impliedly repealed Plaintiff’s claim that Defendant’s attempt to collect the discharged debt constituted a violation of §1692e(11) of the FDCPA, requiring a debt collector to provide a mini Miranda warning in its initial communication with a debtor; (3) whether § 524(a) of the Bankruptcy Code impliedly repealed Plaintiff’s claims under § 1692e(11) and § 1692g(a)(3) of the FDCPA, regarding the way in which Defendant tried to collect Plaintiff’s post bankruptcy monthly payments; and (4) whether § 524(a) of the Bankruptcy Code impliedly repealed Plaintiff’s claim that Defendant’s attempt to collect her discharged debt constituted a violation of §§ 1692e, 1692e(2), 1692(e)(5), and 1692e(8) of the FDCPA, which regulate debt collection.

The Court began its analysis by discussing the general rules regarding implied repeal. If a party claims that a later enacted statute creates an irreconcilable conflict with an earlier statute, then the court must decide whether the later statute has impliedly repealed all or part of the earlier statute. National Ass’n of Home Builders v. Defenders of Wildlife, 551 U.S. 644, 662-63 (2007). The Court noted that courts generally disfavor implied repeal. If there is no affirmative showing of an intent to repeal, then implied repeal is only justified if the earlier and later statutes are irreconcilable. Morton v. Mancari, 417 U.S. 535, 550 (1974).

The Court then went on to apply these rules to the bankruptcy context. If a party claims that a later enacted Bankruptcy Code statute creates an irreconcilable conflict with an earlier statute, then the court must differentiate between claims brought under the earlier statute while bankruptcy proceedings are pending and claims brought after discharge. The Second Circuit had previously decided that the FDCPA does not allow lawsuits on claims that are based on acts that allegedly violated the Bankruptcy Code if they are brought while bankruptcy proceedings are pending. Simmons v. Roundup Funding, LLC, 662 F.3d 93, 96 (2d Cir. 2010).

The Court held first that the § 524(a) of the Bankruptcy Code does not broadly repeal in the FDCPA in the context of FDCPA claims based on conduct that would violate the discharge injunction under § 524(a) of the Bankruptcy Code. The Court found no irreconcilable conflict between post discharge remedies under the Bankruptcy Code and the FDCPA, reasoning, “[t]here is no reason to assume that Congress did not expect these two statutes to coexist in the post discharge context.” In the post discharge context, the bankruptcy court no longer protects the former debtor. This factor was central to the Court’s reasoning in Simmons in holding that the Bankruptcy Code precludes FDCPA claims where they are brought during the pendency of bankruptcy proceedings. Additionally, the Court noted that § 524(a) of the Bankruptcy Code does not provide a clear cause of action for violations of the discharge injunction.

For the second issue, the Court held that the Bankruptcy Code did not impliedly repeal Plaintiff’s claim that Defendant’s attempt to collect her discharged debt violated §1692e(11) of the FDCPA. This statute requires debt collectors to provide mini-Miranda warnings in initial communications with debtors. The Court reasoned that Defendant’s communication constituted an attempt to collect a discharged debt, in violation of the Bankruptcy Code’s discharge injunction, as well as the FDCPA’s mini-Miranda requirement.

In addressing the third issue, the Court held that the Bankruptcy Code did not impliedly repeal Plaintiff’s claims that Defendant’s attempt to collect her delinquent post bankruptcy monthly payments constituted a violation of  § 1692e(11) and § 1692g(a)(3) of the FDCPA. The latter of these provisions requires debt collectors to provide debtors with timely notice of the opportunity to dispute a debt. The Court again found that Defendant’s alleged violations of these provisions did not conflict with any provisions of the Bankruptcy Code.

Finally, the Court held that the Bankruptcy Code did not impliedly repeal Plaintiff’s claim that Defendant’s attempt to collect her discharged debt violated §§ 1692e, 1692e(2), 1692(e)(5), and 1692e(8) of the FDCPA. These provisions regulate the collection of debt. The Court reasoned that a loan servicer could avoid violating the FDCPA provisions as well as the Bankruptcy Code by simply refraining from attempting to collect discharged debt. Thus, when Defendant tried to collect the discharged debt, it risked violating the FDCPA as well as the Bankruptcy Code, and there was no conflict between the statutes.

The Court reversed and remanded the District Court’s dismissal of Plaintiff’s claims and instructed the District Court to reinstate all of Plaintiff’s claims.

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