FDCPA: 11th Circuit Provide Warning/Encouragement to Creditors and Debt Collectors

By: Kevin R. Gowen and Suzanne Barto Hill

11.24.14

Recent opinions from the Eleventh Circuit change the legal landscape for creditors, their attorneys and debtors. Creditors filing bankruptcy proofs of claims will now be subject to the FDCPA, at least in the Eleventh Circuit, but there is renewed hope for certain defenses, such as the litigation privilege.

In Crawford v. LVNV Funding, LLC, et al. (In re Crawford), 758 F.3d 1254 (11th Cir. Jul. 10, 2014), the Eleventh Circuit became the first federal circuit court to apply the Fair Debt Collection Practice Act (“FDCPA”) to a proof of claim filed in a Chapter 13 bankruptcy. The court held that the filing of a proof of claim was an attempt to collect a debt and therefore subject to the FDCPA, noting that it need not address whether the Bankruptcy Code preempts the FDCPA because the debt collector failed to raise preemption in its briefs. In Crawford, the debt collector filed a proof of claim on a pre-petition debt that turned out to be time-barred under the applicable Alabama three-year statute of limitations. The debtor then filed an adversary proceeding, alleging that the proof of claim violated the FDCPA. The bankruptcy court dismissed for failure to state a claim and the district court affirmed. The Eleventh Circuit reversed, however, holding that the filing of a proof of claim for a time-barred debt constituted violations of Section 1692e, which prohibits “any false, deceptive, or misleading representation or means in connection with the collection of any debt” and Section 1692f, which prohibits a debt collector from using “unfair or unconscionable means to collect or attempt to collect any debt.” The court’s ruling runs contrary to several federal circuit courts holding that the Bankruptcy Code preempts the FDCPA. As a result of this decision, debt collectors face increased liability under the FDCPA, and potentially under Florida’s counterpart, the Florida Consumer Collection Practices Act, for filing bankruptcy proofs of claims, at least until the Eleventh Circuit addresses the preemption issue. In the meantime, the debt collector has sought certiorari review from the United States Supreme Court based on an apparent circuit split regarding whether the Bankruptcy Code preempts the FDCPA.

In Fenello v. Bank of America, NA, 577 Fed.Appx. 899 (11th Cir. August 12, 2014), the Eleventh Circuit rendered a favorable opinion for creditors and their attorneys. Here, the court held that use of the FDCPA’s “mini-Miranda” disclosures in communications with borrowers will not, by itself, transform an entity that is not a debt collector under the FDCPA into one that is. In Fenello, the borrowers filed suit against their mortgage lender and servicer under various state and federal claims, including the FDCPA, for actions taken before and during the foreclosure of their home. In their FDCPA claims, they argued that the servicer violated Section 1692g(b) when it failed to provide them with verification of their debt and failed to cease collection efforts after they disputed the debt in writing, and Section 1692f(6) by taking or threatening to take nonjudicial action to dispossess them of their property that it did not have the present right to possess the property. The district court granted the servicer’s motion to dismiss and the Eleventh Circuit affirmed. First, the appellate court addressed the borrowers’ failure to establish that the loan servicer was a “creditor” for purposes of Section 1692g(b). The Fenellos’ pointed to disclaimer language in the servicer’s communications that stated the servicer was a “debt collector” under the FDCPA and certain state laws, arguing that the servicer should therefore be bound by those statements. The Eleventh Circuit rejected that argument, noting that the servicer was not a debt collector under Section 1692g(b) because its debt collection activities involved a debt that was not in default at the time it became the servicer, and the servicer could not transform itself into a debt collector under the FDCPA simply by stating it might be considered one. Regarding the claim that the loan’s creditor had no possessory right to the property, the appellate court again rejected the argument noting that the complaint and motion to dismiss presented copies of the promissory note and other documents that indisputably established the creditor’s right to foreclose due to the borrowers’ undisputed default. This is an important decision for creditor’s and their attorneys who utilize FDCPA “mini-Miranda” language, in an abundance of caution, when corresponding with debtors. Debtors have traditionally argued that such language has probative value in establishing a defendant’s status as a debt collector, and this case will provide a strong counter to such arguments.

Lastly, the court decided Coursen v. Shapiro & Fishman, GP, --- Fed.Appx. ----, 2014 WL 4978381 (11th Cir. October 7, 2014), which affirmed two summary judgment orders from the district court that the Eleventh Circuit described as “two reasoned and detailed opinions.” In one of those decisions, Coursen v. JP Morgan Chase & Co., 2013 WL 5437341 (M.D. Fla. September 27, 2013) (Coursen II), the district court held that plaintiff’s federal and state claims, including her FDCPA and FCCPA claims, were barred by the litigation privilege. In this litigation, plaintiff sued her mortgage lender, its agents and attorneys, asserting various federal and state claims, including claims under the FDCPA and the FCCPA. Her suit arose out of a state court foreclosure action brought against plaintiff. In granting summary judgment for the lender’s attorneys, the district court noted that both Federal and Florida law recognize absolute immunity from civil actions based upon an attorney’s conduct in litigation. Although there was no discussion of this issue in the Eleventh Circuit’s affirmance, except to note the privilege as a basis for the lower court’s summary judgment, this decision renews support for the litigation privilege defense to both the federal and state claims. The Eleventh circuit’s decision is also helpful in its discussion of the merits of plaintiff’s claims, finding that even if plaintiff’s claims were not untimely or otherwise barred, her claims fail on the merits because she failed to establish the necessary element of damages resulting from the defendants’ conduct. Here, although the plaintiff lost her home to foreclosure, she conceded defaulting on her mortgage loan, and was therefore subject to foreclosure. As such, the damages plaintiff complained of, losing her home, losing the equity in her home, damaged credit and pain and suffering were attributable to her own failure to make her mortgage payments. Thus, she could not establish a casual link between her damages and the defendants’ alleged conduct. In recent years, defaulted borrowers have increasingly filed FDCPA claims against foreclosure attorneys and their clients based upon their prosecution of the underlying foreclosure.  The Coursen II court’s application of litigation privilege to such claims, and tacit approval by the Eleventh Circuit, and the Eleventh Circuit’s damages causation analysis will help to provide additional defenses to such claims.