Jenkins v. Genesis Financial Solutions et al

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
FAYETTEVILLE DIVISION
IN RE:
TONY LEE JENKINS
DEBTOR
CASE NO.
10-05912-8-SWH
TONY LEE JENKINS
Plaintiff
v.
GENESIS FINANCIAL SOLUTIONS and
VATIV RECOVERY SOLUTIONS, LLC,
Defendants.
ADVERSARY PROCEEDING NO.
11-00080-8-SWH-AP
ORDER ALLOWING MOTION TO DISMISS
The matter before the court is the motion to dismiss filed by defendants Genesis Financial
Solutions and Vativ Recovery Solutions, LLC in response to plaintiff Tony Lee Jenkins’ complaint
seeking actual and statutory damages based on alleged violations of the federal Fair Debt Collection
Practices Act (“FDCPA”) and North Carolina’s new statutory provisions with respect to debt
SO ORDERED.
SIGNED this 19 day of September, 2011.
________________________________________
Stephani W. Humrickhouse
United States Bankruptcy Judge
____________________________________________________________
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collection by debt collection agencies. 	A hearing was held in Raleigh, North Carolina, on
August 11, 2011. For the reasons that follow, the motion will be allowed.
Background and Legal Standard
For purposes of the motion to dismiss, the defendants adopted the statement of facts set out
in the plaintiff’s complaint, and the plaintiff adopted the defendants’ statement of the bases upon
which the court must assess the sufficiency of a complaint. 	See, e.g., Bell Atlantic Corp. v.
Twombly, 127 S. Ct. 1955 (2007).
The plaintiff and debtor, Tony Lee Jenkins, filed a petition for relief under chapter 13 on
July 26, 2010. 	The plaintiff filed a Schedule F which included “two claims allegedly owed to
Discover Financial Services (hereinafter “Discover”), one in the amount of $4,637.47, and the other
in the amount of $4,412.84; both such claims were listed by the plaintiff as ‘disputed.’” Complaint
¶ 15a. The plaintiff also listed a claim “allegedly owed to Nations Bank in the amount of $6,117.76;
such claim was also listed by the plaintiff as ‘disputed.’” Id. ¶ 15b.
Defendant Vativ filed a proof of claim on behalf of Genesis Financial Services (“Genesis”)
in the amount of $13,554.02, based on “‘unsecured merchandise and/or cash advances’ purportedly
made by the plaintiff.” 	Id. at ¶ 16a. 	Genesis is a debt buyer based in Beaverton, Oregon, and
registered to do business in North Carolina. Vativ is a debt collector based in Sugar Land, Texas,
and provides “bankruptcy management” services to debt owners, including Genesis. Vativ indicated
on the proof of claim that the debtor may have “scheduled [the] account as: DISCOVER CARD,”
that the present owner of the debt was Genesis, and that the claim was filed by Vativ “as agent for”
Genesis. Id. at ¶ 16b. Vativ stated that the “Original Balance, Plan Balance and Current Balance
were all $13,554.02.” Id. at ¶ 16c.
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Vativ filed a second proof of claim on behalf of Genesis with respect to the Nations Bank
claim listed by plaintiff, in which Vativ identified Genesis as the present owner of the debt to
Nations Bank and stated that it was filing the claim as agent for Genesis. Vativ stated that the
“Original Balance, Plan Balance and Current Balance were all $18,716.66.” 	Id. at ¶ 17c. 	The
plaintiff asserts that Genesis acquired the claims after the underlying accounts were in default.
On October 11, 2010, the trustee filed an objection to confirmation and motion to dismiss
based on the debtor’s failure to make plan payments and to provide proof of filing of required tax
returns, but withdrew the motion by notice dated November 3, 2010. The trustee filed a second
objection to confirmation and motion to dismiss on February 11, 2011, stating that the debtor had
failed to file a confirmable plan. On February 22, 2011, the debtor filed objections to both of the
Genesis claims, alleging as to both that Genesis had failed to attach sufficient documentation as
required by Rule 3001 of the Federal Rules of Bankruptcy Procedure and, separately, that collection
of the claim was barred under North Carolina state law. The debtor argued that the claims were
outside the statute of limitations and, further, that operation of new state statutes applicable to debt
collection agencies both 1) preclude collection of a claim outside the statute of limitations and
2) require documentation of debt ownership and verification of the amount owed. 	Also on
February 22, the debtor filed objections to two other, similar claims asserted by RJM Acquisitions
Funding LLC, a different debt buyer. Orders allowing the objections to the the RJM claims, and
disallowing the claims, were entered on March 20, 2011.
The court did not decide the objections to the Genesis claims because they were promptly
withdrawn by Vativ on March 2, 2011. 	In each notice of withdrawal, Vativ stated that it was
“permanently withdrawing” the claim on grounds that it was “wrongly filed.” 	Despite Vativ’s
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withdrawal of the claims, the debtor proceeded to file the instant adversary proceeding on March 4,
2011, asserting as counts in the complaint the same bases that previously were asserted in the
objections to the claims. On March 28, 2011, the trustee withdrew his objection to confirmation and
motion to dismiss.
Discussion
The first count alleges violations of the Fair Debt Collection Practices Act (“FDCPA”).
According to plaintiff, the defendants violated the FDCPA by filing proofs of claim that are “based
on time-barred debts” and are not supported by sufficient documentation. 	In the second count,
plaintiff contends that the act of filing these proofs of claim constitutes collection activity in
violation of new North Carolina statutes applicable specifically, and only, to debt buyers and
collection agencies. The operation of the new statutes is the catalyst for plaintiff’s complaint and
provides the underpinning for plaintiff’s FDCPA claim. Plaintiff emphasized the significance of the
new statutes during the hearing and acknowledged that but for their enactment, this adversary
proceeding probably would not have been filed. Because under the new law the defendants have
no legal right to collect payment, plaintiff argues, they also have no legal basis on which to assert
a claim, such that their filed proofs of claim constitute unfair collection activity of the kind
precluded by the North Carolina General Statutes and the FDCPA.
The legal questions raised by the plaintiff are intriguing. 	The court notes at the outset,
though, that the facts of this case as alleged provide only a skeletal framework for the analysis the
plaintiff asks this court to undertake. The plaintiff’s complaint alleges in cursory fashion that the
claims are precluded by applicable statutes of limitations and that the defendants should have known
the claims were time-barred. The plaintiff simply states the following:
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Upon information and belief, the collection of the claims asserted by defendants in
the plaintiff’s underlying Chapter 13 case, and on its Proofs of Claim numbers 5 and
6, is, in fact, barred by the statute of limitations under applicable North Carolina law.
Complaint ¶ 21. 	The complaint does not cite or otherwise identify the applicable statute of
limitation, and does not state the date on which the debtor contends such statute began to run, or
expired. 1 It also does not specify the nature or amount of the actual damages allegedly incurred by
plaintiff, though counsel indicated at the hearing that the damages consist of legal fees incurred
when defendants’ claims prompted the trustee to object to confirmation. The court makes these
observations in order to illustrate that while the plaintiff asserts creative and far-reaching legal
arguments, they are premised upon a common and utterly unremarkable set of facts pertaining to old
credit card debt.2 As will be discussed below, this is a fact set the Bankruptcy Code is capable of
addressing.
Plaintiff contends that this case is unusual in that it is a “filing a proof of claim for a time-
barred debt PLUS” case. In other words, the filing of these proofs of claim by these defendants was
unlawful from the start and, plaintiff contends, defendants’ status as collection agencies, coupled
1 Although not pled or argued by the defendants, the court could, but chooses not to, dismiss
the complaint under a Twombly analysis.
2 Bankruptcy courts see this scenario all the time. The plague of stale claims emanating from
debt buyers recently prompted a flurry of discussion about and, ultimately, revision to Rule 3001
of the Federal Rules of Bankruptcy Procedure, which sets forth the requirements applicable to the
proper filing of a claim based on a writing. The amendments, which take effect December 1 of this
year, add additional requirements in an individual debtor case and specify the sanctions that may
ensue for failure to comply. See Fed. R. Bankr. P. 3001(c)(2) (effective December 1, 2011); see also
In re Andrews, 394 B.R. 384, 389 (Bankr. E.D.N.C. 2008) (discussing the need for revisions to the
rule in the context of claims filed by bulk claim buyers and referring the issue to the Advisory
Committee on Bankruptcy Rules); see also In re S&A Dennis Enters., Inc., 2011 WL 1457204 at
*8-9 	(Bankr. 	W.D.N.C. 	2011) 	(discussing 	the 	many 	divergent 	views 	of 	precisely 	what
documentation must accompany a claim for a credit card debt and declining to establish precedent
as to what is required, in part because of pending amendments to Rule 3001).
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with the assumed fact that they knew or should have known the debt was time-barred, precluded
them from even attempting to collect the debt through a suit, arbitration, “or otherwise.” The filing
of a proof of claim in this bankruptcy case was, under these circumstances, an unlawful attempt to
collect a debt under the laws of the State of North Carolina and the FDCPA. Because plaintiff has
made clear that his entire FDCPA argument is premised upon the state law argument, the court
addresses that issue first. It proves to be dispositive.
Plaintiff asserts that defendants’ filing of proofs of claim in the plaintiff’s bankruptcy case
is, by virtue of defendants’ status as debt buyers and the claims’ status as time-barred, an “attempt
to collect any debt by the use of any unfair practices” within the meaning of North Carolina General
Statute § 58-70-115. That statute sets out a non-exclusive list of unfair collection practices, two of
which plaintiff claims were violated by the defendants:
(4) When the collection agency is a debt buyer or is acting on behalf of a debt buyer,
bringing suit or initiating an arbitration proceeding against the debtor or otherwise
attempting to collect on a debt when the agency knows, or reasonably should know,
that such collection is barred by the applicable statute of limitations.
(5) When the collection agency is a debt buyer or acting on behalf of a debt buyer,
bringing suit or initiating an arbitration proceeding against the debtor, or otherwise
attempting to collect on the debt without (i) valid documentation that the debt buyer
is the owner of the specific debt instrument or account at issue and (ii) reasonable
verification of the amount of the debt allegedly owed by the debtor.
N.C. Gen. Stat. § 58-70-115. Plaintiff also asserts that the proofs of claim constitute an “attempt to
collect a debt . . . by any fraudulent, deceptive or misleading representation” within the meaning
of North Carolina General Statute § 58-70-110(4), which precludes a collection agency from “falsely
representing the character, extent, or amount of a debt against a consumer.”
The court is simply not persuaded that a creditor’s filing of a proof of claim in a bankruptcy
case constitutes an effort to “collect” within the meaning of North Carolina’s new statutes. Plaintiff
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offers no authority to establish that filing a proof of claim in a bankruptcy proceeding can constitute
an effort to collect a debt in the relevant context, and instead states only that “while it is debatable
whether or not the filing of the proofs of claim by the Defendants in this case were attempts to
collect debts in violation of the FDCPA and/or applicable North Carolina law (based on the status
and types of claims asserted), it is inarguable that the filing of such proofs of claims was an attempt
to collect a debt.” Plaintiff’s Mem. At 6-7.
The FDCPA seeks to curtail abusive collection practices, as articulated in the Congressional
findings and declaration of purpose: “There is abundant evidence of the use of abusive, deceptive,
and unfair debt collection practices by many debt collectors. 	Abusive debt collection practices
contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs, and to
invasions of individual privacy.” 15 U.S.C. § 1692(a). 	The North Carolina statutes also forbid
“fraudulent, deceptive or misleading representation” or “unfair practices” in the course of collecting
a debt, and lists certain activities – all of them patently obvious – that a debt collector may not
undertake, such as communicating with a consumer in a name other than his own, or using written
communications that purport to be issued by a court or other authority. See, e.g., N.C. Gen. Stat.
§ 58-70-115. The debt collection activities the State of North Carolina seeks to curtail have virtually
nothing in common with the filing of a proof of claim in bankruptcy court. The purpose of the state
statute is, the court believes, similar to the goals of the FDCPA, and those goals are not advanced
by plaintiff’s action. As the court in B-Real, LLC v. Rogers explained, in the context of similar
facts:
[T]he purpose of the FDCPA itself is not furthered by its application in this instance.
‘Debtors in bankruptcy proceedings do not need protection from abusive collection
methods that are covered under the FDCPA because the claims process is highly
regulated and court controlled.’ (citation omitted). While the FDCPA’s purpose is
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to protect unsophisticated consumers from unscrupulous debt collectors, that purpose
is not implicated when a debtor is instead protected by the court system and its
officers. See e.g. Argentieri v. Fisher Landscapes, Inc., 15 F. Supp. 2d 55, 61-62 (D.
Mass. 1988), in which the court explained: ‘The whole purpose of regulating debt
collection was to ‘supervise’ a range of unsupervised contacts, such as demand
letters and late-night telephone calls. 	In contrast, a statement in a pleading is
supervised by the court and monitored by counsel. The two situations are drastically
different.’
B-Real, LLC v. Rogers, 405 B.R. 428, 432 (M.D. La. 2009) (citation omitted). The court is not
persuaded that filing a proof of claim can constitute regulated “collection” activity within the
meaning of any of the statutory provisions at issue in this matter.
Accepting plaintiff’s construction also would run contrary to well-established meaning
within the Bankruptcy Code itself. If filing a proof of claim constituted a “collection” activity, then
filing proofs of claim under § 502(b) would be fundamentally at odds with language in § 362(a)(6)
providing that the filing of a petition “operates as a stay, applicable to all entities, of . . . any act to
collect, assess, or recover a claim against the debtor that arose before the commencement of the case
under this title.” Admittedly, the Bankruptcy Code has its share of internal inconsistencies, but these
particular provisions are not at odds in that way.
Because both Count 1 and Count 2 of the complaint are founded upon the court finding, as
a starting point, that the filing of a proof of claim constitutes a collection activity in violation of
North Carolina General Statutes 58-70-110(4) or 58-70-115(4) and (5), the court need not, and does
not, go further.3
3 The court notes as an aside that there is strong and ample authority for the proposition that
a creditor’s filing of a claim in a bankruptcy proceeding, even if the claim is prescribed by
applicable state law, is not an unlawful debt collection practice actionable under the FDCPA. See,
e.g., Simmons v. Roundup Funding, LLC, 622 F.3d 93, 95-96 (2nd Cir. 2010); B-Real, LLC v.
Chaussee (In re Chaussee), 399 B.R. 225, 227 (9th Cir. BAP 2008) (construing Walls v. Wells Fargo
Bank, N.A., 276 F. 3d 502 (9th Cir. 2002)), B-Real, LLC v. Rogers, 405 B.R. 428 (M.D. La. 2009);
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The court is sympathetic to debtors who, when careless debt buyers or collection agencies
file claims that are stale, inadequately reviewed, or otherwise flawed, 	find themselves in the
position of having to take the avoidable step of objecting to a claim that should not have been filed
in the first place. The issue is a real one, the problem is widespread, and it burdens both debtors and
the courts. But in “vanilla” cases such as this, i.e. where there are no allegations of a pattern of
conduct, an objection to claim is the more efficient and appropriate procedure by which to contest
the conduct.
It is ordered that the motion to dismiss is GRANTED.
SO ORDERED.
END OF DOCUMENT
see also, e.g., In re Varona, 388 B.R. 705, 719 (Bankr. E.D. Va. 2008) (not addressing the issue
directly but citing numerous cases that do). This court, like the Chaussee court, is “convinced that
the Code and Rules are up to the task of compensating a debtor for any damages or costs occasioned
by, and to punish and deter, those who would abuse the bankruptcy claims process,” such that an
objection to claim and motion for sanctions, if warranted, will typically be the appropriate measures
to take in cases involving stale claims filed by debt buyers. B-Real, LLC v. Chaussee, 399 B.R. at
241.
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