Jacques v. U.S. Bank N.A, as trustee for MASTR Asset Backed S

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NEW YORK
----------------------------------------------------------x
In re 	Chapter 13
JUDE JACQUES, 	Case No. 08-42279-ess
Debtor.
----------------------------------------------------------x
JUDE JACQUES,
Plaintiff, 	Adv. Pro. No. 09-1018-ess
-against-
U.S. BANK N.A. in its capacity as Trustee for
the Registered Holders of the MASTR Asset
Backed Securities Series 2005-NC2 and
OCWEN LOAN SERVICING,
Defendants.
----------------------------------------------------------x
MEMORANDUM DECISION ON
DEFENDANTS’ MOTION TO DISMISS THE COMPLAINT
Appearances:
Joshua N. Bleichman, Esq. 	Saul O. Leopold, Esq.
268 Route 59 	Peter T. Roach & Associates, P.C.
Spring Valley, NY 10977 	125 Michael Drive, Suite 105
Attorney for the Plaintiff 	Syosset, NY 11791
Attorneys for the Defendants
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HONORABLE ELIZABETH S. STONG
UNITED STATES BANKRUPTCY JUDGE
This adversary proceeding was commenced by the filing of a complaint by Jude Jacques,
the debtor in this Chapter 13 case (the “Plaintiff”), against defendants U.S. Bank N.A. in its
capacity as Trustee for the Registered Holders of the MASTR Asset Backed Securities Series
2005-NC2 (“U.S. Bank”) and Ocwen Loan Servicing (“Ocwen”) (the “Defendants”). The
Plaintiff alleges that the Defendants filed an untimely and wrongful proof of claim, and that the
filing of the proof of claim violated the Real Estate Settlement Procedures Act, 12 U.S.C.
§§ 2601-2617 (“RESPA”) and the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692-
1692(p) (“FDCPA”), and was negligent and caused emotional distress. The Plaintiff seeks
actual, statutory, and punitive damages, and his legal fees and expenses, and also asks that his
debt to the Defendants be canceled, released, and discharged.
Before the Court is the Defendants’ motion to dismiss all of the claims asserted in the
Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), made applicable to this
adversary proceeding by Federal Rule of Bankruptcy Procedure 7012(b).
The Motion to Dismiss implicates the pleading standards announced by the Supreme
Court in Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009) and Bell Atlantic v. Twombly, 550 U.S. 544
(2007), and raises the question of whether claims under two broad remedial statutes, RESPA and
the FDCPA, may be asserted by a debtor in the context of a bankruptcy case. Some courts find
that these statutes may “coexist peaceably,” while others conclude that the Bankruptcy Code
precludes some claims that arise under these statutes. The Motion to Dismiss also raises the
question of whether the Plaintiff states a claim upon which relief can be granted.
The Court concludes that the second question should be answered before the first – that
is, the Court should determine whether the Plaintiff states a claim for relief under RESPA or the
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FDCPA before it can determine whether the Bankruptcy Code precludes the claim. If the
alleged claim is inadequate on its face, then it is not necessary to address the question of whether
preclusion should apply.
Here, the Plaintiff does not allege facts sufficient to state claims under theories of
RESPA, the FDCPA, negligence, or infliction of emotional distress. As a result, it is not
necessary to reach the question of whether any claim is precluded by the Bankruptcy Code. For
these reasons, the Motion to Dismiss is granted.
Jurisdiction
The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C.
§§ 1334(b) and 157(b)(2)(A).
Procedural History
On January 23, 2009, the Plaintiff commenced this Adversary Proceeding by filing the
Complaint. Docket No. 1.
On March 2, 2009, the Defendants filed the Motion to Dismiss, a Memorandum of Law
in Support of Defendants’ Motion to Dismiss (the “Defts’ Mem.”), and the Affirmation of Saul
O. Leopold in Support of Defendants’ Motion to Dismiss (the “Leopold Affirm.”). Docket No.
3. The Defendants argue that the Complaint should be dismissed because the Plaintiff’s RESPA
and FDCPA claims are preempted by the Bankruptcy Code, and separately, that the Plaintiff
does not adequately allege the elements of any of his claims.
On March 27, 2009, the Plaintiff filed the affirmation of Joshua N. Bleichman in
Opposition to Motion to Dismiss (the “Bleichman Affirm.”) and a Memorandum of Law with
Points and Authorities in Opposition to Motion to Dismiss (the “Pltf’s Mem.”). Docket No. 6.
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On April 1, 2009, the Defendants filed a Memorandum of Law in Support of Defendants’ Reply
to Opposition to Motion to Dismiss (the “Defts’ Reply”). Docket No. 7. On April 29, 2009, the
Plaintiff filed a supplement to his Opposition to Motion to Dismiss (the “Pltf’s Supp.”). Docket
No. 8. A hearing on the Motion to Dismiss was held on May 14, 2009, at which counsel for the
Plaintiff and counsel for the Defendants appeared and were heard and the matter was submitted
for decision.
Background
On April 17, 2008, the Plaintiff filed a petition for relief under Chapter 13 of the
Bankruptcy Code. Case No. 08-42279, Docket No. 1. The Debtor’s Schedule A–Real Property
lists his fee simple interest in 969 East 103rd Street, Brooklyn, New York (the “Premises”), with
a value of $450,000 and secured claims of $505,215. Id. The Debtor’s Schedule D–Creditors
Holding Secured Claims, lists Ocwen as the holder of a secured claim in the amount of
$366,680, secured by the Premises. Id. The Plaintiff also filed a Chapter 13 plan. Case No. 08-
42279, Docket No. 4. The Chapter 13 plan requires the Trustee to make disbursements to,
among others, an unidentified “Mortgage holder” for unspecified “pre-petition arrears . . . over
the life of the plan.” Id.
On April 20, 2008, the Bankruptcy Court served a Notice of Chapter 13 Bankruptcy
Case, Meeting of Creditors, & Deadlines (the “Bankruptcy Court Notice”) upon the Plaintiff’s
creditors, including Ocwen. Case No. 08-42279, Docket No. 8. The Bankruptcy Court Notice
provides notice of the dates scheduled for the Section 341 meeting of creditors, the hearing on
confirmation of the Chapter 13 plan, and the deadlines to file a proof of claim, file a complaint to
determine dischargeability of certain debts, and object to exemptions. Case No. 08-42279,
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Docket No. 6. The Bankruptcy Court Notice also provides that for all creditors, other than
governmental units, the deadline to file a proof of claim was August 12, 2008. Id.
The Proof of Claim
On May 1, 2008, Ocwen filed a secured proof of claim relating to its interest in the
Premises (the “Proof of Claim”). Case No. 08-42279, Claim No. 2-1; Leopold Affirm. Exh. 3
(Proof of Claim). The Proof of Claim states that the total amount of Ocwen’s secured claim is
$374,718.05, and the amount of arrearage and other charges as of the petition date is $8,147.35.
The Proof of Claim includes an itemization of the arrearage amount which lists “Monthly
Payments” of $7,331.40,1 “Late Charges” of $293.28, “Escrow Advances” of $319.94, “Fees,
Costs & Property Preservation Expenses” of $129.13, 2 “POC Fee” of $150.00, and “Pre-Pet
Suspense” credit of $76.40. It also includes a schedule of “Payoff Information” which identifies
“Unpaid Principal Balance” of $366,570.70, “Interest From: 01/01/2008 to 04/30/2008” of
$7,331.40, “Late Charges” of $293.28, “Escrow Advances” of $319.94, “Fees, Costs & Property
Preservation Expenses” of $129.13, “POC Fee” of $150.00, “Pre-Pet Suspense” credit of $76.40,
“Payoff as of: 04/17/2008" of $374,718.05, and “Per Diem Amount” of $61.10. Case No. 08-
42279, Claim No. 2-1; Leopold Affirm. Exh. 3 (Proof of Claim - Schedule B).
The Proof of Claim includes a copy of a mortgage signed by the Plaintiff on July 26,
1 Exhibit A to the Proof of Claim includes a “P&I Schedule” showing past-due
prepetition payments of $1,832.85 for January, February, March, and April 2008, at six percent
interest. Case No. 08-42279, Claim No. 2-1; Leopold Affirm. Exh. 3 (Proof of Claim).
2 Exhibit C to the Proof of Claim is an itemization of the “Pre-petition Fee[s], Costs &
Property Preservation Expenses” listing certified mail costs, a property inspection fee, and a
property valuation fee. Case No. 08-42279, Claim No. 2-1; Leopold Affirm. Exh. 3 (Proof of
Claim).
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2005, which names First Rate Capital Corp. as “Lender” and Mortgage Electronic Registration
Systems, Inc. (“MERS”) as “a nominee for Lender and Lender’s successors and assigns.” Case
No. 08-42279, Claim No. 2-1. Ocwen also attaches copies of a Note for $91,670, and an Interest
Only Adjustable Rate Note for $366,680, each signed by the Plaintiff on July 26, 2005, and each
naming First Rate Capital Corp. as the Lender. Id.
The Proof of Claim does not include documents showing an assignment of the mortgage
from First Rate Capital Corp. or MERS to U.S. Bank. Id. Ocwen states that “[t]he beneficial
interest under the mortgage was subsequently assigned to U.S. Bank N.A. in its capacity as
Trustee for the Registered Holders of the MASTR Asset Backed Securities Series 2005-NC2,”
and that “Ocwen is the loan servicer for U.S. Bank N.A. as Trustee.” Defts’ Mem. at 2.
The Plaintiff has not objected to the Proof of Claim in the bankruptcy case.
The Complaint
The Plaintiff alleges that “[o]n or about July 26, 2005, [he] borrowed the sum of
$366,680.00 from First Rate Capital Corp.” Complaint ¶ 13. He states that his Chapter 13 plan
“included a debt to U.S. Bank N.A., which was scheduled as a debt secured by a mortgage on the
residential real estate [of the Plaintiff] with an estimated value of $370,000,” and that his
Chapter 13 plan “provided for the cure of the pre-petition arrears to U.S. Bank N.A.” Complaint
¶ 15.
As to the Proof of Claim, the Plaintiff alleges:
The Defendant filed a sworn proof of claim . . . dated April 17, 2008 stating
mortgage arrears in the amount of $8,147.35 and the total claim amounting to
$374,718.05.
The proof of claim alleges $7,331.40 in Interest owed from 1/01/08-4/30/08
however, the amount is unsubstantiated and . . . unearned.
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The proof of claim alleges $129.13 in Fees, Costs & Property Preservation
Expenses, but fails to specify who the payee was.
The proof of claim alleges $319.94 in escrow advances, but fails to specify who
the payee was.
. . .
The amounts [described above] are what are known by the consumer bar as “junk
fees”.
The plaintiff[] believe[s] that [he] is being charged unauthorized late fees, that
[his] payments are being misapplied and that the mortgage account is not being
properly credited for payments of interest, principal, and escrow charges.
Complaint ¶¶ 18-21, 23-24.
The Complaint sets forth four claims for relief.3 The Plaintiff’s first claim is for violation
of RESPA (the “RESPA Claim”). The Plaintiff alleges that the Defendants violated RESPA by
failing to credit him for payments made on the mortgage. Complaint ¶¶ 25-27.
The Plaintiff’s second claim is for violation of the FDCPA (the “FDCPA Claim”). The
Plaintiff alleges that the Defendants violated the FDCPA by “misrepresenting the amount and
legal status of the debt,” filing a proof of claim that was “time barred,” and “filing a proof of
claim in an attempt to collect a time barred debt which was not authorized or permitted by law.”
3 In his Opposition to the Motion to Dismiss, the Plaintiff states that “[t]he three separate
laws which [he] alleges were violated by the Defendants [are] 1) Real Estate Settlement
Procedures Act (RESPA), 2) Fair Debt Collection Practices Act (FDCPA) and 3) Truth In
Lending Act (TILA).” Bleichman Affirm. ¶ 2. A review of the Complaint shows that it does not
include a claim under the Truth in Lending Act. “It is a basic principle that the complaint may
not be amended by the briefs in opposition to a motion to dismiss . . . .” Thomason v. Nachtrieb,
888 F.2d 1202, 1205 (7th Cir. 1989). See Morgan Distrib. Co. v. Unidynamic Corp., 868 F.2d
992, 995 (8th Cir. 1989) (“‘[I]t is axiomatic that a complaint may not be amended by the briefs
in opposition to a motion to dismiss.’”) (quoting Car Carriers, Inc. v. Ford Motor Co., 745 F.2d
1101, 1107 (7th Cir. 1984)); O'Brien v. Nat’l Prop. Analysts Partners, 719 F. Supp. 222, 229
(S.D.N.Y. 1989) (same). Accordingly, the Court will not consider the Plaintiff’s assertion that
the Defendants violated TILA.
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Complaint ¶¶ 29-31. See Complaint ¶¶ 28-33.
The Plaintiff’s third claim is for negligence (the “Negligence Claim”). The Plaintiff
alleges that the Defendants “intentionally, willfully and maliciously and/or negligently” filed a
time-barred proof of claim, and that as a result of “Defendants’ acts and omissions,” the Plaintiff
suffered damages. Complaint ¶¶ 34-37.
The Plaintiff’s fourth claim is for infliction of emotional distress (the “Emotional Distress
Claim”). The Plaintiff alleges that the Defendants “misrepresented to the Bankruptcy Court that
the Plaintiffs owed a debt to Defendants, by filing a proof of claim despite the fact that the debt
was not collectable.” Complaint ¶ 39. The Plaintiff further alleges that “Defendants’ actions
were reckless and negligent and [that] Plaintiff[] . . . suffered emotional injury and emotional
distress . . . .” Complaint ¶ 40.
Discussion
The Defendants seek the dismissal of the claims asserted in the Complaint on grounds
that, as to the RESPA and FDCPA Claims, they are preempted by the Bankruptcy Code, and as
to all of the claims, the Plaintiff does not state a claim upon which relief can be granted.
The Pleading Standard Under Rule 12(b)(6)
Federal Rule of Civil Procedure 12(b)(6), made applicable to bankruptcy cases by
Federal Rule of Bankruptcy Procedure 7012(b)(6), states that a complaint must contain a claim
upon which relief can be granted. In reviewing a claim for sufficiency under Rule 12(b)(6), the
court’s task is “‘to assess the legal feasibility of the complaint, not to assay the weight of the
evidence which might be offered in support thereof.’” Ryder Energy Distrib. Corp. v. Merrill
Lynch Commodities, Inc., 748 F.2d 774, 779 (2d Cir. 1984) (quoting Geisler v. Petrocelli, 616
7
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F.2d 636, 639 (2d Cir. 1980)). See Global Network Commc’ns, Inc. v. City of New York, 458
F.3d 150, 155 (2d Cir. 2006); Green v. Toyota Motor Creditcorp, 605 F. Supp. 2d 430, 433
(E.D.N.Y. 2009). The court accepts as true the plaintiff’s well-pleaded factual allegations and
“draw[s] all reasonable inferences in the plaintiff’s favor to decide whether the plaintiff has pled
a plausible claim for relief.” Spagnola v. Chubb Corp., 574 F.3d 64, 67 (2d Cir. 2009). See
Harris v. Mills, 572 F.3d 66, 71 (2d Cir. 2009); City of New York v. Beretta, 524 F.3d 384, 392
(2d Cir. 2008), cert. denied, 129 S. Ct. 1579 (2009). The court may consider the contents of any
“documents attached to the complaint as an exhibit or incorporated in it by reference, to matters
of which judicial notice may be taken, or to documents either in the plaintiffs’ possession or of
which plaintiffs had knowledge and relied on in bringing suit.” Brass v. Am. Film Techs., Inc.,
987 F.2d 142, 150 (2d Cir. 1993).
This standard requires a plaintiff to do more than speculate about circumstances that
might conceivably give rise to a claim for relief:
While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need
detailed factual allegations, a plaintiff’s obligation to provide the “grounds” of his
“entitle[ment] to relief” requires more than labels and conclusions, and a
formulaic recitation of the elements of a cause of action will not do. Factual
allegations must be enough to raise a right to relief above the speculative level, on
the assumption that all the allegations in the complaint are true (even if doubtful
in fact).
Twombly, 550 U.S. at 555 (citations omitted).
That is, a plaintiff must allege “enough facts to state a claim to relief that is plausible on
its face” for the claim to survive scrutiny under Rule 12(b)(6). Twombly, 550 U.S. at 570. “A
claim has facial plausibility when the plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal,
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129 S. Ct. at 1949. As the Supreme Court explains:
The plausibility standard is not akin to a “probability requirement,” but it asks for
more than a sheer possibility that a defendant has acted unlawfully. Where a
complaint pleads facts that are “merely consistent with” a defendant’s liability, it
“stops short of the line between possibility and plausibility of ‘entitlement to
relief.’”
. . .
[W]here the well-pleaded facts do not permit the court to infer more than the mere
possibility of misconduct, the complaint has alleged – but it has not “show[n]” –
“that the pleader is entitled to relief.” FED . RULE CIV . PROC . 8(a)(2).
Iqbal, 129 S. Ct. at 1949-50 (quoting Twombly, 550 U.S. at 556-57 (citations omitted)). Thus, a
claim may be sustained only if the plaintiff has “nudged [its] claims across the line from
conceivable to plausible.” Twombly, 550 U.S. at 570. See Iqbal, 129 S. Ct. at 1950-51.
In determining whether a claim should survive a motion to dismiss, a court must first
identify each element of the cause of action. Iqbal, 129 S. Ct. at 1947. Next, the court must
identify the allegations that are not entitled to “the assumption of truth” because they are legal
conclusions, not factual allegations. Iqbal, 129 S. Ct. at 1951. Finally, the court must assess the
factual allegations in the context of the elements of the claim to determine whether they
“plausibly suggest an entitlement to relief.” Id.
The Pleading Standard Under Rule 8(a)
Federal Rule of Civil Procedure 8(a), made applicable to bankruptcy cases by Federal
Rule of Bankruptcy Procedure 7008(a), states that a complaint must contain “a short and plain
statement of the claim showing that the pleader is entitled to relief.” FED . R. CIV . P. 8(a)(2). In
Twombly, the Supreme Court explained that Rule 8(a) requires:
a “showing,” rather than a blanket assertion, of entitlement to relief. Without
some factual allegation in the complaint, it is hard to see how a claimant could
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satisfy the requirement of providing not only “fair notice” of the nature of the
claim, but also “grounds” on which the claim rests.
Twombly, 550 U.S. at 555 n.3.
Applying Twombly, the Supreme Court observed that “the pleading standard Rule 8
announces does not require ‘detailed factual allegations,’ but it demands more than an
unadorned, the-defendant-unlawfully-harmed-me accusation.” Iqbal, 129 S. Ct. at 1949
(citations omitted). See Sheehy v. Brown, 2009 WL 1762856, at *1 (2d Cir. June 23, 2009).
Whether the Plaintiff States a Claim Under RESPA
RESPA regulates the real estate settlement process and the servicing of “federally related
mortgage loans.” 12 U.S.C. § 2602(1). See 12 U.S.C. §§ 2601-2617. RESPA’s purpose is to
provide consumers “with greater and more timely information on the nature and costs of the
settlement process” and to protect consumers from “unnecessarily high settlement charges
caused by certain abusive practices.” 12 U.S.C. § 2601(a).
To state a claim under Section 2605 of RESPA, a plaintiff must allege that the defendant
violated a statutory duty under this section, as well as actual pecuniary damages and proximate
causation. See Gorham-DiMaggio v. Countrywide Home Loans, Inc., 2009 WL 1748743, at *9
(N.D.N.Y. June 19, 2009).
RESPA Section 2605 addresses mortgage loan servicing and escrow account
administration. It requires the disclosure of “whether the servicing of the loan may be assigned,
sold, or transferred . . . while the loan is outstanding” (12 U.S.C. § 2605(a)), and notice by the
transferor and transferee of “any assignment, sale, or transfer of the servicing of the loan to any
other person” (12 U.S.C. § 2605(b), (c)). Section 2605 also provides that a “late fee” may not be
imposed on the borrower during the “60-day period beginning on the effective date of the
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transfer of the servicing of any . . . loan” if the borrower’s payment is received by the transferor
servicer before the due date. 12 U.S.C. § 2605(d).
In addition, RESPA Section 2605(e) provides that a servicer must provide a written
response to a “qualified written request from the borrower . . . for information relating to the
servicing of [the] loan” within 20 days, “unless the action requested [by the borrower] is taken
within [that] period.” 12 U.S.C. § 2605(e). And RESPA Section 2605(g) provides that if the
mortgage loan terms require the borrower to make payments to the servicer for deposit into an
escrow account to assure payment of “taxes, insurance premiums, and other charges with respect
to the property,” then the servicer must make those payments “in a timely manner” as they come
due. 12 U.S.C. § 2605(g).
RESPA defines a loan “servicer” as “the person responsible for servicing of a loan,” and
loan “servicing” as:
receiving any scheduled periodic payments from a borrower pursuant to the terms
of any loan . . . and making the payments of principal and interest and such other
payments with respect to the amounts received from the borrower as may be
required pursuant to the terms of the loan.
12 U.S.C. § 2605(i)(2), (3).
A “federally related mortgage loan” includes any loan that:
(A) 	is secured by a first or subordinate lien on residential real property . . .
designed principally for the occupancy of from one to four families . . .
and
(B)(i) 	is made in whole or in part by any lender the deposits or accounts of
which are insured by any agency of the Federal Government, or is made in
whole or in part by any lender which is regulated by any agency of the
Federal Government . . . .
12 U.S.C. § 2602(1).
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The Defendants argue that the RESPA Claim is “preempted” by the Bankruptcy Code
and should be dismissed as a matter of law. Leopold Affirm. ¶¶ 8-11; Defts’ Mem. at 4-6; Defts’
Reply at 8-11. Citing In re Nosek, 354 B.R. 331 (D. Mass. 2006), the Defendants argue that the
Bankruptcy Code’s remedial scheme concerning the filing of proofs of claim conflicts with that
of RESPA, because “both the remedial procedures in RESPA and the Motion to Determine
Amount of Liens in the bankruptcy proceeding sought to achieve the same effect – the resolution
of disputed claims – but through different remedial vehicles.” In re Nosek, 354 B.R. at 339. See
Defts’ Reply at 9. Thus, the Defendants argue that the Bankruptcy Code “provides the exclusive
remedy for resolving a dispute over a creditor’s claim.” Defts’ Reply at 9.
The Plaintiff responds that the RESPA Claim is not barred by the Bankruptcy Code
because In re Nosek is not controlling in this Circuit and has been rejected by at least one
bankruptcy court, which recognized a division in authority among the circuits. Pltf’s Mem. at 5-
7. The Plaintiff also argues that at least one Circuit has found that “RESPA and Bankruptcy
laws are independently actionable.” Pltf’s Mem. at 7 (citing Campbell v. Countrywide Home
Loans, Inc., 545 F.3d 348 (5th Cir. 2008)). Finally, the Plaintiff submitted an unpublished
memorandum opinion issued by a bankruptcy court in the Central District of California, where
three judges of that court, writing together, held that the district’s form of addendum to a Chapter
13 plan, which requires secured lenders to make disclosures in addition to those required by
RESPA, was not barred by RESPA because “the court does not believe that RESPA preempts
the field.” In re Hannon, No. 09-11330 (C.D. Cal. April 28, 2009). See Pltf’s Supp. at 1.
At the outset, the Court notes that the question posed by the intersection of the
Bankruptcy Code, on the one hand, and RESPA and the FDCPA, on the other, is not whether one
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statute “preempts” the other, but which statute provides the framework for the Plaintiff’s rights
and remedies in the context of this bankruptcy case. As the Second Circuit has observed, “the
preemption doctrine flows from the Constitution’s Supremacy Clause, U.S. Const., Art. VI, cl. 2,
which ‘invalidates state laws that interfere with, or are contrary to, federal law.’ . . . The doctrine
is inapplicable to a potential conflict between two federal statutes.” Tufariello v. Long Island
R.R. Co., 458 F.3d 80, 86 (2d Cir. 2006) (quoting Sprint Spectrum L.P. v. Mills, 283 F.3d 404,
414-15 (2d Cir. 2002)). And as the Seventh Circuit notes, “[w]hen two federal statutes address
the same subject in different ways, the right question is whether one implicitly repeals the other
. . . .” Randolph v. IMBS, Inc., 368 F.3d 726, 730 (7th Cir. 2004).
The Supreme Court has stated that “absent a clearly expressed congressional intention,
. . . repeals by implication are not favored.” Branch v. Smith, 538 U.S. 254, 273 (2003)
(citations and quotations omitted). As the Supreme Court observed, “[a]n implied repeal will
only be found where provisions in two statutes are in ‘irreconcilable conflict,’ or where the latter
Act covers the whole subject of the earlier one and ‘is clearly intended as a substitute.’” Branch,
538 U.S. at 273 (quoting Posadas v. Nat’l City Bank, 296 U.S. 497, 503 (1936)).
The Second Circuit has not addressed the issue of whether claims under RESPA are
precluded by the Bankruptcy Code. And courts that have addressed this issue are divided.
In Ameriquest Mortgage Co. v. Nosek, 354 B.R. 331 (D. Mass. 2006), the debtor brought
a motion to determine the amount of certain liens and an action under, among other statutes,
RESPA. Nosek, 354 B.R. at 333. Both were based upon the lender’s use of suspense or escrow
accounts and its alleged inability to account for postpetition payments. Id.
The district court considered whether the Bankruptcy Code’s claims allowance
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procedures trump RESPA’s procedures, including the requirement of a qualified written request.
354 B.R. at 338-39. The court found that the remedial procedures under the Bankruptcy Code
and those under RESPA were inconsistent. The court observed:
Under RESPA, the servicer of the loan must respond to a qualified demand letter
from the borrower within 20 days. This [RESPA] section has no explicit
exception for bankruptcy proceedings. Under the Code and under the bankruptcy
rules, however, a different process exists to determine the propriety of claims and
to resolve disputes. Section 502 of the Code allows for a proof of claim to be
determined true, absent objection by the opposing party. If an objection is
registered, the Code entrusts the Bankruptcy Court with the role of determining
the proper amount of the claim. In addition, [Bankruptcy Rule] 3007 provides for
objections to claims in a manner similar to RESPA. Under Bankruptcy Rule
3007, an objection to a claim must be in writing and filed at least 30 days prior to
the hearing.
Nosek, 354 B.R. at 339 (citations omitted).
The court noted that RESPA and the Bankruptcy Code provide conflicting procedures
and remedies, and that each had been invoked by the debtor:
Nosek sent . . . a qualified demand letter under RESPA on July 23, 2004. Under
RESPA, and outside of the bankruptcy proceeding context, Ameriquest would
have had 20 days to reply to this demand letter. Nosek also filed with the
Bankruptcy Court a Motion to Determine Amount of Liens on August 11, 2004.
This motion was filed before the RESPA safe harbor time-frame had expired and
sought to have the Bankruptcy Court determine the amount owed. The
Bankruptcy Court proceedings that followed sought to address the disputed
claims, and the subsequent adversarial action raised many of the same claims
asserted in the motion. In this case, both the remedial procedures in RESPA and
the Motion to Determine Amount of Liens in the bankruptcy proceeding sought to
achieve the same effect – the resolution of disputed claims – but through different
remedial vehicles.
Nosek, 354 B.R. at 339 (citations omitted). The court concluded that “the purposes of the Code
in determining the disputed claims within the structure of the Bankruptcy Court conflict with
RESPA’s requirements.” Id.
Other courts have found that a debtor may assert a RESPA claim in the context of a
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bankruptcy case, at least in some particular circumstances where the purposes and procedures of
RESPA and the Bankruptcy Code complement each other, or at a minimum, do not conflict. For
example, in Payne v. Mortgage Elec. Registration Sys., Inc. (In re Payne), 387 B.R. 614 (Bankr.
D. Kan. 2008), the court found that RESPA and the Bankruptcy Code provide alternative
methods of requesting information, and observed that “[e]ach manner of requesting information
is a viable option and subject to enforcement if ignored. Concurrent means of accomplishing the
same task are not necessarily incompatible and may proceed on their parallel paths.” Payne, 387
B.R. at 634.
And in Holland v. EMC Mortgage Corp. (In re Holland), 374 B.R. 409 (Bankr. D. Mass.
2007), the court declined to follow Nosek, and held:
It is a cardinal rule of statutory construction that when two federal statutes
address the same subject, courts must try to give effect to both. United States v.
Borden Co., 308 U.S. 188, 198, 60 S. Ct. 182, 84 L. Ed. 181 (1939). This Court
finds no inherent conflict between the Bankruptcy Code and the provisions of
RESPA which would preclude a debtor from pursuing RESPA claims during a
pending bankruptcy case. In fact, a debtor’s interest in a cause of action for
violations of RESPA or other federal consumer protection statutes which occurred
prepetition, and, in the case of a Chapter 13 debtor, postpetition, are property of
the estate. See 11 U.S.C. §§ 541(a)(1), 1306(a)(1).
Holland, 374 B.R. at 443. See Laskowski v. Ameriquest Mortgage Co. (In re Laskowski), 384
B.R. 518, 528 (Bankr. N.D. Ind. 2008) (finding that there is “no irreconcilable conflict between
the Bankruptcy Code and RESPA; indeed, . . . their remedial systems can and do coexist,” so
that debtor may assert RESPA claim where mortgage servicing company did not respond to post-
petition qualified written request by trustee and did not account for mortgage payments); Figard
v. PHH Mortgage Corp. (In re Figard), 382 B.R. 695, 711-12 (Bankr. W.D. Pa. 2008) (RESPA
claim may proceed where lender did not respond to debtors’ attorney’s post-petition qualified
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written request because “the RESPA statute and the Bankruptcy Code provisions are capable of
coexisting harmoniously with one another”).
The Plaintiff’s allegations in support of his RESPA Claim are:
The Defendant has failed to comply with Section 2605 of Title 12 of the United
States Code and failed to credit Plaintiff for payments made on the mortgage.
Pursuant to Section 2605(f) of Title 12 of the United States Code and Section
3500.21(f) of Reg. X, the Plaintiff[] may recover of the Defendant actual
damages, costs and reasonable attorney fees for each failure of the Defendant to
comply with any part of Section 2605 of Title 12 of the United States Code.
Complaint ¶¶ 26-27.
Here, unlike those cases where the plaintiff alleges that there was a failure to respond to a
qualified written request, the Complaint does not identify which requirement of RESPA has been
violated, or what conduct by the Defendants gave rise to a violation of Section 2605. The
Plaintiff does not allege the that the Defendants failed to respond to a qualified written request,
or that they failed to disclose the assignment or sale of the mortgage. See 12 U.S.C. § 2605(a)-
(c), (e). He also does not allege that payments were misapplied during a transfer period, or that
tax and insurance payments were not made in a timely manner from the escrow account. See 12
U.S.C. § 2605(d), (g).
Rather, the Plaintiff alleges that the Defendants violated RESPA by failing to credit him
for payments that he made on the mortgage. Complaint ¶ 26. The Plaintiff also alleges that he
“believe[s] that [he is] being charged unauthorized late fees, that [his] payments are being
misapplied and that the mortgage account is not being properly credited for payments of interest,
principal, and escrow charges.” Complaint ¶ 24. See Complaint ¶¶ 18-21. Without more, these
allegations are simply not sufficient to state a claim under RESPA Section 2605. See 12 U.S.C.
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§ 2605.
Accordingly, this Court declines the invitation to decide whether the Bankruptcy Code
precludes the Plaintiff’s RESPA Claim. Instead, the Court finds that the Plaintiff does not allege
facts sufficient to state a plausible claim under RESPA Section 2605. See Twombly, 550 U.S. at
570. As noted above, he does not allege facts sufficient to show a violation of one of the
statutory duties imposed by RESPA, including to respond to a qualified written request, or to
disclose the assignment or sale of the mortgage, or not to misapply payments during a transfer
period, or not to make tax or insurance payments in a timely manner from an escrow account.
See 12 U.S.C. § 2605(a)-(e), (g). Nor does he allege facts sufficient to show proximate causation
or actual pecuniary damages. See Gorham-DiMaggio, 2009 WL 1748743, at *9.
For these reasons, and based on the entire record, the Court finds that the Plaintiff does
not allege “enough facts to state a claim to relief that is plausible on its face.” Twombly, 550
U.S. at 570. Accordingly, the Motion to Dismiss the RESPA Claim is granted.
Whether the Plaintiff States a Claim Under the FDCPA
The purpose of the FDCPA is “to eliminate abusive debt collection practices by debt
collectors.” 15 U.S.C. § 1692(e). The FDCPA prohibits a debt collector from engaging in
harassing, oppressive, or abusive conduct or using unfair or unconscionable means to collect a
debt. 15 U.S.C. §§ 1692d, 1692f. See Scott v. Wells Fargo Home Mortgage, Inc., 326 F. Supp.
2d 709, 717 (E.D. Va. 2003). It also prohibits a debt collector from using “any false, deceptive,
or misleading representation or means in connection with the collection of any debt.” 15 U.S.C.
§ 1692e.
In order to state a claim under the FDCPA, the Plaintiff must allege that the Defendants
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took actions to collect a consumer debt, the Defendants are “debt collectors,” and the Defendants
engaged in conduct prohibited by the FDCPA. See Som v. Daniels Law Offices, P.C., 573 F.
Supp. 2d 349, 356 (D. Mass. 2008) (citing McCorriston v. L.W.T., Inc., 536 F. Supp. 2d 1268,
1273 (M.D. Fla. 2008)) (reciting elements); Pescatrice v. Robert J. Orovitz, P.A., 539 F. Supp.
2d 1375, 1378 (S.D. Fla. 2008); In re Creditrust Corp., 283 B.R. 826, 830 (Bankr. D. Md. 2002).
Under the FDCPA, a consumer “debt” is “any obligation . . . of a consumer to pay money
arising out of a transaction in which the money, property, insurance, or services which are the
subject of the transaction are primarily for personal, family, or household purposes, whether or
not such obligation has been reduced to judgment.” 15 U.S.C. § 1692a(5).
The FDCPA defines a “debt collector” as “any person . . . who regularly collects or
attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due to
another.” 15 U.S.C. § 1692a(6). It also excepts from this definition “any person collecting or
attempting to collect any debt owed or due or asserted to be owed or due another to the extent
such activity . . . (iii) concerns a debt which was not in default at the time it was obtained by
such person . . . .” 15 U.S.C. § 1692a(6)(F)(iii). That is, as courts have found, the FDCPA does
not apply to mortgage servicing companies unless “the mortgage at issue was already in default
at the time when servicing began.” See, e.g., Dawson v. Dovenmuehle Mortgage, Inc., 2002 WL
501499, at *5 (E.D. Pa. Apr. 3, 2002).
FDCPA Section 1692e(2) and (5) prohibit the making of a false representation of “the
character, amount, or legal status of any debt” or “any services rendered or compensation which
may be lawfully received by any debt collector for the collection of a debt,” and also prohibits
threatening “to take any action that cannot legally be taken or that is not intended to be taken.”
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15 U.S.C. § 1692e(2), (5).
FDCPA Section 1962f(1) provides that it is a prohibited unfair practice to collect “any
amount (including any interest, fee, charge, or expense incidental to the principal obligation)
unless such amount is expressly authorized by the agreement creating the debt or permitted by
law.” 15 U.S.C. § 1692f(1).
The Plaintiff’s allegations in support of his FDCPA Claim are:
Defendants violated 15 U.S.C. 1692e(2) by misrepresenting the amount and legal
status of the debt, stating that Plaintiff owed money with total disregard to the fact
that the debt had already been paid.
Defendants violated 15 U.S.C. 1692e(5) by filing a proof of claim that was time
barred.
Defendants violated 15 U.S.C. 1692f(1) by filing a proof of claim in an attempt to
collect a time barred debt which was not authorized or permitted by law.
As a direct and proximate result of thereof, Plaintiff has been injured and may
continue to suffer such injury in the future.
As a direct and proximate result of the above violations of the FDCPA,
Defendants are liable to the Plaintiff[] for declaratory judgment that Defendant’s
conduct violated the FDCPA, and Plaintiff’s actual damages, statutory damages,
and costs and attorney’s fees.
Complaint ¶¶ 29-33.
The Defendants argue that the FDCPA Claim is “preempted” by the Bankruptcy Code
and should be dismissed as a matter of law. Leopold Affirm. ¶¶ 8-11; Defts’ Mem. at 4-6, Defts’
Reply at 2-8. Citing Ameriquest Mortgage Co. v. Nosek, 354 B.R. 331 (D. Mass. 2006) and B-
Real, LLC v. Chaussee, 399 B.R. 225 (B.A.P. 9th Cir. 2008), the Defendants argue:
Although the Second Circuit has not ruled [on the preemption issue] . . . the First
and Ninth Circuit courts clearly hold that the Bankruptcy Code provides the
exclusive remedy for a wrongful proof of claim and the debtor may not seek relief
under the federal [FDCPA] and [RESPA] for disputed claims filed in the
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underlying bankruptcy.
Defts’ Reply at 2.
The Defendants also argue that “[t]he Bankruptcy [Code] sets forth a comprehensive
scheme for resolving disputes over debts” that is embodied in the claims objection process, and
that this procedure contrasts with the protections and procedures established by the FDCPA.
Defts’ Reply at 6-7. They state:
[The] Plaintiff cites no authority which directly addresses . . . whether a disputed
proof of claim can constitute a violation of the FDCPA. The proper method to
challenge a disputed proof of claim is [to file] an objection, give notice, and
conduct a hearing pursuant to the Bankruptcy Code.
Defts’ Reply at 8.
The Plaintiff argues that the Bankruptcy Code does not bar him from asserting his rights
under the FDCPA in his bankruptcy case. Pltf’s Mem. at 2-5. He notes that the FDCPA is a
broad and remedial statute, adopted by Congress to address the “‘abundant evidence of the use of
abusive, deceptive, and unfair debt collection practices by many debt collectors.’” Pltf’s Mem.
at 2 (quoting 15 U.S.C. § 1692(a)). And while the Plaintiff cites authority indicating that courts
disagree on this question, he urges that the more persuasive cases, including the Seventh
Circuit’s decision in Randolph, conclude that Congress did not intend to prohibit FDCPA actions
in bankruptcy cases. Pltf’s Mem. at 3-6.
As noted above, the question posed by the intersection of the Bankruptcy Code and
another federal statute such as the FDCPA is not whether one statute “preempts” the other, but
which statute provides the framework for the Plaintiff’s rights and remedies in the context of this
bankruptcy case. See p. 13, supra. And as the Supreme Court has stated, “absent a clearly
expressed congressional intention, . . . repeals by implication are not favored.” Branch, 538 U.S.
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at 273 (citations and quotations omitted).
The Plaintiff alleges that the Defendants violated FDCPA Sections 1692e(2), 1692e(5),
and 1692f(1) by “misrepresenting the amount and legal status of the debt,” “filing a proof of
claim that was time barred,” and “filing a proof of claim in an attempt to collect a time barred
debt which was not authorized or permitted by law.” Complaint ¶¶ 29-31. That is, the facts
alleged by the Plaintiff in support of his FDCPA Claim arise from the filing of the Proof of
Claim and its contents.
Several courts have considered whether a claim for a violation of the FDCPA may be
asserted in the context of a bankruptcy case. Some of these cases arise, as here, in the context of
disputed proofs of claim. Others arise in the context of allegations of improper acts or wrongful
conduct after the bankruptcy case is commenced. While the Second Circuit has not addressed
whether the Bankruptcy Code precludes a FDCPA claim, two other Circuits have considered the
question and reached different conclusions.
The Seventh Circuit considered this question in Randolph, where the plaintiff alleged that
a collection agency violated the FDCPA by sending her collection letters while her Chapter 13
case was pending. Randolph, 368 F.3d at 728. The court considered whether the Bankruptcy
Code precluded the FDCPA claim, as both statutes address the same subject, and found that “the
statutes overlap, each with coverage that the other lacks.” Randolph, 368 F.3d at 731. But the
court also noted that “the FDCPA sets a lower standard of liability and provides lower damages,”
and that “[o]verlapping statutes do not repeal one another by implication; as long as people can
comply with both, then courts can enforce both.” Id. The court concluded that Bankruptcy Code
Section 362, which “condemns only willful debt-collection attempts” that violate the automatic
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stay, did not preclude application of the FDCPA, and that allowing the FDCPA claim “would not
contradict any portion of the Bankruptcy Code.” Randolph, 368 F.3d at 732.
The Ninth Circuit considered the relationship between the FDCPA and the Bankruptcy
Code in Walls v. Wells Fargo Bank, N.A., 276 F.3d 502 (9th Cir. 2002). There, a Chapter 7
debtor attempted a “ride through” on her mortgage loan – that is, she was current on her
payments and continued to make regular monthly mortgage payments. Walls, 276 F.3d at 505.
After the debtor’s bankruptcy case concluded, she fell behind on her mortgage payments and the
lender brought a foreclosure action. Id. The debtor commenced a class action alleging, among
other things, that the lender violated the FDCPA in attempting to collect a debt after it had been
discharged in bankruptcy. In particular, she alleged that the lender’s efforts to collect a
discharged debt were “prohibited by [the bankruptcy discharge injunction] and [were] an unfair
and unconscionable means of collecting debt under the FDCPA.” Walls, 276 F.3d at 505.
The court found that the FDCPA claim was based on an alleged violation of the
Bankruptcy Code discharge injunction, for which the Bankruptcy Code provides a remedy of
contempt. Walls, 276 F.3d at 510. The court observed:
To permit a simultaneous claim under the FDCPA would allow through the back
door what [the debtor] cannot accomplish through the front door – a private right
of action. This would circumvent the remedial scheme of the Code under which
Congress struck a balance between the interests of debtors and creditors by
permitting (and limiting) debtors’ remedies for violating the discharge injunction
to contempt. “[A] mere browse through the complex, detailed, and
comprehensive provisions of the lengthy Bankruptcy Code . . . demonstrates
Congress’s intent to create a whole system under federal control which is
designed to bring together and adjust all of the rights and duties of creditors and
embarrassed debtors alike.”
Id. (quoting MSR Exploration, Ltd. v. Meridian Oil, Inc., 74 F.3d 910, 914 (9th Cir. 1996)). The
court concluded that the bankruptcy remedy of contempt for a violation of the discharge
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injunction precluded a simultaneous FDCPA claim. Walls, 276 F.3d at 510-11. Cf. Drnavich v.
Cavalry Portfolio Serv., LLC, 2005 WL 2406030, at *2 (D. Minn. Sept. 29, 2005) (“[T]he
[Walls] court identified neither an irreconcilable conflict between the statutes nor a clear
legislative intention that one replace the other.”).
In B-Real, LLC v. Chaussee, 399 B.R. 225 (B.A.P. 9th Cir. 2008), the Ninth Circuit
Bankruptcy Appellate Panel considered whether an FDCPA claim could arise from the filing of a
proof of claim. There, the creditor filed two unsecured proofs of claim based upon credit card
accounts. Chaussee, 399 B.R. at 228. The debtor brought an action under the FDCPA and state
consumer protection law alleging that she did not owe the underlying debts and that they were
barred by the statute of limitations. Id. The creditor moved to dismiss on grounds that neither
the FDCPA nor state law applied to filing a proof of claim in a bankruptcy case. Id.
The court noted that Walls was controlling, and stated that “even if not so constrained,
we would . . . conclude, as in Walls, that the Code precludes application of the FDCPA under our
facts.” Chaussee, 399 B.R. at 237. The court found that “the debt validation provisions required
by FDCPA clearly conflict with the claims processing procedures contemplated by the Code and
Rules.” Chaussee, 399 B.R. at 238.
The court described the conflict between the statutes:
[A] proof of claim filed in a bankruptcy case constitutes prima facie evidence of
its validity and is deemed allowed unless and until the debtor objects to it. If an
objection is filed, the bankruptcy court resolves that objection after notice and a
hearing.
In contrast, under FDCPA, a debt is presumed valid if the debtor does not dispute
the debt within thirty days after receipt of an “initial communication.” Even then,
FDCPA provides that, if the consumer fails to dispute the validity of a debt, that
failure may not be construed by any court as an admission of liability by the
consumer.
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Moreover, under the FDCPA, a “communication in the form of a formal
pleading” shall not be treated as an initial communication. We question whether
the filing of a proof of claim by a creditor constitutes an initial communication. If
it is not an initial communication, then in order to comply with FDCPA, the debt
collector must send another communication to the debtor containing the required
statutory notice. However, sending such a notice to a debtor in a pending
bankruptcy case has been held to violate the automatic stay. We are therefore
puzzled as to how creditors can comply with both statutory schemes when the
Code dictates they cease all collection actions, whereas FDCPA requires them to
communicate with the debtor in connection with the collection of a debt.
Chaussee, 399 B.R. at 238-39 (citations omitted).
In a concurring opinion, one member of the panel also noted the different purposes of the
FDCPA and the Bankruptcy Code:
The FDCPA’s purpose is to govern the methods used to collect debts. The claims
process, on the other hand, is a process in which the amount and validity of a debt
is established for purposes of obtaining a distribution from a bankruptcy estate.
. . .
The statutory purpose of the FDCPA, as well as common sense, leads me to
conclude that there is nothing “unfair” or “unconscionable” about filing a proof of
claim in a bankruptcy case even if it could be construed as a debt collection
activity. The FDCPA’s purpose of protecting unsophisticated consumers from
unscrupulous debt collectors is simply not implicated at all.
Chaussee, 399 B.R. at 244-45 (Jury, J., concurring).
In the Second Circuit, the district courts for the Eastern, Western, and Northern Districts
of New York have found that the Bankruptcy Code precludes FDCPA claims based upon a
violation of the automatic stay or discharge injunction. For example, in Necci v. Universal
Fidelity Corp., 297 B.R. 376 (E.D.N.Y. 2003), the court stated that it “agrees with the majority
and concludes that the bankruptcy code precludes claims under the FDCPA when those claims
are based upon violations of the bankruptcy stay.” Necci, 297 B.R. at 381. The court noted that
its conclusion was supported by the Supreme Court’s analysis of a similar question in Kokoszka
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v. Belford, 417 U.S. 642 (1974). Necci, 297 B.R. at 380. The court observed:
In Kokoszka, the Supreme Court was called upon to make a decision between
conflicting principals of the Consumer Credit Protection Act (the “CCPA”), the
predecessor statute to the FDCPA, and bankruptcy law. There, the Supreme
Court held that the garnishment limiting provisions of the CCPA could not be
relied upon to upset the bankruptcy trustee’s decision to treat an income tax
refund as property of the estate. In support of its holding, the Supreme Court
noted that while the CCPA sought to prevent consumers from entering
bankruptcy, if bankruptcy did occur, the debtor’s protections and remedies lied
exclusively within the bankruptcy act, (the predecessor to the bankruptcy code).
Id. See Burchalewski v. Wolpoff & Abramson, LLP, 2008 WL 4238933, at *2 (W.D.N.Y. Sept.
8, 2008) (agreeing with Walls and concluding that “Plaintiff does not have an independent cause
of action under the FDCPA for the violation of a stay under the Bankruptcy Code”);
Degrosiellier v. Solomon & Solomon, P.C., 2001 WL 1217181, at *5 (N.D.N.Y. Sept. 27, 2001)
(plaintiff is precluded from seeking damages under the FDCPA where the claim is “premised on
conduct otherwise remedied or governed by provisions of the Bankruptcy Code”); Diamante v.
Solomon & Solomon, P.C., 2001 WL 1217226, at *6 (N.D.N.Y. Sept. 18, 2001) (“To permit
Plaintiff to circumvent [the discharge injunction] and its remedy by bringing a claim under the
FDCPA . . . would directly contravene the Bankruptcy Code’s remedial scheme.”).
Courts addressing the question of whether the filing of a proof of claim can give rise to
an FDCPA claim have similarly concluded that the Bankruptcy Code precludes the assertion of a
claim under the FDCPA. For example, in Middlebrooks v. Interstate Credit Control, Inc., 391
B.R. 434 (D. Minn. 2008), the court observed that “[t]he FDCPA and Bankruptcy Code overlap
but generally coexist peaceably” and held that “the FDCPA provides no remedy to [the debtor]
for [the creditor’s] allegedly wrongful proof of claim.” Middlebrooks, 391 B.R. at 437.
Other courts are in accord. See, e.g., Baldwin v. McCalla, 1999 WL 284788, at *5 (N.D.
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Ill. Apr. 26, 1999) (debtor may challenge a proof of claim only by using Bankruptcy Code
remedies); Simpson v. PRA Receivables Mgt., LLC (In re Simpson, LLC), 2008 WL 4216317, at
*3 (Bankr. N.D. Ala. Aug. 29, 2008) (FDCPA claim “cannot be based on the filing of a proof of
claim, regardless of the ultimate validity of the underlying claim.”); Williams v. Asset
Acceptance, LLC (In re Williams), 392 B.R. 882, 886 (Bankr. M.D. Fla. 2008) (debtor’s remedy
for creditor’s filing of time-barred claim was under the Bankruptcy Code, not the FDCPA);
Gilliland v. Capital One Bank (In re Gilliland), 386 B.R. 622, 623 (Bankr. N.D. Miss. 2008)
(FDCPA claim cannot be premised on bankruptcy proof of claim); Rice-Etherly v. Bank One (In
re Rice-Etherly), 336 B.R. 308, 312-13 (Bankr. E.D. Mich. 2006) (FDCPA does not apply to a
bankruptcy proof of claim); Cooper v. Litton Loan Servicing (In re Cooper), 253 B.R. 286, 291
(Bankr. N.D. Fla. 2000) (“[T]he filing of a proof of claim in a bankruptcy proceeding does not
trigger the FDCPA, and fails to state a cause of action under that Act.”).4
Courts also recognize that permitting an FDCPA claim to supplant the Bankruptcy
Code’s claims objection procedures “‘could potentially undermine the Bankruptcy Code’s
specific provisions of administration of the debtor’s estate.’” Middlebrooks, 391 B.R. at 437
(quoting Molloy v. Primus Auto. Fin. Servs., 247 B.R. 804, 820 (C.D. Cal. 2000)). For example,
the assertion of an FDCPA claim based upon a bankruptcy proof of claim “‘could discourage
creditors from filing claims . . . and encourage debtors to ignore the procedural safeguards within
the Bankruptcy Code, such as the right to object to proofs of claim and to seek sanctions against
4 The Bankruptcy Code also contains remedies to address a creditor’s misconduct in
filing an improper claim. As one court notes, “[w]hile [Bankruptcy Code] § 105(a) empowers
bankruptcy courts to impose civil, but not criminal or punitive sanctions, if a purported creditor
abuses the claims process, we are confident that § 105(a) provides an effective mechanism for
addressing that misconduct.” Chaussee, 399 B.R. at 241 (citations omitted).
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creditors who violate provisions within the Bankruptcy Code, in favor of the FDCPA.’”
Middlebrooks, 391 B.R. at 437 (quoting In re Rice-Etherly, 336 B.R. at 312).
In addition, such actions could inject significant delay and uncertainly into the
bankruptcy claims administration process. As courts have noted:
“To accept the proposition that the [FDCPA] created an alternative method to
challenge a proof of claim in bankruptcy would open the floodgate for
unnecessary and expensive litigation, replacing the simple procedure for dealing
with an objection to the allowance of a claim. This cause of action would be
totally contrary to the entire scheme established by Congress to deal with creditor
and debtor relationships.”
B-Real, LLC v. Rogers, 405 B.R. 428, 434 (M.D. La. 2009) (quoting In re Williams, 392 B.R. at
888).
Here, the Plaintiff’s FDCPA claim, as alleged in the Complaint, arises from the
Defendants’ filing of a proof of claim and the contents of that claim, and not from the kind of
postpetition wrongful conduct upon which courts have relied to find that an FDCPA claim may
be asserted in a bankruptcy case. 5 Each of the Plaintiff’s particularized allegations relates to the
proof of claim, and each can be addressed by the claims adjudication process of the Bankruptcy
Code. Complaint ¶¶ 28-33.
But before the question of preclusion is determined, it is appropriate to consider whether
the Plaintiff alleges each of the elements of an FDCPA claim. To state a claim under the
FDCPA, the Plaintiff must allege that the Defendants took actions to collect a consumer debt,
that the Defendants are “debt collectors,” and that the actions taken violate the FDCPA. See
5 The Plaintiff alleges that the Proof of Claim is time-barred. Complaint ¶ 30. The last
day to file claims in this bankruptcy case was August 12, 2008. See Bankruptcy Court Notice,
Case No. 08-42279, Docket No. 8. The Proof of Claim was filed on May 1, 2008, well within
the time period allowed for the filing of claims. See Case No. 08-42279, Claim No. 2-1.
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Som, 573 F. Supp. 2d at 356.
Here, the Plaintiff alleges that the Proof of Claim is time-barred, that it “misrepresent[s]
the amount and legal status of the debt,” and that it is “an attempt to collect a time barred debt
which [is] not authorized or permitted by law.” Complaint ¶¶ 28-33. Unlike the plaintiff in
Randolph, the Plaintiff does not allege facts sufficient to show that the Defendants have taken
actions prohibited by the FDCPA to collect a debt outside the bankruptcy process while this
bankruptcy case was pending. See Randolph, 368 F.3d at 728-29 (debt collector sent collection
letters to the debtor to collect discharged pre-petition debt).
The Plaintiff also does not allege facts sufficient to show that the Defendants’ conduct in
filing the Proof of Claim amounts to a violation of the FDCPA. It simply is not wrongful
conduct prohibited by the FDCPA to file a proof of claim as authorized by the Bankruptcy Code.
See 11 U.S.C. § 501(a) (“A creditor . . . may file a proof of claim.”). The filing of a proof of
claim is meant to assert a right to payment against a debtor’s estate, so that the court can
determine whether the claim is allowed under the Bankruptcy Code. See Travelers Cas. and Sur.
Co. of Am. v. Pacific Gas and Elec. Co., 549 U.S. 443, 449 (2007) (citing 11 U.S.C. §§
101(5)(A), 502(a)). It is not viewed as an effort to collect a debt from the debtor, who enjoys the
protection of the automatic stay. See Campbell v. Countrywide Home Loans, Inc., 545 F.3d 348,
355-56 (5th Cir. 2008) (“We find no precedents in which a court has held that asserting a right to
payment in a [p]roof of [c]laim constitutes a violation of the automatic stay.”); Hurst v. U.S.
Bank (In re Hurst), 357 B.R. 782, 785 (Bankr. W.D. Ark. 2006) (even when incorrect, the filing
of a proof of claim does not violate the automatic stay). These allegations are insufficient to
state a claim under the FDCPA.
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Accordingly, here too, this Court declines the invitation to decide whether the
Bankruptcy Code precludes the Plaintiff’s FDCPA Claim. See Twombly, 550 U.S. at 570.
Instead, the Court finds that the Plaintiff does not allege facts sufficient to state a plausible claim
under the FDCPA, because he does not adequately allege the threshold element that the
Defendants took actions to collect a consumer debt. Without this predicate, the Plaintiff may not
state a claim for relief under the FDCPA.
For these reasons, and based on the entire record, the Court finds that the Plaintiff does
not allege “enough facts to state a claim to relief that is plausible on its face.” Twombly, 550
U.S. at 570. Accordingly, the Motion to Dismiss the FDCPA Claim is granted.
Whether the Plaintiff States a Negligence Claim
A claim for negligence under New York law requires “(i) the existence of a duty owed by
defendant to plaintiff; (ii) breach of this duty; (iii) resultant injury to plaintiff; and, (iv) a causal
relationship between defendant’s conduct and plaintiff’s injury.” Food Mgt. Group, LLC v.
Rattet (In re Food Mgt. Group, LLC), 380 B.R. 677, 714 (Bankr. S.D.N.Y. 2008).
As the New York Court of Appeals has observed, “[t]he threshold question in any
negligence action is: does defendant owe a legally recognized duty of care to plaintiff?”
Hamilton v. Beretta U.S.C. Corp., 96 N.Y.2d 222, 232, 727 N.Y.S.2d 7, 12 (N.Y. 2001). The
plaintiff must allege “that a defendant owed not merely a general duty to society but a specific
duty to him or her, for ‘[w]ithout a duty running directly to the injured person there can be no
liability in damages, however careless the conduct or foreseeable the harm.’” Hamilton, 96
N.Y.2d at 222 (quoting Lauer v. City of New York, 95 N.Y.2d 95, 100, 711 N.Y.S.2d 112, 115
(N.Y. 2000)). See Stanford v. Kuwait Airways Corp., 89 F.3d 117, 123 (2d Cir. 1996) (“It is
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elementary that to find a party liable in negligence there must have been a duty – a relationship
between the two parties such that society imposes an obligation on one to protect the other from
an unreasonable risk of foreseeable harm.”).
And “a simple breach of contract cannot form the basis of a tort action unless a legal duty
which is independent of the contract has been violated.” John’s Insulation, Inc. v. Hartford
Accident & Indem. Co. (In re John’s Insulation, Inc.), 221 B.R. 683, 691 (Bankr. E.D.N.Y.
1998).
The Plaintiff’s allegations in support of his Negligence Claim are:
Defendants intentionally, willfully and maliciously and/or negligently filed a
proof of claim which was time barred.
Defendants intentionally, willfully and maliciously and/or negligently failed to
review the file before filing the proof of claim.
As a direct and proximate result of Defendants’ acts and omissions, Plaintiff has
suffered damages, past, present and future, including but not limited to mental
anguish, anxiety, distress, humiliation, embarrassment and aggravation, together
with costs and attorney fees incurred in obtaining relief from Defendants’
wrongful acts and omissions.
Complaint ¶¶ 35-37.
The Defendants argue that the Plaintiff’s Negligence Claim should be dismissed as a
matter of law because he has not alleged adequately that they owe a duty to him. Defts’ Mem. at
6-7. They note that it is “unclear from the allegations of the complaint, what duty Plaintiff
asserts Defendants owe him,” or what facts or legal authority would “support the imposition of a
legal duty on a creditor in the context of a bankruptcy proceeding.” Defts’ Mem. at 7. See
Leopold Affirm. ¶¶ 12-14. The Plaintiff does not respond to the Defendants’ arguments directed
to the Negligence Claim.
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Here, the Plaintiff alleges that the Defendants filed a time-barred proof of claim and
“failed to review the file before filing the proof of claim.” Complaint ¶ 36. See Complaint ¶ 35.
Accepting these allegations as true, and drawing all reasonable inferences in favor of the
Plaintiff, he does not allege facts sufficient to show the existence of a duty or the breach of that
duty. Nor does he allege that he suffered damages proximately caused by the breach. That is,
the Plaintiff does not allege facts sufficient to “allow[] the court to draw the reasonable inference
that the [Defendants are] liable for the misconduct alleged” under a negligence claim. Iqbal, 129
S. Ct. at 1949.
For these reasons, and based on the entire record, the Court finds that the Plaintiff does
not allege “enough facts to state a claim to relief that is plausible on its face.” Twombly, 550
U.S. at 570. Accordingly, the Motion to Dismiss the Negligence Claim is granted.
Whether the Plaintiff States an Emotional Distress Claim
The Plaintiff’s Emotional Distress Claim is described as a claim for “Infliction of
Emotional Distress.” Complaint ¶¶ 38-40. The Complaint does not indicate whether relief is
sought under a theory of intentional or negligent infliction of emotional distress. The Plaintiff
alleges:
Defendants misrepresented to the Bankruptcy Court that the Plaintiff[] owed a
debt to Defendants, by filing a proof of claim despite the fact that the debt was not
collectable.
Defendants’ actions were reckless and negligent and as a direct and proximate
result thereof, Plaintiff[] [has] suffered emotional injury and emotional distress
and may continue to suffer such injury in the future.
Complaint ¶¶ 39-40.
The Plaintiff also alleges that the Defendants “intentionally, willfully and maliciously
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and/or negligently filed a proof of claim which was time barred” and that the Defendants
“intentionally, willfully and maliciously and/or negligently failed to review the file before filing
the proof of claim.” Complaint ¶¶ 35-36.
Intentional Infliction of Emotional Distress A claim for intentional infliction of
emotional distress under New York law requires allegations of: “‘(1) extreme and outrageous
conduct; (2) intent to cause, or reckless disregard of a substantial probability of causing, severe
emotional distress; (3) a causal connection between the conduct and the injury; and (4) severe
emotional distress.’” Conboy v. AT&T Corp., 241 F.3d 242, 258 (2d Cir. 2001) (quoting Stuto v.
Fleishman, 164 F.3d 820, 827 (2d Cir. 1999)).
The New York Court of Appeals has observed that the elements of a claim for intentional
infliction of emotional distress are “‘rigorous, and difficult to satisfy.’” Howell v. New York Post
Co., 81 N.Y.2d 115, 122, 596 N.Y.S.2d 350, 353 (N.Y. 1993) (quoting W. PROSSER & W.P.
KEETON , TORTS § 12 at 60-61 (5th ed. 1971)). This is because the conduct must be “‘so
outrageous in character, and so extreme in degree, as to go beyond all possible bounds of
decency, and to be regarded as atrocious, and utterly intolerable in a civilized society.”’ Stuto,
164 F.3d at 827 (quoting Howell, 81 N.Y.2d at 122). See Martin v. Citibank, N.A., 762 F.2d 212,
220 (2d Cir. 1985).
The Defendants argue that “[t]o the extent that the allegations in the Complaint are
construed as a claim for intentional infliction of emotional distress, Plaintiff fails to plead
sufficient facts to state such a claim.” Defts’ Mem. at 8. The Defendants also argue that “there
can be no liability for emotional distress damages where the defendant does no more than assert
legal rights in a permissible way.” Id. The Plaintiff does not respond to the Defendants’
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arguments directed to the Emotional Distress Claim.
Accepting the allegations of the Complaint as true, and drawing all reasonable inferences
in favor of the Plaintiff, the Court finds that the Plaintiff does not allege conduct that is “so
outrageous in character, and so extreme in degree, as to go beyond all possible bounds of
decency, and to be regarded as atrocious, and utterly intolerable in a civilized society.” Stuto,
164 F.3d at 827 (quoting Howell, 81 N.Y.2d at 122). Nor does the Plaintiff allege facts
sufficient to show intent to cause, or reckless disregard of a substantial probability of causing,
severe emotional distress, a causal connection between the conduct and the injury, or severe
emotional distress. See Conboy, 241 F.3d at 258.
As a consequence, the Court finds that the Plaintiff does not state a claim for intentional
infliction of emotional distress.
Negligent Infliction of Emotional Distress “‘Negligent infliction of emotional distress
has its roots in the acknowledgment by the courts of the need to provide relief in those
circumstances where traditional theories of recovery do not.’” Abbatiello v. Monsanto Co., 522
F. Supp. 2d 524, 535 (S.D.N.Y. 2007) (quoting Lee v. McCue, 410 F. Supp. 2d 221, 226-27
(S.D.N.Y. 2006)).
As with a claim for intentional infliction of emotional distress, a claim for negligent
infliction of emotional distress requires allegations of conduct “‘so extreme in degree and
outrageous in character as to go beyond all possible bounds of decency, so as to be regarded as
atrocious and utterly intolerable in a civilized community.’” Blake v. Race, 487 F. Supp. 2d 187,
219 (E.D.N.Y. 2007) (quoting Wilson v. City of New York, 294 A.D.2d 290, 295, 743 N.Y.S.2d
30, 34 (N.Y. App. Div. 1st Dep’t 2002)). See D’Angelo-Fenton v. Town of Carmel, 470 F. Supp.
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2d 387, 400 (S.D.N.Y. 2007). Although physical injury is not an element of negligent infliction
of emotional distress, “‘a cause of action seeking such recovery must generally be premised upon
a breach of a duty owed directly to the plaintiff which either endangered the plaintiff’s physical
safety or caused the plaintiff fear for his or her own physical safety.’” Blake, 487 F. Supp. 2d at
219 (quoting Lancellotti v. Howard, 155 A.D.2d 588, 589-90, N.Y.S.2d 654, 655 (N.Y. App.
Div. 2d Dep’t 1989)). See D’Angelo-Fenton, 470 F. Supp. 2d at 400 (S.D.N.Y. 2007).
Accepting the allegations of the Complaint as true, and drawing all reasonable inferences
in favor of the Plaintiff, the Plaintiff does not allege facts sufficient to show conduct so extreme
or outrageous as to be regarded as “atrocious” or “utterly intolerable in a civilized community.”
Nor does the Plaintiff allege facts sufficient to show that the Defendants owed him a duty and
breached that duty in a way that endangered his physical safety or caused him to fear for his
physical safety.
As a consequence, the Court finds that the Plaintiff does not state a claim for negligent
infliction of emotional distress.
For these reasons, and based on the entire record, the Court finds that the Plaintiff does
not allege “enough facts to state a claim to relief that is plausible on its face.” Twombly, 550
U.S. at 570. Accordingly, the Motion to Dismiss the Emotional Distress Claim is granted.
Conclusion
For the reasons stated herein, and based on the entire record, the Motion to Dismiss is
granted, and the Complaint is dismissed. 6
6 The Plaintiff has not requested leave to replead his claims, and the Defendants have not
had an opportunity to make any arguments in opposition. As a result, the Court does not address
this issue.
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An order in accordance with this Memorandum Decision shall be entered simultaneously
herewith.
Dated: Brooklyn, New York
September 4, 2009
S/Elizabeth S. Stong
ELIZABETH S. STONG
UNITED STATES BANKRUPTCY JUDGE
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