Midland Funding LLC v. Johnson – U.S.
Supreme Court – May 15, 2017
Petitioner
Midland Funding filed a proof of claim in respondent Johnson’s Chapter 13
bankruptcy case, asserting that Johnson owed Midland credit-card debt and
noting that the last time any charge appeared on Johnson’s account was more
than 10 years ago. The relevant statute of limitations under Alabama law is six
years.
Johnson
objected to the claim, and the Bankruptcy Court disallowed it. Johnson then
sued Midland, claiming that its filing a proof of claim on an obviously
time-barred debt was “false,” “deceptive,” “misleading,” “unconscionable,” and
“unfair” within the meaning of the Fair Debt Collection Practices Act, 15 U. S.
C. §§1692e, 1692f. The District Court held that the Act did not apply and dismissed
the suit. The Eleventh Circuit reversed.
Held:
The filing of a proof of claim that is obviously time barred is not a false,
deceptive, misleading, unfair, or unconscionable debt collection practice
within the meaning of the Fair Debt Collection Practices Act. Pp. 2–10.
(a) Midland’s
proof of claim was not “false, deceptive, or misleading.” The
Bankruptcy Code defines the term “claim” as a “right to payment,” 11 U. S. C.
§101(5)(A), and state law usually determines whether a person has such a right,
see Travelers Casualty & Surety Co. of America v. Pacific Gas & Elec.
Co., 549 U. S. 443, 450–451. The relevant Alabama law provides that a creditor
has the right to payment of a debt even after the limitations period has
expired.
Johnson
argues that the word “claim” means “enforceable claim.” But the word
“enforceable” does not appear in the Code’s definition, and Johnson’s
interpretation is difficult to square with Congress’s intent “to adopt the
broadest available definition of ‘claim,’ ” . . . .Other Code provisions are
still more difficult to square with Johnson’s interpretation. For example, §502(b)(1) says that if a
“claim” is “unenforceable” it will be disallowed, not that it is not a “claim.”
Other provisions make clear that the
running of a limitations period constitutes an affirmative defense that a
debtor is to assert after the creditor makes a “claim.” §§502, 558. The law has
long treated unenforceability of a claim (due to the expiration of the
limitations period) as an affirmative defense, and there is nothing misleading
or deceptive in the filing of a proof of claim that follows the Code’s similar
system.
Indeed,
to determine whether a statement is misleading normally “requires consideration
of the legal sophistication of its audience,” . . . . .which in a Chapter 13
bankruptcy includes a trustee who is likely to understand that a proof of claim
is a statement by the creditor that he or she has a right to payment that is
subject to disallowance, including disallowance based on untimeliness. Pp. 2–5.
(b) Several
circumstances, taken together, lead to the conclusion that Midland’s proof of
claim was not “unfair” or “unconscionable” within the terms of the Fair Debt
Collection Practices Act.
Johnson
points out that several lower courts have found or indicated that, in the
context of an ordinary civil action to collect a debt, a debt collector’s
assertion of a claim known to be time barred is “unfair.” But those courts
rested their conclusions upon their concern that a consumer might unwittingly
repay a time-barred debt. Such considerations have significantly diminished
force in a Chapter 13 bankruptcy, where the consumer initiates the proceeding,
see §§301, 303(a); where a knowledgeable trustee is available, see §1302(a);
where procedural rules more directly guide the evaluation of claims, see Fed.
Rule Bkrtcy. Proc. 3001(c)(3)(A); and where the claims resolution process is
“generally a more streamlined and less unnerving prospect for a debtor than
facing a collection lawsuit,” . . . . .
Also
unpersuasive is Johnson’s argument that there is no legitimate reason for
allowing a practice like this one that risks harm to the debtor. The bankruptcy
system treats untimeliness as an affirmative defense and normally gives the
trustee the burden of investigating claims to see if one is stale. And, at
least on occasion, the assertion of even a stale claim can benefit the debtor.
More
importantly, a change in the simple affirmative-defense approach, carving out
an exception, would require defining the exception’s boundaries. Does it apply
only where a claim’s staleness appears on the face of the proof of claim? Does
it apply to other affirmative defenses or only to the running of the
limitations period? Neither the Fair Debt Collection Practices Act nor the
Bankruptcy Code indicates that Congress intended an ordinary civil court
applying the Act to determine answers to such bankruptcy-related questions. The
Act and the Code have different purposes and structural features. The Act seeks
to help consumers by preventing consumer bankruptcies in the first place, while
the Code creates and maintains the “delicate balance of a debtor’s protections
and obligations”. . . .. Applying the Act in this context would upset that
“delicate balance.”
Contrary
to the argument of the United States, the promulgation of Bankruptcy Rule 9011
did not resolve this issue. Pp. 5–10. 823 F. 3d 1334, reversed.
BREYER,
J., delivered the opinion of the Court, in which ROBERTS, C. J., and KENNEDY,
THOMAS, and ALITO, JJ., joined. SOTOMAYOR, J., filed a dissenting opinion, in
which GINSBURG and KAGAN, JJ., joined. GORSUCH, J., took no part in the
consideration or decision of the case.
