FDCPA Not Repealed by Bankruptcy Code

In good news to start off the New Year, the Second Circuit has found that the Bankruptcy Code does not preclude application of the FDCPA to a claim involving a debt discharged in bankruptcy. Garfield v. Ocwen Loan Servicing, No. 15-527 (2d Cir. Jan. 4, 2016). Ms. Garfield filed suit in district court against Ocwen Loan Servicing based on Ocwen’s collection conduct with respect to a debt that had been discharged in bankruptcy. Specifically, Ms. Garfield complained that Ocwen failed to comply with certain FDCPA notice requirements and used false and misleading representations or means to collect a debt. The district court dismissed the complaint on the basis that the claims were precluded by the Bankruptcy Code in general, and that even if the Code does not wholly preclude application of the FDCPA, the specific claims in the complaint were in conflict with the discharge injunction.

The Second Circuit reversed.

The court began with the principle that when a later-enacted federal statute (Bankruptcy Code) does not explicitly repeal an earlier federal statute (FDCPA), as is the case here, implied repeal is limited to instances of irreconcilable conflict. The court turned to its own precedent as well as analysis of cases out of other circuits to determine whether the FDCPA is precluded by the Code. In Simmons v. Roundup Funding, LLC, 622 F.3d 93 (2d Cir. 2010), the Second Circuit found that a debtor could not bring suit under the FDCPA for misconduct related to proofs of claim while her bankruptcy was pending. There, the debtor filed a class action suit based on the creditor’s purported practice of filing inflated proofs of claim in bankruptcy. Without explicitly relying on preclusion, the court reasoned that “[t]here is no need to protect debtors who are already under the protection of the bankruptcy court,” and found that while a bankruptcy proceeding is still open the debtors were limited to bankruptcy remedies. The Simmons court was not faced with the applicability of the FDCPA post-discharge.

In contrast, the Seventh Circuit, in Randolph v. IMBS, Inc., 368 F.3d 726, 728 (7th Cir. 2004), found that the debtors could bring a suit against creditors under the FDCPA for conduct that violated the automatic stay. In so holding, Judge Easterbrook charted the workings of the two statutes and concluded that while they overlapped in many respects, they were not in conflict because a debt collector could comply with both simultaneously and both could be enforced. (See also Simon v. FIA Card Services, N.A., 732 F.3d 259, 274 (3d Cir. 2013), finding that the Code does not impliedly repeal the FDCPA.)

The court agreed with Randolph and found that “[n]o irreconcilable conflict exists between the post-discharge remedies of the Bankruptcy Code and the FDCPA. There is no reason to assume that Congress did not expect these two statutory schemes to coexist in the post-discharge context.”

Turning to whether the specific claims brought by Ms. Garfield under the FDCPA conflicted with the Code’s discharge injunction, the court found that they did not. As an initial matter, the court distinguished its earlier holding in Simmons, noting that Ms. Garfield brought her FDCPA case post-discharge when she was no longer under the protection of the bankruptcy court. Also in contrast with Simmons, the Code does not provide a specific remedy for violation of the discharge injunction (the court declined to decide whether it does so by implication) as it does for violation of the automatic stay.

With respect to Ms. Garfield’s claim that Ocwen violated the FDCPA by failing to comply with the requirement that the initial communication between the debt collector and the debtor contain notice that the communication was an effort to collect a debt, the court found no conflict. It contrasted the facts before it with the Third Circuit case of Simon v. FIA Card Services, where the court found an irreconcilable conflict between the FDCPA’s “mini-Miranda” requirement and the Code’s automatic stay provision. In Simon, the court found that omitting the notice would violate the FDCPA while including it would violate the automatic stay. Here, there was no similar conflict. While the failure to provide the notices may have violated the FDCPA, it was the collection efforts themselves that would establish a claim for violation of the discharge injunction.

With respect to Ms. Garfield’s claims that Ocwen violated FDCPA provisions by using false or misleading representations or means in the collection of a debt, the court rejected Ocwen’s “perverse” argument that these provisions conflicted with the Code because they implied that collection of the debt, in and of itself, was permissible so long as the method of collection complied with FDCPA requirements. The court found that this was not a conflict as Ocwen could easily avoid violating both provisions by not attempting to collect the discharged debt, and, once it initiated collection efforts it risked violating one or both of the statutes.

The court disagreed with the district court’s concern about piecemeal litigation finding that, while there may be instances in which a civil court would need to seek clarification by a bankruptcy court concerning an order, that potential issue does not justify a wholesale routing of such claims to the bankruptcy court.

NCBRC filed an amicus brief on behalf of the NACBA membership in this case.

Garfield 2d Cir opinion Jan 2016