Saturday, December 12, 2020

FYI: 9th Cir Reverses Trial Court Ruling in Favor of Defendant on FDCPA Claim Related to Bankruptcy

The U.S. Court of Appeals for the Ninth Circuit recently reversed an award of summary judgment in favor of a defendant debt collector against claims that it violated the federal Fair Debt Collection Practices Act ("FDCPA") by attempting to collect a debt that was discharged in bankruptcy and no longer owed.


In so ruling, the Ninth Circuit concluded that its holding in Walls v. Wells Fargo Bank, N.A., 276 F.3d 502 (9th Cir. 2002), which precludes FDCPA claims premised on a violation of a bankruptcy discharge order, did not apply because the FDCPA claims at issue here were premised on his full satisfaction of the debt through a Chapter 13 plan before the discharge was entered, rather than a violation of the discharge order.


A copy of the opinion is available at:  Link to Opinion


In January 2009, after a homeowner ("Debtor") fell behind on his homeowners' association (HOA) dues, a law firm acting as a debt collector for the HOA ("Law Firm") sent notices to the Debtor regarding the unpaid debt. 


Approximately three years later, after the Law Firm recorded a notice of lien in the county's official records for unpaid dues, assessments and costs payable to the HOA (the "Debt"), and a "Notice of Default and Election to Sell" (Notice of Default) was recorded to initiate nonjudicial foreclosure proceedings.


In response, the Debtor filed for Chapter 13 bankruptcy, designating the HOA as a secured creditor, and confirming he would pay the Debt's total arrears through his proposed plan and ongoing dues directly to the HOA.  The Law Firm filed a separate proof of claim for the HOA, and the Debtor's Chapter 13 plan was eventually confirmed. 


A property management and debt collection company received the Debtor's HOA arrearage payments through the bankruptcy plan, and advised the bankruptcy trustee in March 2014 that the Debt was "paid in full," despite the amount paid being less than the amount stated in the HOA's proof of claim.  The trustee accordingly adjusted the claim to reflect what was paid and issued a notice stating the HOA's claim was "deemed as fully paid" and later filed a "Notice of Final Cure Payment and Completion of Payments Under the Plan," again verifying the Debt was paid in full. Two months later, the bankruptcy court entered an order of discharge in the Debtor's case.


After the Debt was paid off and the bankruptcy discharge was entered, the Law Firm hired a separate debt collection agency to re-serve the Debtor with the Notice of Default that was recorded prior to initiating foreclosure proceedings.  To effectuate service, the process server allegedly entered the Debtor's backyard and supposedly banged on his windows until police arrived and the 2012 Notice of Default was served.


After this incident, the Debtor called the Law Firm to explain that the Debt was fully paid, but the Law Firm advised that its records showed an unpaid balance.  The Law Firm later located a communication from the HOA's property management and debt collection company stating that the Debt was fully paid, and later admitted there was no balance owing on the Debt when it retained the process server to serve the Notice of Default on the Debtor.


The Debtor sued the Law Firm, HOA and associated debt collectors for allegedly to collect a debt that was no longer owed, in violation of the FDCPA.  Specifically, the Debtor alleged violations under sections 1692e and 1692f for attempts to collect the Debt that was already paid, and section 1692d alleging that its collection techniques were harassing, oppressive and/or abusive in violation of Section 1692d.   15 U.S.C. § 1692d, 1692e, 1692f. 


The Debtor moved for partial summary judgment against the Law Firm, who cross-moved, arguing that the Debtor's FDCPA claims were precluded under the Ninth Circuit's decision in Walls v. Wells Fargo, 276 F.3d 502 (9th Cir. 2002), which precludes FDCPA claims premised on a violation of a bankruptcy discharge order.  The trial court agreed and entered summary judgment in favor of the Law Firm, holding that the Debtor's FDCPA claims were precluded "because they are premised upon violations of the bankruptcy post-discharge injunction."  The Debtor appealed the trial court's entry of summary judgment in the Law Firm's favor; his claims against the HOA and debt collection agencies were dismissed and not at issue on appeal.


The Ninth Circuit initially addressed the Debtor's argument that his pre-petition debt was never discharged because he repaid the debt before the discharge order was entered. 


As you may recall, Section 1328(a) of the Bankruptcy Code states that after the payments required under a confirmed Chapter 13 bankruptcy plan are completed, the bankruptcy court, with certain enumerated exceptions, "shall grant the debtor a discharge of all debts provided for by the plan." 11 U.S.C. § 1328(a).  Here, because the HOA's proof of claim related only to pre-petition arrearage, which was paid through the confirmed plan and discharged, the appellate court rejected this claim.


Next, the Ninth Circuit analyzed whether its decision in Walls applied to preclude the Debtor's FDCPA claim.  Walls held that a debtor is precluded from bringing a FDCPA claim premised on a violation of a bankruptcy discharge order, as doing so would circumvent the proper remedy of bringing a contempt proceeding before the bankruptcy court (276 F.3d at 505, 510).


However, the Ninth Circuit noted, this case presented a slightly different question -— whether a debtor is precluded from bringing a FDCPA claim when the debt at issue was fully satisfied through a Chapter 13 plan before discharge was entered.


The Court noted that in Walls, the debtor's FDCPA claim depended solely on the discharge injunction, and that no independent basis existed to show that the creditor acted unlawfully.  But here, the Debtor did not seek to remedy a violation of his discharge order, but instead, alleges that the Law Firm acted unlawfully because it tried to collect the Debt that was fully paid nearly two years before his discharge.  Thus, a potential cause of action existed for the Debtor even if he had never received a discharge in his bankruptcy case.


The Law Firm argued that Walls categorically bars a discharged debtor's FDCPA claims brought against a creditor seeking to collect a debt that was provided for in a bankruptcy proceeding.  However, the Ninth Circuit rejected the Law Firm's interpretation as overly broad, and declined to extend Walls to preclude claims not premised on a violation of a bankruptcy discharge order. 


The Court also rejected the Law Firm's contention that Midland Funding LLC v. Johnson, 137 S. Ct. 1407 (2017) compels affirmance on the basis that the Supreme Court declined to "authorize a new significant bankruptcy-related remedy in the absence of language in the [Bankruptcy] Code providing for it" in that case (Id. at 1415).


Here, the Ninth Circuit noted, the resolution of the Debtor's claims does not hinge on bankruptcy-related questions, but only whether he fully paid the Debt —- which is memorialized in public records and the Law Firm admitted. 


Lastly, the Court held that Law Firm's argument that the Debtor abandoned his claim that the Law Firm was vicariously liable for the process server's acts by failing to raise it his opposition to the Law Firm's motion for summary judgment lacked merit, because neither party moved for summary judgment on this issue, and the only question before the trial court was whether Walls precluded the Debtor's FDCPA claims.


Because the Debtor's FDCPA claims were premised on a wholly independent theory of relief, and not a violation of the discharge Order, the Ninth Circuit concluded that Walls did not apply to bar his claims.  Accordingly, the trial court's entry of summary judgment in the Law Firm's favor and against the Debtor was reversed and remanded for further proceedings.




Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 603
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874


Admitted to practice law in Illinois




Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   Texas   |   Washington, DC



NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

Our updates and webinar presentations are available on the internet, in searchable format, at:


Financial Services Law Updates




The Consumer Financial Services Blog