ELLIOTT v. CAVALRY INVESTMENTS, LLC
1:14-cv-01066
| S.D. Ind. | Jan 9, 2015Background
- Peter and Misty Elliott filed Chapter 13 bankruptcy in 2013; Cavalry Investments/Portfolio Services filed two proofs of claim for alleged unpaid phone-service debts.
- The debts were time-barred under Indiana law (statute of limitations passed); the Bankruptcy Court sustained the Elliotts’ objections to those claims.
- The Elliotts then sued Cavalry under the Fair Debt Collection Practices Act (FDCPA), alleging filing time-barred proofs of claim violated the FDCPA.
- Cavalry moved to dismiss, arguing (a) filing proofs of claim is not "debt collection" under the FDCPA, (b) claims in bankruptcy are asserted against the estate (not a natural person), and (c) controlling Seventh Circuit precedent does not compel liability.
- The district court denied the motion to dismiss, finding the complaint plausibly states an FDCPA claim and that authority (including Seventh and Eleventh Circuit decisions) supports allowing the claim to proceed, while identifying unresolved factual and legal issues for later development.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether filing a proof of claim on a time‑barred debt can violate the FDCPA | Filing the proof of claim is an attempt to collect and can mislead an unsophisticated debtor into believing the debt is legally enforceable (citing Phillips; Crawford) | Filing a proof of claim in bankruptcy is not debt collection under the FDCPA and is directed to the estate/court/trustee, not a natural person | Denied dismissal: claim plausible; court refuses to resolve the issue as a matter of law at pleading stage |
| Applicability of Phillips (state‑court suit on stale debt) to bankruptcy proofs of claim | Phillips supports that suing on stale debts violates FDCPA; same logic applies to proofs of claim | Phillips is distinguishable because creditor-initiated suits differ from proofs of claim in a debtor-initiated bankruptcy | Court found Phillips persuasive but noted key differences and declined to resolve definitively |
| Effect of safeguards in Chapter 13 (trustee and debtor counsel) on deception risk | Even with safeguards, a least‑sophisticated debtor may be misled by a time‑barred proof of claim | Trustee duty and debtor counsel lessen risk that a filing would mislead; thus different from state‑court suits | Court acknowledged safeguards as important unresolved factual issues to be developed later |
| Role of statute of limitations as an affirmative defense in bankruptcy | A time‑barred debt is unenforceable but not extinguished; filing may still misrepresent legal status | Because SOL is an affirmative defense that can be waived, filing a claim may be a claim to collect if opponent fails to object — not necessarily a misrepresentation | Court noted the distinction and found parties must develop arguments; dismissal inappropriate now |
Key Cases Cited
- Phillips v. Asset Acceptance, LLC, 736 F.3d 1076 (7th Cir.) (holding state‑court suit on time‑barred debt can violate the FDCPA)
- Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir.) (applying Phillips to hold time‑barred proofs of claim can violate the FDCPA)
- Randolph v. IMBS, Inc., 368 F.3d 726 (7th Cir.) (discussing interaction of FDCPA and Bankruptcy Code)
- Evory v. RJM Acquisitions Funding L.L.C., 505 F.3d 769 (7th Cir.) (FDCPA protects the unsophisticated consumer standard)
- McMahon v. LVNV Funding, LLC, 744 F.3d 1010 (7th Cir.) (explaining misrepresentation of legal status of debt violates FDCPA)
- Simmons v. Roundup Funding, LLC, 622 F.3d 93 (2d Cir.) (addressing whether certain bankruptcy‑related filings constitute debt collection)
- Matter of Fernstrom Storage & Van Co., 938 F.2d 731 (7th Cir.) (proofs of claim notify court, trustee, creditors, and debtor)