Midland Funding, LLC v. Johnson
137 S. Ct. 1407
| SCOTUS | 2017Background
- Debtor Aleida Johnson filed Chapter 13 bankruptcy; Midland Funding filed a proof of claim for a credit-card debt showing last activity >10 years earlier (Alabama statute of limitations = 6 years).
- Johnson objected in bankruptcy; the Bankruptcy Court disallowed Midland’s claim.
- Johnson then sued Midland under the Fair Debt Collection Practices Act (FDCPA), alleging the proof of claim was false, deceptive, misleading, unfair, and unconscionable (15 U.S.C. §§1692e, 1692f).
- District Court dismissed, holding the FDCPA did not apply; the Eleventh Circuit reversed. The Supreme Court granted certiorari to resolve a circuit split.
- Supreme Court majority (Breyer) reversed the Eleventh Circuit: filing an on‑its‑face time‑barred proof of claim in Chapter 13 is not an FDCPA violation. Justice Sotomayor dissented (joined by Ginsburg and Kagan).
Issues
| Issue | Plaintiff's Argument (Johnson) | Defendant's Argument (Midland) | Held |
|---|---|---|---|
| Whether a proof of claim that is obviously time‑barred is a "false, deceptive, or misleading" representation under §1692e | Proof of claim was not enforceable and thus false/misleading to assert as a "claim" | "Claim" under Bankruptcy Code = broad "right to payment"; state law can preserve the right even if limitations period bars enforcement | Not false, deceptive, or misleading — Code treats statutes of limitation as an affirmative defense; filing follows Code scheme |
| Whether such a proof of claim is an "unfair" or "unconscionable" practice under §1692f | Filing stale claims exploits debtors, risks unwitting repayment, and is objectively unfair; no legitimate reason for practice | Chapter 13 procedure, trustee oversight, and claims process reduce risk; statutes of limitation are affirmative defenses; some stale‑claim filings can benefit debtors (discharge) | Not unfair or unconscionable in Chapter 13 context; applying FDCPA would disrupt bankruptcy balance and procedures |
| Whether bankruptcy rules (e.g., Rule 9011) resolve or permit FDCPA liability for filing stale claims | Rule 9011 and sanctions do not foreclose FDCPA claims; Rule 9011 may be inadequate to deter systemic abuse | Rule 9011 and bankruptcy procedures address frivolous filings; Advisory Committee rejected imposing prefiling limitations investigation | Court: Rule 9011 does not decide FDCPA applicability; but Rule 9011 and other features weigh against finding FDCPA violation in bankruptcy context |
| Whether FDCPA should be applied by ordinary civil courts to resolve bankruptcy‑specific questions about claims and timeliness | FDCPA enforcement is appropriate to curb abusive debt‑buying practices in bankruptcy; bankruptcy actors often miss stale claims | Allowing FDCPA suits would invite collateral litigation into bankruptcy matters, shift burdens, and upset the Code’s balance | Court: FDCPA does not reach on‑its‑face time‑barred proofs of claim in Chapter 13; would create conflicts with the Bankruptcy Code’s scheme |
Key Cases Cited
- Travelers Cas. & Sur. Co. v. Pac. Gas & Elec. Co., 549 U.S. 443 (recognizing state law defines many rights to payment for bankruptcy claims)
- Johnson v. Home State Bank, 501 U.S. 78 (Congress intended broad definition of "claim")
- Pennsylvania Dept. of Public Welfare v. Davenport, 495 U.S. 552 (used term "enforceable obligation" descriptively in bankruptcy context)
- Kokoszka v. Belford, 417 U.S. 642 (discussing the "delicate balance" of debtor protections and obligations under the Code)
- Bates v. State Bar of Ariz., 433 U.S. 350 (consideration of audience sophistication when assessing whether a statement is misleading)
- Phillips v. Asset Acceptance, LLC, 736 F.3d 1076 (7th Cir. 2013) (holding filing suit on time‑barred debt in ordinary civil litigation can violate FDCPA)
- Huertas v. Galaxy Asset Mgmt., 641 F.3d 28 (3d Cir. 2011) (addressing FDCPA scope for time‑barred debt collection in civil litigation)
- Castro v. Collecto, Inc., 634 F.3d 779 (5th Cir. 2011) (similar treatment of stale‑debt civil collection practices)
- Freyermuth v. Credit Bureau Servs., Inc., 248 F.3d 767 (8th Cir. 2001) (considering FDCPA and attempts to collect time‑barred debt)
- Kimber v. Federal Fin. Corp., 668 F. Supp. 1480 (D. Ala. 1987) (district court reasoning on consumer vulnerability to time‑barred collections)