Keeler v. PRA Receivables Management, LLC (In Re Keeler)Keeler v. PRA Receivables Management, LLC (In Re Keeler)
MEMORANDUM OPINION
Mr. Jеsse Keeler, the debtor in this chapter 13 bankruptcy case, commenced the above-captioned adversary proceeding against defendants PRA Receivables Management, LLC and Portfolio Recovery Associates, Inc. The complaint filed consists of four counts against the defendants jointly. The debtor seeks actual damages, statutory damages, attorney fees, punitive damages, and various forms of equitable relief.
As will be discussed, the kernel of the complaint is that the two defendants routinely purchase “stale” credit card debt from credit card companies, and then file proofs of claim (for the face amount of the debt, with interest) in bankruptcy cases, such as this оne, although the defendants know or should know that the claims are barred by the applicable statute of limitations.
Presently before me is the defendants’ motion to dismiss all counts of the complaint for failure to state a cause of action. They contend that, even if the debtor’s factual allegations are true, he is not entitled to any monetary or equitable relief. The defendants argue that, although the statute of limitations may have run on their claim, they still hold a valid debt, as the assignee of an unpaid contractual obligation, that entitles them to file a proof of claim in the debtor’s chapter 13 bankruptcy case. Moreover, the defendants also contend that two causes of action raised by the debtor are barred by the doctrines of preemption or preclusion.
Upon review of the parties’ memoranda and oral argument, I agree, for the reasons to follow, that this adversary proceeding must be dismissed.
I.
A.
The complaint alleges relatively few facts.
On or about July 10, 2008, an unsecured proof of claim was filed in this chapter 13 case by defendant PRA Receivables Management LLC “as agent of Portfolio Recovery Associates, LLC successor in interest to First Union National Bank (Corestates Bank).” This proof of claim, docketed as claim # 1, asserted an unsecured claim in the amount of $3,230.55, based upon credit card usage. Complaint, ¶ 14 (Exhibit A).
Attached to Portfolio’s proof of claim was a “supplemental account summary.” This summary revealed the following:
PRA Receivables Management, LLC as agent of Portfolio Recovery Assocs., successor in interest to FIRST UNION NATIONAL BANK/(CORESTATES BANK). The account was purchased from FIRST UNION NATIONAL BANK on 4/28/2000.
* * *
Acct. #:**** * *7993
Acct. Type: Credit Card
Date of Loan: 10/6/1994
Charge off Date: 10/23/1995
Last Payment Date: 2/13/1995
Balance at Filing Date: $3,230.55
Exhibit A.
The debtor alleges in his complaint that “[d]efendant(s) routinely take(s) assignment of consumer accounts for Debtors who file Chapter 13 Bankruptcy Petitions. Defendant(s) then file(s) proofs of claim on such assigned accounts.” Complaint, ¶ 13. Moreover, “[t]he aforementioned proof of claim was/were clearly outside of the applicable statute of limitations, and were therefore legally unenforceable claims.” Id., ¶ 15. The debtor also asserts that the defendants knew or should have known that the statute of limitations had expired when they filed the proof of claim. In addition, the debtor avers that the defendants’ conduct in this case is typical of their actions in other bankruptcy cases.
After the filing of this complaint, Portfolio’s proof of claim # 1 was withdrawn, upon motion, without opposition from the debtor pursuant to
B.
Based upon these facts, the debtor raises four causes of action.
In Count One, the debtor contends that the defendants violated
In Count Two, the debtor asserts that the defendants’ actions also violated the Fair Debt Cоllection Practices Act (FDCPA),
In Count Three, the debtor contends that the defendants’ actions violated “Pennsylvania’s Fair Trade Extension Uniformity as Act [sic],” (PFCEUA),
Finally, Count Four avers that defendants have also violated
In addition to the relief previously mentioned, the debtor seeks attorneys’ fees incurred in objecting to the time-barred proofs of claim, attorneys’ fees incurred in litigating this adversary proceeding, monetary sanctions equаl to the amount of Portfolio’s proof of claim, as well as punitive damages in the amount of $20,000.
II.
The defendants seek to dismiss all four counts of the complaint under
Federal Rule of Civil Procedure 8(a)(2) requires only “a short and plain statement of the claim showing that the pleader is entitled to relief.” Specific facts are not necessary; the statement need only “ ‘give the defendant fair notice of what the ... claim is and the grounds upon which it rests.’ ” Bell Atlantic Corp. v. Twombly,550 U.S. 544 , 545,127 S.Ct. 1955 ,167 L.Ed.2d 929 , - (2007) (quoting Conley v. Gibson,355 U.S. 41 , 47,78 S.Ct. 99 ,2 L.Ed.2d 80 (1957)). In addition, when ruling on a defendant’s motion to dismiss, a judge must accept as true all of the factual allegations contained in the complaint. Bell Atlantic Corp., supra, at 555-56,127 S.Ct. 1955 ,167 L.Ed.2d 929 ....
Erickson v. Pardus,
Therefore, in ruling upon a
The Supreme Court’s Twombly formulation of the pleading standard can be summed up thus: “stating ... a claim requires a cоmplaint with enough factual matter (taken as true) to suggest” the required element. Id. This “does not impose a probability requirement at the pleading stage,” but instead “simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of’ the necessary element. Id.
Phillips,
In other words, the plaintiff must make a sufficient showing to justify moving to the next stage of litigation.
Phillips,
III.
A.
For purposes of this motion to dismiss, defendants concede that they filed Portfolio’s proof of claim # 1 knowing that this claim was time-barred under applicable state law: Pennsylvania’s four year statute of limitations.
The debtor counters that once the statute of limitations has run, Pennsylvania law invalidates the claim and precludes any attempts to collect the debt. Relying upon
Commonwealth ex rel. Fisher v. Cole,
B.
To resolve this dispute, I turn first to the language of the Bankruptcy Code.
Section 501(a) provides that a “creditor ... may file a proof of claim.”
The Bankruptcy Code at
The term “claim” means—
(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or
(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.
The existence of a claim, however, does not entitle a creditor to payment. Section 502(b)(1) provides, in essence, “that a claim shall be disallowed to the extеnt that the claim is unenforceable under applicable law.”
In re Greenspan,
As mentioned above, the defendants here concede that Portfolio’s challenged claim should have been disallowed under section 502 as barred by Pennsylvania’s four-year statute of limitations, based upon the challenge made in this adversary proceeding, had the claim not been withdrawn.
See In re McGregor,
I find the defendants’ distinction persuasive in resolving the instant motion to dismiss. Indeed, given the language of section 501(a), I find dispositive whether Portfolio, acting through its agent PRA, held a prepetition claim within the meaning of
IV.
When Congress enacted the Bankruptcy Reform Act of 1978, which included the definition of the term “claim” quoted above, it was not writing on a clеan slate. The concept of a claim was an important component of the former Bankruptcy Act of 1898.
See generally Gardner v. State of New Jersey,
Under the former Bankruptcy Act, a claim had to be both proved and allowed in order for a creditor to receive a distribution. 3
Collier on Bankruptcy,
¶ 57.14[1], at 228 (14th ed. 1977);
see, e.g., Hargadine-McKittrick Dry Goods Co. v. Hudson et al.,
As noted by one commentator, those claims that were provable were not necessarily allowable:
Debts of the tyрes specified in § 63 may be proved. They also may be allowed. But whether a debt so proved will actually be allowed is a distinct issue, and one that depends not only on provability. Allowance of a claim is determined by the court on the merits as a judicial act, and requires some order or action of the court to make it effective. The court may disallow a claim because it does not constitute a debt provable under § 63, or because the proof was belated, or because the claim was legally invalid, or barred by the statute of limitations, or because it has been discharged through payment, setoff or release. The infinite variety of reasons for which a claim may be disallоwed-explains why a disallowed claim and a non-provable debt or claim are not identical things....
3A Collier on Bankruptcy, ¶ 63.05, at 1775-76 (14th ed. 1977) (footnotes omitted) (emphasis in original).
As suggested in the quotation above, a number of decisions under the former Bankruptcy Act held that claims barred by the relevant statute of limitations were provable debts, but not allowable if objected to:
Debts are not the less provable, within the meaning of the bankrupt act, because the statute of limitations may be successfully pleaded against their allowance. As well say that a debt was not suable because the statute of limitations might be pleaded to an action upon it. The plaintiffs judgment was a provable debt, and the fact that a recоvery upon it might be defeated by the pleas of payment, or a pleas [sic] of the statute of limitations, or any other plea in bar, did not take it out of the class of provable debts. The term ‘provable debts’ does not mean only such debts as are valid, and against the allowance of which no defense can be successfully interposed.
Hargadine-McKittrick Dry Goods Co.,
at 234;
see, e.g., In re Povill,
This distinction between a provable debt and an allowable claim was relied upon by the Second Circuit Court of Appeals in
In re Weidenfeld,
When Congress enacted the Bankruptcy Reform Act of 1978, it expanded the definition of a claim and combined the concepts of provable and allowable claims by abolishing the concept of provability.
See Pennsylvania Dept. of Environmental Resources v. Tri-State Clinical Laboratories, Inc.,
A “claim” is a “right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.” ... As is apparent, Congress chose expansive language in both definitions relevant to this case. For example, to the extent the phrase “right to payment” is modified in the statute, the modifying language (“whether or not such right is ... ”) reflects Congress’ broad rather than restrictive view of the class of obligations that qualify as a “claim” giving rise to a “debt.” See also H.R.Rep. No. 95-595, supra, at 309 ... (describing definition of “claim” as “broadest possible” and noting that Code “contemplates that all legal obligations of the debtor ... will be able to be dealt with in the bankruptcy case”); accord, S.Rep. No. 95-989, supra, at 22....
(citations omitted).
In expanding the definition of the term “claim,” Congress established that the existence of a right to payment is more extensive than the existence of a cause of action that entitles an entity to bring suit.
See, e.g., In re Remington Rand Corp.,
I appreciate that the question of when a right to payment arises is answered in this circuit by state law, not by federal common law.
Matter of M. Frenville Co., Inc.,
The parties dispute the correct standard for determining when the plaintiffs’ claims arose. Chemetron contends that the question of when the plaintiffs’claims arose is not governed by state law dictating when a cause of action accrues, but rather by a federal common law of bankruptcy. Although significant authority supporting this proposition exists in other circuits, this circuit has held the reverse. In Matter of M. Frenville Co., Inc., 744 F.2d 332 (3d Cir.1984), cert. denied,469 U.S. 1160 ,105 S.Ct. 911 ,83 L.Ed.2d 925 (1985), this court held that in most circumstances a “claim” arises for bankruptcy purposes at the same time the underlying state law cause of action acсrues. Id. at 337. We are cognizant of the criticism the Frenville decision has engendered, but it remains the law of this circuit. See Matter of Penn Central Transp. Co.,71 F.3d 1113 , 1114-15 (3d Cir.1995) (applying rule of Frenville), cert. denied,517 U.S. 1221 ,116 S.Ct. 1851 ,134 L.Ed.2d 951 (1996); In re Bryer,216 B.R. 755 , 759 (Bankr.E.D.Pa.1998) (same). Accordingly, this court must look to Ohio tort law to determine when the plaintiffs’ claims accrued.
(footnote omitted);
see also Vanston Bondholders Protective Committee v. Green,
Nevertheless, “[e]ven though non-bankruptcy law may not recognize a claim absent a breach, the Bankruptcy Code ... employs a broader approach. Thus, under the Code, a right to payment need not be currently enforceable in order to constitute a claim.”
Pearl-Phil GMT (Far East) Ltd. v. Caldor Corp.,
For example, Pennsylvania law provides that a cause of action exists only when a party has the present right to bring suit.
See Manning v. Newville
Water
Co.,
However, although Pennsylvania would not permit a civil action to commence on an unmatured claim,
see Erdely v. Hinchcliffe and Keener, Inc.,
V.
Based upon the broad definition of a claim found in
In Virginia, a debt for which collection action has become barred by the running of a statute of limitations is not extinguished; rather, the bar of the statute operates to prevent enforeement[J
* * *
Further, in Virginia, the bar of a statute of limitations must be asserted as an affirmative defense.
In re Varona,
Given that the filing of such a proof of claim was permitted under the Bankruptcy Act of 1898, and given that Congress expanded the definition of a claim under the current Bankruptcy Code and thus widened the scope of those permitted to submit proofs of claims in a bankruptcy case, the debtor cannot persuasively argue that Congress intended to overrule the practice under the former Bankruptcy Act when it enacted current
Instead, the debtor contends that Pennsylvania law is more restrictive in precluding any right to payment for stale debts than other state law jurisdictions. Relying upon
Commonwealth ex rel. Fisher v. Cole,
The debtor’s argument overlooks a long line of appellate court decisions construing Pennsylvania law and holding to the contrary.
See Commonwealth ex. rel. Margiotti v. Cunningham,
[T]he outstanding credit card account balances were debts regardless whether the Pennsylvania statute of limitations precluded collection by judicial means. The statute of limitations foreclosed judicial remedies rather than eliminatfed] the underlying rights.
Aronson v. Commercial Financial Services, Inc.,
In addition, under Pennsylvania law the statute of limitations “is an affirmative defense that effectively can be waived by the failure to properly raise it as New Matter in the answer.” 2
Standard Pennsylvania Practice 2d,
§ 13:95 (2008);
see Kyle v. McNamara & Criste,
Thus, Pennsylvania law appears to be consistent with the law of other jurisdictions. A debt barred by the statute of limitations is not extinguished; rather, it is subject to an affirmative defense that can be waived.
In
Cole,
heavily relied upon by the debt- or, in a two to one decision a panel of the Commonwealth Court upheld a preliminary injunction obtained by the Commonwealth against a physician who had brought suit against numerous former patients basеd upon stale claims.
Given the particular facts presented in Cole, I do not agree with the debtor’s assertion that Cole establishes the principle in Pennsylvania that the expiration of the statute of limitations serves to extinguish the underlying debt, as opposed to foreclosing a creditor from obtaining a state court remedy. Indeed, such a broad reading of Cole would directly contradict the Pennsylvania Supreme Court, as noted above.
The Pennsylvania Supreme Court is the final arbiter of state law.
See, e.g., Sameric Corp. of Delaware, Inc. v. City of Philadelphia,
In addition, even were
Cole
to stand for the proposition that Pennsylvania’s con
Therefore, along with numerous other courts to have considered the issue, I conclude that defendant Portfolio in this adversary proceeding held a claim within the meaning of
VI.
Once one concludes that defendant Portfolio (acting through its agent PRA) held a claim within the meaning of
In Count One, the debtor raises three statutory provisions:
To the extent that
Section 105(a) gives the court general equitable powers, but only insofar as those powers are applied in a manner consistent with the Code.... Nor doessection 105(a) give the court the power to create substantive rights that would otherwise be unavailable under the Code.
Id.
at 100;
accord FDIC v. Colonial Realty Co.,
By its very terms,Section 105(a) limits the bankruptcy court’s equitable powers, which “must and can only be exercised within the confines of the Bankruptcy Code[,]” Norwest Bank Worthington v. Ahlers,485 U.S. 197 , 206,108 S.Ct. 963 , 968,99 L.Ed.2d 169 (1988), and “cannot be used in a manner inconsistent with the commands of the Bankruptcy Code.” In re Plaza de Diego Shopping Ctr., Inc.,911 F.2d 820 , 830-31 (1st Cir.1990).
Id. at 59.
Given thаt section 501(a) authorizes every creditor holding a claim to file a proof of claim, even if that claim is later disallowed under section 502(b),
Similarly, Count Four, which seeks sanctions under
Count Three, based upon an alleged violation of Pennsylvania’s consumer protection laws is preempted in this instance by federal bankruptcy law. In general, state laws are invalid if they “interfere with, or are contrary to, federal law.”
Kehm Oil Co. v. Texaco, Inc.,
As determined earlier, based upon the facts pled in the debtor’s complaint, Portfolio held a claim within the meaning of
Finally, in Count Two, the debtor asserts that the defendants viоlated the federal Fair Debt Collection Practices Act (FDCPA),
Recently, in
In re Chaussee,
the Ninth Circuit Bankruptcy Appellate Panel explained that the debt validation procedure of the FDCPA, an important component of the statute, is incompatible both with the bankruptcy stay imposed by section 362(a), as well as the procedure for objections to proofs of claim.
Id.,
For purposes of this adversary proceeding, I need only conclude that the FDCPA does not bаr a creditor from filing a proof of claim, as permitted by
VII.
There have been a substantial number of recently reported decisions involving entities that take bulk assignments of stale claims and then file proofs of claim in bankruptcy cases. The debtor in this proceeding essentially raises the policy question whether such conduct is appropriate. Should entities be permittеd to file proofs of claim knowing that the claim is barred by the statute of limitations and, if objected to, will be disallowed?
I appreciate that debtors and bankruptcy trustees must be vigilant in reviewing proofs of claim, so that a distribution is not provided to those holding claims barred by the statute of limitations. Nonetheless, as other courts have observed, the present statute and procedural rules do not preclude such filings by creditors. Until the Bankruptcy Code is amended (for example, by adding a provision in
Absent some creditor impropriety in completing the proof of claim form constituting misconduct falling within the scope of
An appropriate order will be entered.
Notes
. As I find that Count One does not state a cause of action, I need not address the procedural and jurisdictional issues posed by the debtor's demand for relief involving debtors and trustees in other cases.
. Section 108(c) of the Bankruptcy Code extends the limitations period for creditor claims in certain instances. It applies, however, only to those creditor claims that were not already barred prepetition by relevant non-bankruptcy law.
See, e.g., In re Klingshirn,
.