Debtor Takes Road Less Traveled to POC Challenge and Hits Dead End

Evidence that would be inadmissible hearsay in state court satisfied Bankruptcy Rule 3001 for purposes of establishing the validity of the debt buyer’s proofs of claim. Walston v. PYOD, LLC, No.  14-14593 (11th Cir. June 2, 2015).

The credit card debts giving rise to the proofs of claim were originally owned by Citibank then sold to Sherman Acquisition which transferred them to PYOP. In support of its proofs of claim, PYOP presented documentary evidence of the transfer from Sherman but did not provide a copy of the written transfer from Citibank to Sherman. In response to the debtor’s objection to its proofs of claim, PYOP proffered the affidavit of the custodian of records for Sherman in which she averred that the debts were part of a portfolio of accounts sold to Sherman by Citibank. The affiant did not provide a copy of the sales agreement because it was “too voluminous.” Mr. Walston objected to the proofs of claim on the basis that they would be unenforceable in state court because the only evidence presented in their support was inadmissible hearsay. The bankruptcy court found that state evidentiary rules do not supplant the requirements of Rule 3001(c). The district court agreed.

On appeal, the Eleventh Circuit walked through the necessary evidentiary showings and burdens relating to challenged proofs of claim as set forth in Bankruptcy Rule 3001. Under that rule, when a “claim is based on an open-end or revolving consumer credit agreement,” such as a credit card, and the claimant does not have a security interest in the debtor’s real property, the claimant must provide the name of the entity from which it purchased the account and the name of the entity to which the debt was owed at the time of the last transaction. The claimant must also provide the dates of the last transaction, the last payment and when the account was charged to profit and loss. The claimant need not provide a copy of the writing unless the debtor makes a written request for it in accordance with Rule 3001(c)(3)(B). The court found that PYOP complied with the requirements for establishing a prima facie case and turned to whether it offered adequate proof to defeat the debtor’s challenge.

In challenging the claims, Mr. Walston apparently did not make a request under Rule 3001(c)(3)(B) for a copy of the writing. Instead he relied on section 502(b)(1) which provides that a claim should be disallowed where it “is unenforceable against the debtor . . . under any agreement or applicable law.” The debtor argued that because the affidavit offered by PYOP to support the transfer from Citibank to Sherman and to explain the absence of a copy of the sales agreement would be inadmissible hearsay under Georgia law rendering the claim unenforceable.

The circuit court rejected the debtor’s hearsay argument finding that section 502’s disallowance of a claim as unenforceable under applicable law refers to the validity of the claim itself rather than the admissibility of the evidence offered to support it. In so holding, the court distinguished those cases in which claims were found unenforceable due to a legal defense such as statute of limitations or that the loan was usurious, finding that those issues were not before it.

Finally, the court found that a debtor could not overcome a prima facie claim merely by objecting to it; he had to offer evidence to counter the claim. The court distinguished Pursley v. eCAST Settlement Corp. (In re Pursley),451 B.R. 213 (Bankr. M.D. Ga. 2011), where the debtor challenged the creditor’s proof of claim with testimony that he had had no dealings with the claimant.

Walston 11th Cir opinin