by Declining to extend its 2002 holding in Walls, the Ninth Circuit found that a chapter 13 debtor who fully paid the creditor’s claim prior to completion of his plan was not precluded from pursuing an FDCPA claim based on the creditor’s post-discharge collection efforts. Manikan v. Peters & Freedman, L.L.P., No. 19-55393 (9th Cir. Nov. 25, 2020).
The debtor entered chapter 13 bankruptcy after receiving a notice of foreclosure from Peters & Freedman, a debt collector, based on HOA arrears. Through P&F, the HOA filed a claim in his bankruptcy, and the debtor provided for the arrears in his plan. He fully paid off the debt approximately two years prior to completion of his plan. After the debtor received his discharge, P&F hired Advanced Attorney Services (AAS) to re-serve a Notice of Default based on the debt that the debtor had paid off in his bankruptcy. AAS served the notice by breaking through a gate, entering the debtor’s backyard and banging on his windows, causing the debtor to call the police.
Based on this incident, the debtor initiated an FDCPA action in district court against P&F. The parties filed cross-motions for summary judgment. The court granted P&F’s motion, citing Walls v. Wells Fargo Bank, N.A., 276 F.3d 502 (9th Cir. 2002), where the Ninth Circuit held that an FDCPA claim based on violation of the bankruptcy discharge injunction is precluded by the Bankruptcy Code.
On appeal, the debtor argued that Walls was inapplicable because his debt, having been fully paid prior to completion of his plan, was never discharged. The court disagreed. It found that discharge under section 1328(a) encompasses every claim “provided for” in the plan without regard to whether that claim was fully paid through the plan.
That finding did not resolve the case, however. The court went on to address whether the holding in Walls extended to the situation before it. In Walls, the debtor brought an FDCPA claim against a creditor based on post-discharge collection efforts with respect to a debt that was not fully paid through bankruptcy but was included in the debtor’s overall discharge. The Walls court found that because the FDCPA claim was based entirely the creditor’s alleged violation of the discharge injunction, the debtor was limited to a civil contempt action under the bankruptcy court’s authority bestowed by section 105(a). The court reasoned that where Congress had not created a private cause of action to redress violations of the discharge injunction, a debtor could not circumvent congressional limitations by reframing the case as an FDCPA action. The court found that enforcement of the discharge order was properly left in the hands of the court that issued the order and was better able to address “bankruptcy-laden” issues.
In this case, however, the debtor did not complain that P&F violated the discharge injunction. Rather, the debtor’s FDCPA claim was based on the defendant’s efforts to collect a debt that “was fully satisfied through a Chapter 13 plan before discharge was entered.” The court found the debtor’s claim was based on a theory of relief that was not dependent upon his having received a bankruptcy discharge, and the court or jury faced with the debtor’s FDCPA claim would not be required to make “bankruptcy-laden” determinations. The fact that the debtor may have also been able to bring an action based on violation of the discharge injunction was irrelevant.
The court disagreed that resolution of the case was directed by Midland Funding LLC v. Johnson, 137 S. Ct. 1407 (2017), where the Supreme Court held that a proof of claim based on a debt for which the statute of limitations for collection had lapsed could not form the basis of an FDCPA claim because the claim was not false or misleading. The fact that the claim may not have been recoverable was a bankruptcy-related question not appropriate for litigation under the FDCPA.
The court also rejected P&F’s argument that the debtor abandoned his claim of vicarious liability against it. The court found the issue had not come up for discussion in the motions for summary judgment and therefore the debtor had not had “a full and fair opportunity to ventilate [his] views” on the subject. The only issue raised by the cross-motions was whether Walls precluded the debtor’s FDCPA action.
The court reversed and remanded.