Confirmation of Chapter 13 Plan was Not an Adjudication of Debt Buyer’s Claims on the Merits

Confirmation of Chapter 13 Plan was Not an Adjudication of Debt Buyer’s Claims on the Merits

A creditor holding a right to payment under applicable nonbankruptcy law generally may file a proof claim in a debtor’s bankruptcy case under section 501 of the U.S. Bankruptcy Code. The U.S. Supreme Court recently explained that a creditor might file such a proof of claim even if the claim underlying the right to payment is time barred under applicable nonbankruptcy law. See Midland FundingLLC vJohnson, 137 S.Ct. 1407, 1412 (2017). As the Supreme Court observed in Midland Funding, the Code does not limit the definition of claim in section 101(5) to an enforceable claim, and it specifically recognizes that an unenforceable claim may be disallowed in accordance with section 502. Id. The Supreme Court’s decision in Midland Funding underscores the stark distinction in the Code between the filing of a proof of claim and the ultimate allowance of that claim in the debtor’s bankruptcy case.

Before the Court in this adversary proceeding is a Motion to Dismiss that requires the Court to analyze several of the principles articulated by the Supreme Court in Midland FundingSpecifically, Jacqueline Chorba, the above-captioned debtor and the plaintiff in this adversary proceeding (the “Plaintiff”), alleges that Quantum3 Group, LLC and MOMA Funding, LLC (collectively, the “Defendants”) are unlicensed debt collectors under the Collection Agency Licensing Act and that, as such, the Defendants’ proofs of claim in this chapter 13 case violate the State Consumer Debt Collection Act and the State Consumer Protection Act. By her Amended Complaint, the Plaintiff seeks damages, attorney’s fees, and disallowance of the Defendants’ proofs of claim. The Defendants, on the other hand, assert that the Plaintiff’s Amended Complaint is barred by her confirmed chapter 13 plan and the doctrine of res judicata or that, alternatively, their proofs of claim are permissible under Midland Funding and that the Plaintiff’s state law claims are preempted by the Code. Under either argument, the Defendants posit that the Plaintiff has failed to state a claim upon which relief can be granted and, thus, request dismissal of the Plaintiff’s Amended Complaint under Federal Rule of Civil Procedure 12(b)(6), as made applicable to this adversary proceeding by Federal Rule of Bankruptcy Procedure 7012.

The Plaintiff filed for protection under chapter 13 of the Code on March 1, 2017. She simultaneously filed her chapter 13 plan, which the Court confirmed on October 17, 2017. No party objected to the Plaintiff’s plan. That plan provides, among other things, that general unsecured creditors “will be paid pro rata” and that “[t]he amount of each claim to be paid under the plan will be established by the creditor’s proof of claim or superseding Court order.”

The Defendants filed two proofs of claim in the Plaintiff’s chapter 13 case in June 2017. The first claim is filed as Claim No. 5 in the amount of $3,442.39. The second claim is filed as Claim No. 6 in the amount of $1,530.08 (collectively with Claim No. 5, the “Proofs of Claim”). The Proofs of Claim reflect the defaulted debt purchased from Synchrony Bank.

On October 9, 2017, the Plaintiff commenced this adversary proceeding by filing a two-count Complaint against the Defendants (the “Original Complaint”). Count I of the Original Complaint alleges that the Defendants violated the State Consumer Debt Collection Act (the “Debt Collection Act”) by filing the Proofs of Claim because the Defendants are unlicensed debt collectors under the State Collection Agency Licensing Act (the “Licensing Act”). Count II of the Original Complaint alleges that such conduct is a per se violation of the State Consumer Protection Act (the “Consumer Protection Act”).  Both counts seek compensatory and punitive damages and attorney’s fees. The Defendants filed a Motion to Dismiss the Original Complaint on November 3, 2017. The Plaintiff then filed an Amended Complaint against the Defendants (the “Amended Complaint”), making minor changes to the first two counts described above and adding Count III, which asserts an objection to, and seeks disallowance of, the Proofs of Claim. The Defendants thereafter filed a Motion to Dismiss the Amended Complaint (the “Motion to Dismiss”), and the Plaintiff filed a response thereto.

 

 

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