Last month the United States Court of Appeals for the Ninth Circuit reversed a creditor’s summary judgment finding the debtor’s (“Manikan”) FDCPA claims against debt collector Peters & Freedman, L.L.P. (“P&F”) were not barred even though the debt was discharged in bankruptcy prior to Manikan’s lawsuit against P&F. Manikan v. Peters & Freedman, L.L.P. In 2012 Pacific Ridge Neighborhood Homeowners’ Association (“HOA”) hired P&F to initiate nonjudicial foreclosure proceedings against Manikan for his failure to pay his monthly HOA fees.i Thereafter, Manikan filed for Chapter 13 bankruptcy protection and named the HOA as a secured creditor. Manikan’s Chapter 13 bankruptcy plan required monthly payments to the HOA to cure the default for past due HOA fees and to keep current with monthly HOA fees as they became due. The bankruptcy court confirmed Manikan’s plan and he made payments to the HOA as required under the plan.
In 2014 the HOA advised the bankruptcy trustee “that the HOA debt was ‘paid in full.’” The trustee “issued a notice stating the HOA’s claim was ‘deemed as fully paid’” and the trustee confirmed same again when it filed a “Notice of Final Cure Payment and Completion of Payments Under the Plan” over a year and a half later. Sometime thereafter, based on inaccurate or incomplete records, P&F hired a process server to re-serve Manikan with the same notice of default from the 2012 foreclosure. “The process server entered Manikan’s backyard without permission by breaking a closed gate” and startled Manikan and his family by banging on the windows of Manikan’s house. The police were called and after the police arrived “the process server identified himself and served Manikan with the 2012 default notice.”
Manikan contacted P&F and explained he had paid off the HOA debt in full, but P&F “responded that its records still showed an unpaid balance.” Eventually, P&F determined Manikan was correct. The debt had been paid in full and at the time P&F hired the process server Manikan’s account was current. Based on P&F’s attempt to collect a debt that was not owed, Manikan initiated a lawsuit against P&F alleging violations of the Fair Debt Collection Practices Act (“FDCPA”). Specifically, Manikan argued under 15 U.S.C. § 1692(e) and (f) that “P&F attempted to collect a debt that was already paid” and under § 1692 (d) service of the default notice constituted conduct that was harassing, oppressive or abusive.
Manikan moved for partial summary judgment on his FDCPA claims arguing there was no dispute P&F attempted to collect a debt that was no longer owed…” so P&F’s violation of the FDCPA was established as a matter of law. In opposition to Manikan’s summary judgment motion P&F “cross-moved arguing that Manikan’s FDCPA claims” were barred under the Ninth Circuit’s 2002 holding in Walls v. Wells Fargo Bank, 276 F.3d 502 (9th Cir. 2002). In Walls, the Ninth Circuit concluded that a debtor did not have a “private right of action” based on violations of a bankruptcy discharge order under § 524ii or under the FDCPA because the bankruptcy code already provided a remedy and if another remedy was needed it was “for Congress to decide.” The Court elaborated “the proper remedy for violating the discharge order [under § 524] is a contempt proceeding pursuant to 11 U.S.C. §105(a).”
The Ninth Circuit reasoned that “[i]mplying a private remedy” from § 524 “could put enforcement of the discharge injunction in the hands of a court that did not issue it…which is inconsistent with the present scheme that leaves enforcement to the bankruptcy judge whose discharge order gave rise to the injunction.” Likewise, the Court explained allowing a claim under the FDCPA “would allow through the back door what [the debtor] cannot accomplish through the front door – a private right of action. This would circumvent the remedial scheme of the Code…” The district court, relying on Walls, granted summary judgment for P&F “concluding that Manikan’s FDCPA claims were precluded ‘because they are premised upon violations of the bankruptcy post-discharge injunction.’” Manikan appealed that judgment to the Ninth Circuit.
The Ninth Circuit reversed distinguishing Walls on the basis that Manikan was not seeking a remedy for P&F’s violation of the bankruptcy discharge order, but rather because P&F “tried to collect a debt that [Manikan] fully paid nearly two years before his debts were discharged in bankruptcy.” The Court explained even if Manikan’s debt was never discharged under his Chapter 13 bankruptcy plan, he still could have asserted “P&F acted unlawfully” when it attempted “to collect a debt [Manikan] fully satisfied.” The Court concluded “Manikan’s FDCPA claims [were] therefore premised on a wholly independent theory of relief” unrelated to the discharge order and therefore not barred under § 524 and prior precedent (Walls). The Court remanded the matter for further proceedings.
This case demonstrates the importance of proper record keeping throughout the debt collection process and the need for established protocols for verifying a debt prior to involving the debtor. Hiring a law firm with these platforms and protocols in place can avoid costly mistakes like those made in Manikan.
i Manikan, at *1. All references, citations and quotes to Manikan that follow are to the same cite unless indicated otherwise.
ii The pertinent provision of the bankruptcy code is codified at 11 U.S.C. § 524. Section 524 imposes an injunction against creditors from collecting a debt that had previously been discharged in bankruptcy proceedings. Walls, 276 F.3d at 504.