In yet another victory for consumers seeking to enforce their rights in bankruptcy court, Judge Leif M. Clark of the Western District of Texas got it right.  In the case of In re Calvillo, Plaintiff sued a Defendant in bankruptcy court alleging, among other things, a violation of the Fair Credit Reporting Act.  The Defendant made a motion to dismiss, claiming that a Plaintiff cannot make a claim under the Fair Credit Reporting Act in bankruptcy court due to preclusion issues.  To support this position, the Defendant used the case of Walls v. Wells Fargo Bank, N.A., 276 F.3d 502 (9th Cir. 2001).

However, the court found more persuasive the reasoning offered up by Judge Frank Easterbrook, of the Seventh Circuit, who authored a decision of a panel of that circuit which rejected Walls. See Randolph v. IMBS, Inc., 368 F.3d 726 (7th Cir. 2004); see also Turner v. J.V.D.B. & Associates, Inc., 330 F.3d 991 (7th Cir.2003); Hyman v. Tate, 362 F.3d 965 (7th Cir.2004). Said Judge Easterbrook, “When two federal statutes address the same subject in different ways, the right question is whether one implicitly repeals the other – and repeal by implication is a rare bird indeed. It takes either irreconcilable conflict between the statutes or a clearly expressed legislative decision that one replace the other.” Id., at 730, citing Branch v. Smith, 538 U.S. 354, 273 (2003). Judge Easterbrook concluded that neither was to be found in the case of the FDCPA. Similar logic indicates the ruling in that circuit would be the same were the FCRA before the court.

A Guest Post by Ronald L. Burdge, Dayton, Ohio

A pair of young lawyers stopped by my office the other day, on their way back from court where the jury had just returned a verdict against them. The conversation naturally turned to a post mortem on the trial itself.

It was an autofraud case that boiled down to who you believe and the jury just didn’t see the consumer’s version of the truth to be the real truth.

They thought they had done everything right and couldn’t understand how the jury could rule against them, although the defense attorneys and the judge all seemed to think their case was a very difficult to win in the first place. They acknowledged knowing it wouldn’t be easy from the start, but they had believed in their client.

“Nothing wrong with that,” I told them, “sometimes you just have to do the fight, no matter what the result and sometimes losing a trial can be much more influential than winning it.”

“What do you mean?” They asked. “Well, it’s like Thermopolis, you know?” He said it sounded familiar but she didn’t know what I was referring to.

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The case of In re Hale, — B.R. 0000, 2007 WL 196599 (Bkrtcy. E.D. Wash. 2007) the debtors commenced a Chapter 13 case and filed a proposed plan. Under paragraph VII entitled “Special Provisions,” the debtors stated “Debtor’s (sic) are surrendering house.” The initial plan would have required a monthly payment of $549.76 to fund the plan, which had a proposed base of $19,791.36 and an estimated term of 36 months. On March 14, 2003, Origen Financial, LLC (hereinafter “Origen”) filed a Proof of Claim in the total amount of $107,825.33. As completed by Origen, the form indicated that based upon the fair market value of the home, Origen held a secured claim of $78,770 and held an unsecured claim of approximately $29,055.33.

After a number of modifications, the Plan was confirmed. On August 30, 2006, three and one-half years after the filing of the Origen Proof of Claim, the debtors objected to that claim. Meanwhile, Origen foreclosed its lien non-judicially by making a credit bid of $107,000 at the foreclosure sale. On September 16, 2005, Origen sold the home for $120,000 to a third party and received net proceeds of $100,611.08, leaving a deficiency of $31,595.38 on the obligation.

The court noted that in Nobelman v. American Sav. Bank, 508 U.S. 324, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993), the Supreme Court held that although bifurcation of many secured claims into both a secured and an unsecured claim was required by § 506(a), § 1322(b) precluded bifurcation of first position residential home mortgage claims. Chapter 13 debtors, therefore, were required to pay residential mortgage lenders in accordance with the terms of the underlying obligation regardless of the value of the residence. The bifurcation of the claim was disallowed.

The crux of the case, however, deals with the res judicata effect of a confirmed Chapter 13 Plan. Once a Chapter 13 plan is confirmed, the plan is res judicata as to all matters contained in the plan. Trulis v. Barton, 107 F.3d 685 (9th Cir.1995). Typically, Chapter 13 plans do not effect or purport to determine the nature and extent and validity of a claim. In re Hobdy, 130 B.R. 318 (B.A.P. 9th Cir.1991). Confirmation of plans does not effect the validity of a claim nor its classification as secured or unsecured. Chapter 13 plans determine the treatment to be accorded claims and are res judicata as to the treatment described in the plan. Plans are not res judicata as to the allowance or disallowance of a claim. Allowance of a particular claim is generally not referenced or effected by the plan. In re Shook, 278 B.R. 815 (B.A.P. 9th Cir.2002).

There is an exception to the general rule that confirmation of a Chapter 13 plan has no res judicata effect on the nature, extent or validity of a claim. That exception occurs when the plan specifically so provides. Plans may modify the rights of the holders of claims in a manner disallowed by the Code if the plan clearly and specifically so provides and due process requirements are met. But by failing to refer to the unsecured claim of Origen with any specificity, the court held that the Plan at issue was not res judicata as to the lender.

The moral of the story is to craft your Plan carefully, being sure to refer to claims with specificity and provide due process to the creditor at issue. Without doing so, the terms of the Plan cannot be deemed binding against the creditor.

Technorati Tags: bankruptcy, chapter 13, res judicata, hale, court decision

Collection agency and debt buyer Asset Acceptance Capital Corp. has said it will close two of its offices: one in Michigan and one in Maryland. This comes on the heels of their most recent earnings report.

The company increased their investments in purchased receivables by 33.9 percent for the full year 2006 from 2005 levels, and saw revenues increase 14.3 percent. But the interesting point is that during the fourth quarter of 2006, the Company invested a record $62.2 million to purchase charged-off consumer debt portfolios with a face value of $2.5 billion, which means that Asset Acceptance is buying debt at 2.46 cents on the dollar.

Technorati Tags: debt buyers, asset acceptance, charge off

In the case of In re Outboard Marine Corp. — B.R. —-, 2007 WL 79265 (Bkrtcy. N.D.Ill.,2007) the court held that F.R.B.P. 7004(b)(3), the bankruptcy rule governing service upon a corporation, does not require that a plaintiff serve by name the corporate officer or managing or general agent. Rather, the plain language of the rule, supported by the Advisory Committee Notes, mandates only that the mailing be sent to the attention of the officer or agent by reference to his position or title. In addition, requiring a plaintiff to direct the service of process to the corporate officer or agent by name would entail an extra step of searching state records in order to ascertain that name and, if the corporate records later turned out to be inaccurate, would unfairly render otherwise adequate and proper service invalid. A split of authority was noted in the cases of In re Golden Books Family Entm’t, Inc., 269 B.R. 300, 305 (Bankr.D.Del.2001): Addison v. Gibson Equip. Co. (In re Pittman Mech. Contractors, Inc.), 180 B.R. 453, 457 (Bankr.E.D.Va.1995); In re Schoon, 153 B.R. 48, 49 (Bankr.N.D.Cal.1993); In re Faulknor, No. R04-43921-PWB, 2005 WL 102970, at *2 (Bankr.N.D.Ga. Jan.18, 2005). These cases are not binding on the courts in New York; but neither is this Illinois case.

So what does a vigilant bankruptcy lawyer do when effecting service on a corporation? Take the time to locate the name of a corporate officer and do your best to effect proper service. Sites such as the New York State Department of State Corporation and Business Entity Search can help track down your parties, as can the SEC EDGAR database and the FDIC Bank Find database.

Technorati Tags: bankruptcy, service, SEC, EDGAR, FDIC