Appeals Court Says FDCPA Cases Cannot Arise in Bankruptcy Claims

The U.S. Court of Appeals for the Second Circuit ruled last week that a consumer in bankruptcy protection cannot bring cases of Fair Debt Collection Practices Act (FDCPA) violations stemming from a proof of claim entered by a debt buyer in the bankruptcy process.

The case, Simmons v. Roundup Funding, LLC, No. 09-4984, was filed by Lamont and Melissa Simmons after a debt buyer, Roundup Funding, filed a proof of claim during the Simmons’ bankruptcy proceedings. Roundup claimed the couple owed $2039.21, but the bankruptcy judge in the case agreed with the Simmon’s and found that Roundup’s claim was too high, reducing it to $1,100. The Simmons’ then sued Roundup for violating the FDCPA by misrepresenting the amount of debt.

The U.S. District Court for the Southern District of New York dismissed the case, granting Roundup’s motion to dismiss. Further, the District Court awarded Roundup costs and attorneys fees related to their motion to dismiss agreeing that the Simmons’ case was brought in bad faith and for the purpose of harassment.

In ruling with the Defendants, the Second Circuit – which covers Connecticut, New York, and Vermont – agreed with the lower court in the dismissal of the case. “There is no need to protect debtors who are already under the protection of the bankruptcy court,” the court wrote, explaining that the FDCPA’s purpose in protecting unsophisticated consumers is not undermined when the consumer is under the protection of the court system.

The appeals court, however, struck down the lower courts award of attorney’s fees and costs in Roundup’s motion to dismiss. The ruling said that bad faith in filing the case could not be proved and vacated the award.

But the court did agree with the lower court that the Simmons’ “were careless in their pursuit of this action,” and granted Roundup reasonable costs associated with the appeal of the case.