Midland Got It Right (Sort Of)

The Supreme Court got it right in Midland Funding LLC v. Johnson, which holds that it is not a violation of the Fair Debt Collection Practices Act to file a proof of claim in a Chapter 13 bankruptcy based on a debt whose statute of limitations has expired.  

I suspect that I might be the only bankruptcy professor whose name doesn't start with the last two letters of the alphabet who isn't outraged by Midland (which gives a nice shout out to our former co-blogger Katie Porter's scholarship!), and I'm going to catch hell for writing this, but one of the great things about tenure is that I can say things like this.  So here goes.  I don't think Midland is a very persuasive opinion; it's not the reasoning I would adopt, but I think it gets the right answer, even if it is uncomfortable as a policy result (it's hard to defend an industry whose economics are dependent upon careless trustees and debtors). 

Here's the reason for my heretical view:  I don't understand the Fair Debt Collection Practices Act as governing debt collection through the courts.  The statute is designed to cover non-judicial debt collection:  harassing dunning calls and the like.  It doesn't expressly exclude judicial debt collection, but it's pretty clearly not meant to address the problems of trying to collect unenforceable debt through the judicial system.  The specifically prohibited practices are all about nonjudicial debt collection.  Indeed, trying to govern judicial debt collection via statute would be tricky, because one has to distinguish between debts that are facially unenforceable and those that aren't, and that line isn't so obvious, even with statutes of limitations (where there can be disagreement on when it runs, tolling, etc.). 

There's no need to despair, however.  Even if the FDCPA doesn't apply to time-barred debts in Chapter 13, nothing prevents courts from applying Rule 9011 sanctions. There's no language in the Midland opinion that would be an obstacle to such sanctions, but they would presumably have to be fact-and-circumstance specific, rather than a blanket rule of time-barred=sanctionable.  And that's actually the point.  There's no need for the FDCPA to extend to judicial debt collection because courts have other tools for policing bad behavior by creditors.  Also, note that the CFPB has statutory authority under its UDAAP power to undertake a debt collection rulemaking that would cover attempts to collect time-barred debt through the courts.

And now a snarky point side point. Midland, like so many SCOTUS opinions, was decided based on specific statutory language. Is it too much to ask, then, for SCOTUS to use language correctly? Justice Sotomayor's dissent states that: "The Court today wrongfully holds that a debt collector that knowingly attempts to collect a time-barred debt in bankruptcy proceedings has violated neither of these prohibitions." (emphasis added).  The Court's holding may well be wrong, but I don't think it's wrongful. This is why I despair of good decisions from a Supreme Court that is obsessively textualist, and insufficiently contextualist. 

Comments are open.  Have at me.