Bankruptcy Preemption/Preclusion Defense Does Not Preclude Class Certification in FDCPA/FCCPA Case

In an opinion vacating a district court order denying class certification, the Eleventh Circuit held that whether the Bankruptcy Code precludes and/or preempts the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1962 et seq., and the Florida Consumer Collection Practices Act (“FCCPA”), Fla. Stat. § 559.55 et seq., raised issues common to all class members.  Sellers v. Rushmore Loan Mgmt. Servs., LLC, 2019 WL 5558082 (11th Cir. Oct. 29, 2019).  The district court (erroneously) held that the issue was “individualized,” such that the plaintiffs had failed to establish the predominance requirement of Fed. R. Civ. P. 23(b)(3).

Plaintiffs Randolph and Tabetha Sellers obtained a loan secured by a mortgage lien on their home, serviced by defendant Rushmore Loan Management Services, LLC.  Plaintiffs defaulted on their loan and a foreclosure action was instituted.  Thereafter, Plaintiffs filed for Chapter 7 bankruptcy.  In their bankruptcy proceedings, the court issued a discharge order relieving Plaintiffs from personal liability on their discharged debts, including the mortgage, and barring creditors from taking action to collect those debts.

Despite the discharge, Rushmore continued sending Plaintiffs monthly mortgage statements that appeared to seek payment on the debt.  Accordingly, Plaintiffs sued Rushmore and sought certification of putative class claims pursuant to the FDCPA and FCCPA.  Specifically, Plaintiffs alleged that Rushmore made false, deceptive, and misleading representations when it sent mortgage statements and attempted to collect on their mortgage debt after receiving a Chapter 7 discharge.

The Middle District of Florida denied class certification, holding that Rushmore’s defense—that the Bankruptcy Code precluded or preempted the FDCPA and FCCPA—caused individual inquiries to predominate over issues common to the putative class.  The district court reasoned that the putative class included both borrowers who vacated their homes (for whom § 524(a) defined the scope of the discharge) and borrowers who remained in their homes (for whom § 524(j) defined the scope of the discharge).  Certifying the putative class would therefore require individualized inquiries “for every class member to determine whether the § 524(j) exception applied, and if so, whether the Bankruptcy Code precluded and/or preempted the FDCPA and FCCPA.”  Accordingly, the court denied class certification.

On appeal, the Eleventh Circuit vacated the district court’s order, ruling it was error to classify Rushmore’s preclusion/preemption defense as an individualized issue.  Specifically, the  Eleventh Circuit found that the district court overlooked  Plaintiffs’ allegation that Rushmore violated discharge injunctions even when it sent mortgage statements to class members who vacated their homes, because § 524(a) provides that discharge orders bar any act to collect a discharged debt.  The court found that the legal question at issue—whether the Bankruptcy Code precludes or displaces any remedy available under the FDCPA and FCCPA for a claim that a creditor engaged in false or deceptive conduct by attempting to collect a debt in violation of a discharge injunction—applies to all class members and thus is common.

In so holding, the Court noted that it was not expressing an opinion on whether Rushmore’s defense was meritorious, declining to take sides in an existing circuit split.  Concurring, visiting Judge Amul R. Thapar of the Sixth Circuit agreed with the majority’s reasoning that “these defenses do raise a common question about the class,” but “as the majority opinion rightly notes, the district court should have the chance to address the issue in first instance.”

Posted by Laura Smithman.

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