EDITOR’S NOTE: This post was guest-authored by Christopher J. Somma, an attorney in Goodwin Procter’s Consumer Financial Services Litigation Practice. Mr. Somma represents clients in distressed loan workouts, forbearances, restructurings, commercial and residential foreclosures, UCC foreclosure sales, distressed portfolio and asset sales, property disposition, creditors’ rights and insolvency, origination of commercial real estate loans, asset-based and structured-based finance, note and mortgage sales and other issues surrounding OREOs.
On February 17, 2016, the Third Circuit handed a creditor and its law firm a win in a Fair Debt Collection Practices case filed in bankruptcy court finding that a couple who sued over the Rule 2004 Examination Subpoena in their bankruptcy case could not have been misled by that subpoena.
Robert and Stacey Simon (Debtors) appealed the District Court’s order granting summary judgment in favor of FIA Card Services N.A. (FIA) and Weinstein & Riley, P.S. (Weinstein), on their claims under the Fair Debt Collection Practices Act (FDCPA). The Debtors claimed that certain communications sent by Weinstein, a law firm representing their creditor, FIA, were false, deceptive, and misleading in violation of the FDCPA. The Court rejected their claims, in part, because the communications were sent only to their attorney and would not have been misleading to a “competent attorney.” The Third Circuit concluded that the communications at issue would not have been false, deceptive, or misleading even to the hypothetical “least sophisticated debtor” –the standard the Debtors stated the Court should have applied.
The Debtors had filed for Chapter 7 bankruptcy when, on January 28, 2011, Weinstein sent two communications to their bankruptcy attorney. Each communication consisted of a letter and an attached “Notice of Examination” referencing a Rule 2004 examination. The letter stated that FIA was considering filing an adversary proceeding to challenge the dischargeability of the debt, and made an offer of settlement. The notice stated that a Rule 2004 examination had been scheduled to permit FIA to gather information for that filing. Although the notices indicated that they had been mailed to both the attorney and the Debtors personally, only one notice was actually mailed and only to the Debtors’ attorney.
Federal Rule of Bankruptcy Procedure 2004 provides that a party in interest may conduct an examination of the financial condition of a debtor and the debtor’s right to a discharge, among other things. The procedure for compelling the attendance of an entity for examination and for compelling the production of documents is governed by Federal Rule of Bankruptcy Procedure 9016, which in turn incorporates the requirements of Federal Rule of Civil Procedure 45 for subpoenas. The subpoenas failed to comply with the requirements of the Rule 45 because they were not served on the Debtors personally and failed to include certain text from Rule 45, now codified at subsections (d) and (e). The Debtors moved to quash the “subpoenas,” and the Bankruptcy Court granted their motion.
In January 2012, the Debtors brought an FDCPA action against FIA and Weinstein raising several claims under 15 U.S.C. § 1692e, which prohibits the use of false, deceptive, or misleading representations or means in connection with the collection of debts. The Debtors alleged that the communications violated the FDCPA in several ways, one of which was that they failed to comply with Rule 45. The District Court granted the defendants’ motion to dismiss, concluding that the FDCPA claims were precluded by the Bankruptcy Code and that the allegations were insufficient to state a claim under the FDCPA. On appeal, the Third Circuit affirmed in part and vacated in part. See Simon v. FIA Card Servs., N.A., 732 F.3d 259 (3d Cir. 2013).
In the first appeal, the Third Circuit concluded that the Bankruptcy Code did not preclude the FDCPA claims and that the District Court erred in dismissing the claims for that reason. However, the Third Circuit expressed no opinion as to whether the violations of Rule 45 were actually sufficient to state a claim under the FDCPA. On remand, the case proceeded to summary judgment. The District Court concluded that the subpoenas’ noncompliance with aspects of Rule 45 did not render them in violation of the FDCPA as they were only sent to the Debtors’ attorney and a competent attorney would not have been deceived or misled by the procedural defects. The Third Circuit agreed.
The Third Circuit pointed to its decision last year in Jensen v. Pressler & Pressler, 791 F.3d 413 (3d Cir. 2015) in which the Third Circuit held that unless a statement could influence a debtor’s actions in some way, it cannot mislead them. “Although the statement that the subpoenas had been sent to the [Debtors] personally was technically false, it was not material, and is not actionable, because it could not have had an impact on the [Debtors’] decision with respect to their debt.” The Third Circuit also found that Weinstein’s failure to include the protective language in the documents did not impact how a debtor would understand the subpoena, since the subpoena did not contradict those protective rules and in fact provided flexibility as to the time and place of the position. “Simply put, an unsophisticated debtor would not have been led astray.”