Chase Bank (USA), N.A. v. v. John Brook

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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 13-13538
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D.C. Docket No. 8:12-cv-00731-SDM,
Bkcy No. 8:08-bk-20150-CPM
V. JOHN BROOK, as Chapter 7 Trustee of the Estate
of Claudia Acosta-Garriga,
Plaintiff - Appellant,
versus
CHASE BANK USA, N.A.,
Defendant - Appellee.
________________________
Appeal from the United States District Court
for the Middle District of Florida
________________________
(May 14, 2014)
Before WILSON and JORDAN, Circuit Judges, and ROTHSTEIN, * District
Judge.
*
Honorable Barbara Jacobs Rothstein, United States District Judge for the District of
Columbia, sitting by designation.
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PER CURIAM:
The question in this case is whether the bankruptcy court abused its
discretion when it declined to set off statutory damages and attorney’s fees
awarded under the Florida Consumer Collection Practices Act (hereinafter, “the
FCCPA”) against a pre-petition debt discharged in bankruptcy. Chase Bank
(USA), N.A. (hereinafter, “Chase”) appealed from the bankruptcy court’s ruling
and the district court reversed. Because we conclude that the bankruptcy court did
not abuse its discretion in denying the set off, we reverse the district court and
remand.
Debtor Claudia Acosta-Garriga filed a bankruptcy petition for Chapter 7
protection on December 18, 2008. Chase held a pre-petition claim against Ms.
Acosta-Garriga in the amount of approximately $30,000 for outstanding debt on
two Chase-issued credit cards. Chase did not file a proof of claim and the credit
card debt was ultimately discharged through the bankruptcy. In an adversary
proceeding brought by the Chapter 7 Trustee for the estate of Claudia Acosta-
Garriga (hereinafter, “the Trustee”), the bankruptcy judge found that Chase, while
attempting to collect the credit card debt, violated Sections 559.72(7) and
559.72(18) of the FCCPA. Incorporating a ruling from another adversary
proceeding, Meininger v. Chase (In re Gutshall), 8:10-ap-977, Doc. 52 (Bankr.
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M.D. Fla. July 24, 2011), the bankruptcy court awarded the Trustee the maximum
statutory damages of $1,000 and statutorily-mandated attorney’s fees.
The bankruptcy court denied Chase’s request to set off the FCCPA award
against Chase’s pre-petition claim against Ms. Acosta-Garriga (i.e., the
approximately $30,000 in credit card debt). Relying on a case from the former
Fifth Circuit, Newton v. Beneficial Finance Company of New Orleans, 558 F.2d
731 (5th Cir. 1977), the bankruptcy court concluded that set off is not available in
this case because the FCCPA is a penal statute and, in the bankruptcy court’s view,
an award under a penal statute cannot be set off against a debt discharged in
bankruptcy. The bankruptcy court also determined that set off is not available here
because, according to the bankruptcy court, the FCCPA award and the credit card
debt did not satisfy the mutuality requirement for set off under Florida law. Lastly,
the bankruptcy court, employing its discretion, concluded that even if Chase had
the right to set off its FCCPA obligation against the discharged credit card debt
under Florida law, the equities weighed against set off.
While not entirely clear, it appears that the district court reviewed the
bankruptcy court’s decision de novo. The district court rejected the bankruptcy
court’s reliance on Newton, stating that Newton has little precedential value, and
further rejected the bankruptcy court’s determination that mutuality did not exist
between Chase’s FCCPA obligation and Ms. Acosta-Garriga’s debt. Instead, the
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district court noted Florida’s preference for the entry of a single judgment and
concluded that Florida law requires set off. The district court also rejected the
bankruptcy court’s conclusion that it would be inequitable to allow Chase to set off
its obligation against the discharged debt. Accordingly, the district court reversed.
In the bankruptcy context, this Court sits as a second court of review and
examines independently the factual and legal determinations of the bankruptcy
court. In re Optical Techs., Inc., 425 F.3d 1294, 1299–1300 (11th Cir. 2005). The
right to set off pre-petition mutual debts is preserved by Section 553 of the
Bankruptcy Code. In re Prudential of Florida Leasing, Inc., 478 F.3d 1291, 1297
(11th Cir. 2007); 11 U.S.C. § 553. Set off under Section 553 is the “right to cancel
out mutual debts against one another in full or in part ... to avoid ‘the absurdity of
making A pay B when B owes A.’” In re Patterson, 967 F.2d 505, 508–09 (11th
Cir. 1992) (quoting Studley v. Boylston Nat’l Bank, 229 U.S. 523, 528 (1913)).
However, the right to set off is not absolute. Id. at 509. Whether to allow set off is
a decision that lies within the sound discretion of the bankruptcy court. In re
Kingsley, 518 F.3d 874, 877(11th Cir. 2008); In re The Sec. Group 1980, 74 F.3d
1103, 1114 (11th Cir. 1996) (“[T]he right to set off under § 553 is merely
permissive and subject to the discretion of the bankruptcy court.”); In re Diplomat
Electric, Inc., 499 F.2d 342, 346 (5th Cir. 1974) (the right of set off is governed by
the discretion of the court); Meyer Medical Physicians Group, Ltd. v. Health Care
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Service Corporation, 385 F.3d 1039, 1041 (7th Cir. 2004) (“The allowance of a
setoff is a decision that lies within the sound discretion of the bankruptcy court.”).
Thus, we review the bankruptcy court’s refusal to reduce the FCCPA
damages and attorney’s fees award by the amount of the credit card debt owed by
Ms. Acosta-Garriga before her bankruptcy and discharge for abuse of discretion. In
reviewing for abuse of discretion, we recognize the existence of a “range of
possible conclusions the [bankruptcy court] may reach,” and “must affirm unless
we find that the…court had made a clear error of judgment, or has applied the
wrong legal standard.” In re Kingsley, 518 F.3d at 877 (quoting Amlong & Amlong,
P.A. v. Denny’s, Inc., 500 F.3d 1230, 1238 (11th Cir. 2007)).
We have also held that “[s]ubstantive law, usually state law, determines the
validity of the right [of set off]” under the Bankruptcy Code. In re Patterson, 967
F.2d at 509; see also 5 Collier on Bankruptcy ¶ 553.04 (2004) (“[T]he Bankruptcy
Code does not create any setoff right; it merely preserves certain rights of setoff
that exist under applicable non-bankruptcy law.”). Here, the bankruptcy court
correctly notes that Florida law is silent as to whether an obligation incurred under
the FCCPA can be set off against a pre-petition debt. In reversing the bankruptcy
court, the district court interpreted Florida law’s silence to mean that such an
obligation must be set off against a pre-petition debt. The district court’s error is
that it fails to recognize that the right to set off debts is within the sound discretion
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of the bankruptcy court. As long as Florida law neither mandates nor prohibits set
off under the FCCPA—and it does not—it is entirely within the bankruptcy court’s
discretion whether to allow set off under the circumstances of the case.
In declining to set off the FCCPA award against the credit card debt, the
bankruptcy court noted that the purpose of the FCCPA is to deter bad collection
practices, noting that “[t]he FCCPA…seeks to protect Florida consumers from
illegal and/or unscrupulous practices of debt collectors and other persons.”
Meininger v. Chase (In re Gutshall), 8:10-ap-977, Doc. 52 (Bankr. M.D. Fla. July
24, 2011) (citing Schauer v. General Motors Acceptance Corp., 819 So. 2d 809,
811-812 (Fla. 4th DCA 2002)). Thus, the bankruptcy court concluded, it would be
“inequitable to permit” Chase to set off its FCCPA obligation because it would
allow Chase “to take illegal action without consequence.” In the bankruptcy
court’s view, if a creditor can simply set off an award under the FCCPA against the
outstanding debt the creditor is attempting to collect, there would be little to no
incentive to comply with the FCCPA. The bankruptcy court was also concerned
that allowing a creditor to set off its FCCPA obligation would “reward” the
creditor’s illegal actions by giving it “a shortcut in the collection process.” Further,
the bankruptcy court noted that the Florida legislature included a mandatory
attorney’s fee provision in the FCCPA. The bankruptcy court determined that the
Florida legislature included the mandatory attorney’s fee provision in order to
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encourage private attorneys to bring FCCPA claims. In the bankruptcy court’s
view, if a creditor is allowed to set off its FCCPA obligation against the
outstanding debt, private attorneys would be discouraged from bringing FCCPA
claims and bad collection practices—the very practices the statute is meant to
curb—would never be aired in a court of law.
As the bankruptcy court noted, the FCCPA was enacted as a means of
regulating the activities of consumer collection agencies within the state. LeBlanc
v. Unifund CCR Partners, 601 F.3d 1185, 1190 (11th Cir. 2010); 10A FLA.
JUR.2D CONSUMER § 138 (2010) (“The FCCPA is a laudable legislative attempt
to curb what the legislature evidently found to be a series of abuses in the area of
debtor-creditor relations.”). The bankruptcy court exercised its discretion to deny
set off here reasoning that the stated purpose of the FCCPA would be undermined
if set off was allowed. Such a determination is well within the sound discretion of
the court.
We find that the bankruptcy court’s refusal to reduce the Trustee’s FCCPA
damages and attorney’s fees award by the amount of the credit card debt owed by
Ms. Acosta-Garriga before her bankruptcy and discharge was well within the
bankruptcy court’s reasoned and sound discretion. We therefore reverse the district
court’s decision and remand for a determination of the award of attorney’s fees.
REVERSED AND REMANDED.
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