Midland Funding, LLC v. Johnson

(Slip Opinion) OCTOBER TERM, 2016 1
Syllabus
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
being done in connection with this case, at the time the opinion is issued.
The syllabus constitutes no part of the opinion of the Court but has been
prepared by the Reporter of Decisions for the convenience of the reader.
See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.
SUPREME COURT OF THE UNITED STATES
Syllabus
MIDLAND FUNDING, LLC v. JOHNSON
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE ELEVENTH CIRCUIT
No. 16–348. Argued January 17, 2017—Decided May 15, 2017
Petitioner Midland Funding filed a proof of claim in respondent John-
son’s Chapter 13 bankruptcy case, asserting that Johnson owed Mid-
land credit-card debt and noting that the last time any charge ap-
peared on Johnson’s account was more than 10 years ago. The
relevant statute of limitations under Alabama law is six years. John-
son objected to the claim, and the Bankruptcy Court disallowed it.
Johnson then sued Midland, claiming that its filing a proof of claim
on an obviously time-barred debt was “false,” “deceptive,” “mislead-
ing,” “unconscionable,” and “unfair” within the meaning of the Fair
Debt Collection Practices Act, 15 U. S. C. §§1692e, 1692f. The Dis-
trict Court held that the Act did not apply and dismissed the suit.
The Eleventh Circuit reversed.
Held: The filing of a proof of claim that is obviously time barred is not a
false, deceptive, misleading, unfair, or unconscionable debt collection
practice within the meaning of the Fair Debt Collection Practices Act.
Pp. 2–10.
(a) Midland’s proof of claim was not “false, deceptive, or mislead-
ing.” The Bankruptcy Code defines the term “claim” as a “right to
payment,” 11 U. S. C. §101(5)(A), and state law usually determines
whether a person has such a right, see Travelers Casualty & Surety
Co. of America v. Pacific Gas & Elec. Co., 549 U. S. 443, 450–451.
The relevant Alabama law provides that a creditor has the right to
payment of a debt even after the limitations period has expired.
Johnson argues that the word “claim” means “enforceable claim.”
But the word “enforceable” does not appear in the Code’s definition,
and Johnson’s interpretation is difficult to square with Congress’s in-
tent “to adopt the broadest available definition of ‘claim,’ ” Johnson v.
Home State Bank, 501 U. S. 78, 83. Other Code provisions are still
2 MIDLAND FUNDING, LLC v. JOHNSON
Syllabus
more difficult to square with Johnson’s interpretation. For example,
§502(b)(1) says that if a “claim” is “unenforceable” it will be disal-
lowed, not that it is not a “claim.” Other provisions make clear that
the running of a limitations period constitutes an affirmative defense
that a debtor is to assert after the creditor makes a “claim.” §§502,
558. The law has long treated unenforceability of a claim (due to the
expiration of the limitations period) as an affirmative defense, and
there is nothing misleading or deceptive in the filing of a proof of
claim that follows the Code’s similar system.
Indeed, to determine whether a statement is misleading normally
“requires consideration of the legal sophistication of its audience,”
Bates v. State Bar of Ariz., 433 U. S. 350, 383, n. 37, which in a Chap-
ter 13 bankruptcy includes a trustee who is likely to understand that
a proof of claim is a statement by the creditor that he or she has a
right to payment that is subject to disallowance, including disallow-
ance based on untimeliness. Pp. 2–5.
(b) Several circumstances, taken together, lead to the conclusion
that Midland’s proof of claim was not “unfair” or “unconscionable”
within the terms of the Fair Debt Collection Practices Act.
Johnson points out that several lower courts have found or indicat-
ed that, in the context of an ordinary civil action to collect a debt, a
debt collector’s assertion of a claim known to be time barred is “un-
fair.” But those courts rested their conclusions upon their concern
that a consumer might unwittingly repay a time-barred debt. Such
considerations have significantly diminished force in a Chapter 13
bankruptcy, where the consumer initiates the proceeding, see §§301,
303(a); where a knowledgeable trustee is available, see §1302(a);
where procedural rules more directly guide the evaluation of claims,
see Fed. Rule Bkrtcy. Proc. 3001(c)(3)(A); and where the claims reso-
lution process is “generally a more streamlined and less unnerving
prospect for a debtor than facing a collection lawsuit,” In re Gate-
wood, 533 B. R. 905, 909.
Also unpersuasive is Johnson’s argument that there is no legiti-
mate reason for allowing a practice like this one that risks harm to
the debtor. The bankruptcy system treats untimeliness as an affirm-
ative defense and normally gives the trustee the burden of investigat-
ing claims to see if one is stale. And, at least on occasion, the asser-
tion of even a stale claim can benefit the debtor.
More importantly, a change in the simple affirmative-defense ap-
proach, carving out an exception, would require defining the excep-
tion’s boundaries. Does it apply only where a claim’s staleness ap-
pears on the face of the proof of claim? Does it apply to other
affirmative defenses or only to the running of the limitations period?
Neither the Fair Debt Collection Practices Act nor the Bankruptcy
Cite as: 581 U. S. ____ (2017) 3
Syllabus
Code indicates that Congress intended an ordinary civil court apply-
ing the Act to determine answers to such bankruptcy-related ques-
tions. The Act and the Code have different purposes and structural
features. The Act seeks to help consumers by preventing consumer
bankruptcies in the first place, while the Code creates and maintains
the “delicate balance of a debtor’s protections and obligations,” Ko-
koszka v. Belford, 417 U. S. 642, 651. Applying the Act in this con-
text would upset that “delicate balance.”
Contrary to the argument of the United States, the promulgation of
Bankruptcy Rule 9011 did not resolve this issue. Pp. 5–10.
823 F. 3d 1334, reversed.
BREYER, J., delivered the opinion of the Court, in which ROBERTS,
C. J., and KENNEDY, THOMAS, and ALITO, JJ., joined. SOTOMAYOR, J.,
filed a dissenting opinion, in which GINSBURG and KAGAN, JJ., joined.
GORSUCH, J., took no part in the consideration or decision of the case.
Cite as: 581 U. S. ____ (2017) 1
Opinion of the Court
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SUPREME COURT OF THE UNITED STATES
_________________
No. 16–348
_________________
MIDLAND FUNDING, LLC, PETITIONER v.
ALEIDA JOHNSON
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE ELEVENTH CIRCUIT
[May 15, 2017]
JUSTICE BREYER delivered the opinion of the Court.
The Fair Debt Collection Practices Act, 91 Stat. 874, 15
U. S. C. §1692 et seq., prohibits a debt collector from as­
serting any “false, deceptive, or misleading representa­
tion,” or using any “unfair or unconscionable means” to
collect, or attempt to collect, a debt, §§1692e, 1692f. In
this case, a debt collector filed a written statement in a
Chapter 13 bankruptcy proceeding claiming that the
debtor owed the debt collector money. The statement
made clear, however, that the 6-year statute of limitations
governing collection of the claimed debt had long since
run. The question before us is whether the debt collector’s
filing of that statement falls within the scope of the afore­
mentioned provisions of the Fair Debt Collection Practices
Act. We conclude that it does not.
I
In March 2014, Aleida Johnson, the respondent, filed for
personal bankruptcy under Chapter 13 of the Bankruptcy
Code (or Code), 11 U. S. C. §1301 et seq, in the Federal
District Court for the Southern District of Alabama. Two
months later, Midland Funding, LLC, the petitioner, filed
2 MIDLAND FUNDING, LLC v. JOHNSON
Opinion of the Court
a “proof of claim,” a written statement asserting that
Johnson owed Midland a credit-card debt of $1,879.71.
The statement added that the last time any charge ap­
peared on Johnson’s account was in May 2003, more than
10 years before Johnson filed for bankruptcy. The rele­
vant statute of limitations is six years. See Ala. Code §6–
2–34 (2014). Johnson, represented by counsel, objected to
the claim; Midland did not respond to the objection; and
the Bankruptcy Court disallowed the claim.
Subsequently, Johnson brought this lawsuit against
Midland seeking actual damages, statutory damages,
attorney’s fees, and costs for a violation of the Fair Debt
Collection Practices Act. See 15 U. S. C. §1692k. The
District Court decided that the Act did not apply and
therefore dismissed the action. The Court of Appeals for
the Eleventh Circuit disagreed and reversed the District
Court. 823 F. 3d 1334 (2016). Midland filed a petition for
certiorari, noting a division of opinion among the Courts of
Appeals on the question whether the conduct at issue here
is “false,” “deceptive,” “misleading,” “unconscionable,” or
“unfair” within the meaning of the Act. Compare ibid.(finding the Fair Debt Collection Practices Act applicable)
with In re Dubois, 834 F. 3d 522 (CA4 2016) (finding the
Act inapplicable); Owens v. LVNV Funding, LLC, 832
F. 3d 726 (CA7 2016) (same); and Nelson v. Midland
Credit Management, Inc., 828 F. 3d 749 (CA8 2016)
(same). We granted the petition. We now reverse the
Court of Appeals.
II
Like the majority of Courts of Appeals that have consid­
ered the matter, we conclude that Midland’s filing of a
proof of claim that on its face indicates that the limitations
period has run does not fall within the scope of any of the
five relevant words of the Fair Debt Collection Practices
Act. We believe it reasonably clear that Midland’s proof of
Cite as: 581 U. S. ____ (2017) 3
Opinion of the Court
claim was not “false, deceptive, or misleading.” Midland’s
proof of claim falls within the Bankruptcy Code’s defini­
tion of the term “claim.” A “claim” is a “right to payment.”
11 U. S. C. §101(5)(A). State law usually determines
whether a person has such a right. See Travelers Casualty
& Surety Co. of America v. Pacific Gas & Elec. Co., 549
U. S. 443, 450–451 (2007). The relevant state law is the
law of Alabama. And Alabama’s law, like the law of many
States, provides that a creditor has the right to payment of
a debt even after the limitations period has expired. See
Ex parte HealthSouth Corp., 974 S. 2d 288, 296 (Ala. 2007)
(passage of time extinguishes remedy but the right re­
mains); see also, e.g., Sallaz v. Rice, 161 Idaho 223, ___,
384 P. 3d 987, 992–993 (2016) (similar); Notte v. Mer-
chants Mut. Ins. Co., 185 N. J. 490, 499–500, 888 A. 2d
464, 469 (2006) (similar); Potterton v. Ryland Group, Inc.,
289 Md. 371, 375–376, 424 A. 2d 761, 764 (1981) (similar);
Summers v. Connolly, 159 Ohio St. 396, 400–402, 112
N. E. 2d 391, 394 (1953) (similar); DeVries v. Secretary of
State, 329 Mich. 68, 75, 44 N. W. 2d 872, 876 (1950) (simi­
lar); Fleming v. Yeazel, 379 Ill. 343, 344–346, 40 N. E. 2d
507, 508 (1942) (similar); Fidelity & Cas. Co. of N. Y. v.
Lackland, 175 Va. 178, 185–187, 8 S. E. 2d 306, 309 (1940)
(similar); Insurance Co. v. Dunscomb, 108 Tenn. 724, 728–
731, 69 S. W. 345, 346 (1902) (similar); but see, e.g., Miss.
Code Ann. §15–1–3(1) (2012) (expiration of the limitations
period extinguishes the remedy and the right); Wis. Stat.
§893.05 (2011–2012) (same).
Johnson argues that the Code’s word “claim” means
“enforceable claim.” She notes that this Court once re­
ferred to a bankruptcy “claim” as “an enforceable obliga­
tion.” Pennsylvania Dept. of Public Welfare v. Davenport,
495 U. S. 552, 559 (1990). And, she concludes, Midland’s
“proof of claim” was false (or deceptive or misleading)
because its “claim” was not enforceable. Brief for Re­
spondent 22; Brief for United States as Amicus Curiae 18–
4 MIDLAND FUNDING, LLC v. JOHNSON
Opinion of the Court
20 (making a similar argument).
But we do not find this argument convincing. The word
“enforceable” does not appear in the Code’s definition of
“claim.” See 11 U. S. C. §101(5). The Court in Davenport
likely used the word “enforceable” descriptively, for that
case involved an enforceable debt. 495 U. S., at 559. And
it is difficult to square Johnson’s interpretation with our
later statement that “Congress intended . . . to adopt the
broadest available definition of ‘claim.’ ” Johnson v. Home
State Bank, 501 U. S. 78, 83 (1991).
It is still more difficult to square Johnson’s interpreta­
tion with other provisions of the Bankruptcy Code. Sec­
tion 502(b)(1) of the Code, for example, says that, if a
“claim” is “unenforceable,” it will be disallowed. It does
not say that an “unenforceable” claim is not a “claim.”
Similarly, §101(5)(A) says that a “claim” is a “right to
payment,” “whether or not such right is . . . fixed, contin-
gent, . . . [or] disputed.” If a contingency does not arise, or
if a claimant loses a dispute, then the claim is unenforce-
able. Yet this section makes clear that the unenforceable
claim is nonetheless a “right to payment,” hence a “claim,”
as the Code uses those terms.
Johnson looks for support to other provisions that gov­
ern bankruptcy proceedings, including §502(a) of the
Bankruptcy Code, which states that a claim will be al­
lowed in the absence of an objection, and Rule 3001(f ) of
the Federal Rules of Bankruptcy Procedure, which states
that a properly filed “proof of claim . . . shall constitute
prima facie evidence of the validity and amount of the
claim.” But these provisions do not discuss the scope of
the term “claim.” Rather, they restate the Bankruptcy
Code’s system for determining whether a claim will be
allowed. Other provisions make clear that the running of
a limitations period constitutes an affirmative defense, a
defense that the debtor is to assert after a creditor makes
a “claim.” §§502, 558. The law has long treated unen­
Cite as: 581 U. S. ____ (2017) 5
Opinion of the Court
forceability of a claim (due to the expiration of the limita­
tions period) as an affirmative defense. See, e.g., Fed.
Rule Civ. Proc. 8(c)(1); 13 Encyclopaedia of Pleading and
Practice 200 (W. McKinney ed. 1898). And we see nothing
misleading or deceptive in the filing of a proof of claim
that, in effect, follows the Code’s similar system.
Indeed, to determine whether a statement is misleading
normally “requires consideration of the legal sophistica­
tion of its audience.” Bates v. State Bar of Ariz., 433 U. S.
350, 383, n. 37 (1977). The audience in Chapter 13 bank­
ruptcy cases includes a trustee, 11 U. S. C. §1302(a), who
must examine proofs of claim and, where appropriate,
pose an objection, §§704(a)(5), 1302(b)(1) (including any
timeliness objection, §§502(b)(1), 558). And that trustee is
likely to understand that, as the Code says, a proof of
claim is a statement by the creditor that he or she has a
right to payment subject to disallowance (including
disallowance based upon, and following, the trustee’s
objection for untimeliness). §§101(5)(A), 502(b), 704(a)(5),
1302(b)(1). (We do not address the appropriate standard
in ordinary civil litigation.)
III
Whether Midland’s assertion of an obviously time-
barred claim is “unfair” or “unconscionable” (within the
terms of the Fair Debt Collection Practices Act) presents a
closer question. First, Johnson points out that several
lower courts have found or indicated that, in the context of
an ordinary civil action to collect a debt, a debt collector’s
assertion of a claim known to be time barred is “unfair.”
See, e.g., Phillips v. Asset Acceptance, LLC, 736 F. 3d 1076,
1079 (CA7 2013) (holding as much); Kimber v. Federal
Financial Corp., 668 F. Supp. 1480, 1487 (MD Ala. 1987)
(same); Huertas v. Galaxy Asset Management, 641 F. 3d
28, 32–33 (CA3 2011) (indicating as much); Castro v.
Collecto, Inc., 634 F. 3d 779, 783 (CA5 2011) (same); Frey-
6 MIDLAND FUNDING, LLC v. JOHNSON
Opinion of the Court
ermuth v. Credit Bureau Servs., Inc., 248 F. 3d 767, 771
(CA8 2001) (same).
We are not convinced, however, by this precedent. It
considers a debt collector’s assertion in a civil suit of a
claim known to be stale. We assume, for argument’s sake,
that the precedent is correct in that context (a matter this
Court itself has not decided and does not now decide). But
the context of a civil suit differs significantly from the
present context, that of a Chapter 13 bankruptcy proceed­
ing. The lower courts rested their conclusions upon their
concern that a consumer might unwittingly repay a time-
barred debt. Thus the Seventh Circuit pointed out that
“ ‘few unsophisticated consumers would be aware that a
statute of limitations could be used to defend against
lawsuits based on stale debts.’ ” Phillips, supra, at 1079
(quoting Kimber, supra, at 1487). The “ ‘passage of time,’ ”
the Circuit wrote, “ ‘dulls the consumer’s memory of the
circumstances and validity of the debt’ ” and the consumer
may no longer have “ ‘personal records.’ ” 736 F. 3d, at
1079 (quoting Kimber, supra, at 1487). Moreover, a con­
sumer might pay a stale debt simply to avoid the cost and
embarrassment of suit. 736 F. 3d, at 1079.
These considerations have significantly diminished force
in the context of a Chapter 13 bankruptcy. The consumer
initiates such a proceeding, see 11 U. S. C. §§301, 303(a),
and consequently the consumer is not likely to pay a stale
claim just to avoid going to court. A knowledgeable trustee
is available. See §1302(a). Procedural bankruptcy
rules more directly guide the evaluation of claims. See
Fed. Rule Bkrtcy. Proc. 3001(c)(3)(A); Advisory Commit­
tee’s Notes on Rule 3001–2011 Amdt., 11 U. S. C. App., p.
678. And, as the Eighth Circuit Bankruptcy Appellate
Panel put it, the claims resolution process is “generally a
more streamlined and less unnerving prospect for a debtor
than facing a collection lawsuit.” In re Gatewood, 533
B. R. 905, 909 (2015); see also, e.g., 11 U. S. C. §502 (out­
Cite as: 581 U. S. ____ (2017) 7
Opinion of the Court
lining generally the claims resolution process). These
features of a Chapter 13 bankruptcy proceeding make it
considerably more likely that an effort to collect upon a
stale claim in bankruptcy will be met with resistance,
objection, and disallowance.
Second, Johnson argues that the practice at least risks
harm to the debtor and that there is not “a single legiti­
mate reason” for allowing this kind of behavior. Brief for
Respondent 32. Would it not be obviously “unfair,” she
asks, for a debt collector to adopt a practice of buying up
stale claims cheaply and asserting them in bankruptcy
knowing they are stale and hoping for careless trustees?
The United States, supporting Johnson, adds its view that
the Federal Rules of Bankruptcy Procedure make the
practice open to sanction, and argues that sanctionable
conduct is unfair conduct. Brief for United States as
Amicus Curiae 20. See Fed. Rule Bkrtcy. Proc. 9011(b)(2)
(sanction possible if party violates the Rule that by “pre­
senting to the [bankruptcy] court” any “paper,” a “party is
certifying that to the best of ” his or her “knowledge, . . .
the claims . . . therein are warranted by existing law”).
We are ultimately not persuaded by these arguments.
The bankruptcy system, as we have already noted, treats
untimeliness as an affirmative defense. The trustee nor­
mally bears the burden of investigating claims and point­
ing out that a claim is stale. See supra, at 4–5. Moreover,
protections available in a Chapter 13 bankruptcy proceed­
ing minimize the risk to the debtor. See supra, at 6. And,
at least on occasion, the assertion of even a stale claim can
benefit a debtor. Its filing and disallowance “discharge[s]”
the debt. 11 U. S. C. §1328(a). And that discharge means
that the debt (even if unenforceable) will not remain on a
credit report potentially affecting an individual’s ability to
borrow money, buy a home, and perhaps secure employ­
ment. See 15 U. S. C. §1681c(a)(4) (debt may remain on a
credit report for seven years); cf. Ala. Code §6–2–34 (6­
8 MIDLAND FUNDING, LLC v. JOHNSON
Opinion of the Court
year statute of limitations); Md. Cts. & Jud. Proc. Code
Ann. §5–101 (2013) (3-year statute of limitations); cf. 16
CFR pt. 600, App. §607, ¶6 (1991) (a credit report may
include discharged debt only if “the debt [is reported] as
having a zero balance due to reflect the fact that the con­
sumer is no longer liable for the discharged debt”); FTC,
40 Years of Experience with the Fair Credit Reporting Act:
An FTC Staff Report with Summary of Interpretations 66
(2011) (similar).
More importantly, a change in the simple affirmative-
defense approach, carving out an exception, itself would
require defining the boundaries of the exception. Does it
apply only where (as Johnson alleged in the complaint) a
claim’s staleness appears “on [the] face” of the proof of
claim? Does it apply to other affirmative defenses or only
to the running of a limitations period?
At the same time, we do not find in either the Fair Debt
Collection Practices Act or the Bankruptcy Code good
reason to believe that Congress intended an ordinary civil
court applying the Act to determine answers to these
bankruptcy-related questions. The Act and the Code have
different purposes and structural features. The Act seeks
to help consumers, not necessarily by closing what John­
son and the United States characterize as a loophole in
the Bankruptcy Code, but by preventing consumer bank­
ruptcies in the first place. See, e.g., 15 U. S. C. §1692(a)
(recognizing the “abundant evidence of the use of abusive,
deceptive, and unfair debt collection practices [which]
contribute to the number of personal bankruptcies”); see
also §1692(b) (“Existing laws and procedures . . . are inad­
equate to protect consumers”); §1692(e) (statute seeks to
“eliminate abusive debt collection practices”). The Bank­
ruptcy Code, by way of contrast, creates and maintains
what we have called the “delicate balance of a debtor’s
protections and obligations.” Kokoszka v. Belford, 417
U. S. 642, 651 (1974).
Cite as: 581 U. S. ____ (2017) 9
Opinion of the Court
To find the Fair Debt Collection Practices Act applicable
here would upset that “delicate balance.” From a sub-
stantive perspective it would authorize a new significant
bankruptcy-related remedy in the absence of language in
the Code providing for it. Administratively, it would
permit postbankruptcy litigation in an ordinary civil court
concerning a creditor’s state of mind—a matter often hard
to determine. See 15 U. S. C. §1692k(c) (safe harbor for
any debt collector who “shows by a preponderance of evi­
dence that the violation was not intentional and resulted
from a bona fide error notwithstanding the maintenance of
procedures reasonably adapted to avoid any such error”).
Procedurally, it would require creditors (who assert a
claim) to investigate the merits of an affirmative defense
(typically the debtor’s job to assert and prove) lest the
creditor later be found to have known the claim was un­
timely. The upshot could well be added complexity,
changes in settlement incentives, and a shift from the
debtor to the creditor the obligation to investigate the
staleness of a claim.
Unlike the United States, we do not believe that the
Advisory Committee on Rules of Bankruptcy Procedure
settled the issue when it promulgated Bankruptcy Rule
9011. The Committee, in considering amendments to the
Federal Rules of Bankruptcy Procedure in 2009, specifically
rejected a proposal that would have required a creditor to
certify that there is no valid statute of limitations defense.
See Agenda Book for Meeting 86–87 (Mar. 26–27, 2009).
It did so in part because the working group did not want to
impose an affirmative obligation on a creditor to make a
prefiling investigation of a potential time-bar defense.
Ibid. In rejecting that proposal, the Committee did note
that Rule 9011 imposes a general “obligation on a claim­
ant to undertake an inquiry reasonable under the circum­
stances to determine . . . that a claim is warranted by
existing law and that factual contentions have evidentiary
10 MIDLAND FUNDING, LLC v. JOHNSON
Opinion of the Court
support,” and to certify as much on the proof of claim. Id.,
at 87. The Committee also acknowledged, however, that
this requirement would “not addres[s] the statute of limi­
tation issue,” but would only ensure “the accuracy of the
information provided.” Ibid.
We recognize that one Bankruptcy Court has held that
filing a time-barred claim without a prefiling investigation
of a potential time-bar defense merits sanctions under
Rule 9011. In re Sekema, 523 B. R. 651, 654 (Bkrtcy. Ct.
ND Ind. 2015). But others have held to the contrary. See,
e.g., In re Freeman, 540 B. R. 129, 143–144 (Bkrtcy. Ct.
ED Pa. 2015); In re Jenkins, 538 B. R. 129, 134–136
(Bkrcty. Ct. ND Ala. 2015); In re Keeler, 440 B. R. 354,
366–369 (Bkrtcy. Ct. ED Pa. 2009); see also In re Andrews,
394 B. R. 384, 387–388 (Bkrtcy. Ct. EDNC 2008) (recog­
nizing that “[m]any courts have . . . found that sanctions
[under Rule 9011] were not warranted for filing stale
claims”).
These circumstances, taken together, convince us that
we cannot find the practice at issue here “unfair” or “un­
conscionable” within the terms of the Fair Debt Collection
Practices Act.
IV
For these reasons, we conclude that filing (in a Chapter
13 bankruptcy proceeding) a proof of claim that is obviously
time barred is not a false, deceptive, misleading, unfair,
or unconscionable debt collection practice within the
meaning of the Fair Debt Collection Practices Act. The
judgment of the Eleventh Circuit is reversed.
It is so ordered.
JUSTICE GORSUCH took no part in the consideration
or decision of this case.
Cite as: 581 U. S. ____ (2017) 1
SOTOMAYOR, J., dissenting
SUPREME COURT OF THE UNITED STATES
_________________
No. 16–348
_________________
MIDLAND FUNDING, LLC, PETITIONER v.
ALEIDA JOHNSON
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE ELEVENTH CIRCUIT
[May 15, 2017]
JUSTICE SOTOMAYOR, with whom JUSTICE GINSBURG
and JUSTICE KAGAN join, dissenting.
The Fair Debt Collection Practices Act (FDCPA or Act)
prohibits professional debt collectors from using “false,
deceptive, or misleading representation[s] or means in
connection with the collection of any debt” and from
“us[ing] unfair or unconscionable means to collect” a debt.
15 U. S. C. §§1692e, 1692f. 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.
Professional debt collectors have built a business out of
buying stale debt, filing claims in bankruptcy proceedings
to collect it, and hoping that no one notices that the debt is
too old to be enforced by the courts. This practice is both
“unfair” and “unconscionable.” I respectfully dissent from
the Court’s conclusion to the contrary.1
I
Americans owe trillions of dollars in consumer debt to
creditors—credit card companies, schools, and car dealers,
——————
1 Because I believe the practice at issue here is “unfair” and “uncon­
scionable,” and thus violates 15 U. S. C. §1692f, I do not address the
Court’s conclusion that the practice is not “false, deceptive, or mislead­
ing” in violation of §1692e.
2 MIDLAND FUNDING, LLC v. JOHNSON
SOTOMAYOR, J., dissenting
among others. See Fed. Reserve Bank of N. Y., Quarterly
Report on Household Debt and Credit 3 (2017). Most
people will repay their debts, but some cannot do so. The
debts they do not pay are increasingly likely to end up in
the hands of professional debt collectors—companies
whose business it is to collect debts that are owed to other
companies. See Consumer Financial Protection Bur., Fair
Debt Collection Practices Act: Annual Report 2016, p. 8
(CFPB Report). Debt collection is a lucrative and growing
industry. Last year, the Nation’s 6,000 debt collection
agencies earned over $13 billion in revenue. Ibid.
Although many debt collectors are hired by creditors to
work on a third-party basis, more and more collectors also
operate as “debt buyers”—purchasing debts from creditors
outright and attempting to collect what they can, with the
profits going to their own accounts.2 See FTC, The Struc­
ture and Practices of the Debt Buying Industry 11–12
(2013) (FTC Report); CFPB Report 10. Debt buyers now
hold hundreds of billions of dollars in consumer debt;
indeed, a study conducted by the Federal Trade Commis­
sion (FTC) in 2009 found that nine of the leading debt
buyers had purchased over $140 billion in debt just in the
previous three years. FTC Report, at i–ii, T–3 (Table 3).
Because creditors themselves have given up trying to
collect the debts they sell to debt buyers, they sell those
debts for pennies on the dollar. Id., at 23. The older the
debt, the greater the discount: While debt buyers pay close
to eight cents per dollar for debts under three years old,
they pay as little as two cents per dollar for debts greater
than six years old, and “effectively nothing” for debts
greater than 15 years old. Id., at 23–24. These prices
——————
2Acase pending before this Court, Henson v. Santander Consumer
USA Inc., No. 16–349, asks whether a certain kind of debt buyer is a
“debt collector” under the FDCPA. Midland does not dispute that it is a
debt collector under the Act.
Cite as: 581 U. S. ____ (2017) 3
SOTOMAYOR, J., dissenting
reflect the basic fact that older debts are harder to collect.
As time passes, consumers move or forget that they owe
the debts; creditors have more trouble documenting the
debts and proving their validity; and debts begin to fall
within state statutes of limitations—time limits that
“operate to bar a plaintiff ’s suit” once passed. CTS Corp.
v. Waldburger, 573 U. S. ___, ___ (2014) (slip op., at 5).
Because a creditor (or a debt collector) cannot enforce a
time-barred debt in court, the debt is inherently worth
very little indeed.
But statutes of limitations have not deterred debt buy­
ers. For years, they have filed suit in state courts—often
in small-claims courts, where formal rules of evidence do
not apply—to collect even debts too old to be enforced by
those courts.3 See Holland, The One Hundred Billion
Dollar Problem in Small-Claims Court, 6 J. Bus. & Tech.
L. 259, 261 (2011). Importantly, the debt buyers’ only
hope in these cases is that consumers will fail either to
invoke the statute of limitations or to respond at all: In
most States the statute of limitations is an affirmative
defense, meaning that a consumer must appear in court
and raise it in order to dismiss the suit. See ante, at 4–5
(majority opinion). But consumers do fail to defend them­
selves in court—in fact, according to the FTC, over 90%
fail to appear at all. FTC Report 45. The result is that
debt buyers have won “billions of dollars in default judg­
ments” simply by filing suit and betting that consumers
will lack the resources to respond. Holland, supra, at 263.
The FDCPA’s prohibitions on “misleading” and “unfair”
conduct have largely beaten back this particular practice.
Every court to have considered the question has held that
——————
3 Petitioner’s
parent alone filed 245,000 lawsuits in 2009. See Silver-
Greenberg, Boom in Debt Buying Fuels Another Boom—in Lawsuits,
Wall Street Journal, Nov. 29, 2010, pp. A1, A16. Petitioner itself filed
110 lawsuits on just one date in a single state court. Id., at A1.
4 MIDLAND FUNDING, LLC v. JOHNSON
SOTOMAYOR, J., dissenting
a debt collector that knowingly files suit in court to collect
a time-barred debt violates the FDCPA. See Phillips v.
Asset Acceptance, LLC, 736 F. 3d 1076, 1079 (CA7 2013);
Kimber v. Federal Financial Corp., 668 F. Supp. 1480,
1487 (MD Ala. 1987); see also ante, at 5–6 (majority opin­
ion) (citing other cases). In 2015, petitioner and its parent
company entered into a consent decree with the Govern­
ment prohibiting them from filing suit to collect time-
barred debts and ordering them to pay $34 million in
restitution. See Consent Order in In re Encore Capital
Group, Inc., No. 2015–CFPB–0022 (Sept. 9, 2015), pp. 38,
46. And the leading trade association has now adopted a
resolution barring the practice. See Brief for DBA Inter­
national, Inc., as Amicus Curiae 2–3.
Stymied in state courts, the debt buyers have now
turned to a new forum: bankruptcy courts. The same debt
buyers that for years filed thousands of lawsuits in state
courts across the country have begun to do the same thing
in bankruptcy courts—specifically, in cases governed by
Chapter 13 of the Bankruptcy Code, which allows consum­
ers earning regular incomes to restructure their debts and
repay as many as they can over a period of several years.
See 8 Collier on Bankruptcy ¶1300.01 (A. Resnick & H.
Sommer eds., 16th ed. 2016). As in ordinary civil cases, a
debtor in a Chapter 13 bankruptcy proceeding is entitled
to have dismissed any claim filed against his estate that is
barred by a statute of limitations. See 11 U. S. C. §558.
As in ordinary civil cases, the statute of limitations is an
affirmative defense, one that must be raised by either the
debtor or the trustee of his estate before it is honored.
§§502, 558. And so—just as in ordinary civil cases—debt
collectors may file claims in bankruptcy proceedings for
stale debts and hope that no one notices that they are too
old to be enforced.
And that is exactly what the debt buyers have done. As
a wide variety of courts and commentators have observed,
Cite as: 581 U. S. ____ (2017) 5
SOTOMAYOR, J., dissenting
debt buyers have “deluge[d]” the bankruptcy courts with
claims “on debts deemed unenforceable under state stat­
utes of limitations.” Crawford v. LVNV Funding, LLC,
758 F. 3d 1254, 1256 (CA11 2014); see also In re Jenkins,
456 B. R. 236, 239, n. 2 (Bkrtcy. Ct. EDNC 2011) (noting a
“plague of stale claims”); Brief for National Association of
Consumer Bankruptcy Attorneys et al. as Amici Curiae 9
(noting study describing “hundreds of thousands of proofs
of claim asserting hundreds of millions of dollars of con­
sumer indebtedness, all in a single year”). This practice
has become so widespread that the Government sued one
debt buyer last year “to address [its] systemic abuse of the
bankruptcy process”—including a “business model” of
“knowingly and strategically” filing thousands of claims
for time-barred debt. Complaint in In re Freeman-Clay v.
Resurgent Capital Servs., L. P., No. 14–41871 (Bkrtcy. Ct.
WD Mo.), ¶¶1, 35 (Resurgent Complaint). This practice,
the Government explained, “manipulates the bankruptcy
process by systematically shifting the burden” to trustees
and debtors to object even to “frivolous claims”—especially
given that filing an objection is costly, time consuming,
and easy to overlook. Id., at ¶¶35, 43–44.
II
The FDCPA prohibits professional debt collectors from
engaging in “unfair” and “unconscionable” practices. 15
U. S. C. §1692f.4 Filing a claim in bankruptcy court for
——————
4 This Court has not had occasion to construe the terms “unfair” and
“unconscionable” in §1692f. The FDCPA’s legislative history suggests
that Congress intended these terms as a backstop that would enable
“courts, where appropriate, to proscribe other improper conduct . . . not
specifically addressed” by the statute. S. Rep. No. 95–382, p. 4 (1977).
Courts have construed these terms, consistent with other federal and
state statutes that employ them, to borrow from equitable and common-
law traditions. See, e.g., LeBlanc v. Unifund CCR Partners, 601 F. 3d
1185, 1200–1201 (CA11 2010) (per curiam); Beler v. Blatt, Hasenmiller,
Leibsker & Moore, LLC, 480 F. 3d 470, 473–474 (CA7 2007).
6 MIDLAND FUNDING, LLC v. JOHNSON
SOTOMAYOR, J., dissenting
debt that a collector knows to be time barred—like filing a
lawsuit in a court to collect such a debt—is just such a
practice.
A
Begin where the debt collectors themselves began: with
their practice of filing suit in ordinary civil courts to collect
debts that they know are time barred. Every court to have
considered this practice holds that it violates the FDCPA.
There is no sound reason to depart from this conclusion.
Statutes of limitations “are not simply technicalities.”
Board of Regents of Univ. of State of N. Y. v. Tomanio, 446
U. S. 478, 487 (1980). They reflect strong public-policy
determinations that “it is unjust to fail to put [an] adver­
sary on notice to defend within a specified period of time.”
United States v. Kubrick, 444 U. S. 111, 117 (1979). And
they “promote justice by preventing surprises through the
revival of claims that have been allowed to slumber until
evidence has been lost, memories have faded, and witnesses
have disappeared.” Railroad Telegraphers v. Railway
Express Agency, Inc., 321 U. S. 342, 348–349 (1944). Such
concerns carry particular weight in the context of small-
dollar consumer debt collection. As one thoughtful opinion
explains:
“Because few unsophisticated consumers would be
aware that a statute of limitations could be used to
defend against lawsuits based on stale debts, such
consumers would unwittingly acquiesce to such law­
suits. And, even if the consumer realizes that she can
use time as a defense, she will more than likely still
give in rather than fight the lawsuit because she must
still expend energy and resources and subject herself
to the embarrassment of going into court to present
the defense . . . .” Kimber, 668 F. Supp., at 1487.
Debt buyers’ efforts to pursue stale debt in ordinary civil
Cite as: 581 U. S. ____ (2017) 7
SOTOMAYOR, J., dissenting
litigation may also entrap debtors into forfeiting their time
defenses altogether. When a debt collector sues or threat­
ens to sue to collect a debt, many consumers respond by
offering a small partial payment to forestall suit. In many
States, a consumer who makes an offer like this has—
unbeknownst to him—forever given up his ability to claim
the debt is unenforceable. That is because in most States
a consumer’s partial payment on a time-barred debt—or
his promise to resume payments on such a debt—will
restart the statute of limitations. FTC Report 47; see, e.g.,
Young v. Sorenson, 47 Cal. App. 3d 911, 914, 121 Cal.
Rptr. 236, 237 (1975) (“ ‘The theory on which this is based
is that the payment is an acknowledgement on the exist­
ence of the indebtedness which raises an implied promise
to continue the obligation and to pay the balance’ ”). Debt
collectors’ efforts to entrap consumers in this way have no
place in honest business practice.
B
The same dynamics are present in bankruptcy proceed­
ings. A proof of claim filed in bankruptcy court represents
the debt collector’s belief that it is entitled to payment,
even though the debt should not be enforced as a matter of
public policy. The debtor’s claim will be allowed, and will
be incorporated in a debtor’s payment plan, unless the
debtor or his trustee objects. But such objections require
ordinary and unsophisticated people (and their over­
worked trustees) to be on guard not only against mistaken
claims but also against claims that debt collectors know
will fail under law if an objection is raised. Debt collectors
do not file these claims in good faith; they file them hoping
and expecting that the bankruptcy system will fail. Such
a practice is “unfair” and “unconscionable” in violation of
the FDCPA.
The Court disagrees. But it does so on narrow grounds.
To begin with, the Court does not hold that the Bankruptcy
8 MIDLAND FUNDING, LLC v. JOHNSON
SOTOMAYOR, J., dissenting
Code altogether displaces the FDCPA, leaving it with
no role to play in bankruptcy proceedings. Such a conclu­
sion would be wrong. Although the Code and the FDCPA
“have different purposes and structural features,” ante, at
8, the Court has held that Congress, in passing the
FDCPA’s predecessor, did so on the understanding that
“the provisions and the purposes” of the two statutes were
intended to “coexist.” Kokoszka v. Belford, 417 U. S. 642,
650 (1974). Although petitioner suggests that the FDCPA
is best read “to have no application to [a] debt collector’s
conduct” in a bankruptcy proceeding, Brief for Petitioner
41, the majority declines its invitation to adopt such a
sweeping rule.5
Nor does the majority take a position on whether a debt
collector violates the FDCPA by filing suit in an ordinary
court to collect a debt it knows is time barred. Ante, at 6.
Instead, the majority concludes, even assuming that such
a practice would violate the FDCPA, a debt collector does
——————
5 Themajority does lean heavily on its fear that, were we to conclude
that the FDCPA bars the practice at issue, we would be licensing
“postbankruptcy litigation in an ordinary civil court” concerning mat­
ters best left to bankruptcy courts. Ante, at 9. But to do so would not,
as the majority suggests, “upset [the] ‘delicate balance’ ” struck by the
Code. Ibid. (quoting Kokoszka v. Belford, 417 U. S., at 651). For one,
nothing requires a debtor to engage in satellite litigation in order to sue
a debt collector under the FDCPA; a debtor can easily file an adversary
proceeding asserting an FDCPA claim with the bankruptcy court itself,
and in many cases will be better served by doing so. See, e.g., Simon v.
FIA Card Servs., N. A., 732 F. 3d 259, 263 (CA3 2013). Nor is there any
risk that finding the FDCPA applicable here will authorize bankruptcy
courts (or, for that matter, civil courts) to engage in novel and unfet­
tered inquiries into “a creditor’s state of mind.” Ante, at 9. Both Fed.
Rule Civ. Proc. 11 and its bankruptcy counterpart, Fed. Rule Bkrtcy.
Proc. 9011, authorize a court to impose sanctions on parties who
willfully file meritless claims (a category that includes the debt buyers
here, see In re Sekema, 523 B. R. 651, 654–655 (Bkrtcy. Ct. ND Ind.
2015)). So there is nothing new about the inquiry that courts would be
required to undertake; it is no different than analyses they conduct
every day.
Cite as: 581 U. S. ____ (2017) 9
SOTOMAYOR, J., dissenting
not violate the Act by doing the same thing in bankruptcy
proceedings. Bankruptcy, the majority argues, is differ­
ent. True enough. But none of the distinctions that the
majority identifies bears the weight placed on it.
First, the majority contends, structural features of the
bankruptcy process reduce the risk that a stale debt will
go unnoticed and thus be allowed. Ante, at 6–7. But there
is virtually no evidence that the majority’s theory holds
true in practice. The majority relies heavily on the pres­
ence of a bankruptcy trustee, appointed to act on the
debtor’s behalf and empowered to (among other things)
object to claims that he believes lack merit. See 11
U. S. C. §§704(a)(5), 1302(b). In the majority’s view, the
trustee’s gatekeeping role makes it “considerably more
likely that an effort to collect upon a stale claim in bank­
ruptcy will be met with resistance, objection, and disal­
lowance.” Ante, at 7. The problem with the majority’s ipse
dixit is that everyone with actual experience in the matter
insists that it is false. The Government, which oversees
bankruptcy trustees, tells us that trustees “cannot realis­
tically be expected to identify every time-barred . . . claim
filed in every bankruptcy.” Brief for United States as
Amicus Curiae 25–26; see also Resurgent Complaint ¶43
(“Filing objections to all of [one collector]’s unenforceable
claims would clog the docket of this Court and other courts
with objections to frivolous claims”). The trustees them­
selves (appearing here as amici curiae) agree, describing
the practice as “wasteful” and “exploit[ative].” Brief for
National Association of Chapter Thirteen Trustees as
Amicus Curiae 12. And courts across the country recog­
nize that Chapter 13 trustees are struggling under a
“deluge” of stale debt. Crawford, 758 F. 3d, at 1256.
Second, the other features of the bankruptcy process
that the majority believes will serve as a backstop against
frivolous claims are even less likely to do so in practice.
The majority implies that a person who files for bankruptcy
10 MIDLAND FUNDING, LLC v. JOHNSON
SOTOMAYOR, J., dissenting
is more sophisticated than the average consumer debtor
because the initiation of bankruptcy is a choice made by a
debtor. Ante, at 6. But a person who has filed for bank­
ruptcy will rarely be in such a superior position; he has,
after all, just declared that he is unable to meet his finan­
cial obligations and in need of the assistance of the courts.
It is odd to speculate that such a person is better situated
to monitor court filings and lodge objections than an ordi­
nary consumer. The majority also suggests that the rules
of bankruptcy help “guide the evaluation of claims.” Ibid.
But the rules of bankruptcy in fact facilitate the allowance
of claims: Claims are automatically allowed and made part
of a plan unless an objection is made. See 11 U. S. C.
§502(a). A debtor is arguably more vulnerable in bank­
ruptcy—not less—to the oversights that the debt buyers
know will occur.
Finally, the majority suggests, in some cases a consumer
will actually benefit if a claim for an untimely debt is filed.
Ante, at 7–8. If such a claim is filed but disallowed, the
majority explains, the debt will eventually be discharged,
and the creditor will be barred from collecting it. See
§1328(a). Here, too, practice refutes the majority’s rosy
portrait of these proceedings. A debtor whose trustee does
not spot and object to a stale debt will find no comfort in
the knowledge that other consumers with more attentive
trustees may have their debts disallowed and discharged.
Moreover, given the high rate at which debtors are unable
to fully pay off their debts in Chapter 13 proceedings, see
Porter, The Pretend Solution: An Empirical Study of
Bankruptcy Outcomes, 90 Texas L. Rev. 103, 111–112
(2011), most debtors who fail to object to a stale claim will
end up worse off than had they never entered bankruptcy
at all: They will make payments on the stale debts, thereby
resuscitating them, see supra, at 6–7, and may thus
walk out of bankruptcy court owing more to their creditors
than they did when they entered it. There is no benefit to
Cite as: 581 U. S. ____ (2017) 11
SOTOMAYOR, J., dissenting
anyone in such a proceeding—except the debt collectors.
* * *
It does not take a sophisticated attorney to understand
why the practice I have described in this opinion is unfair.
It takes only the common sense to conclude that one
should not be able to profit on the inadvertent inattention
of others. It is said that the law should not be a trap for
the unwary. Today’s decision sets just such a trap.
I take comfort only in the knowledge that the Court’s
decision today need not be the last word on the matter. If
Congress wants to amend the FDCPA to make explicit
what in my view is already implicit in the law, it need only
say so.
I respectfully dissent.