On May 15, 2017, the Supreme Court decided Midland Funding, LLC v. Johnson, No. 16-348. The Court held that a creditor’s proof of claim that made clear that the statute of limitations to collect the debt had run was not “false, deceptive, or misleading” and did not use any “unfair or unconscionable means” to collect a debt under the Fair Debt Collection Practices Act (the “Act”).
Johnson, the respondent, filed for personal bankruptcy under Chapter 13 of the Bankruptcy Code (the “Code”). Petitioner Midland Funding, LLC filed a proof of claim in the bankruptcy proceedings asserting in writing that Johnson owed Midland $1,879.71 in credit-card debt. The proof of claim made clear that the last charge on the account was over a decade earlier. The relevant statute of limitations was six years. Johnson objected to the claim, and the Bankruptcy Court disallowed the claim. Johnson later brought a lawsuit alleging that Midland violated the Act, arguing that Midland’s conduct in filing the claim was “false,” “deceptive,” “misleading,” “unconscionable,” or “unfair” within the meaning of the Act. The District Court found Midland’s conduct did not violate the Act, but the Eleventh Circuit reversed.
In keeping with the majority of the Courts of Appeals that had considered the matter, the Court reversed the Eleventh Circuit, holding 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 Act. The Bankruptcy Code defines “claim” very broadly. A “claim” under the Bankruptcy Code does not have to be “enforceable.” Timeliness is an affirmative defense. Accordingly, the Court concluded that the proof of claim was not “false, deceptive, or misleading.”
A “closer question” was whether Midland’s filing of an obviously time-barred claim was “unfair” or “unconscionable.” The context of Chapter 13 bankruptcy proceedings, however, is “significantly” different from a consumer civil suit. The Court found that the Act and the Code have “different purposes and structural features” and that finding the Act applicable to the present circumstances would “upset ‘that delicate balance.’”
Justice Breyer delivered the opinion of the Court, joined by Chief Justice Roberts and Justices Kennedy, Thomas, and Alito. Justice Sotomayor filed a dissent, joined by Justices Ginsburg and Kagan. Justice Gorsuch took no part in the consideration or decision of this case.