In Covert v. LVNV Funding, LLC, — F.3d —-, 2015 WL 877133 (4th Cir. 2015), the Court of Appeals for the Fourth Circuit held that a debtor could not bring FDCPA claims against his former creditor for filing improper proofs of claim in the bankruptcy court because the closure of the debtor’s Chapter 13 case terminated all of his rights.
In 2008, each Plaintiff filed a petition for individual bankruptcy under Chapter 13 in the Bankruptcy Court for the District of Maryland. LVNV had acquired a defaulted debt against each Plaintiff from Sherman Originator, LLC, and LVNV then filed a proof of unsecured claim based on these debts in each bankruptcy proceeding through its servicer, Resurgent Capital Services Limited Partnership. The bankruptcy court confirmed a plan in each proceeding that pro-vided for unsecured claims to be paid in pro rata amounts. The Defendants’ claims were allowed, and they received payments from the Chapter 13 Trustees on these claims. At all relevant times, none of the Defendants was licensed to do business as a debt collection agency in Maryland. In March 2013, the Plaintiffs filed this lawsuit in the District of Maryland, alleging that the Defendants had violated the FDCPA by filing proofs of claim without a Maryland debt collection license. . . .The Defendants moved under Federal Rule of Civil Procedure 12(b)(6) to dismiss all claims for failure to state a claim upon which relief could be granted. The district court granted the motion. Covert v. LVNV Funding, LLC, No. DKC 13–0698, 2013 WL 6490318 (D.Md. Dec. 9, 2013). It held that the Maryland unjust enrichment claim was barred by res judicata, but that the FDCPA, MCDCA, and MCPA claims could not be barred by res judicata absent an adversary proceeding in each bankruptcy action, which had not occurred. Nonetheless, the district court dismissed these statutory claims on the merits because it found that filing a proof of claim is not a “collection activity” within the meaning of those statutes. The Plaintiffs timely appealed.
The Court of Appeals for the Fourth Circuit affirmed.
The first requirement is easily satisfied because confirmation of a bankruptcy plan is a final judgment on the merits. See, e.g., id . (“[T]he [bankruptcy plan] confirmation order constitutes a final judgment on the merits with res judicata effect.”); In re Linkous, 990 F.2d 160, 162 (4th Cir.1993) (same). 11 U.S.C. § 1327(a) states the general rule that “[t]he provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan.” It is this provision that gives plan confirmation the res judicata effect of a final judgment. Linkous, 990 F.2d at 162; see also In re Beard, 112 B.R. 951, 954 (Bankr.N.D.Ind.1990) (“The Bankruptcy Code gives confirmation a binding effect, through 11 U.S.C. § 1327.”).