Tyler v. DH Capital Management, Inc.

6th Circuit, File Name: 13a0327a.06, Case No. 13-5021 (November 7, 2013)
The 6th Circuit ruled that Plaintiff Tyler's claim was based on a pre-petition violation and thus, property of the bankruptcy estate, which he failed to disclose at any time; affirming the dismissal by the District Court.
Procedural context:
On 3/9/2012, Plaintiff filed suit for violations of FDCPA and Kentucky usury laws; District Court dismissed for Plaintiff's failure to raise the issues previously as a counterclaim. Plaintiff appealed. Intertwined with the issues in this matter was Plaintiff's Chapter 7 bankruptcy filing of 6/28/2011 (discharged 10/4/2011).
Relevant facts: Tyler filed a Chapter 7 bankruptcy petition on June 28, 2011, and received a discharge on October 4, 2011. Tyler listed a debt owed to Chase Bank in his schedules. Prior to Tyler’s filing, DHC filed a collection suit against Tyler, to collect on a debt owed to Chase Bank, but did not serve the complaint on Tyler until October 12, 2011. On October 18, 2011, DHC filed a Notice of Dismissal, without prejudice, of its collection suit due to Tyler’s bankruptcy. Tyler filed an answer in that case on October 20, 2011. In March, 2012, Tyler filed suit against DHC in the US District Court for violations of FDCPA and Kentucky’s usury law. The District Court stated three reasons for dismissing Tyler’s suit: a) failure to include violations of FDCPA and Kentucky’s usury laws in any answer Tyler filed in the collection suit (counterclaim), b) the cause of action was property of the bankruptcy estate, and, in the alternative, c) failure of the Debtor Plaintiff to amend his bankruptcy schedules, therefore the action belonged to the Chapter 7 trustee. Tyler appealed to the 6th Circuit. The 6th Circuit found the District Court’s dismissal for failure to state a counterclaim was incorrect as DHC’s Notice of Dismissal served to dismiss the case, thereby preventing Tyler from asserting a counterclaim. The 6th Circuit found the true issue to be whether or not Tyler listed “all legal or equitable interests of the debtor in property as of the commencement of the case”; and whether Tyler’s claims for the violations were “interests…in property” on the date of commencement. The Court found that while the point in time at which a cause of action becomes property isn’t necessarily clear, for purposes of bankruptcy, it is “determined by the underlying substantive law.” Once that is determined, the second inquiry is “to what extent that interest is property of the estate.” The Court, reviewing a number of other cases, sets forth a two-fold frame to determine whether Tyler’s causes of action were pre-petition interests in property. First, when did the violation being asserted by Tyler occur? If the violation occurred pre-petition then, whether Tyler knew of it or not, it is a pre-petition interest in property. So, the question to be answered is at which point in time does a violation of FDCPA occur? Is it upon the filing of a complaint? Upon service of the complaint upon the debtor? Or at some other point in time? The Court found that 1) the mere filing of a complaint, even without service, may cause harm to a debtor in that it may serve as a “red flag to the debtor’s other creditors and anyone who runs a background or credit check,”; 2) that to use a date other than the date a complaint is filed can become factually complicated based on many outside factors – caused by either the creditor or the debtor; and 3) “[T]here is no good reason to protect debt collectors who have filed complaints but not yet served process,” as the inquiry as to a violation is on the actions of the debt collector, not those of the debtor. The Court closes its discussion with a note that a cause of action for a violation of FDCPA need not be fully mature, only minimally actionable, to be considered property for the purposes of bankruptcy. Tyler’s cause of action, the violation of FDCPA, arose prior to commencement of his case and therefore was property of the estate. The Court goes on to discuss whether Tyler’s cause of action, which is property of the bankruptcy estate, was actionable by him. Based on Tyler’s failure to amend his schedules, even after his case was closed, the Trustee could not have abandoned the property, and thus it is the Trustee who “retains exclusive authority to pursue [the cause(s) of action].”
BOGGS and SILER, Circuit Judges; and DOWD, District Judge (Judge Dowd (ND OH), sitting by designation.)

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