|December 13, 2013|
Previously published on November 14, 2013
Tyler v. DH Capital Management, Inc., --- F. 3d ----, 2013 WL 5942072 (6th Cir. Nov. 7, 2013)
Plaintiff sued debt collector, defendant DH Capital Management ("DHC"), alleging that DHC violated the FDCPA and Kentucky's usury laws by attempting to collect a debt to which it was not legally entitled.
In March 2011, DHC filed suit against plaintiff ("First Action") seeking collection of a credit card debt. DHC did not immediately serve plaintiff. Approximately three months later, plaintiff filed for bankruptcy, and was granted a discharge in October of 2011. DHC then served process on plaintiff, but upon learning of the discharge, filed a voluntary Notice of Dismissal without prejudice. Plaintiff, nevertheless, subsequently filed an answer to the complaint but did not assert any counterclaims.
In March, 2012, following the district court's dismissal of the First Action, plaintiff filed suit against DHC ("Second Action") asserting FDCPA and Kentucky usury law violations. DHC moved to dismiss the Second Action, asserting that plaintiff's claims were barred because he should have asserted them as counterclaims in the First Action. DHC also argued further that plaintiff lacked standing to assert claims against it because any claims were now the property of the bankruptcy estate. The district court agreed with DHC and dismissed the Second Action.
On appeal, the Sixth Circuit reversed in part and affirmed in part. Reversing the District Court's holding, the Sixth Circuit held that that the claims alleged by plaintiff in the Second Action were not barred under res judicata or equitable principles because: (i) the case was voluntarily discontinued by DHC and therefore closed before plaintiff was required to file an answer to the Complaint, thus rendering the content of plaintiff's answer immaterial; and (ii) nothing was litigated on the merits in the First Action, and as a result, neither res judicata nor the equitable principals of waiver and estoppel barred the unraised counterclaims later asserted in plaintiff's Second Action. Despite the fact that plaintiff's claims were not barred, the Sixth Circuit affirmed the District Court's holding that plaintiff lacked standing to bring the claims asserted in the Second Action. The Sixth Circuit held, inter alia, that since plaintiff could have brought suit against DHC before filing for bankruptcy, those claims were the property of the bankruptcy estate. Specifically, with respect to plaintiff's FDCPA claims, the Sixth Circuit held that the alleged violation occurred at the filing of the First Action, before filing for bankruptcy, and said FDCPA claims were therefore property of the bankruptcy estate. Similarly, plaintiff's usury law claims pre-dated his bankruptcy petition by years. Moreover, because plaintiff failed to properly schedule his FDCPA and usury claims, the bankruptcy trustee cannot be considered to abandon these claims. The bankruptcy estate therefore retains exclusive authority to administer them.