FDCPA Claim Barred by res judicata and Lack of Standing

February 7, 2013 in Civil Procedure, Credit Cards, FDCPA, Kentucky Courts by Brad Council

On December 20, 2012, in the case of Dionte Tyler, v. DH Capital Management, Inc., Case No. 3:12-CV-00129-CRS the United States District Court, for the Western District of Kentucky, dismissed the Plaintiff’s complaint for damages under the Fair Debt Collection Practices Act (“FDCPA”) finding that the claims were barred by res judicata under Civil Rule 13 and that the Plaintiff did not have standing to sue due to his bankruptcy filing.

In his complaint, the Plaintiff (“Tyler”) alleged that DH Capital Management (“DHC”) violated the FDCPA and also alleged usury under KRS 360.020.  Tyler owed a credit card debt to DHC.   DHC filed a complaint for collection of that debt on March 23, 2011.  On June 28, 2011, Tyler filed for bankruptcy and received discharge from his debts.  However, in his original bankruptcy filing he neglected to list DHC as a creditor.  On October 12, 2011, Tyler was served with process regarding the debt owed.  Shortly thereafter, DHC became aware of Tyler’s bankruptcy status and immediately filed a notice to dismiss which was granted. In the interim, Tyler filed an answer to the collection action, but did not dispute the debt in that answer.  The answer also did not mention the filing of the bankruptcy action nor did it assert a counterclaim.

In March, 2012, Tyler filed a complaint against DHC alleging that (1) the interest rate charged in DHC’s action was usurious at 21% violating Kentucky’s usury laws which cap interest at 19% KRS §§ 360.010, 360.020; and (2) and that DHC violated FDCPA §§ 1692(f)(1), 1692(e)(5), 1962(e)(2)(A), by attempting to collect an usurious interest amount and by attempting to collect interest on a debt prior to purchasing the debt.  In response, DHC filed a motion to dismiss claiming that Tyler’s claims were barred by res judicata and that Tyler lacked standing to bring the claims.

The Court granted DHC’s motion and dismissed Tyler’s complaint finding that it was barred both by Civil Rule 13 and a lack of standing.  The Court found that Tyler’s claims were procedurally barred by res judicata in that they were not asserted as compulsory counterclaims in his answer to DHC’s collection action.  The Sixth Circuit had previously held that the failure to plead a compulsory counterclaim under Federal Rule of Civil Procedure 13 bars the claim under res judicata.  Sanders v. First Nat. Bank & Trust Co., 936 F.2d 273, 277 (6th Cir. 1991).  The Court found the claims Tyler raised in his FDCPA action met the “logical relationship test” employed by the 6th Circuit to determine if a compulsory counterclaim was required.  The Court noted that, if a debtor alleges that a creditor “wrongfully took action” to collect a debt in a prior legal preceding, then the elements of the “logical relationship test” are satisfied for the purposes of res judicata claim preclusion.

The Court further found that Tyler lacked standing because the bankruptcy trustee would have been the proper plaintiff in this case.  DHC filed its complaint March 23, 2011, BEFORE Tyler filed his bankruptcy petition.  Therefore, Tyler’s claims are directly derived from DHC’s debt collection action and as such are property of the bankruptcy estate.  Under 11 U.S.C § 521 and the Federal Rules of Bankruptcy Procedure,  Tyler had a duty to amend his financial statement to include “all suits and administrative proceedings” which the debtor is or was a part within one year preceding the filing of the bankruptcy case.  Fed. R. Bankr. P. §§ 1007(b), 9009; Official Bankruptcy Form 7.  The Court also noted that the 6th Circuit has, “concluded that judicial estoppel may apply in bankruptcy to bar a debtor from pursuing a cause of action for his own benefit after the debtor intentionally failed to disclose the cause of action, which was properly part of the bankruptcy estate.”  In re Simmerman, 463 B.R. 47, 56 (Bankr. S.D. Ohio 2011).

Finding Tyler’s claims both barred by res judicata and a lack of standing, the Court dismissed his FDCPA complaint.

The Full Text of The Opinion May Be Found At:

http://scholar.google.com/scholar_case?case=10505498705118593915&hl=en&as_sdt=2,36

Many thanks to Kim Goldwasser for her contributions to this article.  Kim is a paralegal with Slovin & Associates Co., L.P.A.