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Media Alerts - Covert et al. v. LVNV Funding et al. -- Fourth Circuit
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April 30, 2015
  Covert et al. v. LVNV Funding et al. -- Fourth Circuit
Headline: A Thing Decided - Fourth Circuit Applies Res Judicata to Lawsuits Spawned from Bankruptcy Proceedings

Area of Law: Bankruptcy

Issue Presented: Whether the doctrine of res judicata precludes litigation over the validity of a creditor's proof of claim filed in a concluded Chapter 13 bankruptcy proceeding.

Brief Summary: Several individuals filed for bankruptcy under Chapter 13 in 2008. In bankruptcy, creditors must file a "proof of claim" describing the debts owed. LVNV and its affiliates owned a default debt against each individual debtor and therefore filed proofs of claim in each proceeding. After the Bankruptcy Court approved the debtors' Chapter 13 plans, the debtors began making payments to LVNV. In March 2013, however, the plaintiff debtors filed a class action claim against LVNV alleging violation of the federal Fair Debt Collection Practices Act (FDCPA) and related Maryland statutory and common law. The plaintiffs argued that LVNV was not a licensed debt collector under the FDCPA and related law and therefore should not have been allowed to file a proof of claim in their now-concluded bankruptcy actions. The U.S. District Court for the District of Maryland granted LVNV's motion to dismiss, stating that res judicata barred the plaintiffs' common law claims. The court also held the plaintiffs failed to state an FDCPA claim because filing a proof of claim is not a debt collection act. The plaintiffs appealed to the United States Court of Appeals for the Fourth Circuit.

The Fourth Circuit held that the doctrine of res judicata barred all of the appellants' claims, not just those at common law. Under res judicata, a prior judgment between parties precludes subsequent litigation on those issues "actually and necessarily resolved in the first adjudication." The court employed a three-part test and determined that res judicata applied because 1) the confirmation of a Chapter 13 plan is a final judgment on the merits; 2) the parties in the 2013 lawsuit were the same parties as in the 2008 proceedings; and 3) each of the appellants' claims flowed from the same "core of operative facts" as the bankruptcy proceeding (in other words, the appellants could point to no new information to support their claims that was not available to them during the 2008 proceedings). The court stressed that the appellants could have raised all of their claims during the bankruptcy proceedings, but chose not to. Allowing debtors to raise these claims after the conclusion of proceedings would frustrate a fundamental aim of bankruptcy, which is to provide a final binding plan to which all parties must adhere. Therefore, the Fourth Circuit affirmed the district court's dismissal of the plaintiffs' claims.

To read the full opinion please click here.

Panel: Judges Niemeyer, Shedd, and Keenan

Argument Date: 12/11/2014

Date of Issued Opinion: 03/03/2015

Docket Number: No. 14-1016

Decided: Affirmed

Case Alert Author: Roy Lyford-Pike, Univ. of Maryland Carey School of Law

Counsel: ARGUED: Laura J. Margulies, LAURA MARGULIES & ASSOCIATES, LLC, Rockville, Maryland, for Appellants. Ronald S. Canter, LAW OFFICES OF RONALD S. CANTER, LLC, Rockville, Maryland, for Appellees. ON BRIEF: Lawrence P. Block, Janet M. Nesse, STINSON LEONARD STREET LLP, Washington, D.C., for Appellants.

Author: Judge Shedd

Case Alert Circuit Supervisor: Professor Renée M. Hutchins

Edited: 06/11/2015 at 01:31 PM by Renee Hutchins

    Posted By: Renee Hutchins @ 04/30/2015 10:39 AM     4th Circuit  

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