When you file for bankruptcy protection and list certain entities as creditors, it can be hard to then file lawsuits accusing those creditors of violating the Fair Debt Collection Practices Act because they couldn’t prove they owned the debts in the first place, a District Court judge from Washington has ruled in partially granting motions to dismiss filed against a pair of plaintiffs in a long-running FDCPA case.
The background: The case stems from a series of private student loans taken out by one of the plaintiffs between 2003 and 2007 to attend college, with the other plaintiff — his father — co-signing for the loans. In 2012, the primary borrower filed for Chapter 13 bankruptcy protection, listing the defendant trusts as creditors for the student loans. The bankruptcy plan was confirmed, and the trusts filed proofs of claims which were not objected to by the plaintiffs.
- After the bankruptcy case was closed in 2018, the defendants began efforts to collect on the allegedly defaulted loans. In 2019, the defendants filed 10 debt collection lawsuits against the plaintiffs in state court. When questioned about the ownership of the debts, the defendants provided affidavits which were ultimately deemed inadmissible by the state court. As a result, the state court granted summary judgment in favor of the plaintiffs and dismissed the debt collection cases.
- In 2020, the plaintiffs filed federal lawsuits against the defendants, alleging violations of the FDCPA, the Washington Consumer Protection Act (CPA), and invasion of privacy. The plaintiffs claimed that the defendants knowingly pursued meritless debt collection lawsuits because they couldn’t prove ownership of the loans. The case went through several rounds of motions and an appeal to the Ninth Circuit before reaching this point.
The ruling: U.S. District Judge Robert J. Bryan partially granted the defendants’ motions to dismiss, focusing on three key legal principles: claim preclusion, issue preclusion, and judicial estoppel.
- Judge Bryan found that the plaintiffs’ claims were barred by claim preclusion because the bankruptcy court had already reached a final judgment on the merits regarding the ownership of the loans. The same parties were involved, and the issue of loan ownership was central to both proceedings.Issue preclusion also applied, as the ownership of the loans was an identical issue in both the bankruptcy and the current case. The judge determined that this issue was actually litigated in the bankruptcy proceedings, there was a full and fair opportunity to address it, and it was necessary to decide the merits of the bankruptcy case.
- Judicial estoppel was invoked because the plaintiffs’ current position – that the defendants couldn’t prove ownership of the loans – was clearly inconsistent with their earlier position in the bankruptcy case, where they affirmed the defendants’ ownership of the debts. The judge noted that the plaintiffs had gained an advantage in the bankruptcy by not disputing the loan ownership, and allowing them to take an inconsistent position now would create the perception that one of the courts had been misled.
