Midland Funding, LLC v. Johnson (16-348)

argument 16-348

Midland Funding, LLC v. Johnson

Supreme Court of the United States 1h 1m 6 speakers 8 chapters transcribed 6 days ago official recording ↗

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What is the core argument presented at the start of the Supreme Court hearing?

John G. Roberts 0:00

We will hear argument next in case 16348, Midland Funding versus Johnson. Mr. Shamagam?

Brandon J. Weisbrot 0:06

Thank you, Mr. Chief Justice, and may it please the court. The bankruptcy code sets up a process for evaluating claims that are subject to potential limitations defenses. Under that process, a creditor seeking to collect on a debt files a proof of claim. For certain types of consumer debt, the creditor also includes information to enable the trustee and other parties in interest to assess the claim's timeliness and where appropriate to object. A creditor is not required to go further and to certify that there is no valid limitations defence to its own claim. Yet that is exactly what respondent and the government are asking this Court to do under the guise of interpreting the Fair Debt Collection Practices Act.

Ruth Bader Ginsburg 0:48

Under the Fair Debt uh Collection Practices Act. Suppose there were a suit brought in court. to collect on a debt. that is time barred. Would that violate the fair credit? law. If you p sued in court on a debt that was time barred.

Brandon J. Weisbrot 1:12

Justice Ginsburg, our view, perhaps not surprisingly, is no. Our view is that there would be nothing misleading or unfair about the suit in that instance. But this court need not address that issue in order to resolve the question presented here. And indeed, the courts of appeals that have accepted our view Have largely assumed that the filing of a suit in state court presents different considerations from the filing of a proof of claim in bankruptcy. And that is for the simple reason that there are distinctive characteristics about the operation of the bankruptcy system. First and perhaps most importantly, the bankruptcy system defines the term claim quite broadly to include any circumstance in which there is a right to payment.

Brandon J. Weisbrot 1:55

And as this court held in Butner, whether or not there is a right to payment is defined under state law. And Alabama law is clear that the running of a limitations period does not extinguish the right. The right remains. And so, for instance, if the debtor takes some action to make repayment, the right springs back into life. Indeed, the right never disappears in the first place, but the right once again becomes judicially enforceable.

Samuel A. Alito 2:19

Are there are there any circumstances just as a practical matter where the trustee decides that uh the trustee is going to pay the time barred debt, it's obviously prejudicial to the other creditors. Are there any I I I was just trying to think of that. I I c I can't think of any instance in which a trustee would want to do that. I was thinking suppose the the debtor wanted to continue a business relation with the Uh with with the creditor whose debt is time barred and actually I uh but I I I just can't think of any instance but Brandon.

Brandon J. Weisbrot 2:48

No, and and Justice Kennedy, I can't think of such an instance either, and I think that that is precisely because the trustee has the statutory duty to object, to preserve the assets of the estate, and to do so for the creditors. And again, that is a critical feature of the bankruptcy system.

Elena Kagan 3:05

I'm sorry. I I'm having a great deal of difficulty with this business model. Uh completely. You buy Old, old debts. That you know For certainty. are not within any statute of limitations. You buy them and you call up creditors and you say to them, You don't have to pay me But out of the goodness of your heart You should. Or do you just call them up and say, You owe me money and you hope that they'll pay you? And is it the same thing in bankruptcy court? You've filed the claim and you hope. The trustee doesn't see that it's out of time. And apparently you collect on millions of dollars of these debts. So is that what you do?

Brandon J. Weisbrot 4:01

So Justice Setamayor, I do not think that that is a valid understanding of our business model, and let me explain why. First, this debt was not time barred at the time it was purchased. And indeed, Midland, my client, makes every effort not to purchase time barred debt. Now, of course, they're not always correct in their assessments, and debt that is not time barred at the time of purchase can become