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Whose Claim Is It Anyway?

Who is the real holder of a FCRA claim brought by a Chapter 7 debtor?  That’s the question that confronted the Eastern District of Wisconsin recently in Kitchner v. Fiergola, 2018 WL 4473359 (E.D. Wis. Sept. 18, 2018).

Under the facts of Kitchner, Plaintiff, Megan Kitchner, (“Kitchner”) alleged that the Kohn Law Firm of Milwaukee, Wisconsin (“Kohn”), violated the FCRA and the FDCPA by disclosing her credit score and credit report in a small-claims collection action filed on March 9, 2017.

Twenty-days after the small claims action was commenced, on March 28, 2017, Kitchner, who was represented by counsel, filed a Chapter 7 bankruptcy petition.  As you may know, the Bankruptcy Code requires debtors to disclose all of their assets, including any causes of action that they might have against third parties.  Regardless of whether they are disclosed, those causes of action then become the property of the debtor’s bankruptcy estate, and, in a Chapter 7 case, a trustee administers them.  If the trustee chooses to abandon a claim to the debtor, he or she can do that with Bankruptcy Court approval, and all disclosed but unadministered assets, including causes of action, are automatically abandoned to the debtor upon the closing of the case.

Even though she was required to disclose the existence of her potential FCRA and FDCPA claims and even though she was represented by a lawyer, Kitchner did not disclose the existence of either claim in her bankruptcy filings.  Instead, she received her discharge on June 29, 2017, and her bankruptcy case was closed on July 3, 2017.

A little more than six months later, Kitchner filed her FCRA and FDCPA claims against Kohn in the Eastern District of Wisconsin.  In response, Kohn moved to dismiss the claims asserting that Kitchner did not have standing to bring the claims because they now belonged to her bankruptcy estate.

While the Court agreed that Kitchner did not have standing to pursue the claims herself, it was reluctant to dismiss the claims since they belonged to the bankruptcy estate, not Kitchner.  Instead, the Court invoked FED. R. CIV. P. 17 and gave Kitchner a reasonable amount of time to either (i) convince the Trustee to abandon the claims to her thereby allowing her to be the real party in interest and have standing or (ii) substitute the Trustee into the case as the new plaintiff.  In addition, the Court dismissed Kitchner’s motion for class certification without prejudice on the basis that, if acting as the plaintiff, the Trustee’s duties to Kitchner’s creditors may conflict with his or her duties to the unnamed class members (for example, a Trustee would have little to no incentive to recover more than the amount necessary to repay all creditors with interest and pay his or her attorneys’ fees).

Currently, Kitchner has moved to reopen her Bankruptcy Case, and that motion is pending a hearing in the Bankruptcy Court.

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About this Author

Chad Ewing, Womble Carlyle, business fraud attorney, negligent misrepresentation lawyer,
Partner

Chad is an attorney in our business litigation group with more than ten years of experience representing clients in state and federal courts, including all North Carolina federal district courts and the North Carolina Business Court. Recently, Chad has represented business clients in cases involving breach of contract, fraud, negligent misrepresentation and unfair and deceptive trade practices. In addition, Chad maintains an active creditor-focused bankruptcy practice.

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