i

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

________________

__________

No. 10-3431

DENNIS A. RHODES et al, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants,

- v.- ROSEMARY DIAMOND et al, Defendants-Appellees.

__________________

APPEAL FROM AN ORDER OF THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA,

09-cv-1302

______________________________________________

PETITION FOR REHEARING EN BANC

JOHN G. NARKIN BHN LAW FIRM

951 Rohrerstown Road, Suite 102 Lancaster, Pennsylvania 17601 (717) 756-0835 Attorneys for Plaintiffs-Appellants-Petitioners

_________________________________________

i

TABLE OF CONTENTS

STATEMENT PURSUANT TO 3d. CIR. L.A.R. 35.1 .................................................... v

BACKGROUND AND REASONS FOR EN BANC HEARING .............................. 1

LEGAL ARGUMENT ........................................................................................................ 6

BANKRUPT INDIVIDUALS CAN EFFECTIVELY VINDICATE THE REMEDIAL PURPOSES OF THE FDCPA ..................................................... 6

Congress Determined That Private Class Actions Under the FDCPA Are Needed to Deter Debt Collection Abuses ............................ 6

The FDCPA and the Bankruptcy Code Do Not Conflict And Both Statutes Can Be Enforced Simultaneously .................................................................................................... 8

Traditional Cannons of Statutory Construction Do Not Support Bankruptcy Code Preclusion of FDCPA Claims .......................... 15

CERTIFICATE OF SERVICE .................................................................................................... 16

ii

TABLE OF CITATIONS

CASES

Allen v. LaSalle Bank, 629 F.3d 364 (3d Cir. 2011)……………………v, 5, 6, 7,15

Bagwell v. Portfolio Recovery Associates, LLC,

2009 U.S. Dist. LEXIS 49369 (E.D. Ark. June 5, 2009) ...........................................9

Brown v. Card Serv. Ctr., 464 F.3d 450 (3d Cir. 2006). ...........................................7

Dougherty v. Wells Fargo Home Loans, Inc.,

425 F.Supp 2d 599 (E.D.Pa. 2006)……………………………………………….9

Graziano v. Harrison, 950 F.2d 107 (3d Cir. 1991) .................................................. 8

Guerrero v. RJM Acquisitions LLC, 499 F.3d 926 (9th Cir. 2007) ...........................6

Hannon v. Countrywide, 421 B.R. 728 (Bankr. M.D.Pa. 2009). ............................ 14

Heintz v. Jenkins, 514 U.S. 291 (1995) .....................................................................7

In re Chaussee, 399 B.R. 225 (B.A.P. 9th Cir. 2008) ...................................... 10, 11

In re Laskowski, 384 B.R. 518 (Bankr.N.D.Ind. 2008). ............................................9

In re Lord Abbett Mut. Funds Fee Litig., 553 F.3d 248 (3d Cir. 2009) ................. 15

In re Pariseau, 395 B.R. 492 (Bankr. M.D. Fla. 2008) .................................... 10, 12

In re Williams, 392 B.R. 882 (M.D.Fla.2008)) ................................................. 12, 13

Jerman v. Carlisle, McNellie, Tini, Kramer & Urlich LPA,

599 U.S. --, 130 S. Ct. 1605, 176 L. Ed. 2d 519 (2010) ............................................6

Joubert v. ABN AMRO Mortgage Group, Inc., 411 F.3d 452 (3d Cir.2005) ......... 14

Kline v. Mortgage Elec. Sec. Sys., 659 F. Supp. 2d 940 (S.D. Ohio 2009) ............... 9

iii

Kropelnicki v. Siegel, 290 F.3d 118, 129-31 (2d Cir. 2002)………………………6

Mullarkey v. Tamboer, 536 F.3d 215 (3d. Cir 2008) .............................................. 12

Price v. America's Servicing Co., 403 B.R. 775 (E.D. Ark. 2009)............................9

Randolph v. IMBS, Inc., 368 F.3d 726 (7th Cir. 2004) ................................... 5, 9, 10

Rea v. Federated Investors, 627 F.3d 937, 941 (3d Cir. 2011) .............................. 15

Rhodes v. Diamond, 2010 U.S. Dist. LEXIS 71076

(E.D. Pa. July 14, 2011) ................................................................................... 1, 4, 7

Rhodes v. Diamond, 2011 U.S. App. LEXIS 8813

(3d Cir. April 28, 2011) ................................................................................ 1, 4, 10

Rosenberg v. XM Ventures, 274 F.3d 137 (3d Cir. 2001) .......................................15

Simmons v. Roundup Funding, LLC, 622 F.3d 93 (2d Cir. 2010) ..................... 9 , 13

Walls v. Wells Fargo Bank, N.A., 276 F.3d 502 (9th Cir. 2002) ...............................9

Weiss v. Regal Collections, 385 F.3d 337 (3d Cir. 2004) ................................. v, 5, 7

STATUTES

11 U.S.C. § 105(a) .................................................................................................. 14

15 U.S.C. § 1692(e) .......................................................................................... 3, 6, 7

15 U.S.C. § 1692(f). .............................................................................................. 3, 6

15 U.S.C. § 1692k(a)(2)(B) .......................................................................................7

15 U.S.C. § 1692 et seq. .............................................................................................1

15 U.S.C. §§ 1692(e)(2)(A) and (B) ..........................................................................3

iv

18 U.S.C. § 1962(c) ................................................................................................... 3

73 P.S. § 201 et seq. ...................................................................................................3

RULES

Fed. R. Bankr. P. 9011 ............................................................................................ 14

Fed. R. Civ. P. 15(a)...................................................................................................2

Fed. R. Civ. P. 23 ................................................................................................ vii, 8

OTHER AUTHORITIES

Michael D. Sousa, Circuit Split:

Does the Bankruptcy Code Implicitly Repeal the FDCPA?,

AM. BANKR. INST. J. 20, 62 (Oct. 20, 2006) ........................................................9

v

STATEMENT PURSUANT TO 3d. CIR. L.A.R. 35.1

Appellants‟ counsel expresses a belief, based on a reasoned and studied

professional judgment, that the panel decision is contrary to decisions of the United

States Court of Appeals for the Third Circuit, and that consideration by the full

court is necessary to secure and maintain uniformity of decisions in this court (i.e.,

the panel‟s decision is contrary to decisions of this court in, inter alia, Allen v.

LaSalle Bank, 629 F.3d 364, 367-368 (3d Cir. 2011) and Weiss v. Regal

Collections, 385 F.3d 337, 344-345 (3d Cir. 2004)).

Appellants‟ counsel also expresses a belief, based on a reasoned and studied

professional judgment, that this appeal involves questions of exceptional

importance:

(1) whether the remedial purposes served by the Fair Debt Collection

Practices Act in eliminating abusive debt collection practices may

be vindicated by bankrupt debtors, despite the U.S. Bankruptcy

Code‟s routine claim procedures, when institutionalized debt

collector misconduct cannot be addressed effectively in the

absence of class-wide relief under Fed. R. Civ. P. 23;

(2) whether creditors or their debt collection lawyers must amend

bankruptcy proofs of claim upon receipt of significant credits

from third parties (such sheriffs‟ deposit refunds) that alter the

accuracy of such proofs of claim and render them false.1

1 While mischaracterizing Appellants‟ claims and the District Court Judgment,

Appellee Lawrence T. Phelan acknowledged that this “important” issue has

“national implications.” See Lawrence Phelan, Pennsylvania: Duty to File

Amended BK Proofs of Claim?, USFN (Sept. 2010),

http://www.usfn.org/AM/Template.cfm?Section=USFN_E_Update&Template=/C

M/HTMLDisplay.cfm&ContentID=16330

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BACKGROUND AND REASONS FOR EN BANC HEARING

On April 28, 2011, the panel entered a judgment (“Panel Judgment”),

attached here as Exhibit A, vacating and remanding a judgment entered by the

District Court on July 15, 2010 (“District Court Judgment”). See Rhodes v.

Diamond, 2010 U.S. Dist. LEXIS 71076 (E.D. Pa. July 14, 2011). (A6-A13)

On March 25, 2009, Appellants initiated this proposed class action through

the filing of a Complaint (“Initial Complaint”) on behalf of themselves and classes

of similarly situated homeowners who (1) were the subject of state court mortgage

foreclosure proceedings prosecuted by the law firm of Phelan, Hallinan & Schmeig

(“PHS”); (2) filed for protection under Chapter 13 of the Bankruptcy Code and (3)

were the subjects of false proof of claims filed in bankruptcy court by PHS, who

systematically failed to account for the refund of sheriffs‟ fee deposits that were

misappropriated or converted by PHS and/or its clients. (A115-A162)

The Initial Complaint alleged that PHS violated the Fair Debt Collection

Practices Act (“FDCPA”), 15 U.S.C. § 1692 et seq. and related Pennsylvania

consumer protection laws. See Rhodes v. Diamond, 2011 U.S. App. LEXIS 8813

(3d Cir. April 28, 2011) and Opinion of the Court („Panel Opinion”) (a copy of

which is attached here as Exhibit B) at 2.

On January 10, 2010, while PHS‟s motion to dismiss the Initial Complaint

was pending, Appellant Homeowners filed a motion pursuant to Fed. R. Civ. P.

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15(a) for leave to file a fundamentally different proposed amended complaint

(“PAC”). Based on months of continuing investigation by Homeowners‟ counsel,

the PAC set forth significantly expanded allegations involving newly discovered

instances of wrongdoing and additional legal causes of action. The PAC also

introduced as parties to this action proposed class representatives whose claims

arose independent of any bankruptcy proceeding. (A14-A26)

Specifically, the PAC alleged that:

(1) PHS acted in concert with at least two mortgage servicer clients that

were also newly added as defendants, Wells Fargo Bank, N.A. (“Wells Fargo”)

and Countrywide Home Loans Servicing, Inc. (now BAC Home Loans Servicing,

Inc.) (“Bank of America”), through which PHS collected not only improper

charges for unrefunded sheriffs‟ deposits, but inflated or fabricated charges for title

searches, appraisals, litigation “support” services, and property inspection and

maintenance services. Much of these bogus “piled on” foreclosure costs were

facilitated through related-party transactions with affiliates controlled by

defendants themselves; and

(2) PHS, Wells Fargo and Bank of America filed and prosecuted

uninvestigated foreclosure lawsuits on behalf of entities that had no ownership

interest in homeowners‟ mortgages and thus no legal standing to bring suit.

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Given the magnified facts detailed in the PAC, Appellant Homeowners

commensurately expanded their legal causes of action to include claims under (1)

the Racketeer Influenced and Corruption Act, 18 U.S.C. §1962(c); („RICO”) (2)

the FDCPA, 15 U.S.C. §§ 1692(e)(2)(A) and (B), 1692f(1), and 1692(g)(2); (3) of

Pennsylvania‟s Unfair Trade Practices and Consumer Protection Law, 73 P.S. §

201 et seq. and (4) common law remedies for fraud, breach of contract, breach of

good faith and fair dealing, money had and received, and negligent

misrepresentation.

In the PAC, Appellant Homeowners also requested more comprehensive

relief than statutory damages under the FDCPA, including (1) treble damages

under RICO; (2) disgorgement of profits wrongfully obtained by PHS, Wells Fargo

and Bank of America; and (3) equitable and injunctive relief appointing an auditor

or special master to (a) recommend business management and accounting

procedures that PHS, Wells Fargo and Bank of America must adopt and implement

to avoid future mortgage foreclosure abuses and (b) monitor these institutions‟

compliance with any business management or accounting procedures ordered by

the court.

On July 15, 2010, the District Court Judgment dismissed the Initial

Complaint with prejudice on the grounds that (1) PHS had “no duty” to amend

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bankruptcy proofs of claim2 and (2) “redress for Plaintiffs‟ allegations of

„systematic‟ violations by Defendants for filing allegedly inflated Proofs of Claim

lie solely within the Bankruptcy Court.”3

In a two-line footnote reference to reasons given for its dismissal of the

Initial Complaint -- which were restricted to issues involving the FDCPA and

bankruptcy law -- the District Court Judgment denied the Appellant Homeowners‟

motion for leave to file the PAC on the ground that its recognizably different

claims were “moot” and “futile.”4

On April 28, 2011, the Panel Judgment vacated and remanded the District

Court Judgment, acknowledging that, “[a]s Appellants correctly note, … the

proposed amended complaint is broader than the initial complaint” and “[t]he

District Court did not address these alternative claims for relief.” Exhibit B at 5;

Rhodes v. Diamond, 2011 U.S. App. LEXIS 8813, at *5. Appellant Homeowners

agree that this part of the Panel Judgment was decided properly, and they do not

seek further appellate review of the issue.

However, the Panel Opinion concluded that the District Court “correctly”

dismissed the Initial Complaint on the ground that “Appellants‟ claims arising

from PHS‟s conduct in bankruptcy proceedings -- i.e., its filing of, and subsequent

2 Rhodes v. Diamond, 2010 U.S. Dist. LEXIS 71076, at *4-*8.

3 Id., at *12.

4 Id., at *14 n.1

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failure to amend, allegedly inflated proofs of claim – cannot give rise to FDCPA or

state law causes of action.” Exhibit B at 4; Rhodes v. Diamond, 2011 U.S. App.

LEXIS 8813, at *4.

As shown below, dismissal of distressed homeowners‟ FDCPA claims on

bankruptcy preclusion grounds is:

(1) inconsistent with this Circuit‟s traditional statutory interpretation of the

FDCPA as enunciated, inter alia, in Allen v. LaSalle Bank, 629 F.3d 364, 367-368

(3d Cir. 2011) and Weiss v. Regal Collections, 385 F.3d 337, 344-345 (3d Cir.

2004);

(2) contrary to the cogent statutory analysis of the FDCPA and Bankruptcy

Code by the Seventh Circuit in Randolph v. IMBS, Inc., 368 F.3d 726, 730-33 (7th

Cir. 2004); and

(3) incompatible with established canons of statutory construction.

Because these issues were not addressed by the Panel in its non-precedential

Opinion, Appellant Homeowners respectfully request rehearing en banc limited to

this narrow, but extremely consequential, portion of the Panel Judgment.

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LEGAL ARGUMENT

BANKRUPT INDIVIDUALS CAN EFFECTIVELY

VINDICATE THE REMEDIAL PURPOSES OF THE FDCPA

Congress Determined That Private Class Actions Under the FDCPA Are Needed to Deter Debt Collection Abuses

The Third Circuit has been among the vanguard of federal courts

recognizing the important public policies served by the FDCPA, which the

Supreme Court characterized as “a comprehensive and complex federal statute …

that imposes openended prohibitions on, inter alia, "false, deceptive" or "unfair"

debt collection practices. Jerman v. Carlisle, McNellie, Tini, Kramer & Urlich

LPA, 599 U.S. --, 130 S. Ct. 1605, 1615, 176 L. Ed. 2d 519 (2010), citing, 15

U.S.C. § 1692(e) and (f).

In Allen v. LaSalle Bank, 629 F.3d 364, 367-368 (3d Cir. 2011), this Court

rejected a debt collection law firm‟s contention that its misleading communications

to consumers‟ attorneys are exempt from FDCPA liability. In so holding, the Third

Circuit rejected authority supporting that argument from the Ninth and Second

Circuits,5 emphasizing instead its own well-established principles of law:

“Congress made its purpose in enacting the FDCPA explicit: „to

eliminate abusive debt collection practices by debt collectors, to

insure that those debt collectors who refrain from using abusive debt

collection practices are not competitively disadvantaged, and to

5 Allen, 629 F.3d at 366, citing, Guerrero v. RJM Acquisitions LLC, 499 F.3d 926,

934-39 (9th Cir. 2007); Kropelnicki v. Siegel, 290 F.3d 118, 129-31 (2d Cir. 2002).

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promote consistent State action to protect consumers against debt

collection abuses.‟ 15 U.S.C. § 1692(e).”6 (emphasis supplied)

“Attorneys, such as [PHS here], are regarded as debt collectors, and

their conduct as such is regulated by the FDCPA.”7

“Unquestionably, the scope of the FDCPA is broad….The FDCPA is

a strict liability statute to the extent it imposes liability without proof

of an intentional violation.”8

Allowing an abusive debt collector to “escape FDCPA liability” based

on a narrow interpretation of the law “would undermine the deterrent

effect of strict liability.”9

“The FDCPA is a remedial statute, and we construe its language

broadly so as to effect its purposes.”10

Not only has the Third Circuit recognized the remedial purposes served by

the FDCPA, it has expressed a clear understanding of the means by which

Congress intended the FDCPA to accomplish those purposes.

As the Court held in Weiss v. Regal Collections, 385 F.3d 337, 345 (3d Cir.

2004):

Congress explicitly provided for class damages in the FDCPA.

See 15 U.S.C. § 1692k(a)(2)(B)…. Congress also intended the

FDCPA to be self-enforcing by private attorney generals….

6 Allen, 629 F.3d at 367.

7 Id., citing, Heintz v. Jenkins, 514 U.S. 291, 292 (1995). In dismissing the

Appellant Homeowners‟ FDCPA claims in this case, the District Court mistakenly

concluded that Heintz was “subsequently superseded” by an amendment to 15

U.S.C. § 1692e(11) that has no application here. Rhodes v. Diamond, 2010 U.S.

Dist. LEXIS 71076, at *5 n.6. 8 Allen, 629 F.3d at 368.

9 Id.

10 Id., at 367, citing, Brown v. Card Serv. Ctr., 464 F.3d 450, 453 (3d Cir. 2006).

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Graziano v. Harrison, 950 F.2d 107, 113 (3d Cir. 1991)

("[FDCPA] mandates an award of attorney's fees as a means of

fulfilling Congress's intent that the Act should be enforced by

debtors acting as private attorneys general."). Representative

actions, therefore, appear to be fundamental to the statutory

structure of the FDCPA. Lacking this procedural mechanism,

meritorious FDCPA claims might go unredressed because the

awards in an individual case might be too small to prosecute an

individual action.

(emphasis supplied).

While there is ample authority (particularly from the Ninth and Second

Circuits) supporting the conclusion of the Panel and the District Court that the

Bankruptcy Code precludes assertion of FDCPA claims by bankrupt individuals,

this Court is free to construe the FDCPA broadly in a manner more consonant with

the statute‟s remedial purposes and structure.

Appellant Homeowners respectfully submit that an appropriate balance of

the legislative purposes underlying the FDCPA and the Bankruptcy Code should

not deprive bankrupt homeowners of their rights under the FDCPA, especially

where, as here, the alleged debt collection abuses are systemic and

institutionalized, and effective relief and deterrence depends upon use of Rule 23‟s

class action procedures.

The FDCPA and the Bankruptcy Code Do Not Conflict

And Both Statutes Can Be Enforced Simultaneously

There is a split of authority among the Circuits concerning whether the

Bankruptcy Code precludes FDCPA claims brought by bankrupt individuals.

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Compare Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 510 (9th Cir. 2002) and

Simmons v. Roundup Funding, LLC, 622 F.3d 93, 96-97 (2d Cir. 2010) (citing

Walls with approval) with Randolph v. IMBS, Inc., 368 F.3d 726, 732-33 (7th Cir.

2004) (Easterbrook, J.) (disapproving Walls).11

In Randolph, the Seventh Circuit held that the Bankruptcy Code does not

preclude FDCPA claims by bankrupt debtors because:

[both laws] overlap, each with coverage that the other lacks --

the Code covers all persons, not just debt collectors, and all

activities in bankruptcy; the FDCPA covers all activities by

debt collectors, not just those affecting debtors in bankruptcy.

Overlapping statutes do not repeal one another by implication;

as long as people can comply with both, then courts can enforce

both.

Randolph, 368 F.3d at 731.

Several courts have adopted Judge Easterbrook‟s reasoning in Randolph and

have rejected the line of authority following Walls. See, e.g., Bagwell v. Portfolio

Recovery Associates, LLC, 2009 U.S. Dist. LEXIS 49369, at *5 - *6 (E.D. Ark.

June 5, 2009); Kline v. Mortgage Elec. Sec. Sys., 659 F. Supp. 2d 940, 950 (S.D.

Ohio 2009); Price v. America's Servicing Co., 403 B.R. 775, 790 n.14 (E.D. Ark.

2009) (and cases cited therein); and In re Laskowski, 384 B.R. 518, 527-528

(Bankr.N.D.Ind., 2008).

11

See Dougherty v. Wells Fargo Home Loans, Inc., 425 F.Supp 2d 599, 604

(E.D.Pa. 2006); Michael D. Sousa, Circuit Split: Does the Bankruptcy Code

Implicitly Repeal the FDCPA?, AM. BANKR. INST. J. 20, 62 (Oct. 20, 2006)

(Randolph is "[i]n direct contrast to the result reached in Walls").

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Resting its decision on In re Chaussee, 399 B.R. 225, 239 (B.A.P. 9th Cir.

2008) and In re Pariseau, 395 B.R. 492, 495 (Bankr. M.D. Fla. 2008) (without

further articulated analysis and without addressing the Seventh Circuit‟s rationale

or the split of authority among Circuits), the Panel held that the District Court

correctly found that “Appellants' claims arising from PHS's conduct in bankruptcy

proceedings … cannot give rise to FDCPA” liability. Rhodes v. Diamond, 2011

U.S. App. LEXIS 8813, at *5; Exhibit B at 4-5 (emphasis supplied).

While they may be sensible decisions confined to their particular facts,

Chaussee and Pariseau do not compel the broader conclusion reached by the Panel

and District Court in the context of this case.

In Chaussee, the Ninth Circuit Bankruptcy Appellate Panel (“BAP”)12

reversed a judgment of the Chief Bankruptcy Judge of the Western District of

Washington, who, based on Randolph, held that an FDCPA action challenging the

legality of erroneous proofs of claim were not precluded because “the simultaneous

12

The BAP is not the equivalent of a panel of the U.S. Court of Appeals for the

Ninth Circuit. It was established by the Judicial Council of the Ninth Circuit as an

“alternative forum for hearing bankruptcy appeals.” News Release, Ninth Circuit

Bankruptcy Appellate Panel Makes Changes, PUBLIC INFORMATION OFFICE

FOR U.S. COURT OF APPEALS FOR NINTH CIR. (April 21, 2010),

http://www.sfbar.org/forms/court-press/bap_changes-04-21-10.pdf. BAP judges

are appointed by the Judicial Council, and they serve a term of seven years with

eligibility for a 3-year extension. Only four other Circuits avail themselves of the

BAP alternative procedure. Id.

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assertion of Plaintiff's rights under the FDCPA and the Bankruptcy Code will not

interfere with Plaintiff's bankruptcy proceedings.”13

The issue in Chaussee concerned a creditor‟s isolated filing -- in one

individual debtor‟s Chapter 13 proceeding -- of two bankruptcy proofs of claim

that were purportedly time-barred under state law. In re Chaussee, 399 B.R. at 227.

In that limited circumstance, the BAP held, among other things, that “the Ninth

Circuit's decision in Walls controls the outcome here, and … the [Bankruptcy]

Code precludes the application of the FDCPA under these facts.”14

(emphasis

supplied). In dicta, the BAP expressed a preference for its own Circuit‟s position

as opposed to the contrary one taken by the Seventh Circuit, going so far as to

digress that “the “debt validation procedure” mandated by Section 1692g of the

FDCPA (which is not relevant to the Appellant Homeowners‟ claims against PHS)

“clearly conflict[s] with the claims processing procedures contemplated by the

[Bankruptcy] Code … [because] the provisions of both statutes cannot compatibly

operate.” Chaussee, 399 B.R. at 237-238.

The legal questions and facts at issue in Chaussee are not similar to those

raised by the institutionalized and systematic debt collection abuses involved in

this litigation. The Third Circuit is free to accept or reject Walls -- or Randolph --

however it sees fit.

13

In re Chaussee, 398 B.R. 916, 923-924 (Bankr. W.D.Wash. 2008). 14

Id., at 235 and n.12 (emphasis supplied).

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In re Pariseau is also markedly different. There, a creditor filed proofs of

claim in an individual debtor‟s bankruptcy case seeking payment of unsecured debt

in an amount of just $1,430. 395 B.R. at 493. Quoting In re Williams, 392 B.R.

882, 888 (M.D.Fla.2008)), the Court in Pariseau declared that the debtor was

engaged in a “a so-called attempt of creative lawyering to make a mountain out of

a molehill and to transform a simple claim resolution process into an extensive and

expensive proceeding” that would “open up the floodgate for unnecessary and

expensive litigation, replacing the simple procedure for dealing with an objection

to the allowance of a claim” -- which “would be totally contrary to the entire

scheme established by Congress to deal with creditor and debtor relationships.”

Pariseau, 395 B.R. at 496.

If this Court were to permit the assertion of FDCPA claims by distressed

homeowners systematically victimized by irresponsible mortgage foreclosure law

firms like PHS, it is highly improbable that a stampede of consumers with trifling

complaints will flood the courts or disrupt the bankruptcy claim resolution process.

Conversely, if the bankrupt homeowners in this case are denied relief under the

FDCPA and other federal laws,15

they would be left without an effective remedy

15

The RICO claims asserted in the PAC are not precluded by the Bankruptcy

Code. See, i.e., Mullarkey v. Tamboer, 536 F.3d 215, 219 (3d. Cir 2008) (District

Court referred bankrupt debtor‟s RICO claim to bankruptcy court).

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for the wrongs done to them. Here, as in Randolph, prosecution of overlapping

FDCPA claims presents no “irreconcilable conflict” with the Bankruptcy Code.

Some courts say that preclusion is necessary to dissuade debtors from

“bypassing” the bankruptcy court's proof of claim process, which they describe as

a “simple” way to achieve “claim resolution” of “very unimpressive amounts”

through “reduced judicial labor.” See, i.e., Williams 392 B.R. at 883-84. However,

PHS‟s systematic theft of sheriffs‟ scheme is not a “simple” matter involving an

“insignificant” claim of only a single debtor. “Judicial labor” is precisely what is

needed to achieve justice here.

Nor have Appellant Homeowners tried to “bypass” the bankruptcy claim

process. They did object to PHS's false claims. (A143-146; A57-A61) Only after

such objections were filed or after this lawsuit began did PHS withdraw those

claims. PHS thus recognized that its individual violations of the FDCPA had been

discovered and that its systematic violations could be exposed through this action.

The Homeowners did not bring their FDCPA claims in District Court to obtain an

adjustment of amounts owed to their mortgagees -- the essential purpose of the

proof of claim process. This class action strives instead to serve the distinct

purpose of remedying PHS's institutionalized debt collection abuses.

Some courts also say that preemption is required because "[t]here is no need

to protect debtors who are already under the protection of the bankruptcy court....”

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Simmons, 622 F .3d at 95-96 (and cases cited therein). According to the District Court,

the "sole remedies" available to Appellants for PHS's systematic misconduct are

provided by Fed. R. Bankr. P. 9011 and 11 U.S.C. § 105(a).16

However, a bankruptcy court addressing the identical issue presented here

expressed its doubt that Rule 9011 is “up to the task” of providing sufficient authority

to compel a claimant to keep their Proofs of Claim updated” to accurately reflect

receipt of sheriffs‟ deposit refunds. Hannon v. Countrywide, 421 B.R. 728, 734

(Bankr. M.D.Pa. 2009). Although the District Court below recognized “no

authority” confirming “the existence of a duty to amend a Proof of Claim,”17 the

Hannon court analyzed this issue in considered detail and determined

unequivocally that such a duty exists. Hannon, 421 B.R. at 732-733.

Section 105(a) is even less up to the task than Rule 9011. It is well established

in this Circuit that Section 105(a): (1) “has a limited scope"; (2) “does not „create

substantive rights that would otherwise be unavailable under the Bankruptcy Code‟”

and (3) “does not afford debtors a private cause of action.” Joubert v. ABN AMRO

Mortgage Group, Inc., 411 F.3d 452, 455 (3d Cir.2005).

The “sole remedies” provided in the Bankruptcy Code are of virtually no help

to a class of bankrupt homeowners who -- every bit as much as their non-bankrupt

counterparts -- have been victims of systematic FDCPA violations by PHS.

16

Rhodes v. Diamond, 2010 U.S. Dist. LEXIS 71076, at * 8- *10, *13. 17

Rhodes v. Diamond, 2010 U.S. Dist. LEXIS 71076, at *5-*6.

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Traditional Cannons of Statutory Construction

Do Not Support Bankruptcy Code Preclusion of FDCPA Claims

As this Court held in Allen v. LaSalle Bank, 629 F.3d at 367, “Congress

made its purpose in enacting the FDCPA explicit.” Conversely, the Bankruptcy

Code is silent with respect to its purported primacy over the FDCPA.

It is an elementary canon of statutory construction that courts must assume

that every word in a statute has meaning. Id., citing, Rosenberg v. XM Ventures,

274 F.3d 137, 141 (3d Cir. 2001). Projection into the Bankruptcy Code of an

unexpressed congressional intention to preclude FDCPA claims under the

circumstances of this case renders the words of that statute meaningless. Here, as

in Rea v. Federated Investors, 627 F.3d 937, 941 (3d Cir. 2011) and In re Lord

Abbett Mut. Funds Fee Litig., 553 F.3d 248, 254 (3d Cir. 2009), this Court should

not “contravene congressional intent by implying statutory language that Congress

omitted.”

Dated: May 12, 2011 Respectfully submitted,

BHN LAW FIRM

By: /s/ John G. Narkin

John G. Narkin

PA Bar No. 36301

951 Rohrerstown Road, Suite 102

Lancaster, Pennsylvania 19601

Telephone: (717) 756-0835

www.bhn-law.com

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CERTIFICATE OF SERVICE

I, John G. Narkin, hereby certify under penalty of perjury that on May 12, 2011, I

caused to be filed with the Court electronically pursuant to 3d. Cir. L.A.R. 35.2 and

3d. Cir. L.A.R. Misc. 113

APPELLANTS‟ PETITION FOR REHEARING EN BANC

and, by causing two copies of the Petition to be mailed, via U.S. Mail, first class,

postage prepaid, I served the foregoing upon:

Daniel S. Bernheim, 3d

Jonathan J. Bart

WILENTZ, GOLDMAN & SPITZER, P.A.

Two Penn Center, Suite 910

Philadelphia, PA 19102

/s/ John G. Narkin

John G. Narkin