In the recent case of Oliver v. Quantum2 Group, LLC (In re Oliver), the Bankruptcy Court for the Southern District of Alabama addressed issues concerning the differences between claims on open account and claims for accounts stated. Oliver v. Quantum2 Group, LLC (In re Oliver), Adv. Proc. No. 14-00075 (Bankr. S.D. Ala. December 22, 2014). These issues have grown in importance because of the Eleventh Circuit’s decision in Crawford v. LVNV Funding, LLC (In re Crawford); 758 F.3d 1254 (11th Cir. 2014). In Crawford, the Eleventh Circuit held that a creditor filing a stale proof of claim in a bankruptcy proceeding violates the Fair Debt Collection Practices Act. Accordingly, the statute of limitations and other differences between various claims have come under increased scrutiny.
In Oliver, the debtor – Elbert Oliver (the “Debtor”) – filed a voluntary petition pursuant to Chapter 13, Title 11, United States Code, 11 U.S.C. § 101, et seq. (the “Bankruptcy Code”). The creditor – Quantum3 Group (the “Creditor”) – filed a proof of claim in the Debtor’s bankruptcy case. The claim was for an outstanding debt on a Belk credit card account, which the Creditor had purchased from the original lender. The Debtor objected to the proof of claim, and sought recovery from the Creditor for violations of the Fair Debt Collection Practices Act. The Creditor moved to dismiss the Fair Debt Collection Practices Act claim.
The Bankruptcy Court had to decide whether the claim was for an account stated or a claim on an open account. Under Alabama law the statute of limitations for bringing an action on an account stated is six years. Ala. Code § 6-2-34 (1975). If the underlying obligation was an account stated, then the Creditor’s claim was filed within the limitations period and was not stale. The statute of limitations for a debt on an open account is three years. Ala. Code § 6-2-37 (1975). If the Creditor’s claim was for a debt on an open account, then the proof of claim was a violation of the Fair Debt Collections Act.
The Bankruptcy Court began its analysis by referring to Alabama law, which states an open account is “one in which some term of the contract is not settled, and remains open for adjustment, whether the account consists of one item or many.” Oliver at *2 citing Northern Alabama Ry. Co. v. Wilson Mercantile Co., 63 So. 34 (Ala. Civ. App. 1913). The Bankruptcy Court therefore reasoned that “in credit card arrangements at least one term of the contract is open: the amount of credit a borrower will actually use. The timing of future transactions is also unascertained.” Oliver at *2. The Bankruptcy Court therefore concluded that debt on a credit card is a debt on an open account. Id.
The Bankruptcy Court then considered the Creditor’s arguments that the claim was for an account stated. Id. Again, the court looked to Alabama law, which defines an account stated as:
a post-transaction agreement. It is not founded on the original liability, but is a new agreement between the parties to an original account that the statement of the account with the balance struck is correct that that the debtor will pay that amount. It is as if a promissory not had been given for the amount due.
Id. at *2. While acknowledging that the debt could be for an account stated, the court found that there were factual issues that had to be resolved before the court could rule on the motion to dismiss.
Creditors must be aware of the legal implications that come along with negotiating new agreements with borrowers. For example, asset-based lenders who convert a line of credit to a term obligation can change the nature of the debt from an open account to an account stated. Furthermore, depending on the terms of the agreements, forbearance and modification agreements can also change a debt to a claim for an account stated. If creditors intend to change an obligation to an account stated in order obtain a longer statute of limitations, the creditor must ensure the following elements are present:
(1) a statement of the account between the parties is balanced and rendered to the debtor;
(2) there is a meeting of the minds as to the correctness of the statement; and
(3) the debtor admits liability.
See University of South Alabama v. Bracy, 466 So.2d 148 (Ala. Civ. App. 1985).