The creditor and her counsel were found liable for violation of the discharge injunction to the tune of over $200,000 after the creditor and her counsel blindsided the debtor during closing arguments in their state court litigation by grossly expanding the scope of the creditor’s claimed damages to encompass discharged debts. In re Renfrow, No. 17-1027 (Bankr. N.D. Okla. April 23, 2019). [Read more…] about Ambush at State Trial Costs Creditor and Her Counsel over $200,000 for Discharge Injunction Violation
Attorney Fee Award Upheld Against Student Loan Servicer
The district court found that the bankruptcy court did not abuse its discretion in holding the student loan servicer in contempt for failing to apply the student debtor’s payments outside the plan in accordance with pre-petition payments as required by the debtor’s confirmed chapter 13 plan. Penn. Higher Educ. Assistance Agency v. Berry, No. 18-444 (D. S.C. March 5, 2019).
Berry had student loans issued by the Department of Education (DOE) and administered by the Pennsylvania Higher Education Assistance Agency (PHEAA). She was paying off her loans under an Income-Driven Repayment plan (IDR) and a Public Service Loan Forgiveness (PSLF) program. In her chapter 13 bankruptcy, her confirmed amended plan provided for continued payments on her student loan debts outside the plan with those payments being applied exactly as before thereby allowing her to continue to benefit from the IDR and PSLF. The PHEAA, however, put the loans into administrative forbearance under which it applied the payments to principal and interest. Ms. Berry filed a Motion to Enforce seeking sanctions in the amount of $22,317.30, representing the attorney fees she incurred pursuing proper application of the payments. The DOE eventually settled its portion of the action for $6,000 and Ms. Berry sought the remaining amount from PHEAA. The bankruptcy court granted Ms. Berry’s entire attorney fee request consisting of $22,317.30 of which, after the DOE’s $6,000 settlement, the PHEAA owed $16,317.30.
On appeal, the district court began with PHEAA’s defense that it was limited in its authority by its servicing contract with the DOE. The court found that the bankruptcy court did not commit clear error in its application of law or in its findings of fact when it concluded that PHEAA had a contractual obligation to deal with borrower’s complaints and to bring unresolved problems to the attention of the DOE. In this case, it did neither.
The district court turned to the bankruptcy court’s conclusion that bad faith was not necessary to imposition of sanctions under section 105(a), reciting the necessary elements of contempt as: “(1) The existence of a valid decree of which the alleged contemnor had actual or constructive knowledge; (2) . . . that the decree was in the movant’s ‘favor’; (3) . . . that the alleged contemnor by its conduct violated the terms of the decree, and had knowledge (at least constructive knowledge) of such violations; and (4) . . . that [the] movant suffered harm as a result.” Here, even if PHEAA lacked authority to treat Ms. Berry’s payments as provided for in her plan, the bankruptcy court did not err in finding that it could not simply ignore the confirmed plan. At the very least, it should have sought guidance from the DOE, or objected to the plan.
Along the same lines, PHEAA argued that the bankruptcy court abused its discretion by holding it in contempt where its conduct was governed by its contract with the DOE and was therefore not willful. The court found that the bankruptcy court’s authority to impose sanctions under section 105(a) did not require a finding of willfulness.
The court found that the bankruptcy court correctly based its decision on its broad authority to craft a remedy based on the particular circumstances of a given case and that, here, the bankruptcy court was persuaded by PHEAA’s failure to make any attempt to either comply with the debtor’s plan or seek guidance from the DOE. This finding was not an abuse of discretion.
Finally, the district court affirmed the bankruptcy court’s allocation of sanctions as having been based on the debtor’s efforts to obtain compliance from PHEAA.
Bankruptcy Court Says Call First Before Seeking Attorney’s Fees
The Bankruptcy Court for the Eastern District of Michigan recently ruled whether a creditor must pay attorney’s fees to the objecting party when the creditor filed a claim with deficient information. In re Ball, No. 17-22574 (Bankr. E.D.MI. Jan. 22, 2019).
The issue was brought before the court by the chapter 13 trustee. A creditor, Financial Edge Credit Union (FECU), was owed a debt for overdraft charges which was an open-end consumer debt. FECU filed a deficient proof of claim that only attached a copy of the deposit account contract and did not include the last payment date or the date of the debtor’s last transaction.
[Read more…] about Bankruptcy Court Says Call First Before Seeking Attorney’s Fees
District Court Upholds Sanctions and Suspension Against UpRight Law
Where a “local partner” working under the auspices of Chicago-based UpRight Law botched a Louisiana chapter 7 case, the district court affirmed the bankruptcy court’s order suspending UpRight from practice in the district and imposing other sanctions. Law Solutions Chicago, LLC d/b/a UpRight Law, LLC v. U. S. Trustee, No. 18-216 (W.D. La. Sept. 24, 2018).
Appellant, UpRight Law, is a bankruptcy law practice based in Chicago using a business model under which it contracts with “local partners” around the country to handle cases for a percentage of the fee paid to UpRight. When Lillie Mae Banks sought representation for her Louisiana bankruptcy case, UpRight assigned her case to one of its local partners (after first assigning it to an attorney who was not licensed to practice in Louisiana). After Ms. Banks’s case was “horribly screwed up” the U.S. Trustee stepped in seeking disgorgement of the fees she paid, a civil penalty, and other sanctions against UpRight and local counsel. [Read more…] about District Court Upholds Sanctions and Suspension Against UpRight Law
Subjective Belief that Conduct Not Subject to Discharge Order Precludes Sanctions
A creditor’s good faith belief that its conduct did not violate the discharge order precludes a finding of contempt for violation of the discharge injunction even if that belief is unreasonable. Taggart v. Lorenzo (In re Taggart), No. 16-35402 (9th Cir. April 23, 2018).
Bradley Taggart, a 25% owner of a real estate business, became embroiled in state litigation involving two other 25% owners of the business after he transferred his share to his lawyer without giving the co-owners their contractual right of first refusal. Mr. Taggart filed for Chapter 7 bankruptcy and the state court stayed the business litigation until after he obtained his discharge. At that time, the business litigation resumed for the purpose of unwinding the business interest, but with the condition that, due to his bankruptcy discharge, Mr. Taggart would not be liable for any monetary judgment. At the conclusion of the business litigation, however, the state court permitted both parties to seek attorneys’ fees. The attorneys for Mr. Taggart’s opponents sought attorney fees for their post-discharge work on the basis that Mr. Taggart had “returned to the fray” and the fees were thus the result of post-discharge conduct not related to the bankruptcy discharge. [Read more…] about Subjective Belief that Conduct Not Subject to Discharge Order Precludes Sanctions
Court Won’t Let Bank of America “Buy and Bury” Judgment Against It
“To name and to shame Bank of America on the public record in an opinion that stays on the books serves a valuable purpose, casting sunlight on practices that affect ordinary consumers.” Sundquist v. Bank of America, No. 10-35624, Adv. Proc. No. 14-2278 (Bankr. E.D. Cal. Jan. 18, 2018).
Calling it a “naked effort to coerce this court to erase the record,” the bankruptcy court declined to vacate its 2017 judgment in which it awarded damages for violation of the automatic stay for $1,074,581.50 and ordered an additional $5 million in punitive damages based on Bank of America’s conduct in connection with Erik and Renee Sundquist’s home mortgage. In addition to the award directed to the Sundquists, the 2017 order included a $45 million punitive damage award to be distributed to various public interest entities, which were added to the case as Intervenors. The order also cancelled the Sundquists’ attorney’s contingency fee agreement, citing section 329(b), and ordered payment of her fees on a lodestar basis. Sundquist v. Bank of America (In re Sundquist), 566 B.R. 563 (Bankr. E.D. Cal. 2017) (2017 order) (blogged here). [Read more…] about Court Won’t Let Bank of America “Buy and Bury” Judgment Against It
Bankruptcy Court Lacked Power to Order $375,000 in Punitive Damages
A bankruptcy court lacks inherent or statutory power to award $375,000 in punitive damages based on the creditor’s violation of Rule 3002.1(c) and disregard of a court order. PHH Mortgage Corporation v. Beaulieu, Nos. 16-256, 16-257, 16-258 (D. Vt. Dec. 18, 2017).
The debtors in three Chapter 13 cases had confirmed plans under which they were able to remain in their homes post-petition and pay their mortgages through the trustee. Two sets of debtors, the Gravels and the Beaulieus, completed their payments, and the court issued an order stating that they were current on their mortgages and charges through the completion of their plans. PHH sent all three sets of debtors a monthly statement for fees based on property inspection, late charges, and insufficient funds, all of which were incurred more than 180 days before the statement in violation of Rule 3002.1(c). The trustee moved for sanctions in all three cases for violation of Rule 3002.1(c) and, in the Beaulieus’ and the Gravels’ cases, for violation of the Bankruptcy Court’s Order at the close of their cases. [Read more…] about Bankruptcy Court Lacked Power to Order $375,000 in Punitive Damages
Ocwen To Show Cause Why It Shouldn’t Be Held in Contempt
Ocwen’s misconduct led the bankruptcy court to not only grant the debtor’s motion for a temporary restraining order but to order Ocwen, as servicer for U.S. Bank, to show cause why it should not be held in contempt for violation of a Consent Order entered between the debtor and lender during her chapter 13 bankruptcy. Arrington v. Ocwen Loan Servicing, LLC, No. 12-70435, Adv. Proc. No. 17-70029 (Bankr. N.D. Ala. Sept. 25, 2017). [Read more…] about Ocwen To Show Cause Why It Shouldn’t Be Held in Contempt
Personal Attacks on Trustee Not Sanctionable – But Not Helpful Either
Invective and personal attacks on the chapter 7 trustee did nothing to further the debtors’ arguments in their motion to dismiss but did not amount to sanctionable conduct. Geltzer v. Brizinova (In re Brizinova), No. 12-42935, Adv. Proc. No. 15-1073 (Bankr. E.D. N.Y. March 3, 2017) (on appeal to the District Court for the Eastern District of New York, No.17-1465).
The trustee, Robert Geltzer, moved for a contempt order and sanctions against Karimvir Dahiya, counsel for the debtors, Estella Brizinova and Edward Soshkin, based on statements he made in connection with a motion to dismiss an adversary complaint in the debtors’ bankruptcy case. In the motion to dismiss, Mr. Dahiya stated, among other things, “Geltzer having realized that he has gotten money from the sons, he could extract more, he has begun his extortionist journey again.” Generally, Mr. Geltzer maintained that Mr. Dahiya’s statements were part of a personal crusade against him, were vexatious and in bad faith, and represented a course of conduct Mr. Dahiya generally followed against bankruptcy trustees.
Mr. Geltzer also sought sanctions for a statement in the reply brief for the motion to dismiss concerning another case, Geltzer v. Ng (In re Ng), No. 12-1343, in which Mr. Dahiya represented the debtor. In the reply brief, Mr. Dahiya said of the settlement in Ng that it “was an Agreement, that was signed only on the basis of being urged: ‘Sometimes, it takes a stronger person to walk away.’ I decided to walk away.” Mr. Geltzer argued that the advice to “walk away,” was given by the mediator and its inclusion in the briefing in the Brizinova case was an impermissible disclosure of a statement made during mediation. He also argued that the statement was in contravention of the Stipulated Order and Mediation Order in the Ng case under which Mr. Dahiya agreed to comply with rules of professional conduct and the Local Bankruptcy Rules.
Beginning with Mr. Dahiya’s alleged violation of the Stipulated Order and Mediation Order in the Ng case, the Brizinova court found that an order out of another court enjoining certain conduct should be addressed by the court issuing the injunction. The Brizinova court therefore denied the motion for sanctions without prejudice with respect to that claim.
The court also addressed whether Mr. Dahiya’s comment concerning the Ng case, violated Local Rule 9019-1(1) which stresses nondisclosure of “views and suggestions of the mediation participants with respect to possible pathways to a settlement, any settlement proposals advanced by a party or the mediator, and whether a mediation participant was willing to accept a mediator’s proposal.” It found that, although Mr. Geltzer asserted that the comment was made by the mediator, Mr. Dahiya did not attribute the statement to any particular participant in the mediation process and the comment was otherwise too vague to violate the Local Rule.
Turning to Mr. Geltzer’s claims under section 105(a), Mr. Dahiya argued that the court did not have inherent power to sanction him for his conduct under that section. The court disagreed. Section 105(a) permits a court to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.” The court found that under the Code and Second Circuit precedent, a court has “the inherent authority to supervise the proceedings that take place before it and, as part of that authority, the ability to impose sanctions when necessary.”
The Second Circuit has found that to justify sanctions an attorney’s conduct must be entirely meritless, and he must have acted for improper purposes. Bad faith is essential to sanctions under section 105(a). Turning to the language Mr. Geltzer sought to have sanctioned, including “extortionist,” “threaten into further submission,” “unexpected accretion,” “frivolous,” and “dig more,” the court found that while the invectives likely detracted from any valid argument the debtors might have made, the language appeared to be in furtherance of Mr. Dahiya’s representation of the debtors. For that reason, the element of bad faith was not present and the language did not merit sanctions under section 105(a).
Finally, the court addressed Mr. Geltzer’s argument that Mr. Dahiya’s personal comments about him were in violation of the New York’s Rules of Professional Conduct, 22 NY CRR §§ 1200 et seq. which prohibit an attorney from “making multiple derogatory and unprofessional attacks upon the personal attributes of another attorney,” knowingly advance a claim that is unwarranted under the law, or otherwise fail to behave with a threshold amount of decorum in court proceedings. The court found that “viewed in the context of the Motion to Dismiss, the statements are more accurately viewed as rhetorical flourishes than as knowing and material statements that are false.” Moreover, the language did not cross the line between zealous representation and sanctionable expressions of personal opinion as to “the justness of a cause, the credibility of a witness, the culpability of a civil litigant or the guilt or innocence of the accused.” While Mr. Dahiya mentioned “extortion” in his list of invectives against Mr. Geltzer, he did not threaten to pursue criminal charges against him.
In conclusion, the court found that Mr. Dahiya’s statements in the context of the otherwise appropriate motion to dismiss, were not sanctionable. It denied the motion without prejudice with respect to Mr. Dahiya’s possible violation of the Ng court’s injunction order, and denied the remaining claims with prejudice.
Court Issues $45m Punitive Damages Award Against BofA
“The mirage of promised mortgage modification lured the plaintiff debtors into a kafkaesque nightmare of stay-violating foreclosure and unlawful detainer,” for which the court ordered over $1 million dollars in actual damages plus a significant punitive damage award. Sundquist v. Bank of America, No. 10-35624, Adv. Proc. No. 14-2278 (Bankr. E.D. Cal. March 23, 2017).
In the first 30 pages of the 109-page opinion, the court walked through the facts of the case illustrating Bank of America’s egregious conduct and including extensive quotes from Renee Sundquist’s journal. A few highlights include the following facts. Though struggling financially, Erik and Renee Sundquist were current on their home loan, defaulting only after Bank of America told them that the only way they could get loan modification would be if they were in default. After that began a series of abortive modification attempts during which Bank of America consistently lost paperwork, denied modification for no apparent reason, or otherwise dangled modification before the Sundquists without actually providing it, while at the same time going forward then retreating on foreclosure actions. At one point, a Bank of America employee told Renee that modifications were “not real” but were simply a way for Bank of America to make more money before foreclosure.
The Sundquists filed for chapter 13 bankruptcy under threat of imminent foreclosure. After foreclosing in violation of the stay, Bank of America sent thugs to stake out the residence and intimidate the family, and gave them a three-day notice of eviction causing the Sundquists and their children to find temporary housing. Upon learning that they were no longer the owners of the home, the Sundquists voluntarily dismissed their bankruptcy case thereby ending the automatic stay. Meanwhile, and without the Sundquists’s knowledge, Bank of America rescinded the foreclosure and returned title of the home to them. When they later returned to the house they found that major appliances had been removed. In keeping with its conduct throughout, Bank of America attempted to collect mortgage payments for the months the Sundquists had been without their home.
The court found Bank of America’s conduct to be willful and intentional and that it resulted in “emotional distress, lost income, apparent heart attack, suicide attempt, and post-traumatic stress disorder, for all of which Bank of America disclaim[ed] responsibility.”
Finding that state tort principles inform damage awards in bankruptcy, the court applied a “but for” analysis to the issue of damages: “If a consequence would not have occurred ‘but for’ the automatic stay violations, then courts make awards based on that consequence.” Actual damages including economic loss, emotional distress, attorney’s fees, and punitive damages are all recoverable under appropriate circumstances.
In detailed analysis of the evidence, the court concluded that actual damages, including $70,000.00 in fees to trial counsel, medical expenses, loss of employment income, HOA fees, and lost property, came to over $1 million.
Turning to punitive damages, the court balanced the desire to properly punish Bank of America beyond what it might consider “cost of doing business,” and a reluctance to award the Sundquists vastly more than would be reasonable. It concluded that it had the power to make a portion of the award payable to organizations devoted to the public purposes of education and consumer protection. To that end, the court ordered that a portion of the punitive damages be directed to seven entities: the National Consumer Bankruptcy Rights Center, the National Consumer Law Center and five University of California Law Schools.
The decision is likely to be appealed.