Type: Amicus
Date: November 23, 2022
Description: Whether bankruptcy court has authority to adjudicate a national class action claim for a violation of the discharge injunction. Debtor is the appellee.
Result: Pending.
Class Certification in FDCPA Case where Servicer Raised Preclusion Defense
The district court abused its discretion when it denied certification of a class of plaintiffs alleging FDCPA violations based on the mortgage servicer’s post-discharge collection efforts where the servicer’s defense that the Bankruptcy Code’s discharge injunction precluded the claim applied to all claims of the purported class members. Sellers v. Rushmore Loan Management Services, No. 15-1106 (11th Cir. Oct 29, 2019).
After the Sellerses moved out of their home and obtained a chapter 7 discharge, the mortgage servicer, Rushmore, continued to send them monthly statements listing an ever-increasing amount due on their mortgage. The Sellerses filed suit in the district court alleging that Rushmore’s continued collection efforts violated the FDCPA and the Florida Consumer Collection Practices Act (FCCPA) by falsely representing its right to collect the discharged debt. In addition, the Sellerses sought to certify a class of consumers subject to the same conduct. In its answer to the complaint, Rushmore argued against class certification and raised the affirmative defense that the claims were preempted/precluded by the Bankruptcy Code’s discharge injunction provision.
The district court declined to certify the class, finding that the issue of whether the Code preempted/precluded the purported class’s claims was a matter of individualized consideration. Its decision rested on the finding that the preclusive effect of the Bankruptcy Code was a function of the applicability of section 524(j), which permits a debt collector to collect payments in lieu of foreclosure from a debtor whose personal liability was discharged in bankruptcy but who continues to live on the property. The district court found that the issue of preclusion would affect only debtors to whom section 524(j) applied. [Read more…] about Class Certification in FDCPA Case where Servicer Raised Preclusion Defense
Nationstar Cannot Wriggle Out of Discharge Injunction Violation
Nationstar waived its right to argue that the court could not address the merits of the debtor’s discharge injunction case before ruling on class certification, and several of Nationstar’s post-discharge communications violated the injunction. Forson v. Nationstar Mortgage, LLC., No. 08-61001, Adv. Proc. No. 15-2137 (Bankr. S.D. Ohio March 21, 2018).
Terry Lee Forson reopened his Chapter 13 bankruptcy and filed an adversary complaint against Nationstar Mortgage LLC, alleging violation of the discharge injunction, Section 524(a)(2), based on Nationstar’s continued collection activities post-discharge. Contending that Nationstar’s conduct was part of an ongoing business practice, Mr. Forson sought class certification. He filed a motion for summary judgment to which Nationstar objected, arguing that, under the one-way rule, the court could not address the merits of the case until it had made a finding with respect to class certification. [Read more…] about Nationstar Cannot Wriggle Out of Discharge Injunction Violation
Debtor/Plaintiffs Overcome Hurdle to Class Certification
Denying the creditor’s motion to dismiss, the bankruptcy court in the Southern District of Texas found that it could exercise jurisdiction over a nationwide class and that the claims, based on abuse of process, satisfied the “core proceeding” requirements of subject matter jurisdiction. Jones v. Atlas Acquisitions, LLC, No. 15-34818, Adv. Proc. No. 16-3235 (Bankr. S.D. Tex. May 19, 2017).
Atlas Acquisitions filed a proof of claim in Katrina Jones’s chapter 13 bankruptcy. It later withdrew the claim. Ms. Jones then filed an adversary complaint on behalf of herself and others similarly situated, alleging “abuse of the bankruptcy system by [Atlas’s] willful and intentional disregard for the requirements for filing legitimate claims in many Chapter 13 cases throughout the country.” Specifically, the complaint alleged that, in accordance with its business model, Atlas routinely filed deficient proofs of claim only to withdraw them when challenged. The First Amended Complaint added Natasha Hill, a chapter 13 debtor in the Bankruptcy Court for the Western District of Louisiana (case no. 15-3166) as a named plaintiff and sought certification as a class action.
Atlas moved to dismiss the class action claims arguing: 1) that a bankruptcy court lacks subject matter jurisdiction under 28 U.S.C. 1334 to certify a nationwide class; 2) that the plaintiffs are not adequate class representatives, and, 3) that the class cannot be certified as a matter of law under the requirements of Rule 23(b)(3).
The court began with section 1334, which confers jurisdiction on the district courts over cases arising under Title 11, and section 157(a) and Texas District Court General Order 2012-6 which provide for referral of such cases to bankruptcy judges.
Relying on Bolin v. Sears, Roebuck & Co., 231, F.3d 970 (5th Cir. 2000), the court rejected Atlas’s initial argument that, while a bankruptcy court may exercise class-wide jurisdiction within its district, it cannot exercise jurisdiction over a nationwide class. In Bolin, the Fifth Circuit, upon finding that the Rule 23(b)(2) requirements for nationwide class certification were not established, did not question the district court’s subject matter jurisdiction over the proposed class and, in fact, remanded to the district court for further proceedings. Where the bankruptcy court’s jurisdiction is coextensive with the district court and where the district court has jurisdiction over a nationwide class of plaintiffs, the bankruptcy court does as well.
The court turned to the strictures on bankruptcy court jurisdiction under which the case must be a “core” proceeding either “arising under,” “arising in,” or “related to” a case under Title 11.
Atlas argued that the abuse of process claims here arose not out of a bankruptcy proceeding but under the court’s inherent authority under section 105(a) and Bankruptcy Rule 3001, and that the plaintiffs’ claims for injunctive and declaratory relief are found in Title 28 rather than Title 11.
The court found that the claims both arose under, and arose in, a case under Title 11. To “arise under” Title 11, the action must involve a substantive right created by the Code or by the Bankruptcy Rules. While section 105(a) does not create substantive rights, it empowers a court to enforce rights created elsewhere in the Code or Rules. Atlas argued that neither Rule 3001 nor injunctive and declaratory relief offered under Title 28, constitute substantive rights under Title 11. The court disagreed, finding that, while many of the Bankruptcy Rules do not create substantive rights, Rule 3001 is not one of them. Rather, Rule 3001(c)(2)(D)(iii) provides that a plaintiff may obtain “appropriate relief,” expenses and attorney’s fees upon a finding that the defendant has failed to attach supporting documentation to a proof of claim. This provision for relief, the court found, is a substantive right under the Bankruptcy Rules. Therefore, the action “arose under” Title 11.
The court also found that it had “arising in” jurisdiction because, on their face, the claims were based on improper filing of a proof of claim under sections 501 and 502 and would “have no existence outside of the bankruptcy.”
Having established its jurisdiction, the court turned to the pleading requirements of Rule 23(a)(4) and (b)(3) to determine whether the complaint stated a claim for relief under Rule 12(b)(6). Atlas argued that Ms. Jones could not be a class representative because she had an inherent conflict of interest between the other class members and her creditors in her personal bankruptcy. In support of this and other propositions, Atlas asked the court to take judicial notice of certain statements included in the record.
The court declined to do so, stating that, where Atlas failed to satisfy the two-pronged test for judicial notice required by Fed. R. Evid. 201(a), it would be premature to make factual findings on Atlas’s arguments without an evidentiary hearing on class certification.
Finally, the court rejected Atlas’s argument that individual issues predominate in this case and that it was therefore inappropriate to certify a class under Rule 23(b)(3). Again, the court found the face of the complaint stated a claim and that the issue of class certification was appropriately dealt with in an evidentiary hearing.
Fifth Circuit Affirms Class Certification Challenging Fee Collection Practices
The Fifth Circuit found that the bankruptcy court did not abuse its discretion when it certified a class of plaintiffs, under Rule 23(b)(2), who challenged certain fee-charging and collection practices of Countrywide Home Loans. Rodriguez v. Countrywide Home Loans, No. 11-40056 (5th Cir. Sept. 14, 2012). [Read more…] about Fifth Circuit Affirms Class Certification Challenging Fee Collection Practices
Expert Testimony by NCLC Results in Debtor Victory Against Mortgage Servicer
In a victory for consumer debtors, the Bankruptcy Court for the Eastern District of Kentucky disallowed Ocwen’s proof of claim for late fees and charges, and awarded judgment, including punitive damages for $25,000.00, in favor of the debtor due to Ocwen’s “gross recklessness” in accounting and servicing her mortgage. In re Tolliver, No. 09-21742, Adv. Proc. No. 09-2076 (Bankr. E.D. Ky. July 19, 2012).
In reaching its decision, the court held Ocwen’s feet to the fire, demanding an adequate explanation of Ocwen’s convoluted and contradictory accounting records. After finding Ocwen’s explanations just as slippery and unreliable as the records themselves, the court turned to the expert testimony of Margot Saunders from the National Consumer Rights Center. She sifted through the dust heap and offered the only reliable evidence as to the history of the loan, revealing a litany of mismanagement, including collecting “unsubstantiated interest arrearage balance,” and “systematically assessing late charges, fees and costs in complete disregard of the terms of the [loan documents.]” Ocwen’s attempt to justify the charges with evidence of forbearance agreements was roundly rejected. The court found the debtor had been “bullied” into signing those agreements by repeated false representations that the debtor was in default and that foreclosure was imminent, even though she had completely paid off the underlying loan. Ocwen’s outrageous conduct was found to violate state common law, including breach of contract, breach of implied covenant of good faith, and fraud.
Fourth Circuit Opens Door to Class Proofs of Claim
The Fourth Circuit recently found that class proofs of claim are permissible subject to certification under Bankruptcy Rule 7023 (incorporating Civil Rule 23) and Rule 9014. Gentry v. Seigel, No. 10-2418 (4th Cir. Feb. 2, 2012). NACBA and NACA filed an amicus brief seeking reversal of the bankruptcy court’s decision that the bankruptcy process is always superior to class actions. The Fourth Circuit agreed. It held that certification of a creditor class is a fact-specific issue to be determined on a case-by-case basis. The court further held that a motion for class certification need not be filed before the expiration of the claims bar date. While the court ultimately affirmed the denial of class certification, it made clear that its decision was based on the specific facts of the case rather than on a bright-line rule disfavoring class proofs of claim.
Gentry 4th Cir opinion
In re Wilborn, No. 09-20415 (5th Cir.)
Type: Amicus
Date: December 7, 2009
Description: Whether bankruptcy court could certify class to challenge Well Fargo’s charging of undisclosed professional fees during court of chapter 13 plan.
Result: Vacated.
Gentry v. Circuit City, Inc., No. 10-2418 (4th Cir.)
Type: Amicus
Date: August 2, 2011
Description: Whether bankruptcy court erred in denying class certification to employee creditors of Circuit City.
Result: Judgment affirmed, February 2, 2012.
NACBA Files Amicus in Fourth Circuit on Issue of Class Certification
NACBA and the National Association of Consumer Advocates has requested leave to file an amicus brief in the case of Gentry v. Circuit City, Inc. No. 10-2418 (4th Cir.) to address the issue of the proper standards to be applied by the bankruptcy court in determining whether to certify a class in bankruptcy. The class consisted of employee creditors of Circuit City. The amici argue that the lower courts erred in finding that the bankruptcy court had discretion, without conducting a factual inquiry under Rule 23, to find that the individual bankruptcy process was superior to class actions. The brief further argues that the bankruptcy court erred in finding that the class claim must be filed prior to the “claims bar date” rather than at “an early practicable time” as required by Rule 23.