UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
In the matter of:
EDWIN RAMOS AND MICHELLE Case No. 10-23019-rdd
AVA STOUBER-RAMOS, Chapter 7
Debtors.
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MODIFIED BENCH RULING ON
MOTION FOR CONTEMPT AGAINST BANK OF AMERICA, NA
APPEARANCES:
For the Debtor: MICHAEL H. SCHWARTZ, ESQ.
Michael H. Schwartz & Associates, PC
One Water Street
White Plains, NY 10601
Hon. Robert D. Drain
I have before me a motion by the debtors, Mr. and Mrs.
Ramos, for an order holding their mortgage lender, Bank of
America, in contempt for violation of their discharge, under
sections 524 and 727 of the Bankruptcy Code. This case was
reopened under section 349 of the Bankruptcy Code for the sole
purpose of permitting the debtors to bring this motion. The
motion to reopen was on notice to Bank of America; the present
motion also was served on Bank of America, including on its
general counsel.
Both motions asserted a course of conduct pursuant to
which Bank of America, with knowledge of the debtors’
bankruptcy and discharge (it was a scheduled creditor),
continued to send the debtors monthly statements in which it
sought to collect its debt from them. Those efforts, as will
be discussed in a moment, were not confined to informing the
debtors what they needed to pay or otherwise do in order to
retain their house, on which Bank of America asserts a lien;
they also clearly involved collection on the debt personally
from the debtors. In addition, the motions referred to
numerous phone calls from agents of Bank of America who sought
to collect on the debt personally from the debtors.
Bank of America has not objected to the motion and
has not appeared at today’s hearing to controvert the motion’s
allegations or otherwise explain its conduct.
Although Bank of America was served with both
motions, and the debtors’ counsel has represented that he has
diligently attempted to contact Bank of America to have it
cease sending such statements and making such phone calls, I
have been provided with a recent statement showing that the
billing activity has continued since the service of the
motion.
The law is clear that the Court has the power to
enforce the discharge which is set forth in this case in an
order that is attached to this motion, and that a violation of
the discharge under section 524(a)(2) of the Bankruptcy Code
is punishable by contempt. See In re Nassoko, 405 B.R. 515,
520 (Bankr. S.D.N.Y. 2009), and the cases cited therein. The
Nassoko case also makes it clear that the enforcement of the
discharge order may be made by means of a contempt motion as
opposed to an adversary proceeding that would be governed by
the Part VII rules of the Bankruptcy Code, id. at 526, citing
among other cases In re Texaco Inc. 182 B.R. 937, 945-46
(Bankr. SDNY 1995). So, procedurally, this motion is proper.
For a finding of contempt, the burden rests with the
movant to show by clear and convincing evidence that the
offending entity has knowledge, actual or constructive, of the
discharge and willfully violated it by continuing with the
activity complained of. Id. at 520 quoting In re Torres, 367
B.R. 478, 490 (Bankr. S.D.N.Y. 2007). And Nassoko also stands
for the proposition that compensatory damages, in addition to,
of course, sanctions, may be awarded as a sanction for civil
contempt if a party willfully violates the section 524(a)(2)
injunction.
Attorney’s fees may also be awarded if, in addition
to willfully disobeying the Court’s order, the party acts in
bad faith, vexatiously, wantonly or for oppressive reasons.
Id., citing In re Dabrowski, 257 B.R. 394, 416 (Bankr.
S.D.N.Y. 2001).
Here, in this context for this type of relief,
willfulness consists of knowingly going forward with
collection activity in respect of an in personam debt knowing
or having reason to know that the debtor was in bankruptcy and
has received a discharge. That’s certainly alleged here, and
it’s consistent with the facts, which show that Bank of
America was provided with notice of both the bankruptcy and
the discharge as well as the fact that the collection activity
continued after this case was reopened for the specific
purpose of enforcing the discharge and after this motion was
filed.
The lender here, which asserts a mortgage on the
debtors’ house, has the ability to enforce that mortgage and
may inform a debtor of that right and may give a debtor
information to establish how the debtor can avoid the
enforcement of the mortgage, i.e. paying the debt or
negotiating a settlement or modification of the debt. That is
because a discharge is of in personam debt and does not affect
a creditor’s lien rights. However, and the law is clear on
this, unless the lender’s communications with the debtor
clearly and conspicuously make that distinction – that is, if
the communications to the debtor instead simply say, “You need
to pay this debt”, the lender will be in contempt of the
discharge injunction. See, for example, In re Stuart, 2010
Bankr. Lexis 2041 at *3 (Bankr. N.D. Cal., June 21, 2010); In
re Harlan, 402 B.R. 703, 714-16 (Bankr. W.D. Va., 2009); In re
Anderson, 348 B.R. 652, 661 (Bankr. D. Del. 2006); In re
Curtis, 322 B.R. 470, 484-85 (Bankr. D. Mass 2005).
This distinction should be particularly clear to
Bank of America, since the District Court for the Western
District of Virginia has twice ruled that where Bank of
America did clearly make notice in its billing to a debtor
that the bill was solely for information purposes in respect
of the enforcement of the lien, as opposed to for any other
purpose, and it made it clear that the debt itself was
discharged, it would not be in contempt of a discharge order,
but otherwise would have been. See Pearson v. Bank of
America, 2012 U.S. Dist. LEXIS 94850 at *14-16 (W.D. Va. July
10, 2012) and Anderson v. Bank of America, 2012 U.S. Dist.
LEXIS 95309 at *8-10 (W.D. Va. July 11, 2012).
I have reviewed the statements sent by Bank of
America to the debtors that are attached as exhibits to the
contempt motion before me, going through June 1, 2013. Each
of them fails to make the distinction that Bank of America
obviously knows how to make because they made it in the
Pearson and Anderson cases that I just cited. They say
nothing about the debtors’ discharge. They say nothing about
the fact that the bill is being sent for information purposes
and only in respect of the bank’s lien interest on the house.
And, in addition, they state, among other things, “Bank of
America N.A. will proceed with collection action until your
account is brought fully current.” They do that on each bill.
And it says, “You are responsible for paying the bill.”
Obviously, that language seeks to enforce a debt not simply in
respect of the house upon which Bank of America has or asserts
a mortgage but, instead, against the debtors directly and,
therefore, it is in contempt of the discharge order – clearly.
I would also note that to the extent that the
debtors through their counsel have represented to me at
today’s hearing that the loan has been sold to someone else,
that very sale could be also in violation of the discharge
order. See In re Nassoko, 405 B.R. 520-22.
Clearly the attorney’s fees here are warranted as
actual damages.
In addition, particularly given that Bank of America
knows how to do this properly, as evidenced by the two Western
District of Virginia cases that I’ve cited, coercive sanctions
are warranted, and they’re especially warranted given the fact
that Bank of America apparently has ignored this matter
notwithstanding being served twice and having been given an
opportunity to correct the problem, which it has not done.
Instead, it has continued to send the bills. So it will be
sanctioned $10,000.00 a month until it corrects this matter
payable to the debtors through their attorney. My reasoning
behind that sanction is that this is not just a stupid
mistake. This is a policy. And frankly, $10,000.00 a month
plus attorney’s fees may not mean much to Bank of America, but
at least it will send a message that other attorneys may pick
up on.
Dated: White Plains, New York
October 1, 2013
/s/Robert D. Drain
UNITED STATES BANKRUPTCY JUDGE
