Charity v. NC Fin. Solutions of Utah, LLC (In re Charity)

In re: James Douglas Charity, Jr., and Regina Parker Charity, Debtors.

James Douglas Charity, Jr., andRegina Parker Charity, Plaintiffs, v. NC Financial Solutions of Utah, LLC,d/b/a NETCREDIT, Defendant.

In re: Collin Edmonds and Bobbie Lane Edmonds, Debtors.

Collin Edmonds and Bobbie Lane Edmonds, Plaintiffs, v. NC Financial Solutions of Utah, LLC,d/b/a NETCREDIT, Defendant.

In re: Mekeanna Shindrell Lane, Debtor.

Mekeanna Shindrell Lane, Plaintiff, v. NC Financial Solutions of Utah, LLC,d/b/a NETCREDIT, Defendant.

Case No. 16-31974-KLP

A.P. No. 16-03121-KLP

Case No. 16-32554-KRH

A.P. No. 16-03122-KLP

Case No. 16-32672-KLP

A.P. No. 16-03150-KLP

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF VIRGINIA Richmond Division

Entered on Docket: August 15, 2017

August 14, 2017

Chapter 13

MEMORANDUM OPINION

These three adversary proceedings involve similar claims for damages resulting from willful violations of the automatic stay by NC Financial Solutions of Utah, LLC, d/b/a NetCredit ("NetCredit" or the "Defendant"). The individual plaintiffs (individually, the "Plaintiff" and jointly, the "Plaintiffs") are seeking actual damages pursuant to § 362(k)(1) of the Bankruptcy Code, 11 U.S.C. § 362(k)(1),¹ including compensatory damages, punitive damages, and attorneys' fees. The cases were tried consecutively on January 12, 2017. In all three cases, NetCredit admitted liability, and the issues at trial were limited to a determination of the appropriate amount of damages.

Prior to trial, a consent order was entered in each case granting a motion to bifurcate the claim for attorneys' fees from the other damage claims and providing that an award of attorneys' fees would be addressed pursuant to a subsequent motion process. At the conclusion of the trials, the Plaintiffs were instructed to submit their requests for attorneys' fees within twenty-one days, and the Defendant was allowed an additional fourteen days to respond. The Court also ordered NetCredit to submit financial information pertaining to its value within twenty-one days, allowing the Plaintiffs fourteen days thereafter to respond.

In each adversary proceeding, on February 2, 2017, the Plaintiffs filed a "Consolidated Application by Counsel for Plaintiffs for Award of Attorney Fees and Reimbursement of Expenses" (the "Application"), to which NetCredit objected. On that same date, NetCredit submitted the required financial information pertaining to its value and moved that the information be filed under seal. The Plaintiffs objected to the motion to file the documents under seal.

A hearing on the Application and NetCredit's request to seal its financial information was held on March 1, 2017. The Court denied NetCredit's motion to seal and took the Application under advisement. Following the March 1 hearing, counsel for each of the three law firms collectively representing the Plaintiffs filed Disclosures of Compensation pursuant to section 329(a) of the Bankruptcy Code, and Bankruptcy Rule 2016(b), Fed. R. Bankr. P. 2016(b),² in each case. On March 16, the Plaintiffs submitted supplemental, post-trial briefs on the "outstanding issues," and on March 30, NetCredit filed responsive briefs. The matters are ripe for adjudication on all issues.

Jurisdiction and Venue

The Court has subject matter over each of these adversary proceedings pursuant to 28 U.S.C. §§ 157(a) and 1334 and the General Order of Reference from the U.S. District Court for the Eastern District of Virginia dated August 15, 1984. These are core proceedings under 28 U.S.C. § 157(b)(2)(A) and (O) in which final orders and judgments may be entered by a bankruptcy judge subject to the right of appeal under 28 U.S.C. § 158. Venue is proper in this Court pursuant to 28 U.S.C. § 1408.

Findings of Fact

These cases involve similar facts and common issues of law. Nevertheless, each of the Plaintiffs is seeking discrete compensatory damages. In each case, the parties submitted joint stipulations of uncontroverted facts that were supplemented by additional evidence in the form of testimony and exhibits offered at trial.

Joint Stipulations Applicable to All Cases

The following identical stipulations were submitted in each case:

The parties stipulate that NetCredit violated the automatic stay in 11 U.S.C. § 362 by contacting the [Debtor/Debtors] more than once and by withdrawing money from the [Debtor's/Debtors'] bank account after NetCredit received notice of the Debtor's/Debtors'] bankruptcy. NetCredit had knowledge the automatic stay was in effect and failed to stop its collection communications and ACH withdraws which had the effect of violating the stay.

The parties further agree NetCredit reserves the right to argue that no damages should be assessed for certain communications with the [Debtor/Debtors] that NetCredit contends were not violations of the automatic stay. The parties agree the trial will be about damages to be awarded, including whether to assess punitive damages.

Common Facts

Before filing bankruptcy, Mekeanna Lane, Bobbie Edmonds, and Regina Charity (jointly, the "Borrowers") each obtained an unsecured loan (in principal amounts ranging from $2,100.00 to $4,020.00) from NetCredit and signed a document entitled Consumer Installment Loan Agreement (the "Agreement").³ The Agreement provided that the Borrowers would pay semimonthly installments of principal and interest to NetCredit. The Agreement also authorized NetCredit to receive payment by electronic funds transfer from a bank account through the ACH network (the "ACH Authorization").⁴ Payments were automatically withdrawn when due.

At the time of their bankruptcy filings, each Borrower had an active ACH Authorization in place. In each case, NetCredit, after receiving notice of the bankruptcy filing, continued to demand payment and continued to withdraw funds from the Borrowers' bank accounts.⁵

Mekeanna Lane (Adv. Pro. No. 16-03150-KLP)

Stipulated Evidence

The parties stipulated to the following:⁶

On April 21, 2016, Mekeanna Lane borrowed $2,100.00 from NetCredit and subsequently commenced paying NetCredit by allowing it to electronically withdraw semimonthly payments from her bank account. On May 27, 2016, Ms. Lane filed a Chapter 13 bankruptcy case. NetCredit received the Notice of Bankruptcy from the Bankruptcy Notice [sic] Center on June 1, 2016.

On June 10, 2016, and again on June 24, 2016, NetCredit withdrew $83.94 from Ms. Lane's bank account. On those same days, NetCredit sent emails to Ms. Lane thanking her for recent ACH payments. On June 30, 2016, NetCredit sent an email to Ms. Lane acknowledging the cancellation of her ACH authorization. The subject line on the June 30 email stated "Your Payment Authorization Has Been Revoked." The email included the following language:

Please understand that the cancellation of your electronic authorization does not relieve you of your obligation to repay your loan, and that all payments are still due on your scheduled installment dates. Call our Customer Support Team . . . to set up arrangements for your next payment via check, debit/credit card, Western Union or Money Gram.

Remember that we report payment activity to major credit bureaus, and making full and on-time payments toward your loan may help you build positive credit history. Conversely, late payments could hurt your credit score or damage your credit health.

On June 28, 2016, Ms. Lane filed her adversary proceeding. On June 30, NetCredit reversed the June 24 ACH debit and returned $83.94 to Ms. Lane. On July 6, 2016, NetCredit sent an email to Ms. Lane stating that it had initiated a refund to her bank account "for the debit that occurred after your bankruptcy filing." On July 22, 2016, NetCredit, through counsel, returned $83.94 to Ms. Lane for the June 10 ACH debit.

Evidence Presented at Trial

Ms. Lane filed bankruptcy because she was behind on her mortgage payments, credit cards and automobile payments and, despite working overtime, was unable to catch up. The income from her employment is the sole source of funds to support herself and her nine year old son. She filed under chapter 13 in order to consolidate her debts into a single, more manageable payment and ultimately obtain a discharge.

Sometime after filing her petition, Ms. Lane accessed her bank account electronically and learned that a payment had been withdrawn by NetCredit. This worried and confused her because she understood that the debits from her bank account would cease when she filed bankruptcy. In order to replace the funds and cover outstanding checks, she borrowed money from her mother.

A second postpetition debit by NetCredit required Ms. Lane to again borrow money from her mother. Although her mother has not asked for repayment, borrowing from her mother embarrassed Ms. Lane and made her feel like a burden, as she knew that her mother had limited resources. She worried that something might be wrong with her bankruptcy case. She was upset and angry.

Ms. Lane testified that she had to sign up for overtime to increase her income, requiring her to work extra hours. Because of this, she spent less time with her son. Ms. Lane makes $28.92 per hour. She missed seven hours of work in order to appear at the trial.

NetCredit's sole live witness was Joseph Banks, the Bankruptcy Manager for an entity known as Enova International, Inc. ("Enova"). NetCredit is an online lender that is wholly owned by Enova. Enova also owns at least three other subsidiaries,⁷ including an entity known as CashNetUSA, a United Kingdom entity (the "UK entity"), and a "business unit" known as Headway. Measuring by volume of loans to customers, NetCredit is smaller than CashNetUSA and the UK entity, although Mr. Banks testified that "its volume kind of exploded in the last couple of years." As the bankruptcy manager for Enova, Mr. Banks is responsible for delegating and overseeing tasks, making personnel decisions, managing his team to ensure that each are properly performing his or her duties, conducting quality...