In re Biery

543 B.R. 267

In re Kenneth L. Biery, Sandra K. Biery, Debtors

CASE NO. 10–23338

United States Bankruptcy Court, E.D. Kentucky, Covington Division .

Signed December 11, 2015

Nicholas M. Nighswander, Florence, KY, Matthew T. Sanning, Augusta, KY, Robert R. Sparks, Strauss Troy, Cincinnati, OH, for Debtors.

MEMORANDUM OPINION AND ORDER GRANTING, IN PART, DEBTORS' MOTION FOR CLASS CERTIFICATION

Tracey N. Wise, Bankruptcy Judge

Debtors Kenneth and Sandra Biery ("Debtors") received a Chapter 7 discharge shortly after filing bankruptcy. That discharge extinguished their personal liability on their home mortgage, and enjoined Debtors' mortgagee, Beneficial Kentucky, Inc. ("Beneficial"), and mortgage servicer, HSBC Mortgage Services, Inc. ("HSBC" and collectively with Beneficial, "Respondents"), from collecting the debt as a personal liability. Debtors' bankruptcy did not, however, extinguish Beneficial's mortgage, or alter Beneficial's in rem right to foreclose in the event that Debtors defaulted on their discharged debt. More than a year after Debtors' discharge, Beneficial filed a foreclosure action.

Respondents, however, did not confine themselves to pursuing their in rem rights after Debtors' discharge. They also sent Debtors a series of statements both before and after the filing of the foreclosure action. Many of these statements contained disclaimers that acknowledged the discharge of Debtors' personal liability, but reminded Debtors of the continued existence of Beneficial's lien and advised Debtors of the amounts of voluntary payments required to avoid default ("Informational Statements"). Other statements, however, contained no such disclaimers and were identical to the billing statements Beneficial and HSBC send to customers who have not received discharges in bankruptcy ("Billing Statements").¹

Debtors believe that both types of statements violate their discharge injunction and have moved to hold Respondents in contempt. They further seek to represent two subclasses of discharged chapter 7 debtors in this District with similar contempt claims for discharge violations against Respondents: (1) debtors who received Billing Statements post-discharge, and (2) debtors who received Informational Statements post-discharge.

For the reasons set forth below, the Court concludes that class treatment is inappropriate for the claims of debtors who received Informational Statements, but is appropriate for the claims of debtors who received regular Billing Statements.

I. FACTS AND PROCEDURAL HISTORY

A. The Debtors' Bankruptcy.

In 2007, Debtors refinanced their home mortgage with Beneficial. The new mortgage was secured by a lien on Debtors' then home in Erlanger, Kentucky (the "Erlanger property"). In September 2010, Debtors moved out of that residence to an apartment in Walton, Kentucky, where they currently reside. Three months later, on December 22, 2010, Debtors filed a voluntary chapter 7 petition for bankruptcy.

Debtors' petition scheduled the mortgage debt to Beneficial and, as required by the Bankruptcy Code, stated Debtors' intention to surrender the Erlanger property securing that debt. See 11 U.S.C. § 521(a)(2)(A) (requiring that chapter 7 debtors state, with respect to estate property securing scheduled debts, whether they intend to retain or surrender the property and, if applicable, whether they intend to redeem the property or reaffirm the debt securing it). Respondents contend that instead of surrendering the property, Debtors initiated loan modification negotiations that were ultimately unsuccessful.

On May 3, 2011, Debtors received a discharge under 11 U.S.C. § 727. At discharge, they remained the title owners of the Erlanger property. The parties agree that the discharge extinguished Debtors' personal liability to Beneficial. Respondents received a copy of Debtors' discharge on May 11, 2011.

B. Respondents' Post–Discharge Communications with Debtors.

Four months after Debtors' discharge, in what Respondents describe as an inadvertent error, one of HSBC's account representatives changed the mail code (a single-digit code in HSBC's accounting software that controls what kind of mail a customer receives) in Debtors' account to "0." The number "0" is the code in HSBC's system for non-bankruptcy customers and triggers the automated production of monthly regular Billing Statements.

Accordingly, beginning in September 2011, Debtors began to receive Billing Statements identical to those received by Respondents' non-bankruptcy customers.² [See ECF Nos. 148–1 to –3.] These statements listed "payment due," "Balances Owed," "Past Due Amount[s]," and a "Payment Due Date." They advised that to "avoid late charges we must receive your payment by" a date certain. They contained a payment coupon with which to make payments and contained the following "Account Notice": "Your account is now seriously overdue. We expect you to pay the past due amount immediately." Debtors never sent payments in response to these statements, or to any other post-discharge statements they received from Respondents.

Respondents claim that Debtors initiated conversations with Respondents about deeding the Erlanger property to Respondents in lieu of foreclosure in October 2011. Debtors deny that they made a deed-in-lieu offer. The record shows that in May 2012, HSBC sent deed-in-lieu documents to the Debtors, Debtors' bankruptcy attorney subsequently requested a change in the language of the deed, and on May 21, 2012, HSBC sent a letter to the Debtors informing them that their deed-in-lieu "request" was denied for Debtors' failure to complete the necessary documents.

Meanwhile, in December 2011, HSBC changed Debtors' mail code, turning off Debtors' monthly Billing Statements and activating monthly Informational Statements. From December 2011 to May 2012, Debtors received statements in HSBC's "Informational Statement" form. [See ECF Nos. 148–4 to –9.] These statements, each one page in length, referred throughout to "Voluntary Payment [s] to keep Mortgage Current" and "Payment Date[s] (to keep mortgage current)." They did not reference "payments due" and "payment dates," as in the regular Billing Statements. They made no mention of potential late fees. Importantly, they contained a two-paragraph disclaimer, printed in a point size equal to that of the type in the rest of the document, and located in a large box on the right side of the page, immediately under the "Informational Statement" heading. The disclaimer reads as follows:

This informational statement is NOT an attempt to collect any debt from you, as you have obtained a discharge of personal liability in bankruptcy. You are not personally liable to make any payment on your mortgage loan, and any payment you may make is voluntary.

However, HSBC Mortgage Services retains a mortgage lien on the property located at 154 OVERLAND RDG APT 231.³ You have informed us that you intend to keep your mortgage current and you have asked that we send you this statement to show the remaining balance against the property, to provide a receipt of previous voluntary payments made and/or to indicate the next voluntary payment to keep the mortgage current.

Contrary to the form language in these statements, the parties stipulated that Debtors never asked to receive the Informational Statements.

After Debtors' alleged deed-in-lieu request was denied, an HSBC employee again re-coded Debtors' account to send regular Billing Statements which Debtors received from June through October 2012. [See ECF Nos. 148–10 to –14.] These statements were worded almost identically to the Billing Statements that Debtors received in 2011.

On October 18, 2012, HSBC discovered this coding error in a quality-control audit, and changed Debtors' mail code to activate Informational Statements. The following day, Beneficial filed a foreclosure action against the Debtors in Kenton County Circuit Court, seeking an in rem judgment and a sale of the Erlanger property. From October 24, 2012 to August 24, 2013, Respondents continued to send Debtors Informational Statements advising them of the payment amounts needed to keep their mortgage current. [See ECF Nos. 148–15 to –23.]⁴ These two-page Informational Statements contained a first page identical to the prior batch of one-page Informational Statements sent in 2011–12. The second pages of these statements, however, each contained the following "Important Reminder": "Your account is now seriously overdue. We expect you to pay the past due amount immediately." The statements also informed Debtors that they were "past due in making [their] monthly Hazard Insurance payments."

Debtors opposed Beneficial's foreclosure action.⁵ On September 9, 2013, eleven months after the foreclosure filing, an HSBC employee noted in Debtors' account that Debtors were involved in contested litigation with Respondents. Respondents claim this notation caused Debtors' mail code to change and reactivated regular Billing Statements. On September 26, 2013, the Kenton Circuit Court entered a judgment in favor of Beneficial in its foreclosure action. [See ECF No. 61–6.] This judgment, however, did not prompt HSBC to stop sending Billing Statements to the Debtors. Instead, Debtors received two more regular Billing Statements in September and October 2013. [See ECF Nos. 148–24, –25.] These statements were worded substantially the same as the post-discharge Billing Statements Debtors previously received. Finally, in November 2013, when Respondents received notice of Debtors' motion for contempt for discharge violations [ECF No. 40], an HSBC employee coded Debtors' account to stop the transmission of all statements.

C. Procedural History.

1. Debtors' Adversary Proceeding.

On February 13, 2013, some seventeen months after Debtors first received post-discharge Billing Statements from Respondents, Debtors moved to reopen their case to file an adversary proceeding against Respondents for their alleged violations of the discharge injunction. The Court...