In re Dean

In re: Paul F. Dean and Debra P. Dean, Debtors.

Case No. 6:10-bk-08725-CCJ

UNITED STATES BANKRUPTCY COURT MIDDLE DISTRICT OF FLORIDA ORLANDO DIVISION

Filed: March 17, 2017

March 16, 2017

Chapter 13

ORDER GRANTING IN PART DEBTORS' MOTION FOR CONTEMPT AND SANCTIONS AGAINST CLEARSPRING LOAN SERVICES, INC. FOR VIOLATING THE POST-DISCHARGE INJUNCTION

This case came before the Court for trial on the Debtors' Motion for Contempt and Sanctions Against ClearSpring Loan Services, Inc. for Violating the Post-Discharge Injunction (Doc. No. 87, the "Motion for Contempt"). The Court, having taken evidence and considered the record in this case, grants the Motion for Contempt in part, and awards the Debtors $500 in attorney's fees.

Background

The Debtors, Paul and Debra Dean (the "Debtors"), filed for relief under Chapter 13 of the Bankruptcy Code on May 20, 2010. At the Petition Date, the Debtors' property located in Cocoa, Florida (the "Property") was encumbered by a mortgage held by secured creditor Coastal Bank (the "Mortgage"). The Debtors made all payments due under the Chapter 13 Plan, including all payments on the Mortgage, and the Court entered an Order on August 13, 2015, Discharging Debtors after Completion of Plan (Doc. No. 79, the "Discharge Order"). Copies of the Discharge Order were furnished to all creditors and parties in interest, including the successor-in-interest to Coastal Bank--Florida Community Bank. On January 18, 2016, Florida Community Bank sent a letter to the Debtors indicating that a change in servicing had occurred, transferring their mortgage to ClearSpring Loan Services (the "Creditor").¹ Despite having received a copy of the Discharge Order, the Creditor sent the Debtors a Monthly Loan Statement² and a Default Letter.³

The Monthly Loan Statement notified the Debtors that they owed $26,759.25 in past due fees and charges on the Mortgage, including $9,707.29 in past due payments, $4,140.74 in outstanding late charges, and $8,866.88 in other fees. It is undisputed that the outstanding late charges and other fees identified in the Monthly Loan Statement included pre-petition fees and charges that were discharged by the Debtors' completed Chapter 13 case. The first page of the Monthly Loan Statement contained the following message:

"THIS COMMUNICATION IS FROM A DEBT COLLECTOR. THIS IS AN ATTEMPT TO COLLECT A DEBT AND ANY INFORMATION OBTAINED WILL BE USED FOR THAT PURPOSE."

Under this bolded language in small letters the Loan Statement further provided:

"If you are in active bankruptcy or received a discharge which included this debt, this communication is not intended to be and does not constitute an attempt to reaffirm or to collect a debt against you personally and is for informational purposes only."

A detachable coupon for the total amount due of $26,759.25 was included at the bottom of the first page of the Monthly Loan Statement. The second page of the Loan Statement also included a delinquency notice (bolded in part) stating:

Our records indicate that you became delinquent on 01/01/2016. As of 02/21/2016, you are 51 days delinquent on your mortgage loan. Failure to bring your loan current may result in fees, foreclosure, and possibly the loss of your home

. . .

Total Amount due: $26,759.25.

Note: You must pay this amount to bring your loan current.

The Default Letter informed the Debtors that their mortgage payment was past due post-petition and that their loan was in default, and provided information about available relief options.

Upon receipt of the Monthly Loan Statement and Default Letter, the Debtors sent a letter to the Creditor disputing the past due fees and charges.⁴ The Creditor responded to the Debtors' letter indicating that it would review the Debtors' correspondence and would provide a response.⁵ Subsequently, the Debtors filed a Motion to Reopen Chapter 13 Case (Doc. No. 84), and a Motion for Contempt and Sanctions against Creditor (Doc. No. 87, the "Motion for Contempt").

The Debtors testified at trial that the Creditor's actions caused them actual damages, including attorney's fees and costs, and emotional distress and/or punitive damages in the amount of $15,000. Ms. Dean testified that receiving the Monthly Statement and Default Letter affected her relationship with her husband and caused her anxiety and sleeping problems. Shefurther testified that she did not take any medication as a result or consult with a professional besides mentioning her discomfort during regular check-ups with her primary physician. Mr. Dean testified that the Creditor's actions impacted him also, but "he does not believe in doctors". Mr. Dean further testified that the Debtors' attorney charged $250 per hour, but he did not specify the amount of hours the attorney charged for his services in connection with the matter.

Discussion

Section 524 of the Bankruptcy Code embodies the "fresh start" concept by providing the debtor with a post-discharge injunction against collection of discharged debts.⁶ Under Section 524, a discharge "[o]perates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor . . . ."⁷ The Eleventh Circuit applies a two-prong test to determine whether the discharge injunction is violated.⁸ Under this test the defendant is in contempt if the defendant: (i) knew that the discharge injunction was invoked and (ii) intended the actions which violated the discharge injunction.⁹

Here, the Creditor concedes it had notice that the Debtors received a bankruptcy discharge in August 2015.¹⁰ Accordingly, the issue before the Court is whether either the Monthly Loan Statement or the Default Letter were attempts to collect a discharged debt.

In determining whether an action constitutes an attempt to collect a debt under the Fair Debt Collection Practice Act ("FDCPA"), the Eleventh Circuit Court applies "the least-sophisticated-debtor standard."¹¹ The Court sees no reason case law adjudicating violations ofthe FDCPA should not be applied equally in connection with examining a potential discharge violation. The Bankruptcy Court in Roth relied on such Eleventh Circuit case law in adjudicating a discharge injunction issue.¹² And indeed, the Creditor itself cites to the Eleventh Circuit's analyses under the FDCPA in its opposition to the Motion for Contempt.¹³

As the Eleventh Circuit has held, this "least sophisticated debtor standard" protects the vulnerable debtor while "preventing 'liability for bizarre or idiosyncratic interpretations of collection notices.'"¹⁴ When presented with an alleged collection letter, in this district, courts consider the language of the letter, "specifically . . . statements that demand payment [and] discuss additional fees if payment is not tendered . . . ."¹⁵ A demand for payment may be implicit rather than express "where the letter states the amount of the debt, describes how the debt may be paid, provides the phone number and address to send payment, and expressly states that the letter is for the purpose of collecting a debt."¹⁶ Courts note however that not all communications between a creditor and a debtor who received a discharge in bankruptcy is inappropriate under Section 524.¹⁷ For example, the purpose of a communication might only be to provide information and not to collect a debt.¹⁸

The Creditor contends that neither the Default Letter nor the Monthly Loan Statement meets the definition of a "debt collection attempt," and therefore, there was no violation of the discharge injunction. In support of its contention, the Creditor relies on the Bankruptcy Court's holding in Roth, arguing that as in Roth, the Monthly Statement is not a collection attemptbecause of a disclaimer it includes. In particular, the Creditor points to the language included in the Monthly Statement which states in small type: "If you are in active bankruptcy or received a discharge which included this debt, this communication is not intended to be and does not constitute an attempt to reaffirm or to collect a debt against you personally and is for informational purposes only."¹⁹

In Roth, (another Chapter 13 case), BAC Home Loans Servicing--the holder of a first mortgage on the debtor's property--filed a proof of claim, which was subsequently transferred to Nationstar. The debtor made all payments under the Chapter 13 Plan and was discharged. Despite the discharge, Nationstar began sending monthly statements to the debtor and, as a result, the debtor filed a motion for sanctions. Although the parties entered into a confidential settlement agreement resolving the first motion, Nationstar subsequently sent debtor a notice titled "Informational Statement," which reflected an amount due and a payment due date. The debtor then filed a second motion for sanctions against Nationstar.

In Roth, the Court found that the Informational Statement included conspicuous language that the statement was sent for informational purposes only and was not intended as a demand for payment.²⁰ The Court held that the Informational Statement's language was not limited to one sentence "buried in boilerplate language," but rather that the disclaimer was "prominently displayed in bold . . . and extensively describe[d] the purpose for the communication: that the Informational Statement . . . [did] not attempt to collect a debt."²¹ In that case, the Informational Statement also provided a phone number the debtor could call if she did not want to receive monthly informational statements in the future. Moreover, the payment coupon attached to the Informational Statement in Roth was labeled "Voluntary Payment Coupon" indicating that "anypayment made would be made voluntarily by [d]ebtor and was not required or demanded from Nationstar."²²

The Court finds that the Default Letter does not amount to a collection attempt for a discharged debt because it was dealing with ongoing mortgage payments...