In re Juliao

In re: ROBERT JULIAO, Debtors.

Case No.: 07-48694-wsd

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION

Dated: November 29, 2011

Hon. Walter Shapero

OPINION REGARDING (1) THE DEBTOR'S MOTION FOR VIOLATION OF THE

CO-DEBTOR STAY AND (2) SECOND APPLICATION FOR APPROVAL OF POST-

CONFIRMATION ATTORNEY FEES

Before the Court are the Debtor Robert Juliao's and Mrs. Tracey R. Juliao's Motion Against Wells Fargo Bank, N.A. and America's Servicing Company For Violation of the Codebtor Stay and the Debtor's Chapter 13 counsel's Second Application for Approval of Post-Confirmation Attorney Fees. The Court held an evidentiary hearing on co-debtor stay motion and held a hearing on the fee application. The Court took the matters under advisement following the hearings, and the following is the Court's opinion.

I. BACKGROUND

Robert Juliao ("Debtor") filed his Chapter 13 bankruptcy petition on May 2, 2007. Debtor's wife, Tracy R. Juliao ("Tracy"), did not join Debtor's petition nor has she filed her own petition. On Schedule A, Debtor listed a debt to America's Servicing Company ("ASC"), the servicer for Wells Fargo Bank, N.A. ("Wells Fargo"), in the amount of $203,539.34, secured by a mortgage on Debtor's real property located at 29432 Granmercy Court, Farmington Hills, Michigan. Debtor also scheduled ASC as holding a second mortgage in the amount of $50,733.72. On Schedule H, Debtorlisted his wife Tracy as a co-debtor on the debts owed to ASC. The Court confirmed Debtor's first amended plan on August 30, 3007.

Debtor filed a Motion Against Wells Fargo Bank, N.A. and America's Servicing Company For Violation of the Codebtor Stay" (Docket No. 68) ("Co-Debtor Motion"). Wells Fargo and AMS filed their Response Opposing Debtor's Motion (Docket No. 74). The Court heard initial arguments on the Co-Debtor Motion and then set the matter for an evidentiary hearing, following which the Court took the matter under advisement.

On January 29, 2010, Debtor's counsel filed a Second Application for Approval of Payment of Post-Confirmation Attorney Fees (Docket No. 122) ("the Application") for services rendered from March 8, 2008 until January 20, 2010. Prior to the Application being filed, Debtor filed an objection (Docket No. 117), and the Court held a hearing on the Application after which the Court took the matter under advisement.

The Court makes the following factual findings:

1. As of the petition date, the Debtor and Tracy were delinquent in the amount of one-half payment on the first mortgage and therefore the Debtor was required to make payments to Wells Fargo through his Plan (December 2, 2009, Transcript, p. 32:4-5; 39:22-25) ("Dec. Trans."); Tracy testified the arrearage was cured post-petition (id., p. 32:8-9);

2. Wells Fargo's initial proof of claim filed on May 24, 2007 claimed a total arrearage of $1,823.88 which included one payment due May 1, 2007 in the amount of $1,212.76 plus other charges and fees (Proof of Claim 7-1; Co-Debtor's Exhibit 2); Wells Fargo filed an amended Proof of Claim on August 22, 2007, claiming only a total arrearage of $612.12 for other charges and fees only (Proof of Claim 7-2; Co-Debtor's Exhibit 3);3. Post-confirmation, Debtor missed three plan payments in November and December of 2007 due to an illness that resulted in his inability to work (Dec. Trans., p. 72:15; 73:1-3; 79:6, 17-18); Tracy then began making the plan payments on behalf of Debtor (id., p. 39:3-8) and cured the delinquency with the Chapter 13 Trustee's office with a lump sum payment in February of 2009 (id., 7-19);

4. Wells Fargo and Debtor filed a stipulation resulting in an Order Modifying Plan and Extending Time to Cure that required the Debtor to timely remit all plan payments to the Chapter 13 Trustee between January and November of 2008 and set forth provisions for allow Debtor three opportunities to cure a future default otherwise Wells Fargo would be permitted to submit an order vacating the stay as to the residence (Docket No. 50);

5. Tracy testified that some plan payments were remitted untimely to the Chapter 13 Trustee and therefore disbursement by the Trustee to Wells Fargo was also untimely (Dec. Trans., p. 40-41); Tracy further testified that she agreed that Wells Fargo accurately furnished information to the credit reporting agencies (the "CRAs") regarding past due amounts as of petition date and when plan payments were missed (id., p. 44:4-25);

6. As of August 24, 2009, two of Tracy's credit reports listed $3,879 as past due to Wells Fargo (Transunion, Co-Debtor's Exhibit 6; Equifax, Co-Debtor's Exhibit 8); Tracy testified that previously requested credit reports "consistently" showed late payments on the first mortgage held by Wells Fargo (Dec. Trans., p. 89-90);

7. ASC's November 12, 2009, mortgage statement, addressed to Debtor and Tracy stated it was "For Informational Purposes" and listed overdue payments in the amount of $3,799.40,plus other late charges (Co-debtor's Exhibit 7); Tracy testified prior statements similarly stated essentially the same amount past due (Dec. Trans., p. 85:4-11)

8. Tracy holds several masters degrees and, at the time of the evidentiary hearing, was a psychologist employed by a hospital and as a faculty member at the University of Phoenix as well as at the University of Michigan's Dearborn and Flint campuses (id., p. 9-10); Tracy worked a combined 80 hours a week at these positions for a total yearly compensation of approximately $120,000 (id., p. 10:10, 23);

9. Tracy applied for full-time psychology positions paying between $100,000 - $1500,000 yearly and requiring only 40 hours a week (id., p. 10-11); Tracy testified she did not receive an offer because she could not receive the necessary security clearances "as a result of my credit report" (id., p. 11: 9-13; 31); Tracy also sought to obtain business loans and to lease commercial space to open her own psychology practice but was advised not to apply for the loans and was verbally rejected for leases due to her credit history (id. pp. 12-14; 22-24; 48);

10. Ms. Midge Baker, Vice President of Default Reporting for Wells Fargo, oversees the "credit reporting/credit dispute" unit, which handles the furnishing of credit information and credit disputes by customers (August 25, 2009, Transcript, p. 25) ("Aug. Trans."); Ms. Baker testified Wells Fargo adheres to the Credit Reporting Resource Guide, produced by the CRAs through the Consumer Date Information Association, which explains how creditors are to furnish information to the CRAs (id., p. 26); Ms. Baker also testified Wells Fargo's practices and procedures are consistent with those in the mortgage industry (id., p. 45); Ms. Baker is responsible for ensuring that a non-filing co-obligor's credit report does not reflect a bankruptcy petition being filed (id., pp. 27; 40);11. Wells Fargo furnishes information to the CRAs in the "Metro 2 reporting format," which transmits to the CRA's data such as the obligors' social security number, monthly principal and interest payment, the contractual due date, and whether either the obligor or co-obligor filed a bankruptcy petition (id., p. 27);

12. Wells Fargo's furnishing of information to the CRAs is an automated process that simply shows whether a contractually due payment was missed (id., 33-34); The Metro 2 format does not differentiate between funds remitted directly by the obligor/co-obligor versus the Chapter 13 Trustee (id., 34); Wells Fargo furnishes information to the CRA's the same calendar day each month but Wells Fargo's computer system does not retain copies of the electronically transmitted credit files thereafter due to security concerns (id., pp. 35-36; 46)

13. Ms. Baker testified that Wells Fargo is required by the Fair Credit Reporting Act, 15 U.S.C. § 1681 et. seq.("FCRA"), to report accurately and completely as to all customers and agreed that Wells Fargo would be in violation of the FCRA if it failed to report that a nonfiling co-debtor was delinquent or in default (id., pp. 40-41);

14. The "source of the information" furnished to the CRAs is Wells Fargo's records system, not the Chapter 13 Trustee's records (id., p. 51); The Metro 2 format does not allow information showing that a court order granted a debtor or co-debtor an extension of time to cure arrearages (id., p. 54).

II. DISCUSSION

The primary motion before the Court is the Debtor's motion alleging a violation of the automatic stay, 11 U.S.C. § 362(a)(6), and the co-debtor stay, 11 U.S.C. § 1301. The Co-Debtor Motion seeks a finding that Wells Fargo (and ASC) violated the stay "as to the co[-]debtor" andrequests damages in the amount of $20,000, plus fees and costs, pursuant to § 362(k). (Debtor's Motion, p. 3). The Application seeks approval of compensation for Debtor's counsel's post-confirmation services rendered between March 8, 2008 and August 31, 2011. Because a decision on the Application necessarily depends on the outcome of the Co-Debtor Motion, the Court addresses latter before considering the former.

A. Primary Motion

As a preliminary matter, at the initial hearing Wells Fargo argued for the first time that the Debtor, as the movant, did not have standing to bring the motion on behalf of Tracy, the co-debtor. Wells Fargo asserted that Tracy, as the co-debtor, must bring the motion. When asked by the Court at that hearing about standing, Debtor's counsel stated, without contradiction, that she also represented Tracy in the matter. On this basis, the Court finds that Tracy joined the motion sufficiently, notwithstanding its title asserting the Debtor as the only movant and the motionm should be considered as one brought by both the Debtor and his wife. Moreover, Wells Fargo did not cite any statute or other authority precluding a debtor from seeking damages for an alleged violation of the co-debtor stay. In contrast, research reveals that Courts have generally allowed a debtor to file a motion alleging a violation of § 1301 without precluding...