In re McIntosh

657 B.R. 279

IN RE: Michael MCINTOSH and Amanda McIntosh, Debtors.

Case No. 02-25039-SMG

United States Bankruptcy Court, S.D. Florida, Fort Lauderdale Division

Signed January 12, 2024

Robert A. Gusrae, Boca Raton, FL, for Debtors.

MEMORANDUM OPINION AND ORDER SANCTIONING FLORIDA CREDIT RESEARCH, INC. FOR VIOLATING THE DISCHARGE INJUNCTION

Scott M. Grossman, Judge

When Amanda McIntosh - a single mother and registered nurse - checked her bank balance while at work one day, she "freaked out." The bank app on her phone showed a negative balance, even though she had over $21,000 on deposit. Ms. McIntosh was shocked and thought she had been the victim of identity theft. But she was not the victim of identity theft. No, she was the victim of an overzealous creditor - Florida Credit Research, Inc. - that unlawfully garnished her bank accounts to collect a discharged debt.

Ms. McIntosh is now before this Court - the Court that issued her bankruptcy discharge over twenty years ago - seeking to hold Florida Credit Research in contempt of court and requesting actual and punitive sanctions for violating the discharge injunction. Florida Credit Research has since released its writ of garnishment, ceased its collection efforts, and acknowledged the debt it sought to collect had in fact been discharged. But it argues it should not be held in contempt because, under the Supreme Court's 2019 decision in Taggart v. Lorenzen,¹ there was a "fair ground of doubt"² as to whether collection of this debt violated the discharge injunction. Under this standard, civil contempt may be appropriate only "when the creditor violates a discharge order based on an objectively unreasonable understanding of the discharge order or the statutes that govern its scope."³

After separate trials first on entitlement to sanctions and then on the amount of sanctions, the Court concludes that Florida Credit Research's actions were based on an objectively unreasonable understanding of Ms. McIntosh's bankruptcy discharge, and that there was no fair ground of doubt that collection of this twenty-year-old, discharged debt violated the discharge injunction. Florida Credit Research is therefore in contempt of court and will be sanctioned in the amount of $64,686.93, consisting of $33,124.62 in actual compensatory sanctions for legal fees and costs incurred, $10,000.00 for emotional distress, and $21,562.31 in punitive sanctions.

I. Jurisdiction, Authority, Venue, and Procedure.

Under Bankruptcy Code section 524(a)(2), a bankruptcy discharge "operates as an injunction against the commencement or continuation of an action"⁴ to collect a discharged debt.⁵ "Congress intended the discharge injunction 'to eliminate any doubt concerning the effect of the discharge as a total prohibition of debt collection efforts' and to ensure that 'once a debt is discharged, the debtor will not be pressured in any way to repay it.' "⁶ "The cessation of pressure to pay in and of itself is a prime purpose of the discharge, a tradeoff for debtors having subjected themselves to the rigors of the bankruptcy process."⁷

Bankruptcy courts enforce this injunction through their statutory contempt powers granted under Bankruptcy Code section 105(a), which provides that "the bankruptcy court 'may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of [the Bankruptcy Code].' "⁸ "Together, sections 524(a)(2) and 105(a) authorize a court to impose civil contempt sanctions for attempting to collect a discharged debt when there is no objectively reasonable basis for concluding that the creditor's conduct might be lawful under the discharge order."⁹ In this way, "a court may hold a creditor in civil contempt for violating a discharge order if there is no fair ground of doubt as to whether the order barred the creditor's conduct."¹⁰

The Court has subject matter jurisdiction under 28 U.S.C. § 1334(b),¹¹ because Ms. McIntosh's claim for relief arises under Bankruptcy Code sections 727 (discharge), 524 (effect of discharge), and 105 (power of court).¹² This matter is a core proceeding,¹³ which the Court has authority to hear and determine under 28 U.S.C. § 157(b) and the general order of reference from the United States District Court for the Southern District of Florida.¹⁴ "[I]t is 'well established that the discharge is the foundation upon which all other portions of the Bankruptcy Code are built.' "¹⁵ As the Court that issued Ms. McIntosh's discharge order, this Court " 'alone possesses the power to enforce compliance with and punish contempt of that order,' and this 'power to sanction contempt is jurisdictional.' "¹⁶

Venue is proper in this District under 28 U.S.C. § 1409(a). And under Federal Rule of Bankruptcy Procedure 9020, a motion for contempt is a contested matter governed by Federal Rule of Bankruptcy Procedure 9014.¹⁷

II. Background.

This matter is before the Court on Ms. McIntosh's motion for sanctions against Florida Credit Research for violating the discharge injunction,¹⁸ which she filed together with a motion to reopen her closed twenty-year-old bankruptcy case on April 14, 2023.¹⁹ The Court held a preliminary hearing on these motions on May 10, 2023.²⁰ In advance of that hearing, Florida Credit Research filed a response in opposition to the motion for sanctions²¹ and Ms. McIntosh filed a reply.²²

At the May 10 hearing, the Court granted the motion to reopen²³ and scheduled an evidentiary hearing for August 15, 2023, to consider entitlement to sanctions but not the amount of any award.²⁴ That was to be the subject of a separate evidentiary hearing if the Court first found Ms. McIntosh entitled to sanctions against Florida Credit Research.²⁵ The order setting this first evidentiary hearing contained deadlines for completion of discovery, for expert and pretrial disclosures, for exchange of exhibits and objections thereto, and to file briefs in support of and in opposition to the motion for sanctions.²⁶

Ms. McIntosh and Florida Credit Research timely filed their briefs in advance of the August 15 evidentiary hearing.²⁷ Two witnesses testified at this evidentiary hearing: (1) James Jacobson, who owned both Florida Credit Research and the law firm of Jacobson, Sobo & Moselle, and (2) Mark Rickard, Florida Credit Research's state court counsel, who for many years worked at Jacobson, Sobo, & Moselle, and who now has his own law firm called Law Guard. At the conclusion of the evidentiary hearing, after considering the testimony of Mr. Jacobson and Mr. Rickard, along with the exhibits admitted into evidence²⁸ and certain judicially noticed documents,²⁹ the Court announced orally its finding that Florida Credit Research had violated the discharge injunction and that as a result, Ms. McIntosh was entitled to sanctions. The Court then scheduled another evidentiary hearing for December 12, 2023, to consider the amount of sanctions.³⁰ The order setting this second evidentiary hearing provided additional deadlines - for initial, expert, and pretrial disclosures, to complete discovery, and to exchange and object to exhibits - all related to the amount of sanctions.³¹

The Court conducted this second evidentiary hearing on December 12, 2023. Although Florida Credit Research's bankruptcy counsel attended, participated in, and made argument at the hearing, neither Mr. Jacobson, Mr. Rickard, nor any other client representative of Florida Credit Research was present. The Court heard testimony from two witnesses - Ms. McIntosh and her daughter. Considering their testimony, the exhibits admitted into evidence,³² and the unobjected-to proffers of counsel, the Court now makes the following findings of fact and conclusions of law.³³

III. Findings of Fact.

A. Ms. McIntosh's 2002 "No-Asset" Chapter 7 Bankruptcy Case.

Ms. McIntosh filed a joint chapter 7 bankruptcy petition with her then-spouse Michael McIntosh on July 8, 2002.³⁴ She listed 35 unsecured creditors on her bankruptcy schedules, including the following $7,400.00 credit card debt incurred in October 1997 to Direct Merchants Bank, PO Box 21550, Tulsa OK 74121:

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There was no evidence - and Florida Research Credit has not contended - that this debt was for anything other than unpaid credit card bills. In other words, Florida Credit Research has not contended this was a non-dischargeable debt for money to the extent obtained by false pretenses, a false representation, or actual fraud, or by use of a materially false written statement;³⁵ for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny;³⁶ or for willful and malicious injury by the debtor to another entity or to the property of another entity.³⁷

Ms. McIntosh's bankruptcy case was a "no-asset" chapter 7 case,³⁸ meaning the chapter 7 trustee determined there was no non-exempt property available for distribution to creditors. Because her case was a "no-asset" case, under Federal Rule of Bankruptcy Procedure 2002(e),³⁹ no deadline to file proofs of claim was ever set.⁴⁰ On October 22, 2002, Ms. McIntosh received a discharge under 11 U.S.C. § 727.⁴¹

B. Florida Credit Research's 2003 Lawsuit and Judgment.

Florida Credit Research - which was owned by Mr. Jacobson, a now-retired attorney - was in the business of purchasing bad debts from credit card companies. It had, over the years, purchased - and then pursued collection of - well over ten thousand debts. Much of that collection work was done by the law firm of Jacobson, Sobo & Moselle, which Mr. Jacobson also owned, and where Mr. Rickard worked for many years.

On March 20, 2003 - five months after Ms. McIntosh received her chapter 7 discharge - Florida Credit Research, as assignee of Metris Companies, Inc., sued her in state court to collect on a $7,382.90 debt. There was no evidence as to how Florida Credit Research acquired its claim from Metris Companies, or whether Metris Companies was Ms. McIntosh's original creditor, and if not, how ...