543 B.R. 267
Bankr. E.D. Ky.2015Background
- Kenneth and Sandra Biery obtained a Chapter 7 discharge that eliminated their personal liability on a home mortgage but left the creditor (Beneficial/HSBC) with an in rem lien and foreclosure rights.
- After discharge, Respondents sent two kinds of post-discharge mailings to the Debtors: (1) Billing Statements identical to pre-bankruptcy bills (showing "amounts due," "past due," etc.); and (2) Informational Statements that included disclaimers acknowledging the discharge and describing payments as "voluntary," but which varied in content and prominence.
- Debtors moved for contempt and to certify two subclasses of Chapter 7 debtors (within the Eastern District of Kentucky) who received post-discharge: (a) Billing-Statement subclass, and (b) Informational-Statement subclass.
- The court applied Rule 23 rigorous-analysis standards to subclass certification, conducted precertification discovery, and heard testimony about Respondents’ mail-coding practices and auditing procedures.
- The court found commonality, typicality, adequacy, predominance and superiority satisfied for the Billing-Statement subclass (certified under Rule 23(b)(3)), but denied certification for the Informational-Statement subclass due to material variations in statement content and debtor-specific factors.
- The court also authorized class treatment for claims seeking attorneys’ fees, contingent coercive sanctions, and limited non-compensatory ("punitive") sanctions; it preserved absent class members’ rights to pursue individual actual-damages claims.
Issues
| Issue | Plaintiff's Argument (Biery) | Defendant's Argument (Beneficial/HSBC) | Held |
|---|---|---|---|
| Whether post-discharge Billing Statements violate the § 524 discharge injunction and are amenable to class treatment | Billing Statements are facial demands for personal payment ("payments due", "past due") and thus per se violate the discharge; answers are common across recipients | §524(j) permits post-discharge communications for mortgage ride-through; permissibility depends on debtor-specific context (e.g., pursuit of in rem relief), so not amenable to class resolution | Billing Statements that are substantially identical to pre-bankruptcy bills per se violate the discharge; commonality satisfied and subclass certified under Rule 23(b)(3) |
| Whether post-discharge Informational Statements violate the discharge and are amenable to class treatment | Informational Statements lack uniform effect; Debtors argued a class could be formed | Respondents said the content and context (disclaimer wording, debtor requests, foreclosure status) vary, requiring individualized inquiries | Denied: Informational-Statement subclass fails commonality/typicality because material variations prevent a single common answer |
| Availability of class certification for non-compensatory punitive sanctions (sanctions for contempt) | Bankruptcy court can award limited non-compensatory sanctions; such relief can be certified for class treatment | Argued punitive sanctions may be inappropriate or require tethering to compensatory awards (which plaintiffs waived) | Granted in limited form: court may certify class claims for attorneys’ fees, contingent coercive sanctions, and mild non-compensatory sanctions under inherent/§105 powers; absent members may still sue for actual damages |
| Appropriateness of Rule 23(b)(2) injunctive certification | Plaintiffs sought (b)(2) certification for declaratory/injunctive relief | Respondents challenged timeliness and propriety | Denied: injunctive certification under Rule 23(b)(2) not appropriate here (court previously held injunctive relief would be superfluous); class certified only under Rule 23(b)(3) for Billing Statements |
Key Cases Cited
- Johnson v. Home State Bank, 501 U.S. 78 (1991) (discharge extinguishes personal liability but leaves in rem rights of mortgagee)
- Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011) (rigorous Rule 23 commonality and predominance standards)
- Whirlpool Corp. v. [*] Front-Loading Washer Prods. Liab. Litig., 722 F.3d 838 (6th Cir. 2013) (class/subclass certification principles; subclasses must be independently certifiable)
- Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013) (predominance requires a viable class-wide damages model)
- Pertuso v. Ford Motor Credit Co., 233 F.3d 417 (6th Cir. 2000) (contempt is the remedy for discharge violations to be litigated in the main bankruptcy case)
- In re John Richards Homes Bldg. Co., [citation="552 F. App'x 401"] (6th Cir. 2013) (bankruptcy courts have limited authority under §105 and inherent powers to impose non-compensatory sanctions)