561 B.R. 132
Bankr. D. Nev.2016Background
- Debtors Jesus Martinez and Marco Ciro Flores filed separate but jointly administered Chapter 11 petitions in May 2009; the 36th Street investment property was crammed down to a $120,000 secured claim (Valuation Order) and included in a Cash Flow Analysis that showed a $465.20 monthly payment.
- CMC filed a proof of claim for the original, larger mortgage balance and participated in the Chapter 11 proceedings but never appealed the Valuation or Confirmation Orders; the confirmed plan (June 14, 2011) and subsequent plan modification were served on CMC.
- Debtors obtained a Chapter 11 discharge (June 18, 2012); their case was later reopened (Aug 2014) after CMC began foreclosure-related activity and returned some plan payments.
- CMC changed servicing practices in Aug 2012, retroactively applied a higher monthly payment ($547.40) to post‑petition payments, began rejecting $465.20 payments in 2013–2014, and foreclosure documents (NOD, Notice of Sale) and collection communications followed.
- Debtors moved for sanctions for violations of the automatic stay, the Confirmation Order, and the discharge injunction; evidentiary hearing held June 21, 2016. The court found factual disputes about calls/letters but credited Debtors as to post‑discharge collection efforts and CMC’s unilateral payment change.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether CMC willfully violated the automatic stay (pre‑discharge) by calls/letters | Martinez: CMC made frequent collection calls and sent rate/notice letters during the stay seeking collection | CMC: communications were informational (rate notices), not collection; substantial compliance with orders | Court: some pre‑discharge autodialed calls to Martinez amounted to a willful stay violation, but Rate Adjustment Letters did not; no actual damages proven for stay violation |
| Whether CMC willfully violated the Confirmation Order by unilaterally changing monthly plan payment and applying it retroactively | Debtors: confirmed plan and Cash Flow Analysis required $465.20 monthly; CMC unlawfully increased to $547.40 and applied retroactively, breaching the Order | CMC: payment amount was not mandated by the plan; Debtors should have inquired; servicer had discretion and made good‑faith servicing determination | Court: CMC willfully violated the Confirmation Order by unilaterally increasing and retroactively applying the payment amount; CMC offered no credible excuse for inability to comply; no actual damages awarded for this violation |
| Whether CMC willfully violated the discharge injunction (post‑discharge acts to collect personal liability) | Debtors: post‑discharge letters, calls, NOD, and Notice of Sale attempted to collect discharged personal liability and threatened collection up to the original loan amount | CMC: denied attempting to collect discharged personal liability; contends communications related to secured enforcement only and relied on servicer records | Court: clear and convincing evidence CMC knew about discharge and intended actions that violated §524(a)(2); willful violation found |
| Damages, fines, and attorneys' fees for violations | Debtors seek actual (including emotional distress), punitive, statutory‑type awards, and fees | CMC disputes damages, contends prior payments/settlement resolved claims, and denies violations | Held: No actual damages for stay or Confirmation Order violations; for discharge violation—Martinez awarded $25,000 (emotional distress); Flores awarded $35,650 (emotional distress plus $650 meds); $5,000 civil (non‑compensatory) contempt fine; attorneys' fees (post Feb 4, 2015) to be submitted and awarded under §105(a) for Confirmation and discharge violations; punitive/criminal fines not awarded |
Key Cases Cited
- Dawson v. Washington Mut. Bank, 390 F.3d 1139 (9th Cir.) (emotional‑distress recoverable for willful stay violations)
- Knupfer v. Lindblade (In re Dyer), 322 F.3d 1178 (9th Cir.) (willfulness standard for stay contempt; civil contempt limitations)
- Espinosa v. United Student Aid Funds, Inc., 553 F.3d 1193 (9th Cir.) (standards for discharge injunction contempt and available remedies)
- Zilog, Inc. v. Corning (In re Zilog, Inc.), 450 F.3d 996 (9th Cir.) (clear‑and‑convincing burden to prove contempt)
- Walls v. Wells Fargo Bank, N.A., 276 F.3d 502 (9th Cir.) (bankruptcy law—civil contempt and limits on remedies for §524 violations)
- In re McLean, 794 F.3d 1313 (11th Cir.) (emotional‑distress damages available for discharge violations)