572 B.R. 352
Bankr. E.D. Okla.2017Background
- Ridley executed an $85,000 mortgage in 2002; M&T Bank services/holds the loan. Ridley filed Chapter 13 on November 22, 2011, completed plan and received discharge on December 11, 2015. The Chapter 13 Trustee filed a Notice of Final Cure Payment (Oct. 15, 2015) and M&T filed a Statement agreeing $0.00 remained due.
- Ridley made the post‑confirmation mortgage payments from Nov. 2015 through Dec. 2016; M&T received those checks. No notice of post‑petition fees was filed during the bankruptcy.
- Beginning Feb. 1, 2016, M&T began sending mortgage statements showing Ridley one month delinquent and assessing various charges ("Recoverable Corporate Advance," late fees, "Foreclosure Attorney Fees," insurance inspection fees). Ridley received repeated calls and feared foreclosure. No foreclosure suit was served.
- Ridley sued, alleging violations of the automatic stay and the discharge injunction (11 U.S.C. § 524(a)(2) and § 524(i)) for willful failure to credit plan payments and unlawful post‑discharge collection attempts. M&T characterized the misstatements as inadvertent errors and said the additional charges were not presently due.
- At trial, M&T witnesses had limited familiarity with the account, could not explain the charges, and testified the account was ultimately audited and corrected shortly before trial; M&T removed the charges and deemed the loan current.
- The Court found insufficient evidence of pre‑discharge collection attempts (so no stay violation) but found a willful violation of the discharge injunction under § 524(i), awarded actual damages (lost wages and attorney fees to be determined), and punitive damages of $12,000, and ordered M&T to correct records and remove the improper charges.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether M&T violated the automatic stay (11 U.S.C. § 362) before discharge | M&T misapplied payments and attempted collections before discharge | Any errors were inadvertent; no collection before discharge | Denied — plaintiff failed to prove collection attempts pre‑discharge by preponderance |
| Whether M&T willfully failed to credit plan payments and thus violated the discharge injunction via § 524(i) | M&T continued to report Ridley delinquent and assessed fees post‑discharge despite notice of cure and discharge | Errors were inadvertent; charges not presently due and later corrected | Granted — Court found willful failure to credit payments and material injury; § 524(i) violation |
| Appropriate remedies for the § 524(i) violation | Contempt sanctions: actual damages, attorney fees, lost wages, punitive damages | M&T argued no harm and errors corrected; sought leniency | Court held contempt proper; awarded attorney fees (amount to be determined), lost wages, and punitive damages |
| Amount and form of punitive/actual damages | Punitive damages needed to deter institutional servicer; actual damages for costs and lost wages | M&T: sanctions excessive given correction and lack of financial harm | Court awarded $12,000 punitive; $620 in lost wages (later text notes $310 for two days but judgment states $620), and attorney fees/costs to be fixed after verified application |
Key Cases Cited
- Paul v. Iglehart, 534 F.3d 1303 (10th Cir.) (bankruptcy court may use § 105 contempt powers to remedy § 524(i) violations)
- Zilog, Inc. v. Cor. (In re Zilog), 450 F.3d 996 (9th Cir.) (willful violation and contempt elements require knowledge and intentional act)
- BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (U.S.) (principles governing punitive‑damages proportionality and restraint)
- Diviney v. NationsBank of Tex. (In re Diviney), 225 B.R. 762 (10th Cir. BAP) (punitive damages may be awarded where creditor knowingly violates debtor’s rights)
- In re Kabiling, 551 B.R. 440 (9th Cir. BAP) (recognizes punitive damages as an available sanction for discharge injunction violations)