Ajasa v. WELLS FARGO BANK, N.A.
Case Information
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NEW YORK
IN RE OLUFUNMILAYO AJASA, Chapter 7
Case No. 10-50719-ess Debtor.
IN RE JOSEPH LOPEZ, Chapter 7
Case No. 17-46380-ess Debtor.
Adversary Case No. 18-01122-ess OLUFUNMILAYO AJASA AND JOSEPH LOPEZ, Debtors and Plaintiffs
on behalf of themselves
and all others similarly
situated,
v.
WELLS FARGO BANK, N.A.,
Defendant. MEMORANDUM DECISION ON THE DEFENDANT’S MOTION TO STRIKE CLASS ALLEGATIONS
Appearances:
George F. Carpinello, Esq. Jarrod D. Shaw, Esq.
Adam Shaw, Esq. Benjamin J. Sitter, Esq.
Boies Schiller Flexner LLP McGuireWoods LLP 30 South Pearl Street (11th Floor) 260 Forbes Avenue (Suite 1800) Albany, NY 12207 Pittsburgh, PA 15222 Attorneys for Plaintiffs Olufunmilayo Attorneys for Defendant Wells Fargo Bank, Ajasa and Joseph Lopez N.A.
Charles Juntikka, Esq.
Charles Juntikka & Associates LLP
30 Vesey Street (Suite 100)
New York, NY 10007
Attorneys for Plaintiffs Olufunmilayo
Ajasa and Joseph Lopez
HONORABLE ELIZABETH S. STONG
UNITED STATES BANKRUPTCY JUDGE
Introduction
The matter before the Court is a motion by Defendant Wells Fargo Bank, N.A. (“Wells Fargo”) to strike class allegations, with prejudice, from the Amended Complaint pursuant to Federal Rules of Civil Procedure 12(f), 23(c), and 23(d)(1)(D), as incorporated by Federal Rules of Bankruptcy Procedure 7012 and 7023 (the “Motion to Strike”).
Wells Fargo argues that these class allegations should be stricken – now – because this Court lacks subject matter jurisdiction to adjudicate discharge violation claims arising from discharge orders issued outside this District. And it argues that this motion can be decided – now – before the question of class certification is decided, because “no amount of discovery will alter the analysis of this purely legal question.” Def’s Mem. at 1.
The Plaintiffs disagree. They respond first that the Motion to Strike is untimely and premature, and should be considered at the time of class certification. Next, they argue that this Court plainly has subject matter jurisdiction to proceed here. They point to Judiciary Code Section 1334, which is the source of this Court’s – and every bankruptcy court’s – subject matter jurisdiction “to adjudicate claims arising under or related to the Bankruptcy Code,” and Bankruptcy Rule 7023, which permits “this Court, like all bankruptcy courts, . . . to entertain class actions.” Plfs’ Opp. at 2. They also dispute that only the issuing court can adjudicate a discharge injunction violation claim, and question how, if that is so, one judge within a district could hear even a district-wide class claim. And finally, the Plaintiffs disagree with Wells Fargo’s interpretation of recent Second Circuit and Supreme Court decisions, and argue that those cases either support their position here or do not address it.
In the Amended Complaint, Plaintiffs Olufunmilayo Ajasa and Joseph Lopez, on behalf of themselves and all others similarly situated, claim that Wells Fargo violated their discharge injunctions by refusing to correct or update their credit report tradelines to reflect that their respective debts were discharged in bankruptcy. Am. Compl., ECF No. 21. They allege that “[Wells Fargo’s] violation of the injunction of § 524(a)(2) is widespread and literally nationwide.” Am. Compl. ¶ 87. And they seek to represent a nationwide class consisting of all individuals who, like them, have received Chapter 7 bankruptcy discharges and whose credit reports list accounts or debts with Wells Fargo “that were not reported as discharged despite the fact that such debts had been discharged as a result of their bankruptcy.” Am. Compl. ¶ 80.
Wells Fargo’s Motion to Strike calls for this Court to consider whether the issues that it
identifies are distinct from the issues to be addressed in the context of class certification – that is,
whether “‘it is clear that . . . the motion to strike “addresses issues separate and apart from issues
that will be decided on a class certification motion.”’” Def’s Mem. at 2-3 (quoting
Bank v.
Creditguard of America
,
Wells Fargo’s Motion to Strike also calls for this Court to consider whether it lacks subject matter jurisdiction to consider the Plaintiffs’ allegations that seek the certification of a nationwide class. Subject matter jurisdiction is foundational, and serves as the starting point for everything that a federal court can do. When that question is raised, it must be addressed, and promptly. Where it is lacking, the court cannot proceed.
And finally, if subject matter jurisdiction is present, and the issues identified are distinct from the questions to be addressed in a motion to certify a class, then the Court must consider whether, at this stage in these proceedings, it is clear that this Court cannot entertain this action as a nationwide class, no matter the definition of the class, the nature of the certification that is sought, or the evidence.
Jurisdiction
This Court has jurisdiction over this adversary proceeding pursuant to Judiciary Code Sections 157(b)(1) and 1334(b), and the Standing Order of Reference dated August 28, 1986, as amended by the Order dated December 5, 2012 of the United States District Court for the Eastern District of New York.
This Court may also adjudicate these claims to final judgment. Enforcement of the
discharge injunction is a core proceeding arising under the Bankruptcy Code.
See In re
Nicholas
,
Background
Selected Procedural History of this Adversary Proceeding
On November 8, 2018, Plaintiff Olufunmilayo Ajasa commenced this adversary proceeding by filing a complaint against Wells Fargo, on behalf of herself and an alleged nationwide class, seeking a declaratory judgment, injunctive relief, and damages arising out of what she describes as Wells Fargo’s “systematic practice” of violating the discharge injunction provided by Bankruptcy Code Section 542(a)(2). Compl. ¶ 1, ECF No. 1. Ms. Ajasa states that Wells Fargo violated the discharge injunction by its practice of failing to update and correct creditor information to credit reporting agencies to reflect that certain discharged debts are no longer due and owing, as they have been “discharged in bankruptcy.” Compl. ¶ 1. Thereafter, on June 26, 2019, Ms. Ajasa filed an amended complaint to add Mr. Lopez as an additional plaintiff.
On July 29, 2019, Wells Fargo filed this Motion to Strike the class allegations in the
Amended Complaint. On August 28, 2019, the Plaintiffs filed opposition to the Motion to
Strike. And on September 13, 2019, Wells Fargo filed a reply to the Plaintiffs’ opposition.
Def’s Reply, ECF No. 32. On November 5, 2019, Wells Fargo and the Plaintiffs each filed
letters addressing the Fifth Circuit’s decision in
Crocker v. Navient Solutions, LLC
(
In re
Crocker
),
On September 24, 2019, the Court heard arguments from the parties, and from time to time, including on February 4, 2021, the Court held continued pre-trial conferences and hearings on the Motion to Strike, and the record is now closed.
The Allegations of the Amended Complaint
Ms. Ajasa and Mr. Lopez (the “Plaintiffs”), on behalf of themselves and all others similarly situated (the “Class Members”), seek a declaratory judgment, injunctive relief, and damages arising from Wells Fargo’s alleged “systematic practice” of violating the discharge injunction provided by Bankruptcy Code Section 542(a)(2). Am. Compl. ¶ 1. The Plaintiffs allege that Wells Fargo has a practice of failing to update and correct creditor information to credit reporting agencies to reflect that certain debts discharged through a bankruptcy case are no longer due and owing. Id . The purpose of this practice, the Plaintiffs state, is to utilize the coercive effect of an inaccurate credit report to pressure borrowers to pay the debt, thereby enhancing the collectability of the discharged debts and the overall value of the obligations that Wells Fargo sells to third parties. Am. Compl. ¶ 13.
The Plaintiffs allege that Wells Fargo was aware of their bankruptcy discharges, and that the debts that they owed to it were discharged; Wells Fargo was aware that it was incorrectly reporting on the status of the accounts; Wells Fargo was able to update or correct its reporting on the status of the accounts following the entry of a bankruptcy discharge in their respective cases; and Wells Fargo “willfully failed to update or correct Plaintiffs’ or other Class Members’ credit reports because it has adopted a policy of not updating credit information for debts that are discharged in bankruptcy for the purpose of collecting such discharged debt.” Am. Compl. ¶ 8.
They allege that by not updating the credit information on former bankruptcy debtors’ accounts, Wells Fargo “enhances the value of the debt it sells to third parties because third parties will pay Defendant more for delinquent debts if the third party knows that Defendant will not update the debtors’ credit reports to list the debt as discharged in bankruptcy.” Am. Compl. ¶ 13. The Plaintiffs further state that Wells Fargo has a “direct financial interest” in the collection of the discharged debts, because it retains a percentage interest in amounts paid on discharged debts that are paid directly to Wells Fargo. Am. Compl. ¶ 14. And they allege that Wells Fargo has been aware that this conduct was illegal since at least 2007. Am. Compl. ¶ 16.
The Plaintiffs request that this Court declare Wells Fargo’s practices to be in violation of their rights and those of the Class Members, and in contempt of the statutory discharge injunction set forth in Bankruptcy Code Section 524(a)(2). They seek permanent injunctive relief requiring Wells Fargo immediately to correct and update the credit reporting records of all class members. Am. Compl. ¶ 90. They also seek an award of compensatory and punitive damages, as well as attorneys’ fees and costs. Id .
And finally, the Plaintiffs seek to maintain this action on behalf of themselves and as representatives of the following nationwide class:
All individuals who, after May 3, 2007, have had on file with any of the credit reporting agencies Tradelines listing accounts or debts with Defendant that were not reported as discharged despite the fact that such debts had been discharged as a result of their bankruptcy under Chapter 7 of the Bankruptcy Code.
Am. Compl. ¶ 80. The Plaintiffs allege that this action and class satisfy the requirements of ascertainability, numerosity, typicality, adequacy of representation, and commonality necessary for class certification under Rule 23(a). Am. Compl. ¶¶ 81-86. See Fed. R. Civ. P. 23(a).
Wells Fargo’s Arguments in Support of the Motion To Strike Class Allegations
As a threshold matter, Wells Fargo argues that its motion is timely, and ripe for
determination at this stage in these proceedings. It urges that discovery will not alter the analysis
of this purely legal question, and notes that the Federal Rules permit a court to “strike class
allegations at any time.” Def’s Mem. at 2. It also notes that Rule 23(c) states that “‘the court
must – at an early practicable time – determine by order whether to certify the action as a class
action’” because “‘[s]ometimes the issues are plain enough from the pleadings to determine
whether the interests of absent parties are fairly encompassed within the named plaintiff’s
claim.’” Def’s Mem. at 2 (quoting
Sanders v. Apple Inc.
,
And Wells Fargo points out that a court in this district concluded that it was appropriate
to consider a motion to strike class allegations where “it is clear that the putative class action
claim will not proceed and/or the motion to strike ‘addresses issues separate and apart from
issues that will be decided on a class certification motion.’” Def’s Mem. at 2-3 (quoting
Bank
,
Wells Fargo also notes that while motions to strike are “generally disfavored . . . there is an exception to this general rule.” Def’s Reply at 2. Specifically, it argues that “a pre-discovery motion to strike class allegations is appropriate where the motion ‘addresses issues “separate and apart from the issues that will be decided on a class certification motion.”’” Def’s Reply at 2 (quoting cases). And Wells Fargo confirms that it is not seeking to address or litigate the Rule 23 class certification factors at this time.
Wells Fargo argues that the Plaintiffs’ class allegations must be stricken with prejudice
because this Court lacks subject matter jurisdiction to adjudicate contempt claims based on
discharge injunctions issued by other courts. It states that “this Court lacks jurisdiction to
enforce injunctions that did not issue from this district,” and therefore, that “Plaintiffs cannot
represent a nationwide class of debtors alleging violations of injunctions issued by a variety of
courts across the country.” Def’s Mem. at 3, 7. It points to the Supreme Court’s decision in
In
re Debs
, where the Court observed that “the sole adjudication of contempts, and the punishments
thereof belong[] exclusively, and without interfering, to each respective court.”
In re Debs
, 158
U.S. 564, 594-95 (1895),
abrogated on other grounds by Bloom v. State of Ill.
,
Wells Fargo argues that this conclusion is not altered by “[t]he fact that the discharge
injunction is a statutory form order not individually crafted by each bankruptcy judge.” Def’s
Mem. at 5. It points to the Second Circuit’s decision in
Anderson v. Credit One Bank, N.A.
(
In
re Anderson
)
,
It also points to the Supreme Court’s recent decision in
Taggart v. Lorenzen
, 139 S. Ct.
1795 (2019), where the Court observed that “‘the statutes specifying that a discharge order
“operates as an injunction,” . . . bring with them the “old soil” that has long governed how courts
enforce injunctions.’” Def’s Mem. at 6 (quoting
Taggart v. Lorenzen
,
In addition, Wells Fargo argues that the bankruptcy court’s decision in
Haynes v. Chase
Bank USA, N.A.
(
In re Haynes
),
Therefore, Wells Fargo concludes, because the Plaintiffs seek certification to represent a nationwide class of debtors, and not only those whose discharge orders were issued in this District, “the class definition . . . is overly broad and that portion of the class whose injunctions were issued outside of this district must be stricken for lack of subject matter jurisdiction.” Def’s Mem. at 7.
The Plaintiffs’ Arguments in Opposition to the Motion To Strike Class Allegations
The Plaintiffs oppose the relief sought by Wells Fargo, on several grounds. At the outset, they argue that the Motion to Strike is premature, and seeks relief that is inappropriate at this time. They note that motions to strike are disfavored, and that any issues concerning the certification of a class can, and should, be addressed in the context of a motion to certify the class. Plfs’ Opp. at 2. In particular, they argue that “[i]n this Circuit, . . . ‘[m]otions to strike are generally looked upon with disfavor’” Plfs’ Opp. at 3 (quoting Chen-Oster, 877 F. Supp. 2d at 117). And they note that “‘a determination of whether the Rule 23 requirements are met is more properly deferred to the class certification stage, where a more complete factual record can aid the court in making this determination.’” Plfs’ Opp. at 3 (quoting Winfield v. Citibank, N.A. , 842 F. Supp. 2d 560, 573 (S.D.N.Y. 2012)).
The Plaintiffs also argue that this Court has subject matter jurisdiction to consider claims asserted on behalf of a putative nationwide class. They note that the enforcement of the discharge injunction is a core bankruptcy matter that arises under Bankruptcy Code Sections 727, 524, and 105, and indisputably within the bankruptcy court’s jurisdiction. Plfs’ Opp. at 4. And they argue that “subject matter jurisdiction is not lost or limited merely because the action is brought as a class action,” which is specifically allowed by the Bankruptcy Rules. Plfs’ Opp. at 4. They point out that this jurisdiction is consistent with “the fact that both the bankruptcy court and the district court in two of the seven nationwide class actions has already approved of nationwide settlements.” Plfs’ Opp. at 5 (citing cases).
And the Plaintiffs assert that unlike jurisdiction grounded in the
in rem
nature of some
aspects of a bankruptcy case, their claims, like the claims addressed in
In re Haynes
, “are
concerned with the collection of
in personam
debts and have nothing to do with the debtor’s
estate or
in rem
jurisdiction.” Plfs’ Opp. at 5 (citing
In re Haynes
,
The Plaintiffs urge that here, the bankruptcy court can entertain a nationwide class, for
many of the same reasons that other courts, including courts within and outside this Circuit, have
reached the same conclusion, and describe the question as “a matter of comity not a question of
jurisdiction.” Plfs’ Opp. at 6 (citing
Gray v. Petoseed Co
.,
Finally, the Plaintiffs argue that neither the Second Circuit’s decision in In re Anderson nor the Supreme Court’s decision in Taggart requires rejection of a nationwide class here. They argue that in In re Anderson , the court addressed whether enforcement of an arbitration clause in the context of an asserted discharge injunction violation would conflict with the purposes of the Bankruptcy Code, and in that context, the court found that “a bankruptcy judge, not an arbitrator, [should] adjudicate the contempt.” Plfs’ Opp. at 11.
The Plaintiffs also dispute that the Fifth Circuit’s decision in In re Crocker is relevant to the matters before the Court in this Motion to Strike, for several reasons. They point out that In re Crocker does not address the question of class certification. Plfs’ Ltr. at 1. They also argue that the decision misinterprets the consequence of the 1978 Bankruptcy Act in the context of Bankruptcy Rule 4004(f), which permits a party to register and enforce a discharge order in a district other than the district that entered it, and suggest that the effect of the Crocker decision would be to invalidate that rule. Plfs’ Ltr. at 1. And they note that In re Anderson , cited by the Fifth Circuit, addressed whether arbitration is the appropriate forum to adjudicate an alleged discharge violation, not whether a court other than the issuing court could consider such a claim. Plfs’ Ltr. at 2.
And as to the Supreme Court’s decision in
Taggart
, the Plaintiffs note that
Taggart
does
not address the jurisdiction of a bankruptcy court to enforce a nationwide class in the context of
Bankruptcy Code Section 524. Rather, they argue, the Court addressed “the standard to be
applied in a contempt proceeding” for violation of the discharge injunction where the creditor
argues that it acted in good faith, and concluded that a violation may lie “‘where there is not a
“fair ground of doubt” as to whether the creditor’s conduct might be lawful under the discharge
order.’” Plfs’ Opp. at 11 (quoting
Taggart
,
The Applicable Legal Standards
The Elements of a Discharge Injunction Violation Claim
As this Court has observed, “[o]ne of the fundamental principles of bankruptcy law is
that a bankruptcy discharge enables a debtor to receive a ‘fresh start.’”
McKenzie-Gilyard v.
HSBC Bank Nevada, N.A.
(
In re McKenzie-Gilyard
),
Bankruptcy Code Section 524(a)(2) describes the function of a debtor’s discharge in broad terms:
A discharge in a case under this title—. . . (2) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived.
11 U.S.C. § 524(a)(2). This broad scope is confirmed by the legislative history of Section
524(a)(2), which “similarly supports a broad interpretation of an ‘act to collect . . . any debt’ that
violates the Section 524 discharge injunction.”
In re McKenzie-Gilyard
,
To state a plausible discharge injunction violation claim in the circumstances present
here, a debtor must allege that the defendant was a creditor at the time of his or her bankruptcy
filing; that it was aware of the plaintiff’s bankruptcy discharge; that it was aware that it was
reporting on the status of the account incorrectly; that it had the ability to update or correct its
reporting on the status of the account after the plaintiff received his or her bankruptcy discharge;
and that it willfully did not do so.
See In re McKenzie-Gilyard
,
And as the Supreme Court has recently stated, a finding of contempt is appropriate when
an injunction has been violated. “Under traditional principles of equity practice, courts have
long imposed civil contempt sanctions to ‘coerce the defendant into compliance’ with an
injunction or ‘compensate the complainant for losses’ stemming from the defendant's
noncompliance with an injunction.”
Taggart,
[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. In other words, civil contempt may be appropriate if there is no objectively reasonable basis for concluding that the creditor's conduct might be lawful.
Taggart
,
The Standard for a Motion To Strike Under Federal Rules of Civil Procedure 12(f) and 23(d)(1)(D)
The context for a motion to strike class allegations from an adversary proceeding is Federal Rule of Civil Procedure 23(a), made applicable in adversary proceedings by Bankruptcy Rule 23. Rule 23 provides that “one or more members of a class may sue . . . as representative parties on behalf of all members only if:”
(1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and
(4) the representative parties will fairly and adequately protect the interests of the class.
Fed. R. Civ. P. 23(a)(1)-(4).
Federal Rule of Civil Procedure 12(f), made applicable in adversary proceedings by Bankruptcy Rule 7012(b), provides that the court may strike from a pleading “an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” Fed. R. Civ. P. 12(f). Rule 12(f) may be invoked by the court acting on its own, or on motion by a party. Id .
To the same effect, Federal Rule of Civil Procedure 23(d)(1)(D), made applicable in adversary proceedings by Bankruptcy Rule 7023, permits a court to issue an order that “require[s] that the pleadings be amended to eliminate allegations about representation of absent persons and that the action proceed accordingly.” Fed. R. Civ. P. 23(d)(1)(D).
In the context of a putative class action, these rules permit the court to excise class allegations from a complaint, and to close the door on the prospect of class treatment, before the complaint has been answered or tested by a motion to dismiss and before any discovery, including class discovery, has occurred.
Courts agree that motions to strike class allegations should not be the norm. As one district court observed:
“Motions to strike are generally looked upon with disfavor [and] a motion to strike class allegations . . . is even more disfavored because it requires a reviewing court to preemptively terminate the class aspects of . . . litigation, solely on the basis of what is alleged in the complaint and before plaintiffs are permitted to complete the discovery to which they would otherwise be entitled on questions relevant to class certification.”
Chen-Oster
,
At the same time, courts recognize, at least implicitly, that motions to strike under Rules 12(f) and 23(d)(1)(D) can serve a useful and even important purpose. As one court noted in the context of a motion under Rule 23(d)(1)(D), “a motion to strike class allegations . . . may be addressed prior to the certification of a class if the inquiry would not mirror the class certification inquiry and if resolution of the motion is clear.” In re Initial Pub. Offering Sec. Litig. , 2008 WL 2050781, at *2 (S.D.N.Y. May 13, 2008) (citing cases).
And as the court in
Chen-Oster
observed, a motion to strike class allegations may be
appropriate where it “addresses issues ‘separate and apart from the issues that will be decided on
a class certification motion,’” and in that setting, it would not be “procedurally premature.”
Chen-Oster
,
Bankruptcy Jurisdiction Under Judiciary Code Section 1334
Judiciary Code Section 1334 sets forth the grounds for federal jurisdiction over bankruptcy matters. Section 1334(a) provides that “[e]xcept as provided in [Section 1334(b),] the district courts shall have original and exclusive jurisdiction of all cases under title 11.” 28 U.S.C. § 1334(a).
Section 1334(b) confers original but not exclusive jurisdiction upon district courts in all
civil proceedings “arising under title 11, or arising in or related to cases under title 11.” 28
U.S.C. § 1334(b). Significantly, Section 1334(b) provides the bankruptcy courts with the ability
to reach beyond the assets of a particular bankruptcy estate – as one court noted in considering a
motion to dismiss a putative nationwide class, “[a] court no longer is restricted to dealing only
with assets under its control; it also has the ability to deal with other matters affecting debtors.”
Noletto v. Nationsbanc Mortgage Corp.
(
In re Noletto
),
And Section 1334(e) confers exclusive jurisdiction upon the district and bankruptcy
courts of the debtor’s property, the property of the estate. 28 U.S.C. § 1334(e)(1). As the court
observed in
In re Noletto
, Section 1334(e) “vests the ‘home court’ with the exclusive power to
control and distribute property of the estate.”
In re Noletto
,
Authority of the Bankruptcy Court Under Bankruptcy Code Section 105
Bankruptcy Code Section 105 grants the bankruptcy court power to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.” 11 U.S.C. § 105. It also provides that the court is not precluded from “ sua sponte , taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.” Id.
While Section 105 is often viewed as a broad grant of authority, it is similarly well
established that this Section also “limits the bankruptcy court’s equitable powers, which ‘must
and can only be exercised within the confines of the Bankruptcy Code.’”
FDIC v. Colonial
Realty Co.
,
As the Second Circuit has observed:
The equitable power conferred on the bankruptcy court by section 105(a) is the power to exercise equity in carrying out the provisions of the Bankruptcy Code, rather than to further the purposes of the Code generally, or otherwise to do the right thing. This language “suggests that an exercise of section 105 power be tied to another Bankruptcy Code section and not merely to a general bankruptcy concept or objective.”
New England Dairies, Inc. v. Dairy Mart Convenience Stores, Inc.
,
Discussion
Wells Fargo’s Motion To Strike Class Allegations calls for this Court to address two questions, and each is important. First, as a threshold matter, is the motion premature? Many courts have concluded that a motion to strike class allegations raises issues that should be addressed in the context of a motion to certify the class.
And second, does the Motion to Strike meet the high standard that courts have articulated and applied in deciding such motions before a motion to certify the class is made? If the Court concludes that no matter what the evidence shows, a nationwide class cannot be certified here as a matter of law, then, as other courts have found in such circumstances, the class allegations in the Amended Complaint should be modified or stricken. But if the law would permit the certification of a class, then the question of certification remains part of the picture, to be addressed anew by the Court on a motion to certify a class. Viewed another way, if the Court concludes that it lacks the subject matter jurisdiction even to consider whether a nationwide class can be certified, no matter what the evidence may show, then the Motion to Strike should be granted.
The Court considers these questions in turn. Whether Wells Fargo’s Motion To Strike Class Allegations Is Premature
The first question to be addressed on this Motion to Strike is whether it is time to consider this matter at all – that is, is Wells Fargo’s Motion to Strike premature? Should these issues be decided now, or should they be deferred to the consideration of a motion to certify a class?
At the outset, it is worth noting that Federal Rule of Civil Procedure 23, made applicable to adversary proceedings by Bankruptcy Rule 7023, states that “[a]t an early practicable time after a person sues or is sued as a class representative, the court must determine by order whether to certify the action as a class action.” Fed. R. Civ. P. 23(c)(1)(A). That is, as a threshold matter, the question of whether an action should be permitted to proceed as a certified class should be answered sooner, not later, in a case, and as soon as is “practicable.” Of course, the typical tool to accomplish this is a motion to certify a class under Rule 23, not a motion to strike class allegations. And here, class discovery has not been completed and a motion to certify the class has not been made.
But another path to address whether a putative class action should be permitted to
proceed in that form is a motion to strike the class allegations from the complaint. Courts
regularly observe that a motion to strike allegations of any type from a complaint under Rule
12(f) is “rarely grant[ed].”
Belfiore v. Procter & Gamble Co.
,
And when such motions are directed to class allegations, they raise additional issues: “A motion to strike class allegations under Rule 12(f) is even more disfavored because it requires a reviewing court to preemptively terminate the class aspects of litigation, solely on the basis of what is alleged in the complaint, and before plaintiffs are permitted to complete the discovery to which they would otherwise be entitled on questions relevant to class certification.”
Belfiore
,
At the same time, courts agree that “the Court may consider a motion to strike class
allegations where it is clear that the putative class action claim will not proceed and/or the
motion to strike ‘addresses issues separate and apart from issues that will be decided on a class
certification motion.’”
Bank
,
Wells Fargo argues that this issue is ripe for adjudication even before class discovery
concludes and a motion to certify the class is filed, as “no amount of discovery will alter the
analysis of this purely legal question and the Federal Rules of Civil Procedure instruct courts to
address class scope issues as early as practicable.” Def’s Mem. at 1. The Plaintiffs respond that
exactly the opposite situation is present, that Wells Fargo’s Motion to Strike is premature, and
that a motion to strike class allegations “may only be entertained ‘if the inquiry would not mirror
the class certification inquiry and if resolution of the motion is clear.’” Plfs’ Opp. at 3 (quoting
Kassman v. KPMG LLP
,
In order to determine whether the Motion to Strike addresses matters that are distinct from the issues to be decided on a class certification motion, this Court looks to the criteria for the certification of a class under Rule 23. Rule 23(a) provides that an action may be maintained as a class action “only if”:
(1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and
(4) the representative parties will fairly and adequately protect the interests of the class.
Fed. R. Civ. P. 23(a).
As to numerosity, the Motion to Strike does not address how many putative class members there may be, either within this District or nationally, and similarly does not address whether the size of the class is so large that the joinder of all members as individual plaintiffs would be impracticable. Instead, Wells Fargo argues, in substance, that this Court lacks subject matter jurisdiction to consider the Plaintiffs’ claims as to even a single debtor who received a bankruptcy discharge outside of this District. That is, the Motion to Strike addresses matters that are separate and distinct from this inquiry.
As to whether there are questions of law or fact common to the class that make the claims appropriate for class treatment, a closer question is presented. In the Motion to Strike, Wells Fargo argues that this Court lacks subject matter jurisdiction to consider a nationwide class, or any class that includes debtors who received a bankruptcy discharge outside of this District. To be sure, this would amount to a legal defense that would be common to the claims of those putative class members.
But the absence of subject matter jurisdiction is a very particular kind of defense. It is
well established that the question of jurisdiction should be addressed as early in a proceeding as
possible.
Key Mechanical Inc. v. BDC 56 LLC
(
In re BDC 56 LLC
),
The same is true for typicality, the third consideration under Rule 23. Rule 23(a)(3) calls
for the plaintiffs to show that their claims or defenses are “typical of the claims or defense of the
class” in order for a class to be certified. This ensures that the named representatives’ claim and
the claims of the class “‘are so interrelated that the interests of the class members will be fairly
and adequately protected in their absence.’”
Marisol A. ex rel. Forbes v. Giuliani
,
And here again, Wells Fargo’s Motion to Strike does not address whether this
interrelationship is present, or whether the putative class representatives have claims or defenses
that are atypical from those of other members of the alleged class – except perhaps as to the
question of the defense of the lack of subject matter jurisdiction for those class members who
received their bankruptcy discharges from outside this District. This is, again, a very particular
type of defense, and one that should be addressed “at the earliest possible stage of the
proceedings.”
In re BDC 56 LLC
,
Finally, as to whether “the representative parties will fairly and adequately protect the interests of the class,” the record does not indicate, or even suggest, that the Motion to Strike calls into question the adequacy of the putative class plaintiffs to serve as class representatives. See Fed. R. Civ. P. 23(a)(4). Instead, the Motion calls for this Court to decide whether it may consider the question of certification of a nationwide class. And if the Court concludes that it lacks the subject matter jurisdiction necessary even to consider that question, then, Wells Fargo argues, the nationwide class allegations should be stricken from the Complaint.
In sum, and as a threshold matter, the Court concludes that the issues presented by this
Motion to Strike are “‘separate and apart from issues that will be decided on a class certification
motion.’”
Bank
,
Whether Wells Fargo Has Shown that the Plaintiffs’ Class Allegations Should Be Stricken with Prejudice
The next question to be addressed on this Motion to Strike is whether Wells Fargo has
shown that a nationwide class cannot be certified by this Court as a matter of law – that is, that it
would be “impossible to certify the alleged class.”
Greene,
Wells Fargo argues that this Court lacks the subject matter jurisdiction to adjudicate a discharge injunction violation claim predicated on a discharge order that was not entered in this District. It argues that this Court should follow the appellate and lower court decisions outside this District and Circuit that have concluded that the power to enforce the statutory discharge injunction lies only in the particular bankruptcy court or district that issued the debtor’s discharge, and strike the Plaintiffs’ allegations that they represent a putative nationwide class. See Def’s Mem. at 3-5 (citing cases).
The Plaintiffs respond that there can be no doubt that a bankruptcy court has the subject matter jurisdiction to consider a discharge injunction violation claim, and equally plainly, that a bankruptcy court may entertain a class action. For these reasons alone, they assert, Wells Fargo’s Motion to Strike should be denied. Plfs’ Opp. at 2.
The Plaintiffs also argue that, as the bankruptcy court found in
In re Haynes
, a discharge
is “fundamentally different from other specific, judge-crafted injunctions or orders,” and point to
cases within and outside this Circuit that have reached the same conclusion. Plfs’ Opp. at 6.
See
Plfs’ Opp. at 6-7 (citing cases). They also point to nationwide classes that have been certified
within and outside the Second Circuit for alleged violations of the discharge injunction,
including by the bankruptcy court in
In re Haynes
, and urge the Court to follow the same
reasoning in denying Wells Fargo’s request for relief. Plfs’ Opp. at 5-6 (citing cases). And they
describe this as “a matter of comity not a question of jurisdiction.” Plfs’ Opp. at 6 (citing
Gray
,
As a starting point, and as the Supreme Court has observed, there can be no doubt that the
court that issues an injunction has the authority to enforce it. As the Court stated, “[s]anctions
for violations of an injunction . . . are generally administered by the court that issued the
injunction.”
Thomas v. General Motors Corp.
,
One piece of this picture is the nature of the particular “injunction” at issue in this action.
The discharge injunction is a statutory injunction, and a product of the Bankruptcy Code itself. It
is created by Bankruptcy Code Section 524(a), which states that it “operates as an injunction
against the commencement or continuation of an action, the employment of process, or an act, to
collect, recover or offset any such debt as a personal liability of the debtor.” 11 U.S.C. §
524(a)(2). As the bankruptcy court explained in
In re Haynes
, “the bankruptcy discharge order
is a form, a national form, which is issued in every case when there is, in fact, a discharge. By
statute, in [Section] 524(a)(2), it operates as an injunction . . . it is not a handcrafted order.”
In re
Haynes
,
Another piece of the picture is the source of the bankruptcy court’s authority to enforce its own orders and, more generally, to enforce the provisions of the Bankruptcy Code, including the discharge injunction. One source of federal court authority is the All Writs Act. The All Writs Act states that “[t]he Supreme Court and all courts established by Act of Congress may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law.” 28 U.S.C. § 1651(a). And some courts have looked to that Act to conclude that only the court that issued a debtor’s bankruptcy discharge should have the power to enforce that injunction.
Wells Fargo points to the Eleventh Circuit’s decision in In re Alderwoods and other decisions, and argues that, following that court’s reasoning, “this Court is without jurisdiction to enforce compliance with injunctions issued by other courts.” Def’s Reply at 4. See Def’s Mem. at 4 (citing cases). In In re Alderwoods , the court addressed whether an alleged contempt of a Chapter 11 plan confirmation order entered in the District of Delaware could be addressed in the bankruptcy court in the Southern District of Florida:
[T]he court that enters an injunctive order retains jurisdiction to enforce its order. In this respect, a bankruptcy court is no different than any other federal court, which possesses the inherent power to sanction contempt of its orders. The bankruptcy court that confirms a reorganization plan thus enters an injunctive order – the confirmation order – the violation of which it can sanction.
Alderwoods
,
But there is an additional source of federal court authority available under the Bankruptcy Code, in the form of Section 105(a). Section 105(a) provides that the bankruptcy court “may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title” – including, presumably, the statutory discharge injunction that is set forth in Bankruptcy Code Section 524(a). 11 U.S.C. § 105(a).
And here again, the bankruptcy court’s decision in
In re Haynes
provides guidance.
Considering first the All Writs Act, the court observed that “[v]ery clearly, that statute is court-
specific, referring to ‘their respective jurisdictions,’ or the respective jurisdictions of the
individual courts whose orders are to be enforced.”
In re Haynes
,
By contrast, Section 105(a) “is quite different”:
Although modeled on the All Writs Act, . . . [Section 105] does not refer to aiding the Court’s own jurisdiction. . . . the legislative history of this section, in H.R. Rep. 95-595, states that, among other things, Section 105 is intended to “cover any powers traditionally exercised by a bankruptcy court that are not encompassed by the all writs statute.” (Emphasis added.) The statutes are different, in other words.
In re Haynes
,
The court continued:
I believe it is a mistake to rely upon All Writs Act cases to hold that a bankruptcy court has power under the applicable statute only to enforce its own orders, as opposed to the Bankruptcy Code generally and Sections 524(a) and 727 . . . in particular.
Id . That is, the authority granted to bankruptcy courts by Section 105 is – by design – broader than the authority granted to federal courts in the All Writs Act.
A third piece of the picture is the source of the Court’s jurisdiction here. Wells Fargo
argues that, as several courts have concluded, “only the bankruptcy court that issued a particular
discharge injunction may issue a contempt order to enforce that injunction.” Def’s Mem. at 4
(citing cases). Here, the cause of action arises under the Bankruptcy Code, and specifically,
under Bankruptcy Code Sections 727, 524(a)(2), and 105(a). As a consequence, for purposes of
this adversary proceeding, Judiciary Code Section 1334(b) is the source of this Court’s
jurisdiction, because the claim is a “civil proceeding[] arising under title 11.” 28 U.S.C. §
1334(b). Indeed, as the court observed in
In re Haynes
, “there [are] few matters as ‘core’ to the
basic function of the bankruptcy courts as the enforcement of the discharge under Sections 524
and 727 of the Bankruptcy Code.”
In re Haynes
,
So, what does this mean for this Court’s subject matter jurisdiction to consider the question of whether a nationwide class should be certified here?
At the outset, the Court considers whether it has subject matter jurisdiction to consider the Plaintiffs’ claims, and if so, whether this Court’s subject matter jurisdiction is somehow diminished by the Plaintiffs’ request to proceed as representatives of a nationwide class. It is axiomatic that this Court has subject matter jurisdiction to consider the discharge injunction violation claims of the named plaintiffs, who filed Chapter 7 bankruptcy cases in this District, because these are core matters. And as the Plaintiffs note, it is equally clear that the Court has the authority to entertain a request to certify an action as a class action. Class actions are permitted by Federal Rule 23, and that Rule is made applicable to bankruptcy adversary proceedings by Bankruptcy Rule 7023. That is, neither Bankruptcy Rule 7023 nor Federal Rule 23 takes away from this Court’s core jurisdiction to consider alleged discharge violation claims.
And bankruptcy courts have certified class actions to address a range of core bankruptcy
claims in several circuits, including the Second Circuit.
See, e.g.
,
Sheffield v. HomeSide
Lending, Inc.
(
In re Sheffield
),
Other courts have similarly concluded that the bankruptcy court’s subject matter
jurisdiction is adequate to permit the consideration of whether a nationwide class should be
certified. For example, as one court found in denying a motion to dismiss a putative nationwide
class action based on the defendant’s alleged practice of misallocating payments and collecting
unauthorized fees and costs, “[Judiciary Code Section] 1334(b) grants subject matter jurisdiction
over any debtor claims that fall within the court’s ‘related to,’ ‘arising in,’ or ‘arising under’
jurisdiction, regardless of where the claimant’s bankruptcy petition was filed.”
Cano v. GMAC
Mortgage Corp.
(
In re Cano
)
,
And as another court observed in denying a motion to dismiss putative nationwide class
action to enforce the Section 524 discharge injunction, “[t]he Court has the power to provide all
of the relief requested.”
Vick v. NCO Financial Systems, Inc
.,
And finally, nationwide settlements of class actions asserting discharge injunction
violations have been approved by bankruptcy and district courts in several cases within the
Second Circuit.
See Anderson v. Capital One Bank (USA), N.A.,
19-cv-03981-NSR, at ECF No.
20 (S.D.N.Y. Sept. 11, 2019);
Anderson v. Capital One Bank (USA), N.A.,
15-08342-RDD, at
ECF No. 99 (Bankr. S.D.N.Y. Jan. 7, 2021);
Haynes v. Chase Bank U.S.A., N.A.
, 18-cv-03307-
VB, at ECF No. 19 (S.D.N.Y. Aug. 24, 2018);
Haynes v. Chase Bank U.S.A., N.A.
, 13-08370-
RDD at ECF No. 133 (Bankr. S.D.N.Y. Sept. 27, 2018);
Echevarria v. Bank of America Corp.
,
17-cv-08026-VB at ECF No. 23 (S.D.N.Y. Mar. 14, 2018);
Echevarria v. Bank of America
Corp.
, 14-08216-RDD at ECF No. 121 (Bankr. S.D.N.Y. Mar. 15, 2018). While each of these
cases reached a consensual outcome, that consensus cannot create subject matter jurisdiction
where it is otherwise lacking. As the Second Circuit has observed, “[j]urisdiction cannot be
created by the consent of the parties.”
New York v. Shinnecock Indian Nation
,
Viewed another way, this Court’s subject matter jurisdiction to consider these Plaintiffs’ claims, including their request to proceed as class representatives in a Rule 23 class, should not be limited by the scope of that request – including a request to proceed as a nationwide class. If the Plaintiffs meet their burden on a motion to certify a class, then they will prevail, and an appropriate class will be certified – and if they do not, then a class will not be certified.
Next, and alternatively, the Court considers whether it has subject matter jurisdiction to
consider the Plaintiffs’ request to certify a nationwide class in light of the cases that have found
that “[s]anctions for violations of an injunction . . . are generally administered by the court that
issued the injunction.”
Thomas
,
This Court disagrees, for several reasons. Many of the foundational cases upon which Wells Fargo relies, beginning with the Supreme Court’s decision in In re Debs , address injunctions crafted by particular courts to address the particular circumstances of a particular case.
In
In re Debs
, the Court reviewed an application for a writ of habeas corpus brought by
petitioners, some of whom were officers of a railway union, challenging their imprisonment in
the county jail for contempt of a back-to-work injunction issued in the context of the Pullman
Strike. Represented by Clarence Darrow, petitioner Eugene Debs challenged the legality of the
strike injunction and his incarceration for violating it. In a unanimous decision, the Supreme
Court ruled that the strike injunction was a legitimate exercise of the federal government’s role
in regulating interstate commerce. And the Court confirmed that “the power of a court to make
an order carries with it the equal power to punish for a disobedience of that order, and the inquiry
as to the question of disobedience has been, from time immemorial, the special function of the
court.”
In re Debs,
And in
Thomas v. General Motors Corp.
, the Supreme Court considered whether a
Missouri court was bound by a consensual stipulation and injunction entered in a Michigan state
court action between General Motors and a former employee in which the former employee
agreed to be barred from testifying as a witness in any action against General Motors in any
court, in light of the Constitution’s Full Faith and Credit clause. Here again, the injunction at
issue was individually crafted – and by the parties, in the form of a stipulation to be approved by
the court – and tailored to the circumstances in the case. The question before the Court, as
framed by Justice Ginsburg, was “the authority of one State’s court to order that a witness’
testimony shall not be heard in any court of the United States.”
Thomas
,
The Court observed that the Full Faith and Credit clause requires that “[a] final judgment
in one State, if rendered by a court with adjudicatory authority over the subject matter and
persons governed by the judgment, qualifies for recognition throughout the land. . . . in other
words, the judgment of the rendering State gains nationwide force.”
Thomas
,
When viewed in the light of these examples of party- and court-crafted and case-specific
injunctions, it is clear that the statutory discharge injunction that is found in the Bankruptcy Code
is an utterly different directive. This Court is not aware of an indication in any reported case that
a bankruptcy court tailors that statutory discharge injunction to the circumstances of a particular
case, or that one bankruptcy court or district as opposed to another has any special expertise in
interpreting the text and terms of the statute or crafting that form of order. To the contrary, the
discharge of a debtor in a Chapter 7 bankruptcy case is generally accomplished by the entry of
Official Bankruptcy Form B 318. This official form is approved by the Judicial Conference of
the United States, and must be used under Bankruptcy Rule 9009.
See
Official Bankruptcy Form
Number B 318, https://www.uscourts.gov/forms/bankruptcy-forms/discharge-debtor-chapter-7-
case. As the court found in
In re Haynes
, “[t]here is . . . a fundamental difference between the
normal injunction issued by a court after considering the factors required to be applied in issuing
an injunction order and the injunction created by Congress in Section 524(a) to support the
discharge.”
In re Haynes
,
And the cases cited by Wells Fargo that arise in the context of motions to compel
arbitration, including the Second Circuit’s decision in
In re Anderson
, do not require a different
result. Wells Fargo observes that in
In re Anderson
, the Second Circuit “decisively rejected” the
argument that the statutory nature of the discharge injunction somehow took it out of the realm
of matters of interpretation that had to be decided by the issuing court. As the Second Circuit
found, “the bankruptcy court alone possesses the power and unique expertise to enforce [the
discharge injunction].”
In re Anderson
,
But it is worth noting the context of the Second Circuit’s decision – because of course, the question before the court provides the framework for understanding the answer that the court provides in its decision. In In re Anderson , the defendant sought to compel arbitration of asserted discharge injunction violation claims. And there, the court concluded that it would undermine the goals and objectives of the Bankruptcy Code, and more generally, the bankruptcy system, for such a fundamental question to be determined not by a court, but by an arbitrator.
As the Second Circuit found:
The successful discharge of debt is not merely important to the Bankruptcy Code, it is its principal goal. An attempt to coerce debtors to pay a discharged debt is thus an attempt to under the effect of the discharge order and the bankruptcy proceeding itself . . . the issue strikes at the heart of the bankruptcy court’s unique power to enforce its own orders.
In re Anderson,
The Second Circuit also found that the stakes were high indeed. It stated that “arbitration
of a claim based on an alleged violation of Section 542(a)(2) would ‘seriously jeopardize’ a
particular core bankruptcy proceeding.’”
In re Anderson,
And finally, the Second Circuit placed the issue in the context of bankruptcy courts and the bankruptcy system generally, not just the bankruptcy court where the debtor’s discharge order was entered. The court found that “enforcement of injunctions is a crucial pillar of the powers of the bankruptcy courts and central to the statutory scheme.” Id. (emphasis added). And it observed:
Though the discharge injunction itself is statutory and this a standard part of every bankruptcy proceeding, the bankruptcy court retains a unique expertise in interpreting its own injunctions and determining when they have been violated. Congress afforded the bankruptcy courts wide latitude to enforce their own orders, specifically granting these specialty courts the power to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of” the Bankruptcy Code.
In re Anderson
,
That is, in
In re Anderson
, the Second Circuit identified several key aspects of the
bankruptcy process, including the protection provided to a debtor by the statutory discharge
injunction and the debtor’s fresh start, and determined that remitting these issues to an arbitral
forum, rather than a bankruptcy court, would “strike[] at the heart” of the bankruptcy process.
In
re Anderson
,
This same reasoning was echoed and expanded upon by another case cited by Wells
Fargo, the Fifth Circuit’s decision in
In re Crocker.
There, the court “adopt[ed] the language of
the Second Circuit that returning to the issuing bankruptcy court to enforce an injunction is
required at least in order to uphold ‘respect for judicial process.’”
In re Crocker,
To be sure, and as Wells Fargo notes, in
In re Crocker
, the Fifth Circuit interpreted
In re
Anderson
to call for a “return[] to the issuing bankruptcy court.”
In re Crocker,
But at least this much is clear. In
In re Anderson
, the Second Circuit addressed the
question of a choice of forum as the choice between a bankruptcy court and the federal courts
generally, on the one hand, and an arbitration proceeding, on the other. It was not a choice
between the bankruptcy court or district in which the discharge was entered, as opposed to a
different bankruptcy court. And in
In re Crocker
, the Fifth Circuit addressed a different question
– “[m]ay a bankruptcy court other than the one that granted the discharge enforce the [discharge]
injunction?”
In re Crocker
,
But again, this is not an obstacle to this Court’s considering the question of whether a
nationwide class should be certified here, because it is not the basis for this Court’s ability to
proceed. As the court observed in
In re Haynes
, bankruptcy courts may also look to Section
105(a), which is “modeled on the All Writs Act, . . . [but] does not refer to aiding the Court’s
own jurisdiction.”
In re Haynes
,
its own orders, as opposed to the Bankruptcy Code generally and Sections 524(a) and 727 . . . in particular.” Id .
Two additional arguments have been cited by courts in addressing these issues, and are
worthy of note. One argument is “premised upon the notion that the Court’s exercise of
jurisdiction over debtors other than the debtor before it, or, in some courts, the debtors in its
district, will not lie because that determination does not affect the lead plaintiff’s [bankruptcy]
estate . . . and there is no ‘related to’ jurisdiction in respect of other debtor class members’ claims
under [Judiciary Code] Section 1334(b).”
In re Haynes
,
This Court agrees that cases reaching this conclusion are “premised on a misreading of the statutory basis for bankruptcy jurisdiction:”
While it is true that a substantial portion of bankruptcy jurisdiction is
in rem
, that
is, jurisdiction over the debtor’s estate wherever located, it is not the only basis
for bankruptcy jurisdiction, which, under 28 U.S.C. Section 1334(b), extends to
“all civil proceedings arising under title 11,” including under 11 U.S.C. Sections
524 and 727. In fact, . . . these fundamental, if not
the
fundamental, provisions of
the Bankruptcy Code have nothing to do with the debtor’s estate or
in rem
jurisdiction. They have everything to do with prohibiting the collection of
in
personam
debts that, before the bankruptcy discharge, were owed by the debtor.
In re Haynes
,
Simply put, these claims “arise under” the Bankruptcy Code, are separate and distinct
from any
in rem
basis for the bankruptcy court’s jurisdiction, and go to the heart of one of the
fundamental protections of the bankruptcy system – that is, the opportunity for a fresh start. As
the Second Circuit found in the context of an asserted class action, “where the putative class
members are all allegedly victims of willful violations of the discharge injunction issued by the
bankruptcy court there is a continuing disruption of the debtors’ ability to obtain their fresh
starts.”
In re Anderson
,
And separately, some courts have concluded that a bankruptcy court cannot entertain a
nationwide class action to address an alleged discharge injunction violation on jurisdictional
grounds, based on Judiciary Code Section 1334(e) and the limitations of a court’s
in rem
jurisdiction. This Section provides that “the district court in which a case under title 11 is
commenced or is pending shall have exclusive jurisdiction – (1) of all the property, wherever
located, of the debtor as of the commencement of such case, and of property of the estate.” 28
U.S.C. § 1334(e)(1).
See, e.g., Williams v. Sears Roebuck and Co.,
But here again, this argument misses the mark, and misconstrues the essential nature of the relief that is sought here. The Plaintiffs seek, for themselves and for the putative nationwide class, neither more nor less than the benefit of their bankruptcy discharges. And under Bankruptcy Code Section 524(a), the discharge “operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor .” 11 U.S.C. § 524(a)(2) (emphasis added). Their claims do not concern “property of the estate, as of the commencement of the case,” or “property of the estate,” as addressed by Judiciary Code Section 1334(e)(1). As the bankruptcy court observed in In re Haynes , “these fundamental, if not the fundamental, provisions of the Bankruptcy Code have nothing to do with the debtor’s estate or in rem jurisdiction. They have everything to do with prohibiting the collection of in personam debts that, before the bankruptcy discharge, were owed by the debtor.” In re Haynes , 2014 WL 3608891, at *6.
Finally, the Court considers the Supreme Court’s ruling in
Taggart
. In
Taggart
, the
Supreme Court observed that “the statutes specifying that a discharge order ‘operates as an
injunction,’ and that a court may issue any ‘order’ or ‘judgment’ that is ‘necessary or
appropriate’ to ‘carry out’ other bankruptcy provisions, bring with them the ‘old soil’ that has
long governed how courts enforce injunctions.”
Taggart
,
As the Supreme Court explained, this “old soil” is the source of “traditional standards” as
to when a finding of civil contempt may lie, and leads to the conclusion that a court may hold a
creditor in civil contempt for violating a debtor’s discharge if there is “
no fair ground of doubt
as
to whether the order barred the creditor’s conduct.”
Taggart
,
Conclusion
Based on the entire record and for the reasons stated herein, the Court finds that Wells Fargo has not shown that the Plaintiffs’ allegations that they seek to be certified as representatives of a putative nationwide class designation should be stricken from the Amended Complaint. The question of whether a nationwide class, or any class, should be certified in this action is reserved for another day, to be considered upon the making of a motion to certify a class by the Plaintiffs.
For these reasons, Wells Fargo’s Motion To Strike Class Allegations is denied. An order in accordance with this Memorandum Decision shall be entered simultaneously herewith.
____________________________ Dated: Brooklyn, New York Elizabeth S. Stong April 7, 2021 United States Bankruptcy Judge
Notes
[1] The parties have filed letters addressing the Second Circuit’s decision in
Belton v. GE Capital
Retail Bank
,