Escamilla v. Dyck-O'Neal, Inc.Escamilla v. Dyck-O'Neal, Inc.
Case Information
UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS MARTA ESCAMILLA,
Plaintiff,
v. CIVIL ACTION NO. 22-11001-MPK DYCK-O’NEAL, INC. and
BENDETT & MCHUGH, P.C.,
Defendants.
MEMORANDUM AND ORDER ON DEFENDANTS’ JOINT MOTION FOR JUDGMENT ON THE PLEADINGS (#42) KELLEY, U.S.M.J.
I. Introduction.
Plaintiff Marta Escamilla alleges defendants Dyck-O’Neal, Inc. (“DONI”) and Bendett & McHugh, P.C. (“BMPC”) violated the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C.
§§ 1692f, 1692g, and the discharge injunction, 11 U.S.C. § 524(a). (#27.) Plaintiff claims that
letters that defendants sent to plaintiff were an attempt to collect a discharged debt and to enforce
a non-existent lien stemming from a defaulted second mortgage loan. The debt had been discharged
in bankruptcy and plaintiff claims the lien was “stripped off” in the bankruptcy case. At this stage,
defendants do not dispute that the loan was “stripped.” , e.g. , #27 ¶¶ 65-66; see also #43 at 4
n.2. [2] Defendants filed a joint motion for judgment on the pleadings under Fed. R. Civ. P. 12(c).
(#42); #43, memorandum, #50, reply; #46, opposition. The court held two hearings and invited
supplemental briefing after the second. See #67, transcript of March 5, 2024 hearing; #68,
transcript of April 2, 2024 hearing; #62, e-notes from April 2, 2024 hearing. The parties filed
supplemental briefing. ##64, 65.
Plaintiff’s allegations are sparse. As mentioned, defendants presently do not dispute that the second mortgage lien was stripped off in the bankruptcy proceeding. [3] Given that assumption,
the facts do not establish that defendants are entitled to the relief sought. The Rule 12(c) motion is
therefore DENIED.
II. Procedural History.
Plaintiff filed the original complaint on June 24, 2022. (#1.) After defendants filed a motion to dismiss, plaintiff filed a motion to amend. (##7, 13.) Before the court ruled on either of those
motions, plaintiff filed a second motion to amend, to add class action claims. (#15.) The court
granted plaintiff’s first motion to amend. (#26.) Plaintiff’s first amended complaint (#27) (“FAC”)
is the operative complaint. Defendants have filed answers. (##30, 31.) At a hearing on the second
motion to amend on October 26, 2023, the court denied that motion without prejudice to renewal
after resolution of the motion for judgment on the pleadings. #66, transcript of October 26,
2023 hearing, at 16; see also #39.
III. The Standard of Review and the Record.
Fed. R. Civ. P. 12(c) provides that “[a]fter the pleadings are closed – but early enough not to delay trial – a party may move for judgment on the pleadings.” . The court raised an issue
regarding the proper standard of review, (#60), which the parties addressed at the April 2, 2024
hearing, see #68 at 4-7, and in their supplemental briefing, #64 at 1-3; #65 at 1-3.
In
Bell Atl. Corp. v. Twombly,
can be granted,” see id. , the Supreme Court “retire[d]” the following language from Conley v.
Gibson
,
…[A] complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.
Twombly
,
some of the First Circuit’s pre- Twombly decisions under Rule 12(c) and still appears in some of its
post- Twombly Rule 12(c) decisions. Contrast Rezende v. Ocwen Loan Servicing, LLC , 869 F.3d
40, 42 (1st Cir. 2017);
Díaz-Nieves v. United States
,
Cousins
,
Cir. 2007) (quoting
Aponte-Torres v. Univ. of. P.R.
,
The Twombly Court explained that Conley ’s “no set of facts” language is …best forgotten as an incomplete, negative gloss on an accepted pleading standard: once a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint. … Conley, then, described the breadth of opportunity to prove what an adequate complaint claims, not the minimum standard of adequate pleading to govern a complaint’s survival.
Twombly
,
First Circuit among the “judges and commentators [who] have balked at” reading the Conley “no
set of facts” language literally as a pleading standard. Remexcel Managerial Consultants, Inc. v.
Arlequin
,
DiGrazia
,
a minimum standard of adequate pleading,
see Twombly
,
a Rule 12(b)(6) (or a Rule 12(c)) motion on “the remote possibility that plaintiffs would eventually
show some unknown set of facts to support their claim,”
Remexcel
,
Rule 12(c) motions are treated like Rule 12(b)(6) motions, and the First Circuit has applied the familiar “plausibility” standard to them: “To survive a motion for judgment on the pleadings,
a complaint must allege sufficient facts to ‘state a claim to relief that is plausible on its face.’”
Sevelitte v. Guardian Life. Ins. Co. of Am. , 55 F.4th 71, 79 (1st Cir. 2022) (quoting Ashcroft v.
Iqbal
,
of Elec.
,
conclusory, leaving the plaintiff’s claim largely within the realm of conjecture.” Kando , 880 F.3d
at 63 (cleaned up) (citation omitted);
see Sevelitte
,
On both Rule 12(b)(6) and Rule 12(c) motions, the court views the well-pleaded facts and the reasonable inferences drawn from them in the light most favorable to the nonmovant, here,
plaintiff.
Kando
,
whole.”
Aponte-Torres
,
is required, are deemed denied. Kando , 880 F.3d at 58. The court may include facts from
documents that are fairly incorporated into the pleadings as well as those that are susceptible to
judicial notice.
Id.
;
see Sevelitte
,
entirety” of incorporated documents. See Clorox Co. P.R. v. Proctor & Gamble Commercial Co. ,
50, 54 (D. Me. 2002) (Rule 12(c)).
Defendants submit exhibits that were not attached to the pleadings. [4] Exhibit A (#43-1) is
the docket sheet in United States Bankruptcy Court for the District of Massachusetts #10-bk-
12071. Exhibit B (#43-2) is the discharge order, #10-bk-12071, #65. The court may take
judicial notice of relevant proceedings in other courts.
Kowalski v. Gagne
,
Cir. 1990). Exhibits A and B are properly part of the rеcord.
Defense counsel proffer that Exhibit H (#43-8) is a model Consumer Financial Protection Bureau (“CFPB”) form. (#43 at 6.) The court has found a copy of this “Debt Collection Model
Form: Model Validation Notice” on the CFPB’s website. [5] In the absence of an objection from
plaintiff, the court takes judicial notice of the fact that the Model Validation Notice “exist[s] [and]
contain[s] certain information….”
Pietrantoni v. Corcept Therapeutics Inc.
,
205 (D. Mass. 2022).
Exhibits D, F, G, and I are clearly incorporated into the pleadings and therefore properly part of the record. Compare #43-4 (Ex. D) (DONI’s June 25, 2021 letter) with #27 ¶ 29 (allegations
about this letter); compare #43-6 (Ex. F) (DONI’s October 18, 2021 letter) with #27 ¶ 30-32
(allegations about this letter); compare #43-7 (Ex. G) (BMPC’s April 1, 2022 letter) with #27 ¶¶
34-41 (allegations about this letter); compare #43-9 (Ex. I) (BMPC’s April 4, 2022 letters) with
#27 ¶¶ 42-44 (allegations about these letters); see also #30 ¶¶ 29-32, 34-40, 42-44; #31 ¶¶ 29-35,
37-40, 42-44.
Exhibit C (#43-3) is fairly incorporated into the pleadings. Plaintiff alleges, and DONI and BMPC admit, that the second mortgage loan was transferred to DONI. (#27 ¶ 10; #30 ¶ 10; #31 ¶
10.) Exhibit C is DONI’s April 27, 2021 letter to plaintiff notifying her of the transfer. (#43-3 (Ex.
C) at 2.)
The court has ruled that it will not convert the Rule 12(c) motion to a Fed. R. Civ. P. 56 motion for summary judgment. (#67 at 12.) The court agrees with plaintiff’s counsel, see id . at 4-
5, that defense counsel’s proffer regarding Exhibit E (#43-5) is unsupported. Regardless, the court
does not find that Exhibit E is fairly incorporated into the pleadings. It is more accurate to
characterize plaintiff’s putative request for a payoff amount to which DONI allegedly responded
with a payoff amount as “integral” to defendants’ claims rather than those of the plaintiff. See #50
at 1.
The Rule 12(c) standard requires the court
to separate the complaint’s factual allegations (which must be accepted as true) from its conclusory legal allegations (which need not be credited)…. Judgment on the pleadings should be allowed only if the properly considered facts conclusively establish that the movant is entitled to the relief sought.
Kando
,
IV. Factual Allegations.
Plaintiff defaulted on her second mortgage in 2008, while the loan was being serviced by Carrington Mortgage Services, LLC. (#27 ¶ 9.) In 2010, plaintiff filed a Chapter 13 petition in the
United States Bankruptcy Court for the District of Massachusetts, #10-bk-12071. See #27 ¶ 12;
see also #43-1 (Ex. A) at 2. [7] Plaintiff listed Carrington as a creditor in the creditor matrix. (#27 ¶
13.) [8]
In 2011, plaintiff filed an amended Chapter 13 plan. See #27 ¶ 14; see also #43-1 (Ex. A)
at 4. [9] Plaintiff alleges that Part V of the amended plan stated:
***CLAIM DUE TO CARRINGTON MORTGAGE SERVICES (Carrington). Carrington is wholly unsecured and shall be paid in accordance with the unsecured claims in the plan. The Debtor’s residence located at 205 Ferry Street #103 Everett, MA 02149 has a present value of $145,000. The Debtor’s residence is subject to the first mortgage to Ocwen Loan Servicing Loan. The balance due to Ocwen Loan Serving Loan as of the date of the filing of the petition for relief was $182,934.00. Carrington is the holder of the second mortgage. The amount due to DFCU at the time of the filing of the petition was $45,000.00 Pursuant to 11 USC 1322(b)(2) this plan provides to modify the claim due Carrington and treat such claim as an unsecured claim in its entirety. The Order of Discharge to be entered in this case under 11 USC 1328(a) shall constitute a discharge of the mortgage held by Carrington and described hereinabove.
(#27 ¶ 15.) [10] A certificate of service for the amended plan was filed indicating that it was served
on all creditors, including Carrington. Id . ¶ 16. [11]
Later in 2011, the bankruptcy court issued an order confirming the amended plan. Id . ¶
17. [12] Plaintiff alleges that under “MODIFIED SECURED CLAIMS,” the order stated:
The Debtor is modifying the secured claim of Carrington Mortgage Services with respect to the second mortgage on the real estate located at 205 Ferry Street, #103, Everett, MA as follows: Carrington Mortgage Service’s claim in the sum of $45,000 will be wholly unsecured and treated with the other unsecured creditors under Section 5 below. The order of discharge to be entered in this case under 11 U.S.C. Sec. 1328(a) shall constitute a discharge of the mortgage. Id . ¶ 18. [13]
In 2012, plaintiff was required to file a post-confirmation Chapter 13 plan. . ¶ 19. [14] Part
V of the post-confirmation plan included substantively the same language regarding the treatment
of the second mortgage, quoted above, as Part V of the amended plan. See id . ¶ 20. [15] A certificate
of service for the post-confirmation plan was filed indicating that it was served on all creditors,
including Carrington. Id . ¶ 21. [16]
Later in 2012, the bankruptcy court issued an amended order confirming the post- confirmation plan. Id . ¶ 22. [17] Plaintiff alleges that while the amended plan noted provisions of the
court’s previous order that were amended, it did not state that the treatment of the second mortgage
would be amended. Id . ¶ 23. [18] Accordingly, the second mortgage “would still be treated as an
unsecured claim and upon discharge, would be discharged.” Id . ¶ 24.
In 2013, plaintiff received a discharge order. Id . ¶ 25; #43-2 (Ex. B). [19] Plaintiff alleges
that the order discharged her debts, including Carrington’s now unsecured claim. (#27 ¶ 26.)
Further, upon the discharge order, “there was no longer a second mortgage on the property, as the
previously held second mortgage was discharged as an unsecured debt.” Id . ¶ 28. The FAC
subsequently refers to an “alleged lien” that was “not valid” as a result of the discharge order. .
¶¶ 51, 54. Plaintiff does not allege that the discharge order was recorded in the appropriate Registry
of Deeds.
Plaintiff alleges that at the time of default, the second mortgage loan was being serviced by Carrington and that sometime after, it was transferred to DONI. #27 ¶¶ 9-10; see also #30
¶ 10; #31 ¶ 10. On April 27, 2021, DONI sent plaintiff a letter stating “[t]he ownership and
servicing of your former Carrington Mortgage Services, LLC mortgage loan is being transferred
to” DONI, “effective” May 1, 2021. (#43-3 (Ex. C) at 2.) The letter further stated that the “principal
balance at the time of transfer is $67,220.62....” Id . The letter instructed that before May 1,
payments be sent to Carrington but after May 1, payments and correspondence be sent to DONI.
Id .
The April 27, 2021 letter also stated:
This letter is for information purposes only. This letter is not a demand for payment or a request for payment of any funds previously discharged in bankruptcy or subject to an automatic stay. If you have filed for bankruptcy protection and your loan is either subject to the automatic stay of collection efforts or has been discharge [sic] in bankruptcy and is no longer owing, please call our bankruptcy specialist, Cory Faulkner, at 1-800-447-2481 ext. 2101. . (emphasis added).
Plaintiff alleges that sometime after the transfer, BMPC began attempting tо collect on the alleged debt. (#27 ¶ 11.) DONI admits that “at some point, [DONI] engaged BMPC in relation to
the subject loan,” see #30 ¶ 11; BMPC admits that “DONI hired BMPC to commence foreclosure
proceedings on the second mortgage,” see #31 ¶ 11.
Around June 25, 2021, plaintiff received a letter from DONI setting out a payoff amount.
(#27 ¶ 29); see #43-4 (Ex. D) at 2 ($80,351.36). The letter included: a “ Balance as of today ”
($80,237.97); “ Wiring Information ” and an “ Overnight Mailing Address ” for DONI; and the
following “NOTE” under the signature line:
This communication is from a debt collector. This firm is attempting to collect a debt, and any information obtained will be used for that purpose.
(#43-4 (Ex. D) at 2) (emphasis in original).
Around October 18, 2021, plaintiff received another letter from DONI. (#27 ¶ 30); #43- 6 (Ex. F) at 2. That letter included the following disclaimer, near the top of the page:
THIS LETTER IS FOR INFORMATIONAL PURPOSES ONLY. THIS LETTER IS NOT A DEMAND FOR PAYMENT OR A REQUEST FOR PAYMENT OF ANY FUNDS PREVIOUSLY DISCHARGED IN BANKRTUPCY OR SUBJECT TO AN AUTOMATIC STAY.
(#43-6 (Ex. F) at 2.)
The October 18, 2021 letter read:
Dear Marta A. Escamilla,
This letter is for information purposes only. The sole purpose of this letter is to advise you that Dyck-O’Neal, Inc. continues to hold a mortgage lien against the referenced property.
Your personal liability pertaining to the debt associated with the referenced property may have been discharged in your Bankruptcy case. Nevertheless, Dyck- O’Neal, Inc. still retains lien rights as to the property .
You are not required to respond to this letter. However, we would appreciate hearing from you as to your current intentions relating to the property, whether you wish to retain ownership of the property, sell the property, or abandon your interest in the property.
We respectfully request you contact us at your earliest convenience. We may be reached by phone at 800-418-9401 if you would like to speak to us directly.
Hours of Operation: Monday-Thursday 8:00 am - 6:00 pm, Friday 8:00 am – 3 pm – Central Time
Respectfully,
Dyck-O’Neal, Inc.
Bankruptcy Department
Ext. 2101
Id . (emphasis added); see also #27 ¶ 31.
Under the signature line, the letter stated:
Amount owing of lien balance as of the date of this letter: $80,712.11 Because of interest, the amount due on the day you pay may be greater. Hence, if you pay the amount shown above, an adjustment may be necessary after we receive your check, in which event we will inform you before depositing the check for collection.
NOTE: This communication is from a debt collector. This firm is attempting to collect a debt and any information obtained will be used for that purpose. .
Around April 1, 2022, plaintiff received a “[d]unning [l]etter” from BMPC, a law firm.
#27 ¶ 33; also #43-7 (Ex. G) at 3. Plaintiff alleges that the dunning letter “indicat[ed]” that
BMPC “was attempting to collect a debt on behalf of” DONI. (#27 ¶ 33.) Page 1 of the dunning
letter, toward the top, stated:
Bendett & McHugh, P.C. is a debt collector . We are trying to collect a debt that you owe Dyck-O’Neal, Inc. We will use any information you give us to help collect the debt.
(#43-7 (Ex. G) at 2) (emphasis in original).
Near the middle of page 1, in the lefthand column, the dunning letter set out the amount “owed” as of November 1, 2008 ($41,427.52); interest through April 1, 2022 ($39,944.12); fees
($0.00); and credits ($0.00), and then stated: “ Total amount of the debt now: $81,371.64 .” (#43-
7 (Ex. G) at 2) (emphasis in original).
Near the middle of page 1, in the righthand column, the dunning letter advised that plaintiff could call or write BMPC by May 13, 2022 “ to dispute all or part of the debt .” Id . (emphasis in
original). It further advised that if she did not call or write by then, BMPC would assume that its
information was correct. Id . It advised that if she did write by then, BMPC “must stop collеction
of any amount [she] dispute[d] until [BMPC] sen[t] [her] information that show[ed] [she] owe[d]
the debt.” Id .
Page 1 of the dunning letter also advised that plaintiff could contact BMPC “if [she] wish[ed] to reinstate or payoff this loan on a date certain or to discuss other repayment options.” . [23]
Page 2 of the dunning letter [24] stated:
NOTICE: This law firm is a debt collector and is attempting to collect a debt. Any information will be used for that purpose. Please note, however, that if you have previously received a discharge in bankruptcy which discharged this debt or the collection of the debt is prohibited by the automatic bankruptcy stay, this law firm is not attempting to collect a debt, but is only enforcing a lien against the subject property.
*PLEASE ALSO NOTE: If you are not personally obligated to pay this debt but are a mortgagor due to your ownership interest in the subject real property, you are receiving this notice for informational purposes only and you are neither obligated to pay the debt nor entitled to dispute the same. If this describes you, this law firm is not attempting to collect a debt from you, but is only enforcing a lien against the subject property.
Id . at 3.
Thereafter, the dunning letter stated, in relevant part:
The fact that you have thirty (30) days to indicate a dispute will not prevent us from filing suit or initiating/advancing foreclosure efforts in the manner prescribed by local law within that time prior to a timely, written dispute tо the debt or any portion thereof or request for the name and address of the original creditor if different from the current creditor.
If a suit is commenced during the thirty (30) day validation period, this notice does not affect your dealing with the court, and in particular it does not change the time by which you must answer the complaint, if one is filed…. .
Plaintiff alleges that by sending the dunning letter, BMPC “is indicating that [BMPC is] attempting to enforce a lien against the [p]laintiff’s property at 205 Ferry St. #103, Everett, MA
02149.” (#27 ¶ 36.) BMPC admits that the letter “was sent to the [p]laintiff to enforce a lien against
the property.” (#31 ¶ 36.)
Around April 4, 2022, plaintiff received more letters from BMPC. #27 ¶¶ 42-44; see
also #43-9 (Ex. I)). One, titled “ RIGHT TO REQUEST A MODIFIED MORTAGE LOAN ,”
warned: “ If you do not return the enclosed Modification Options form and a completed loan
modification application by May 4, 2022 your right to cure your mortgage default will end
on July 3, 2022 .” (#43-9 (Ex. I) at 3-4) (emphasis in original); see #27 ¶ 44.
Another, titled “ 90 DAY RIGHT TO CURE YOUR MORTGAGE DEFAULT ,” stated that BMPC was contacting plaintiff because she did not make her monthly payments due
December 1, 2008 to April 1, 2022; listed each of the months from December 2008 to April 2022;
stated that she “must pay the past due amount of $69,869.17 on or before July 3, 2022;” and listed
the past due amounts for each of the months from December 2008 to April 2022, over four-plus
pages. (#43-9 (Ex. I) at 7-12); see #27 ¶ 43.
This “Right to Cure” letter advised plaintiff to contact the Homeownership Preservation Foundation to speak with counselors who might be able to help her work with her lender to avoid
foreclosure, see #43-9 (Ex. I) at 12; see also #27 ¶ 52, and also stated:
After July 3, 2022, you can still avoid foreclosure by paying the total past due amount before a foreclosure sale takes place. Depending on the terms of the loan, there may also be other ways to avoid foreclosure, such as selling your property, refinancing your loan, or voluntarily transferring ownership of the property to Dyck-O’Neal, Inc.
(#43-9 (Ex. I) at 13.) It then warned:
If you do not pay the total past due amount of $69,869.17 and any additional payments that may become due by July 3, 2022, you may be evicted from your home after a foreclosure sale. If Dyck-O’Neal, Inc. forecloses on this property, it means the mortgagee or a new buyer will take over the ownership of your home . . (emphasis in original); #27 ¶ 43, 52.
The “Right to Cure” letter included the following “ NOTICE ” after the signature line, alone on a separate page:
THE LAW FIRM OF BENDETT & MCHUGH, P.C. IS A DEBT COLLECTOR AND IS ATTEMPTING TO COLLECT A DEBT. ANY INFORMATION WE OBTAIN WILL BE USED FOR THAT PURPOSE. IF YOU HAVE PREVIOUSLY RECEIVED A DISCHARGE IN BANKRTUPCY WHICH DISCHARGED THIS DEBT, THIS CORRESPONDENCE IS NOT AND SHOULD NOT BE CONSTRUED TO BE AN ATTEMPT TO COLLECT A DEBT, BUT ONLY ENFORCEMENT OF A LIEN AGAINST PROPERTY.
(#43-9 (Ex. I) at 14) (emphasis in original).
The record includes “Right to Request” and “Right to Cure” letters addressed to Francisco Escamilla. (#43-9 (Ex. I) at 16-39.)
V. Discussion.
The court first addresses Count II, discharge injunction, and then addresses Count I, FDCPA.
A. Count II: Discharge Injunction.
1. The FAC and the parties’ positions. Plaintiff claims that DONI and BMPC violated 11 U.S.C. § 524(a) by attempting to collect a debt and enforce a lien notwithstanding that the second mortgage was
“stripped and discharged as an unsecured claim” and at the time of discharge, the loan and lien
were “extinguished.” (#27 ¶¶ 64-68.) Plaintiff seeks actual and punitive damages and attorney’s
fees and costs, as well as declaratory relief. . at 16.
The court questioned whether actual notice of the discharge order is necessary or if constructive notice suffices. (#60.) In their supplemental briefing, defendants argue that plaintiff
must prove actual notice of both the discharge order and the treatment of the second mortgage
loan, claiming that because it was not recorded in the appropriate Registry of Deeds, plaintiff is
precluded from relying on constructive notice. Defendants also argue that the order itself does not
reference the treatment of the loan. (#65 at 4-5.) Plaintiff argues that constructive notice suffices.
(#64 at 4-6.)
The court also asked the parties to be prepared to address
Taggart v. Lorenzen
, 587 U.S. --
-,
of doubt” as to the lawfulness of their conduct. (#65 at 6); but see #43 at 23-27; #50 at 8-10.
2. The law. “At the conclusion of a bankruptcy proceeding, a bankruptcy court typically enters an order releasing the debtor from liability for most prebankruptcy debts. This order, known as a discharge
order, bars creditors from attempting to collect any debt covered by the order.” Taggart , 139 S. Ct.
at 1799 (citing 11 U.S.C. § 524(a)(2)). Title 11 U.S.C. § 524(a)(2) states that a discharge order
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 [discharged] debt as a personal liability of the debtor, whether or not discharge of such debt is waived….
Id . This “discharge injunction” embodies the Bankruрtcy Code’s “fresh start” policy. Best v.
Nationstar Mortgage, LLC
,
In the First Circuit, either a bankruptcy or a district court may invoke 11 U.S.C. § 105(a) to enforce the discharge injunction and award actual and punitive damages and attorney’s fees.
Bessette v. Avco Fin. Servs., Inc.
,
as Trustee for LSF11 Master Participation Trust v. Vincent , #2:20-cv-00380-JAW, 2021 WL
3161547, at *3 (D. Me. July 26, 2021); Lance v. PNC Bank, N.A. , #15-cv-10250-FDS, 2015 WL
5437090, at *2 (D. Mass. Sept. 15, 2015). These are akin to civil contempt sanctions. Best , 540
B.R. at 8.
The First Circuit has articulated a three-pronged test under 11 U.S.C. § 524(a)(2). To prove a violation of the discharge injunction, a debtor must prove that a creditor “(1) has notice of the
debtor’s discharge; (2) intends the actions which constitute the violation; and (3) acts in a way that
improperly coerces or harasses the debtor.”
Bates v. Citi Mortgage, Inc.
,
Cir. 2016) (cleaned up) (quoting
Best
,
(BAP 1st Cir. 2009)));
see Pratt v. Gen. Motors Acceptance Corp.
,
The four-pronged test governing civil contempt is whether (1) the alleged contemnor had notice that it was covered by the order; (2) the order was clear and unambiguous; (3) the contemnor
had the ability to comply with the order; and (4) the order was in fact violated. United States v.
Saccoccia
,
On the third prong of the § 524(a)(2) test, a court determines whether conduct is improperly coercive or harassing under an objective standard considering the facts and circumstances of each
case, including the immediateness of any threatened action and the context in which a statement
was made.
Lumb
,
creditor acted in bad faith or that the creditor created all circumstances in which coercion allegedly
occurrеd, only that the creditor’s conduct had a coercive effect upon the debtor. Lumb , 401 B.R. at
7;
see Pratt
,
inquiries about releasing the lien might preclude a finding that GMAC ‘harassed’ the Pratts, that
does not foreclose the possibility that GMAC’s refusal was objectively and improperly ‘coercive’
in the circumstances.”)
Further, the creditor’s conduct may be improperly coercive even if the creditor was exercising legitimate state rights if the conduct infringed upon an important federal interest served
by the discharge injunction.
Lumb
,
in a bankruptcy proceeding ‘unless some federal interest requires a different result’” (quoting
Butner v. United States
,
objective standard “requires no such ‘smoking gun.’”
Id
. (quoting
Pratt
,
In Taggart , a Chapter 7 bankruptcy case, the Supreme Court adopted a “fair ground of doubt” standard under §§ 524(a)(2) and 105(a), pursuant to which a finding of civil contempt “may
be appropriate when the creditor violates a discharge order based on an objectively unreasonable
understanding of the discharge order or the statutes that govern its scope.”
is,
a court may hold a creditor in civil contempt for violation of 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. . at 1799 (emphasis in original).
In adopting the “no fair ground of doubt” standard, the Court reasoned that §§ 524(a)(2) and 105(a) “bring with them the ‘old soil’ that has long governed how courts enforce injunctions:”
That old soil includes the potent weapon of civil contempt. … 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. …
The bankruptcy statutes, however, do not grant courts unlimited authority to hold creditors in civil contempt. Instead, as part of the old soil they bring with them, the bankruptcy statutes incorporate the traditional standards in equity practice for determining when a party may be held in civil contempt for violating an injunction. In cases outside the bankruptcy context, we have said that civil contempt should not be resorted to where there is a fair ground of doubt as to the wrongfulness of the defendant’s conduct.… This standard reflects the fact that civil contempt is a severe remedy…and that principles of basic fairness require that those enjoined receive explicit notice of what conduct is outlawed before being held in civil contempt….
The Court explained that the “no fair ground of doubt” standard is “generally an objective one;” the defendant’s subjective belief that it was complying with an order ordinarily will not
insulate it from civil contempt if that belief was objectively unreasonable. Id . at 1802 (emphasis
in original). “The absence of wilfulness does not relieve from civil contempt.” Id . (cleaned up)
(citation omitted). Yet subjective intent is not “always irrelevant.” Id . On the one hand, a finding
of civil contempt may be appropriate where the defendant acted in bad faith; on the other, the
defendant’s good faith may be relevant to the determination of the appropriate sanction. Id .
The Court rejected the standard applied by the Ninth Circuit, i.e., that a creditor’s good faith belief that the discharge order does not apply to its claim precludes a finding of contempt
even if that belief is unreasonable:
…[T]his standard is inconsistent with traditional civil contempt principles, under which parties cannot be insulated from a finding of civil contempt based on their subjective good faith. It also relies too heavily on difficult-to-prove states of mind. And it may too often lead creditors who stand on shaky legal ground to collect discharged debts, forcing debtors back into litigation (with its accompanying costs) to protect the discharge that it was the very purpose of the bankruptcy proceeding to provide. . at 1802-03.
The Court also rejected the standard applied by the bankruptcy court and proposed by the plaintiff, i.e., that a finding of civil contempt is appropriate if the creditor was aware of the
discharge order and intended the actions that violated it. Id . at 1799, 1803. The Court reasoned:
Because most creditors are aware of discharge orders and intend the actions they take to collect a debt, this standard would operate much like a strict-liability standard. It would authorize civil contempt sanctions for a violation of a discharge order regardless of the creditor’s subjective beliefs about the scope of the discharge order, and regardless of whether there was a reasonable basis for concluding that the creditor’s conduct did not violate the order.
Id . at 1803.
The Court was not persuaded by the plaintiff’s reliance on automatic stay authority: An automatic stay is entered at the outset of a bankruptcy proceeding. The statutory provision that addresses the remedies for violations of automatic stays says that “an individual injured by any willful violation” of an automatic stay “shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.” 11 U.S.C. § 362(k)(1). This language, however, differs from the morе general language in section 105(a). … The purposes of automatic stays and discharge orders also differ: A stay aims to prevent damaging disruptions to the administration of a bankruptcy case in the short run, whereas a discharge is entered at the end of the case and seeks to bind creditors over a much longer period. . at 1803-1804. The Court expressly did not decide whether the word “willful,” as it appears in
§ 362(k)(1), supports a standard like a strict-liability standard.
Taggart
,
Courts have applied this “no fair ground of doubt” standard outside of the Chapter 7 context, as well as to bankruptcy orders other than discharge orders, through § 105(a). See Beckhart
v. NewRez LLC
,
604, 624 (Bankr. D.N.H. 2022) (order confirming Chapter 13 plan).
The First Circuit has not addressed §§ 524(a)(2) and 105(a) since Taggart . Few courts have addressed, post- Taggart , whether constructive notice of a discharge order is enough. Notice is not
often in dispute.
See In re Lett
, #10-61451-BEM,
27, 2023) (as in
Taggart
, notice is typically implicit); ,
e.g.
,
Pope
,
do not dispute that [creditor] had notice of the Plan and Confirmation Order…”). Pre- Taggert ,
there was a split of appellate authority as to whether actual notice of an order is necessary for a
finding of civil contempt generally, or whether constructive notice suffices. See In re Lett , 2023
WL 2246714, at *6-7 (collecting authorities); contrast , e.g. , Cypress Barn, Inc. v. Western Elec.
Co., Inc.
,
e.g.
,
Ashcraft v. Conoco, Inc.
,
Post- Taggart , the Fourth Circuit could not conclude that the bankruptcy court applied the correct legal standard in finding a creditor in civil contempt where the decision did not mention
Taggart or its “no fair ground of doubt” stаndard and instead applied the test articulated in Ashcraft ,
v. VSL Pharm., Inc. , 36 F.4th 518, 529 (4th Cir. 2022); see Lett , 2023 WL 2246714, at *6-7
(“possible” that actual notice of discharge order is necessary but ultimately declining to decide as
plaintiff failed to prove at trial either actual or constructive notice). [28]
Post- Taggart , the Bankruptcy Appellate Panel for the Ninth Circuit disagreed that the Supreme Court in Taggart addressed a notice requirement and held, in relevant part, that the
bankruptcy court did not abuse its discretion in declining to award damages for violation of the
discharge injunction, where the Chapter 13 debtors had not proven by clear and convincing
evidence when the creditor, which held the second mortgage lien on their residence, became aware
of the discharge order.
In re Moon
, #NV-20-1057-BGTa, #NV-20-1070-BGTa,
*1, 10-11 (BAP 9th Cir. Jan. 7, 2021) (unpublished). The evidence showed that the discharge
order was sent to the creditor but at an incorrect address due to an error in the creditor matrix.
While a debtor credibly testified about a call during which he told the creditor’s representative
about the discharge, he could not remember when the call occurred, and no other evidence of the
call was introduced. The bankruptcy court reasoned that absent sufficient proof of when the
creditor became aware of the discharge order, there was a “fair ground of doubt” as to the
lawfulness of its conduct.
In re Moon
,
3. Analysis.
a. Coercion. The court rejects defendants’ argument that there are insufficient facts in the record from which plausibly to infer coercion. Bates , on which defendants primarily rely, see #43 at 26; see
also #50 at 11, is not comparable. The forms there, sent after the creditor had already foreclosed
on the home and the debtors had moved out, conveyed the possibility of income or loss reportable
for tax purposes because of the foreclosure.
conveyed the possibility of foreclosure, as well as eviction, #43-6 (Ex. F) at 2; #43-7 (Ex. G)
at 3; #43-9 (Ex. I) at 3, 12-14, which are objectively more coercive consequences than the
possibility of reportable income or loss.
Furthermore,
Bates
was in the context of summary judgment.
the grant of a motion for judgment on the pleadings,
see
“despite the Debtor’s protestations to the contrary, the pleadings, as supplemented by the facts
susceptible to judicial notice, [did] not reveal a potential dispute about this material fact; rather,
they establish[ed] that Nationstar was a secured creditor with a lien on the Property,” see id . at 12.
Here, defendants assume, for now, that the second mortgage lien was stripped off in plaintiff’s
bankruptcy case.
Similarly, defendants cite so much of
Bates
that cites
Jamo v. Katahdin Fed. Credit Union
,
references to potential foreclosure in letters to a debtor during bankruptcy proceedings were not coercive where the letters accurately reported that the debtor could face foreclosure after bankruptcy but threatened no “immediate action” against the debtors.
844 F.3d at 304 (citation omitted); #43 at 26. Plaintiff’s point is that defendants did not
“accurately” report that she could face foreclosure.
Objectively and improperly coercive circumstances may be plausibly inferred from the letters that defendants submitted and which, everyone agrees, are incorporated into the pleadings.
One example of these coersive communications is the letter of October 18, 2021, in which DONI
insisted that it “still retain[ed] lien rights” and asked plaintiff to specify whether she “wish[ed] to
retain ownership of the property, sell the property, or abandon [her] interest in the property.” (#43-
6 (Ex. F) at 2.) Another example is the dunning letter BMPC sent plaintiff on April 1, 2022,
claiming she owed over $81,000 in alleged “debt,” and that “[i]f” the debt had been discharged,
then it was simply enforcing a lien. (#43-7 (Ex. G) 2-3) (emphasis omitted). Finally, three days
later, BMPC sent plaintiff (and Francisco Escamilla) the “Right to Cure” letter claiming that she
could be “evicted” after “a foreclosure sale” if she did not pay the “total past due amount” of nearly
$70,000, if not by July 3, 2022, then at least before the sale. (#43-9 (Ex. I) at 13) (emphasis
omitted).
b. Notice; no fair ground of doubt. Assuming without deciding that actual notice is necessary, [30] there are sufficient facts in the record from which one may plausibly infer that defendants had actual notice of the discharge
order. [31] On April 27, 2021, DONI invited plaintiff to call its “bankruptcy specialist” at “ext. 2101”
if the second mortgage loan was subject to the automatic stay or had been discharged. (#43-3 (Ex.
C) at 2.) Further, DONI’s October 18, 2021 letter was signed by its “Bankruptcy Department” at
“Ext. 2101.” (#43-6 (Ex. F) at 2.) Defense counsel proffer no explanation. #43 at 5.
Regardless of how it came to be that, inferentially, DONI’s “Bankruptcy Department” at “Ext. 2101” sent plaintiff this letter, it is at least plausible that the department had relevant
information. In arguing that they lacked notice of the discharge order, defendants do not address
the content of this letter, which preceded BMPC’s April 1, 2022 dunning letter and its April 4,
2022 “Right to Request” and “Right to Cure” letters. See #43 at 25; see also #50 at 9. The
department wrote, in part:
Your personal liability pertaining to the debt associated with the referenced property may have been discharged in your Bankruptcy case.
(#43-6 (Ex. F) at 2.) Reference to “your Bankruptcy case” supports a reasonable inference of actual
notice of plaintiff’s bankruptcy case, while reference to the possibility of the “discharge[]” of
plaintiff’s personal liability supports a reasonable inference of actual notice of the order. [32]
These reasonable inferences are supported by the well-pled allegations that plaintiff listed Carrington as a creditor on the creditor matrix, see #27 ¶ 13, and certificates of service indicated
that the amended plan and post-confirmation plan, see id . ¶¶ 16, 21, were served on Carrington, [33]
and the further reasonable inference that DONI received Carrington’s paperwork when “оwnership
and servicing,” #43-3 (Ex. C) at 2, of the second mortgage loan was transferred.
On the lack of notice argument, defendants’ briefing does not differentiate DONI from BMPC, only defendants from Carrington. #43 at 24-25; #50 at 8-9; see also #65 at 3-7. It
suffices to say that it is reasonable to infer that when DONI hired BMPC to foreclose, see #31 ¶
11; see also #30 ¶ 11, DONI passed relevant information along to BMPC. [34]
That leaves defendants’ argument that they lacked notice or there is a fair ground of doubt as to the lawfulness of their conduct because (1) the discharge order itself does not reference the
treatment of the second mortgage loan and a lien generally survives bankruptcy proceedings and
(2) plaintiff allegedly failed to record the discharge order. See #65 at 5, 6. [35] As noted, the court
only takes judicial notice of the fact that its own online search did not reveal that the discharge
order was recorded. Defendants do not suggest, and the authorities they cite do not support the
conclusion, [36] that a creditor cannot obtain actual notice of a discharge order through alternative
means, such as personal service or a phone call from a debtor. Fed. R. Civ. P. 65(d)(2) (“by
personal service or otherwise”).
Defendants do not address the abundant authority in this circuit and the majority of circuits that, in Chapter 13 bankruptcy cases, a debtor has the ability to “strip off” a mortgage lien that is
found to have no value because the amount of a senior mortgage lien аnd encumbrances exceed
the value of the residence.
See In re Guerra
,
Nobleman v. Am. Savings Bank
,
Sixth, Eighth, Ninth, Tenth, and Eleventh Circuits and joining majority of courts in concluding
that Supreme Court’s decision in
Bank of Am., N.A. v. Caulkett
,
Nobleman
line);
see also In re Mann
,
Courts of Appeals and the Ninth Circuit Bankruptcy Appellate Panel, and the several bankruptcy
and district courts making up the majority view. Pursuant to [11 U.S.C.] § 506(a) and § 1322(b)(2),
and notwithstanding the antimodification provision in the latter, Chapter 13 plans may avoid
residential real property liens that are wholly unsecured”). The court will not draw an inference
against plaintiff that defendants were unaware of this authority or that it is objectively reasonable
for a creditor to ignore, or to fail adequately to account for, the possibility of “strip off” in light of
this authority.
Defendants have not cited authority to support the conclusion that a Chapter 13 discharge order typically would refer to the treatment of a second mortgage loan or that an objectively
reasonable creditor does not refer to the plan.
Cf. In re Monahan
,
1st Cir. 2013) (reversing bankruptcy court’s finding that Internal Revenue Service violated
injunction given lack of notice from Chapter 13 plan that it would provide for discharge of priority
tax claim upon completion) (applying
United Student Aid Funds, Inc. v. Espinosa
,
272 (2010) (“[d]ue process requires notice reasonably calculated, under all circumstances, to
apprise interested parties of the pendency of the action and afford them an opportunity to present
their objections”) (cleaned up) (citation omitted)). The Taggart Court recognized that Chapter 7
discharge orders typically are written in genеral terms and stated that civil contempt sanctions may
also be appropriate where a creditor has an objectively unreasonable understanding of the
governing statutes, see id . at 1799-1800, 1802. Regardless, it is not appropriate for the court to
evaluate objective reasonableness on so limited a record. ,
e.g.
,
In re Carnegie
,
411 (Bankr. M.D. N.C. 2020) (declining to consider defendant’s argument, on Rule 12(b)(6)
motion, that fair ground of doubt existed because Chapter 13 discharge order did “not indicate that
a secured debt has been satisfied or otherwise terminated”).
B. Count I: FDCPA.
1. The FAC and the parties’ positions. Plaintiff alleges that DONI and BMPC are “debt collector[s]” as defined by 15 U.S.C. § 1692a(6) and that the purpose of their “business in this case is the collection of a defaulted
consumer mortgage debt that was previously discharged in bankruptcy.” (#27 ¶¶ 6-7.) She claims
that BMPC violated § 1692g with its April 1, 2022 dunning letter, which plaintiff alleges is
confusing and makes contradictory statements. (#27 ¶¶ 49, 55-59.)
Plaintiff also claims that DONI and BMPC violated § 1692f. In the FAC, plaintiff cites § 1692f(1), #27 ¶ 48, but not § 1692f(6). DONI purportedly violated § 1692f by attempting to
collect an “alleged debt” and by attempting to enforce an “alleged lien” that is “not valid” because
of the bankruptcy discharge. (#27 ¶¶ 50-51.) BMPC purportedly violated § 1692f with its April 4,
2022 “Right to Cure” and “Right to Request” letters, see #27 ¶¶ 52-53, and by attempting to
enforce an “alleged lien” that is “not valid” because of the bankruptcy discharge, see id . ¶ 54.
Beforе the October 26, 2023 hearing on the second motion to amend, the court asked the parties to be prepared to address Obduskey v. McCarthy & Holthus LLP , 586 U.S. ---, 139 S. Ct.
1029 (2019), interpreting the FDCPA’s so-called “limited purpose” definition of “debt collector.”
(#33.) At that hearing, the parties argued regarding Obduskey , see #66 at 7-16; as noted, the second
motion to amend was denied without prejudice. In their Rule 12(c) briefing, defendants argue that
they fall under the limited purpose definition and are therefore only subject to § 1692f(6), and that
plaintiff has not asserted a § 1692f(6) claim. (#43 at 13-23); see #50 at 7-8.
At the April 2, 2024 hearing, plaintiff’s counsel conceded that plaintiff has not asserted a § 1692f(6) claim, and that she would need further leave to amend. (#68 at 7.) It is plaintiff’s position,
however, that defendants do not fall under the limited purpose definition. Id .; see #46 at 17-21.
Defendants also argue that under § 1692a(5), “debt” requires the existence of an obligation to pay money and there was none here because of the discharge order. (#43 at 11-13, 23); #50
at 2-5. Defendants argue that “dictum” in Arruda – that a plaintiff may bring a FDCPA claim based
on the “false[]” allegation of an obligation to pay money,
see
According to defendants, plaintiff failed adequately to plead the “false” debt allegation theory.
(#43 at 12-13.) Finally, defendants argue that the hypothetical unsophisticated consumer would
have understood from discharge disclaimers that the letters were not demands to pay money. . at
13.
2. The law.
a. Title 15 U.S.C. §§ 1692g and 1692f. Congress enacted the FDCPA to “eliminate abusive debt collection practices by debt collectors.” 15 U.S.C. § 1692(e). 15 U.S.C. § 1692g(a) requires a “debt collector” to disclose the
consumer’s right within thirty days to dispute a debt and under § 1692g(b), any collection activities
within that thirty-day period “may not overshadow or be inconsistent with [that] disclosure…” 15
U.S.C. § 1692g(a)-(b).
Title 15 U.S.C. § 1692f states, in part:
A debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:
(1) The collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.
…
(6) Taking or threatening to take any nonjudicial action to effect dispossession or disablement of property if—
(A) there is no present right to possession of the property claimed as collateral through an enforceable security interest;
(B) there is no present intention to take possession of the property; or
(C) the property is exempt by law from such dispossession or disablement.
… .
b. “Debt collector.” The so-called “primary” definition of “debt collector” is found in the first sentence of 15 U.S.C. § 1692a(6):
…any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.
Id.
;
see Obduskey
,
The “limited purpose” definition is found in the third sentence of 15 U.S.C. § 1692a(6): For the purpose of section 1692f(6) of this title, [the] term [debt collector] also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests.
Id
.;
see Obduskey
,
In Obduskey , the Supreme Court “concede[d] that if the FDCPA contained only the primary definition, a business engaged in nonjudicial foreclosure would qualify as a debt collector for all
purposes,”
…[A] home loan is an obligation to pay money, and the purpose of a mortgage is to secure that obligation…. Foreclosure, in turn, is the process in which property securing a mortgage is sold to pay off the loan balance due…. In other words, foreclosure is a means of collecting a debt. And a business pursuing nonjudicial foreclosures would, under the capacious language of the Act’s primary definition, be one that “regularly collects or attempts to collect, directly or indirectly, debts.” Id . at 1036 (cleaned up) (citations omitted).
The Court reasoned from the statutory language and legislative history that debt-collector related prohibitions of the FDPCA, with the exception of § 1692f(6), do not apply to those who
are engaged in no more than security-interest enforcement.
that the notices sent by the defendant-law firm “were antecedent steps required under state law to
enforce a security interest.” Id . at 1039. It continued:
[B]ecause he who wills the ends must will the necessary means, we think the Act’s (partial) exclusions of “the enforcement of security interests” must also exclude the legal means required to do so. This is not to suggest that pursuing nonjudicial foreclosure is a license to engage in abusive debt collection practices like repetitive nighttime phone calls; enforcing a security interest does not grant an actor blanket immunity from the Act. But given that we here confront only steps required by state law, we need not consider what other conduct (related to, but not required for, enforcement of a security interest) might transform a security-interest enforcer into a debt collector subject to the main coverage of the Act.
Id . at 1039-1040 (emphasis in original).
Justice Sotomayor, concurring, remarked that the Court “rightly cabin[ed]…its holding to the kinds of good-faith actions presented here,” explaining:
…[I]n addition to the unnecessary and abusive practices that the Court notes, I would see as a different case one in which the defendant went around frightening homeowners with the threat of foreclosure without showing any meaningful intention of ever actually following through. There would be a question, in such a cаse, whether such an entity was in fact a “business the principal purpose of which is the enforcement of security interests,”…or whether it was simply using that label as a stalking horse for something else. . at 1041 (quoting 15 U.S.C. § 1692a(6)).
After Obduskey , district courts here and elsewhere have emphasized the importance to the Supreme Court’s decision of the assumption that the notices at issue “were antecedent steps
required under state law to enforce a security interest,”
FSB, Inc
., #5:23-cv-5227,
Errico, Emmer & Brooks, P.C.
, #1:18-cv-11288-IT,
2022), reconsideration denied , 2023 WL 4373890 (D. Mass. July 6, 2023), motion to alter or
amend judgment denied , 2023 WL 7091040 (D. Mass. Oct. 26, 2023); Brown v. Shapiro &
Kreisman LLC
, #H-19-4220,
Gazaway and Assocs
., LLC, #3:19-cv-178 JWS,
Cooke v. Carrington Mortgage Srvcs
., #TDC-18-0205,
2019);
Sevela v. Kozeny & McCubbin, L.C
., #8:18-cv-390,
2, 2019). In
Moody v. PennyMac Loan Srvcs., LLC
, #16-cv-00021-JL,
Nov. 12, 2019), Judge Laplante “decline[d] to find as a matter of law or undisputed fact” that the
defendant-mortgage loan owner and servicer fell within the limited purpose definition of “debt
collector” where the defendant “point[ed] to no legal authority or record evidence” that the
deficiency notice, “sent more than six months after” the nonjudicial foreclosure on plaintiff’s
home, was a “necessary step” in that proceeding let alone required under New Hampshire law. .
at *8;
accord Hullett v. Plunkett Clooney, P.C
., #1:18-cv-1441,
Mich. Mar. 16, 2020) (denying motion for judgment on pleadings; “by the time Defendants [law
firm and lawyer] sent the Second Letter, the sheriff’s sale was complete…”).
The First Circuit has not yet addressed Obduskey . Other Courts of Appeals have acknowledged that a plaintiff may allege “ other conduct” that transforms a security-interest
enforcer to a debt collector,
see
in addition to the actions required to enforce a security interest”) (cleaned up; emphasis omitted)
(citation omitted);
also Bates v. Green Farms Condo. Assoc.
,
2020) (complaint included no general allegations regarding defendants’ regular business activities
and assuming without deciding that allegations about specific conduct could ever establish regular
business activities, only well-pled allegation was “antecedent step[] required under state law”).
The court has found no guidance in the post- Obduskey cases for the circumstances presented here, that is, where defendants claim to fall under the limited purpose definition of “debt
collectors” yet, for present purposes, do not dispute that the second mortgage lien was stripped off
in plaintiff’s bankruptcy case. In a case unlike this one in which the plaintiff only asserted a §
1692f(6) claim, see Thompson v. Fire Bros. Mortgage Co. Srvcs. and Securing, Inc. , 800 Fed.
Appx. 369, 371 n.1 (6th Cir. 2020) (unpublished), the Sixth Circuit affirmed the grant of a motion
for summary judgment because the defendant-property preservation and maintenance company
did not fall within the limited purpose definition. By the time the defendant secured the allegedly
vacant property and removed the plaintiff’s belongings, the home had been foreclosed on and the
property had been purchased at the sheriff’s sale, after which the plaintiff failed to timely redeem.
The defendant “was not acting to enforce a security interest because no security interest existed”
then. . at 371-373.
c. “Debt.”
Title 15 U.S.C. § 1692a(5) defines “debt” as
any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment. .
In
Arruda
, the First Circuit stated that “the sine qua non of a debt is the existence of an
obligation (actual or alleged).”
in dismissing FDCPA claims by plaintiffs who have had their personal obligations to pay mortgage
loans discharged in bankruptcy. See Harrer v. Bayview Loan Servicing, LLC , #15 C 4075, 2015
WL 6995559, at *1 (N.D. Ill. Nov. 30, 2016) (collecting cases, including Shaw v. Bank of Am., NA ,
#10-cv-11021-DJC,
The
Arruda
court also recognized that “a plaintiff may bring a claim under the FDCPA by
pleading that a debt collector falsely alleged an obligation to pay money.”
statement has been regarded as a “qualification” on the requirement of the “existence” of an
obligation and consistent with the law in other circuits that “‘the FDCPA is designed to protect
consumers from the unscrupulous antics of debt collectors, irrespective of whether a valid debt
actually exists.’”
Harrer
,
(7th Cir. 1998) (citing Mace v. Van Ru Credit Corp. , 109 F.3d 338, 341 (7th Cir. 1997) (citing
Baker v. G.C. Servs. Corp.
,
the debt, but instead on the use of unfair methods to collect it”) (cleaned up) (citing, inter alia ,
Baker ). “That is because bringing or even threatening to bring a lawsuit which the debt collector
knows or should know is unavailable or unwinnable by reason of a legal bar such as the statute of
limitаtions is the kind of abusive practice the FDCPA was intended to eliminate.” Harrer , 2016
WL 6995559, at *2 (cleaned up) (citation omitted).
Arruda
involved the discharge of debts from purchases of household goods in Chapter 7
bankruptcy cases,
liens through letters and other communications giving the debtors the option of surrendering the
goods or redeeming them by paying their fair market value, see id . at 17-18. Sears had valid liens:
“Of course, the discharges did not erase Sears’s prepetition security interest in the purchased
property.” Id . at 17.
d. The hypothetical unsophisticated consumer standard. In determining whether a letter violates 15 U.S.C. § 1692g(b), the letter is to be viewed from the perspective of “the hypothetical unsophisticated consumer,” a standard which “protects
all consumers, including the inexperienced, the untrained and the credulous.” Pollard v. Law Office
of Mandy L. Spaulding , 766 F.3d 98, 103 (1st Cir. 2014) (cleaned up) (citations omitted). The
standard is objective and preserves an element of reasonableness; “[a] debt collector will not be
held liable based on an individual consumer’s chimerical or farfetched reading of a collection
letter.” . (cleaned up) (citation omitted).
Whether a letter violates § 1692f’s prohibition on the use of “unfair or unconscionable” means to collect or attempt to collect any debt is also evaluated under this objective standard.
Turner v. J.V.D.B. & Assocs., Inc.
,
3. Analysis. The court is not persuaded at this preliminary stage that defendants fall under the limited purрose definition of “debt collector.” It views this case as potentially presenting circumstances
that the Obduskey Court did not address – “what other conduct (related to, but not required for,
enforcement of a security interest) might transform a security-interest enforcer into a debt
collector.” 139 S. Ct. at 1039-1040 (emphasis in original). An argument that the letters were
antecedent steps required under state law, see #43 at 16; see also #68 at 31-33, ignores the
assumption that defendants did not have in rem rights. The court also views this case as presenting
circumstances similar to those in Moody , where the notice alleged to be a required antecedent step
was sent more than six months after the nonjudicial foreclosure.
Hullett
,
case.
This case is also arguably similar to Thompson , where the defendant “was not acting to enforce a security interest because no security interest existed” by the time it secured the allegedly
vacant property and removed the plaintiff’s belongings.
argue that they do not fall under the primary definition because they were seeking to enforce a
security interest notwithstanding the assumption that the security interest did not exist. Thompson
appears to make available an argument that defendants do not fall under the limited purpose
definition if they were seeking to enforce a security interest that in fact did not then exist. It is
difficult to believe that Congress intended to exclude defendants seeking to enforce non-existent
security interests from both the primary and limited purpose definitions of “debt collector.” [42]
The court’s finding that there are sufficient facts in the record from which to plausibly infer actual notice of the discharge order also supports a finding that there are sufficient facts in the
record to establish defendants’ primary “debt collector” status. There may be a question in cases
in which the defendant “frighten[s] homeowners with the threat of foreclosure without showing
any meaningful intention of ever actually following through” whether such an entity is “in fact a
business ‘the principal purpose of which is the enforcement of security interests’” or whether it is
“simply using that label as a stalking horse for something else.” Obduskey , 139 S. Ct. at 1041
(Sotomayor, J., concurring) (quoting 15 U.S.C. § 1692a(6)); see id . at 1039 (“enforcing a security
interest does not grant an actor blanket immunity”). Similarly, there may be a question in a case in
which a defendant sends homeowners letters setting out the amount to be paid to avoid foreclosure
knowing that it does not have in rem rights.
Defendants’ argument regarding the definition of “debt” is likewise unpersuasive. At the April 2, 2024 hearing, counsel for BMPC conceded that a security interest is a “debt.” (#68 at 13.)
Obduskey supports this view. See 139 S. Ct. at 1037 (“Foreclosure…is the process in which
property securing a mortgage is sold to pay off the loan balance due. ... In other words, foreclosure
is a means of collecting a debt”) (cleaned up) (citation omitted); see also Heinz v. Carrington Mtg.
Srvcs., LLC
,
activity….”). Plaintiff relies on Arruda ’s “false” debt allegation theory in relation to the
obligation to discharged debts related to the second mortgage loan personally,
#46 at 15; see also #68 at 34, and extending Arruda , a plaintiff may also bring a claim under the
FDCPA by pleading that a debt collector “falsely” alleged a security interest. [44] To be sure, the FAC
does not use the word “false,” but it refers to the debt as “alleged” and “extinguished” and to the
second mortgage lien as “alleged,” “extinguished,” and “not valid.” See , e.g. , #27 ¶¶ 51, 54, 61,
68. Defendants claim that they were attempting to enforce a security interest and, for present
purposes, do not dispute that the second mortgage lien was stripped off in plaintiff’s bankruptcy
case. The same facts that support a plausible inference of actual notice of the discharge order,
together with the “stripped off” assumption, support a finding that plaintiff adequately pled the
“false” debt allegation theory. [45]
Regardless, the court rejects defendant’s Arruda -based argument. That court stated: “…[T]he FDCPA’s definition of debt is broad, but it requires at least the existence or alleged
existence of an obligation to pay money.” 310 F.3d at 13. Defendants place emphasis on “the
existence” and “existence,” but it is more appropriately placed on “alleged.” (#50 at 3.) Even
accepting that the letters did not allege the existence of an obligation to pay the $70,000-$80,000
personally, see #43-7 (Ex. G) at 2; #43-9 (Ex. I) at 12-13, the letters did allege the existence of a
security interest, which defendants claim they were attempting to enforce and which they concede
is a “debt.”
Finally, the three discharge injunction cases defendants cite in support of their argument that from the disclaimers, the hypothetical unsophisticated consumer would not have understood
that the letters were demands for payment, see #43 at 13, did not involve a lien that had been
“stripped off.”
Best
,
(citing Lemieux v. America’s Servicing Co. , 520 B.R. 361, 368-370 (Bankr. D. Mass. 2014)
(Chapter 7 case; defendants did not fall under bankruptcy injunction’s safe harbor provision for “a
creditor that is the holder of a secured claim” but because the real property was no longer “the
principal residence of the debtor,”
see
15 U.S.C. § 524(j)(1)) (citing
In re Norlund
,
519-520 (Bankr. E.D. Cal. 2011) (creditor-bank “has not explained its puzzling failure to foreclose
on the Hayfork residence. Approximately one year ago, it obtained leave from this court to
foreclose on it then failed to do so. In fact, despite knowing that the debtors had vacated the
property in anticipation of a foreclosure and had ceased maintaining the property, [the bank]
allowed the property to sit idle, be vandalized, and become weed choked. Apparently, [the bank]
is uninterested in its collateral and more interested in focusing its attention on the debtors”)).
VI. Conclusion and Next Steps.
For the reasons set out above, (#42), defendants’ joint motion for judgment on the pleadings is denied. If plaintiff seeks to add class action claims for violation of the discharge injunction,
#15-1 ¶¶ 49, 79-82, the parties must submit supplemental briefing addressing the recent decision
in Bruce v. Citigroup Inc. , 75 F.4th 298 (2d Cir. 2023), holding that a bankruptcy court’s civil
contempt authority does not extend to other bankruptcy courts’ discharge orders. . at 306. A
renewed second motion to amend, if any, must be filed within fourteen days of thе issuance of this
Memorandum and Order. If plaintiff does not file a renewed second motion to amend, within
twenty-one days of the issuance of this Memorandum and Order, or within seven days of the
issuance of the Memorandum and Order on any renewed second motion to amend, the parties shall
jointly propose a case schedule and shall indicate whether they request a scheduling conference.
July 10, 2024 /s/M. Page Kelley M. Page Kelley
United States Magistrate Judge
Notes
[1] The parties have consented to the assignment of this case to the undersigned for all purposes, including trial and entry of final judgment, pursuant to 28 U.S.C. § 636(c). (#12.)
[2] Generally, “[a] bankruptcy discharge extinguishes only one mode of enforcing a claim – namely,
an action against the debtor
in personam
– while leaving intact another – namely, an action against
the debtor
in rem
.”
Johnson v. Home State Bank
,
[3] Specifically, defendants state: …[T]o comply with the standard of review for this motion, the [d]efendants acknowledge that the bankruptcy court issued the October 27, 2011 order [confirming plaintiff’s amended Chapter 13 plan] and take as true [p]laintiff’s allegation that the order stripped the Carrington [second mortgage] Loan of its security, although no discharge of the mortgage was recorded in the Registry. (#43 at 4 n.2.)
[4] Plaintiff objects only to Exhibit E. (#46 at 9-10 & n.2.)
[5] https://files.consumerfinance.gov/f/documents/cfpb_debt-collection_model-validation- notice_english.pdf (last visited July 8, 2024).
[6] Defense counsel proffer that Exhibit E was a request from plaintiff, on May 11, 2021, for a payoff amount to which DONI, on June 25, 2021, responded with a payoff amount, i.e., through Exhibit D. (#43 at 5; #50 at 1.) The proffer is not supported by affidavit. Exhibit E, titled “Authorization to Release,” merely states that plaintiff “give[s] [her] authorization to release information to Brian Lindmark of Total Mortgage on behalf of the refinance of [her] home,” and instructs that all documentation be emailed to him. (#43-5 (Ex. E) at 2.)
[7] The Chapter 13 petition is #10-bk-12071, #1. There are inconsequential differences between some of the quotations from the bankruptcy pleadings and orders in the FAC and the actual language of those documents.
[8] See #10-bk-12071, #1 at 24.
[9] Plaintiff mistakenly alleges that the amended Chapter 13 plan was filed in 2021. #27 ¶ 17. That plan, filed on May 17, 2011, is #10-bk-12701, #21.
[10] See #10-bk-12071, #21 at 3.
[11] See #10-bk-12071, #21 at 5, 6.
[12] The October 27, 2011 order is #10-bk-12071, #30.
[13] See #10-bk-12071, #30 at 2.
[14] The July 12, 2012 post-confirmation plan is #10-bk-12071, #38.
[15] also #10-bk-12071, #38 at 3.
[16] See #10-bk-12071, #38 at 5, 6.
[17] This October 9, 2012 amended order is #10-bk-12071, #47.
[18] #10-bk-12071, #47 at 1.
[19] The June 27, 2013 discharge order is #10-bk-12071, #65.
[20] The court acknowledges defense counsel’s proffer that the discharge order was not recorded, see #68 at 21-22, a fact that plaintiff has not disputed, #66 at 7. However, at most, the court takes judicial notice of the fact that its own search of the online Southern Middlesex recorded and registered land database, https://www.masslandrecords.com/MiddlesexSouth, using “Marta Escamilla,” “Francisco Escamilla,” and “205 Ferry Street” in Everett, “Unit 103,” did not reveal that the discharge order was recorded. The court is not persuaded that the unsworn “fact” that the discharge order was not recorded is beyond “reasonable dispute.” Fed. R. Evid. 201(b). Moreover, the court draws reasonable inferences in the light most favorable to plaintiff, not defendants. At any rate, for the reasons set out below, whether the discharge order was actually recorded or not is not dispositive at this preliminary stage.
[21] The June 25, 2021 letter is over the signature of a named “Account Manager” at “Ext. 2161.” .
[22] Plaintiff, in the FAC, alludes to some of the language from the dunning letter highlighted here, and claims that specified language is contradictory. (#27 ¶¶ 34-41.)
[23] Defense counsel proffer that the dunning letter, Exhibit G, “followed” the Model Validation Notice, Exhibit H, #43 at 8, but this instruction differs from the parallel instruction in the model, which only states: “Contact us about your payment options.” (#43-8 (Ex. H) at 2.) There is also a discrepancy between the “How do you want to respond?” section in the dunning letter and the parallel section in the Model Validation Notice. The model includes an option for responding by enclosing an amount of money. See #43-8 (Ex. H) at 2. The dunning letter omits that option. See #43-7 (Ex. G) at 2.
[24] There is no Page 2 of the Model Validation Notice. #43-8 (Ex. H).
[25] Title 11 U.S.C. § 105(a) states: The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court 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. .
[26] The First Circuit has declined to follow other courts that require litigants to bring discharge
injunction claims in the bankruptcy court.
Bessett
, 230 F.3d at 445-446;
see Lance
, 2015 WL
5437090, at *2. The district court may, however, refer such claims to the bankruptcy court. ,
e.g.
,
U.S. Bank
,
[27] Fed. R. Civ. P. 65(d)(2) provides that an injunction “binds only the following who receive actual notice of it by personal service or otherwise: (A) the parties; (B) the parties’ officers, agents, servants, employees, and attorneys; and (C) other persons who are in active concert or participation with anyone described in Rule 65(d)(2)(A) or (B).”
[28] Before
Taggart
, bankruptcy judges in this circuit had suggested that constructive notice of the
“discharged debt” was enough.
See In re Zine
,
[29] The second mortgage lien had been stripped off in the debtors’ bankruptcy case. . at *2.
[30] Actual notice may well be necessary, but the court is wary of reliance, post-
Taggart
, #43 at
24; #50 at 9; #64 at 4; #65 at 4, on
Fleet Mortgage Group, Inc. v. Kaneb
,
[31] The court remarked at the April 2, 2024 hearing that plaintiff had not adequately pled actual
notice. (#68 at 19.) The finding here is made after further reflection, based not only on the FAC,
but on the “relevant entirety,”
see Clorox
,
[32] Defendаnts do not adequately develop a lack of notice or fair ground of doubt argument from the next sentence: “Nevertheless, Dyck-O’Neal, Inc. still retains lien rights as to the property.” .
[33] Plaintiff requests leave to further amend on actual or constructive notice, pointing to the Chapter 13 trustee’s final report and account, which includes an entry for a $149.19 payment to Carrington. (#64 at 6) (citing #10-bk-12071, #60). The court, however, can take judicial notice of the existence of this entry, though not of its truth. It can also take judicial notice that during the bankruptcy case, U.S. Bank moved for relief from the automatic stay. #10-bk-12071, #48. U.S. Bank’s memorandum stated the amount owed on the first mortgage ($189,773.95) and the second ($45,000), as well as the fair market value of the property ($145,000). It also included a certificate of service indicating service on Carrington. #10-bk-12071, #49 at 2-3, 6. U.S. Bank and plaintiff entered into a stipulation, which the bankruptcy court approved. #10-bk-12071, #58. The stipulation and U.S. Bank’s motion for approval included certificates of service indicating service on Carrington. #10-bk-12071, #54 at 3, #55 at 2.
[34] Although unnecessary to its finding, the court also notes the omission from BMPC’s April 1, 2022 dunning letter of the option in the Model Validation Notice to respond by paying an amount of money. Contrast #43-7 (Ex. G) at 2 with #43-8 (Ex. H) at 2.
[35] Defendants suggest that it would be their burden to prove that there is a fair ground of doubt.
(#65 at 6);
see In re Venuto
,
[36]
Bank of Am., N.A. v. Casey
,
[37] The discharge order here, the 2013 revision of Form B18W, stated, in part, that plaintiff was granted a discharge “pursuant to 11 U.S.C. § 1328(a),” see #43-2 (Ex. B) at 2, and the statute states, in part, that “the court shall grant the debtor a discharge of all debts provided for by the plan …,” 11 U.S.C. § 1328(a) (emphasis supplied).
[38] The primary definition itself includes two definitions: “principаl purpose” and “regularly
conducts.”
Reygadas v. DNF Assocs., LLC
, 982 F.3d 1119, 1123 (8th Cir. 2020). The Supreme
Court in
Henson v. Santander Consumer USA Inc
.,
[39] In rejecting the plaintiff’s argument that § 1692f(6) “fits more comfortably with repossession of
personal property than nonjudicial foreclosure,” the Court suggested that it was “at least plausible
that ‘threatening’ to foreclose on a consumer’s home without having legal entitlement to do so is
the kind of ‘nonjudicial action’ without ‘present right to possession’ prohibited by that section,”
but expressly did not decide “precisely what conduct runs afoul of § 1692f(6).”
[40] Appeal in Britton is pending, No. 23-1998. The appellants’ brief is due August 2, 2024.
[41] Three days after the April 2, 2024 hearing, the Eleventh Circuit affirmed the grant of a motion
to dismiss where the plaintiff did not adequately plead that the defendant-law firm was a “debt
collector” under the primary definition despite the plaintiff’s claim that trust allegedly holding the
security deеd that the defendant represented in the nonjudicial foreclosure did not lawfully hold
the deed. However, the claim that the trust did not lawfully hold the deed was not supported by the
record; the trust in fact “held the security deed and was authorized to foreclose” under state law.
Maddox v. Aldridge Pite LLP
, #23-12853,
[42] The court acknowledges that
Thompson
expresses doubt that factual allegations about a
defendant’s specific conduct in a particular case, which are what plaintiff makes here,
see
#27,
suffice; the primary and limited purpose definitions of “debt collector” refer to “the principal
purpose” of a business and the primary definition also refers to a person who “regularly” collects
or attempts to collect another’s debts, 15 U.S.C. § 1692a(6).
Thompson
,
[43] That security-interest enforcers are “ debt collectors,” albeit for a limited purpose, also supports the concession. 15 U.S.C. § 1692a(6) (emphasis supplied). Moreover, § 1692f(6) defines conduct that violates the prohibition on the use of unfair and unconscionable means to collect or attempt to collect “any debt .” 15 U.S.C. § 1692f (emphasis supplied).
[44] The question in
Arruda
itself was whether plaintiffs adequately pled that Sears “falsely” alleged
an obligation to pay discharged debts related to the purchases of household goods personally; as
noted, Sears had valid liens.
[45] The court does not understand defendants in their Rule 12(c) briefing to be arguing that a debt
must actually exist to state a claim under the “false” allegation theory. #43 at 11-13; #50 at 3-
7. Nor would such an argument make sense. If the debt actually existed, then the allegation would
not be “false.” The “false” allegation theory is the “qualification” on the “existence” requirement.
Harrer
,