Venture Bank v. Howard L. Lapides
No. 14-3085
United States Court of Appeals For the Eighth Circuit
August 25, 2015
LOKEN, Circuit Judge.
Appeal from United States District
Before LOKEN, BYE, and KELLY, Circuit Judges.
LOKEN, Circuit Judge.
Howard Lapides (Howard) and his wife, Mary Holter-Lapides (collectively, “the Lapideses“), renewed a loan from Venture Bank secured by a third mortgage on their home. Howard subsequently filed for Chapter 7 bankruptcy. After Howard‘s personal debts were discharged, the Lapideses executed two “Change in Terms Agreements,” each of which extended the maturity date of the loan for six months. When Howard ceased making payments under these agreements, Venture Bank filed suit in Minnesota state court seeking, among other relief, a declaratory judgment that the agreements were valid and enforceable. The Lapideses removed the suit to bankruptcy court, and Howard asserted in a counterclaim that Venture Bank‘s efforts to obtain payments after his discharge violated the discharge injunction. See
On August 30, 2007, Howard as President of his seafood import business signed a secured $400,000 promissory note evidencing a revolving line-of-credit loan by Venture Bank. Part of the collateral was a third mortgage on the Lapideses’ home. Bank of America and Citizens Bank held the prior mortgages. In March 2008, the Lapideses signed a new $400,000 promissory note (number 12897) amending and restating the prior loan at a lower rate of interest. In September and November 2008, the Lapideses as borrowers signed Change in Terms Agreements extending the maturity date and modifying the credit terms of loan 12897. They signed a new promissory note (number 13317) in the amount of $357,456.35 in February 2009 providing that final payment was due three months later, and a new promissory note (number 13440) for $345,644 on June 30, 2009, payable on August 2, 2009. All notes and agreements were secured by the third mortgage on their home.
Howard filed for Chapter 7 bankruptcy protection on August 11, 2009. On October 12, Howard met with Venture Bank‘s president, Michael Zenk, and loan officer Nathan Urfer to discuss Venture Bank refinancing all three mortgages so the Lapideses could keep their home. Howard agreed to pay $3000 per month on loan 13440 to reestablish his credit with the Bank. On November 9, the Lapideses signed a Debt Re-Affirmation Agreement in which they promised to make five monthly payments of $3000, followed by payment of the outstanding principal and interest on May 9, 2010, and Venture Bank agreed to permit the Lapideses “the continued use and possession” of their home. Although Howard and Venture Bank knew the Re-Affirmation Agreement was unenforceable because Howard‘s bankruptcy attorney refused to sign the Agreement and it was never filed with the bankruptcy court, see
Howard‘s personal debts were discharged on November 16, 2009. On May 9, 2010, and November 9, 2010, the Lapideses executed Change in Terms Agreements extending the maturity date of Note 13440 to Venture Bank by six months. Each Agreement provided for payment in five monthly installments of $3500 followed by a final payment of the unpaid balance. Howard testified that he understood these agreements reflected the understanding reached at the October 12, 2009, meeting that he would make regular loan payments to reestablish his credit with Venture Bank to induce the Bank to refinance his three mortgages. The Lapideses made twelve $3500 payments to Venture Bank between June 2010 and May 2011. During this time, loan officer Urfer sent Howard numerous emails reminding him that payments were due and asking him to pay additional principal and accrued interest. Venture Bank never refinanced the mortgages. Howard ceased making monthly payments in May 2011.
In July 2011, Venture Bank sued the Lapideses in state court, asserting a claim against borrower Holter-Lapides under the November 9, 2010, Change in Terms Agreement; foreclosure of the Bank‘s third mortgage on the Lapideses’ home; and a declaratory judgment that the Change in Terms Agreement was enforceable against Howard. The Lapideses removed the case to bankruptcy court, and Howard filed a counterclaim for damages, alleging that Venture Bank‘s efforts to obtain loan payments after his debts were discharged violated the discharge injunction imposed by
After the bankruptcy court remanded Venture Bank‘s claim against Holter-Lapides and the foreclosure claim to state court, the parties filed cross motions for summary judgment on the retained claims. In denying Venture Bank‘s motion for summary judgment and setting the case for trial, the bankruptcy court ruled that, to be valid and enforceable, the post-discharge Change in Terms Agreements must either comply with the requirements of a reaffirmation agreement under
II. Discussion
A bankruptcy discharge extinguishes only the debtor‘s personal liability; a secured creditor‘s right to foreclose on loan collateral, such as a mortgage on the debtor‘s residence, “survives or passes through the bankruptcy.” Johnson v. Home State Bank, 501 U.S. 78, 83 (1991). When a debtor‘s schedule of assets includes debts secured by property of the bankruptcy estate, the debtor must file a statement of his intent to surrender or retain the property and, if he elects to retain non-exempt property, whether he will redeem the property (i.e., pay off the secured loan before discharge) or “reaffirm debts secured by such property.”
A. Validity of the Post-Discharge Agreements
“A reaffirmation agreement is one in which the debtor agrees to repay all or part of a dischargeable debt after a bankruptcy petition has been filed.” In re Duke, 79 F.3d 43, 44 (7th Cir. 1996). Prior to 1978, the Bankruptcy Act looked to state law to determine the validity of reaffirmation agreements. In many States, the moral obligation to repay a discharged debt was regarded as sufficient consideration. See In re Bennett, 298 F.3d 1059, 1066 (9th Cir. 2002). In the 1978 Bankruptcy Code, Congress sought to equalize the unequal bargaining positions of experienced creditors and unsophisticated bankruptcy debtors by enacting
(c) An agreement between a holder of a claim and the debtor, the consideration for which, in whole or in part, is based on a debt that is dischargeable in a case under this title is enforceable only to any extent enforceable under applicable nonbankruptcy law . . . only if --
(1) such agreement was made before the granting of the discharge . . . ;
(2) the debtor received the disclosures described in subsection (k) . . . ;
(3) such agreement has been filed with the court . . . .
Under
It is undisputed that the post-discharge Change in Terms Agreements were not enforceable
As we have explained, we need not consider whether a promise not to foreclose on a mortgage is adequate consideration under Minnesota law if the Change in Terms Agreements were contrary to
When a post-discharge agreement does nothing but obligate a debtor to repay a discharged debt, it is inconsistent with
When post-discharge agreements have included significant contractual terms going well beyond the debtor‘s promise to pay all or part of a discharged pre-petition debt, unlike the Change in Terms Agreements in this case, we find the prior case law and expert commentary replete with irreconcilable conflict and confusion. Some cases, like our decision in DuBois v. Ford Motor Credit Co., 276 F.3d 1019, 1022-23 (8th Cir. 2002), have upheld payments under a voluntary post-discharge agreement involving new collateral despite the lack of a pre-discharge
III. Violation of the Discharge Injunction
As the bankruptcy court and the district court recognized, Venture Bank did not necessarily violate the discharge injunction simply because it accepted monthly payments made pursuant to Change in Terms Agreements that are unenforceable. Discharge “operates as an injunction against ... an act, to collect, recover or offset any [discharged] debt as a personal liability of the debtor.”
On appeal, Venture Bank argues that the bankruptcy court‘s finding of involuntariness was clearly erroneous because Howard testified at trial that he made the payments “voluntarily” to induce the Bank to refinance his mortgages, and because Howard, not the Bank, initiated discussions about making payments for that purpose.3 We disagree. “Voluntary”
Here, ample evidence of pressure and inducement supports the bankruptcy court‘s finding of involuntariness. The Bank encouraged Howard to believe that, if he made regular payments, it would consider helping him refinance his home. It then required him to sign agreements obligating him to repay the entire discharged debt, rather than continue to make monthly payments, and sent numerous emails reminding him that payments were “due” and seeking payment of additional principal and interest. The Bank‘s “Marginal & Substandard Loan Improvement/Workout Plan” listed as an “action item” that the Bank “[k]eep the pressure on [Howard] for principal reductions.” Unlike DuBois, where post-discharge fees from a pre-petition automobile lease were folded into a new lease, 276 F.3d at 1021, Venture Bank did not refinance the three mortgages on the Lapideses’ home. It simply dangled the possibility of refinancing to induce Howard to sign agreements promising to repay the entire discharged debt. The bankruptcy court did not clearly err in finding that Howard‘s payments were not voluntary within the meaning of
The judgment of the district court is affirmed.