Phillip J. Shefferly, United States Bankruptcy Judge
This opinion presents a single issue: whether a Chapter 7 trustee may bring a cause of action against a debtor for damages caused to the bankruptcy estate by the debtor's failure to comply with the debtor's duties under § 521(a)(1), (3) and (4) of the Bankruptcy Code. For the reasons explained in this opinion, the Court holds that a Chapter 7 trustee may not.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and 28 U.S.C. § 157(a) and (b). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A).
On November 6, 2014, Eboni Latraca Mathis ("Debtor") commenced this case by filing a pro se Chapter 13 petition. Like many pro se Chapter 13 debtors, the Debtor had difficulty meeting all of the obligations of Chapter 13. The Chapter 13 trustee moved for dismissal, supported by the United States Trustee ("UST"). On March 6, 2015, the Debtor retained an attorney. Shortly after that, the Debtor, the Chapter 13 trustee and the UST entered a stipulation providing for the case to be converted to Chapter 7. On April 20, 2015, the Court converted the case.
Following conversion, Timothy J. Miller ("Trustee") was appointed as the Chapter 7 trustee. Dissatisfied with the level of cooperation by the Debtor in providing required documents and in surrendering property of the estate, the Trustee filed this adversary proceeding on October 8, 2015, seeking various forms of relief. On October 29, 2015, the Trustee filed an amended complaint (ECF No. 4) containing five counts. Three of those counts object to the Debtor's discharge, another count seeks turnover of certain personal property by the Debtor to the Trustee, and another count, count III, seeks a money judgment against the Debtor for breach of her statutory duties. Now represented by a different attorney, the Debtor answered the amended complaint.
On February 18, 2016, the Trustee filed a motion for summary judgment (ECF No. 20), supported by an affidavit of the Trustee. On March 9, 2016, the Debtor filed a motion for summary judgment (ECF No. 23), supported by an affidavit of the Debtor. The parties' cross motions and supporting affidavits make competing statements about the Debtor's conduct and whether the Debtor did or did not fail to provide the Trustee with required documents, fail to surrender to the Trustee property of the estate, and fail to otherwise cooperate with the Trustee. On April 8, 2016, the Court held a hearing on the cross motions. The Court concluded that the three counts of the amended complaint objecting to the Debtor's discharge all have genuine issues of material fact that preclude summary judgment for either party. The Court also concluded that the Trustee was entitled to a partial summary judgment on the turnover count. The Court took under advisement the parties' cross motions on count III of the amended complaint for damages as a result of the Debtor's breach of her statutory duties under § 521.
Fed.R.Civ.P. 56 for summary judgment is incorporated into Fed. R. Bankr.P. 7056. Summary judgment is only appropriate when there is no genuine issue of material fact and the moving party is entitled to
Count III of the amended complaint alleges that the Debtor breached three specific statutory duties under the Bankruptcy Code. First, the Trustee alleges that the Debtor breached her duty under § 521(a)(1)(B)(vi), which provides as follows:
Second, the Trustee alleges that the Debtor breached her duty under § 521(a)(3), which provides as follows:
Third, the Trustee alleges that the Debtor breached her duty under § 521(a)(4), which provides as follows:
The Trustee alleges in the amended complaint that the Debtor breached these statutory duties in several respects by failing to file an accurate statement of her reasonably anticipated income and expenditures in the 12 months post-petition, failing to cooperate with the Trustee's broker in the showing of the Debtor's residence to prospective buyers, and failing to surrender to the Trustee a vehicle, some personal property and an interest in a limited liability company. In his motion for summary judgment, the Trustee argues that there are no genuine issues of material fact in dispute regarding the Debtor's breach of duties, and that the estate has been damaged by these breaches because of the additional fees and expenses that the Trustee has incurred in compelling the Debtor to perform her duties.
The Debtor makes two arguments in response. First, relying on her own affidavit, the Debtor asserts that there are genuine issues of material fact as to whether the Debtor actually did breach any of her statutory duties under § 521 of the Bankruptcy Code. This alone precludes summary judgment in favor of the Trustee. Second, and quite apart from any factual issues regarding the performance of the Debtor's statutory duties in this particular case, the Debtor argues that as
After reviewing the affidavits signed by the Trustee and the Debtor, the Court finds that there are genuine issues of material fact with respect to the Trustee's allegations that the Debtor has breached her duties under § 521. The resolution of those disputed issues of fact must wait for trial. However, just because those issues of fact cannot be resolved at this time does not mean that the Court cannot address the legal issue raised by the parties' cross motions for summary judgment: whether a cause of action lies in favor of a Chapter 7 trustee against a debtor who breaches their statutory duties under § 521.
The Trustee concedes that the Bankruptcy Code does not expressly authorize a Chapter 7 trustee to recover damages because of a debtor's breach of their statutory duties under § 521, but argues that the Bankruptcy Code implies the existence of such a cause of action:
(Trustee's Br. at 9-10, ECF No. 20.)
The Debtor agrees that there is no provision in the Bankruptcy Code that expressly authorizes a cause of action in favor of a Chapter 7 trustee against a debtor for breach of a debtor's duties under § 521. But this does not leave a trustee without remedy. According to the Debtor,
(Debtor's Br. at 8, ECF No. 23.)
Neither the Trustee nor the Debtor cite any controlling authority as to whether there is an implied cause of action for damages for breach of a debtor's duties under § 521. However, there is a well developed body of case law that addresses under what circumstances a court should find that a private cause of action is implied in a federal statute that does not expressly provide a remedy. In Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975), the Supreme Court considered whether a private cause of action for damages could be brought for violation of a criminal statute that prohibited corporations from making contributions in connection with the election of certain political office holders. The Supreme Court ultimately concluded that there was no basis to imply a private cause of action under the criminal statute before it. In reaching its decision, the Supreme Court set forth a framework for courts to employ in considering whether a private cause of action is implied in a federal statute that does not expressly provide for a private cause of action.
Id. at 78, 95 S.Ct. 2080 (citations omitted). "Cases subsequent to Cort have explained that the ultimate issue is whether Congress intended to create a private right of action, but the four factors specified in Cort remain the criteria through which this intent could be discerned." California v. Sierra Club, 451 U.S. 287, 293, 101 S.Ct. 1775, 68 L.Ed.2d 101 (1981) (internal quotation marks and citations omitted).
The Sixth Circuit Court of Appeals has applied the Cort factors in the bankruptcy context. In Pertuso v. Ford Motor Credit Co., 233 F.3d 417 (6th Cir.2000), the plaintiffs sued the defendant for allegedly soliciting post-discharge reaffirmation agreements. The court in Pertuso cautioned that the existence of a private right of action is not to be inferred "haphazardly," and explained that "the recognition of a private right of action requires affirmative evidence of congressional intent in the language and purpose of the statute or its legislative history." Id. at 421. The court found no such affirmative evidence regarding § 524 of the Bankruptcy Code. The court found it "instructive" that Congress amended § 362(h) in 1984 "to provide an express right of action," yet added no similar express right of action under § 524, even though it amended § 524 in other respects at the same time. Id. at 422.
An earlier case decided by the Sixth Circuit Court of Appeals under the Bankruptcy Act, Ryan v. Ohio Edison Co., 611 F.2d 1170 (6th Cir.1979), addressed a class action lawsuit against a utility company for attempting to collect debts that had previously been discharged in bankruptcy. Interpreting Cort, the Ryan court read the Supreme Court as being "extremely reluctant to imply a cause of action significantly broader than the remedy Congress chose to provide." Id. at 1177. "Where Congress has provided a specific provision, the court should not expand the remedy beyond the limits where Congress was prepared to go." Id. (citations omitted); see also Kelvin v. Avon Printing Co. (In re Kelvin Publishing, Inc.), No. 94-1999, 72 F.3d 129 (Table), 1995 WL 734481 (Dec. 11, 1995) (finding no private cause of action under § 363 for violation of a cash collateral order after applying the four Cort factors, noting that, even though the first factor weighed in favor of finding an implying a private cause of action, the "other three suggest[ed] restraint").
In the case presently before this Court, the first factor identified in Cort does not help the Trustee. A debtor's duty to file a statement disclosing any reasonably anticipated increase in income or expenditures pursuant to § 521(a)(1)(B)(vi) provides a benefit first and foremost to the creditors of a debtor. Knowing a debtor's reasonably anticipated increase in income or expenses in the 12 month period following the filing of the petition helps inform creditors as to whether a debtor has an ability to repay their debts. This information enables creditors to evaluate whether a debtor belongs in a Chapter 7 case or a Chapter 13 case, in other words, whether a debtor is in need of the relief they are seeking under the Bankruptcy Code. In a
Similarly, performance of a debtor's duty to cooperate under § 521(a)(3) enables a Chapter 7 trustee to perform their responsibilities under § 704 of the Bankruptcy Code with greater efficiency. But ultimately, the purpose of the trustee's performance of responsibilities under § 704 is to benefit the debtor's creditors and enable them to receive a distribution on the debts that are owed to them by the debtor.
Likewise, a debtor's duty under § 521(a)(4) to surrender property to a trustee benefits all parties in interest — whether creditors, equity security holders or the trustee. The trustee needs to obtain a debtor's property to administer under § 704 as expeditiously and economically as possible. But the entire purpose of that administration is to benefit the debtor's creditors, not the trustee. Although the trustee is a beneficiary of the estate because the trustee is entitled to compensation under § 326 and § 330 of the Bankruptcy Code, the trustee is perhaps the beneficiary with the least financial stake in the debtor's performance of their duties. Bankruptcy estates are administered for the benefit of creditors, not trustees. A Chapter 7 trustee is not "one of the class for whose especial benefit" § 521 was enacted.
Regarding the second Cort factor, the Trustee has not cited any legislative history to suggest that Congress intended either explicitly or implicitly to create a private cause of action in favor of a trustee against a debtor for breach of a debtor's duties under § 521. Nor has the Court's own research revealed any legislative history to suggest such congressional intent.
As for the third factor, the primary purpose of a bankruptcy case is to enable an honest and needy debtor to seek a fresh start by discharging their liabilities. Creating a cause of action against a debtor by implication in the Bankruptcy Code based on a debtor's breach of their statutory duties, and imposing liability for damages on account of such breach, is not consistent with the underlying purposes of the Bankruptcy Code. That is not to say that a debtor's compliance with their statutory duties is optional. It is not. And there are ample remedies available to deal with a non-compliant debtor. For example, a debtor's failure to perform their duties under § 521 may constitute cause for dismissal of a Chapter 7 case under § 707(a), dismissal or conversion under § 1112(b), or dismissal or conversion under § 1307(c). In addition, a trustee who has a debtor that is not performing their statutory duties under § 521 may seek an order compelling the performance of those duties
The existence of these express remedies under the Bankruptcy Code,
The fourth Cort factor has no application in this case one way or the other because there is no duty to provide information or surrender property under § 521 absent the filing of a bankruptcy case. Because these duties do not exist outside of a bankruptcy case, there are no state law considerations.
None of the four Cort factors provide even the slightest hint that Congress intended to create a private right of action in favor of a trustee and against a debtor for breach of the debtor's duties under § 521. To the contrary, three of the four Cort factors weigh strongly against finding an implied cause of action in favor of the Trustee in this case.
The Trustee's brief in support of his motion for summary judgment does not specifically address the Cort factors or the Pertuso analysis. Instead, the Trustee relies on both § 105(a) of the Bankruptcy Code and case law that has employed § 105 in various circumstances. Section 105(a) provides as follows:
The Trustee's brief in support of summary judgment cites John Richards Homes Building Co., L.L.C. (In re John Richards Homes Building Co., L.L.C.), 404 B.R. 220 (E.D.Mich.2009) for the proposition that bankruptcy courts have broad power under § 105(a), and that bankruptcy courts have inherent power to issue sanctions. No argument here. Section 105 does provide a bankruptcy court with broad power. See, e.g., Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365, 375, 127 S.Ct. 1105, 166 L.Ed.2d 956 (2007) (holding that § 105(a) was "surely adequate to authorize an immediate denial of a motion to convert filed under § 706 in lieu of a conversion order that merely postpones the allowance of equivalent relief and may provide a debtor with an opportunity to take action prejudicial to creditors"). But it is not unlimited. See, e.g., Law v. Siegel, ___ U.S. ___, 134 S.Ct. 1188, 1194, 188 L.Ed.2d 146 (2014) ("[I]n exercising [its § 105(a)] powers, a bankruptcy court may not contravene specific statutory provisions."). Whatever may be its outer limits, § 105 does not authorize the Court to find an implied, private right of action in a statute that does not contain an express cause of action where the factors enumerated by Cort and further explained by Pertuso do not warrant a court finding an implied cause of action. The very same argument that the Trustee is making in this case — that § 105(a) provides the legal authority for the Court to imply a private right of action under a section of the Bankruptcy Code — was expressly rejected both in Pertuso and Kelvin.
Pertuso, 233 F.3d at 423 (quoting Kelvin, 1995 WL 734481, at *4, 72 F.3d 129).
In this case, there is no evidence of any congressional intent, either in the language of § 521 itself or in the legislative history, that supports a finding that a Chapter 7 trustee has an implied, private right of action against a debtor who breaches their statutory duties under § 521. Nor does § 105 permit the Court to find a private, implied cause of action in favor of a trustee against a debtor for breach of § 521.
By rejecting the Trustee's argument that there is an implied cause of action for damages against a debtor who breaches their duties under § 521 to cooperate with the Trustee, to file information and to surrender property, the Court does not mean to suggest that a debtor may take those duties lightly. The provisions of that section are mandatory, not optional. And the Trustee is correct that a trustee should not have to pull teeth to get a debtor to file required information and surrender property that is required to be surrendered. But if a debtor fails to perform
For these reasons, the Court will deny the Trustee's motion for summary judgment on count III of the amended complaint and will grant the Debtor's motion for summary judgment on count III of the amended complaint. The Court will enter a separate order consistent with this opinion.
