Honorable Diane Davis, United States Bankruptcy Judge.
The contested matter before the Court is a motion by Debtor Jacob R. Morgan ("Debtor") against Pentagon Federal Credit Union ("PenFed") filed on June 7, 2017 (the "Motion," ECF No. 22), wherein Debtor seeks sanctions against PenFed pursuant to 11 U.S.C. § 105 for civil contempt for an alleged violation of the discharge injunction provided by 11 U.S.C. § 524(a)(2).
The Court has jurisdiction over the parties and subject matter of this core proceeding pursuant to 28 U.S.C. §§ 1334 and 157(a), (b)(1), and (b)(2)(A).
The facts in this case are undisputed and relatively straightforward. The following facts were derived from the parties' submissions and the Court's docket.
Debtor filed a voluntary petition for bankruptcy protection under chapter 7 of the Bankruptcy Code on December 7, 2016. (ECF No. 1.) On his Schedule E/F, Debtor listed PenFed as an unsecured creditor with an unsecured debt due in the amount of $17,323.05. On March 20, 2017, this Court entered an Order Discharging Debtor (the "Discharge Order," ECF No. 15). As set forth in the Bankruptcy Noticing Center's Certification of Notice filed on March 22, 2017 (ECF No. 16), PenFed was electronically served with the Discharge Order on the same date.
On May 25, 2017, Debtor filed an ex-parte motion to reopen his case (ECF No. 19), which the Court granted by Order issued June 6, 2017 (ECF No. 21). Debtor then filed the current Motion.
In support of the Motion, Debtor attached email communications between
On August 10, 2017, PenFed filed its Opposition to Debtor's Motion. Attached to this filing was a copy of PenFed's standard membership agreement form, which included the following statement under paragraph four: "If I have caused PenFed to incur any loss due to my activities, or if any account at PenFed is maintained by me in a manner that PenFed, in its sole discretion, deems contrary to sound financial practice, I agree that PenFed may terminate all accounts or services which I may receive from PenFed with the exception of my Regular Share account."
Two email chains and a letter between Debtor and PenFed were also attached to the Opposition. Specifically, the first email chain between Debtor and PenFed was identical to the email chain previously discussed as Exhibit A in the Motion. (Opposition, Ex. B.) The second chain of emails, dated between May 2 and May 9, 2017, documented the communications between Attorney Selbach and Michael Jaspan, Esq., counsel for PenFed. This string of emails pertained to settlement discussions concerning alleged damages incurred by Debtor resulting from his previous contact with PenFed when trying to reopen his accounts. (Opposition, Ex. C.) Finally, a letter from Attorney Jaspan to Attorney Selbach was included with the Opposition. This letter, dated July 19, 2017, requested that Attorney Selbach and Debtor withdraw the Motion. The letter also stated that if no written confirmation of the withdrawal was received by July 24, 2017, PenFed reserved the right to oppose the Motion and proceed with Rule 9011 sanctions. (Opposition, Ex. D.)
As previously stated, the facts in this case are uncomplicated. The only disputed
In support of his claim that PenFed willfully committed a discharge injunction violation, Debtor argues that PenFed improperly conditioned its provision of future financial services to Debtor upon Debtor's payment of pre-petition debt. Debtor argues that, in light of this § 524(a)(2) violation, the Court should impose sanctions on PenFed for any actual damages, attorney's fees, and/or costs related to Debtor's prosecution of this motion.
In opposition to the Motion, PenFed contends that no violation of the discharge injunction occurred because it responded to Debtor's email inquiries simply indicating that, in accordance with PenFed's membership policies, all delinquent amounts would need to be paid in full before Debtor's membership could be reinstated. PenFed submits that this comment was not an affirmative attempt to collect a discharged debt or a demand for repayment of a discharged debt, but merely a generic statement of PenFed's policies applicable to all members in response to Debtor.
PenFed further argues that if the Court finds that PenFed violated § 524(a)(2), the Court should consider PenFed's attempt to settle the current Motion with Debtor as evidence of its good faith effort to mitigate damages, if any.
"The fundamental purpose of bankruptcy law is to provide a fresh start to the honest but unfortunate debtor." In re Dogar-Marinesco, No. 09-35544, 2016 Bankr. LEXIS 4111, at *13 (Bankr. S.D.N.Y. Dec. 1, 2016) (internal quotations and citations omitted). As the bankruptcy court in In re
Pursuant to § 727(b), when a debtor receives a discharge under chapter 7 of the Bankruptcy Code, he is discharged from all personal liability relating to pre-petition debts. In turn, this discharge triggers an injunction under § 524(a)(2), which states that no act to collect, recover, or offset any discharged debt may be commenced as to the personal liability of a debtor. 11 U.S.C. § 524(a)(2).
While § 524 does not include its own remedy for discharge violations, willful violations are punishable by contempt. In re Nassoko, 405 B.R. 515, 520 (Bankr. S.D.N.Y. 2009). For a finding of contempt, the movant must show that the violating party knew that the discharge injunction was invoked and intended the actions that violated the discharge injunction. In re Dogar-Marinesco, 2016 Bankr. LEXIS 4111, at *41 (citing cases). "No evidence of ill will or malice is necessary to prove willfulness." Id. at *51 (citing In re Roush, 88 B.R. 163, 164-65 (S.D. Ohio 1988)).
In order to prove a discharge injunction violation, the debtor must establish that the creditor: (1) had notice of the debtor's discharge; (2) intended the actions that constituted the violation; and (3) acted in a way that improperly coerced or harassed the debtor (internal quotations and citations omitted). Bates v. CitiMortgage, Inc., 844 F.3d 300, 304 (1st Cir. 2016).
In the current case, it is undisputed that PenFed had notice of Debtor's discharge and that it intended to send the emails to Debtor advising him of the ways he could reinstate his accounts with PenFed. Accordingly, the first two elements have been satisfied. The third element is therefore determinative as to whether PenFed's emails resulted in the improper coercion or harassment of Debtor in an attempt to collect on a discharged pre-petition debt. To answer this question, the Court finds the Third Circuit's holding in Brown v. Pennsylvania State Employees Credit Union, 851 F.2d 81 (3d Cir. 1988), to be particularly instructive.
In that case, on appeal, the debtor sought a declaratory judgment ruling that a letter she received from the Pennsylvania State Employees Credit Union, a creditor in her chapter 7 bankruptcy, violated § 524(a)(2) because it indicated that, in accordance with its membership policy, the credit union would deny future services to the debtor unless she reaffirmed all pre-petition debts owed to the credit union prior to discharge. Id. at 82. The letter was sent in response to debtor's counsel's letter to the credit union informing it of the bankruptcy filing and the imposition of the automatic stay. Id. Specifically, the credit union's letter to the debtor states in relevant part, "It is the Credit Union's policy to deny future services to members when any portion of the debt is discharged in bankruptcy."
In adopting the Third Circuit's reasoning in Brown v. Pennsylvania State Employees Credit Union, this Court finds that PenFed did not act to improperly coerce or harass Debtor into paying a pre-petition debt when it responded to Debtor's inquiry. Instead and pursuant to PenFed's policy, the credit union simply informed Debtor that all delinquent account balances would need to be paid in full if Debtor wished to reinstate or activate a new checking account. Because the Court finds that PenFed's statements to Debtor did not violate § 524(a)(2), it did not inhibit Debtor's fresh start. To the contrary and as alluded to in the Brown case, it would be more reasonable and practical for a debtor to find an alternative institution to cater to his financial needs post-discharge, than to be required to pay pre-petition debt owed to a credit union in order to reinstate a financial relationship. Such requirement in and of itself does not equate to improper coercion or harassment. Accordingly, while Debtor may have one less financial institution with which he can do business, the opportunity he received to
For the foregoing reasons, the Court finds that PenFed did not violate Debtor's discharge injunction as imposed by § 524(a)(2) of the Bankruptcy Code.
Accordingly, it is hereby
ORDERED, that Debtor's Motion is denied.
It is SO ORDERED.