Opinion
Case No. 13-50438
03-29-2016
In re: CHARLIE OTIS GOLDSTON and MILDRED MCDOUGALD GOLDSTON, Debtors.
Copies to: Default List Bryan T. Kostura, Esq., McGlinchey Stafford, Counsel for Bank of America, N.A., 25550 Chagrin Boulevard, Suite 406 Cleveland, OH 44122 Michelle M. Masoner, Esq., Bryan Cave LLP, Counsel for Bank of America, N.A., 1200 Main Street, Suite 3800, Kansas City, MO 64105
Chapter 7
ORDER (A) DIRECTING BANK OF AMERICA , N.A. TO APPEAR AND SHOW CAUSE WHY IT SHOULD NOT BE HELD IN CIVIL CONTEMPT AND (B) ESTABLISHING HEARING DATE AND RELATED DEADLINES
Before the Court is the motion (the "Motion") (Doc. 55) of Charlie Otis Goldston and Mildred McDougald Goldston (the "Debtors") for an order directing Bank of America, N.A. ("Bank of America") to appear and show cause why it should not be held in civil contempt. Bank of America filed a response to the Motion (the "Response") (Doc. 61), and the Debtors filed a reply (the "Reply") (Doc. 62). For the reasons set forth below, the Court (1) directs Bank of America to appear and show cause why it should not be held in civil contempt for its alleged violations of the discharge injunction and (2) establishes a hearing date and related deadlines.
I. Show Cause Order
Before issuing an order directing an entity to appear and show cause why it should not be held in civil contempt, a court must first determine whether the conduct as alleged in the motion seeking the show cause order would constitute civil contempt if it in fact occurred. See Mercer v. Mitchell, 908 F.2d 763, 768 (11th Cir. 1990). If the Court determines that the alleged conduct would constitute civil contempt—here, because it would have violated the discharge injunction—the Court will issue the show cause order. For the reasons set forth below, the Court concludes that if the Debtors were to establish by clear and convincing evidence at a hearing that certain conduct in which Bank of America allegedly engaged did in fact occur, then Bank of America would have violated the discharge injunction.
After the Debtors filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code on January 22, 2013 (the "Petition Date"), the Court entered an order (Doc. 18) granting the Debtors a discharge under § 727 of the Bankruptcy Code (the "Discharge Order") on May 7, 2013. A few days later, on May 10, 2013, the Bankruptcy Noticing Center mailed a copy of the Discharge Order to Bank of America Home Loan Services, PO Box 5170, Simi Valley, CA 93062-5170. See Doc. 19. Bank of America appears to have received the Discharge Order. In fact, Bank of America attached to the Response a statement that it sent to the Debtors dated May 13, 2013 in which it noted on the first page—in a section of the statement entitled "Important Notice" and under a subsection entitled "The Impact of the Bankruptcy"—that:
Our records indicate that in the past you received a discharge of this debt in a bankruptcy case. Section 524 of the Bankruptcy Code tells us the discharge of this debt means you have no personal obligation to repay it. The discharge also protects you from any efforts by anyone to collect this discharged debt as a personal liability of the debtor. You cannot be pressured to repay this debt. On the
other hand, the security agreement allows foreclosure if the requirements under the loan documents are not met.Resp., Ex. A at 1.
A document containing a prominent and clear disclaimer such as the one set forth above typically would not violate the discharge injunction in and of itself. See, e.g., Pennington-Thurman v. Bank of Am., N.A. (In re Pennington-Thurman), 499 B.R. 329 (B.A.P. 8th Cir. 2013), aff'd, 559 F. App'x 600 (8th Cir. 2014); Pearson v. Bank of Am., N.A., No. 3:12-cv-00013, 2012 WL 2804826 (W.D. Va. July 10, 2012). Other than the documents discussed below, the documents provided by the Debtors to the Court to date contain prominent and clear disclaimers.
The Debtors' case was closed pursuant to § 350(a) of the Bankruptcy Code, but was reopened on a motion of the Debtors (Doc. 20) in which they alleged that Bank of America had violated the discharge injunction imposed by 11 U.S.C. § 524. See Doc. 21 (order granting the Debtors' motion to reopen their bankruptcy case). After the Debtors filed two previous contempt motions (Docs. 23 and 36) and the Court entered orders denying those motions (Docs. 32 and 56), the Debtors filed the Motion currently before the Court, alleging that Bank of America violated the discharge injunction by communicating with the Debtors both telephonically and in writing.
A bankruptcy discharge "operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any [discharged] debt as a personal liability of the debtor, whether or not discharge of such debt is waived." 11 U.S.C. § 524(a)(2). Subsection (a)(2), however, "does not operate as an injunction against an act by a creditor that is the holder of a secured claim" if
(1) such creditor retains a security interest in real property that is the principal residence of the debtor;11 U.S.C. § 524(j).
(2) such act is in the ordinary course of business between the creditor and the debtor; and
(3) such act is limited to seeking or obtaining periodic payments associated with a valid security interest in lieu of pursuit of in rem relief to enforce the lien.
The alleged telephonic and written communications relate to a prepetition loan obligation of the Debtors that is secured by a lien on real property located at 469 Winding Ridge, Sanford, North Carolina (the "Winding Ridge Property"). In the Affidavit of Charlie O. Goldston attached to the Motion (the "Affidavit"), Mr. Goldston states that the Debtors "occupied [the] Winding Ridge [Property] until the Spring [of] 2005 when [the Debtors] moved from North Carolina to Ohio." Aff. ¶ 4. In other words, Mr. Goldston alleges that the Debtors had moved from the Winding Ridge Property well before the Petition Date of January 22, 2013. On the Petition Date, the Debtor identified their residence as 46 Marshall Drive, Etna, Ohio (the "Marshall Drive Property").
Mr. Goldston further states in the Affidavit that the Debtors "determined to rent the property to a tenant, which [they] did . . . from December 2005 to 2012[, but the tenant] defaulted on his rent in 2012 which caused [the Debtors] to . . . eventually default on the mortgage loan on [the] Winding Ridge [Property]." Id. ¶¶ 5-6. The Debtors included the debt they owed as of the Petition Date with respect to the Winding Ridge Property on their bankruptcy schedules. Doc. 1 at 18 ($38,575 claim scheduled in the name of Bank of America Home Loan Services). This debt was discharged upon the entry of the Discharge Order.
Despite the Debtors' receipt of a discharge of their mortgage debt, § 524(j) would permit Bank of America to "seek[] . . . periodic payments [from the Debtors] associated with a valid security interest in lieu of pursuit of in rem relief to enforce the lien" (i.e., foreclosure) if the prerequisites for the application of § 524(j) were met. 11 U.S.C. § 524(j)(3). Under § 524(j)(1), one prerequisite is the existence of "a security interest in real property that is the principal residence" of the Debtors at the time payments were sought on the discharged debt. See Lapointe v. Bank of Am., N.A., No. 8:15-cv-1402-T-26EAJ, 2015 WL 10097518, at *2 (M.D. Fla. Aug. 26, 2015) ("Defendant's reliance on the 11 U.S.C. § 524(j) 'safe harbor' provision for its contention that it was 'entitled' to communicate with [the debtor] is misplaced. The provision applies only where the secured property is the debtor's principal residence."); Lemieux v. Am.'s Servicing Co. (In re Lemieux), 520 B.R. 361, 369 (Bankr. D. Mass. 2014) ("Reading § 524(j) through the prism of current events is consistent with its purpose, which is to permit certain post-discharge actions of a secured creditor, but only when the debtor remains in his or her home."); In re Nordlund, 494 B.R. 507, 521 (Bankr. E.D. Cal. 2011) ("Section 524(j) does not apply here because the property was not the debtors' principal residence when BAC [Home Loans Servicing LP] sent the notice, the letter, and the statements. The debtors had vacated the property on October 20, 2009, nearly one month prior to the November 15, 2009 debt validation notice.").
The Debtors contend that the Winding Ridge Property "stopped being the Debtors' principal residence for quite some [time] prior to filing for Chapter 7 relief, and much longer prior to the date [Bank of America] began communicating with the Debtors[] after discharge to collect the debt." Mot. at 8-9. The Debtors also state that the Winding Ridge Property was not their principal residence at the time they received the alleged communications from Bank of America. See id. at 9. In response, Bank of America takes the position that § 524(j) applies and that it therefore was entitled to seek payments from the Debtors because, as a result of its not having obtained a foreclosure judgment, the Debtors continue to own the Winding Ridge Property. Resp. at 10-11. But § 524(j) does not apply merely because a debtor owns the real property that is the subject of the mortgage debt for which periodic payments are sought. Instead, as the courts held in the cases cited above, the property must be the principal residence of the debtor at the time the payments are sought.
The Debtors allege that the Winding Ridge Property was not their principal residence at the time Bank of America engaged in the post-discharge communications with them, and Bank of America does not contend otherwise. If the Debtors carry their burden of proving that the Winding Ridge Property was not their primary residence at the time of the communications, then § 524(j) would not apply, and there would have been no basis whatsoever for Bank of America to seek payments from the Debtors on their discharged debt. The Court next turns to the Debtors' contention that Bank of America attempted—in violation of the discharge injunction—to seeks payments on the discharged debt by means of both telephonic and written communications.
A. Telephonic Communications
The Debtors contend that Bank of America "made telephonic contact with the Debtors, which Mr. Goldston perceived as being in the nature of collection of the discharged debt, and which are more particularly described in the [Affidavit]." Mot. at 5. In the Affidavit, Mr. Goldston describes in some detail the telephonic communications he allegedly received from Bank of America after the Debtors received their discharge:
12. At some time in early July 2014, I received a telephone message at [the Marshall Drive Property]. The name that showed up on our caller ID was "Mortgage Bankers." The message stated that "it was important that you call us because you will be receiving a Fed Ex package."
13. On or around July 11, 2014, I called the number left on [the] message and learned that it was not "Mortgage Bankers" but it was [Bank of America]. The [Bank of America] representative asked me whether I received a Fed Ex package. At that time, I had not received a Fed Ex package from [Bank of America] or "Mortgage Bankers" so I said no.
14. The next day or so, [Bank of America] contacted me again by telephone at [the Marshall Drive Property]. I was at home at that time and I picked up. The [Bank of America] representative again
asked me whether I received the Fed Ex package. By then I did get the package. The package contained loan modification papers. [Bank of America] wanted to know when I was going to sign the papers and return them. I told the representative that I was not going to sign the papers and that I did not want any more calls.Aff. ¶¶ 12-17.
15. The next day or so, [Bank of America] contacted me again by telephone at [the Marshall Drive Property]. I was at home and I picked up. I noticed that the caller ID again showed "Mortgage Bankers" but I knew that it was [Bank of America]. After answering the phone, [Bank of America] again inquired about whether I was going to sign the loan modification papers. I said I would not. The [Bank of America] representative asked me if I needed help filling out the papers. I stated that I could read and that I did not need help. I stated that I did not want the [Winding Ridge Property] and did not want to sign any papers.
16. During the same call . . . I was transferred to another [Bank of America] representative. While on hold, I overheard a woman in the background stating that she "told them to stop calling him." The [Bank of America] representative got on the line and said that they would further review the situation and call me.
17. To the best of my recollection, the next call was on the following Monday, a couple days after the last call. I answered the call and the [Bank of America] representative stated that because I "failed to sign the modification papers" [Bank of America] was going to continue to send me and my wife statements for payments and I was going to receive further calls. I stated that the debt was in my bankruptcy and that I did not have to pay. The [Bank of America] representative stated that she reviewed the account and said that I still owed [Bank of America] money. I said I did not and that I would have to get my attorney involved. The [Bank of America] representative shouted at me stating "go ahead and get your attorney!!" and she hung up.
There may have been calls between the Debtors and Bank of America in addition to those specifically discussed in the Affidavit. In May and November 2013, representatives of Bank America sent the Debtors letters stating that the representatives would "be calling [the Debtors] soon, but in the meantime, if [they] have questions, [they] can reach" the representatives by calling the numbers provided. See Doc. 51 (the "Supplement") at 22, 54. Given the clear message that Bank of America would be calling if the Debtors did not, the Court questions the relevance of the identity of the person who placed the calls (Mr. Goldston or a representative of Bank of America) to the issue of whether the calls violated the discharge injunction.
According to Mr. Goldston, the telephone calls stopped when "[o]n [or] around July 28, 2014, [he] went to [his] attorney's office and . . . [his attorney] called [Bank of America] to inform [it] to stop calling [him] and sending [him] papers." Id. at ¶ 18. Mr. Goldston also states that "[s]ince July 28, 2014, [he has] received no further telephone calls from [Bank of America], but [that he has] received multiple payment statements and other papers." Id. at ¶ 19.
Bank of America does not challenge Mr. Goldston's specific allegations as to the alleged telephonic communications head on, but instead attacks those allegations on two flanks. First, Bank of America appears to call Mr. Goldston's credibility into question, pointing out that he filed the Affidavit only after the Court denied the Debtors' first two contempt motions. Bank of America also notes that during oral argument on one of those motions, the Debtors' attorneys made statements suggesting that Mr. Goldston had not recalled—or at least had not yet shared with his attorneys—the details of the telephone calls that he would later set forth in the Affidavit. See Resp. at 3-6. Bank of America's suggestion that Mr. Goldston is not credible provides no basis to decline to issue a show cause order. The Court will not assess Mr. Goldston's credibility on the papers, but rather will do so only after hearing his testimony.
The issuance of this show cause order does not shift the burden of proof from the Debtors, but instead "acts as notice to [Bank of America] by informing [it] what conduct is alleged to be sanctionable, and allows [it] an opportunity to respond[.]" Cook v. Am. S.S. Co., 134 F.3d 771, 776 (6th Cir. 1998). After the issuance of a show cause order, "[t]he movant in a civil contempt proceeding [still] bears the burden of proving by clear and convincing evidence that the respondent 'violated a definite and specific order of the court requiring [it] to perform or refrain from performing a particular act or acts with knowledge of the court's order.'" Liberte Capital Grp., LLC v. Capwill, 462 F.3d 543, 550 (6th Cir. 2006) (quoting Glover v. Johnson, 934 F.2d 703, 707 (6th Cir.1991)). In the context of the violations of the discharge injunction alleged here, the Debtors must demonstrate that Bank of America "(i) violated the discharge injunction (and thus the order granting the discharge) and (ii) did so with knowledge that the injunction was in place." Gunter v. Kevin O'Brien & Assocs. Co. (In re Gunter), 389 B.R. 67, 72 (Bankr. S.D. Ohio 2008). As the movants, the Debtors "bear[] the burden of proving both elements—violation and knowledge—by clear and convincing evidence." Id. There is little reason to doubt that the Debtors will be able to prove through the documentary evidence already in the record that Bank of America had knowledge of the discharge injunction. But while the submission of the Affidavit provides a sufficient basis for the issuance of this show cause order, the Debtors will need to do more at the hearing—such as provide Mr. Goldston's testimony subject to cross-examination or place recordings of the alleged calls into evidence—before the Court could conclude that they have carried their burden of proving by clear and convincing evidence that Bank of America actually engaged in telephonic communications with the Debtors in violation of the discharge injunction.
Second, Bank of America contends that the Debtors' case is "dependent upon vague and almost forgotten telephone calls that Charlie Goldston made" to Bank of America and that the "Debtors do not recall collection calls from [Bank of America] because there were none. [Bank of America's] business records indicate Charlie Goldston initiated the 'unwanted telephonic contact,' and no personal collection activity occurred on the Debtors' account after [the] Debtors received their discharge on May 7, 2013." Resp. at 3, 6. This part of the Response essentially ignores Mr. Goldston's allegations, which are not vague, but instead are quite specific. In the Affidavit, Mr. Goldston alleges that Bank of America initiated telephonic contact with him on at least four occasions starting in July 2014—after it received notice of the Debtors' discharge and after it acknowledged their discharge in writing.
Furthermore, the facts alleged by Mr. Goldston, if proven, would indicate that Bank of America indeed was attempting to collect the discharged debt from the Debtors. Mr. Goldston alleges that Bank of America placed multiple telephone calls to the Debtors in an effort to obtain their signature on loan modification documents and that the communications included two telephone calls initiated by Bank of America after Mr. Goldston informed its representative that he was declining to sign the documents and did not wish to be contacted again regarding the matter. Mr. Goldston also alleges that the representative advised him that the Debtors continued to be liable to Bank of America and that their failure to sign the loan modification documents meant that further statements for payments and telephone calls would be forthcoming.
If Bank of America's representatives were making telephone calls in an attempt to pressure Mr. Goldston to sign the loan modification documents in the manner he suggests, then Bank of America presumably was doing so because it expected the calls to work—i.e., to result in the Debtors signing the loan modification documents and thereby effectively agreeing to repay their discharged debt. It would constitute pressure to call the Debtors twice—and to threaten them with more calls—after Mr. Goldston made it clear that he was not going to sign the loan modification documents and did not wish to receive more calls. Such calls, if they occurred in the manner Mr. Goldston alleges, would constitute violations of the discharge injunction. See Badovick v. Greenspan (In re Greenspan), No. 10-8019, 2011 WL 310703, at *4 (B.A.P. 6th Cir. Feb. 2, 2011) (noting that the bankruptcy court had found that the creditor "'intended to pressure the debtors to pay the discharged debt [and] [i]n doing so . . . violated the discharge injunction"); In re Culpepper, 481 B.R. 650 (Bankr. D. Or. 2012). In Culpepper, the bankruptcy court found that a lender "intended to continue to route calls to [the debtor] in an effort to reinstate . . . a discharged debt" and that the lender did so—as Mr. Goldston alleges here—"through a loan modification, after [the debtor] had clearly advised . . . [the lender] . . . that she was not interested in pursuing a modification of the [l]oan . . . and wanted the calls to stop." Id. at 660. Based on this finding, the bankruptcy court held in Culpepper that the debtor had "established by clear and convincing evidence that [the lender] violated the discharge injunction under § 524(a)(2)." Id.; see also Burch v. Bank of Am., N.A. (In re Burch), No. 11-80030, 2011 WL 3207083, at *1 (Bankr. D.S.C. July 26, 2011) (holding that Bank of America violated the discharge injunction after finding, among other things, that "[w]hile some of the letters [the debtor] received from [Bank of America] contained [a] disclaimer [that it was not attempting to collect a debt], all of the telephone calls [it] made to [the debtor] were for the purpose of collecting debt").
On the other hand, Mr. Goldston states in the Affidavit that he "attempt[s] to recount telephone conversations with third persons" and that his statements "may not reflect the entirety of the conversation and may not be verbatim." Aff. ¶ 2. If the representative of Bank of America to whom Mr. Goldston spoke used language different than the language suggested by Mr. Goldston, and if that language made clear that Bank of America was not attempting to collect a debt from the Debtors but instead was only attempting to provide information and assistance to the Debtors in the event that they wished to enter into a loan modification, then the communications would not violate the discharge injunction. See Brown v. Bank of Am. (In re Brown), 481 B.R. 351, 358-59 (Bankr. W.D. Pa. 2012) ("According to the Debtor, representatives of Bank of America called her on various occasions to offer her assistance to avoid foreclosure and obtain a loan modification. . . . As the phone calls were described by the Debtor, the Court does not interpret the calls to have been threatening or in the nature of collection calls. To the extent the Debtor expressed her disinterest in the assistance offered by Bank of America representatives or dissatisfaction with their responses to her inquiries, she would hang up the phone. Based on the testimony, this Court finds that the phone calls were not demands for payment of a discharged debt.").
In sum, by issuing this show cause order, the Court finds only that the Debtors' allegations with respect to telephonic communications state a plausible claim for violation of the discharge injunction; it does not find that Bank of America in fact engaged in telephonic communications that violated the discharge injunction. Rather, the Court will be in a position to make a finding one way or another only after hearing testimony of the Debtors and after reviewing any other evidence presented by the parties, including any testimony from representatives of Bank of America involved in the alleged telephonic communications and any recordings of the purported calls (if they exist). See Culpepper, 481 B.R. at 659 (explaining why transcriptions of telephone calls with the debtor were important to the court in reaching its decision).
B. Written Communications
Bank of America's alleged conduct would likewise violate the discharge injunction if, as the Debtors allege, Bank of America made good on its representative's alleged threat to continue to send the Debtors "statements for payments." See Nordlund, 494 B.R. at 525 ("[Bank of America] did much more than ask whether the debtors wished to modify their home loan. For 10 months, it sent a constant stream of written communications to the debtors . . . . This steady drumbeat suggested that the bank did not want to foreclose (even though the debtors wanted the bank to foreclose) and instead was interested only in getting the debtors to pay the bank. This conduct continued despite the debtors' repeated demands that it stop.").
In the Motion, the Debtors identify 38 written communications they allegedly received from Bank of America over an approximately 16-month period (between May 13, 2013 and August 18, 2014), allegedly in order "to collect the discharged debt." Mot. at 3-5, 7. According to the Debtors, "[t]rue and accurate copies of the[se] written communications were previously attached to [the Supplement], and are fully incorporated herein." Id. at 5. The Debtors also allege that Bank of America is continuing to send them written communications. Id.
In addition to contending that it was permitted to seek payments from the Debtors under § 524(j)—a contention that is not well taken if, as appears to be the case, the Winding Ridge Property was not the principal residence of the Debtors at the time the written communications were sent—Bank of America denies that it was attempting to collect the debt by sending the written communications. Resp. at 6-16. Bank of America contends that its purpose in sending the statements to the Debtors instead was to comply with applicable federal nonbankruptcy law requiring it to provide certain information to the Debtors. Resp. at 12-15. The Court need not decide whether federal nonbankruptcy law required Bank of America to send the Debtors all of the statements it sent them. The only question before the Court is whether the communications violated the discharge injunction, and Bank of America does not argue that the nonbankruptcy law under which it purportedly sent the statements excuses violations of the discharge injunction. Rather, Bank of America contends that every statement it sent to the Debtors "is adapted to . . . comply with the Bankruptcy Code by including a prominent Bankruptcy Disclaimer notice." Resp. at 15. That is true in part. But if the documents the Debtors included with the Supplement are complete—and for purposes of deciding whether to issue a show cause order the Court will presume they are—then certain of Bank of America's written communications lacked prominent statements disclaiming an attempt to collect a discharged debt from the Debtors personally.
One set of documents that lacks any disclaimer language whatsoever are certain of the documents that Bank of America sent to the Debtors regarding property insurance. See, e.g., Suppl. at 28-30 (the "First Insurance Notice"). For example, the First Insurance Notice includes no disclaimer, nor does it state that it is for informational purposes only. The First Insurance Notice instead states that if Bank of America does not receive "proof of acceptable hazard insurance coverage" within 30 days, then Bank of America would purchase lender-placed hazard insurance "at [the Debtors'] expense and charge [the Debtors] for the cost of the insurance." Suppl. at 28. Bank of America appears to excuse the lack of a disclaimer by pointing out that the First Insurance Notice states that the "loan agreement also provides that the cost of Lender-Placed Insurance will be charged to [the Debtors] and may become an additional debt secured by [their] mortgage or deed of trust." Resp. at 9 (emphasis in original). But nothing in that statement alerts the Debtors to the fact that the only action that Bank of America could take as a result of its purchasing lender-placed insurance would be to recover the cost of the insurance premium from the proceeds realized as a result of a foreclose sale of the Winding Ridge Property.
Courts that have addressed the issue have held that debtors who base alleged discharge-injunction violations on written communications like the First Insurance Notice state plausible claims for relief. See Lemieux, 520 B.R. at 368 ("Unlike the monthly statements, the insurance mailing contains no additional disclaimers, explanations or other indications that it is being sent for informational purposes or that it is not an act to collect a debt from the Lemieuxs. . . . [The court] find[s] that the Lemieuxs have stated a plausible claim that the insurance mailing constitutes an act to collect a debt by ASC and Wells Fargo in violation of § 524(a)(2)."); Nordlund, 494 B.R. at 518 ("The [insurance] letter goes on to state that [the creditor] may have to purchase replacement insurance itself, that the estimate for such insurance cost would be $3,381, and that the insurance cost would be charged to the debtors' escrow/impound account. . . . In other words, [the creditor] is telling the debtors that it would collect the cost of replacement homeowner's insurance coverage from them, although such debts were discharged in their bankruptcy case."); cf. Henriquez v. Green Tree Servicing, LLC (In re Henriquez), 536 B.R. 341, 348 (Bankr. N.D. Ga. 2015) ("The Defendant did not violate the discharge injunction by sending these [insurance] notices. . . . Although these documents did contain language that the [debtors] would be responsible for the cost of insurance and information about payment, they also contained conspicuous bankruptcy disclaimers stating that Defendant was not attempting to collect against the [debtors] personally if the Loan was discharged in bankruptcy.").
A second document the Debtors attached to the Supplement that contains no bankruptcy-related disclaimer is the May 14, 2013 notice notifying the Debtors that "[b]ecause [their] loan is past due, it is possible that [Bank of America] could 'accelerate' [their] loan" and "collect costs [it] incur[s] from trying to obtain past payments." Suppl. at 14. This notice states that "it is possible that foreclosure proceedings" could result from a failure to make payments, but also advises the Debtors—incorrectly, given their discharge—that they "will also need to pay any additional fees, monthly payments and late charges as they become due." Suppl. at 15.
A third document the Debtors attached to the Supplement contains a bankruptcy-related disclaimer that is far from prominent. This document is the March 20, 2014 notice from Bank of America (the "March 20 Notice") that states on its second page that "[i]f [the Winding Ridge Property] is foreclosed upon, the Noteholder may pursue a deficiency judgment against [the Debtors] to collect the balance of [their] loan, if permitted by law." Suppl. at 103. After providing the Debtors five options to avoid this outcome—full payoff, a repayment plan, loan modification, a short sale, or a deed in lieu of foreclosure—the March 20 Notice informs the Debtors on page three that if they "have previously obtained a discharge of this debt under applicable bankruptcy law . . . [their] decision to pursue any of these options is strictly voluntary." Suppl. at 104. But that statement, which is followed two sentences later by the statement that Bank of America "will pursue all of its rights and remedies under the loan documents and as permitted by law," does not inform the Debtors that they can decline to pursue the five options and still avoid being pursued for a deficiency judgment. Id. It is only on the next page—page four of the March 20 Notice—that Bank of America informs the Debtors that the notice "is not an attempt to collect the debt, a demand for payment, or an attempt to impose personal liability for that debt" if the Debtors have received a bankruptcy discharge of the debt. Id. at 105. Other courts have held that creditors violated the discharge injunction under circumstances in which their disclaimers were found to be inconspicuous. See, e.g., Lapointe, 2015 WL 10097518, at *2 ("The Court . . . agrees that [Bank of America's] disclaimers do not insulate it from liability for its collection attempts on a discharged debt, especially when coupled with requests for payment or statements of a past due amount. Many of the disclaimers on which [it] relies are in tiny inconspicuous print. Several letters were accompanied by payment coupons with payment amounts, due dates, and payment instructions. Further, some of [its] communications did not even contain a disclaimer.") (internal citations omitted).
II. Hearing on the Show Cause Order and Related Deadlines
A. The Hearing/Applicable Rules
An evidentiary hearing on this show cause order shall be held before the Court on August 29, 2016 at 9:30 a.m. in Courtroom A, United States Bankruptcy Court, 170 N. High Street, Columbus, Ohio 43215 (the "Hearing").
If the Court were to hold Bank of America in contempt, it would enter an order establishing a process by which the Court would determine the losses the Debtors sustained (including attorneys' fees and expenses incurred) as a result of the contemptuous conduct. In other words, the Hearing will not be the time for the presentation of evidence regarding damages. --------
This contested matter shall be subject to: (1) Part VII of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rule(s)"), which incorporates portions of the Federal Rules of Civil Procedure (the "Civil Rule(s)"); (2) the Local Bankruptcy Rules (the "Local Rule(s)"); and (3) the Federal Rules of Evidence.
B. Discovery
The parties shall hold a Civil Rule 26(f) conference no later than April 22, 2016. The parties shall make all required initial disclosures pursuant to Bankruptcy Rule 7026 and Civil Rule 26(a)(1) no later than May 6, 2016. Written discovery requests shall be served electronically no later than May 20, 2016, and all responses thereto shall be served electronically no later than June 20, 2016. Depositions shall be completed no later than July 22, 2016.
Counsel are ordered to cooperate with each other in all discovery matters. Failure to cooperate in discovery or to timely comply with discovery requests in accordance with the provisions of the applicable Rules of Bankruptcy Procedure and Local Bankruptcy Rules governing discovery may result in the imposition of sanctions pursuant to Bankruptcy Rule 7037 and Civil Rule 37.
Completion of discovery does not relieve any party of its continuing obligations of disclosure under Bankruptcy Rule 7026(e) and Civil Rule 26(e).
C. Stipulations
Any stipulations of the parties shall be filed no later than July 29, 2016 as a separate document captioned "Stipulation(s) of the Parties." In the event that the parties propose to introduce documentary evidence or recordings, they are required to make a good-faith attempt to enter into stipulations concerning such evidence and to avoid the appearance and testimony of any witness whose sole purpose is to provide undisputed testimony concerning the authentication and identification of such evidence.
D. Witness Lists
In accordance with Local Rule 7016-1, a witness list containing the identity and address of each person whom a party may call or have available for testimony at the Hearing shall be filed with the Court and exchanged by the parties no later than July 29, 2016. See Local Rule Form 7016-1 Attachment A—Witness List. Witnesses not timely identified may be precluded from testifying at the Hearing.
E. Exhibit Lists and Exhibits
In accordance with Bankruptcy Rule 7026(a)(3) and (4) and Local Rule 7016-1, the parties shall complete the appropriate Local Rule Form 7016-1 Attachment B—Exhibit List(s), and assemble complete copies of all proposed exhibits that each party may offer, individually and/or jointly. Each party shall (1) exchange the Exhibit List(s) and a complete set of all proposed exhibits and (2) file the Exhibit List(s), without exhibits, with the Court no later than July 29, 2016. Exhibits not timely exchanged may not be admitted at the Hearing.
1. Each party shall pre-mark all exhibits. The Court will not provide exhibit stickers and, absent unusual circumstances, the Courtroom Deputy will not mark exhibits during the course of the Hearing.
2. At the Hearing, the parties shall provide an original hard copy of each exhibit in three-ring binders to be retained by the Court as part of the record. The Hearing will not commence until all exhibits have been suitably labeled and a set of exhibits provided to the Court. Presentation of all exhibits during the Hearing shall be by means of the Court's electronic display system. If a party intends to present exhibits electronically from a laptop computer or other digital presentation device, then the party must provide at least three days advance notice to the Court to ensure security clearance and technical compatibility. Courtroom equipment testing and setup of party-
provided devices are the responsibility of the parties and should be completed prior to the commencement of the Hearing.
Unless a written objection identifying the specific exhibit to which an objection is made is filed with the Court and served on opposing counsel on or before August 5, 2016, all listed exhibits for which there is a request for admission at the time of the Hearing will be admitted into evidence without further identification or authentication (subject to any other evidentiary objection).
F. Pre-Hearing Briefs
Bank of America and the Debtors shall file and serve on opposing counsel any pre-Hearing briefs they choose to file no later than August 12, 2016.
G. Electronic Recording
The official record of all proceedings is electronically recorded. Prior to the beginning of the Hearing, the parties must provide the Courtroom Deputy or Recording Technician with a business card and a list of any unusual or technical vocabulary that will be used in testimony or argument. To maximize the clarity of the recording, and the quality and accuracy of the record, the parties and their counsel are directed to address the Court and witnesses from the lectern (not from counsel table) and to refrain from moving around the courtroom during questioning of witnesses or during argument.
H. Settlement
If this matter is settled or otherwise resolved, counsel shall immediately advise Kristie Vickers, Courtroom Deputy, at (614) 469-7704. To remove this case from the Court's hearing calendar, counsel shall file a proposed agreed order providing for complete resolution of all issues prior to the time scheduled for hearing, or shall advise the Court, in writing, of the date by which an agreed order will be submitted to the Court. Unless otherwise ordered by the Court, the agreed order shall be submitted not later than seven days following the hearing date. Failure to timely submit the agreed order or failure to timely inform the Court of settlement may result in imposition of sanctions.
I. Other
This show cause order may not be modified by agreement of the parties. Upon timely application, however, either or both parties may seek modification in order to meet a bona fide emergency or to avoid irreparable injury or harm.
Failure to comply with the terms of this show cause order may result in the imposition of sanctions.
IT IS SO ORDERED.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
/s/ _________
John E. Hoffman, Jr.
United States Bankruptcy Judge Dated: March 29, 2016 Copies to: Default List
Bryan T. Kostura, Esq., McGlinchey Stafford, Counsel for Bank of America, N.A., 25550 Chagrin Boulevard, Suite 406 Cleveland, OH 44122
Michelle M. Masoner, Esq., Bryan Cave LLP, Counsel for Bank of America, N.A., 1200 Main Street, Suite 3800, Kansas City, MO 64105