Walls v. Wells Frago Bank

Citation276 F.3d 502
Decision Date08 January 2002
Docket NumberNo. 00-17036,DEFENDANT-APPELLEE,PLAINTIFF-APPELLANT,00-17036
Parties(9th Cir. 2002) DONNA MARIE WALLS, ON BEHALF OF HERSELF AND ALL OTHERS SIMILARLY SITUATED,v. WELLS FARGO BANK, N.A.,
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

[Copyrighted Material Omitted] Counsel: Timothy J. Becker (argued) and Carleton B. Crutchfield, Mitsch & Crutchfield, St. Paul, Minnesota, for the plaintiff-appellant.

Jan T. Chilton, Severson & Werson, San Francisco, California, for the defendant-appellee.

Appeal from the United States District Court for the Eastern District of California Frank C. Damrell, Jr., District Judge, Presiding D.C. No. CV-99-01860-FCD

Before: Alex Kozinski, Pamela Ann Rymer, and Barry G. Silverman, Circuit Judges.

Rymer, Circuit Judge

We are asked to imply a private right of action for a debtor discharged from bankruptcy to enforce an alleged violation of 11 U.S.C. §§ 524, which provides that discharge under Title 11 of the Bankruptcy Code operates as an injunction against collecting debt as a personal liability of the debtor.

Donna Marie Walls brought a class action on behalf of Chapter 7 bankruptcy debtors against Wells Fargo Bank for (among other things) violating the discharge injunction by attempting to collect her debt after it had been discharged. The district court concluded that the remedy Congress intended for violations of the discharge injunction is contempt pursuant to 11 U.S.C. §§ 105(a). Walls v. Wells Fargo Bank, N.A., 255 B.R. 38 (E.D. Cal. 2000). Accordingly, it referred Walls's claims for contempt to the bankruptcy court but dismissed her claims for relief under §§ 524. We agree, and hold that a private cause of action is not available under §§ 524, or through §§ 105.

This appeal also raises the issue whether a discharged debtor may pursue a simultaneous claim under the Fair Debt Collections Practices Act (FDCPA), 15 U.S.C. §§ 1692f. We think not, as to do so would circumvent the Bankruptcy Code's remedial scheme. We have jurisdiction pursuant to 28 U.S.C. §§ 1291, and affirm.

I.

Walls filed a voluntary bankruptcy petition under Chapter 7 of Title 11 of the United States Code on September 24, 1997. She listed a pre-petition obligation of $118,000 owed to Wells Fargo Bank, secured by her house. She continued to make payments, before and after her debt was discharged on January 2, 1998. This enabled Walls to keep the house under a "ride-through" allowed by In re Parker , 139 F.3d 668, 672-73 (9th Cir. 1998), to debtors who are current on their loan payments on secured property and who continue to make payments. Parker permits such debtors to avoid making a statutory election whether to redeem the property or reaffirm the debt pursuant to §§ 524(c). This meant that Wells Fargo retained its lien on the property and could foreclose in the event that Walls did not make payments. Several payments later, Walls in fact stopped paying. Wells Fargo foreclosed on the house in December 1998. Walls then filed this class action in federal district court. No class has yet been certified.

Walls's complaint alleges that Well Fargo did not obtain an agreement reaffirming its debt under §§ 524(c) after she filed for bankruptcy, and that her debts were discharged giving rise to the discharge injunction pursuant to §§ 524(a)(2) and (c). Nevertheless, the bank continued to solicit and collect monthly payments, which she made on October 4, 1997, November 12, 1997, and December 7, 1997 before discharge but after the automatic stay, and on January 19, 1998, February 24, 1998, and May 9, 1998 after discharge. This activity, Walls alleges, was prohibited by §§ 524 and was an unfair and unconscionable means of collecting a debt under the FDCPA, 15 U.S.C. §§ 1692f. Wells Fargo moved to dismiss the claims for willful violation of the discharge injunction and the FDCPA under Rule 12(b)(6) of the Federal Rules of Civil Procedure; Walls moved to refer the core bankruptcy issues to the bankruptcy court. The district court granted Walls's motion by referring her claims for willful violation of the automatic stay, and for contempt on account of the alleged violation of the automatic stay and the discharge injunction, to the bankruptcy court. Neither this referral, nor these claims, are before us on appeal. Otherwise, the court granted Wells Fargo's motion to dismiss.

Walls timely appeals dismissal of her claims based on an implied right of action under §§ 524, and for violation of the FDCPA.1

II.

Although both parties agree that we have jurisdiction and a motions panel of this court ruled that we do pursuant to 28 U.S.C. §§ 1291, we must nonetheless examine the issue sua sponte. In re Hawaii Corp., 796 F.2d 1139, 1141 (9th Cir. 1986). A question arises because two of the claims in Walls's complaint were referred to the bankruptcy court while the remaining claims were dismissed. In these circumstances it could be that the case is not final as to all claims, but we are satisfied that it is for purposes of §§ 1291 because the district court disposed of each of the issues that was before it under its original jurisdiction. Both claims referred to the bankruptcy court allege a violation of the Bankruptcy Code; therefore, both are "core proceedings" under 28 U.S.C. §§ 157 and, as such, may be finally resolved by the bankruptcy court. See In re Cinematronics, Inc., 916 F.2d 1444, 1449 (9th Cir. 1990) (bankruptcy court may "enter final judgments in socalled core cases, which are appealable to the district court") (citation omitted). For this reason, the district court's entry of judgment was a final decision as to all claims before it.

III.

Walls argues that §§ 105(a) itself empowers a district court to enforce a violation of §§ 524, and alternatively that Congress created a private cause of action for enforcement of the discharge injunction directly under the terms of§§ 524.

Section 105(a) describes the power of courts and 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.

Section 524 prescribes the effect of discharge and provides:

(a) A discharge in a case under this title--

. . . . . .

(2) 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 debt as a personal liability of the debtor, whether or not discharge of such debt is waived.

A.

Walls argues that §§ 524 creates substantive rights in favor of the debtor; therefore §§ 105(a) should be available to enforce these rights and should not be limited only to authorizing a cause of action for contempt. She points out that 105(a) permits a court to issue "any" order, and that pursuant to it a court on its own may take any action necessary to prevent an abuse of process. Further, Walls posits that violation of the discharge injunction is an abuse of process, therefore the district court has power to issue any order enforcing the injunction. Walls particularly relies on Bessette v. Avco Fin. Serv., Inc., 230 F.3d 439 (1st Cir. 2000), which she reads as recognizing that §§ 105(a) acts as a mechanism for enforcing any violation of substantive right in the Code, specifically, a private cause of action under §§ 524. We disagree that Bessette goes so far, but regardless, are persuaded that violations of that section may not independently be remedied through §§ 105 absent a contempt proceeding in the bankruptcy court.

In Bessette, the debtor had executed a reaffirmation agreement with Avco that was not filed with the bankruptcy court and so did not comply with the requirements of §§ 524(c). The debtor brought suit in federal district court seeking damages for alleged violations of the automatic stay and discharge injunction provided by §§§§ 362 and 524 on the theory that §§ 524 provides a private right of action and, alternatively, that the district court is authorized to grant relief by way of §§ 105(a). The First Circuit addressed only the§§ 105(a) issue. It stated that §§ 105 does not itself create a private right of action, but that it does provide a bankruptcy court with statutory contempt powers in addition to whatever inherent contempt powers the court may have. Because these powers inherently include the ability to sanction a party, the court concluded that a bankruptcy court is authorized to invoke §§ 105 to enforce the discharge injunction and order damages for the debtor if appropriate on the merits. The court of appeals left it to the district court's discretion whether to refer the §§ 105(a) proceeding to the bankruptcy court. Bessette, 230 F.3d at 444-46.

In our case the district court did just this, referring Walls's request for contempt to the bankruptcy court. That proceeding is not before us and we express no view one way or the other on the extent of the court's powers in determining Walls's claims.

But we decline Walls's invitation to expand the remedies available under the Bankruptcy Code for violating §§ 524. Walls suggests that §§ 105 may be used to create substantive rights in the Code, therefore a private right of action is appropriate because §§ 105 empowers the bankruptcy court to use "any" means necessary to advance the purpose of the Code. However, to create a new remedy would put us in the business of legislating. We agree with the Sixth Circuit's view in Pertuso v. Ford Motor Credit Co., 233 F.3d 417, 423 (6th Cir. 2000), that it is not up to us to read other remedies into the carefully articulated set of rights and remedies set out in the Bankruptcy Code. As that cour...

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