Anderson v. Credit One Bank, N.A. (In re Anderson)

• Decision Date: 03 June 2022
• Docket Number: Case No.: 14-22147 (RDD),Adv. Pro. No. 15-08214 (RDD)
• Parties: IN RE: Orrin S. ANDERSON, Debtor. Orrin S. Anderson, a/k/a Orrin Anderson, a/k/a Orrin Scott Anderson, Debtor and Plaintiff, on behalf of himself and all others similarly situated v. Credit One Bank, N.A. Defendant.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

641 B.R. 1

IN RE: Orrin S. ANDERSON, Debtor.Orrin S. Anderson, a/k/a Orrin Anderson, a/k/a Orrin Scott Anderson, Debtor and Plaintiff, on behalf of himself and all others similarly situated

v.Credit One Bank, N.A. Defendant.

Case No.: 14-22147 (RDD)

Adv. Pro. No. 15-08214 (RDD)

United States Bankruptcy Court, S.D. New York.

Signed June 3, 2022

BOIES SCHILLER FLEXNER LLP, Albany, by George F. Carpinello, Esq., and Adam R. Shaw, Esq., and CHARLES JUNTIKKA & ASSOCIATES LLP, New York, by Charles Juntikka, Esq., for Plaintiff Orrin S. Anderson, on behalf of himself and all others similarly situated

WHITE & CASE, by J. Christopher Shore, Esq. and Andrew E. Tomback, Esq., New York, for Defendant Credit One Bank, N.A.

CORRECTED MEMORANDUM OF DECISION ON MOTIONS FOR SANCTIONS AND CLASS CERTIFICATION

Hon. Robert D. Drain, United States Bankruptcy Judge

Plaintiff Orin S. Anderson ("Plaintiff" or "Anderson") brought this adversary proceeding for himself and as a putative class action to enforce his and the other class members’ bankruptcy discharge under 11 U.S.C. § 727(b) of their unsecured debts to defendant Credit One Bank, N.A. ("Defendant" or "Credit One") and its successors and assigns, and the injunction protecting the discharge under 11 U.S.C. § 524(a)(2). The basis for the claimed discharge violation was Credit One's conceded systematic refusal after the discharge of an unsecured debt upon which it was a reporting entity to notify credit reporting agencies of the debt's changed status from "charged off" to being subject to the bankruptcy discharge.

As noted in Anderson v. Credit One Bank, N.A. (In re Anderson ), 884 F.3d 382, 385 (2d Cir. 2018), cert. denied , ––– U.S. ––––, 139 S. Ct. 144, 202 L.Ed.2d 35 (2018), "charging off" a delinquent debt "means the bank changed the debt from a receivable to a loss on its own accounting books." The fact that such a debt has been charged off thus does not mean that it is uncollectible as a matter of law. In contrast, an obligor on a debt discharged under section 727(b) of the Bankruptcy Code and subject to the statutory injunction under section 524(a)(2) of the Bankruptcy Code cannot be compelled to pay it. See Montgomery v. Wells Fargo Bank, N.A. , 2012 WL 5497950, at *5-7, 2012 U.S. Dist. LEXIS 162912, at *9, *13-14 (N.D. Cal., Nov. 13, 2012) ("A bankruptcy discharge relieves a consumer of any legal obligation to repay a discharged debt, see 11 U.S.C. § 727(b), whereas a consumer may be liable to repay a debt that has been charged off."). See also Persinger v. Southwest Credit Systems, L.P. , 20 F.4th 1184, 1196 (7th Cir. 2021) ("a discharged debt cannot be collected (indeed, it is unlawful to try")); Long v. Turner , 134 F.3d 312, 317-18 (5th Cir. 1998) ; Alsibai. v. Experian Info. Sols., Inc. , 488 F. Supp. 3d 840, 844-46 (D. Mn. 2020) ; Torres v. Chase Bank USA, N.A. (In re Torres ), 367 B.R. 478, 487 (Bankr. S.D.N.Y. 2007). (To protect the discharge, Congress permits a debtor to voluntarily reaffirm a debt only in the limited circumstances detailed in 11 U.S.C. § 524(c).) Credit One acknowledged the distinction, see May 5, 2015 Transcript [Adv. Dkt. 16] ("5/5/15 Tr.") of hearing on Credit One's motion to dismiss, at 78-79,¹ notwithstanding its repeated contention (including as recently as its objection to the present class certification motion) that a "charge off" is no different than a bankruptcy discharge.

Extensive case law and commentary recognize that, given the importance of accurate credit reporting to consumers’ access to credit (or at least consumers’ widely held belief in its role), the pressure to pay debt exerted by the repeated, unexcused refusal to correct a credit report to reflect a bankruptcy discharge subjects the violator to contempt sanctions under Taggart v. Lorenzen , ––– U.S. ––––, 139 S. Ct. 1795, 1801-02, 204 L.Ed.2d 129 (2019). See Dibattista v. Selene Fin. LP (In re Dibattista ), 615 B.R. 31, 43 (S.D.N.Y. 2020) ; Minech v. Clearview Fed. Credit Union (In re Minech ), 632 B.R. 274, 281-84 (Bankr. W.D. Pa. 2021), and the cases cited therein; see also 4 Collier on Bankruptcy, ¶ 524.02[b] (16th ed. 2022) ("The failure to update a credit report to show that a debt has been discharged is also a violation of the discharge injunction if shown to be an attempt to collect the debt. Because debtors often feel compelled to pay debts listed in credit reports when entering into large transactions, such as a home purchase, it should not be difficult to show that the creditor, by leaving discharged debts in the credit report, is attempting to collect the debt."); Micah A. Smart, "Dawn of the Debt: The Increasing Problem of Creditors Infecting the Discharge Injunction with Zombie Debt," 70 Me. L. Rev. 36, 47-8 (2018) ("Refusing to update credit reports post-discharge when requested, absent a legitimate reason should be considered a violation of the discharge.").

Here, Credit One never offered a legitimate reason for persisting in its policy not to correct obligors’ credit reports to reflect their bankruptcy discharge, with the exception, discussed below, that it had sold the underlying debt before the discharge and therefore allegedly had no duty to update the reports and its related contention that because of such sales it had no continuing motive to pressure its former obligors to pay.²

This Memorandum of Decision explains the Court's reasons for granting Plaintiff's motion for sanctions [Adv. Dkt. 140] (the "Sanctions Motion") based on Credit One's repeated, lengthy, and willful discovery failures, including its submission of false affidavits and repeated misrepresentations to the Court -- made as late as the middle of oral argument on the Sanctions Motion -- before it conceded the falsity of such affidavits and representations, which thwarted Plaintiff's efforts to disprove Credit One's "no duty" and "no motive to collect" defenses. Thus the Court will enter a default judgment on liability and a partial judgment on sanctions against Credit One in favor of Plaintiff under Fed. R. Civ. P. 37(b)(2)(A)(vi), incorporated by Fed. R. Bankr. P. 7037.

This Memorandum of Decision also explains the Court's reasons for granting in part and denying in part Plaintiff's motion for class certification [Adv. Dkt. 109] (the "Class Certification Motion"), by (a) certifying an opt-out class under Fed. R. Civ. P. 23(b)(3), incorporated by Fed. R. Bankr. P. 7023, comprising "all individuals who: [a]fter May 2, 2007, have had a consumer credit report relating to them prepared by any of the credit reporting agencies in which one or more of their Tradeline [unsecured] accounts or debts with Credit One was not reported as discharged despite the fact that such debts had been discharged as a result of their bankruptcy under Chapter 7 of the Bankruptcy Code,"³ with customary carve-outs, and (b) denying to certify an injunctive class under Fed. R. Civ. P. 23(b)(2) comprising the same people, on the basis that such request is now, albeit belatedly, moot in the light of a Stipulation and Order agreed by Credit One on March 29, 2017 [Adv. P. Dkt. 104] after its discovery failures came to light.

Jurisdiction

The Court has jurisdiction over this adversary proceeding under 28 U.S.C. §§ 157(a) - (b) and 1334(b) and the Amended General Order of Reference, dated January 31, 2012 (Preska, C.J.). As noted in Anderson v. Credit One , 884 F.3d at 388, the parties agree that Anderson's claim is a core proceeding under 28 U.S.C. § 157(b), and it is in fact "core" under that provision and under Article III of the United States Constitution, as it is "well established that the discharge is the foundation upon which all other portions of the Bankruptcy Code are built." Id. at 389 ; see also Montano v. First Light Fed. Credit Union (In re Montano ), 398 B.R. 47, 55 (Bankr. D.N.M. 2008). Further, the Circuit determined that because the enforcement of the discharge is "central to the statutory scheme" and the bankruptcy courts’ power to enforce it, this dispute would not be subject to arbitration under the Federal Arbitration Act, and "the class action nature of this case does not alter our analysis." Id. at 389-91.

Belton v. GE Capital Retail Bank (In re Belton ), 961 F.3d 612, 615-17 (2d Cir. 2020), cert. denied , ––– U.S. ––––, 141 S. Ct. 1513, 209 L.Ed.2d 252 (2021), adhered to that that analysis, including in the light of the Supreme Court's post- Anderson decision in Epic Sys. Corp. v. Lewis , ––– U.S. ––––, 138 S. Ct. 1612, 200 L.Ed.2d 889 (2018). See also Henry v. Educ. Fin. Serv. (In re Henry ), 944 F.3d 587 (5th Cir. 2019). Belton also noted, however, that "we have not endeavored to address whether a nationwide class action is a permissible vehicle for adjudicating thousands of contempt proceedings, and neither our decision today nor Anderson should be read as a tacit endorsement of such," id. at 617, leaving the issue "for another day." Id. at 618.

Credit One previously moved for, among other things, an order striking Plaintiff's class allegations of a nationwide class based on jurisdictional arguments in favor of arbitration, see Credit One Bank, N.A. and Credit One Financial's Motions to Compel Arbitration, to Strike Class Allegations, to Dismiss or Stay [Adv. Pro. Dkt. 7] at 21-23 (the "Motion to Dismiss and Strike"), which the Court denied by order dated May 14, 2015 [Adv. Dkt. 15], but it did not raise the separate issue of the Court's jurisdiction to determine whether Credit One violated the discharge orders of other judges,⁴ nor did it do so in its opposition [Adv. Dkt. 118, 143, 152] to the Class Certification Motion. Because Belton observed in dicta, however, that "we question whether a bankruptcy court would even have jurisdiction [over a nationwide class action] to hold a creditor in contempt of another court's [discharge] order." 961 F.3d at 617, the Court addresses that jurisdictional issue here as a question of law, Golden v. Discover Bank (In re Golden ), 630 B.R. 896, 917 (Bankr....