Bates v. CitiMortgage, Inc.

• Decision Date: 14 December 2016
• Docket Number: No. 16–1228,16–1228
• Citation: 844 F.3d 300
• Parties: Cathy N. Bates, a/k/a Lynn Cathy Bates, a/k/a Cathy Lynn Nichols; and Timothy J. Bates, Appellants, v. CitiMortgage, Inc., s/b/m to ABN AMRO Mortgage Group, Inc.; and Federal Home Loan Mortgage Corporation, Appellees, Victor W. Dahar, Trustee.
• Court: U.S. Court of Appeals — First Circuit

844 F.3d 300

Cathy N. Bates, a/k/a Lynn Cathy Bates, a/k/a Cathy Lynn Nichols; and Timothy J. Bates, Appellants,

v. CitiMortgage, Inc., s/b/m to ABN AMRO Mortgage Group, Inc.; and Federal Home Loan Mortgage Corporation, Appellees,Victor W. Dahar, Trustee.

No. 16–1228

United States Court of Appeals, First Circuit.

December 14, 2016

Terrie Harman , Kristina Cerniauskaite , and Harman Law Offices , Exeter, NH, on brief for Appellants.

Gregory N. Blase , David D. Christensen , and K&L Gates LLP , Boston, MA, on brief for Appellees.

Before Lynch, Thompson, and Barron, Circuit Judges.

THOMPSON, Circuit Judge.

Cathy N. Bates and Timothy J. Bates (our Appellants, whom we also call the Bateses) went bankrupt and Appellees foreclosed on their home. At the end of the tax year, they each received an IRS Form 1099–A in the mail alerting them that the foreclosure might have tax consequences. The Bateses sued our Appellees, claiming that the Forms were a coercive attempt to collect on the mortgage debt—a debt Appellees have no right to collect because it was discharged during the Bateses' Chapter 7 proceedings. The bankruptcy court and the district court found the Forms were not objectively coercive attempts to collect a debt. We agree, and so we affirm.

The Facts

The Bateses took out a loan from Appellee CitiMortgage, Inc. s/b/m to ABN AMRO Mortgage Group, Inc. ("CitiMortgage") secured by a mortgage on their home in Newport, New Hampshire. The Bateses filed for Chapter 7 bankruptcy in 2008 and their mortgage debt was discharged in 2009. The Bateses entered into a Loan Modification Agreement with CitiMortgage after the discharge. Under that Agreement, the Bateses did not reaffirm personal liability for the mortgage, but they could avoid foreclosure and stay in their home as long as they continued to make payments to CitiMortgage. The Bateses eventually stopped making payments, CitiMortgage foreclosed, and the Bateses moved out in October 2011.

In January 2012, the Bateses each received an IRS Form 1099–A ("1099–A Form" or "Form") in the mail. According to the instructions on the back of the Forms, "[c]ertain lenders who acquire an interest in property that was security for a loan ... must provide you with this statement. You may have reportable income or loss because of such acquisition or abandonment." Both Forms listed the lender as "Freddie Mac" (also known as Federal Home Loan Mortgage Corporation, our other Appellee) "c/o CitiMortgage." And, as of the time of acquisition, the Forms listed the "balance of principal outstanding" as $194,624 and the fair market value of the property as $168,000. Box Five on the Forms was checked, indicating that "the borrower was personally liable for the repayment of the debt." The front of the Forms also says "This is important tax information and is being furnished to the Internal Revenue Service. If you are required to file a return, a negligence penalty or other sanction may be imposed on you if taxable income results from this transaction and the IRS determines that it has not been reported."

We pause here to note that a discharged debt can count as taxable income. 26 U.S.C. § 61(a)(12). But, as Appellees point out (and the Bateses do not dispute), debt discharged in bankruptcy proceedings (like the Bateses') and on a qualified principal residence (like the Bateses') does not. 26 U.S.C. § 108(a)(1)(A), (E). The Bateses' 1099–A Forms directed them to "Pub. 4681 for information about foreclosures and abandonments." That publication explains: "Debt canceled in a title 11 bankruptcy case is not included in your income." I.R.S., Dep't of the Treasury, Publication 4681: Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals) 4 (2011), https://www.irs.gov/pub/irs-prior/p4681—2011.pdf. The Bateses do not claim that they owed any taxes as a result of the foreclosure or the Forms.

But, the Bateses say the 1099–A Forms reported bad information. After their bankruptcy, the Bateses were no longer personally liable for the mortgage debt, so they say Freddie Mac should not have checked the box showing the opposite.¹ Timothy Bates averred that he called Appellees about his Form and was told that the debt was not discharged because it was a secured debt. The Bateses' attorney later sent a letter to Freddie Mac pointing out that the Bateses' mortgage was discharged in bankruptcy and demanding the revocation of the 1099–A Forms. The Bateses say they were terrified they would owe additional income taxes unless they resolved the matter with Freddie Mac or CitiMortgage. Freddie Mac did not revoke the Forms and claims they are accurate.

One other important detail: the Bateses received a pre-recorded phone call from CitiMortgage on June 11, 2013, requesting proof of insurance on their old home; insurance was required under the terms of their former mortgage agreement. The phone call upset Timothy Bates: "it seemed we would never be free from the debt to CitiMortgage."

In May 2013, about one month before receiving the last-straw phone call from CitiMortgage, the Bateses filed a motion to reopen their bankruptcy proceedings, then sued CitiMortgage and Freddie Mac for attempting to collect on the discharged mortgage debt in violation of the discharge injunction provisions of 11 U.S.C. § 524(a). Following cross-motions for summary judgment, the bankruptcy court granted the Bateses summary judgment on their claim that the 2013 phone call violated the discharge injunction, though it later found the Bateses did not prove any damages on this claim. The bankruptcy court granted summary judgment for our Appellees on all of the Bateses' other claims, including their claim that the 1099–A Forms violated the discharge injunction. The bankruptcy court found the Forms gave the Bateses "no objective basis" to believe Appellees were trying to collect the discharged mortgage debt. The Bateses appealed the bankruptcy court's rulings on damages and the 1099–A Forms. The district court affirmed both. The Bateses now appeal the bankruptcy court's ruling on the 1099–A Forms to us.

Standard of Review

Under Federal Rule of Bankruptcy Procedure 7056, as under Federal Rule of Civil Procedure 56, a motion for summary judgment "should be granted ‘only when no genuine issue of material fact exists and the movant has successfully demonstrated an entitlement to judgment as a matter of law.’ " Hannon v. ABCD Holdings, LLC(In re Hannon), 839 F.3d 63, 69 (1st Cir. 2016) (quoting Desmond v. Varrasso(In re Varasso), 37 F.3d 760, 763 (1st Cir. 1994) ). We review the bankruptcy court's summary judgment decision de novo and give no special deference to the district court's findings. Id.

The Bateses' Claim

The Bateses allege that the 1099–A Forms violated the discharge injunction provisions of 11 U.S.C. § 524(a), which prohibit acts to collect, recover, or offset debts discharged in bankruptcy proceedings. SeeCanning v. Beneficial Me., Inc.(In re Canning), 706 F.3d 64, 69 (1st Cir. 2013). To prove a discharge injunction violation, a debtor must establish that the creditor "(1) has notice of the debtor's discharge ...; (2) intends the actions which constituted the violation; and (3) acts in a way that improperly coerces or harasses the debtor." Best v. Nationstar Mortgage LLC, 540 B.R. 1, 9 (B.A.P. 1st Cir. 2015) (quoting Lumb v. Cimenian(In re Lumb), 401 B.R. 1, 6 (B.A.P. 1st Cir. 2009) ).

The Bateses and our Appellees only dispute the third element—whether the 1099–A Forms were an improperly coercive or harassing attempt to collect on the discharged debt. The Bateses claim the Forms were coercive, especially because the Forms contained false information. They also claim the bankruptcy court erred by failing to consider whether the Forms were coercive under all the circumstances, including Freddie Mac's failure to correct the Forms and the phone call from CitiMortgage about the insurance policy on their old home. CitiMortgage and Freddie Mac, of course, disagree. So do we. We explain.

We assess whether conduct is improperly coercive or harassing under an objective standard—the debtor's subjective feeling of coercion or harassment is not enough. In re Lumb, 401 B.R. at 6 ; seePratt v. Gen. Motors Acceptance Corp.(In re Pratt), 462 F.3d 14, 19 (1st Cir. 2006). We have no "specific test" to determine whether a creditor's conduct meets this objective standard, but we consider the facts and circumstances of each case, including factors such as the "immediateness of any threatened action and the context in which a statement is made." Diamond v. Premier Capital, Inc.(In re Diamond), 346 F.3d 224, 227 (1st Cir. 2003) ; seeIn re Pratt, 462 F.3d at 20. "[A] creditor violates the discharge injunction only if it acts to collect or enforce a prepetition debt; bad acts that do not have a coercive effect on the debtor do not violate the discharge." In re Lumb, 401 B.R. at 7.

For example, a debt collector in Best, 540 B.R. at 10–11, sent a series of letters stating information like the unpaid loan balance and that failure to pay could result in foreclosure; the letters included a disclaimer explaining that if the debt had been discharged in bankruptcy, then the letter was for informational purposes only. These letters did not violate the discharge injunction because "[s]tatements of an informational nature, even if they include a payoff amount, are not generally actionable if they do not demand payment," and these letters did not. Id. at 11. Likewise, references to potential foreclosure in letters to a debtor during bankruptcy proceedings were not coercive where the letters accurately reported that the debtor could face foreclosure after bankruptcy but threatened no "immediate action" against the debtors. Jamo v. Katahdin Fed. Credit Union(In re Jamo), 283 F.3d 392, 402 (1st Cir. 2002) (quoting Brown v. Penn. State Emps. Credit Union, 851 F.2d 81, 86 (3d Cir. 1988) ).

The bankruptcy court found, and we agree, that the 1099–A Forms are not a...