Bessette v. Avco Financial Services, Inc.
| Decision Date | 19 October 1999 |
| Docket Number | No. 97-487L.,97-487L. |
| Parties | Cheryl BESSETTE and Francisco Gonzalez, for themselves and on behalf of all others similarly situated, Plaintiffs, v. AVCO FINANCIAL SERVICES, INC., AVCO Financial Services Management Company, AVCO Financial Services of Rhode Island, Inc., AVCO Financial Services of Colorado, Inc., and John Does 1-10, Defendants. |
| Court | U.S. District Court — District of Rhode Island |
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Daniel A. Edelman, Edelman & Combs, Chicago, IL, Christopher M. Lefebvre, Pawtucket, RI, for Plaintiffs.
A. William Loeffler, Mary Grace Diehl, Troutman Sanders LLP, Atlanta, GA, Deming E. Sherman, Patricia A. Sullivan, Marc A. Crisafulli, Edwards & Angell, Providence, RI, for Defendants.
In this as yet uncertified class action, plaintiffs seek monetary relief from defendants for alleged violations of the Bankruptcy Code and the Racketeer Influenced and Corrupt Organizations Act ("RICO"). In addition, plaintiffs have alleged a state law claim for unjust enrichment.
Specifically, plaintiffs' Second Amended Complaint seeks damages for alleged violations of the automatic stay and discharge injunction provided for by the Bankruptcy Code because of defendants' improper method of securing reaffirmation agreements of plaintiffs' pre-petition debt. Plaintiffs Second Amended Complaint also alleges that defendants used the mails to obtain revenues from the reaffirmation agreements thus violating RICO. In response, defendants have filed a motion to dismiss the seven Count Second Amended Complaint in its entirety. Although the alleged practices of defendants appear to abuse the carefully designed bankruptcy laws, this Court is unable to grant the relief sought by plaintiffs. For the reasons outlined below, this Court dismisses the complaint in its entirety. However, plaintiffs are granted leave to amend Count III only.
Plaintiff Cheryl Bessette resides in the District of Rhode Island. Francisco Gonzalez, the other named plaintiff, resides in California. Defendants are the various corporations which comprise the corporate group of Textron's finance division. Textron, although not a named defendant, is a global conglomerate holding company. The finance segment of Textron's business is delegated to AVCO Financial Services, Inc. ("AFS"), a wholly owned subsidiary of Textron, and its consumer finance subsidiaries (collectively "AVCO"). AFS conducts this consumer finance business through its various subsidiaries, including AVCO Financial Services of Rhode Island ("AFS-RI"), and AVCO Financial Services of Colorado, Inc. ("AFS-CO"). AVCO Financial Services Management ("AFS Management") is a wholly owned subsidiary of AFS which provides management services to AFS and its Unites States subsidiaries. Defendants John Does 1 through 10 are unidentified individuals employed by AFS and/or its subsidiaries in charge of securing reaffirmation agreements from debtors. Many of these separate corporations within AVCO's corporate group share officers and directors.
On August 7, 1995, plaintiff Bessette and her husband filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code in the District of Rhode Island. In re Bessette, 95-11908 (Bankr.D.R.I.). One of Bessette's debt obligations was owed to AFS-RI for furniture that was bought on credit. On or about September 20, 1995, Bessette executed a reaffirmation agreement which was mailed to her by one of the defendants. This agreement was signed by both Bessette and her lawyer. The agreement purportedly required Bessette to pay $1500 plus interest in $100 monthly installments to "AVCO Financial Services" and be sent to an address in Colorado that belongs to AFS-CO. This agreement was never filed with the Bankruptcy Court for the District of Rhode Island as required by 11 U.S.C. § 524. In violation of § 524, the agreement states that if the debtor rescinds it, any payments made will be retained by the creditor. On or about November 2, 1995, the Bankruptcy Court issued a discharge order pursuant to 11 U.S.C. § 524, which relieved Bessette of all dischargeable debts including the AFS obligation. No payments were made to AFS by Bessette until May 1, 1996, after the discharge order was issued. See Second Amended Complaint, Exhibit C.
On November 13, 1996 plaintiff Francisco T. Gonzalez and his wife, Maria, filed a joint petition for relief under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of California, Modesto Division. Gonzalez was not represented by counsel in that bankruptcy proceeding. In that bankruptcy case, Gonzalez listed an obligation to AFS of $411 for an extension of credit used to buy personal items. On or about December 20, 1996, Gonzalez executed a reaffirmation agreement that required him to pay AFS $20 per month against his outstanding debt to AFS. On February 20, 1997 the Bankruptcy Court entered a discharge order on all of Gonzalez's debts including the obligation to AFS. The reaffirmation agreement was not filed with the Court as required by § 524 of the Bankruptcy Code. Gonzalez's reaffirmation agreement also contained language indicating that AFS has the right to retain payments made in the event that the debtor rescinds which is a clear violation of § 524. Gonzalez made payments totaling $120 pursuant to the reaffirmation agreement.
As a result of this alleged conduct by defendants, plaintiffs bring this action against AVCO for violation of both the discharge injunction issued under § 524 of the Bankruptcy Code and the automatic stay which issued when the bankruptcy petitions were filed pursuant to 11 U.S.C. § 362(a). Plaintiffs' RICO and state law claims are also based on AVCO's conduct in securing the aforementioned reaffirmation agreements.
In ruling on a motion to dismiss, the Court construes the complaint in the light most favorable to plaintiff, taking all well-pleaded allegations as true and giving plaintiff the benefit of all reasonable inferences. See Figueroa v. Rivera, 147 F.3d 77, 80 (1st Cir.1998). Dismissal under Rule 12(b)(6) is appropriate only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); see Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984); 5A Wright & Miller, Federal Practice & Procedure § 1357 (1990).
Judge Mary Lisi of this Court has previously transferred a case raising these issues to the Bankruptcy Court pursuant to the discretionary referral provisions contained in 11 U.S.C. § 157(a). See McGlynn v. Credit Store, Inc., 234 B.R. 576, 579 (D.R.I.1999). This Court, however, chooses to decide these issues because it has jurisdiction over all cases under Title 11, and all civil proceedings "arising under," "arising in," or "related to" cases under Title 11 pursuant to 28 U.S.C. § 1334, and this area of the law should become settled as soon as possible.
The general venue statute is applicable in this case since plaintiffs have alleged violations of both the Bankruptcy Code and RICO. Venue is proper here under the general federal venue provisions because defendants reside in this district. The general venue statute, 28 U.S.C. § 1391(b) states that a "civil action wherein jurisdiction is not founded solely on diversity of citizenship may, except as otherwise provide by law, be brought only in (1) a judicial district where any defendant resides . . ." The statute also states that for "purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced." 28 U.S.C. § 1391(c). Since defendants have admitted that personal jurisdiction exists here with regard to all defendants, this Court is an appropriate forum to hear plaintiffs' claims.
Defendants argue that plaintiffs' claims under § 524 of the Bankruptcy Code should be dismissed because that provision contains no private right of action. Whether there is a private cause of action under § 524 of the Bankruptcy Code is a question of first impression in this District. Plaintiffs argue that this Court ought to imply a private right of action under § 524 in the absence of an express grant of a private remedy. Section 524 of the Bankruptcy Code provides in pertinent part:
It is clear from the language of the relevant subsections that § 524 does not expressly contemplate a private action for damages. Because § 524 does not authorize a private cause of action on its face, there is no basis for plaintiffs' claims unless they can demonstrate that Congress intended to create an implied private right of action. See Maldonado v....
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