DiBattista v. Selene Fin. LP (In re DiBattista)

Decision Date09 April 2020
Docket NumberNo. 19-CV-8118 (CS),19-CV-8118 (CS)
Citation615 B.R. 31
Parties IN RE: Bret S. DIBATTISTA, Debtor. Bret S. DiBattista, Plaintiff/Appellee, v. Selene Finance LP, Defendant/Appellant.
CourtU.S. District Court — Southern District of New York

Carlos J. Cuevas, Francis J. O'Reilly, Law Office of Francis J. O'Reilly, Esq., Carmel, New York, Counsel for Plaintiff/Appellee.

Richard J. Davis, Stephen J. Bumgarner, Maynard, Cooper & Gale, P.C., Birmingham, Alabama, Counsel for Defendant/Appellant.

OPINION AND ORDER

Seibel, U.S.D.J.

Before the Court is the appeal of Defendant-Appellant Selene Finance LP ("Selene")1 from the Bankruptcy Court's July 23, 2019 "Order Holding Selene Finance, L.P. in Contempt for Its Violation of the Discharge Injunction Under 11 U.S.C § 524(a) and to Sanction Selene Finance, L.P. [Under] 11 U.S.C. § 105(a) and Federal Rule of Bankruptcy Procedure 9020 and Awarding Sanctions Under 11 U.S.C. § 524(a)(2)." (Bankr. Doc. 30 ("Order").)2 For the following reasons, the Order is AFFIRMED in part and VACATED and REMANDED in part.

I. BACKGROUND

On July 24, 2009, Plaintiff-Appellee Bret S. DiBattista filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. (Doc. 10-1 at 1.)3 DiBattista owned real property located at 28 Wintergreen Avenue in Newburgh, New York (the "Real Property"), which was encumbered by a mortgage load held by Countrywide Home Loans, Inc. ("Countrywide"). (Id. at 11.) In the Statement of Intention filed with his Chapter 7 petition, DiBattista stated that he intended to retain the Real Property and continue making payments to Countrywide. (Id. at 34.)

On October 18, 2009, the Bankruptcy Court entered an order of discharge releasing DiBattista from all of his dischargeable debts. (Id. at 48.) The discharge order prohibited "any attempt to collect from the debtor a debt that has been discharged. For example, a creditor is not permitted to contact a debtor by mail, phone, or otherwise, to file or continue a lawsuit ... or to take any other action to collect a discharged debt from the debtor." (Id. at 49.) As a result of the discharge order, DiBattista was discharged from his personal liability on the mortgage note, although the lender retained its lien on the property and its right to foreclose upon default. Countrywide Home Lending received notice of the discharge order shortly thereafter. (Id. at 76.)

Selene states, upon information and belief, that DiBattista defaulted on his mortgage payment due December 1, 2012, and each mortgage payment thereafter. (Id. at 103-04.) On September 6, 2018, Countrywide assigned the note and mortgage to MTGLQ Investors, L.P., which then retained Selene to service the note and mortgage. (Id. at 104.)

On September 12, 2018, Selene sent DiBattista a letter with the heading "Validation of Debt Notice." (Id. at 78.) The first paragraph of the letter stated, "As of 09/12/2018, our records show that the current amount of the debt securing the above referenced loan is $279,186.39. Your current payment amount is $1,673.67 which is due for 12/01/2012." (Id. ) The letter went on to say, in the second and third paragraphs, that

Selene ... is collecting the debt on behalf of MTGLQ Investors, L.P., and you may pay the debt to our office at the address indicated below.... Unless you notify Selene within thirty (30) days of receipt of this notice that you dispute the validity of the debt, or any portion thereof, Selene will assume the debt to be valid."

(Id. ) The letter contained several disclaimers, one of which read, "Please note that if you are in bankruptcy or received a bankruptcy discharge of this debt, this communication is not an attempt to collect the debt against you personally." (Id. at 79.) As the Bankruptcy Court noted, the disclaimer was "at the bottom of the second page, and not very noticeable." (Doc. 18-1 ("Hearing Tr.") at 11:13-14.)

On September 13, 2018, Selene attempted to contact DiBattista via telephone, but he did not answer, so it left him a message. (Selene's App. at 104.) DiBattista returned the call the following day and confirmed his phone number, but did not provide any additional information to Selene. (Id. ) Between November 29, 2018, and January 24, 2019, Selene called DiBattista and members of his family more than thirty times. (Id. at 72, 80-82.)

Additionally, in November 2018, Selene began reporting on DiBattista's credit report that he was 120 days past due on his mortgage payments. (Id. at 72; see id. at 83-86.)4 DiBattista did not learn that Selene had reported this debt until January 2019, and in that same month, Selene reported to credit agencies that DiBattista was 180 days past due with payment. (Id. at 72.)

On January 22, 2019, Selene received a cease-and-desist letter from DiBattista's counsel. (Id. at 105; id. at 87-88, see id. at 89 (Selene acknowledging receipt via fax on January 22).) In the letter, DiBattista's counsel explained that DiBattista's debt had been discharged in 2009 and that the discharged order was "mailed to your client." (Id. at 87.)5 DiBattista's counsel went on to explain that the letter Selene had sent DiBattista and the phone calls it had made to him violated the discharge order, and therefore DiBattista demanded that Selene "immediately cease and desist any further attempt to seek collection of the pre-petition debt, and immediately take all necessary actions necessary to restore my client's credit to where it was prior [t]o your reporting ... within 7 days." (Id. ) DiBattista's counsel concluded that "[f]ailure on [Selene's] part to comply with this demand will lead my client to seek judicial intervention to have you held in contempt, whereby, you may be assessed sanctions, monetary penalties, or any other remedy the Court deems appropriate." (Id. at 88.) Selene made three more calls after receiving the letter. (Id. at 72, 82.)

On February 14, 2019, DiBattista filed a motion to reopen the bankruptcy proceedings to "enforce the discharge injunction." (Bankr. Doc. 15.) On March 6, 2019, Selene sent a letter to DiBattista's counsel stating it had received his January 22 letter by fax on that date. (Selene's App. at 89.) Selene stated that it began servicing DiBattista's mortgage account on August 30, 2018, and "upon review of the account, it was determined that prior to Selene's servicing of the account, it was discharged through a Chapter 7 Bankruptcy." (Id. ) Selene further stated that it would "cease and desist all contact with the mortgagor; however, ... Selene will continue to enforce its lien rights with respect to the property secured by the security instrument ... [and] will continue to mail notices regarding matters related to the foreclosure of the property." (Id. ) But Selene made clear that "[t]he notices are intended for informational purposes only as we acknowledge that Mr. Di[B]attista is not personally liable for the debt." (Id. ) Selene also stated that it had "submitted an update to delete the credit reporting tradeline. This deletion will remove all credit reporting previously submitted by Selene." (Id. ) DiBattista's counsel responded on March 15, 2019, stating that Selene's letter was late and "[a]s a result, my client was forced to hire our firm to protect his interest and draft and file a motion to reopen his bankruptcy case[.] My client has been further damaged by your firm's inaccurate credit reporting." (Id. at 134.) DiBattista attested that his credit score was reduced by sixty points due to Selene's credit reporting. (Id. at 72.)

On April 2, 2019, the Bankruptcy Court reopened the bankruptcy proceedings. (Bankr. Doc. 17.) On May 20, Selene's counsel communicated with DiBattista's counsel by phone and email, stating that Selene had "ceas[ed] any future collection efforts" and instructed the major credit reporting bureaus to delete its previous credit reporting. (Selene's App. at 136.) Selene offered to pay DiBattista's attorney's fees for filing the motion to reopen, (id. ), but DiBattista's counsel stated his client intended to proceed with a motion for contempt sanctions, (id. at 139).

On June 14, 2019, DiBattista filed a motion for contempt for violation of the discharge order. (Doc. 19.) Selene opposed it, DiBattista replied, and Selene sur-replied. (Docs. 25-27.)6 The Court held a hearing on July 26, 2019. At the hearing, Selene argued that it was reasonable to take forty-three days between receiving DiBattista's cease-and-desist letter and ceasing its collection efforts and sending updated information to the credit agencies, (Hearing Tr. at 9:4-7), but the Bankruptcy Court explained that "[i]t is absolutely egregious that someone is not looking at the electronic record before they do anything that damages an individual, as much as a poor credit report damages an individual," (id. at 10:18-21.) The Bankruptcy Court added that DiBattista incurred

actual damages. He needlessly suffered embarrassment, stress, and anxiety over the collection of the debt that had discharged. He and his family could not enjoy peace in their homes, as they were hounded by collection calls up to seven times a day. He had to contact his attorney, who had to take time writing a letter to Selene, and making a motion in this court to reopen the case, as well as negotiate with Selene."

(Id. at 10:23-11:6.) Accordingly, the Bankruptcy Court held Selene in contempt. (Id. at 10:22.)

The Bankruptcy Court then turned to damages, and stated that DiBattista "is awarded $500 per phone call, 35 times 500 is $17,000 [sic7 ] as actual damages. The initial letter should not be counted, as it contained the bankruptcy disclosure; though at the bottom of the second page, and not very noticeable." (Id. at 11:10-14.) The Court is also said it would award attorney's fees as well as filing fees, and directed DiBattista's counsel to submit an affidavit documenting those amounts. (Id. at 11:15-21.)

On July 23, the Bankruptcy Court entered the Order. In it, the court stated:

[H]aving found and concluded that Selene repeatedly and willfully
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