In re Bassett

• Decision Date: 17 November 2000
• Docket Number: BAP No. WW-00-1071-CCaK. Bankruptcy No. 97-6041. Adversary No. 99-9635.
• Citation: 255 BR 747
• Parties: In re Darlene M. BASSETT, Debtor. Darlene M. Bassett, Appellant, v. American General Finance, Inc., Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

255 B.R. 747 (2000)

In re Darlene M. BASSETT, Debtor Darlene M. Bassett, Appellant, v. American General Finance, Inc., Appellee.

BAP No. WW-00-1071-CCaK. Bankruptcy No. 97-6041. Adversary No. 99-9635.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted October 13, 2000.

Decided November 17, 2000.

COPYRIGHT MATERIAL OMITTED

Frederick W. Schoepflin, Keller, Rohrback, LLP, Seattle, WA, for Darlene M. Bassett, appellant.

Frederick B. Rivera, Perkins Coie, Seattle, WA, for American General Finance, Inc., appellee.

Before CARLSON,¹ CARROLL,² and KLEIN, Bankruptcy Judges.

OPINION

CARLSON, Bankruptcy Judge.

Debtor brought a class action asserting a private right of action for violation of the discharge injunction based on a creditor's collection of debts pursuant to an invalid reaffirmation agreement. The bankruptcy court found that the reaffirmation agreement was valid and dismissed the action with prejudice. We affirm in part and reverse in part. We hold that the reaffirmation agreement was invalid, that there is no private right of action for violation of section 11 U.S.C. § 524, and that Debtor may enforce the discharge injunction through civil contempt proceedings.

FACTS

Debtor Darlene Bassett filed a chapter 7 case on May 2, 1997. Among her scheduled debts was a secured purchase-money debt to American General Finance, Inc. (AGF) in the amount of $2,103. At a continued meeting of creditors at which Debtor's counsel did not appear, Debtor signed a reaffirmation agreement prepared by AGF. Debtor's counsel later signed the reaffirmation agreement, certifying that the attorney had fully advised Debtor regarding the agreement, that Debtor's decision to sign the agreement was informed and voluntary, and that the agreement did not impose an undue hardship on Debtor. AGF filed the reaffirmation agreement with the court, Debtor received a discharge, and the chapter 7 case was closed. Debtor did not attempt to rescind the reaffirmation agreement under § 524(c)(4).

Debtor made the monthly payments called for in the reaffirmation agreement through February 1999. After she failed to make the March and April 1999 payments, AGF allegedly threatened to accelerate the loan and made numerous calls to Debtor attempting to collect the reaffirmed debt.

In November 1999, Debtor filed a class action adversary proceeding in the bankruptcy court alleging, inter alia, that AGF violated the discharge injunction by collecting a discharged debt pursuant to a reaffirmation agreement that does not meet the requirements of § 524(c).

Debtor alleged that the particular form of the reaffirmation agreement used by AGF caused the agreement to be void and unenforceable for two reasons. First, the provision advising Debtor of her right to rescind the agreement was not "clear and conspicuous" as required by § 524(c)(2). Second, the agreement impermissibly discouraged Debtor from exercising her right to rescind by stating "rescission of the Reaffirmation Agreement shall be considered default under the terms and conditions of the Installment Agreement referred to above."

The complaint asserts the following six separate claims for relief based on AGF's use of this reaffirmation agreement:

(1) violation of the discharge injunction of § 524;

(2) violation of the automatic stay;

(3) civil contempt for violation of the discharge injunction;

(4) violation of the Washington Consumer Protection Act;

(5) unjust enrichment and constructive trust; and

(6) violation of the Truth in Lending Act.

Debtor seeks injunctive, declarative, and monetary relief against AGF on behalf of all debtors affected by AGF's use of the improper reaffirmation agreement.

The bankruptcy court granted AGF's motion for judgment on the pleadings, determining that the reaffirmation agreement satisfied all statutory requirements regarding form and was fully enforceable under § 524(c). As an alternative basis for its decision, the court ruled that any defect in the form of the agreement was cured by the certification by Debtor's attorney that she advised Debtor of her rights.

The court entered a judgment dismissing the action with prejudice without addressing Plaintiff's request for class certification. Debtor filed a timely notice of appeal.

ISSUES ON APPEAL

(1) Does the reaffirmation agreement meet the requirements of § 524(c)?

(2) Is there a private right of action for violation of § 524?

(3) Does Debtor state a valid claim for civil contempt for violation of the discharge injunction?

(4) Does Debtor state a valid claim for violation of the automatic stay?

(5) Are Debtor\'s state law claims preempted?

(6) Does Debtor state a valid claim under the Truth in Lending Act?

STANDARD OF REVIEW

The bankruptcy court decision granting AGF's motion for judgment on the pleadings is subject to de novo review. Cohen v. Stratosphere Corp., 115 F.3d 695, 700 (9th Cir.1997). In exercising such review, we accept as true all material allegations in the complaint and construe them in a light most favorable to Debtor. NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir.1986).

DISCUSSION

I Validity of Reaffirmation Agreement

Debtor asserts that the AGF reaffirmation agreement is unenforceable, because the language advising her that she may rescind the reaffirmation agreement is not "clear and conspicuous." The relevant portion of the reaffirmation agreement appears as follows:

The parties understand that this agreement is purely voluntary and that the debtor may rescind the agreement at any time prior to discharge or within 60 days after such agreement is filed with the court, whichever occurs later, by giving notice of rescission to the creditor. Rescission of the Reaffirmation Agreement shall be considered default under the terms and conditions of the Installment Agreement referred to above.

THE DEBTOR UNDERSTANDS THAT THIS AGREEMENT IS NOT REQUIRED UNDER THE UNITED STATES BANKRUPTCY CODE TITLE 11 U.S.C. AND NOT REQUIRED UNDER NON BANKRUPTCY LAW OR ANY AGREEMENT NOT IN ACCORDANCE WITH THE PROVISION OF 11 U.S.C. SECTION 524(c).

Section 524(c)(2)(A) mandates that a reaffirmation agreement contain "a clear and conspicuous statement which advises the debtor that the agreement may be rescinded at any time prior to discharge or within sixty days after such agreement is filed with the court, whichever occurs later, by giving notice of rescission to the holder of such claim." 11 U.S.C. § 524(c)(2)(A).

Whether the right-to-rescind language is clear and conspicuous is a question of law for the court to decide. In re Roberts, 154 B.R. 967, 970 (Bankr.D.Neb. 1993).

A reaffirmation agreement that does not comply fully with § 524 is void and unenforceable. Republic Bank of Cal., N.A. v. Getzoff (In re Getzoff), 180 B.R. 572, 574 (9th Cir. BAP 1995). Accord, Bessette v. Avco Fin. Servs., Inc., 230 F.3d 439, 443-45 (1st Cir.2000).

To determine whether language is clear and conspicuous, bankruptcy courts draw upon the definition of "conspicuous" found in the Uniform Commercial Code. See In re Noble, 182 B.R. 854, 858 (Bankr. W.D.Wash.1995); Roberts, 154 B.R. at 969-70. Section 1-201(10) of the Uniform Commercial Code provides:

A term or clause is conspicuous when it is so written that a reasonable person against whom it is to operate ought to have noticed it. A printed heading in capitals (as: NON-NEGOTIABLE BILL OF LADING) is conspicuous. Language in the body of a form is "conspicuous" if it is in larger or other contrasting type or color. But in a telegram any stated term is "conspicuous". Whether a term or clause is "conspicuous" or not is for decision by the court.

In determining whether language disclaiming implied warranties was conspicuous, one court identified the following relevant factors: (1) the color of print in which the purported disclaimer appears; (2) the style of print in which the disclaimer is written; (3) the size of the disclaiming language, particularly in relation to other print in the document; (4) the location of the disclaimer in the contract; (5) the appearance of the term "merchantability" with respect to color, style, size, and type of print in the disclaimer clause; and (6) the status of the parties contesting the validity of the disclaimer, namely whether they be consumers or commercially sophisticated entities. While these factors lend aid to the determination of what constitutes "conspicuous" language, the court believes that no single factor is dispositive nor are these enumerated factors exhaustive of all the criteria that can be used in examining a disclaimer.

Myrtle Beach Pipeline Corp. v. Emerson Elec. Co., 843 F.Supp. 1027, 1038 (D.S.C. 1993), aff'd, 46 F.3d 1125 (4th Cir.1995).

The right-to-rescind language in the AGF reaffirmation agreement is not conspicuous. Its language is printed in lowercase letters, while nearby language is printed in upper-case letters. This has the effect of deemphasizing the right-to-rescind language, an effect directly contrary to what § 524(c)(2)(A) requires. Roberts, 154 B.R. at 970; Noble, 182 B.R. at 858. The right-to-rescind language is also rendered visually less prominent by the addition of language stating that rescission constitutes a default.

We need not address whether the warnings required under § 524(c)(2) must always be printed in bold or upper-case letters. On this particular form, the combined effect of printing the right-to-rescind language in lower-case type, of including unnecessary language in the same paragraph, and of printing nearby language in upper-case type renders the present reaffirmation agreement unenforceable.³

The bankruptcy court held that any infirmities in the reaffirmation agreement were cured by the fact that Debtor's counsel signed the following certification:

THIS AGREEMENT REPRESENTS A FULLY INFORMED AND VOLUNTARY AGREEMENT THAT DOES NOT IMPOSE AN UNDUE HARDSHIP ON THE DEBTOR OR ANY DEPENDENT OF THE DEBTOR. FURTHER, AS ATTORNEY FOR THE DEBTOR, I

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