In re Gravel

• Citation: 601 B.R. 873
• Decision Date: 27 June 2019
• Docket Number: Chapter 13 Case # 11-10112,Chapter 13 Case # 12-10512,Chapter 13 Case # 11-10281
• Court: U.S. Bankruptcy Court — District of Vermont
• Parties: IN RE: Nicholas and Amanda GRAVEL, Debtors. In re: Allen and Laurie Beaulieu, Debtors. In re: Matthew and Emilie Knisley, Debtors.

601 B.R. 873

IN RE: Nicholas and Amanda GRAVEL, Debtors. In re: Allen and Laurie Beaulieu, Debtors. In re: Matthew and Emilie Knisley, Debtors.

Chapter 13 Case # 11-10112

Chapter 13 Case # 11-10281

Chapter 13 Case # 12-10512

United States Bankruptcy Court, D. Vermont.

Signed June 27, 2019

Mahesha Subbaraman, Esq., Subbaraman PLLC, Minneapolis, Minnesota, For the Trustee

Alexandra Edelman, Esq., Primmer Piper Eggleston & Cramer, PC, Burlington, Vermont, For the Creditor

MEMORANDUM OF DECISION

ON REMAND FROM U.S. DISTRICT COURT, IMPOSING SANCTIONS ON PHH MORTGAGE CORPORATION

Colleen A. Brown, United States Bankruptcy Judge

The U.S. District Court remanded this matter for this Court to redetermine the amount of sanctions to be imposed on PHH Corporation ("PHH") for its violations of Bankruptcy Rule 3002.1 and Debtor Current Orders, with a focus on the scope of this Court's statutory and inherent authority to impose punitive sanctions. This Court has fulfilled that remand, based on the caselaw to which the District Court pointed, and a recent Supreme Court decision that affirmed the authority of bankruptcy courts to impose sanctions. See Taggart v. Lorenzen, ––– U.S. ––––, 139 S.Ct. 1795, ––– L.Ed.2d –––– (2019).

For the reasons set forth below, the Court finds, first, it has the authority pursuant to Rule 3002.1, pertinent caselaw, and its inherent powers, to impose punitive sanctions on PHH for its violations of Rule 3002.1; second, it has the authority, pursuant to § 105(a) and its inherent powers, to sanction PHH for its breach of the Debtor Current Orders in the Gravel and Beaulieu cases; third, there are specific dollar amount caps which set the outer limits of "modest," or "less than serious," sanctions; fourth, those caps may be adjusted to correlate to the present value of those dollar amounts; fifth, this Court has the authority to impose punitive sanctions on PHH for its Rule and Court Order violations, provided the amount of the sanction imposed in each case does not exceed the caselaw-defined cap for a non-serious sanction; and sixth, based on the facts and circumstances of these cases, it is appropriate for PHH to pay the sanctions for its Rule 3002.1 violations to the chapter 13 trustee (the "Trustee") and pay the sanctions attributable to its Court Order violations to Legal Services Vermont.

Based on these findings, the Court (1) is reducing the combined sanction from $225,000 to $175,000 in the Gravel case, reducing the combined sanction from $125,000 to $100,000 in the Beaulieu case, and leaving intact the sanction of $25,000 in the Knisley case; and (2) directing PHH to pay the portion of the sanctions allocable to PHH's violation of the Rule 3002.1 in each of the three cases, i.e., $25,000 per case, to the Trustee, and directing PHH to pay the portion of the sanctions allocable to PHH's violation of the Debtor Current Orders, i.e., $150,000 in the Gravel case and $75,000 in the Beaulieu case, to Legal Services Vermont (f/k/a Legal Services Law Line of Vermont).

I. JURISDICTION

The Court has jurisdiction over these contested matters pursuant to 28 U.S.C. §§ 157 and 1334, and the Amended Order of Reference entered on June 22, 2012. The Court declares the issues raised in the contested matter in each of these cases, and on remand, to be core proceedings, pursuant to 28 U.S.C. § 157(b)(2)(A), (B) and (O), over which this Court has constitutional authority to enter a final judgment.

II. PROCEDURAL HISTORY AND DIRECTION FROM THE DISTRICT COURT

On September 12, 2016, this Court entered an Order granting the Trustee's motions to sanction PHH, disallowing PHH's post-petition charges, and directing PHH to pay sanctions of $275,000, $175,000 and $25,000, respectively, in the Gravel, Beaulieu, and Knisley cases, to Legal Services Law Line of Vermont (Gravel, docs. ## 82, 83; Beaulieu, docs. ## 99, 100; Knisley, docs. ## 55, 56) (the "Sanctions Decision").¹ On September 21, 2016, PHH filed a notice of appeal (doc. # 87). On December 18, 2017, the U.S. District Court (Crawford, J.) issued its decision vacating this Court's decision and remanding the matter to this Court (doc. # 104, the "Remand Decision"). Thereafter, the Debtors and Trustee filed an appeal of the District Court's Remand Decision, in the Second Circuit Court of Appeals. That Court dismissed the appeal, finding the Remand Decision was not a final order (doc. # 109). Thus, this matter was once again before this Court.

In the Remand Decision, the District Court observes that "[t]he basis for the sanctions was the admitted violation of Bankruptcy Rule 3002.1" (doc. # 104, p. 1), and PHH's violation of Debtor Current Orders in two of the three cases (doc. # 104, pp. 4, 5). The District Court described the scope of the appeal as limited: PHH's challenge to this Court's imposition of sanctions (in the amount of $225,000 in the Gravel case, $125,000 in the Beaulieu case, and $25,000 in the Knisley case² ). The District Court remanded the matter with instructions that this Court reconsider the amount of sanctions, focusing on this Court's authority to only impose sanctions that are "short of punitive sanctions of the scope and type [this Court previously] imposed in these cases" (doc. # 104, p. 17).

III. LEGAL ISSUES ON REMAND

The District Court remanded this matter to this Court to make a single determination: In light of PHH's violations of Rule 3002.1 and the Debtor Current Orders in these three cases, and consistent with the caselaw it highlighted, what sanctions are less than serious and, as such, within this Court's authority to impose?³

To fulfill that remand, and determine the appropriate amount of sanctions to impose on PHH for its misconduct in these cases, the Court analyzes six component legal issues: First, does this Court have the authority to impose punitive sanctions on PHH for its violations of Bankruptcy Rule 3002.1 and, if so, what is the source of that authority? Second, does this Court have the authority to impose sanctions on PHH for its violations of Debtor Current Orders and, if so, what is the source of that authority? Third, what guidance can be drawn from the decisions favorably cited by the District Court in its Remand Decision, as well as any pertinent Second Circuit or Supreme Court caselaw, as to the scope and size of punitive sanctions this Court is authorized to impose? Fourth, what weight should this Court assign to factors such as PHH's corporate status, its substantial financial resources, and its prior violations of the same duties, in deciding what punitive sanctions are warranted here? Fifth, is there authority to adjust the caselaw-established caps defining what is a serious sanction, and what is less than a serious sanction, to reflect the passage of time and the present value of those dollar amount caps? Sixth, in the context of the particular facts presented in these cases, and the interest of justice, to whom should PHH pay the sanctions this Court imposes in each of these cases?

IV. FINDINGS OF FACT ESSENTIAL TO REMAND

Since, as the District Court observed, "[t]he facts giving rise to [the instant] appeal were not in dispute before the Bankruptcy Court and are not challenged on appeal" (doc. # 104, p. 2), the Court recites only those findings of fact that are essential to fulfilling the remand.

In the Gravel case, this Court had entered an order on May 20, 2016, determining Mr. and Mrs. Gravel had cured all prepetition mortgage defaults and were current on all postpetition mortgage payments to PHH (a "Debtor Current Order"). That order declared

the debtors, by their payments through the Office of the Chapter 13 Trustee, have made all payments due during the pendency of this case through April 1, 2016, including all monthly payments and any other charges or amounts due under their mortgage with PHH Mortgage Corporation.

(doc. # 74) (emphasis added). On May 25, 2016, five days after entry of the Debtor Current Order, PHH sent the Debtors a mortgage statement for the month of May 2016 which, contrary to the recently entered Debtor Current Order, asserted the Debtors owed PHH property inspection fees of $258.75. The Trustee filed a motion seeking an order finding PHH to be in contempt and imposing sanctions on PHH (doc. # 75). PHH opposed that relief, arguing, inter alia, that this was a one-time error (doc. # 77). The Trustee vigorously disputed that assertion, pointing out that (i) PHH had sent out at least fifteen other mortgage statements that included postpetition fees and expenses without filing a single Rule 3002.1(c) notice, (ii) PHH had been chastised by another bankruptcy court for violating Rule 3002.1(c), see In re Owens, 2014 Bankr. LEXIS 163 (Bankr. W.D.N.C. 2014), (iii) PHH had assessed improper charges in other cases in this District, and (iv) this Court had previously imposed a consensual sanction of $9,000 on PHH, in this case, based on PHH's repeated misapplication of mortgage payments and issuance of dozens of erroneous monthly mortgage statements to Mr. and Mrs. Gravel for over two years (see doc. # 49). The Trustee claimed sanctions were warranted and necessary based on PHH's flagrant violation of both Rule 3002.1 and the Debtor Current Order in this case.

The factual and procedural posture of the Beaulieu case is substantially similar to that of the Gravel case: On May 5, 2016, the Court entered a Debtor Current Order, determining Mr. and Mrs. Beaulieu had cured all prepetition mortgage defaults and were current on all postpetition mortgage payments due to PHH (case # 11-10281, doc. # 82). Notwithstanding entry of that Order, less than three weeks later, on May 25, 2016, PHH sent out a monthly statement that included old charges (an NSF fee of $30 and a property inspection fee of $56.25) — charges for which it had never sent a Rule 3002.1(c) notice. On June 14, 2016, the Trustee filed a motion for contempt and sanctions (doc. # 90, the "Beaulieu Sanctions Motion"), essentially articulating the same...