In re Pratt, Bankruptcy No. 98-20291.

• Citation: 324 B.R. 1
• Decision Date: 15 April 2005
• Docket Number: Bankruptcy No. 98-20291.,Adversary No. 04-02007.
• Parties: In re Carlton Dana PRATT and Christie Ann Pratt, Debtors. Carlton Dana Pratt and Christie Ann Pratt, Plaintiffs, v. General Motors Acceptance Corporation, Defendant.
• Court: United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Maine

Page 1

324 B.R. 1

In re Carlton Dana PRATT and Christie Ann Pratt, Debtors.

Carlton Dana Pratt and Christie Ann Pratt, Plaintiffs, v. General Motors Acceptance Corporation, Defendant.

Bankruptcy No. 98-20291.

Adversary No. 04-02007.

United States Bankruptcy Court, D. Maine.

April 15, 2005.

James Molleur, Esq., Saco, ME, for Plaintiff.

F. Bruce Sleeper, Esq., Jensen, Baird, Gardner & Henry, Portland, ME, for Defendant.

Memorandum of Decision

JAMES B. HAINES, JR., Chief Judge.

Before me on a stipulated record is Carlton and Christie Ann Pratt's complaint seeking sanctions against General Motors Acceptance Corporation (GMAC) for asserted violations of the Bankruptcy Code's discharge injunction. Sure enough, GMAC's post-discharge refusal to release its security interest in the Pratts' car, coupled with its refusal to repossess the vehicle, has hobbled the Pratts' efforts to be shed of their car-related financial frustrations. But, in this Chapter 7 case converted from Chapter 13, GMAC's conduct does not violate § 524(a)'s¹ injunctive provisions.

Background

Carlton Pratt purchased a 1994 Chevrolet Cavalier from Frank Galos Chevrolet, Inc., in Saco, Maine, on March 2, 1994. He financed the purchase through a GMAC program and GMAC came to hold the note, secured by a perfected, purchase money lien.

Carlton and Christie filed a Chapter 13 petition on March 4, 1998, scheduling the Cavalier with a value of $4,900.00 and GMAC's claim at $3,227.37. GMAC filed its secured proof of claim in the amount of $3,291.35, which was allowed with 5.5% interest. In the course of the Chapter 13 case, GMAC received distributions totaling $1,083.62 from the Chapter 13 trustee.

The Pratts converted their case to Chapter 7 on May 10, 1999, and, pursuant to § 521(2)(A), stated their intention to surrender the Cavalier. Factoring in interest, and deducting the Chapter 13 distribution, the amount remaining on GMAC's secured claim at conversion was $2,620.72. On June 29, 1999, GMAC received relief from stay to realize upon its lien, and on July 1, 1999, GMAC dispatched to the Pratts a "Notice of Right to Cure Default." On July 27, 1999, GMAC wrote off the remaining contract balance, which it figured at $2,510.83, on its books.² On August 17, 1999, the Pratts received their discharge.

GMAC made no attempt to enforce its security interest in the Cavalier. It calculated that the expense of repossession and sale exceeded what it would realize by the effort. On September 20, 1999, the Pratts asked GMAC to take possession of the car, but GMAC refused. On October 1, 1999, the Pratts' attorney requested that GMAC remove the Cavalier from their rented residence.³ Again, GMAC refused, informing him that it had determined not to repossess the car.

Ten months later, someone representing herself to be Carlton's sister called GMAC, claiming she had purchased the car. She asked that GMAC release its lien. GMAC stated it would not do so until it was fully paid. The next day, the Pratts' counsel again wrote GMAC asking for a lien release — and again was refused.

In December 2003 the Pratts called GMAC asking that the title be cleared so they could dispose of the car. GMAC replied that it would release its lien only upon payment of the loan. A follow-up call from the Pratts' attorney confirmed GMAC's position.

On December 17, 2003, the Pratts had the Cavalier towed to the Frank Galos dealership and left it there. The same day, the Pratts' counsel again demanded that GMAC release its lien. All the while, GMAC maintained its position that it would not voluntarily release its lien without payment of all amounts owed it on the car loan.⁴

In addition to the foregoing factual stipulations, the parties have agreed on other, broader points:

Although GMAC has no written policy on the point, it does not ordinarily repossess a vehicle that a bankruptcy debtor intends to surrender if the cost of repossession and disposal exceed the vehicle's value.

After entry of the discharge order, "GMAC never initiated a contact with the Pratts or any other person or entity seeking to collect any amounts owing to GMAC as a personal liability of the Pratts."

After entry of the discharge order, the only activities GMAC took with regard to the Cavalier or the loan was "to receive and respond to contacts initiated by others, including the Pratts...."

"At no time after the issuance of [the] discharge did GMAC ever state that the Pratts owed to GMAC or to anyone else money outstanding under the terms of the [car loan], except to the extent that" it stated that "it would release its lien" only "upon payment in full of all such amounts."

Discussion

The Pratts contend that GMAC's post-discharge actions amount to attempts to collect the outstanding contract balance from them personally. GMAC urges that its post-discharge activities constituted only permissible, continuing reliance on its enduring lien. We will begin by considering the force and content of the discharge injunction, how it is enforced, and then assess GMAC's conduct.

I. Discharge and the Discharge Injunction

The Pratts' Chapter 7 discharge operated to discharge them "from all debts that arose before the date of the order for relief." 11 U.S.C. § 727(b). It continues to operate "as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor." 11 U.S.C. § 524(a)(2).

Discharge carries with it an injunction against debt collection efforts. The injunction imposed by Code § 524(a)(2) is intentionally broad in scope and is intended to preclude virtually all actions by a creditor to collect personally from the debtor. The House and Senate Reports made clear this intention:

The injunction is to give complete effect to the discharge and to eliminate any doubt concerning the effect of the discharge as a total prohibition on debt collection efforts. This paragraph has been expanded over a comparable provision in [the] Bankruptcy Act ... to cover any act to collect, such as dunning by telephone or letter, or indirectly through friends, relatives, or employers, harassment, threats of repossession, and the like. The change is ... intended to ensure that once a debt is discharged, the debtor will not be pressured in any way to repay it.

3 William L. Norton, Jr., Norton Bankruptcy Law and Practice 2d (hereinafter "Norton") § 48:3, at 48-7 (1997) (footnote deleted); see Bessette v. Avco Fin. Servs., Inc., 230 F.3d 439, 444 (1st Cir.2000) ("Generally, a discharge in bankruptcy relieves a debtor from all pre-petition debt, and § 524(a) permanently enjoins creditor actions to collect discharged debt."); Doughty v. Holt (In re Doughty), 195 B.R. 1, 4 (Bankr.D.Me.1996).

The bankruptcy court can invoke § 105(a)⁵ to enforce § 524(a)'s discharge injunction. Bessette, 230 F.3d at 445. Redress can take the form of damages, attorney fees, and, in appropriate cases, punitive damages. Id. Discharge injunction enforcement proceedings are in the nature of civil contempt. Id.

A. Burden of Proof

GMAC argues that a finding of civil contempt must rest on clear and convincing evidence. Generally speaking, that proposition is true. AccuSoft Corp. v. Palo, 237 F.3d 31, 47 (1st Cir.2001); Gemco Latinoamerica, Inc., v. Seiko Time Corp., 61 F.3d 94 (1st Cir.1995). The Pratts posit that violations of the statutory discharge injunction stand on a different footing. In their view, enforcing the discharge injunction via § 105 is like enforcement of similar Code provisions — where clear and convincing evidence is not required. See, e.g., § 362(h); Fleet Mortgage Group, Inc. v. Kaneb (In re Kaneb), 196 F.3d 265 (1st Cir.1999) (discussing willful violation of the automatic stay and determining that relief may be obtained if the offending party knew of the stay and intended the action that violated it).

The Pratts' position has much to recommend it, given the statute's clarity, and the essential role discharge plays in the Code's "fresh start" objective. Bessette recognized that § 524(a) is enforced by way of § 105(a), rather than directly, in proceedings styled "civil contempt." The cases cited by the Bessette court do not discuss burden of proof directly, although, on balance, they adopt the same "willfulness" elements as the First Circuit recognized in Kaneb. Those elements (knowledge of the order, willful action that violates the order) do not fit with a "clear and convincing" burden of proof. See Hardy v. United States (In re Hardy), 97 F.3d 1384, 1389-90 (11th Cir.1996) (citation for contempt under the court's inherent powers made only upon a showing of "bad faith," whereas liability for contempt of § 524 injunction under § 105 lies if defendant willfully violated § 524); In re Elias, 98 B.R. 332, 337 (N.D.Ill.1989) ("It is enough if the order violated is specific and definite, and that the offending party has knowledge of it."); but see In re Arnold, 206 B.R. 560, 568 (Bankr.N.D.Ala.1997) (sanctions for violation of discharge injunction can issue through court's inherent powers on showing of bad faith or "malevolent intent"); cf. In re Rosteck, 899 F.2d 694, 697 (7th Cir.1990) (affirming award of sanctions without mention of § 105, and holding that creditor waived argument that proof of willfulness was required). Moreover, the First Circuit has expressly recognized that enforcement of the statutory discharge injunction, as compared to enforcing an injunction "individually crafted" by a judge, is a straightforward exercise. Bessette, 230 F.3d at 446 (enforcing the discharge injunction does not call for consideration of the judge's "insights and thought processes" as would be pertinent to enforcing a custom-made injunction).

It would seem that proving a violation of the discharge injunction, actionable by way of a § 105(a) contempt proceeding, should only require proof by a preponderance of the evidence that the...