In re Sims

• Decision Date: 08 May 2002
• Docket Number: Adversary No. 00-2048.,Bankruptcy No. 97-21272.,Bankruptcy No. 99-22276.,Bankruptcy No. 00-21323.,Bankruptcy No. 00-20967.
• Citation: 278 B.R. 457
• Parties: In re Billy Joe SIMS, Debtor. In re Louis Salamina and Nancy Salamina, Debtors. In re Johnny Kern and Vickie Louise Kern, Debtors. In re Debra Lynn Klimczak, Debtor. Gwendolyn M. Kerney, chapter 13 trustee, in her official capacity as trustee in chapter 13 proceedings and on behalf of those similarly situated; Billy Joe Sims; Louis and Nancy Salamina; Johnny and Vickie Louise Kern; and Debra Lynn Klimczak, as debtors in chapter 13 proceedings on their own behalf and on behalf of a class of similarly situated debtors, Plaintiffs, v. Capital One Financial Corporation, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Tennessee

278 B.R. 457

In re Billy Joe SIMS, Debtor In re Louis Salamina and Nancy Salamina, Debtors In re Johnny Kern and Vickie Louise Kern, Debtors In re Debra Lynn Klimczak, Debtor Gwendolyn M. Kerney, chapter 13 trustee, in her official capacity as trustee in chapter 13 proceedings and on behalf of those similarly situated; Billy Joe Sims; Louis and Nancy Salamina; Johnny and Vickie Louise Kern; and Debra Lynn Klimczak, as debtors in chapter 13 proceedings on their own behalf and on behalf of a class of similarly situated debtors, Plaintiffs, v. Capital One Financial Corporation, Defendant.

Bankruptcy No. 00-20967.

Bankruptcy No. 97-21272.

Bankruptcy No. 99-22276.

Bankruptcy No. 00-21323.

Adversary No. 00-2048.

United States Bankruptcy Court, E.D. Tennessee.

May 8, 2002.

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Richard L. Banks, Richard L. Banks & Associates, Cleveland, TN, Timothy E. Eble, Timothy E. Eble, P.A., Mount Pleasant, SC, S.C. Middlebrooks, Kimberly J. Calametti, Gardner, Middlebrooks, Fleming, Gibbons & Kittrell, Mobile, AL, Sam Heldman, Hilary Ball, Gardner, Middlebrooks, Fleming, Gibbons & Kittrell, Washington, DC, for Plaintiffs.

Melinda Meador, Bass, Berry & Sims PLC, Knoxville, TN, Paul G. Jennings, Beth A. Dunning, Bass, Berry & Sims PLC, Nashville, TN, Adam A. Lewis, Morrison & Foerster LLP, San Francisco, CA, for Defendant.

MEMORANDUM

MARCIA PHILLIPS PARSONS, Bankruptcy Judge.

In this adversary proceeding, the plaintiffs seek individual and class wide relief based on Capital One Financial Corporation's alleged practice of "willfully and systematically filing claims in excess of the amount to which it is entitled in Chapter 13 proceedings." Presently before the court is Capital One's motion to dismiss for failure to state a claim as a matter of law. For the reasons discussed below, the motion will be granted in part and denied in part. This is a core proceeding. See 28 U.S.C. § 157(b)(2)(A), (B),(C),(E) and (O).

I.

This adversary proceeding was commenced on October 24, 2000, by Gwendolyn M. Kerney, the standing chapter 13 trustee, and the debtors in four separate chapter 13 cases pending in this court. According to the amended complaint filed on February 9, 2001, Ms. Kerney "seeks to be named as a plaintiff in her official capacity and as a representative class plaintiff on behalf of similarly situated Trustees" pursuant to Fed.R.Civ.P. 23. Similarly, the individual debtors sue on their own behalf and on behalf of a class of chapter 13 debtors similarly situated.

The plaintiffs allege that Capital One has purposely and intentionally filed claims not only in this court, but in bankruptcy courts nationwide for amounts which "improperly include post-petition interest and/or post-petition over-limit fees in excess of those owed by a debtor to defendant, Capital One, as of the filing date of the petition." According to the plaintiffs, "[o]ther Chapter 13 debtors have objected to such excess charges in claims filed by Capital One in the past and the Court has sustained those objections." Yet Capital One "continues to violate the spirit and the letter of Title 11 of the United States Bankruptcy Code by continuing its unlawful practices." The plaintiffs further contend that "Capital One systematically has waited until near the expiration of bar date before filing its inflated claims, thus maximizing the amounts unlawfully claimed."

Based on these facts, the plaintiffs set forth six claims or causes of action. In the first claim, the plaintiffs allege that Capital One has violated 11 U.S.C. § 502(b)(2) "requiring the calculation of its claim as of the date of each respective filing of the Chapter 13 petitions by the named debtors/plaintiffs." The plaintiffs assert that as such, this court is empowered by 11 U.S.C. § 105 to rectify and enjoin the abusive processes by Capital One.

In their second claim, the plaintiffs seek contempt remedies under § 105 or this court's inherent power for Capital One's willful violation of the instruction in Official Form 10, the proof of claim form, wherein a creditor is directed to "State the Amount of the Claim At Time Case Filed." According to plaintiffs, official forms are judicial orders which must be followed and observed pursuant to Fed. R. Bankr.P. 9009.

The plaintiffs' third claim is that Capital One's actions constitute a willful and knowing violation of the automatic stay, actionable under 11 U.S.C. § 362(h). More specifically, the plaintiffs contend that Capital One violated the automatic stay when it postpetition (1) failed to terminate or end the accrual of interest and other fees on the chapter 13 debtors' accounts upon receiving notice of the commencement of their cases; (2) failed to deduct postpetition interest and fees when the proofs of claim were prepared; and (3) filed proofs of claim which improperly sought amounts owed as of the date the claims were prepared rather than the date the bankruptcy cases were commenced.

In their fourth claim, the plaintiffs contend that pursuant to 11 U.S.C. § 1327, Capital One is bound by the orders confirming the debtors' chapter 13 plans, which specifically provide for payment of a certain percentage dividend on unsecured claims. The plaintiffs allege that these percentage dividends are directly and adversely affected by any excessive claims and that by filing inflated claims, Capital One is in contempt of the court's confirmation orders.

The plaintiffs' fifth claim is premised on the assertion that Capital One has taken more than its proportionate share of the bankruptcy estates. Accordingly, the plaintiffs contend that Capital One is subject "to the mandatory requirements of 11 U.S.C. § 542 and the turnover to the Chapter 13 Trustee of any distributions wrongfully received."

Lastly, the plaintiffs' sixth claim is based on unfair discriminatory treatment of creditors, material misrepresentation, and abuse of process. The plaintiffs assert that Capital One's actions have resulted in it receiving more than other unsecured creditors under the debtors' plans, despite the fact that there is no separate classification for the treatment of Capital One's claim in these plans, and that this practice constitutes an unfair discriminatory treatment contrary to 11 U.S.C. § 1322(b)(1). Similarly, the plaintiffs contend that Capital One willingly made false material representations to this court in its completion of Official Form 10 which directs a creditor to set forth the total amount of the claim at the time the case was filed. Finally, the plaintiffs maintain that Capital One's "systematic pattern of falsely misrepresenting the net amount of its claims is an egregious abuse of process."

In light of these allegations, "[t]he Chapter 13 Trustee requests a class-wide objection be sustained as to all inflated claims filed by Capital One in any pending Chapter 13[and] that this court use it powers under 11 U.S.C. § 105 to enter such orders as necessary to force Capital One to return any improperly earned dividends to the estates from which they were taken." The named chapter 13 trustee and the trustee class seek an order requiring Capital One to (1) "amend its inflated proofs of claim in any Chapter 13 proceeding presently pending;" (2) provide an accounting of how the amounts set forth on any filed proof of claim were calculated; and (3) reveal the amounts it wrongfully collected in pending cases. All of the named plaintiffs and classes seek an injunction against Capital One "forbidding it from filing claims which include post-petition interest and/or post-petition late fees and/or post-petition overlimit fees" and mandating Capital One "to change its claim filing procedures to prevent the filing of improper claims in the future." Lastly, the plaintiffs seek compensatory and punitive damages, including attorney fees and costs.

In its motion to dismiss, Capital One states that its alleged wrongful conduct does not violate any provision of the Bankruptcy Code and that neither the Code nor any other applicable law provides a private right of action to remedy the alleged violations. More specifically, Capital One contends that the claims raised by the plaintiffs in the amended complaint should be dismissed for one or more of the following reasons:

(i) there is no private right of action under Sections 502 or 362 of the Bankruptcy Code; (ii) the Plaintiffs lack standing because they have suffered no economic injury; (iii) the Complaint fails to state a claim for contempt of the confirmation orders, Code Section 1327(c) or Official Form 10; (iv) the Complaint fails to state a claim for unlawful taking of property of the estate or for turnover under Code section 542; (v) the alleged conduct of Capital One does not support a claim for abuse of process or unfair discriminatory treatment under Code section 1322(b)(1); (vi) the Trustee lacks authority to bring the trustee class claims; (vii) the Court lacks subject matter jurisdiction over the Class claims; and (viii) the Complaint is procedurally defective as to the Class claims.

Based on the foregoing, Capital One asserts that the plaintiffs' amended complaint fails to state any claim upon which relief can be granted as a matter of law and therefore should be dismissed in its entirety. Capital One has submitted memoranda of law in support of its motion. The plaintiffs, of course, have filed a memorandum in opposition to the motion to dismiss. Each of plaintiffs' bases for relief, along with Capital One's grounds for dismissal, will be addressed in seriatim.

II.

A. Failure to Net Claim; 11 U.S.C. §§ 502(b)(2) and 105.

Section 502(b)(2) of the Bankruptcy Code provides that if an objection is made to a claim, the court after notice and hearing shall determine the amount of the claim as of the date of the filing of the petition and shall allow the claim in that amount except to the extent that the claim is for unmatured interest.¹ The plaintiffs assert...