In re Spivey, 198-20261-575.

• Decision Date: 05 March 1999
• Docket Number: No. 198-20261-575.,198-20261-575.
• Citation: 230 BR 484
• Parties: In the Matter of Joan SPIVEY, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of New York

230 B.R. 484 (1999)

In the Matter of Joan SPIVEY, Debtor.

No. 198-20261-575.

United States Bankruptcy Court, E.D. New York.

March 5, 1999.

Dykema Gossett, by Ronald L. Rose, William L. Huebner, Bloomfield Hills, Michigan, for Sears Roebuck & Co.

Jean K. Fitzsimon, Assistant General Counsel, Sears, Roebuck and Co., Hoffman Estates, IL.

OPINION AND ORDER ON MOTION FOR RECONSIDERATION

LAURA TAYLOR SWAIN, Bankruptcy Judge.

Sears, Roebuck and Co. ("Sears") moves for reconsideration of an Order of this Court, dated October 15, 1998, which provided that a certain Redemption Agreement filed with the Court by Sears would be null and void unless the debtor filed a motion for approval of the agreement within a specified time period. The Court has jurisdiction of this core proceeding pursuant to 28 U.S.C. sections 1334(b) and 157(b) and the August 28, 1986, general Order of reference of the United States District Court for the Eastern District of New York. This is a core proceeding pursuant to 28 U.S.C. section 157(b)(2)(O) because it involves a substantive right created by the Bankruptcy Code¹ and the adjustment of the debtor-creditor relationship. See In re Lopez, 224 B.R. 439, 440-41 (Bankr. C.D.Cal.1998); McCrory Corp. v. 99 Cent Only Stores (In re McCrory Corp.), 160 B.R. 502, 506 (S.D.N.Y.1993) (quotations omitted).

BACKGROUND

Debtor filed her Chapter 7 petition on July 23, 1998, and was represented by counsel in connection with the case. She scheduled no secured creditors and valued her household goods, which she did not itemize and for which she claimed a collective exemption, at $750. She scheduled Sears as an unsecured creditor that was owed approximately $439. The first meeting of creditors was scheduled for August 31, 1998; the trustee closed the meeting on that date. The deadline to object to claimed exemptions expired 30 days thereafter, on September 30, 1998.

On September 2, 1998, Sears filed with this Court a document captioned "Redemption Agreement", and dated August 31, 1998 (the "Agreement"), which purported to document Debtor's voluntary undertaking to redeem, pursuant to section 722 of the Code, a television/VCR from Sears' lien in return for the payment of $153.89. The Agreement recited that Debtor elects to "exercise her right under Section 722 of the Bankruptcy Code to redeem the personal property listed below that was purchased with her Sears Account # sic and is subject to a lien held by Sears." The Agreement further recited that the property sought to be redeemed is "either exempted under Section 522 of the Bankruptcy Code or was abandoned under Section 554 of the Bankruptcy Code," and required Debtor to make the payment by September 30, 1998.

The Agreement was not accompanied by any request for judicial review or approval and purported to be self-executing. The Clerk of Court brought the filing to the Court's attention and, on October 15, 1998, the Court issued sua sponte an order providing as follows:

A Memorandum of Redemption has been filed by Sears in the above captioned case. Section 722 of the Bankruptcy Code and Rule 6008 of the Federal Rules of Bankruptcy Procedure provide that property that is the subject of a security interest may be redeemed under certain circumstances if authorized by the Court upon motion by the debtor or the trustee. It is hereby ...

ORDERED, that if the debtor wishes the redemption to be approved, a motion for approval must be filed with the Court and served on Sears within 20 days from the date hereof, returnable November 19, 1998 at 2:00 p.m. In the absence of such a motion, the Memorandum of Redemption will be null and void and Sears shall refund to the debtor all monies paid pursuant thereto, certifying such refund to the Court within 20 days after the motion filing deadline set forth above.

The debtor did not move for approval of the Agreement. Sears, arguing that the Code does not require judicial approval of voluntary redemption agreements, seeks reconsideration of the October 15, 1998, Order and blanket validation of redemption agreements that Sears files pursuant to the procedures outlined below. The Court accepts as true Sears' representations as to the details of its process for purposes of determination of the instant matter.

Sears' redemption practices are described in the affidavit of Debbie DeGrenier, the Recovery Manager of the Sears Boston Regional Credit Card Operations Center (the "RCCOC"), which was filed by Sears in support of its motion for reconsideration. According to Ms. DeGrenier, when Sears is notified of a Chapter 7 petition, Sears first determines whether it has a valid purchase money security interest ("PMSI"). In making this determination, Sears ascertains that it has "a sales ticket which is clearly signed by the account holder or an authorized user." DeGrenier's affidavit asserts, further, that "Sears only claims a PMSI in personal goods that Sears considers hard-line merchandise, e.g., washers, dryers, refrigerators, etc. Sears does not claim a PMSI in fixtures; Sears does not claim its security interest in items with a replacement value of less than $25; and Sears waives its PMSI in certain items, for example, medically necessary items." In a letter from its counsel dated December 1, 1998, Sears clarified its procedure with respect to debtors who are New York residents. Counsel represented that, consistent with section 413(12)(c) of the New York Personal Property Law, which restricts the extent to which creditors may obtain PMSIs through retail charge account transactions, Sears does not claim liens on merchandise whose original purchase price was less than $200.

The DeGrenier affidavit further explains that Sears uses valuation tables to determine the replacement value of merchandise in which it claims a PMSI.² Once the replacement value is determined, the information is communicated to the Sears representative who will attend the section 341 meeting of creditors. At the section 341 meeting, the Sears representative informs the debtor of Sears' position as to the replacement value of the merchandise, and asks the debtor whether she wishes to redeem the property for that price, reaffirm the obligation, or surrender the merchandise. Counsel asserted at argument that Sears does not threaten repossession to coerce debtors to enter into redemption or reaffirmation agreements.

If the debtor wishes to redeem the property and agrees to Sears' calculation of the replacement value, the Sears representative and the debtor complete a form agreement provided by the Sears representative. The case caption, description of merchandise, agreed replacement value, total dollar amount of all redemptions, and a provision for payment of the merchandise value in a lump sum within 30 days are inserted. After the redemption agreement form is completed, the debtor (and, if the debtor is represented by counsel, debtor's attorney) signs and dates the agreement. The Sears representative then signs.

Sears files the redemption agreement with the Clerk's Office of the court in which the debtor's case is pending, unless the particular Clerk's Office will not allow such a filing. If a motion to approve the redemption agreement is required by the relevant court, the Sears representative so informs the debtor or her counsel. Once a file stamped copy of the redemption agreement is returned, it is forwarded to the RCCOC. Sears mails a copy to the debtor (or, if the debtor is represented by counsel, debtor's attorney). Sears represents that it will accept the debtor's payment only after the redemption agreement is signed and filed.

If the debtor wishes to redeem the property but does not agree to the redemption value proposed by Sears, Sears will present evidence of its asserted value in the event the debtor files a motion to redeem in accordance with Federal Rule of Bankruptcy Procedure 6008.

If the debtor does not execute a redemption agreement at the section 341 meeting, Sears will contact the debtor (or, if the debtor is represented by counsel, debtor's attorney) and determine whether the debtor wishes to redeem, reaffirm, or surrender the merchandise. If Sears and the debtor subsequently agree on the replacement value, Sears completes the redemption form and sends it to the debtor for signature. After Sears receives the redemption agreement signed by the debtor (and, if the debtor is represented by counsel, by debtor's attorney) and determines that no alterations have been made, the redemption agreement is filed with the bankruptcy court.

The Redemption Agreement in the instant case is dated August 31, 1998, and thus presumably was completed at the section 341 meeting of creditors that took place on that same date.

Forty-five days after the redemption agreement is signed. Sears reviews the debtor's account. If payment has been made, the redemption is considered complete and the account is closed with respect to that merchandise. Sears has proffered no information as to the course of action it takes if payment is not received.

At a September 15, 1998 hearing on a similar order to show cause in another case, Sears' representatives asserted, to the Court's surprise and dismay, that it has long been a widespread general practice of consumer retail creditors to solicit and accept payments under "voluntary" redemption agreements without seeking judicial approval of the solicitations or even notifying the court of the agreements. Sears changed its practices to include court filing of the redemption agreements only after its recent legal difficulties with respect to unfiled reaffirmation agreements. See generally In re Melendez, 224 B.R. 252, 262-263 (Bankr.D.Mass.1998) (chronicling Sears' reaffirmation agreement litigation); John McCormick, The Sorry Side of Sears, Newsweek, February 22, 1999, at 36; Joseph Cahill, Sears Agrees to Plead Guilty to Charges Of Criminal Fraud in Credit-Card Case, Wall Street Journal, February 10, 1999, at B13....