In re Wiley
| Decision Date | 28 August 1998 |
| Docket Number | Adversary No. 98 A 00356.,Bankruptcy No. 93 B 21024 |
| Parties | In re Brenda K. WILEY, Debtor. Brenda K. WILEY, for herself and on behalf of all others similarly situated, Plaintiff, v. Paul MASON, Paul Mason & Associates, Inc. d/b/a Creditors Bankruptcy Service, Busch Jewelry Company, and John Does 1-50, Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
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Daniel Edelman, Cathleen Combs, James Latturner, Michelle Teggelaar, Edelman & Combs, Chicago, IL, John Roddy, Frederic Grant, Grant & Roddy, Boston, MA, Edward O'Brien, Nashua, NH, Lorraine Greenberg, Chicago, IL, for Plaintiff.
John Hynes, Clausen Miller, Chicago, IL, Timothy Zeiger, David Ringer, McKinley, Ringer, Zeiger, Dallas, TX, Terri Long, Sherman & Sherman, Chicago, IL, for Defendants.
Dean Harvalis, Chicago, IL, Asst. U.S. Trustee.
This proceeding relates to the bankruptcy proceeding filed by Brenda K. Wiley, ("Debtor" or "Plaintiff") under Chapter 7 of the Bankruptcy Code (the "Code"), 11 U.S.C. § 101 et seq. Debtor filed a Statement of Intentions which stated that she intended to reaffirm a debt to defendant Busch Jewelry Company ("Busch"). Subsequently, Debtor, Debtor's attorney Lorraine Greenberg ("Greenberg"), and Paul Mason & Associates, Inc., d/b/a Creditors Bankruptcy Service ("CBS"), acting on behalf of Busch, negotiated a reaffirmation agreement ("agreement"). The executed reaffirmation agreement was given by CBS to Greenberg with a request that she file it with the Bankruptcy Clerk, but she did not do so. Debtor received her discharge and her case was closed.
Despite the fact that her attorney never filed the agreement, Debtor made all payments pursuant to the agreement. Three years later, Debtor filed this asserted class action against Busch, CBS, and Paul Mason, the president of CBS (collectively "Defendants"). The parties indicated that Busch is now out of business, and no counsel appeared on its behalf.
The following undisputed facts are shown by the pleadings and case record:
The related bankruptcy case was originally filed October 6, 1993, and was assigned to the undersigned Bankruptcy Judge. Debtor scheduled her debt to Busch. On January 21, 1994, a reaffirmation agreement was executed between Debtor and Busch, arranged through CBS. The reaffirmation agreement used a CBS form with a provision stating that, in the event Debtor exercised her right to rescind the reaffirmation agreement, the creditor would retain all payments made prior to rescission. That provision is attacked here as illegal.
This reaffirmation agreement was never filed with the Clerk of the Bankruptcy Court. On February 14, 1994, a discharge order was entered in favor of Debtor. On March 18, 1994, an order was entered closing Debtor's bankruptcy case.
On August 7, 1997, Plaintiff filed a five-count amended complaint in the District Court for the Northern District of Illinois. The case was assigned to District Judge Alesia, and by his order was referred to this Court. The bankruptcy was reopened to consider this case which was then assigned an Adversary number and pends here.
Count I of the Complaint alleges a willful violation of 11 U.S.C. § 524(c), asserting that Defendants violated Bankruptcy Code provisions dealing with reaffirmation agreements. Count II alleges a willful violation by Defendants of the discharge order under 11 U.S.C. § 524(a)(2) by seeking to collect on discharged debts. Count III alleges a willful violation of the automatic stay by Defendants misrepresenting the rights of Plaintiff and class members in soliciting and obtaining illegal reaffirmation agreements.
Count IV alleged that Defendants engaged in unfair and deceptive acts and practices in violation of state law. Count V asserted a state law claim of restitution on the theory that Defendants obtained money from Plaintiff and other class members in a manner contrary to equity and good conscience and under circumstances constituting unjust enrichment. Counts IV and V were earlier dismissed by order of District Judge Alesia, were not referred to this Court, and are not now pending.
The Complaint alleges that CBS acted, and continues to act, as an agent for a number of creditors, including Busch, by administering creditor claims against consumer debtors in bankruptcy here and elsewhere throughout the United States. Typically, CBS files a proof of claim in the bankruptcy proceeding, monitors the status of the case, and solicits reaffirmation agreements.
Plaintiff further alleges that Defendants had no intention of filing the reaffirmation agreement with the Bankruptcy Court Clerk in this case because they sought to hide the allegedly illegal provision contained therein. The Complaint also asserts that Defendants, over at least the past three years, have negotiated many agreements containing the same questioned provision and never filed them in any court. As a result of using those assertedly illegal reaffirmation agreements, Defendants are said to have derived substantial profits.
Plaintiff argues that, by utilizing illegal reaffirmation agreements and deliberately failing to file them, Defendants have been and are ignoring and willfully violating Bankruptcy Code requirements governing and limiting permissible post-petition reaffirmation of debt, specifically those under 11 U.S.C. § 524(c). Moreover, by seeking to collect pre-petition debts from Plaintiff, it is asserted that Defendants violated the statutory discharge injunction contained in 11 U.S.C. § 524(a)(2). Finally by assertedly misrepresenting the rights of the Plaintiff class in soliciting and obtaining the above-described agreements, Defendants are alleged to have violated the automatic stay provisions of 11 U.S.C. § 362.
Of a number of motions filed, four are ruled on here: (1) Defendant CBS's Motion to dismiss Counts I, II, and III pursuant to Fed.R.Civ.P. 12(b)(6) (); (2) Defendant CBS's Motion for summary judgment on Counts I and II; (3) Plaintiff's Motion for class certification; and (4) Plaintiff's Motion under Fed.R.Civ.P. 12(f) to strike the CBS pleaded affirmative defenses. These motions were fully briefed. For reasons set forth below, they will be disposed of as follows: (1) Defendant CBS's motion to dismiss will be granted as to Count III and denied as to the remaining counts; (2) Defendant CBS's motion for summary judgment will be granted as to Count II and denied as to Count I; (3) Plaintiff's motion for class certification will be granted to the extent that a class will be certified under Count I for injunctive and declaratory purposes only under Fed. R.Civ.P. 23(b)(2) (Fed. R. Bankr.P. 7023), and otherwise will be denied; and (4) Plaintiff's motion to strike affirmative defenses will be granted in part and denied in part, leaving only the First and Second Defenses.
When the matter was referred here by the District Court Judge, the parties were first asked to brief whether or not the Bankruptcy Court has jurisdiction. The question arises because the bankruptcy case had been closed for more than three years and this lawsuit cannot benefit the bankruptcy estate or its creditors. With the aid of these briefings, it is concluded that jurisdiction lies over some issues presented in this case, most particularly over issues relating to use by Defendants of an assertedly illegal reaffirmation form, and also over the claim by Plaintiff that she has a right to recover payments made by her, but otherwise jurisdiction over other claims herein is doubtful.
Bankruptcy court jurisdiction extends to all civil proceedings arising under Title 11, or arising in or related to cases under Title 11. 28 U.S.C. § 1334(b). If a proceeding does not arise under Title 11 of the U.S. Code or does not arise in or is not related to a case under Title 11, it is not appropriate for bankruptcy judicial determination. See Zerand-Bernal Group, Inc. v. Cox, 23 F.3d 159, 162 (7th Cir.1994). "The phrase `arising under title 11' describes those proceedings that involve a cause of action created or determined by a statutory provision of title 11." In re Markos Gurnee Partnership, 182 B.R. 211, 220 (Bankr.N.D.Ill. 1995), aff'd sub nom, State of Ill., Dept. of Revenue v. Schechter, 195 B.R. 380 (N.D.Ill. 1996); see also In re Spaulding & Co., 131 B.R. 84, 88 (N.D.Ill.1990) (citing Matter of Wood, 825 F.2d 90, 96 (5th Cir.1987)). "Arising in" jurisdiction encompasses administrative matters that arise only in bankruptcy cases, that is to matters not based on any right expressly created by Title 11 but without existence outside of bankruptcy. Id. "Related to" jurisdiction describes proceedings which affect the amount of property available for distribution or the allocation of property among creditors. Id. (quoting Home Ins. Co. v. Cooper & Cooper, Ltd., 889 F.2d 746, 749 (7th Cir.1989)). See also In re Cary Metal Products, Inc., 152 B.R. 927, 934 (Bankr.N.D.Ill.), aff'd, 158 B.R. 459 (N.D.Ill. 1993), aff'd sub nom, Zerand-Bernal Group, Inc. v. Cox, 23 F.3d 159 (7th Cir.1994) (citations omitted); In re Spaulding & Co., 111 B.R. 689, 692 (Bankr.N.D.Ill.), aff'd, 131 B.R. 84 (N.D.Ill.1990); In re Xonics, Inc., 813 F.2d 127, 133 (7th Cir.1987).
As discussed, this case concerns the alleged systematic use of a reaffirmation agreement form that may be illegal under 11 U.S.C. § 524(c), and also asserts violation of the discharge injunction under § 524(a)(2) and improper solicitation of payments on a pre-petition debt. Thus, jurisdiction is present to deal with the issue presented as to Defendants' apparent use of an illegal reaffirmation form, as that issue arises within this case and also in and under Title 11 U.S.C. Jurisdiction also arises in...
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