Malone v. Norwest Financial California, Inc.
| Decision Date | 03 February 2000 |
| Docket Number | No. CIV.S-99-692 LKK/JFM,CIV.S-99-693 LKK/PAN.,CIV.S-99-692 LKK/JFM |
| Citation | 245 BR 389 |
| Parties | Robert J. MALONE and Esther N. Malone, on behalf of themselves and all others similarly situated, Plaintiffs, v. NORWEST FINANCIAL CALIFORNIA, INC., a corporation; and Norwest Financial, Inc., a corporation, Defendants. Robert J. Malone and Esther N. Malone, on behalf of themselves and all others similarly situated, Plaintiffs, v. U.S. Bancorp, a corporation; and United States National Bank of Oregon, a corporation, Defendants. |
| Court | U.S. District Court — Eastern District of California |
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Joseph M. Barton, Gold, Bennett, Cera and Sidener, San Francisco, CA, for plaintiffs.
Richard W. Nichols, McDonough, Holland and Allen, Sacramento, CA, Craig A. Varga, Michael D. Hayes, Varga, Berger, Ledsky, Hayes and Casey, Chicago, IL, for defendants.
Pending before the court is the defendants' motions to refer these suits to the bankruptcy court. I decide the matter on the papers and pleadings filed herein and after oral argument.
On April 8, 1999, the plaintiffs, Chapter 7 bankruptcy petitioners, filed a putative class-action lawsuit. They seek, inter alia, disgorgement of profits and punitive damages premised on the alleged improper solicitation of reaffirmation agreements and collection of pre-petition debt, assertedly in violation of 11 U.S.C. § 524.1 They also seek damages pursuant to 11 U.S.C. § 362.2
Defendants have moved to refer the matter to the bankruptcy court pursuant to the automatic reference embodied in this court's General Order No. 182.3 Plaintiffs reply that the court has cause not to enforce the reference because plaintiffs enjoy a right to a jury trial. After further briefing and oral argument, the matter stood submitted.
For the reasons explained below, I conclude that 11 U.S.C. § 524 provides plaintiffs with a private cause of action as well as a right to a jury trial. As I also explain, in light of the plaintiffs' right to a jury trial, as well as other considerations, referral of this matter to bankruptcy court is not appropriate.
Except as otherwise provided by Congress, the district court has original and exclusive jurisdiction over all cases arising under Title 11. See 28 U.S.C. § 1334(a)(1994).4 Congress has empowered the district court to refer to bankruptcy judges any cases arising under that title as well as related proceedings. See 28 U.S.C. § 157(a)(1994). Under this authority, the Eastern District of California through a General Order adopted by the District Court, has referred all cases under Title 11 as well as related proceedings to the bankruptcy judges of the district. See General Order No. 182, supra, at n. 3.
A district court may, and in certain circumstances must, withdraw cases referred to bankruptcy court pursuant to 28 U.S.C. § 157(a).5 See 28 U.S.C. § 157(d). Those cases requiring material consideration of non-bankruptcy federal law must be withdrawn, Security Farms v. Int'l Brotherhood of Teamsters, 124 F.3d 999, 1008 (9th Cir.1997), and the district court, pursuant to § 157(d), may withdraw any case referred to the bankruptcy court for cause shown.
Whether cause exists is a multifactored determination. Among the proper considerations are the efficient use of judicial resources, delay and costs to the parties, uniformity of bankruptcy administration, the prevention of forum shopping, and other similar issues. Security Farms, 124 F.3d at 1008 ).
As noted above, plaintiffs contend that there is cause not to enforce the automatic referral to bankruptcy court because their claim under 11 U.S.C. § 524 entitles them to a jury trial. Section 524 of Title 11 does not explicitly provide a private right of action. Accordingly, before reaching the question of a right to a jury trial, I must consider whether plaintiffs have a cause of action under that section at all.
Below, I conclude that 11 U.S.C. § 105(a) explicitly provides plaintiffs with a cause of action under 11 U.S.C. § 524. Alternatively, I conclude that if § 105 does not create such a cause of action, one should be implied under § 524 itself.
The questions posed by the instant motion are both subtle and difficult. As a preface to resolving those questions, some consideration of the role of district courts and its sub-unit, the bankruptcy courts, in enforcement of Title 11 is necessary, and so I begin there.6
Congress has endowed the courts with broad powers to enforce the provisions of the bankruptcy title. See 11 U.S.C. § 105(a)(1994).7 Because the bankruptcy court is a court of equity, See United States v. Energy Resources Co. Inc., 495 U.S. 545, 549, 110 S.Ct. 2139, 109 L.Ed.2d 580 (1990)(citing Pepper v. Litton, 308 U.S. 295, 303-304, 60 S.Ct. 238, 84 L.Ed. 281 (1939)), the relief it can provide under § 105 is limited to equitable orders.
The power to "issue any order, process, or judgment that is necessary or appropriate" under 11 U.S.C. § 105(a) is not limited to bankruptcy courts but extends to Article III courts. The statute provides that "the court may issue any order, process, or judgment. . . ." 11 U.S.C. § 105(a). In turn, "court or judge means the judicial officer before whom a case or proceeding is pending." Fed. R. Bankr.P. 9001(4)(internal quotation marks omitted). Unlike a bankruptcy judge, however, this court is not limited to equitable remedies. See U.S. CONST. art. III, § 2, cl. 1 (); Fed.R.Civ.P. 2 ()(internal quotation marks omitted). In sum, under § 105 this court can, in addition to equitable relief, enter a judgment providing legal remedies so long as that judgment is "necessary or appropriate." 11 U.S.C. § 105(a).
Section 105, although it provides the courts with broad powers to grant relief, does not authorize relief inconsistent with more specific law. American Hardwoods, Inc. v. Deutsche Credit Corp. (In re American Hardwoods, Inc.), 885 F.2d 621, 625 (9th Cir.1989) (citing In re Golden Plan of California, Inc., 829 F.2d 705, 713 (9th Cir.1986)). Nor can the courts establish new substantive rights by virtue of § 105. Ludlow Hospital Society, Inc. v. Secretary of Health and Human Services (In re Ludlow Hospital Society, Inc.), 124 F.3d 22, 27 (1st Cir.1997); see, e.g., Continental Airlines Corp. v. Air Line Pilots Ass'n, Int'l. (In re Continental Airlines Corp.), 907 F.2d 1500, 1509-1510 (5th Cir.1990)(section 105(a) does not permit substantive modifications of labor agreement); NWFX, Inc. v. Carl's Grocery Co. Inc. (In re NWFX, Inc.), 864 F.2d 593, 596 (8th Cir.1989)( grant of equitable setoff by the bankruptcy court under § 105). Rather, a court can exercise the power granted by § 105(a) only to further existing substantive rights. See Oxford Management, Inc. v. J. Louis Matherne & Associates (In the matter of Oxford Management Inc.), 4 F.3d 1329, 1333-1334 (5th Cir.1993) (quoting United States v. Sutton, 786 F.2d 1305, 1308 (5th Cir.1986)).8 Thus, the question is whether the plaintiffs in this action have a substantive right to be free from unauthorized reaffirmation agreements and specified collection tactics.
The plain language of 11 U.S.C. § 524 creates a right in bankrupts not to be bound by contracts to repay debt if they do not conform to the requirements of § 524(c). Moreover, by its plain terms, § 524(a) creates a substantive right in petitioners to be free from a broad array of collection tactics. Given the substantive rights provided under § 524, it follows that § 105 provides the court with the power to issue "any judgment . . . appropriate to carry out" the provisions of the substantive section.
It seems plain that no one should be permitted to retain funds obtained in violation of law. Accordingly, a creditor ought not be permitted to retain funds obtained in violation of § 524. It thus follows that a judgment of disgorgement is an appropriate order, and accordingly, a cause of action seeking such a judgment lies.9
From all the above, I conclude that § 105(a) provides an explicit cause of action under § 524. As I now explain, even if § 105(a) did not explicitly provide such a cause of action, 11 U.S.C. § 524 implies one.
Determining whether a statute implies a private right of action involves ascertaining the intent of Congress. California v. Sierra Club, 451 U.S. 287, 292, 101 S.Ct. 1775, 68 L.Ed.2d 101 (1981); Touche Ross & Co. v. Redington, 442 U.S. 560, 568, 99 S.Ct. 2479, 61 L.Ed.2d 82 (1979). As with any such issue, the first task of a district court is to determine whether binding authority has addressed the issue. Tello v. McMahon, 677 F.Supp. 1436, 1441 (E.D.Cal.1988). Research reveals that neither the Supreme Court nor the Ninth Circuit has addressed whether § 524 implies a right of action. Moreover, resorting to persuasive authority does not prove helpful. The issue has been infrequently addressed by district courts with different results. Compare Rogers v. NationsCredit Financial Services, Corp., 233 B.R. 98 (N.D.Cal.1999)( a private right of action under 11 U.S.C. § 524), with Bessette v. Avco Financial Services, Inc., 240 B.R. 147 (D.R.I.1999)(no implied right), and Costa v. Welch (In re Costa), 172 B.R. 954 (Bankr.E.D.Cal.1994)(no private right of action exists), and Perovich v. Humphrey, No. 97 C 3209, 1997 WL 674975 (N.D. Ill. Oct. 28, 1997)( claim under § 524(a)(2) without deciding whether there was an implied private right of action). Because of the lack of binding authority, I turn to an independent examination of the issue.
It is well established that a court may imply a...
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