Pertuso v. Ford Motor Credit

• Decision Date: 10 March 2000
• Docket Number: No. 99-1132,99-1132
• Citation: 233 F.3d 417
• Parties: (6th Cir. 2000) David J. Pertuso, Karen A. Pertuso, Plaintiffs-Appellants, v. Ford Motor Credit Company, Defendant-Appellee. Argued:
• Court: U.S. Court of Appeals — Sixth Circuit

Page 417

233 F.3d 417 (6th Cir. 2000)

David J. Pertuso, Karen A. Pertuso, Plaintiffs-Appellants, v. Ford Motor Credit Company, Defendant-Appellee.

No. 99-1132

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

Argued: March 10, 2000

Decided and Filed: November 22, 2000

Appeal from the United States District Court for the Eastern District of Michigan at Detroit. No. 98-70551--Denise Page Hood, District Judge. [Copyrighted Material Omitted] David R. Parker, Charfoos & Christensen, Detroit, MI, Michael M. Mulder, Thomas R. Meites, Jamie S. Franklin, MEITES, MULDER, BURGER & MOLLICA, Chicago, Illinois, for Appellants.

Thomas G. Parachini, Donald J. Hutchinson, Lindsay L. Bray, MILLER, CANFIELD, PADDOCK & STONE, Detroit, Michigan, for Appellee.

Before: NELSON, BOGGS, and NORRIS, Circuit Judges.

OPINION

DAVID A. NELSON, Circuit Judge.

After declaring bankruptcy, the plaintiffs brought the present action against a secured creditor that had solicited a "reaffirmation agreement" from them while the bankruptcy proceedings were pending. The plaintiffs signed the agreement and continued to remit regular monthly payments to the defendant. The gravamen of the plaintiffs' complaint was that the defendant violated the automatic stay provision codified in 11 U.S.C. §362, as well as violating 11 U.S.C. §524, a section of the bankruptcy code that governs the validity of reaffirmation agreements.

The district court dismissed both of these claims, along with related state law claims. Upon de novo review, we conclude that the challenged judgment should be affirmed.

I

The plaintiffs, Rhode Island residents David and Karen Pertuso, purchased a Windstar van on which they obtained financing through the defendant, Ford Motor Credit Company. On July 30, 1996, the Pertusos filed a Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the District of Rhode Island. The balance remaining on the van, $18,950, was listed as a secured debt.

When they made their bankruptcy filing, the Pertusos submitted a "statement of intent" pursuant to 11 U.S.C. §521(2)(A). This statement informed the court and the creditors that the Pertusos intended to reaffirm their debt to Ford in order to be able to retain possession of the van.

Ford then sent the Pertusos a letter proposing a reaffirmation agreement that appears consistent - or at least not inconsistent - with the Pertusos' statement of intent. The first paragraph of the proposed agreement began as follows:

"In consideration of Ford Motor Credit Company's ("Ford Credit") refraining from seeking Bankruptcy Court authorization to retake property from me under the lien of its security agreement, or exercising any other legal right it may presently have against me as provided by law, I hereby reaffirm and agree to pay my obligations to Ford Credit and to make monthly payments commencing 9/16/96 of $398.93 each until the debt has been satisfied, according to the terms of the original contract."

In keeping with 11 U.S.C. § 524(c)(2)(A), the agreement went on to provide that the Pertusos could rescind their reaffirmation at any time prior to discharge or within 60 days after the filing of the agreement with the court, whichever occurred later. Ford reserved the right both to proceed against the Pertusos if they failed to comply with the terms of the agreement and to accelerate the debt if any installment should not be paid when due or within ten days thereafter.

A Ford representative signed the document before it was sent to the Pertusos. On September 6, 1996, the Pertusos and their attorney added their signatures. The agreement was returned to Ford, and no one filed it with the court.

On October 28, 1996, the Pertusos received their discharge in bankruptcy. The record indicates that the Pertusos remained current on their payments to Ford both before and after the discharge.

Becoming persuaded at some point that the reaffirmation agreement was the product of improper debt collection practices on Ford's part, the Pertusos brought a purported class action against Ford on February 9, 1998. The complaint, which was filed in the United States District Court for the Eastern District of Michigan, alleged that Ford routinely solicited reaffirmation agreements from bankrupt debtors; that it failed to file the agreements in court; and that although the agreements were unenforceable, Ford used them to collect substantial sums from members of the purported class. The complaint alleged violations of 11 U.S.C. §§524(a)(2), 524(c), and 362, asserted a state law claim of unjust enrichment, and sought an accounting.

Ford responded by filing a motion to dismiss. The Pertusos then sought leave to file an amended complaint incorporating a copy of the reaffirmation agreement. After hearing argument, and without granting class certification, the district court denied leave to file the amended complaint and dismissed the case. This appeal followed.

II

A. AMENDMENT OF COMPLAINT

As the Pertusos correctly point out, Fed. R. Civ. P. 15(a) gives plaintiffs an absolute right to amend their complaint one time before a "responsive pleading" is served. A Rule 12(b)(6) motion to dismiss does not qualify as a "pleading," see Fed. R. Civ. P. 7, so the Pertusos were entitled to amend their complaint. The district court took the allegations of the amended complaint into account, however, and while the formal denial of leave to amend was an error, the error was harmless if the amended complaint failed to state a claim upon which relief could be granted. For the reasons explained below, we conclude that the complaint did fail to state such a claim.

B. PRIVATE RIGHT OF ACTION UNDER § 524

Whether 11 U.S.C. § 524 impliedly creates a private right of action for an asserted violation of the section is a question of first impression in this circuit. The Pertusos argue that such an implied right of action does exist, and, alternatively, that § 524 is enforceable via 11 U.S.C. § 105. The latter provision permits courts to "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title."

In Cort v. Ash, 422 U.S. 66 (1975), the Supreme Court identified four factors that are to be considered in determining whether a private right of action exists for breach of a federal statute. The factors to be considered are these: (1) whether the plaintiff is a member of a class for whose special benefit the statute was enacted; (2) whether there is any explicit or implicit indication of congressional intent to create or deny a private remedy; (3) whether a private remedy would be consistent with the underlying purpose of the legislative scheme; and (4) whether the cause of action is one traditionally relegated to state law. Id. at 78. "The most important inquiry," as the Court subsequently explained in Touche Ross & Co. v. Redington, 442 U.S. 560, 575 (1979), "is whether Congress intended to create the private remedy sought by the plaintiffs."

We are not to infer the existence of private rights of action haphazardly. Under Touche Ross, the recognition of a private right of action requires affirmative evidence of congressional intent in the language and purpose of the statute or in its legislative history. See TCG Detroit v. City of Dearborn, 206 F.3d 618, 623 (6th Cir. 2000). With congressional intent as the touchstone, then, we turn to the language and purpose of § 524, its legislative history, and court decisions interpreting the section. 1.11 U.S.C. § 524

Subsection 524(a)(2) provides that a discharge "operates 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, whether or not discharge of such debt is waived." The obvious purpose is to enjoin the proscribed conduct - and the traditional remedy for violation of an injunction lies in contempt proceedings, not in a lawsuit such as this one.

The other subsection on which the Pertusos rely, § 524(c), does not proscribe any conduct at all; it merely sets forth the conditions under which a reaffirmation agreement is enforceable. The consequence of not meeting the conditions is that the agreement is unenforceable. Accordingly, in our view, the language of § 524(c), like that of § 524(a)(2), does not suggest a legislative intent to provide a private right of action of the sort asserted by the Pertusos.

Turning to legislative history, the Pertusos claim support for their position on the basis of the following language in a House Report:

"[U]nsuspecting debtors are led into binding reaffirmations, and the beneficial effects of a bankruptcy discharge are undone. The advantages sophisticated and experienced creditors have over unsophisticated debtors in this area . . . still remain. The unequal bargaining position of debtors and creditors, and the creditors' superior experience in bankruptcy matters still lead to reaffirmations too frequently. To the extent that reaffirmations are enforceable, the fresh start goal of the bankruptcy laws is impaired." H.R. Rep. No. 95-595, 95th Cong., 1st Sess. 163 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6124.

Ignored by the Pertusos, however, is the fact that this language accompanied a version of H.R. 8200 that was not enacted into law. The House Report makes it clear that the bill under discussion would have prohibited reaffirmation agreements altogether: "The bill makes void any agreement that contains a reaffirmation of a discharged debt, and prohibits a creditor from entering into such an agreement." Id. at 6125. The bill that was enacted, on the other hand, allows for reaffirmation agreements within the limits prescribed by § 524(c). The history on which the Pertusos rely thus does little to advance their cause.

What Congress subsequently failed to do with regard to §524 sheds rather more light on the legislature's intent. Congress amended the...