Resurgent Capital Servs., L.P. v. Harrington (In re Cushman)

• Decision Date: 29 June 2018
• Docket Number: Case No. 14-10692,Adv. Proc. No. 16-1017
• Citation: 589 B.R. 469
• Parties: IN RE: Laurence CUSHMAN and Carlene Cushman, Debtors Resurgent Capital Services, L.P., Plaintiff v. William K. Harrington, United States Trustee for Region 1, Defendant William K. Harrington, United States Trustee for Region 1, Counterclaimant and Third-Party Plaintiff v. Resurgent Capital Services, L.P., Counterclaim Defendant and LVNV Funding, LLC, Third-Party Defendant
• Court: U.S. Bankruptcy Court — District of Maine

589 B.R. 469

IN RE: Laurence CUSHMAN and Carlene Cushman, Debtors

Resurgent Capital Services, L.P., Plaintiff

v.William K. Harrington, United States Trustee for Region 1, Defendant

William K. Harrington, United States Trustee for Region 1, Counterclaimant and Third-Party Plaintiff

v.Resurgent Capital Services, L.P., Counterclaim DefendantandLVNV Funding, LLC, Third-Party Defendant

Case No. 14-10692

Adv. Proc. No. 16-1017

United States Bankruptcy Court, D. Maine.

Signed June 29, 2018

Jeremy R. Fischer, Kaitlyn M. Husar, Esq., Drummond Woodsum, Portland, ME, Craig Goldblatt, Danielle Spinelli, Isley Markman Gostin, Wilmer Cutler Pickering Hale & Dorr LLP, Jonathan Seymour, Washington, DC, for Plaintiff.

Gregory M. Baruch, Esq., EOUST, U.S. Department of Justice, Washington, DC, Jeremy R. Fischer, Drummond Woodsum, Stephen G. Morrell, Esq., Jennifer H. Pincus, Esq., Office of the U.S. Trustee, Portland, ME, for Defendant.

MEMORANDUM OF DECISION

Michael A. Fagone, United States Bankruptcy JudgeResurgent Capital Services, L.P. and the United States Trustee have locked horns in a pitched battle over Resurgent's claim filing practices in bankruptcy cases across the country. In this adversary proceeding, the United States Trustee takes particular aim at Resurgent's practice of affixing an employee's signature to a proof of claim and then filing the proof of claim, all without prior review of the proof of claim by that employee. By the United States Trustee's lights, this practice justifies the imposition of sanctions under Fed. R. Bankr. P. 9011 and otherwise. Resurgent concedes that this practice—which has since been discontinued—was not a best practice. It maintains, however, that the practice did not violate the Bankruptcy Code or the Federal Rules of Bankruptcy Procedure and does not warrant the imposition of sanctions.

While aspects of Resurgent's practices could—and should—have been designed to produce more accurate proofs of claim, its practices were not so egregiously deficient to warrant the imposition of sanctions. On this summary judgment record, the Court is unwilling to declare that Resurgent should be sanctioned for the proof of claim it filed in the Cushmans' chapter 13 case.

I. The Summary Judgment Record

A. The Pleadings and Summary Judgment Motions

Resurgent commenced this adversary proceeding against William K. Harrington, United States Trustee for Region 1 (the "UST"), by filing a complaint for declaratory relief under 28 U.S.C. § 2201. Specifically, Resurgent requests a declaratory judgment that (a) it is neither necessary nor appropriate to impose sanctions under Rule 9011, 11 U.S.C. § 105, or any other source of authority on account of the proof of claim filed by Resurgent in the Cushmans' chapter 13 case (the "Cushman POC"); and (b) to the extent that the amounts sought in the Cushman POC are factually accurate, Resurgent need not amend that proof of claim.¹

The UST answered Resurgent's complaint, asserted a counterclaim, and filed a third-party complaint against Resurgent's affiliate, LVNV Funding, LLC. Through the counterclaim and third-party complaint, the UST asks the Court to use Rule 9011, section 105(a), or its inherent authority, to (a) impose monetary sanctions against Resurgent and LVNV; (b) suspend Resurgent's CM/ECF privileges and impose a monitoring requirement on Resurgent's proof of claim filing in this District for one year; (c) strike the Cushman POC; and (d) enjoin Resurgent and LVNV from filing "Robo-signed" proofs of claim in this District.

After a pretrial conference, the Court issued an order making D. Me. Civ. R. 56(h) applicable to this proceeding. The parties then sought leave to file cross-motions for summary judgment and proposed a briefing schedule. The Court granted the parties' request and adopted their schedule. Resurgent and the UST then filed cross-motions for summary judgment on Resurgent's complaint. Although the cross-motions do not address the UST's counterclaim or his third-party complaint, the summary judgment record contains a significant amount of evidence that bears on the extent of an appropriate sanction in addition to the initial question of whether there is any basis for imposing sanctions.

B. The Source of the Facts

The evaluation of a summary judgment record is governed by D. Me. Civ. R. 56, which defines the evidence the Court may consider in determining whether genuine issues of material fact exist. See D. Me. LBR 7056-1 (making most of D. Me. Civ. R. 56 applicable in adversary proceedings); Doe v. Solvay Pharms., Inc., 350 F.Supp.2d 257, 259-60 (D. Me. 2004) ("The evidence the Court may consider in deciding ... a summary judgment motion is circumscribed by the Local Rules of this District."). A party seeking summary judgment must file a statement of material facts as to which it contends there is no genuine dispute. D. Me. Civ. R. 56(b). Each fact included in that statement must be separately set forth in a numbered paragraph and supported by a specific record citation. D. Me. Civ. R. 56(b), (f). A party opposing a motion for summary judgment is required to submit an opposing statement of material facts that admits, denies, or qualifies the moving party's factual assertions, and supports each denial or qualification with a specific record citation. D. Me. Civ. R. 56(c). The opposing statement may also include additional facts supported by specific record citations. D. Me. Civ. R. 56(c), (f). A party replying to an opposition to a motion for summary judgment must submit a reply statement of material facts that admits, denies, or qualifies the additional facts submitted by the opposing party, and supports each denial or qualification with a specific record citation. D. Me. Civ. R. 56(d), (f). The parties' stipulations of fact control over any conflicting statements of fact. D. Me. Civ. R. 56(b). If a statement of fact is supported by a proper citation, the fact is deemed admitted unless it is properly controverted. D. Me. Civ. R. 56(f); see also Fed. R. Civ. P. 56(e)(2).

The summary judgment record in this proceeding consists of several components. First, the parties filed a stipulation of facts containing 106 paragraphs ("Stip."). Second, the Court considered the allegations in the complaint that were admitted by the UST. Next, the Court took judicial notice of certain facts reflected on the docket in the Cushmans' chapter 13 case. Finally, the Court considered the statements of fact submitted by the parties under D. Me. Civ. R. 56. Resurgent submitted 84 statements of material fact ("SMF"). The UST admitted 32 of these facts, denied 15, and qualified his response to the remaining 37; he also submitted 93 counterstatements of material fact ("CSMF"). Resurgent admitted 51 of these facts, denied 9, and qualified its response to the other 33.

Before recounting the facts, some explanation of the Court's approach to the summary judgment record is warranted. Many of the facts—including all of the genuinely disputed facts and many of the undisputed facts—have been omitted from the recitation below because they are not material.² Conversely, certain undisputed facts have been included, not necessarily because each of them standing alone is material, but because collectively they provide context for evaluating Resurgent's conduct.

Finally, the Court expended significant efforts evaluating the facts that were qualified under D. Me. Civ. R. 56(c) and (d). The Court considered whether a qualification disputed the evidentiary support for the corresponding statement or, instead, merely challenged the statement's significance. If a qualification merely challenged the significance of the corresponding statement, the Court disregarded the qualification and deemed the statement to have been admitted. See Fed. R. Civ. P. 56(e)(2) ; Solvay Pharms., Inc., 350 F.Supp.2d at 273 n.11. If a well-supported qualification admitted a statement in part and denied the statement in part, then the Court treated the statement as admitted in part and denied in part.

II. The Facts

A. The Cushmans' Chapter 13 Case

Laurence and Carlene Cushman started their chapter 13 case in August 2014. They scheduled Credit One Bank as the holder of a general unsecured claim in the amount of $540.00 arising out of Mrs. Cushman's credit card account ending in 0642. Shortly after the chapter 13 filing, Resurgent filed the proof of claim at the nucleus of this dispute. There were no objections to the claim, and it was expressly allowed. The Cushmans' plan was confirmed, and the chapter 13 trustee made a 100% distribution to the holders of allowed unsecured claims, including a distribution of $575.49 to Resurgent. In December 2017, the Cushmans received a discharge.

B. The Cushman POC

Resurgent filed the Cushman POC on behalf of LVNV, Stip. ¶ 3, using the CM/ECF credentials assigned to Resurgent, SMF ¶ 51. The Cushman POC identified LVNV as the creditor and indicated that notices should be sent to Resurgent. It listed $575.49 as the amount of the claim and indicated that the claim arose out of a credit card. The proof of claim stated that LVNV identified the debtor with an account number ending in 0642, and that the debtor may have scheduled the account as held by Credit One Bank, N.A.

The account detail attached to the Cushman POC included Ms. Cushman's name, address, and redacted social security number; the name of the trustee when the proof of claim was filed; and the case number and chapter. The account detail identified the "Current Creditor" as "LVNV Funding, LLC its successors and assigns as assignee of FNBM, LLC"; indicated that LVNV purchased the debt from FNBM; and identified Credit One Bank, N.A. as an alternative name for the creditor and as the creditor at the time of the last transaction. The account detail provided the last four digits of the account number associated with the claim (0642); indicated that the debt was charged off on September 8, 2014; and stated that the last payment date and last...