Rushmore Loan Mgmt. Servs. v. Moon (In re Moon)
| Decision Date | 07 January 2021 |
| Docket Number | BAP No. NV-20-1070-BGTa (Cross-Appeals),BAP No. NV-20-1057-BGTa |
| Parties | In re: WILLIE N. MOON and ADNETTE M. GUNNELS-MOON, Debtors. RUSHMORE LOAN MANAGEMENT SERVICES, LLC, Appellant/Cross-Appellee, v. WILLIE N. MOON; ADNETTE M. GUNNELS-MOON, Appellees/Cross-Appellants. |
| Court | Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Ninth Circuit |
NOT FOR PUBLICATION
MEMORANDUM*Appeal from the United States Bankruptcy Court for the District of Nevada
Before: BRAND, GAN, and TAYLOR, Bankruptcy Judges.
Willie Moon and Adnette Gunnels-Moon filed a chapter 131 case to save their home ("Residence"). They avoided the second lien on the Residence held by Rushmore Loan Management Services, LLC ("Rushmore"), and the court confirmed their plan. After confirmation, the Moons received telephone calls and correspondence from Rushmore seeking to collect on the second mortgage. Willie informed Rushmore of their bankruptcy case, but the collection efforts continued. For Rushmore's willful violation of the automatic stay, the bankruptcy court awarded the Moons $100,742.10 in compensatory damages, which included $100,000 for Willie's emotional distress, and $200,000 in punitive damages. The bankruptcy court did not award damages for violation of the discharge injunction.2 Rushmore appeals the bankruptcy court's ruling with respect to Willie's damages, the punitive damages award, and the court's decision to allow testimony from the Moons' expert witness. The Moons appeal the bankruptcy court's denial of damages for Rushmore's violation of the discharge injunction. We AFFIRM in part, REVERSE in part, and VACATE and REMAND in part.
We conclude that Rushmore did not violate Willie's automatic stay, andso he was not entitled to any compensatory damages under § 362(k)(1). Rushmore did not seek to obtain possession of property of Willie's estate. The violations occurred post-confirmation. There was no violation as to the Residence. It was owned by Adnette, not Willie, and it had revested in Adnette when the violations occurred. Willie's interest in the Moons' community income also revested at confirmation, except to the extent necessary to fund plan payments. Furthermore, there was no violation of Willie's stay with respect to the efforts to collect Rushmore's debt. The debt was Adnette's alone. Therefore, we REVERSE the $100,000 award in compensatory damages to Willie.
While we AFFIRM the bankruptcy court's ruling that Adnette was entitled to punitive damages, we VACATE and REMAND the amount of that award for the court to review given that we are reversing the damages award to Willie. Further, we AFFIRM the court's denial of damages for violation of the discharge injunction. Finally, we AFFIRM the court's allowance of testimony from the Moons' expert witness.
The Moons are in their seventies and have been married since 1998. Willie retired from truck driving in 2007; Adnette works as a library aide at an elementary school. Both Willie and Adnette have health issues. Willie is a Vietnam veteran and suffers from post traumatic stress disorder as a result ofhis military service. In addition, Willie has chronic obstructive pulmonary disease, diabetes, high cholesterol, hypertension, and asthma. His conditions require him to take a number of prescribed and over-the-counter medications daily. Adnette has high cholesterol, hypertension, and asthma, for which she takes several prescribed medications.
In 2005, Adnette and her daughter purchased the Residence where Adnette and Willie live. Willie quitclaimed any community interest he had in the Residence to Adnette in 2005. In 2007, Adnette refinanced the Residence in her name only, taking out two loans. Rushmore began servicing the second loan in January 2012. No payments have been made on the Rushmore loan since November 2012.
Unable to remain current on both mortgages, the Moons filed a chapter 13 bankruptcy case on March 26, 2013. They listed the Residence with a value of $120,000 subject to two liens: the first in favor of Chase for $154,000; the second in favor of Rushmore for $73,000.3 The bankruptcy notice was sent by mail to creditors listed on the creditor matrix.
Thereafter, the Moons moved to value the Residence under § 506(a) to strip off Rushmore's entirely unsecured lien. Rushmore did not respond. After a hearing, the bankruptcy court entered an order granting the valuationmotion. Rushmore, as an unsecured creditor, would receive pro-rata payment along with other general unsecured creditors.
On April 7, 2014, the bankruptcy court entered an order confirming the Moons' amended chapter 13 plan ("Plan"). The 36-month Plan provided for monthly payments of $500.00. General unsecured creditors would receive pro-rata $9,542.83. The Plan noted that the Moons had successfully stripped off Rushmore's second lien. The chapter 13 trustee's notice of proposed distribution stated that Rushmore had not filed a proof of claim and, therefore, would receive $0.00 under the Plan.
In August 2016, the trustee filed a final report indicating that all Plan payments had been made. The bankruptcy court entered an order of discharge for the Moons on September 28, 2016, discharging their prepetition unsecured debt including the debt owed to Rushmore. A final decree closing the case was entered on October 3, 2016.
As it turns out, no documents filed during the Moons' chapter 13 case — the bankruptcy notice, any motions, applications, notices of hearings, court orders or other papers — were served on Rushmore due to an address error. The address error stemmed from a mistake made in the creditor matrix when the case was filed and continued throughout the case.
After reopening their bankruptcy case, the Moons filed a motion for contempt, seeking to hold Rushmore in contempt for violation of theautomatic stay under § 362(a) and the discharge injunction under § 524(a)(2) ("Contempt Motion"). The Moons alleged that, between November 2013 and October 2018, Rushmore sent a multitude of correspondence including monthly mortgage statements and other collection letters. All of Rushmore's correspondence was addressed only to Adnette. The Moons also alleged that, during the same five year period, Rushmore made "hundreds" of calls to the Residence telephone asking for payment. The Moons sought damages for their emotional distress, punitive damages, and attorney's fees. Because the address error had now been corrected by the Moons' new bankruptcy attorney, Rushmore was served with and received the Contempt Motion.
The bankruptcy court scheduled a two-day evidentiary hearing, and set deadlines for submission of declarations, exhibits, and additional briefs. Despite having several months to do so, Rushmore never filed a substantive response to the Contempt Motion. The Moons submitted their direct testimony declarations from Willie, Adnette, and expert witness, John Rao. Rushmore submitted a direct testimony declaration from its only witness, Anthony Younger, a Rushmore employee.
All four witnesses were subject to cross-examination of their direct testimony at the evidentiary hearing. After the witnesses' testimony and the parties' closing arguments, the court took the matter under submission.
The bankruptcy court entered an Order and Memorandum Decisiongranting the Contempt Motion and awarding the Moons $100,742.10 in compensatory damages and $200,000 in punitive damages for Rushmore's willful violation of the automatic stay under § 362(k)(1). In re Moon, 613 B.R. 317, 361 (Bankr. D. Nev. 2020). The court declined to award the Moons damages for Rushmore's violation of the discharge injunction under § 524(a)(2) and § 105(a) because the Moons had not established when Rushmore became aware of the discharge order.
The court determined that Rushmore willfully violated the automatic stay with its collection efforts. Id. at 346-50.4 The court found that Rushmore received notice of the Moons' bankruptcy on December 20, 2014, when Willie told the Rushmore representative in a phone call to the Residence that he and Adnette were "in a chapter 13," which was confirmed by the representative's notation in the loan file. The court found that Rushmore intentionally acted to collect the debt through its telephone calls to the Residence and its mailings of mortgage statements and other collection letters. During the 648-day period between December 20, 2014, and the discharge date of September 28, 2016, the court found that Rushmore made "hundreds" of telephone calls to the Residence and mailed at least 50 mortgage statements and other collection letters. Because Willie was the one who answered Rushmore's calls andhandled the Moons' daily mail, the court found that Willie suffered significant harm that was caused by Rushmore's automatic stay violations and awarded him $100,000 for his emotional distress. Id. at 356-57. The court declined to award Adnette emotional distress damages, because she testified that her distress was caused by Rushmore's discharge injunction violations, not stay violations. Id. at 356. The court also awarded punitive damages, finding Rushmore's policies and conduct "reprehensible." Id. at 359-61. These timely cross-appeals followed.
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(1) and (2)(A). We have jurisdiction under 28 U.S.C. § 158.
1. Could Willie recover damages under § 362(k)(1)?
2. Did the bankruptcy court abuse its discretion in awarding $200,000 in punitive damages?
3. Did the bankruptcy court abuse its discretion by allowing Rao to testify as an expert witness?
4. Did the bankruptcy court abuse its discretion by not awarding the Moons discharge injunction violation damages?
Rushmore contends that Willie...
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