Ryan v. Ohio Edison Co., 77-3458

• Decision Date: 27 December 1979
• Docket Number: No. 77-3458,77-3458
• Citation: 611 F.2d 1170
• Parties: , Bankr. L. Rep. P 67,309 Daniel Robert RYAN et al., Plaintiffs-Appellants, v. OHIO EDISON COMPANY et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1170

611 F.2d 1170

5 Bankr.Ct.Dec. 1348, Bankr. L. Rep. P 67,309

Daniel Robert RYAN et al., Plaintiffs-Appellants, v. OHIO EDISON COMPANY et al., Defendants-Appellees.

No. 77-3458.

United States Court of Appeals Sixth Circuit.

Argued Oct. 19, 1979.

Decided Dec. 27, 1979.

E. Bruce Hadden, Campbell & Hadden, Worthington, Ohio, for plaintiffs-appellants.

Robert F. Orth, Slabaugh, Walker, Pflueger, Roderick & Myers, Akron, Ohio, for Ohio Edison.

Frederick Corns, Gary Banas, Buckingham, Doolittle & Burroughs, Akron, Ohio, for Akron Credit Bureau.

Jerry Whitmer, David M. Hunter, Brouse & McDowell Co., L.P.A., Akron, Ohio, for Akron and Newark Credit Bureaus.

Before EDWARDS, Chief Judge, and MERRITT and KENNEDY, Circuit Judges.

CORNELIA G. KENNEDY, Circuit Judge.

Plaintiffs-Appellants Ryan and Cox represent a class certified as those individuals who have filed petitions for bankruptcy listing defendant-appellee Ohio Edison Company as a creditor; whose debts to Ohio Edison have been discharged; and from whom Ohio Edison has, either directly or through defendant-appellees the Akron Credit Bureau, Inc., the Utility Realization Corp., and the Credit Bureau of Newark, Ohio, collection agencies, attempted collection of the listed indebtedness. Appellants allege that even after notifying Ohio Edison of the stay issued by the Bankruptcy Court pursuant to the Bankruptcy Act (11 U.S.C. § 32) and Bankruptcy Rules 401 and 601 they and members of the class have been threatened with termination of utility service if the debts were not paid or have had such service terminated. They seek damages as well as declaratory and injunctive relief from such debt collection, which they assert is in violation of the discharge provisions of the Bankruptcy Act, 11 U.S.C. § 32(f), Bankruptcy Rules 401 and 601, and the Mail Fraud Statute, 18 U.S.C. § 1341. ¹

The District Court granted appellees' motion to dismiss for failure to state a claim upon which relief can be granted. ² It held that the alleged conduct of appellees was not prohibited by the Bankruptcy Act or the Bankruptcy Rules: as a former creditor Ohio Edison was enjoined under Section 14 of the Bankruptcy Act (11 U.S.C. § 32) and Bankruptcy Rules 401 and 601 only from using judicial action to collect on past claims and was free to use other means to collect such debts. It held that the Mail Fraud Statute does not create a private cause of action.

BANKRUPTCY ACT CLAIM

Appellants advance two arguments to support their claim under the Bankruptcy Act: (1) that appellees' actions are prohibited under the language of section 14(f)(2); (2) that appellants have a private cause of action under the Act since appellees' actions frustrate the purposes of the Bankruptcy Act which are to give the debtor a fresh start and to give each creditor a proportionate share of the available assets. Appellees, by threatening to turn off an essential service, hamper the debtor's ability to start fresh without hindrance from an old debt and give Ohio Edison a disproportionate share with respect to the other creditors.

Section 14(f)(2) of the Bankruptcy Act provides:

(f) An order of discharge shall

(2) enjoin all creditors whose debts are discharged from thereafter instituting or continuing any action or employing any process to collect such debts as personal liabilities of the bankrupt.

At issue is the proper interpretation of the phrase "employing any process". Plaintiffs contend that in light of the purpose of the Bankruptcy Act to give the debtor a fresh start, the word "process" should be construed to include any act or conduct. Defendants contend that this phrase is meant only to prevent legal or court process to collect a debt such as garnishment or attachment and not to prevent informal, nonlegal methods. ³

The courts that have thus far considered the question have agreed with appellees that section 14(f)(2) only prevents creditors taking judicial action to collect on discharged debts. See Girardier v. Webster College, 563 F.2d 1267, 1272-73 (8th Cir. 1977) (section 14 does not prevent private college from withholding transcript for failure to pay discharged debt); Aubertin v. Colville Confederated Tribes, 446 F.Supp. 430, 435-46 (E.D.Wash.1978) (Tribe's withholding of member's income to pay discharged debt does not violate § 14); Handsome v. Rutgers University, 445 F.Supp. 1362, 1367-68 (D.N.J.1978) (section 14 does not prevent public university from withholding transcripts for failure to pay discharged debt although Supremacy Clause does); In re Shenberg, 433 F.Supp. 677 (N.D.Ill.1977) (Bankruptcy Act does not prohibit municipality from shutting off water service for failure to pay discharged debt where a statute compelled the service to be discontinued for failure to pay debts); Matter of Thompson, 416 F.Supp. 991 (S.D.Texas 1976) (section 14 does not prohibit sending letters to debtor threatening civil and criminal action against him for fraud if debtor did not pay discharged debt); Binnick v. Avco Financial Services of Nebraska, Inc., 435 F.Supp. 359, 363 (D.Neb.1977) (section 14 does not prevent setoff of discharged debt); 1A Collier on Bankruptcy P 14.69, at 1453-54 (14th ed. 1978); Kennedy, The Automatic Stay in Bankruptcy, 11 U.Mich.J.L.Reform 175, 201-02 (1978). Cf. Wood v. Fielder, 548 F.2d 216, 219 (8th Cir. 1977) (purpose of 1970 amendments was to prevent creditors from instituting court action on discharged debts and not to change discretion granted to Bankruptcy Court in § 57(d)); McLellan v. Mississippi Power & Light Co., 545 F.2d 919, 929 (5th Cir. 1977) (no law restrains employer from firing employee because he filed a petition in bankruptcy). Congress did not define "process" in the statute. Some dictionary definitions are supportive of plaintiffs' more expansive interpretation, ⁴ but the relevant definition is Congress', not Black's or Webster's. Thus, this court must look to the legislative history to determine what Congress meant by "employing any process". See Train v. Colorado Public Interest Research Group, Inc., 426 U.S. 1, 10, 96 S.Ct. 1938, 48 L.Ed.2d 434 (1976).

Section 14(f) was added to the Bankruptcy Act in 1970, but it was not among the original proposed amendments. Hearings were held on a proposal to add dischargeability provisions as well as to create a Bankruptcy Commission which would study the whole bankruptcy area and propose a new structure. The dischargeability bills, H.R. # 6665 and H.R. # 1250, were designed to correct a specific problem which Congress felt could not wait until the proposed Commission completed its studies and made recommendations. The problem that Congress sought to remedy immediately was that although the bankruptcy court could determine that a debtor's dischargeable debts were discharged, it could not determine which debts were so discharged. The state courts would determine if a particular debt was discharged when the creditor sued in state court and the debtor affirmatively alleged the debt was one that had been discharged. Problems arose because of this bifurcated system: creditors received default judgments against discharged debtors because the debtors mistakenly relied upon their discharge and thought they did not have to act, because they did not know what they should do, because they could not afford another lawyer to represent them in state court after hiring one to represent them in bankruptcy court, or because service was never had on the debtor but was fraudulently signed and returned (dubbed "sewer service"). Problems were also created when state court judges and justices of the peace who lacked an expertise in federal bankruptcy law attempted to apply the Bankruptcy Act. The proposed solution was to simply give the bankruptcy court the jurisdiction to determine which debts were discharged. One court would then handle both the discharge of debts and determine which debts were discharged. Resort to state court would not be necessary, the debtor could use his attorney in the bankruptcy court to handle all actions relating to his debts at one time. See Hearings Before Subcommittee Four, Committee on the Judiciary, House of Representatives, 91st Cong., 1st Session, Oct. 1, 1969, at 15, 25-28, 32, 41-42, 46-48, 72-73. (Hereinafter cited as 1969 Hearings.) See also 2 U.S.Code Cong. & Admin.News, 91st Cong., 2nd Session, at 4156 (1970).

During the hearings, Congressman Wiggens raised a problem not considered by the drafters of the proposal: even if the bankruptcy court had jurisdiction over the dischargeability of claims, what would prevent a creditor suing in state court and the state court judge determining the debt was due? The state court would not know that the debtor was being discharged in bankruptcy and that the bankruptcy court was determining the dischargeability of debts unless the debtor appeared and said so. The proposals would not free the debtor from the obligation from appearing in state court. Mr. Wiggens wanted a provision which would automatically prevent such suits from arising in the state courts. See 1969 Hearings, at 52-55.

No more was mentioned about this problem but when the National Bankruptcy Conference and the National Conference of Referees in Bankruptcy later proposed a new bill which resolved differences between the two earlier proposals, an amendment to section 14, section 14(f), was added. This new bill, said Lawrence King ⁵ in the cover letter, included suggestions made at the hearings. The accompanying explanatory memorandum stated that creditors, because of the discharge, shall be enjoined from commencing or continuing any actions on discharged debts as personal liabilities of the debtor. Significantly, the memorandum states: "This proposed legislation does not affect in any way a bankrupt's obligation upon a discharged debt which is subsequently revived by a new promise. In the absence of statutory directive, the case law has permitted enforcement of such new promise...