Sears, Roebuck and Co. v. O'Brien, s. 98-2231

• Court: U.S. Court of Appeals — Eighth Circuit
• Writing for the Court: KOPF
• Citation: Sears, Roebuck and Co. v. O'Brien, 178 F.3d 962 (8th Cir. 1999)
• Decision Date: 21 April 1999
• Docket Number: 98-2407,Nos. 98-2231,s. 98-2231
• Parties: , 34 Bankr.Ct.Dec. 464 SEARS, ROEBUCK AND CO., Plaintiff-Appellant, v. Bonnie Patricia O'BRIEN, Defendant-Appellee. Sears, Roebuck and Co., Plaintiff-Appellant, v. Lois M. Siverly, Defendant-Appellee. . Submitted:

178 F.3d 962,

34 Bankr.Ct.Dec. 464

SEARS, ROEBUCK AND CO., Plaintiff-Appellant, v. Bonnie Patricia O'BRIEN, Defendant-Appellee.

Sears, Roebuck and Co., Plaintiff-Appellant, v. Lois M. Siverly, Defendant-Appellee.

Nos. 98-2231, 98-2407.

United States Court of Appeals Eighth Circuit.

Submitted: April 21, 1999.

Filed: May 13, 1999.

David A. Hirsch of Burlington, IA and Sara E. Elder of Chicago, IL, for appellant.

Steven R. Hahn of Burlington, IA, for appellee.

BEFORE: BEAM and HANSEN, Circuit Judges, and KOPF, ¹ District Judge.

KOPF, J.

Sears, Roebuck and Co., (Sears) appeals from two decisions of the district court ² separately affirming two decisions of the bankruptcy court. The appeals have been consolidated. We affirm.

These cases raise one primary issue. Does federal bankruptcy law preempt an Iowa law that prohibits a creditor from sending a collection letter to a debtor who is represented by a lawyer, when that creditor knows that the debtor is represented by counsel? The district court found that the state law was not preempted, and that Sears violated the law by sending such a letter to both debtors. On this point, we agree with the district court. The district court also found it unnecessary to address whether the particular collection letters independently violated federal bankruptcy law or an Iowa ethical rule, and we agree on this point as well.

I. Background

We next describe the pertinent Iowa law. We then set out the procedural history and factual background of the two cases that are before us.

A. Iowa Law

The Iowa law at issue in this case states:

5. A debt collector shall not engage in the following conduct to collect or attempt to collect a debt:

...

e. A communication with a debtor when the debt collector knows that the debtor is represented by an attorney and the attorney's name and address are known, or could be easily ascertained, unless the attorney fails to answer correspondence, return phone calls or discuss the obligation in question, within a reasonable time, or prior approval is obtained from the debtor's attorney or when the communication is a response in the ordinary course of business to the debtor's inquiry.

Iowa Code Ann. § 537.7103(5)(e) (West 1998) (hereinafter " § 537.7103(5)(e)").

B. The O'Brien Case

On May 3, 1995, Bonnie Patrick O'Brien and her spouse filed a Chapter 7 bankruptcy petition listing Sears as an unsecured creditor. O'Brien was represented by attorney Steven Hahn ("Hahn").

On June 23, 1995, Sears sent a letter to Hahn regarding its purchase money security interest in certain merchandise O'Brien owned when the petition was filed. The letter advised Hahn that Sears had not yet received O'Brien's statement of intention as to the secured merchandise in accordance with section 521(2)(A) of the Bankruptcy Code (11 U.S.C. § 521(2)(A)). The letter identified O'Brien's options with respect to her account: redeem the merchandise with a lump sum payment, return the items, or reaffirm her account balance. The letter also stated that O'Brien could reestablish a line of credit with Sears by reaffirming all her debt and offered a line of credit if she reaffirmed. Sears mailed a copy of the letter to O'Brien stamped "for information purposes only" and to the bankruptcy trustee. Sears enclosed two reaffirmation agreements with the letter it sent to Hahn, but not to O'Brien. The letter requested a response from Hahn regarding O'Brien's intentions.

After Hahn complained to Sears that the letter violated Iowa law, on July 26, 1995, Sears commenced an adversary proceeding by filing a complaint for a declaratory judgment. See 28 U.S.C. § 2201(a) (providing for declaratory judgments in any "court of the United States" where there is an "actual controversy"). With exceptions not present here, the bankruptcy court has the power to issue declaratory judgments when the matter in controversy regards the administration of a pending bankruptcy estate. See, e.g., National Union Fire Ins. Co. v. Titan Energy, Inc., (In re Titan Energy, Inc.) 837 F.2d 325, 329-30 (8th Cir.1988) (bankruptcy court had jurisdiction to issue declaratory judgment in a proceeding brought by debtor's insurer to determine scope of products liability policy as proceeding could conceivably have significant impact on debtor's estate by reducing claims against debtor). See also Kings Falls Power Corp. v. Mohawk Paper Mills, Inc. (In re Kings Falls Power Corp.), 185 B.R. 431, 436-38 (N.D.N.Y.1995); Korhumel, Inc. v. Korhumel Indus., Inc., 103 B.R. 917, 925-26 (N.D.Ill.1989); Fed.R.Bankr.P. 7001(9); 1 Lawrence P. King, Collier on Bankruptcy, p 3.09 at 3-110 to 3-112 (15th ed. rev.1999). Since Sears' dispute with the debtor was a "matter[ ] concerning the administration of the estate," the bankruptcy court had jurisdiction to hear Sears' request for declaratory relief. ³ 28 U.S.C. § 157(b)(2)(A).

Sears requested that the Bankruptcy Court declare that: (1) § 537.7103(5)(e) is preempted by federal bankruptcy law and policy; (2) Sears did not violate federal bankruptcy law by sending a copy of the letter to O'Brien; and (3) Sears did not violate § 537.7103(5)(e) by such action. In her Answer, O'Brien claimed the letter was an attempt to collect a debt because it was harassing.

Sears moved for summary judgment, seeking the declaratory relief it requested in its Complaint. The motion was briefed by both parties. The Bankruptcy Court, the Honorable Lee M. Jackwig presiding, held that: (1) there were no genuine issues of material fact; (2) Sears was barred under principles of issue preclusion from litigating the preemption issue; (3) even if issue preclusion did not apply, § 537.7103(5)(e) was not preempted; (4) the automatic stay provision of the Bankruptcy Code (11 U.S.C. § 362(A)(6) )⁴ prohibited Sears' act of sending a copy of the letter to O'Brien because the letter was at least in part an attempt to collect an unsecured debt; and (5) Sears' act violated § 537.7103(5)(e).

Sears appealed to the District Court and sought reversal of the Bankruptcy Court on several grounds. The District Court concluded that Sears was not barred under the concept of issue preclusion from litigating the preemption issue. However, the court held that federal bankruptcy law did not preempt the relevant Iowa law. It further held that Sears violated the Iowa law. The District Court concluded that in light of its rulings, it did not need to reach the issue of whether Sears violated federal bankruptcy law. Accordingly, the decision of the bankruptcy court was affirmed.

C. The Siverly Case

Lois M. Siverly filed a petition for relief under Chapter 7 of the Bankruptcy Code on June 28, 1995. Hahn represented Siverly in the Chapter 7 proceeding.

On August 9, 1995, Sears sent Hahn a letter concerning its purchase money security interest in goods purchased by Siverly. Like the letter relating to O'Brien, the letter regarding Siverly advised Hahn that Sears had not received Siverly's statement of intention with respect to the secured property in accordance with § 521(2)(A) of the Bankruptcy Code. The letter further advised Hahn of Siverly's options with respect to the account: redeem the merchandise with a lump sum payment, return the merchandise, or reaffirm the account balance. In addition, the letter explained that Siverly could re-establish a line of credit with Sears by reaffirming all her debt and offered a line of credit if she reaffirmed. Sears mailed a copy of the letter to Siverly and the bankruptcy trustee.

Hahn advised Sears that he objected to Sears' sending of a copy of the letter to Siverly and threatened legal action pursuant to § 537.7103(5)(e). Sears then initiated an adversary proceeding seeking a declaratory judgment that: (1) federal bankruptcy law and policy preempt § 537.7103(5)(e); (2) Sears did not violate federal bankruptcy law by sending Siverly a copy of the letter; and (3) Sears' act did not violate Iowa law. In her Answer, Siverly maintained that the letter was harassing and constituted an attempt to collect a debt.

On January 16, 1996, Sears filed a motion for summary judgment seeking the declaratory relief. On June 24, 1997, after Sears' motion was fully briefed, the Bankruptcy Court, the Honorable Russell T. Hill presiding, granted Sears' motion insofar as it sought declaratory relief based on there being no genuine issue of material fact, but otherwise, it ruled in favor of Siverly.

More specifically, the Bankruptcy Court held that: (1) the concept of issue preclusion barred Sears from litigating the preemption issue; (2) even if the concept of issue preclusion did not apply, federal bankruptcy law does not preempt Iowa law because no direct conflict existed and the federal statute did not expressly address the conduct in issue; (3) Sears' communication violated Iowa law; and (4) Sears' sending of the letter to the debtor constituted a violation of Iowa Disciplinary Rule 7-104(A)(1). ⁵ The Bankruptcy Court also stated that it did not need to resolve the issue of whether Sears violated § 362(a)(6) of the Bankruptcy Code.

Sears appealed to the District Court. On April 16, 1998, the District Court affirmed the Bankruptcy Court's holdings that federal bankruptcy law does not preempt the Iowa law and that Sears violated § 537.7103(5)(e). The District Court did not address whether the Bankruptcy Court erred in failing to find that Sears' communication was not an improper attempt to collect the debt under the Bankruptcy Code and in applying Disciplinary Rule 7-104(A)(1) to Sears.

II. Discussion

The parties agree that no material facts are in dispute. The issues before us are legal and not factual. Our standard of review is de novo. See, e.g., National Bank of Commerce v. Dow Chemical Co., 165 F.3d 602, 606-07 (8th Cir.1998) (the granting of summary judgment, involving a claim of preemption, would be reviewed de novo); Stillmunkes v. Hy-Vee Employee Benefit Plan and Trust, 127 F.3d 767, 769-70 (8th Cir.1997) (...