In re: LATASHA DENELL MITCHELL

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: August 3, 2021
• Docket: EC-21-1010-LBT
• Status: Unpublished

Opinion

FILED AUG 3 2021 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT

UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT

In re: BAP No. EC-21-1010-LBT LATASHA DENELL MITCHELL, Debtor. Bk. No. 2:10-bk-41906-CMK

LATASHA RICHARDSON, fka Latasha Adv. No. 2:20-ap-02166-CMK Denell Mitchell, Appellant, v. MEMORANDUM∗ SELECT PORTFOLIO SERVICING, INC., Appellee.

Appeal from the United States Bankruptcy Court for the Eastern District of California Christopher M. Klein, Bankruptcy Judge, Presiding

Before: LAFFERTY, BRAND, and TAYLOR, Bankruptcy Judges.

INTRODUCTION

Latasha Richardson (formerly Latasha Mitchell) appeals the

bankruptcy court’s orders denying her motions for contempt and for

summary disposition against appellee Select Portfolio Servicing, Inc.

(“SPS”), based on her allegations that SPS violated the automatic stay and

discharge injunction by continuing to collect payments on the loan secured

∗ This disposition is not appropriate for publication. Although it may be cited for

whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential by a deed of trust on her residence both before and after she received her

chapter 71 discharge.

Although the bankruptcy court erred in finding no stay violation,

that error was harmless because no compensatory damages were requested

or alleged to have resulted from the specific conduct at issue. And we agree

with the bankruptcy court that SPS’s conduct in collecting payments on the

loan, without attempting to collect against Debtor personally, did not

violate the discharge injunction. Accordingly, we AFFIRM.

FACTS2

Debtor filed a chapter 7 bankruptcy case in August 2010. At the time,

she owned a residence in Elk Grove, California (the “Residence”), that

secured a loan serviced by SPS. On her Chapter 7 Individual Debtor’s

Statement of Intention, she indicated that she intended to surrender the

Residence.3 On October 26, 2010, the bankruptcy court orally granted relief

from stay to the holder of the note,4 entering the order on November 9,

value, see 9th Cir. BAP Rule 8024-1. 1 Unless specified otherwise, all chapter and section references are to the

Bankruptcy Code, 11 U.S.C. §§ 101–1532, and all “Rule” references are to the Federal Rules of Bankruptcy Procedure. 2 Where necessary, we have exercised our discretion to take judicial notice of the

dockets and imaged papers filed in Debtor’s bankruptcy case and the related adversary proceeding. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003). 3 Despite this statement and her continued insistence throughout this litigation

that she surrendered the Residence during her bankruptcy, Debtor has continued to reside there. 4 At the time, the holder of the note was U.S. Bank National Association, as

2 2010. On December 6, 2010, Debtor was granted a discharge, and the case

was closed in January 2011.

In January 2018, Debtor commenced an action against SPS in the

Superior Court of California, County of Sacramento. In that lawsuit, she

alleged that she had been denied eligibility under the Keep Your Home

California (“KYHC”) program due to improper reporting about her loan by

SPS. She asserted causes of action for: (1) intentional interference with

prospective economic advantage; (2) negligent interference with

prospective economic advantage; (3) fraud by concealment; (4) negligence;

(5) negligent misrepresentation; and (6) unfair business practices.

Underlying those claims was Debtor’s allegation that she was denied

eligibility for a KYHC principal reduction program because SPS

inaccurately informed KYHC that Plaintiff had an interest-only loan and

that her loan was in active litigation.

In September 2020, the state court granted SPS’s motion for summary

judgment on all of Debtor’s claims against it. In its ruling, the state court

found that although Debtor’s personal liability on the note had been

discharged in her chapter 7 bankruptcy, SPS (on behalf of the lender) still

had the right to enforce the deed of trust against the Residence. The state

court also denied Debtor’s motion for reconsideration.

trustee, on behalf of the holders of CSAB Mortgage-Backed Pass-Through Certificates, Series 2007-1 (“U.S. Bank”). 3 Shortly thereafter, Debtor removed the state court action to the

bankruptcy court, initiating the adversary proceeding underlying this

appeal. Debtor then filed a motion for contempt against SPS, alleging

violations of the automatic stay and discharge injunction due to SPS’s

collection of payments from 2010 through 2015. In addition to the

allegations regarding SPS’s supposed interference with her application for

the KYHC program, she alleged that SPS had “coerced” a $3,100 payment

in a telephone call to Debtor on November 5, 2010 (after the bankruptcy

court had orally granted stay relief but before entry of its written order),

that it had also collected $93,187.27 in “involuntary lien payments” post-

discharge, between January 2011 and December 2014, and that SPS had

failed to account for those payments. She alleged that SPS mailed her 118

“counterfeit” monthly mortgage statements and 220 collection letters and

had made 400 automated debt collection telephone calls to her. She also

alleged that in 2015 SPS had induced her to enter into a “fraudulent” lien

modification agreement and had misled her to believe that her obligation

to make payments on the loan had survived discharge.5

SPS filed an opposition, arguing that its conduct did not constitute

contempt because Debtor’s discharge had not eliminated the loan or the

5 In Debtor’s supporting declaration, she seemed to be complaining that SPS should have foreclosed rather than trying to collect payments from her. But the payments allowed her to remain in the home. Although Debtor also stated in her declaration that she owned a second (less expensive) property into which she could have moved, she did not move but chose to remain in the Residence. 4 lien, and it did not prohibit SPS from accepting payment or telling Debtor

that failure to make payments could result in foreclosure. SPS pointed out

that it had worked with Debtor on multiple loan modifications and that

Debtor had continued to reside in the property without making any

mortgage payments for more than five years.

Debtor then filed an “Ex Parte Motion for Summary Disposition on

Plaintiff’s Motion for Order of Contempt.” She argued that because SPS

had not responded to the specific allegations regarding its collection of

payments before and after the discharge order, she was entitled to

summary disposition on her motion.

After a hearing, the bankruptcy court denied both motions, rejecting

Debtor’s theory that her discharge eliminated the mortgage and noting that

the lien remained in place notwithstanding the discharge and that SPS was

entitled to enforce it. Debtor timely appealed. 6

On January 13, 2021, the bankruptcy court granted SPS’s motion to

remand the matter to state court.

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(O). We have jurisdiction under 28 U.S.C. § 158.

6 Although Debtor filed her notice of appeal outside of the 14-day time limit of Rule 8002(a)(1), the bankruptcy court granted her timely motion for an extension of 5 ISSUES

Did the bankruptcy court err in finding that SPS did not violate the

automatic stay?

Did the bankruptcy court err in finding that SPS did not violate the

discharge injunction?

STANDARDS OF REVIEW

Whether the automatic stay has been violated is a question of law

that we review de novo. Eskanos & Adler, P.C. v. Leetien, 309 F.3d 1210, 1213

(9th Cir. 2002). Whether a party has willfully violated the automatic stay is

a question of fact that we review for clear error. Id.

“The scope of the bankruptcy discharge injunction is a mixed

question of law and fact to be reviewed either de novo or for clear error,

depending upon whether questions of law or questions of fact

predominate.” Mellem v. Mellem (In re Mellem), 625 B.R. 172, 177 (9th Cir.

BAP 2021) (citing U.S. Bank Nat’l Ass’n ex rel CWCapital Asset Mgmt. LLC v.

Vill. at Lakeridge, LLC, 138 S. Ct. 960, 967-68 (2018)).

“De novo review requires that we consider a matter anew, as if no

decision had been made previously.” Francis v. Wallace (In re Francis), 505

B.R. 914, 917 (9th Cir. BAP 2014). Factual findings are clearly erroneous if

they are illogical, implausible, or without support in the record. Retz v.

Samson (In re Retz), 606 F.3d 1189, 1196 (9th Cir. 2010). If two views of the

time to appeal. 6 evidence are possible, the trial court’s choice between them cannot be

clearly erroneous. Anderson v. City of Bessemer City, 470 U.S. 564, 574 (1985).

DISCUSSION

A. The bankruptcy court erred in finding that SPS did not violate the automatic stay, but that error was harmless. Section 362(k) permits a debtor to recover sanctions for willful

violations of the automatic stay. Eskanos & Adler, 309 F.3d at 1215. A stay

violation is willful if a party knew of the automatic stay, and its actions in

violation of the stay were intentional. Id.

The only stay violation alleged by Debtor is the November 5, 2010

telephone call by an SPS representative, who demanded a $3,100 payment

on the mortgage, telling Debtor that she would be “ejected” from the house

during the bankruptcy if she did not make the payment. The call was

apparently in response to a letter Debtor sent to SPS after she received

orders from the U.S. Navy to go to Afghanistan. According to Debtor’s

declaration, the Navy requires servicemembers to alert their creditors when

they are deployed. Debtor alleged that she told the SPS representative that

she was in bankruptcy and had surrendered the property, to which the

representative allegedly replied that there was no record of the surrender

or a bankruptcy discharge, but rather that the case had been dismissed.

Debtor thereafter “reluctantly” permitted SPS to process the payment.

The bankruptcy court did not address this specific allegation in its

ruling. It stated, “I am persuaded that there has been no violation of the

7 discharge injunction, and that the automatic stay expired upon the entry of

the discharge, and there’s not a violation with respect to that.” Hr’g Tr.

(Dec. 16, 2020) at 13:20-23.

The November 5 telephone call took place after the bankruptcy court

had orally granted relief from stay but before it entered its written order.

Although U.S. Bank had requested in its motion for relief from stay that the

court waive the 14-day stay under Rule 4001(a)(3), nothing in the record

suggests that the court did so. Accordingly, the phone call appears to have

been at least a technical stay violation. SPS argues that if there are post-

petition arrearages, a creditor may contact a debtor to make payments

arrangements without violating the stay, citing Henry v. Associates Home

Equity Services, Inc. (In re Henry), 266 B.R. 457, 472 (Bankr. C.D. Cal. 2001).

But the bankruptcy court in Henry was referring to the situation where a

chapter 7 debtor has filed a statement of intention indicating that she

intends to keep the subject property and continue to make payments. That

is not the situation here.

Even if the bankruptcy court erred in finding that the stay had not

been violated, the error was harmless. Debtor did not allege or quantify

any specific damage arising from this one phone call. Notably, the request

for damages in her motion for contempt does not include compensatory

damages but only “emotional distress damages, punitive damages,

attorney, fees, and sanctions.” Under these circumstances, there was no

basis for awarding damages under § 362(k). See McHenry v. Key Bank (In re

8 McHenry), 179 B.R. 165, 168 (9th Cir. BAP 1995) (finding a willful stay

violation where creditor repossessed automobile but refusing to award

damages because debtors intended to return the vehicle, and their

inconvenience and annoyance was insufficient to warrant a damages

award). Moreover, making the payment benefited rather than damaged

Debtor because it avoided foreclosure and permitted her to remain in the

home.

Debtor’s arguments on appeal are difficult to understand. To begin,

she lists sixteen issues on appeal, most of which were not before the

bankruptcy court nor were they argued in her appellate briefs, e.g., issues

related to supposed irregularities in the lien modification agreement and

failure to find that the alleged stay violation was a violation of 18 U.S.C.

§ 152(b).7

Debtor also insists that SPS’s conduct in continuing to collect

payments post-discharge was an ongoing stay violation warranting

sanctions under § 362(k). She relies on In re LeGrand, 612 B.R. 604 (Bankr.

E.D. Cal. 2020), a case in which a judgment creditor waited nineteen days

after being notified of the automatic stay and discharge order to terminate

7 At oral argument, Debtor’s counsel continued the pattern of raising new issues. He argued that: (1) the language of the debt collection letters sent by SPS misled Debtor into thinking she had to continue making payments notwithstanding the discharge; and (2) SPS had held itself out as the secured creditor when it was merely the servicer. The record does not reflect that any collection letters were presented as evidence in the bankruptcy court, and the cover letters sent with the mortgage statements clearly identify SPS as the servicer. Counsel also stated that Debtor had requested 9 its pre-petition earnings withholding order with the debtor’s employer. As

a result, several post-discharge wage garnishments occurred. In deciding

what sanctions were appropriate, the bankruptcy court noted that although

it could award civil contempt sanctions for violation of the discharge

injunction,

[w]hen, as here, a violation of the discharge injunction is merely a continuation of pre-discharge conduct that violated the automatic stay, § 362(k)(1) continues to provide stronger, more explicit, and more definite statutory remedies that are more adequate to the task than the least-possible-exercise-of-power restriction on civil contempt. Id. at 613. Accordingly, the court awarded sanctions only under § 362(k).

The facts of LeGrand are distinguishable, and nothing in the reasoning

of that case warrants treating any post-discharge collection attempts by SPS

as stay violations: as discussed below, the discharge did not prohibit SPS

from enforcing its lien.

B. The bankruptcy court did not err in finding that SPS did not violate the discharge injunction. A party that knowingly violates the discharge injunction may be held

in contempt under § 105(a). Nash v. Clark Cnty. Dist. Att’y’s Off., Bad Check

Diversion Unit (In re Nash), 464 B.R. 874, 880 (9th Cir. BAP 2012). “The party

seeking contempt sanctions for violation of the discharge injunction has the

burden of proving, by clear and convincing evidence, that the sanctions are

justified.” Id. (citing Espinosa v. United Student Aid Funds, Inc., 553 F.3d

compensatory damages in her motion for contempt, which she did not. 10 1193, 1205 n.7 (9th Cir. 2008), aff’d, 559 U.S. 260 (2010)). To be entitled to

contempt sanctions, the debtor must show that the creditor: “(1) knew the

discharge injunction was applicable and (2) intended the actions which

violated the injunction.” Id. (quoting Espinosa, 553 F.3d at 1205 n.7.)

Contempt sanctions are appropriate when “there is no objectively

reasonable basis for concluding that the creditor’s conduct might be lawful

under the discharge order.” Taggart v. Lorenzen, 139 S. Ct. 1795, 1801 (2019).

Debtor’s motion for contempt was based on her erroneous belief that

her bankruptcy extinguished the loan on her Residence for all purposes.

But the bankruptcy discharge does not eliminate a secured loan; while it

relieves the debtor from personal liability for the debt, it does not

extinguish the creditor’s right to proceed against the collateral. Garske v.

Arcadia Fin., Ltd. (In re Garske), 287 B.R. 537, 542 (9th Cir. BAP 2002) (citing

Johnson v. Home State Bank, 501 U.S. 78, 80 & 82–83 (1991)). This is because

liens pass through bankruptcy unaffected. Dewsnup v. Timm, 502 U.S. 410,

417-18 (1992). Accordingly, so long as the creditor is not attempting to

collect the debt as a personal liability of the debtor, there is no discharge

violation. In re Garske, 287 B.R. at 545. See also § 524(j).8

8 That statute provides: Subsection [524](a)(2) does not operate as an injunction against an act by a creditor that is the holder of a secured claim, if— (1) such creditor retains a security interest in real property that is the principal residence of the debtor; (2) such act is in the ordinary course of business between the creditor and the debtor; and 11 The bankruptcy court found no factual basis for a violation of the

discharge injunction because there was no evidence of any effort to collect

from the debtor personally. It found instead that SPS’s conduct was an

effort to enforce the lien only. Notably, the monthly mortgage statements

sent to Debtor contained the following language: “THIS IS NOT AN

ATTEMPT TO COLLECT A DEBT. THIS STATEMENT IS BEING SENT

FOR INFORMATIONAL PURPOSES ONLY. We acknowledge your

bankruptcy filing. Unless otherwise instructed by the bankruptcy court,

you should continue to make the payments required under your loan

documents to the address listed on the attached coupon.” In another

section, the mortgage statements included this language: “Our records

show that either you are a debtor in bankruptcy or you discharged

personal liability for your mortgage loan in the bankruptcy. We are

sending this statement to you for informational and compliance purposes

only. It is not an attempt to collect a debt against you.”

In short, there was no legal or factual basis on which the bankruptcy

court could have found a violation of the discharge injunction.

(3) such act is limited to seeking or obtaining periodic payments associated with a valid security interest in lieu of pursuit of in rem relief to enforce the lien.

12 CONCLUSION

For these reasons, the bankruptcy court did not err in denying the

motions.9 Accordingly, we AFFIRM.

9 On appeal, Debtor did not address the denial of her motion for summary disposition. Accordingly, the issue is waived. Smith v. Marsh, 194 F.3d 1045, 1052 (9th Cir. 1999). In any event, in the bankruptcy court she cited no authority for obtaining such relief. 13