1 FOR PUBLICATION 2 UNITED STATES BANKRUPTCY COURT 3 EASTERN DISTRICT OF CALIFORNIA 4 In re: ) Case No. 14-22555-B-13 5 ) MELANIO L. VALDELLON and ELLEN ) Adversary No. 21-2008 6 C. VALDELLON, ) ) DC No. PHH-3 7 ) 8 Debtor(s). ) ________________________________) 9 ) MELANIO L. VALDELLON and ELLEN ) 10 C. VALDELLON, ) ) 11 ) Plaintiff(s), ) 12 ) v. ) 13 ) WELLS FARGO BANK, N.A.; PHH; ) 14 IMPAC CMB TRUST SERIES 2005-6; ) WELLS FARGO BANK, N.A., AS ) 15 TRUSTEE OF THE IMPAC CMB TRUST ) SERIES 2005-6, ) 16 ) ) 17 Defendant(s). ) ________________________________) 18 19 20 ORDER ON RECONSIDERATION AND AMENDED OPINION 21 Mark A. Wolff, Wolff & Wolff, Elk Grove, CA, for plaintiffs. 22 Robert W. Norman, Jr., Neil J. Cooper, Houser LLP, Irvine, CA, 23 for defendants. 24 CHRISTOPHER D. JAIME, Bankruptcy Judge: 25 ORDER ON RECONSIDERATION 26 After the court issued its opinion, a dismissal order, and a 27 judgment on April 30, 2024, Plaintiffs Melanio L. Valdellon and 28 Ellen C. Valdellon (“Plaintiffs”) filed a motion for reconsideration on May 14, 2024. Adv. Docket 141. Filed within 2 |} fourteen days after entry of the opinion, dismissal order, and 3] judgment Plaintiffs’ motion for reconsideration is governed by Federal Rule of Civil Procedure 59(e) applicable by Federal Rule of Bankruptcy Procedure 9023. First Avenue West Building, LLC v. 6 James (In re Onecast Media, Inc.), 439 F.3d 558, 561-62 (9th Cir. 2006). No response is necessary. See Perez-Reyes v. National 8 Distribution Centers, LLC, 2018 WL 7077183 (C.D. Cal. Feb. 8, ° 2018) (granting ex parte application under Rule 59(e)). As a result of Plaintiffs’ timely Rule 59(e) motion, the opinion, dismissal order, and judgment of April 30, 2024, are not yet final. In re Sundquist, 570 B.R. 92, 95 (Bankr. E.D. Cal.
14 2017). The procedural consequence of Plaintiffs’ timely motion
15 is to suspend the time for appeal until fourteen days after entry 16 of the order disposing of the motion for reconsideration. Fed. 17 R. Bankr. P. 8002(b) (1) (B). Until the motion for reconsideration 18 is decided, this court continues to have jurisdiction over the 19 entire dispute. Sundguist, 570 B.R. at 95. Indeed, as the 20 || United States Supreme Court explained in Banister v. Davis, 590 504, 516 (2020): “A Rule 59(e) motion briefly suspends finality to enable a district court to fix any mistakes and 23 || thereby perfect its judgment before a possible appeal.” 24 There are four grounds on which a Rule 59(e) motion may be 25 || granted: (1) to correct manifest errors of law or fact upon which 26 the judgment rests; (2) to present newly discovered or previously 27 unavailable evidence; (3) to prevent manifest injustice; or (4) 28 if amendment is justified by an intervening change in controlling law. Allstate Insurance Company v. Herron, 634 F.3d 1101, 1111 ~-2-
1 (9th Cir. 2011). Plaintiffs’ motion relies exclusively on the 2 first ground. 3 Plaintiffs’ motion for reconsideration is ORDERED GRANTED IN 4 PART and the opinion of April 30, 2024, is AMENDED as follows: 5 (1) to clarify that Plaintiffs’ claim for emotional distress 6 damages is dismissed with prejudice to the extent it is based on 7 a violation of 11 U.S.C. § 524(i)-which treats a violation of its 8 terms as a violation of the discharge injunction in 11 U.S.C. § 9 524(a)(2)-and dismissed without prejudice to the extent it is 10 based on facts or conduct that do not constitute a violation of 11 §§ 524(i) and/or 524(a)(2); and (2) to correct and amend the 12 factual predicate for dismissal of Plaintiffs’ § 524(i) claim but 13 not change the with prejudice dismissal of the claim. All other 14 relief requested in the motion is ORDERED DENIED. 15 An amended dismissal order and an amended judgment will 16 issue. 17 18 FURTHER ORDERED that Plaintiffs have fourteen days from the 19 entry of this order and amended opinion, the amended dismissal 20 order, and the amended judgment to file any appropriate appeal. 21 22 AMENDED OPINION 23 I. Introduction 24 A bankruptcy discharge operates as an injunction against the 25 collection of a discharged debt as a personal liability of the 26 debtor. See 11 U.S.C. § 524(a)(2).1 A violation of the 27 28 1Section 524(a)(2) states as follows 1 discharge injunction is an act of civil contempt for which the 2 bankruptcy court may award compensatory damages as are necessary 3 or appropriate to enforce the discharge injunction or remedy its 4 violation. See 11 U.S.C. § 105(a).2 This opinion holds that the 5 compensatory damages a bankruptcy court may award to enforce the 6 discharge injunction or remedy its violation-either directly or 7 under 11 U.S.C. § 524(i) which treats a violation of its terms as 8 a violation of the discharge injunction-do not include emotional 9 distress damages.3 Taggart v. Lorenzen, 139 S. Ct. 1795 (2019), 10 11 (a) A discharge in a case under this title— ... (2) operates as an injunction against the commencement or 12 continuation of an action, the employment of process, 13 or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not 14 discharge of such debt is waived[.] 15 11 U.S.C. § 524(a)(2). 16 2Section 105(a) states as follows: 17 (a) The court may issue any order, process, or judgment 18 that is necessary or appropriate to carry out the provisions of this title. No provision of this title 19 providing for the raising of an issue by a party in interest shall be construed to preclude the court from, 20 sua sponte, taking any action or making any 21 determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse 22 of process. 23 11 U.S.C. § 105(a). 24 3Section 524(i) states as follows: 25 The willful failure of a creditor to credit payments 26 received under a plan confirmed under this title, unless the order confirming the plan is revoked, the 27 plan is in default, or the creditor has not received payments required to be made under the plan in the 28 manner required by the plan (including crediting the amounts required under the plan), shall constitute a violation of an injunction under subsection (a)(2) if 1 in which the United States Supreme Court stated that the “old 2 soil” of injunction enforcement and the “traditional principles” 3 of civil contempt apply “straightforwardly” to the discharge 4 injunction compels this result. 5 The remainder of this opinion explains why a claim alleged 6 under § 524(i) fails as a matter of law and as implausible. And 7 the opinion explains why, without a § 524 claim, this court lacks 8 jurisdiction over remaining non-core state law claims under 28 9 U.S.C. § 1334 or, even if jurisdiction exists or is ever found to 10 exist, the court would abstain under 28 U.S.C. § 1334(c)(1).4 11 12 II. 13 Background 14 Defendants Wells Fargo Bank, N.A., as Indenture Trustee 15 Under the Indenture Relating to the IMPAC CMB Trust Series 16 2005-6, and PHH Mortgage Corporation (collectively, 17 “Defendants”), move to dismiss Plaintiffs’ Second Amended 18 Complaint for 1. Violations of 11 U.S.C. 524(i) [sic]; 2. 19 20 the act of the creditor to collect and failure to 21 credit payments in the manner required by the plan caused material injury to the debtor. 22 11 U.S.C. § 524(i). 23 4Section 1334(c)(1) states as follows: 24 (c)(1) Except with respect to a case under chapter 15 25 of title 11, nothing in this section prevents a 26 district court in the interest of justice, or in the interest of comity with State courts or respect for 27 State law, from abstaining from hearing a particular proceeding arising under title 11 or arising in or 28 related to a case under title 11. 28 U.S.C. § 1334(c)(1). 1 Intentional Infliction of Emotional Distress; 3. Contract Actions 2 or Declaratory Relief; and 4. Unlawful Fraudulent and Unfair 3 Business Acts and Practices (California Business and Professions 4 Code 17200 et seq, 17203 [sic]) (“SAC” or “second amended 5 complaint”). For the reasons explained below, Defendants’ motion 6 will be granted. The § 524(i) claim in Count 1 will be dismissed 7 with prejudice. The intentional infliction of emotional distress 8 claim in Count 2 will be dismissed with prejudice to the extent 9 it is based on a violation of § 524(i)-which treats a violation 10 of its terms as a violation of the discharge injunction in § 11 524(a)(2)-and dismissed without prejudice to the extent not based 12 on facts or conduct which violate §§ 524(i) and/or 524(a)(2). 13 The remaining state law claims in Counts 3 and 4 will be 14 dismissed without prejudice. 15 A. The Loan and the Property 16 The subject of this adversary proceeding is a loan that Mr. 17 18 Valdellon obtained in 2005 secured by real property located in 19 Roseville, California.5 SAC ¶¶ 3, 9-13; Valdellon v. Wells Fargo 20 Bank, N.A., et al. (In re Valdellon), 2024 WL 404404, at *1 (E.D. 21 Cal. Feb. 2, 2024). Defendant PHH has been the servicer of the 22 loan since 2019. SAC ¶¶ 10, 39; Bankr. Docket 135. Defendant 23 Wells Fargo Bank, N.A., as Indenture Trustee, is the owner of the 24 loan. SAC ¶¶ 11-12. 25 26 5At the inception of this adversary proceeding, Plaintiffs 27 asserted that the property was their principal residence when they filed their bankruptcy petition. Plaintiffs’ New York state 28 tax returns established that Plaintiffs were New York residents, and they claimed state tuition tax benefits based on New York residency, when they filed their petition. See Adv. Docket 48. 1 B. Plaintiffs’ Chapter 13 Bankruptcy Case and This Adversary Proceeding 2 Plaintiffs were debtors in the parent chapter 13 case. They 3 filed a chapter 13 petition and an initial sixty-month chapter 13 4 plan on March 13, 2014. SAC ¶¶ 16, 18, 19; Bankr. Dockets 1, 7. 5 The first plan payment was due “not later than the 25th day of 6 7 each month beginning the month after the order for relief under 8 chapter 13.” Bankr. Dockets 7 at § 1.01, 105 at § 2.01. 9 Plaintiffs filed a first amended plan on April 24, 2014. 10 SAC ¶ 20; Bankr. Dockets 31-36. The first amended plan was 11 confirmed on August 1, 2014. SAC ¶ 21; Bankr. Docket 49. 12 To adjust payments for certain tax debts, Plaintiffs filed a 13 first modified plan and a motion to confirm it on July 21, 2015. 14 SAC ¶ 24; Bankr. Dockets 61-66. The first modified plan was 15 confirmed on December 10, 2015. SAC ¶ 25; Bankr. Dkt. 68. 16 Plaintiffs defaulted on payments required by the first 17 modified plan because, on November 29, 2017, the chapter 13 18 trustee (“Trustee”) filed a Notice of Default and Application to 19 Dismiss which stated as follows: 20 Debtor has failed to make all payments due under the 21 plan. As of November 28, 2017, payments are delinquent in the amount of $4,574.00. In order to discharge this 22 Notice of Default, you must cure this delinquency AND make all subsequent payments that are due within the 23 next 30 days. Because your next payment of $2,798.00 will become due on December 25, 2017, the TOTAL amount 24 you must pay by December 29, 2017 is $7,372.00. 25 Bankr. Docket 70 (emphasis in original). 26 The Trustee also filed a motion to dismiss Plaintiffs’ 27 chapter 13 case on May 11, 2018. Bankr. Docket 92. Although 28 Plaintiffs opposed the Trustee’s motion on June 4, 2018, they nevertheless agreed with the Trustee and proposed to file a 1 second modified plan before the motion to dismiss was heard. 2 Bankr. Docket 98. 3 Plaintiffs filed a second modified plan on June 15, 2018. 4 SAC ¶ 26; Bankr. Dockets 101-106. The second modified plan was 5 confirmed on August 24, 2018. SAC ¶ 27; Bankr. Docket 110. The 6 second modified plan is Plaintiffs’ operative confirmed chapter 7 13 plan for purposes of this adversary proceeding. Valdellon, 8 2024 WL 404404 at *1. 9 All of Plaintiffs’ confirmed chapter 13 plans provided for 10 payment of Defendants’ claim as a Class 1 secured claim over a 11 sixty-month period, i.e., prepetition arrears and ongoing 12 postpetition mortgage payments were paid through the Trustee 13 according to § 1322(b)(5).6 SAC ¶¶ 28, 29, 146-148. The amount 14 of arrears to be paid under the second modified plan (and all 15 plans prior) was $19,140.48, as stated in a July 10, 2015, proof 16 of claim. SAC ¶¶ 162-163; Bankr. Claims Register, Claim 9-1. 17 18 Following confirmation of the second modified plan, 19 Plaintiffs again defaulted so, on September 9, 2019, the Trustee 20 moved to dismiss Plaintiffs’ chapter 13 case. Bankr. Dockets 21 117-121. The motion to dismiss cited two grounds as cause for 22 23 6Section 1322(b)(5) states as follows: 24 (b) Subject to subsections (a) and (c) of this section, the plan may — ... (5) notwithstanding paragraph (2) of 25 this subsection, provide for the curing of any default 26 within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or 27 secured claim on which the last payment is due after the date on which the final payment under the plan is 28 due[.]” 11 U.S.C. § 1322(b)(5). 1 dismissal: (1) “[t]he debtors [were] delinquent to the trustee in 2 the amount of $10,246.37 which represent[ed] approximately 3 plan 3 payments,” Bankr. Docket 117 at ¶ 1; and (2) the “commitment 4 period exceed[ed] the permissible limit imposed by 11 U.S.C. 5 Section 1325(b)(4). The Debtor [sic] is currently in month 66 of 6 a 60 month plan.” Id. at ¶ 2. 7 The Trustee’s motion to dismiss was set for hearing on 8 September 24, 2019. Bankr. Docket 118. However, Plaintiffs 9 apparently cured the payment default sometime after the motion 10 was filed and before it was heard because the motion was 11 withdrawn on September 24, 2019. Bankr. Docket 128. 12 Three days later, on September 27, 2019, the Trustee filed a 13 Notice to Debtor of Completed Plan Payments and Obligation to 14 File Documents which stated “the Chapter 13 Trustee has 15 determined that the Debtor has completed the payments required by 16 the confirmed plan.” SAC ¶ 42; Bankr. Docket 130. On that same 17 18 date, September 27, 2019, the Trustee also filed a Notice of 19 Final Cure Payment which stated that “the amount required to cure 20 the default in [Claim 9] has been paid in full.” SAC ¶ 43; 21 Bankr. Docket 125. 22 Defendants apparently agreed with the Trustee’s final cure 23 notice because on October 18, 2019, they filed a Response to 24 Notice of Final Cure in which they stated, under penalty of 25 perjury, “[c]reditor agrees that the debtors have paid in full 26 the amount required to cure the prepetition default on the 27 creditor’s claim” and “[c]reditor states that the debtor(s) are 28 current with all postpetition payments consistent with § 1322(b)(5) of the Bankruptcy Code including all fees, charges, 1 expenses, escrow, and costs. The next postpetition payment from 2 the debtor(s) is due on: 11/1/2019[.]” SAC ¶ 45-47; Claims 3 Register, Claim 9-1. 4 With plan payments completed, and with Defendants apparently 5 in agreement that with the completion of plan payments all 6 prepetition arrears were cured and postpetition payments were 7 current, the Trustee filed a final report and account on February 8 21, 2020. Bankr. Dockets 138, 139. The final report and account 9 was approved, and the Trustee was relieved of further obligations 10 in Plaintiffs’ chapter 13 case, on May 12, 2020. Bankr. Dockets 11 145, 146. Plaintiffs’ discharge was entered on June 1, 2020. 12 SAC ¶ 48; Bankr. Docket 149. Plaintiffs’ chapter 13 case was 13 closed on June 15, 2020. Bankr. Docket 151. 14 Facing a foreclosure, SAC ¶¶ 96, 107, 113, 125, 234, 206, 15 Plaintiffs reopened their chapter 13 case on January 20, 2021, 16 Bankr. Docket 154, and filed the initial complaint in this 17 18 adversary proceeding on January 21, 2021. Adv. Docket 1. 19 Defendants were served with a copy of the initial complaint and a 20 reissued summons on January 27, 2021. Adv. Docket 9. Defendants 21 filed an answer on March 24, 2021, Adv. Docket 19, and an amended 22 answer on April 9, 2021. Adv. Docket 23. 23 Because the court was unable to comprehend the initial 24 complaint which it characterized as a “shotgun pleading,” on June 25 28, 2021, the court ordered Plaintiffs to file an amended 26 complaint that separately identified each claim, Adv. Docket 47, 27 which they filed on July 13, 2021, Adv. Docket 59, and which 28 Defendants promptly moved to dismiss on July 26, 2021. Adv. Docket 62. Following an opposition from Plaintiffs and a reply 1 from Defendants, on August 20, 2021, the court issued an order 2 granting Defendants’ motion to dismiss. Plaintiffs’ claims under 3 §§ 524(a) and (i) and an emotional distress claim based on the § 4 524 claims were dismissed with prejudice, and all remaining state 5 law claims were dismissed without prejudice. Adv. Docket 68. A 6 corresponding judgment was entered on August 20, 2021. Adv. 7 Docket 70. 8 Plaintiffs appealed the dismissal order and judgment on 9 September 1, 2021. Adv. Docket 75. Defendants elected to have 10 the appeal heard by the District Court and, on September 28, 11 2021, the appeal was transferred from the Ninth Circuit 12 Bankruptcy Appellate Panel to the District Court. Adv. Docket 13 87. The District Court heard oral argument on November 16, 2023, 14 and on February 2, 2024, it issued an order affirming in part and 15 reversing in part this court’s decision of August 20, 2021. Adv. 16 Docket 102; see also Valdellon, 2024 WL 404404. The District 17 18 Court affirmed dismissal with prejudice of Plaintiffs’ § 524(a) 19 claim and concluded that dismissal of Plaintiffs’ § 524(i) claim 20 was also proper based on how the claim was pled. See Adv. 21 Dockets 114 at 6:3-10, 116 at 6:6-15. However, on de novo 22 review, the District Court stated it would have granted 23 Plaintiffs leave to amend the § 524(i) claim although leave was 24 never requested and amendment was never explained. Valdellon, 25 2024 WL 404404 at *8. The District Court remanded for that 26 purpose and to allow this court to consider an amended § 524(i) 27 claim in the first instance. Id. (“The Bankruptcy Court has not 28 yet considered Debtors’ allegations that payments made by the trustee under the Plan were misapplied and should give rise to a 1 section 524(i) claim.”). Remand also included leave to re-allege 2 the emotional distress claim that was dismissed with prejudice 3 because it was based on the same factual allegations as the § 524 4 claims and the remaining state law claims that were dismissed 5 without prejudice. Id. at *9-*10. 6 Plaintiffs filed a second amended complaint on March 1, 7 2024. Adv. Docket 106. Like its predecessors, the second 8 amended complaint is a morass of allegations. It also completely 9 disregards the “short and plain statement” directive. See Fed. 10 R. Civ. P. 8(a); Fed. R. Bankr. P. 7008. Plaintiffs apparently 11 require two hundred and forty-eight paragraphs spread over 12 thirty-one pages to allege four “Counts.” 13 Plaintiffs served Defendants with the second amended 14 complaint on March 1, 2024, Adv. Dockets 107-109, and Defendants 15 again promptly moved to dismiss it on March 13, 2024. Adv. 16 Docket 112. Plaintiffs filed an opposition on April 2, 2024, 17 18 Adv. Docket 116, and Defendants filed a reply on April 9, 2024. 19 Adv. Docket 119. The parties also filed supplemental points and 20 authorities addressing the emotional distress claim in Count 2. 21 Adv. Dockets 125, 127. The motion to dismiss was heard on April 22 30, 2024. Appearances were noted on the record. 23 The specifics of each Count, and the reasons for their 24 respective dismissals, are discussed in Section IV, infra. 25 26 III. Legal Standard 27 A complaint may be dismissed for “failure to state a claim 28 upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6); Fed. R. Bankr. P. 7012(b). “A Rule 12(b) (6) dismissal may be based on either a lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal 4 theory.” Johnson v. Riverside Healthcare System, LP, 534 F.3d °]1116, 1121 (9th Cir. 2008). 6 “To survive a motion to dismiss, a complaint must contain 7 sufficient factual matter, accepted as true, to ‘state a claim to 8 relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 ° U.S. 662, 678 (2009) (quoting Bell Atlantic Corporation v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that defendant
14 is liable for the misconduct alleged.” Id. (citing Twombly, 550
15 U.S. at 556). 16 In ruling on a Rule 12(b) (6) motion to dismiss, the court 17 accepts all factual allegations as true and construes them, and 18 reasonable inferences drawn from them, in a light most favorable 19 || to the non-moving party. Arizona Students’ Association v. 20 || Arizona Board of Regents, 824 F.3d 858, 864 (9th Cir. 2016). Legal conclusions are not accepted as true. Iqbal, 556 U.S. at 22 || 678. 23 The court may also consider limited materials outside the pleadings. These include documents attached to the complaint, 25 || documents incorporated by reference in the complaint, and matters 26 subject to judicial notice. Swartz v. KPMG LLP, 476 F.3d 756, 271763 (9th Cir. 2007) (per curium). The latter includes the 28 court’s own records. Kelly v. Johnston, 111 F.2d 613, 615 (9th Cir. 1940). ~13-
1 IV. Analysis 2 A. Count 2 - Intentional Infliction of Emotional Distress 3 Based on a Violation of § 524(a)(2) Under § 524(i) 4 Count 2 alleges a claim for intentional infliction of 5 emotional distress “based upon the same common factual 6 allegations as Count 1.” SAC ¶ 208. Count 1 alleges that 7 Defendants violated § 524(i) which treats a violation of its 8 terms as a violation of § 524(a)(2). To the extent Count 2 seeks 9 emotional distress damages for a violation of the discharge 10 injunction it fails as a matter of law. Plaintiffs may not 11 recover emotional distress damages based on a violation of the 12 discharge injunction either directly or through § 524(i). 13 One court recently observed that “[t]here is a disagreement 14 among courts across the circuits on whether damages for emotional 15 distress may be awarded in cases involving the violation of the 16 discharge injunction.” In re Weaver, 2023 WL 3362064, at *7 17 18 (Bankr. E.D. Mich. May 10, 2023).7 The Ninth Circuit has not 19 directly addressed the issue. 20 There is inconsistency on this issue within the Ninth 21 22 7Circuit decisions are also sparse. The First Circuit in United States v. Torres (In re Torres), 432 F.3d 20, 31 (1st Cir. 23 2005), stated that “sovereign immunity bars awards for emotional distress damages against the federal government under § 105(a) 24 for any willful violation of § 524, and that immunity is not waived by § 106” and “recognizing a waiver of sovereign immunity 25 for emotional distress damages in this case would run afoul of § 26 106(a)(5), which forbids the creation of any substantive claim for relief ‘not otherwise existing under this title, the Federal 27 Rules of Bankruptcy, or non-bankruptcy law.’” In Green Point Credit, LLC v. McClean (In re McClean), 794 F.3d 1313, 1325 (11th 28 Cir. 2015), the Eleventh Circuit allowed emotional distress damages for a discharge injunction violation based on a § 362 analysis by analogy. More on this later. 1] Circuit. For example, Idaho bankruptcy courts have held that 2 |} emotional distress damages are not available for violations of 3 || the discharge injunction. In re Pohlman, 2018 WL 3854137, at *6 4 (Bankr. D. Idaho Aug. 10, 2018); In re Urwin, 2010 WL 148645, at *8 (Bankr. D. Idaho Jan. 14, 2010). But this is an exception to 6 the general practice by courts in the Ninth Circuit which is to award emotional distress damages by analogizing discharge injunction violations-and awards of compensatory damages ° thereunder-to violations of the automatic stay-and awards of compensatory damages thereunder. See In re Feldmeier, 335 B.R. 807, 813 (Bankr. D. Or. 2005) (“Although the Ninth Circuit has not spoken on this issue, I believe its opinion on the
14 availability of emotional distress damages for violation of the
15 automatic stay is instructive.”). Two opinions illustrate this 16 practice and its corresponding analysis. 17 The bankruptcy court in In re Nordlund, 494 B.R. 507 (Bankr. 18 E.D. Cal. 2011), concluded that emotional distress damages were 19 || recoverable for the creditor’s violations of the discharge 20 || injunction. It reached its decision by relying on the automatic stay violation analysis in Knupfer v. Lindblade (In re Dyer), 322 22) F.3d 1178 (9th Cir. 2003), and Feldmeier, supra, to conclude that 23 |) to the extent emotional distress damages are compensatory damages 24 recoverable for violations of the automatic stay, by analogy, 25 they are similarly recoverable for violations of the discharge 26 injunction. Id. at 522-23. 27 The Ninth Circuit Bankruptcy Appellate Panel reached a 28 similar conclusion based on a similar analysis six years later in Ocwen Loan Servicing, LLC v. Marino (In re Marino), 577 B.R. 772 ~-15 -
1] (9th Cir. BAP 2017), aff’d in part on other grounds, appeal dismissed in part, Ocwen Loan Servicing, LLC v. Marino (In re 3 Marino), 949 F.3d 483 (9th Cir. 2020), cert. denied, Marino v. 41 ocwen Loan Servicing, LLC (In re Marino), 141 S. Ct. 1683 (2021). In Marino, the Ninth Circuit Bankruptcy Appellate Panel wrote as 6 follows: The Ninth Circuit has allowed emotional distress 8 damages for automatic stay violations when the debtor *(1) suffer[s] significant harm, (2) clearly 9 establish[es] the significant harm, and (3) demonstrate[s] a causal connection between that 10 significant harm and the violation of the automatic stay (as distinct, for instance, from the anxiety and 11 pressures inherent in the bankruptcy process) .’ Snowden v. Check Into Cash of Wash. Inc. (In re 12 Snowden), 769 F.3d 651, 657 (9th Cir. 2014) (quoting Dawson v. Wash. Mutual Bank, F.A. (In re Dawson), 390 13 F.3d 1139, 1149 (9th Cir. 2004)) (discussing violation of the automatic stay). The same rule should apply to 14 violations of the discharge injunction. See In re Nordlund, 494 B.R. at 523 (applying Dawson’s three-part 15 test to violations of the discharge injunction); C_ & W Asset Acquisition, LLC v. Feagins (In re Feagins), 439 16 B.R. 165, 178 (Bankr. D. Haw. 2010) (‘Although Dawson 17 considered the remedy for violations of the automatic stay under section 362(k) (1), the same reasoning 18 applies to willful violations of the discharge injunction.’). 19 Id. at 787.° 20 Notably, Nordlund and Marino predate Taggart. That makes a 21 22 *But see Rushmore Loan Management Services, LLC v. Moon (In 231} re Moon), 2021 WL 62629 (9th Cir. BAP Jan. 7, 2021), appeal dismissed, 2021 WL 3509163 (9th Cir., Apr. 19, 2021). In 24 Rushmore, “[t]he [bankruptcy] court declined to award [one of the 25 debtors] emotional distress damages, because she testified that her distress was caused by Rushmore’s discharge injunction violations, not stay violations.” Id. at *3. The debtors “challenge[d] the bankruptcy court’s decision to not award damages for Rushmore’s violation of the discharge injunction.” Id. at *4. The Ninth Circuit Bankruptcy Appellate Panel 28 ll Goncluded that “[t]he bankruptcy court did not abuse its discretion by not awarding the [debtors] discharge injunction violation damages.” Id. at *10. - 16 -
1 || difference. In several respects, Taggart changes the civil contempt landscape as it pertains to the discharge injunction and 3 || the compensatory damages that a bankruptcy court may award to enforce the discharge injunction or remedy its violation.’ First, in Taggart, the Supreme Court explained critical 6 distinctions between the automatic stay and the discharge: 7 An automatic stay is entered at the outset of a 8 bankruptcy proceeding. The statutory provision that addresses the remedies for violations of automatic 9 stays says that ‘an individual injured by any willful violation’ of an automatic stay ‘shall recover actual 10 damages, including costs and attorneys' fees, and, in appropriate circumstances, may recover punitive 11 damages.’ 11 U.S.C. § 362(k) (1). This language, however, differs from the more general language in 12 section 105(a). Supra, at 1801. The purposes of automatic stays and discharge orders also differ: A 13 stay aims to prevent damaging disruptions to the administration of a bankruptcy case in the short run, 14 whereas a discharge is entered at the end of the case 15 and seeks to bind creditors over a much longer period. 16 Taggart, 139 S. Ct. at 1803-04. 17 Second, the Supreme Court rejected a proposal by Taggart to 18 apply the standard that governs a determination of whether the 19 || automatic stay is violated to a determination of whether the 20 | discharge injunction is violated, i.e., “a finding of civil 21 contempt if the creditor was aware of the discharge order and 22 23 "As noted below, Taggart also notes that another purpose of civil contempt is to coerce compliance. See also United States 241. United Mine Workers of America, 330 U.S. 258, 303-04 (1947); 25 Doyle v. London Guarantee & Accident Company, Limited, 204 U.S. 599, 604-05 (1907). Civil contempt sanctions may therefore include “mild” punitive damages. Lenore L. Albert-Sheridan, dba Law Offices of Lenore Albert v. State Bar of California (In re 27 | Albert-Sheridan), --- B.R. ---- 2024 WL 1401289, at *20 (9th Cir. BAP April 2, 2024) (citing Marino, 577 B.R. 788-89 & n.12). This 28 aspect of civil contempt is not before the court; however, the court notes that the $4,500,000.00 in punitive damages demanded by Plaintiffs are anything but “mild.” - 17 -
1 intended the actions that violated the order.” Id. at 1803. 2 Citing distinct and discernable differences between the automatic 3 stay and the discharge injunction, the Supreme Court concluded 4 “[t]hese differences in language and purpose sufficiently 5 undermine Taggart’s proposal to warrant its rejection.” Id. at 6 1804. 7 Third, the Supreme Court in Taggart made it unmistakably 8 clear that a violation of the discharge injunction is an act of 9 civil contempt governed by historical standards. It explained: 10 Here, the statutes specifying that a discharge order 11 ‘operates as an injunction,’ § 524(a)(2), and that a court may issue any ‘order’ or ‘judgment’ that is 12 ‘necessary or appropriate’ to ‘carry out’ other bankruptcy provisions, § 105(a), bring with them the 13 ‘old soil’ that has long governed how courts enforce injunctions. 14 That ‘old soil’ includes the ‘potent weapon’ of civil 15 contempt. Longshoremen v. Philadelphia Marine Trade Assn., 389 U.S. 64, 76, 88 S.Ct. 201, 19 L.Ed.2d 236 16 (1967). Under traditional principles of equity practice, courts have long imposed civil contempt 17 sanctions to ‘coerce the defendant into compliance’ 18 with an injunction or ‘compensate the complainant for losses’ stemming from the defendant’s noncompliance 19 with an injunction. United States v. Mine Workers, 330 U.S. 258, 303–304, 67 S.Ct. 677, 91 L.Ed. 884 (1947); 20 see D. Dobbs & C. Roberts, Law of Remedies § 2.8, p. 132 (3d ed. 2018); J. High, Law of Injunctions § 1449, 21 p. 940 (2d ed. 1880). 22 Id. at 1801. 23 Fourth, and most important, in reference to the “old soil” 24 of civil contempt, the Supreme Court stated that the “traditional 25 civil contempt principles apply straightforwardly to the 26 bankruptcy discharge context.” Id. at 1802. 27 Two salient points emerge from Taggart. First, the place to 28 look to determine if the civil contempt remedy allows bankruptcy courts to award emotional distress damages for violations of the 1] discharge injunction is the “old soil” of injunction enforcement its “traditional principles” of civil contempt and not § 362 3 by analogy. Second, the duty of the bankruptcy court is to apply “old soil” and “traditional principles” concepts ° “straightforwardly” to the discharge injunction. 6 An analysis begins with the recognition that there is no | private right action to enforce the discharge injunction. Walls 8 v. Wells Fargo Bank, N.A., 276 F.3d 502, 510 (9th Cir. 2002) (“We ° cannot say that Congress intended to create a private right of action under § 524, and we shall not imply one.”); see also In re Costa, 172 B.R. 954, 965-66 (Bankr. E.D. Cal. 1994) (same). Rather, as the Supreme Court explained in Taggart, the discharge 14 injunction is enforced and its violations are remedied through a
15 civil contempt action under § 105(a). Taggart, 139 S. Ct. at 16 1801; see also Brown v. Transworld Systems, Inc., 73 F.4th 1030, 17 1038 (9th Cir. 2023) (“The appropriate remedy [for a violation of 18 the discharge injunction] is contempt of court against the 19 || offending creditor pursuant to 11 U.S.C. § 105(a).”); Renwick v. 20 || Bennett (In re Bennett), 298 F.3d 1059, 1069 (9th Cir. 2002) (“We 21} have recently held that section 524(a) may be enforced by the 22 court’s contempt power under 11 U.S.C. section 105(a).”). 23 A civil contempt action to enforce or remedy violations of 241 the discharge injunction brings with it potential liability for 25 compensatory damages. Walls, 276 F.3d at 507 (“[C]ompensatory 26 civil contempt allows an aggrieved debtor to obtain compensatory 27 damages, attorneys fees, and the offending creditor’s compliance 28 with the discharge injunction.”); see also Brown, 73 F.4th at 1038 (reaffirming availability of compensatory damages as stated ~19-
Walls). But what exactly are compensatory damages? Bohac v. 2 i} Department of Agriculture, 239 F.3d 1334 (Fed. Cir. 2001), offers 3] the following explanation and notes a critical distinction: 4 Compensatory damages are the damages awarded to a 5 person as compensation, indemnity or restitution for harm sustained by him. Restatement (Second) of Torts § 6 903 (1979). Compensatory damages are divided into two categories: pecuniary and non-pecuniary. Id. at §§ 7 905 and 906. Non-pecuniary compensatory damages include compensation for bodily harm and emotional 8 distress, and are awarded without proof of pecuniary loss. Id. at § 905. ° Id. at 1341 (internal quotation marks omitted). Fundamental is that the Supreme Court and the Ninth Circuit put emotional distress damages in the nonpecuniary category. Cummings v. Premier Rehab Keller, P.L.L.C., 596 U.S. 212, 227
14 (2022) (emotional distress damages are typically awarded “where
15 the injury entails more than a pecuniary loss”); Federal Aviation 16 Administration v. Cooper, 566 U.S. 284, 302 (2012) (referring to 17 “mental and emotional harm” as “nonpecuniary”); United States v. 1g | Alvarez, 567 U.S. 709, 749 n.14 (2012) (Alito, J., with whom Scalia, J., and Thomas, J., joined, dissenting) (“the harm 290} remedied by the torts of . . . intentional infliction of emotional distress .. . is often nonpecuniary in nature”); Rouse United States Department of State, 567 F.3d 408, 417 (9th Cir. 2312009) (“The resulting prolonged imprisonment caused Rouse extreme 24 || emotional distress and other nonpecuniary harms.”); Farrens v. 25 Meridian Oil, Inc., 852 F.2d 1289, 1988 WL 79482, at *3 (9th Cir. 26 July 19, 1988) (“Second, the award included nonpecuniary damages 27 for emotional distress and loss of reputation[.]”). 28 Characterization of damages for emotional distress as nonpecuniary is significant because the “old soil” of injunction ~ 20 -
1 enforcement and its “traditional principles” of civil contempt 2 did not compensate parties injured by injunction violations or 3 other acts of disobedience of court process for nonpecuniary 4 loss, emotional distress or otherwise. In other words, the 5 historical measure of compensation awarded in civil contempt 6 actions was pecuniary loss. 7 The United States largely adopted the English concept of 8 civil contempt and its associated purposes and remedies. Joseph 9 H. Beale, Jr., Contempt of Court, Criminal and Civil, Harvard Law 10 Journal, Vol. 21, No. 3, 161 at 167-69 (1908). The Supreme Court 11 recognized this, and it recognized that English courts limited 12 compensation for civil contempt to pecuniary loss, in its 1897 13 opinion in Hovey v. Elliott, et al.,, 167 U.S. 409 (1897), in 14 which it stated as follows: 15 The conclusion which we have reached accords with that 16 of Daniell, who, in his Chancery Pleadings and Practice (volume 1, pp. *504, *505), [notes]: 17 18 ... the personal and pecuniary inconvenience to which a party subjects himself by a 19 contempt of the ordinary process of the court[.] 20 Id. at 436 (emphasis added). 21 The Supreme Court reiterated this critical point fourteen 22 years later in Gompers v. Buck’s Stove & Range Company, 221 U.S. 23 418 (1911), in which it wrote as follows: 24 In this case the alleged contempt did not consist in 25 the defendant’s refusing to do any affirmative act required, but rather in doing that which had been 26 prohibited. The only possible remedial relief for such disobedience would have been to impose a fine for the 27 use of complainant, measured in some degree by the pecuniary injury caused by the act of disobedience. 28 1}} Id. at 443-44 (emphasis added, citations omitted) 2 The weight of authority from other Circuits also supports 3 conclusion that the civil contempt remedy does not include 4 nonpecuniary compensation for emotional distress. The Eighth Circuit in McBride v. Coleman, 955 F.2d 571 (8th Cir.), cert. 6 denied, 506 U.S. 819 (1992), which dealt with the power of civil 7 Lae contempt more generally, not specifically under §§ 105(a) and 8 524(a) (2), vacated a judgment awarding emotional distress damages 9 and in the course of doing so stated as follows: 10 A special word is in order regarding the award of 11 $50,000.00 for emotional distress. Even assuming arguendo a causal relationship between the violation of 12 13 The Supreme Court cited “Rapalje, Contempts, §§ 131-134” 14 |} to support this passage. The full citation is Stewart Rapalje, A Treatise on Contempt Including Civil and Criminal Contempts of 15 | Judicial Tribunals, Justices of the Peace, Legislative Bodies, Municipal Boards, Committees, Notaries, Commissioners, Referees 16! and Other Officers exercising judicial and quasi-judicial 17 functions, L.K. Strouse & Co., Law Publishers (1884). Section 131 is captioned “The fine-what included” and refers to the civil 18 || contempt fine imposed for disobedience of an order or decree as compensation or indemnity for “pecuniary injury.” Section 133 is 19 || captioned “Compensation to an injured party” and refers to the “loss or injury” compensated through civil contempt as a 20 “pecuniary loss or injury.” 21 The Supreme Court also supported the passage with citations to Wells, Fargo & Co. v. Oregon Ry. & Nav. Co., 19 Fed. 20 (Cir. Or. 1884), Woodruff v. North Bloomfield Gravel-Min. Co. (In re North Bloomfield Gravel-Min. Co.), 27 Fed. 795 (Cir. Ct. Cal. 23/1886), and Sabin v. Fogarty, 70 Fed. 482 (Cir. Ct. Wash. 1895). The measure of compensation for the civil contempt in each case 24 was pecuniary loss. Wells, Fargo & Co., 19 Fed. at 23; Woodruff, 25 27 Fed. at 799-800; Sabin, 70 Fed. at 485. Notable is that each opinion is by a federal appellate court in or what was to become the Ninth Circuit. So not only does the Ninth Circuit’s historical civil contempt precedent align neatly with Supreme 271 Court authority, but, the Ninth Circuit’s historical civil contempt precedent which recognized pecuniary loss as the measure 28 ll of compensation for civil contempt is part of the “old soil” of injunction enforcement and its “traditional principles” of civil contempt. - 22> -
1 the injunction and the harm suffered, we do not believe civil contempt to be an appropriate vehicle for 2 awarding damages for emotional distress[.] The problems of proof, assessment, and appropriate 3 compensation attendant to awarding damages for emotional distress are troublesome enough in the 4 ordinary tort case, and should not be imported into 5 civil contempt proceedings. Although in some circumstances an award of damages to a party injured by 6 the violation of an injunction may be appropriate, the contempt power is not to be used as a comprehensive 7 device for redressing private injuries, and it does not encompass redress for injuries of this sort. 8 Id. at 577 (internal citations omitted). 9 In Burd v. Walters (In re Walters), 868 F.2d 665 (4th Cir. 10 1989), the Fourth Circuit stated that “[n]o authority is offered 11 to support the proposition that emotional distress is an 12 appropriate item of damages for civil contempt, and we know of 13 14 none.” Id. at 670. In Weitzman v. Stein, 98 F.3d 717 (2d Cir.
15 1996), the Second Circuit similarly stated that “the district 16 court was within its right to reject Weitzman’s claim for 17 compensation for the emotional distress she and her husband 18 suffered because of the contempt.” Id. at 720. And in the 19 || context of discussing the Bankruptcy Code, the district court in 20 || United States v. Harchar, 331 B.R. 720 (N.D. Ohio 2005), observed 21] that “[t]here is little indication that awarding damages for 22 emotional harm was commonplace under the bankruptcy court’s 23 | traditional contempt procedures—or in any contempt procedures 241 familiar to Congress in 1984.” Id. at 730 (emphasis in 29 original). 26 In an effort to bring nonpecuniary damages for emotional 27 distress under the civil contempt umbrella, Plaintiffs cite Leman Krentler-Arnold Last Hinge Co., 284 U.S. 448 (1932), for the proposition that “an expansive view of damages available in - 23 -
1 actions for violation of an injunction has long been recognized.” 2 Adv. Docket 127 at 6:24-25. Plaintiffs assert that Leman is 3 authority for the court to use its equitable powers to award 4 nonpecuniary emotional distress damages for civil contempt to 5 “insure full compensation to the injured party.” Leman, 284 U.S. 6 at 456. Plaintiffs misread Leman. 7 Leman was an appeal from a final decree entered in a civil 8 contempt proceeding in which the District Court found a patent 9 infringer guilty of contempt for deliberate violation of an 10 injunction and ordered the contemnor to pay the injured party 11 over $39,000.00 in profits it made as a result of its violation. 12 Id. at 450-51. The Court of Appeals sustained the contempt order 13 but reversed the District Court’s award of profits holding that 14 the profits could not be recovered as a measure of pecuniary 15 loss. More precisely, the Court of Appeals stated as follows: 16 But we are of the opinion that the District Court went 17 far afield and exceeded its authority in decreeing that 18 the complainants recover profits made by the respondent by the infringement of the letters patent. In Gompers 19 v. Buck’s Store & Range Co., supra, and Kreplik v. Couch Patents Co., supra, 190 F. at page 569, it was 20 pointed out that the proper remedial relief for the disobedience of an injunction in an equity case is to 21 impose a ‘fine for the use of the complainant, measured in some degree by the pecuniary injury caused by the 22 act of disobedience.’ In other words, that the amount of the fine or remedial relief is to be governed 23 largely by the pecuniary damage or injury which the act of disobedience caused the complainant. The pecuniary 24 damage surely does not include profits which the defendant made by reason of the infringement. The item 25 of profits should not have been allowed or taken into consideration in determining the remedial relief to 26 which the complainants were entitled by way of fine or otherwise. 27 Krentler-Arnold Hinge Last Co. v. Leman, 50 F.2d 699, 707 (1st 28 1931) (emphasis added)." 2 On the issue of whether the profits were recoverable, the 3 Supreme Court reversed the Court of Appeals. Noting that the 41 amount of profits had been “ascertained” in the District Court proceedings, Leman, 284 U.S. at 455, the Supreme Court held that 6 the profits were the equivalent of or a substitute for the injured party’s actual pecuniary loss. Id. at 456; see also Rick 8 v. Buchansky, 2001 WL 936293, *6 (S.D.N.Y. Aug. 16, 2001) (“Where ° actual pecuniary loss is difficult to prove, compensatory relief may include profits derived by the contemnor from the violation of a court order.”). In other words, the Supreme Court treated the profits in the contemnor’s possession “as if” they were the
14 injured party’s compensatory damages. In so doing, the Supreme 15 Court rejected the Court of Appeals’ narrow view of the pecuniary 16 loss recoverable for civil contempt and adopted a more expansive 17 view. Leman, 284 U.S. at 456. 18 The point here is that Leman added more to the bucket of 19 || Pecuniary losses recoverable as compensatory damages for civil 20 || contempt. It did not add new or different types of damages to 21 that bucket, i.e., nonpecuniary for emotional distress or 22 otherwise, as Plaintiffs suggest. In that regard, the court does 23 read Leman as support for the proposition that emotional 241 distress damages are-or historically have been-recoverable for 25 26 © ‘The Court of Appeals adhered to its initial opinion on 27 rehearing. See Krentler-Arnold Hinge Last Company v. J. Howard Leman, Administrator, C. T. A., et al., 1931 WL 26200 (lst Cir. 28 June 29, 1931). The rehearing opinion makes it even more clear that the Court of Appeals considered the profits at issue in the context of pecuniary loss and not as something else. Id. At *6. ~ 25 -
1 civil contempt. 2 Duty bound here to look to the “old soil” of injunction 3 enforcement and apply its “traditional principles” of civil 4 contempt “straightforwardly” to the discharge injunction, the 5 weight of historical authority compels the court to hold that 6 Plaintiffs may not recover nonpecuniary emotional distress 7 damages based on a claim under § 524(i) which treats a violation 8 of its terms as a violation of § 524(a)(2). The measure of 9 recovery for civil contempt under § 105(a) for a violation of § 10 524(a)(2)-either directly or through § 524(i)-is compensatory 11 damages for pecuniary loss. 12 Count 2 will be dismissed. And because further amendment to 13 claim emotional distress damages for a violation of the discharge 14 injunction would be futile, Count 2 will be dismissed with 15 prejudice and without leave to amend the claim for emotional 16 distress damages based on a violation of §§ 524(i) and/or 17 18 524(a)(2). To the extent Count 2 includes a claim for emotional 19 distress damages based on facts or conduct other than a violation 20 of §§ 524(i) and/or 524(a)(2), any such claim is dismissed 21 without prejudice. Leave to amend to re-allege any such claim in 22 this adversary proceeding will also be denied because any such 23 claim would be subject to the same jurisdictional and abstention 24 analysis applicable to Counts 3 and 4 discussed below making 25 amendment here futile. 26 B. Count 1 - The Amended Claim Under 11 U.S.C. § 524(i) 27 Count 1 alleges that in violation of § 524(i) Defendants 28 willfully failed to credit payments they received from the Trustee and, thus, Defendants willfully failed to credit payments 1 received “under a plan.” Defendants move to dismiss the amended 2 § 524(i) claim in Count 1 for two reasons: (1) Plaintiffs’ 3 second modified plan was in default; and (2) Plaintiffs have not 4 sufficiently alleged that payments Defendants received from the 5 Trustee, i.e., payments “under a plan,” were improperly credited. 6 Defendants’ arguments have merit and the court agrees with both. 7 1. “. . . unless . . . the plan is in default . . .” 8 Section § 524(i) makes it a violation of the discharge 9 injunction of § 524(a)(2) for a creditor to willfully fail to 10 credit payments received “under a plan” if the failure causes 11 material injury “unless . . the plan is in default.” 11 U.S.C. § 12 524(i). There are two relevant defaults for consideration here. 13 The first default was a monetary default in the amount of 14 $10,246.37 which, according to the Trustee, represented 15 approximately 3 plan payments. This monetary default was 16 apparently considered to have been cured sometime before the 17 18 Trustee’s motion to dismiss was heard in September 2019 because 19 the Trustee withdrew the motion and immediately thereafter filed 20 notice that Plaintiffs completed their plan payments. 21 The second default was a nonmonetary default consisting of a 22 chapter 13 plan term that exceeded the applicable (and maximum 23 allowable) sixty-month commitment period by six months and 24 Plaintiffs’ failure to make all of their required plan payments 25 before the sixty-month plan period expired. See 11 U.S.C. §§ 26 1322(d), 1325(b)(4).12 As the Trustee noted in his September 27 28 12Section 1322(d) states, in relevant part, that a chapter 13 “plan may not provide for payments over a period that is longer than 5 years.” 11 U.S.C. § 1322(d). 1 2019 motion to dismiss, when the motion was filed Plaintiffs were 2 in month sixty-six of a sixty month plan and were approximately 3 three plan payments short. 4 Plaintiffs assert they made all of their plan payments 5 within the applicable sixty month period. But that is not how 6 the Trustee’s motion to dismiss reads. The Trustee’s motion to 7 dismiss states that in month sixty-six of a sixty month plan 8 “[t]he debtors [were] delinquent to the trustee in the amount of 9 $10,246.37 which represents approximately 3 plan payment(s).” 10 Bankr. Docket 117 at 1:21-22 (emphasis added). These delinquent 11 payments owed to the Trustee pertained to postpetition mortgage 12 payments, id. at 2:6, which remained unpaid in month sixty-six, 13 id. at 2:7, “due to Debtors’ delinquency and history of making 14 payments late over the course of the plan[.]” Id. at 2:4-5. 15 The court reads the Trustee’s motion to dismiss to mean that 16 during the plan term Plaintiffs made some plan payments late, the 17 18 late plan payments prevented the Trustee from making some 19 mortgage payments during the plan term, and Plaintiffs needed to 20 make these plan payments, as they apparently did in month sixty- 21 six of their sixty month plan, in order to complete all of their 22 plan payments. See Id. at 2:8-10 (“The Trustee cannot make 23 partial payments on post-petition mortgage claims, so in order to 24 complete the plan, the Debtor [sic] needs to make [the 25 delinquent] amount in a lump sum.”). Indeed, that there were 26 unpaid plan payments six months after the sixty month commitment 27 28 Section 1325(b)(4) defines the “applicable commitment period” for above-median debtors as “not less than 5 years.” 11 U.S.C. § 1325(b)(4). 1 period ended, which were not “post-plan” payments, is confirmed 2 by a September 3, 2019, letter from the Trustee’s office to 3 Plaintiffs submitted as an exhibit to the Trustee’s motion to 4 dismiss which informed Plaintiffs that they “have paid into 5 [their] Chapter 13 Plan a total of $166,184.21, and have an 6 outstanding balance of $10,246.37. ... This is brought to your 7 attention as we feel certain that you, after paying in as much as 8 you have, truly want to bring your Plan to a successful paid-in- 9 full conclusion.” Bankr. Docket 120 at Ex. B.13 10 The point here is that Plaintiffs’ failed to make all of the 11 payments required by their plan before the sixty month maximum 12 commitment period expired and they made the unpaid plan payments 13 six months after the sixty month commitment period expired. That 14 constitutes a material default. Moreover, the material default 15 was (and remains) incurable because in month sixty-six 16 Plaintiffs’ plan could not be modified to accommodate what the 17 18 Trustee clearly characterized and accepted as postpetition plan 19 payments after the commitment period expired. The court 20 therefore reaffirms its conclusion that Plaintiffs’ failure to 21 make all of their plan payments before the sixty-month commitment 22 period expired is (and was) an incurable material default under 23 24 13Plaintiffs’ assertion that they completed plan payments in March 2019 and their characterization of the payments in default 25 referenced in the Trustee’s motion to dismiss as “post-plan” 26 payments is puzzling given the District Court’s recognition that Plaintiffs “completed their Plan payments in September 2019 and 27 the trustee filed a Notice of Final Cure on September 27, 2019[,]” Valdellon, 2024 WL 404404 at *2, and the District 28 Court’s characterization of “post-plan” payments as those Plaintiffs made directly to Defendants from and after October 2019. Id. at *6. 1 |} the second modified plan.’* In re Kinney, 2019 WL 7938815 2 (Bankr. D. Colo. Feb. 27, 2019), aff’d, Kinney v. HSBC Bank USA, (In re Kinney), 5 F.4th 1136 (10th Cir. 2021), cert. denied, 47143 S. ct. 302 (2022), illustrates this point. In Kinney, the debtor “failed to make the last three 6 mortgage payments [required under her Chapter 13 plan] during the | [five year] plan period.” Kinney, 2019 WL 7938815 at *1l. Instead, the debtor made three payments about two and a half ° months after the end of the five-year chapter 13 plan term and then requested a discharge anyway. Id. at 1-2. The bankruptcy court characterized the debtor’s actions as a “material default” in her chapter 13 plan and dismissed the chapter 13 case without
14 entry of a discharge. Id. at *4. On appeal, the Tenth Circuit
15 affirmed and characterized the debtor’s default as incurable once 16 the plan’s five-year period ended. Kinney, 5 F. 4th at 1140. It 17 emphatically stated: “The bankruptcy code suggests that material 18 defaults cannot be cured after the plan has ended.” Id. at 1143; 19 | In_re Jaggars, 2023 WL 7007491, at *1 (Bankr. E.D. Okl. Oct. 23, 20 || 2023) (“As the parties correctly note, the Tenth Circuit opinion In re Kinney, 5 F.4th 1136 (10th Cir. 2021) holds that once a 22" plan’s five-year period expires, a bankruptcy court is without 23} authority to allow a debtor to cure a ‘material default.’”). 24 Technically, Plaintiffs should not have been permitted to 25 l}make plan payments after the sixty-month commitment period ended 26 27) OO “Section 2.03 of Plaintiffs’ second modified plan also states as follows: “If necessary to complete the plan, monthly payments may continue for an additional 6 months, but in no event shall monthly payments continue for more than 60 months.” -~ 30 -
1 because doing so was an impermissible plan modification under § 2 1329(c).15 Kinney, 5 F.4th at 1144. Dismissal would have been 3 entirely appropriate. But nobody objected and the Trustee 4 withdrew the motion to dismiss so Plaintiffs managed to receive a 5 discharge by the good grace of the Trustee. That, however, does 6 not change the status of the second modified plan as a plan 7 subject to an incurable material default.16 And it is precisely 8 this incurable material default that renders § 524(i) 9 inapplicable as a matter of law because a plan in default will 10 not support a § 524(i) claim. Count 1 will therefore be 11 dismissed with prejudice and without leave to amend. 12 2. “. . . willful failure of a creditor to credit 13 payments received under a plan confirmed under [Title 11] . . .” 14 It initially bears repeating what the District Court made 15 clear about an amended § 524(i) claim; specifically, that post- 16 plan payments, or payments Plaintiffs began making directly to 17 18 15Section 1329(c) states as follows: 19 A plan modified under this section may not provide for 20 payments over a period that expires after the 21 applicable commitment period under section 1325(b)(1)(B) after the time that the first payment 22 under the original confirmed plan was due, unless the court, for cause, approves a longer period, but the 23 court may not approve a period that expires after five years after such time. 24 25 11 U.S.C. § 1329(c). 26 16That a discharge was entered does not change this. See United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010). 27 Moreover, § 1328(a) states that the “as soon as practicable after completion by the debtor of all payments under the plan . . . the 28 court shall grant the debtor a discharge.” 11 U.S.C. § 1328(a). Technically, all plan payments were completed. They were just completed significantly late. 1 Defendants beginning in October 2019 are not payments “under a 2 plan” within the meaning of § 524(i). Valdellon, 2024 WL 404404 3 at *6 (“The Court agrees with the Bankruptcy Court that the 4 post-plan payments were not payments made ‘under the plan.’”). 5 That means the only payments this court need consider as payments 6 “under a plan” for purposes of Plaintiffs’ amended § 524(i) claim 7 are those payments Defendants received from the Trustee through 8 Plaintiffs’ final plan payment in September 2019. Id. at *8 9 (“The Bankruptcy Court has not yet considered Debtors’ 10 allegations that payments made by the trustee under the Plan were 11 misapplied and should give rise to a section 524(i) claim.”). 12 Plaintiffs do not identify any specific plan payments that 13 Defendants miscredited. Rather, Defendants’ alleged liability 14 under § 524(i) is based on an inference that arises as follows: 15 (1) the Trustee paid Defendants $19,140.48 in prepetition arrears 16 (as he was obligated to do based on Claim 9-1), SAC ¶ 162, 163, 17 18 169; (2) as of January 17, 2019, statements Plaintiffs received 19 from Defendants showed $19,211.02 credited to prepetition arrears 20 from payments received from the Trustee, SAC ¶ 164 & Ex. 23; and 21 (3) through August 16, 2019, statements Plaintiffs received from 22 Defendants showed $20,623.04 credited to prepetition arrears from 23 payments received from the Trustee, SAC ¶ 165 & Ex. 23. From the 24 differences in arrears actually paid and arrears stated as paid 25 on statements, Plaintiffs surmise that Defendants over-allocated 26 plan payments to prepetition arrears and under-allocated plan 27 payments to postpetition payments. SAC ¶¶ 166-168, 170-172; see 28 also Adv. Docket 116 at 12:3-8 (“Here, Valdellons have alleged and shown that Defendants credited, from payments made by the 1 Chapter 13 Trustee, more money to pre-petition arrears than was 2 paid by the Chapter 13 Trustee to pre-petition arrears. The only 3 way Defendants could have credited, from payments made by the 4 Chapter 13 Trustee, more money to pre-petition arrears than was 5 paid by the Trustee is for Defendants to have diverted money 6 intended for ongoing maintenance payments to pre-petition 7 arrears.”) (former emphasis added, latter emphasis in original). 8 However, at the same time that Plaintiffs suggest that plan 9 payments were improperly credited, Plaintiffs rely on Defendants’ 10 sworn response to the Trustee’s final cure notice to allege that 11 postpetition loan payments made from plan payments were current 12 when the final plan payment was made in September 2019. SAC ¶¶ 13 45-47, 146-148. 14 If the court must accept as true that it was undisputed in 15 September 2019 that Plaintiffs’ loan was current as to its 16 postpetition payments, then the only logical conclusion is that 17 18 plan payments were properly credited. Indeed, Plaintiffs concede 19 as much in their opposition. Adv. Docket 116 at 15:20-22 (“If 20 Defendants had credited payments in accordance with the Trustee’s 21 designations and the Trustee’s Notice of Final Cure, Valdellons 22 would be current in payments through September 1, 2019 [sic] with 23 payments made by the Chapter 13 Trustee.”). It cannot be true 24 that plan payments were miscredited and, at the same time, 25 miscredited plan payments cured arrears and kept postpetition 26 payments current. In other words, if plan payments were 27 miscredited as they are alleged to have been, i.e., over- 28 allocated to prepetition arrears and under-allocated to postpetition payments, Plaintiffs’ loan would not (and could not 1 have been) current as it is alleged it was, and as it is further 2 alleged it was undisputed it was, in September 2019. 3 Based the foregoing, the court concludes that Plaintiffs 4 have not alleged a plausible amended § 524(i) claim. So even if 5 the second modified plan was not a plan in default, Count 1 would 6 nevertheless be dismissed with prejudice and without leave to 7 amend on the foregoing independent and alternative grounds. 8 C. Counts 3 and 4 - Non-Core State Law Claims 9 The claims alleged in Counts 3 and 4 are non-core state law 10 claims. Count 3 alleges claims for breach of contract, negligent 11 infliction of emotional distress, and declaratory relief. SAC ¶¶ 12 215-237. Count 4 alleges a claim for Unlawful Fraudulent and 13 Unfair Business Acts and Practices (California Business and 14 Professions Code § 17200 et seq.). SAC ¶¶ 238-248. 15 1. Subject Matter Jurisdiction Under 28 U.S.C. § 1334 16 The non-core state law claims in Counts 3 and 4 do not 17 18 “arise under” Title 11 or “arise in” a case under Title 11. See 19 28 U.S.C. § 1334. They also are not “related to” Plaintiffs’ 20 chapter 13 case. 21 “Related to” jurisdiction exists only if, in any way, “the 22 outcome of the proceeding could conceivably have any effect on 23 the estate being administered in bankruptcy.” Fietz v. Great 24 Western Savings (In re Fietz), 852 F.2d 455, 457 (9th Cir. 1988) 25 (internal quotations and citations omitted). The court is 26 hard-pressed to comprehend how, if at all, the non-core state law 27 claims in Counts 3 and 4 could conceivably have any effect 28 whatsoever on the administration of Plaintiffs’ chapter 13 case inasmuch as Plaintiffs no longer have a chapter 13 case being 1 administered. Creditors in Plaintiffs’ chapter 13 case have been 2 paid. Plaintiffs have completed all plan payments. Plaintiffs’ 3 chapter 13 plan has run (if not over-extended) its sixty-month 4 course and the plan term can not be further extended. Plaintiffs 5 have also received a discharge, the Trustee’s final account has 6 been filed and approved, and the Trustee has been relieved of all 7 duties relative to the estate. 8 The point here is that there is nothing more to do or that 9 can be done in Plaintiffs’ chapter 13 case. There is no longer a 10 chapter 13 case or estate to administer. The court therefore 11 concludes it lacks “related to” jurisdiction over the non-core 12 state law claims in Counts 3 and 4 without the Bankruptcy Code 13 claims. The non-core state law claims in Counts 3 and 4 will 14 therefore be dismissed without prejudice. 15 2. Discretionary Abstention Under 28 U.S.C. § 16 1334(c)(1) 17 Even if the court had “related to” jurisdiction over the 18 non-core state law claims in Counts 3 and 4, or if jurisdiction 19 were ever found to exist, the court would nevertheless exercise 20 its discretion to abstain from adjudicating those claims under 28 21 U.S.C. § 1334(c)(1) in the absence of any claim under the 22 Bankruptcy Code. A bankruptcy court considers twelve factors 23 when determining whether to abstain under 28 U.S.C. § 1334(c)(1): 24 (1) the effect or lack thereof on efficient estate 25 administration if the court abstains; 26 (2) the extent to which state law issues predominate over bankruptcy issues; 27 (3) the difficulty or unsettled nature of applicable 28 law; (4) the presence of a related proceeding commenced in 1 state court or other non-bankruptcy court; 2 (5) the jurisdictional basis, if any, other than 28 U.S.C. § 1334; 3 (6) the degree of relatedness or remoteness of the 4 proceeding to the main bankruptcy case; 5 (7) the substance rather than form of a ‘core' matter; 6 (8) the feasibility of severing state law claims from 7 core bankruptcy matters to allow judgments to be entered in state court with enforcement left to the 8 bankruptcy court; 9 (9) the burden on the bankruptcy court’s docket; 10 (10) the likelihood that the commencement of the proceeding in bankruptcy court involves forum shopping 11 by one of the parties; 12 (11) the existence of a right to a jury trial; and 13 (12) the presence of non-debtor parties. 14 Christensen v. Tucson Estates, Inc. (In re Tucson Estates, Inc.), 15 912 F.2d 1162, 1167 (9th Cir. 1990). 16 First, as noted above, that there is no longer a chapter 13 17 estate necessarily means that abstention can have no effect on 18 the administration of any estate. 19 Second, the non-core claims in Counts 3 and 4 are state law 20 claims. 21 Third, state law relative to the claims in Counts 3 and 4 is 22 not difficult and it is well-developed. The state court is 23 particularly adept at adjudicating those claims. 24 Fourth, absence of a pending state court proceeding is an 25 important-but not determinative-consideration. There is a 26 statement in Security Farms v. International Brotherhood of 27 Teamsters, Chauffers, Warehousemen, and Helpers, 124 F.3d 999, 28 1009-10 (9th Cir. 1997), that could be read to suggest that 1 abstention requires a pending proceeding in another forum. 2 However, Wilks v. United States (In re Wilks), 1999 WL 357919, at 3 *5 (9th Cir. BAP April 22, 1999), dispels any such notion. The 4 court therefore does not view the absence of a pending state 5 court proceeding as an impediment to abstention. 6 Fifth, without Bankruptcy Code claims there is no 7 jurisdictional basis over the non-core state law claims in Counts 8 3 and 4. 9 Sixth, the non-core state law claims in Counts 3 and 4 are 10 remote and not related to Plaintiffs’ chapter 13 case because 11 there no longer is a chapter 13 case being administered. 12 Seventh, the state law claims in Counts 3 and 4 are all 13 non-core matters. 14 Eighth, with the dismissal of Bankruptcy Code claims there 15 are no core matters to sever non-core matters from. 16 Ninth, adjudication by this court of the non-core state law 17 18 claims in Counts 3 and 4 that a state court is equally capable of 19 determining would place a burden on this court’s docket in that 20 it would take judicial resources more appropriately dedicated to 21 core jurisdictional matters. 22 Tenth, the court perceives no forum shopping. Plaintiffs 23 filed in this court on the basis of Count 1. 24 Eleventh, Defendants may be entitled to a jury trial on the 25 non-core state law claims in Counts 3 and 4. Any jury trial 26 would be more efficiently handled in state court instead of by a 27 district (or by consent bankruptcy) judge. These claims also 28 raise the specter of the need to obtain Defendants’ consent to the entry a final judgment by a bankruptcy judge. 1 Twelfth, to the extent Plaintiffs are no longer chapter 13 2 debtors the dispute is between non-debtors. 3 In short, the Tucson Estates factors favor abstention even 4 if “related to” subject matter jurisdiction over the non-core 5 state law claims in Counts 3 and 4 exists. 6 7 V. 8 Conclusion 9 Based on the foregoing, Defendants’ motion to dismiss will 10 be GRANTED as follows: (1) the § 524(i) claim in Count 1 will be 11 dismissed with prejudice; (2) the claim for emotional distress 12 damages in Count 2 will be dismissed with prejudice to the extent 13 it is based on a violation of § 524(i) and/or § 524(a)(2) and 14 will be dismissed without prejudice to the extent it is based on 15 facts and conduct that do not constitute a violation of §§ 524(i) 16 and/or 524(a)(2); (3) Counts 3 and 4 will be dismissed without 17 prejudice. 18 A separate amended order granting Plaintiffs’ motion to 19 dismiss and amended judgment will issue. 20 21 22 23 24 25 26 27 28 1 INSTRUCTIONS TO CLERK OF COURT SERVICE LIST 2 The Clerk of Court is instructed to send the attached 3 document, via the BNC, to the following parties: 4 Mark A. Wolff 8861 Williamson Dr #30 5 Elk Grove CA 95624-7920 6 Robert W. Norman 7 9970 Research Drive Irvine CA 92618 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28