Chapter 7 Debtors sought sanctions against creditor Ocwen Loan Servicing, LLC (“Ocwen”) for its violation of the discharge injunction. The bankruptcy court held a trial and awarded the Debtors $119,000 – one thousand dollars for each improper contact.
The Debtors filed a chapter 7 bankruptcy petition in March 2013 in the United States Bankruptcy Court for the District of Nevada. They scheduled real property located in Verdi, California (the “Property”) and noted, “DEBTOR TO SURRENDER.” GMAC Mortgage held a secured claim arising from a second mortgage on the Property.
The chapter 7 petition
The Debtors received their discharge on June 18, 2013. The bankruptcy court subsequently granted Deutsche Bank National Trust Company, as Trustee for GMACM Mortgage Loan Trust 2005-AR6 (“Deutsche Bank”) relief from the automatic stay. The court closed the case on September 23, 2013.
Written correspondence and telephone calls from Ocwen
Following the Debtors’ discharge, Ocwen, as the servicer for Deutsche Bank, began sending the Debtor mailed correspondence in June 2013 and continued to do so through April 2015. The letters included account statements, notices regarding force-placed insurance, escrow statements, and other matters.
Some of the items of correspondence contained disclaimers that were located at the bottom of a page or end of the letter in small font. A typical disclaimer read: “If you have filed for bankruptcy and your case is still active and/or if you received a discharge, please be advised that this notice is for information purposes only and is not an attempt to collect a pre-petition or discharged debt.” Often, the disclaimers were preceded by demands for payment by a certain date or information about the amount that “you must pay” in a much more conspicuous font.
Ocwen also called the Debtors numerous times post-discharge to request payment on their mortgage loan.
The motion for contempt
In November 2015, the Debtors filed a motion to reopen their case and to hold Ocwen in contempt for its alleged violation of the discharge injunction (“Motion for Contempt”). They argued that Ocwen knowingly and willfully violated the discharge injunction by sending the written correspondence after the Debtors’ discharge. They identified twenty-two instances of allegedly improper correspondence3 whereby Ocwen sought to collect from the Debtors personally.
In opposition to the Motion for Contempt, Ocwen argued that sanctions were not warranted because the letters were not meant to collect any debt against the Debtors personally and complied with federal and state law. It said that fourteen of the twenty-two letters contained disclaimer language stating that the letters were intended for informational purposes only, not to collect any debt. It argued that billing statements did not violate the discharge injunction under California law because they sought only voluntary payments. It contended that the remaining correspondence concerned force-placed insurance, escrow information, or debt validation, not collection of a debt.
The bankruptcy court reopened the case and held an evidentiary hearing on the Motion for Contempt. At the outset, and by agreement of the parties, the court found “that Ocwen was aware of the bankruptcy, was aware of the discharge, got stay relief, and sent the various letters.” The only remaining issues were Ocwen’s intent and damages.
The Husband testified that the Property was their “dream house,” but they faced financial difficulty starting in 2010. They unsuccessfully tried to work with GMAC and Ocwen to modify their mortgage payments, but eventually moved out in 2011.
After they filed for chapter 7 bankruptcy and received their discharge in mid-2013, the Debtors began to receive letters from Ocwen “stating that there was money due.” The correspondence included account statements with attached payment stubs and demands for payment. The Husband testified that the payment stubs indicated that he had to remit payment on the discharged debt, that he was responsible for the interest payments, and that payments were due by the stated dates. Ocwen also sent notices of force-placed insurance, which made the Husband think that he had to pay for the insurance on the Property, even though they had surrendered and vacated it.
The Husband said that the notices from Ocwen took a toll on his marriage and caused him to fight with his wife. He said that he suffered from anxiety attacks and felt humiliated, tormented, and harassed. He testified that the stress eventually made them contemplate divorce, although they managed to preserve their marriage.
The bankruptcy court held that the letters and phone calls indicated that Ocwen was trying to get the Debtors to make payments on their mortgage loan: “Ocwen could not have been doing anything but trying to get the debtor to give them some more money, either for insurance or agree to be responsible for the house that was vacant, even after they had . . . received stay relief.” The court said that Ocwen purposefully waited two years to foreclose on the Property, “hoping that if they sent enough letters and gave enough calls, that the debtor would ultimately pay them some money for something.”
The court found the disclaimer language ineffective. It said that the disclaimers stated, “if you have filed for bankruptcy” and “if you have received a discharge,” even though Ocwen knew that the Debtors had filed for bankruptcy and received a discharge. It said that creditors that know that a debtor has filed for bankruptcy, received a discharge, and surrendered their home do not have “the right to have their computer gen out [sic] these various letters, which do comply, at least in some of the provisions, with the various notification statutes, but all of which include language which is not included in those statutes, which, to varying degrees of urgency, want the debtor to undertake a new obligation or pay them money.”
The court also found that Ocwen had called approximately a hundred times following the discharge to ask the Detbors to pay the discharged debt. It noted that Ocwen failed to rebut the Debtors’ testimony and failed to produce any records or evidence to the contrary.
The bankruptcy court awarded the Debtors damages for emotional distress, actual damages, and attorneys’ fees and costs. It stated that the Debtors had established that they had suffered emotional distress as a result of Ocwen’s harassing calls and letters. The court found that Ocwen had sent nineteen offending letters and made one hundred phone calls, and it awarded $1,000 per letter and call as emotional distress damages. The court entered an order (“Sanctions Order”) awarding the Debtors $119,000 in emotional distress damages.
Regarding an award of punitive damages, the court stated: “The issue of damages, I — as I understand the law of the Ninth Circuit, I do not have authority to impose punitive damages. If I did, I probably would, but I don’t.”
Ocwen timely appealed the Sanctions Order.
The motion for reconsideration
Ocwen filed a motion for reconsideration of the Sanctions Order (“Motion for Reconsideration”) under Civil Rule 59(e), made applicable in bankruptcy through Rule 9023. It argued that it made far fewer calls to the Detbors than the one hundred calls that the court had found and that it did not provide any rebuttal evidence at trial because the Debtors did not raise the issue of telephone calls until late in the proceedings.
Ocwen contended that it had “newly discovered” evidence in the form of Ocwen’s call logs. It provided the affidavit of a loan analyst for Ocwen who testified that Ocwen made thirty-five calls to the Debtors post-discharge.
The bankruptcy court denied the Motion for Reconsideration by form order (“Reconsideration Order”) without any detailed reasoning. Although the court apparently held a hearing on the Motion for Reconsideration, a transcript of the hearing is not in the record on appeal.
Ocwen amended its notice of appeal to include the Reconsideration Order.