This case consolidated three bankruptcy cases with similar facts. In two cases (Gravel and Beaulieu), the Court entered an order determining that the Debtors had cured all prepetition defaults and were current on all post petition mortgage payments (Debtor Current Orders) to the PHH Corporation (PHH). Thereafter PHH issued incorrect mortgage statements including charges that contradicted the Debtor Current Orders. The chapter 13 trustee filed a motion for sanctions based on PHH’s flagrant violation the orders and of Fed. R. Bankr. P. 3002.1.
In the third case (Knisley), PHH issued incorrect mortgage statements as well but there was no Debtor Current Order. The Trustee’s motion for contempt and sanctions was limited to failure to comply with Rule 3002.1(c) notices.
PHH was in violation of Rule 3002.1 for 25 months in each of the three cases and in the first two cases, in violation of the Debtor Current Orders. Furthermore the Court found (1) PHH had adequate notice of the Debtor Current Orders, (2) PHH had engaged in a pattern of the offending conduct, (3) PHH had previously been admonished twice and sanctioned once (in this Court) for sending incorrect statements, and (4) PHH’s level of sophistication and available financial resources mandated a higher sanction than might be imposed on another party.
On September 12, 2016, 2016 the Court granted the motions and directed PHH to pay sanctions of $275,000, $175,000 and $25,000 in the three cases. PHH appealed to the District Court which vacated the decision and remanded the cases to the Bankruptcy Court with instructions that the Court reconsider the amount of sanctions, focusing on this Court’s authority to only impose sanctions that are “short of punitive sanctions of the scope and type [this Court previously] imposed in these cases.”
On remand the Court considered six legal issues to determine the appropriate amount of sanction against PHH.
First, does this Court have the authority to impose punitive sanctions on PHH for its violations of Bankruptcy Rule 3002.1 and, if so, what is the source of that authority?
Second, does this Court have the authority to impose sanctions on PHH for its violations of Debtor Current Orders and, if so, what is the source of that authority?
Third, what guidance can be drawn from the decisions favorably cited by the District Court in its Remand Decision, as well as any pertinent Second Circuit or Supreme Court caselaw, as to the scope and size of punitive sanctions this Court is authorized to impose?
Fourth, what weight should this Court assign to factors such as PHH’s corporate status, its substantial financial resources, and its prior violations of the same duties, in deciding what punitive sanctions are warranted here?
Fifth, is there authority to adjust the caselaw-established caps defining what is a serious sanction, and what is less than a serious sanction, to reflect the passage of time and the present value of those dollar amount caps?
Sixth, in the context of the particular facts presented in these cases, and the interest of justice, to whom should PHH pay the sanctions this Court imposes in each of these cases?
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