Baker v. Somerville Municipal Federal Credit Union

1The Debtor brought her complaint for violation of the discharge injunction
pursuant to 11 U.S.C. §§ 524 and 105, thus eliminating the need to seek civil contempt
for the post-discharge violations. Bessette v. Avco Financial Services, Inc., 230 F.3d
439, 444 (1st Cir. 2000), cert denied sub nom. Textron Funding Corp. V. Bessette, 532
U.S. 1048, 121 S. Ct. 2016, 149 L.Ed.2d 1018 (2001).
United States Bankruptcy Court
District of Massachusetts
In re: 	:
: 	CHAPTER 7
MICHELE BAKER 	:
DEBTOR 	: 	CASE NO. 05-47847
:
MICHELE BAKER, 	:
PLAINTIFF, 	:
v. 	: 	ADV. PRO. NO. 06-4110
:
SOMERVILLE MUNICIPAL FEDERAL 	:
CREDIT UNION, 	:
DEFENDANT. 	:
MEMORANDUM OF DECISION ON (1) DEFENDANT’S MOTION FOR SUMMARY
JUDGMENT [#13] AND (2) DEBTOR’S MOTION FOR SUMMARY JUDGMENT ON
ISSUE OF LIABILITY ONLY WITH RESPECT TO POSTPETITION BILLS SENT TO
DEBTOR IN VIOLATION OF THE AUTOMATIC STAY AND DISCHARGE PROVISION
[#14]
This matter came before the Court for hearing on cross motions for summary
judgment. Fed. R. Bankr. P. 7056 (c) establishes that summary judgment is the
appropriate vehicle for deciding these matters as the relevant facts are not in dispute
and establish as a matter of law that the Defendant willfully violated both the automatic
stay and the discharge injunction. 1
The Defendant is a credit union which had provided the Debtor with an
unsecured loan. The Debtor also maintained several accounts with the Defendant and
had funds transferred automatically from one or more of these accounts to make the
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2Although the parties dispute whether the Defendant offered to return the $225
payment after it learned of the Debtor’s bankruptcy, that fact is not material to the
Court’s finding that the Defendant violated the automatic stay and discharge injunction
by the collection activities begun in December 2005.
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unsecured loan payments. On October 6, 2005 the Debtor filed a voluntary petition
pursuant to Chapter 7 of the United States Bankruptcy Code. The Defendant was listed
as a creditor. On October 11, 2005 the Defendant deducted $225 from the Debtor’s
bank account to pay the unsecured loan. The Defendant’s CEO filed an affidavit in
which she alleged that she learned of the Debtor’s bankruptcy after the October 11,
2005 payment. 2 The CEO also does not dispute that when the Defendant learned of the
Debtor’s bankruptcy, it put an “administrative freeze” on the Debtor’s accounts even
though the unsecured loan was not in default as the October 11, 2005 loan payment
had been automatically deducted from the Debtor’s accounts. As a result some checks
drawn on the Debtor’s accounts were dishonored.
On January 13, 2006 the Debtor received her discharge. Prior to the entry of the
discharge order, the Defendant mailed the Debtor bills, dated December 19, 2005 and
January 5, 2006, respectively. The bills were captioned “Past Due Notices,” each in the
amount of $316.54. Both notices contain the statements “Your account is past
due....Your account is delinquent....Please return this notice with your payment showing
amount paid....” Following the entry of the discharge injunction, the Defendant sent two
additional demands for payment, dated January 26 and February 9, 2006, respectively.
These demands contained the following caption in large, bold print: “Your account is
delinquent.” These demands each contained the following language: “Your account is
seriously past due, and may be assigned to a collection agent....Please return this
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notice with your payment showing amount paid.”
The Defendant admits that it sent the four collection notices but argues that it did
not intentionally violate the automatic stay or the discharge injunction. The Defendant
has approximately nine employees. It alleges that it has an older computer system that
does not allow the Defendant to stop certain past due notices. Its practice is to print all
past due notices and then manually pull any notices that are not to be sent. There is
one printer located in a central location and when notices are sent to the printer, any
employee working by the printer could pick up the notices and put them in the mail.
Notices that the Defendant does not wish to issue must be manually removed before
mailing. The Defendant’s CEO avers that she does not know of any other occasion
where notices that were not to supposed to be mailed were actually sent to the named
customer. Moreover, the Defendant alleges that it had personnel problems about the
time that the notices were mailed to the Debtor.
The filing of a bankruptcy petition triggers an automatic stay of "the
commencement or continuation, including the issuance or employment of process, of a
judicial, administrative, or other action or proceeding against the debtor." 11 U.S.C. §
362(a)(1). "A [bankruptcy] discharge ... operates as an injunction against the
commencement or continuation of an action, the employment of process, or an act, to
collect, recover or offset any such debt as a personal liability of the debtor, whether or
not discharge of such debt is waived." 11 U.S.C. § 524(a)(2). The automatic stay has
been called “one of the fundamental protections that the Bankruptcy Code affords to
debtors.” In re Jamo, 283 F.3d 392, 398 (1st Cir.2002). Just as the automatic stay
provides a debtor with some breathing space so that, among other things, he may
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3The Court does not need to decide whether the quantum of proof required to
prove a violation of the discharge injunction is a preponderance of the evidence
standard or the clear and convincing standard invoked in contempt proceedings. The
facts in the instant case lead to a conclusion that under either standard, the Defendant
has violated the discharge injunction.
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exempt certain assets to utilize his “fresh start,” the discharge injunction provides the
means by which he can effect his fresh start after bankruptcy. The Bankruptcy Code
permits a debtor to recover damages, including punitive damages, and attorneys’ fees,
for a wilful violation of the automatic stay. 11 U.S.C. § 362(h). Similarly a debtor may
recover damages for wilful violations of the discharge injunction. 11 U.S.C. § 524 and §
105. In re Pratt, 462 F.3d 14, 21 (1st Cir. 2006).3
“A willful violation does not require a specific intent to violate the automatic stay.
The standard for a willful violation of the automatic stay under § 362(h) is met if there is
knowledge of the stay and the defendant intended the actions which constituted the
violation.” Fleet Mortg. Group, Inc. v. Kaneb, 196 F.3d 265, 268 (1st Cir. 1999). The
standard for violating the discharge injunction is the same. In re Pratt, 462 F.3d 14, 21
(1st Cir. 2006).
The Defendant admits that it had knowledge of the automatic stay and the
discharge order when it issued the notices. It argues, however, that it did not intend to
mail the notices; it intended that the notices be pulled. This is insufficient. “In cases
where the creditor received actual notice of the automatic stay, courts must presume
that the violation was deliberate....The debtor has the burden of providing the creditor
with actual notice. Once the creditor receives actual notice, the burden shifts to the
creditor to prevent violations of the automatic stay.” Fleet Mortg. Group, 196 F.3d at
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269.
The Defendant’s system clearly did not work to prevent the mailing of notices to
the Debtor; it admits that it mailed the notices. That the Defendant had an outdated
computer system, poorly trained or incompetent personnel, or that it offered to return
the October 11, 2005 payment later in these proceedings and that it did lift the
administrative freeze it placed on the Debtor’s accounts is irrelevant. It is incumbent
upon the Defendant as a lender to ensure that whatever system it has in place is
effective to prevent violations of the kind that occurred in this case. That the Defendant
has only nine employees and only one printer, centrally located, should make it fairly
easy to maintain and circulate a list of its customers who are not to receive collection
letters. Perhaps a simple note attached to the printer requesting that collection letters
not be sent to this Debtor might have prevented the violations. But in any event, it is
clear the Defendant knew of the automatic stay and the discharge injunction but mailed
the four collection letters to the Debtor. Therefore summary judgment in favor of the
Debtor on the issue of liability will enter. An evidentiary hearing on damages will be
scheduled.
A separate order will issue.
Dated: November 20, 2006 	_
Joel B. Rosenthal
United states Bankruptcy Judge
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