Garris v. Chase Bank USA NA

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
IN RE:
RAYMOND ARTHUR GARRIS, JR.
DEBTOR
CASE NO.
10-09849-8-SWH
RAYMOND ARTHUR GARRIS, JR.
Plaintiff,
v.
CHASE BANK USA, N.A.
Defendant.
ADVERSARY PROCEEDING NO.
11-00009-8-SWH-AP
ORDER ALLOWING OBJECTION TO CLAIM,
DENYING MOTION FOR ENTRY OF DEFAULT
AND DISMISSING ADVERSARY PROCEEDING
Pending before the court in this adversary proceeding is the motion for entry of default and
judgment by default filed by the plaintiff and chapter 13 debtor, Raymond Arthur Garris, Jr. A
hearing was held in Raleigh, North Carolina, on March 31, 2011. Defendant Chase Bank USA, N.A.
did not appear at the hearing, at the conclusion of which the court took the matter under advisement
SO ORDERED.
SIGNED this 17 day of May, 2011.
________________________________________
Stephani W. Humrickhouse
United States Bankruptcy Judge
____________________________________________________________
Case 11-00009-8-JRL Doc 12 Filed 05/17/11 Entered 05/17/11 16:00:46 Page 1 of 6

and allowed additional time for counsel for the plaintiff to analyze certain issues arising from the
two counts set forth in the complaint. Counsel for the plaintiff (“counsel”) subsequently provided,
in a letter emailed to the court, notice that the plaintiff had elected to withdraw both of those claims.
This matter is ripe for disposition.
Raymond A. Garris, Jr. filed a petition under chapter 13 of the Bankruptcy Code on
November 30, 2010, and included defendant creditor Chase Bank in the creditors’ matrix.
According to counsel, Chase Bank was “listed as ‘Notice Only’ in this proceeding.” Letter to Judge
Stephani W. Humrickhouse from Jane L. Weatherly at p. 2 (April 14, 2011) (“Plaintiff’s Counsel’s
Letter”). The debtor did not owe any debt to Chase Bank at the time the chapter 13 petition was
filed and counsel explained that Chase Bank was included in the matrix only because Chase Bank
is included on the debtor’s credit report. Counsel stated that it is their practice to send notice of
bankruptcy to every creditor appearing on a debtor’s credit report. This is so even if the credit report
reflected that the creditor reported a zero balance owing to it from the debtor, as was true in this
case.
Chase Bank appeared on the credit report because of the debtor’s prior credit card debt to
Chase Bank, which was discharged in connection with a chapter 7 bankruptcy case filed by the
debtor on February 1, 2008. The debtor received his discharge on May 7, 2008. Complaint ¶¶ 12,
14. By including Chase Bank in the creditors’ matrix, along with “everyone listed in the credit
report,” counsel sought to “avoid the potential for any unresolved issues from the prior Chapter 7
arising in this Chapter 13.” Plaintiff’s Counsel’s Letter at p. 2. 	Counsel explained at the hearing
that it is simply a matter of pushing a button, and all creditors on the credit report receive notice,
whether or not they require it.
2
Case 11-00009-8-JRL Doc 12 Filed 05/17/11 Entered 05/17/11 16:00:46 Page 2 of 6

Unfortunately, in what probably also reflected a simple push of a button, Chase Bank
responded to its receipt of notice of the bankruptcy petition by filing a proof of claim listing a credit
card debt in the amount of $3,925.77. Counsel states that this is the amount that was discharged in
the debtor’s prior chapter 7 case. 	Chase Bank filed the proof of claim in the debtor’s current
chapter 13 case on January 7, 2011.
Counsel represents, in response to the court’s request for information about counsel’s efforts
to contact Chase Bank to apprise it of its mistake before taking the significant step of filing an
adversary proceeding, that it sent a letter to Chase Bank informing it that the prior debt was
discharged. Counsel cannot locate the letter and no record of its preparation appears in counsel’s
invoice for services. However, counsel explained, it is counsel’s policy to contact a creditor in
circumstances such as these and to provide ten days from the date of notice before filing a
complaint. Plaintiff’s Counsel’s Letter at p. 2. Because the dates on which the proof of claim and
the adversary proceeding were filed are consistent with that policy, counsel assumes that such a
letter was sent.
On January 19, 2011, twelve days after the proof of claim was filed, the debtor filed an
adversary proceeding against Chase Bank asserting that the proof of claim violated the North
Carolina Unfair and Deceptive Trade Practices Act (“UDTPA”) and the discharge injunction, and
objecting to Chase Bank’s claim. The debtor seeks actual damages, maximum statutory damages
of $4000, punitive damages, and attorneys’ fees. Chase Bank did not respond to the complaint, the
debtor sought entry of default, and Chase Bank did not appear at the scheduled hearing. Thus far,
Chase Bank’s involvement in this proceeding and the bankruptcy case is limited to the proof of
claim it filed on January 7.
3
Case 11-00009-8-JRL Doc 12 Filed 05/17/11 Entered 05/17/11 16:00:46 Page 3 of 6

At the March 31 hearing, the court announced that it would readily sustain an objection to
claim. The court questioned why this matter had been brought before the court as an adversary
proceeding, and expressed its considerable doubt that Chase Bank’s action in filing a proof of claim
in response to its receipt of a notice of bankruptcy filing sufficed to constitute a violation of North
Carolina’s UDTPA and the discharge injunction. In fact, the court suggested to counsel, Chase
Bank’s inclusion in the creditor matrix and receipt of notice could possibly have been construed by
Chase Bank as a cue to file a proof of claim. Counsel did not offer any case law in support of either
of the two claims forming the basis of its complaint, and the court allowed counsel an additional ten
days in which to brief this issue more fully. The court also requested that counsel provide further
information about the measures it undertook to resolve this matter with Chase Bank prior to filing
an adversary proceeding.
In a letter to the court dated April 14, 2011, counsel reported that after additional research,
the debtor no longer sought to pursue either of the two counts in the complaint. Counsel stated that
they preferred to not dismiss the complaint due to the “possible procedural ramifications” of having
to issue a new summons and “start the process from step one.” Plaintiff’s Counsel’s Letter at p. 1.
The court fails to understand counsel’s concerns, especially because the counts that will not be
pursued are the only counts in the complaint. In response to the court’s query whether sending a
notice to a creditor who reports a zero balance due on a discharged claim could be construed by that
creditor (especially a large institutional creditor such as Chase Bank) as an invitation to file a proof
of claim, counsel stated that other similarly situated creditors received the same notice but did not
make the same mistake. Counsel was unable to provide any further information about the basis for
its assumption that it contacted Chase Bank prior to filing the adversary proceeding.
4
Case 11-00009-8-JRL Doc 12 Filed 05/17/11 Entered 05/17/11 16:00:46 Page 4 of 6

In their letter, counsel updated their request for fees. Counsel seeks attorneys fees in a total
amount of $3,191. 	This includes compensation for the time spent preparing the complaint
(including research), for two lawyers to attend the hearing on March 31, and for the additional, post-
hearing research that prompted counsel to withdraw the claims asserted in the complaint.
The court’s original impression of this matter still holds true. 	All that was required in
response to Chase Bank’s claim was a simple objection to claim in the bankruptcy case. 	Perhaps
counsel initiated the adversary proceeding in an attempt to shed more light on the question of
whether a proof of claim for a discharged debt may constitute a per se violation of North Carolina’s
UDTPA or a willful violation of the discharge injunction. Given counsel’s withdrawal of those
claims, however, these questions will await resolution on another day. In this matter, the court is
unable to discern any basis on which to find that the creditor did anything wrong other than to file
a proof of claim for a discharged debt, after receiving a notice that the court believes was prompted
by counsel’s “better to over-notice” policy. As the court pointed out to counsel, a creditor receiving
a notice of bankruptcy filing does not necessarily know that it has been listed “For Notice Only.”
The circumstances of this case lead the court to conclude that Chase Bank’s filing of a proof of
claim was a simple and understandable error.
The court will deem the initiation of the adversary proceeding as an objection to claim and
will allow the objection. The court will also award attorneys’ fees in the amount of $500, though
the court suspects this amount is overly generous. 	The court’s award is based on its liberal
estimation of the time necessary to draft and file an objection to claim and order allowing objection.
Again, had an objection to claim simply been filed in the debtor’s chapter 13 case, this matter could
have been efficiently resolved even if Chase Bank failed to respond. Counsel may wish to examine
5
Case 11-00009-8-JRL Doc 12 Filed 05/17/11 Entered 05/17/11 16:00:46 Page 5 of 6

and perhaps refine their practice of including creditors such as Chase Bank, to whom no debt is
owed, on creditor matrices and then filing adversary proceedings if such creditor does not respond,
within the brief period of ten days, to a letter requesting withdrawal of the claim. The court finds
this scenario to be vaguely reminiscent of a sting operation, to which a creditor might legitimately
protest that it fell victim to entrapment.
The objection to claim is ALLOWED. The motions for entry of default and for a default
judgment are DENIED and this adversary proceeding is DISMISSED. Chase Bank is ordered to
pay attorneys’ fees in the amount of $500 to debtor’s counsel within 10 days.
SO ORDERED.
END OF DOCUMENT
6
Case 11-00009-8-JRL Doc 12 Filed 05/17/11 Entered 05/17/11 16:00:46 Page 6 of 6