Montano et al v. First Light Federal Credit Union

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
RALPH MONTANO and
ELSIE M. MONTANO,
Debtors. 	No. 7-04-17866 SL
RALPH MONTANO and
ELSIE MONTANO,
Plaintiffs,
v. 	No. 7-1026 S
FIRST LIGHT FEDERAL CREDIT UNION,
Defendant.
MEMORANDUM OPINION ON PLAINTIFFS’
MOTION FOR LEAVE TO FILE
FIRST AMENDED COMPLAINT
This matter is before the Court on Plaintiffs’ Motion for
Leave to File First Amended Complaint (“Motion”)(doc 5).
Defendant First Light Federal Credit Union filed a response (doc
10) to which Plaintiff’s replied (doc 11). Plaintiff’s proposed
amended complaint, attached as an exhibit, seeks to add
additional plaintiffs and seeks certification of a class of
plaintiffs similarly situated. 	Having considered the argument of
the parties and being otherwise sufficiently informed, the Court
finds that the Motion should be granted in part and denied in
part. 	This is a core proceeding. 	28 U.S.C. § 157(b)(2)(O).
Generally, leave is freely granted when a Plaintiff seeks to
amend a complaint. 	See Fed. R. Bankr. P. 7015(a); Foman v.
Davis, 371 U.S. 178, 182 (1962). 	Refusal to allow amendment is
justified, however, if the amendment would be futile. 	Id.; see
also Frank v. U.S. West, Inc., 3 F.3d 1357, 1365 (10 th Cir.
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1993). 	As discussed below, the Court finds that it has no
jurisdiction over the claims of putative class members who
received bankruptcy discharges from outside of the District of
New Mexico. 	Adding those out of state members would result in
immediate dismissal and is therefore futile. 	Therefore, leave to
file the proposed amended complaint will be granted in part, to
the extent it seeks to add class members that received discharges
from the District of New Mexico and will be denied in part, to
the extent it seeks to add class members that received discharges
from outside of the District of New Mexico.
The proposed First Amended Complaint (doc 5, exhibit 1)
summarizes the relief requested in a “Preliminary Statement”,
which reads as follows:
This is a class action based upon Defendant’s
continued willful violation of the Bankruptcy Court’s
order of discharge in the Districts of New Mexico and
Western District of Texas. 	Plaintiff brings this
action on behalf of hundreds, if not thousands, of the
Defendant’s members or former members who have filed
for bankruptcy relief and who have been denied their
opportunity for a fresh start as contemplated by
Congress when it enacted the bankruptcy code. 	In
essence, the claims against Defendant result from the
Defendant attempting to collect discharged debts by
failing to correctly report the discharged debts on the
debtors’ credit reports. 	In many instances when
debtors have contacted Defendant in an effort to clear
up the negative reporting, Defendant has refused to
correct the information and instead indicated that it
can only be cleared up if the debt is paid. 	In turn,
this practice has caused significant damage to the
hundreds, if not thousands, of debtors who have
attempted to obtain credit after a bankruptcy; and 1)
who have been turned down for credit; 2) who have had
to pay a higher rate of interest; or 3) who have
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actually paid over to the Defendant the amount of the
discharged debt. 	The Defendant’s practices are a
violation of the bankruptcy court’s discharge order;
furthermore, these practices undermine the
congressional goal of allowing debtors a “fresh start”
after the debts have been discharged in a bankruptcy
proceeding.
Basically, Plaintiffs seek to enforce their discharges. 	Section
524, which describes the effect of discharge, does not create a
cause of action for damages. 	See Culley v. Allsup’s Convenience
Stores, Inc. (In re Culley), Memorandum Opinion at 18 (Adv. 03-
1371, Bankr. D. N.M. Oct. 14, 2005), aff’d, 347 B.R. 115 (10 th
Cir. B.A.P. 2006)(unpublished). 	Compare 11 U.S.C. § 362(h) (“An
individual injured by any willful violation of a stay provided by
this section shall recover actual damages, including costs and
attorneys' fees, and, in appropriate circumstances, may recover
punitive damages.") 	Before 1984, neither section 362 or 524
created a cause of action for damages. 	In 1984, Congress amended
11 U.S.C. § 362 in section 304 of the Bankruptcy Amendments and
Federal Judgeship Act of 1984 (BAFJA), PL 98-353, to include
subsection (h). 	BAFJA section 308 also amended certain
provisions of 11 U.S.C. § 524, but did not provide a similar
remedy for its violation.
Where Congress includes particular language in one
section of a statute but omits it in another
section of the same Act, it is generally presumed
that Congress acts intentionally and purposely in
the disparate inclusion or exclusion.
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Russello v. United States, 464 U.S. 16, 23 (1983)(quoting United
States v. Wong Kimm Bo, 472 F. 2d 720, 722 (5 th Cir. 1972)).
Therefore, section 524 does not create its own right of action
for its violation.
But, a bankruptcy discharge is a federal court order. 	See,
e.g., Tennessee Student Assistance Corp. v. Hood, 541 U.S. 440,
449 n.4 (2004)(“[A] discharge order under the Bankruptcy Code
‘operates as an injunction’ against creditors who commence or
continue an action against a debtor in personam to recover or to
collect a discharged debt.”) 	A creditor that attempts collection
of a discharged debt is in contempt of the bankruptcy court that
issued the discharge, and that court can impose sanctions under
Bankruptcy Code § 105. 	Schott v. WyHy Federal Credit Union (In
re Schott), 282 B.R. 1, 5-6 (10 th Cir. B.A.P. 2002). 	See also
Mountain America Credit Union v. Skinner (In re Skinner), 917
F.2d 444, 447 (10 th Cir. 1990)(Bankruptcy courts have statutory
authorization to enter civil contempt orders.) 	Therefore,
although debtors have no right of action under § 524, they have a
right to enforce violations of § 524 through the court’s contempt
powers.
As a general rule, only the court that issues the disobeyed
order or injunction has jurisdiction to hold a violator in
contempt. 	Barrett v. Avco Fin’l Services Mgt. Co. (In re
Barrett), 292 B.R. 1, 8 (D. Mass. 2003); Singleton v. Wells Fargo
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1The results may be different in the context of a chapter 13
debtor filing a class action in an ongoing chapter 13 case. 	See
Noletto v. NationsBanc Mortgage Corp. (In re Noletto), 281 B.R.
36 (Bankr. S.D. Ala. 2000). 	Noletto, however, has been
criticized as “erroneous”, 6 Newburg on Class Actions § 20:1 (4 th
ed.)(text following fn. 72), and “incorrect,” Current Trends at
1256.
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Bank, N.A. (In re Singleton), 284 B.R. 322, 325 (D. R.I. 2002);
Beck v. Gold Key Lease, Inc. (In re Beck), 283 B.R. 163, 166
(Bankr. E.D. Pa. 2002). 	See also Corinne Ball and Michele J.
Meises, Current Trends in Consumer Class Actions in the
Bankruptcy Arena, 56 Bus. Law. 1245, 1261 (2001)(“Contempt,
however, must be sought from the various bankruptcy courts that
issued the discharge injunctions in the unrelated bankruptcy
cases filed by each member of the putative class.”)(Hereafter,
“Current Trends”.) 	Therefore, in the context of class actions
for violation of the discharge injunction 1, courts limit the
classes to debtor-plaintiffs that have received their discharges
from the district in question. 	See Guetling v. Household
Financial Services, Inc. (In re Guetling), 312 B.R. 699, 704
(M.D. Fla. 2004)(“To the extent those alleged out-of-district
class members have claims arising from their bankruptcy
proceedings in other districts, those districts are the proper
locations to bring those claims or to potentially pursue actions
for contempt of any court orders.”); Porter v. NationsCredit
Consumer Discount Co. (In re Porter), 295 B.R. 529, 539 (Bankr.
E.D. Pa. 2003)(“[B]efore a class action may be maintained under
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federal bankruptcy court jurisdiction, the class representative
must demonstrate that the court has subject matter jurisdiction
over each class member’s claim, including the claims of the
unnamed members.”); Barrett, 292 B.R. at 8 (“The court believes
that it lacks jurisdiction over the claims of putative class
members whose bankruptcies were discharged outside the District
of Massachusetts.”); Singleton, 284 B.R. at 325 (“Subject matter
jurisdiction in this case is determined by the foregoing legal
principle that only persons subject to a court’s authority may be
found in contempt by that court.”)(Citation omitted.)(Vacating
bankruptcy court’s order to proceed with nationwide class
discovery.); Beck, 283 B.R. at 173 (“Gold Key’s position that I
may not hold it in contempt for violating discharge injunctions
issued by bankruptcy courts nationwide is also supported by the
overwhelming number of lower courts to consider the
issue.”)(Collecting cases, citations omitted.)(Court strikes
class claims only to extent debtor sought to recover on behalf of
debtors whose bankruptcy cases were filed in other judicial
districts.); Williams v. Sears, Roebuck and Co. (In re Williams),
244 B.R. 858, 867 (S.D. Ga. 2000), aff’d., 34 Fed.Appx. 967 (11 th
Cir. 2002)(“The Court, therefore, lacks jurisdiction to enforce
violations of § 524's discharge injunction under § 105 through
civil contempt proceedings unless the debtor received his
discharge from the Southern District of Georgia.”); Nelson v.
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Providian Nat’l Bank (In re Nelson), 234 B.R. 528, 534 (Bankr.
M.D. Fla. 1999)(“[T]he bankruptcy court has no jurisdiction to
entertain a private cause of action for damages by debtors who
obtained their discharge in a court other than this one.”).
The only issue before the Court today is whether Plaintiffs
should be granted leave to file their amended complaint. 	Other
issues, such as class certification, are not before the Court.
Based on Rule 7015's lenient standards, the Court finds that
Plaintiffs’ motion is well taken in part. 	They may file an
amended complaint that seeks certification only of a class of
debtors who received their discharges from the District of New
Mexico. 	A separate Order will enter.
Honorable James S. Starzynski
United States Bankruptcy Judge
copies to:
R Trey Arvizu, III
PO Box 1479
Las Cruces, NM 88004-1479
Kelly Albers
650 Montana Ave Ste D
Las Cruces, NM 88001-4294
R Thomas Dawe
Lewis and Roca Jontz Dawe, LLP
PO Box 1027
201 Third Street, NW Suite 1950
Albuquerque, NM 87103-1027
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