$ 119,000 Sanctions for Discharge Injunction Violations
Continuous confusing contact with the discharged debtors by the mortgage servicer was appropriately sanctioned at $ 1,000 per violation notwithstanding the servicer ’ s formulaic and contradictory disclaimers in some of the correspondence . Ocwen Loan Servicing v . Marino , Nos . 16- 1229 , 16-1238 ( B . A . P . 9th Cir . Dec . 22 , 2017 ).
Debtors , Christopher and Valerie Marino , surrendered their real property in their chapter 7 bankruptcy . After they received their discharge in June , 2013 , the court granted the mortgagee relief from the automatic stay and closed the case . From June , 2013 , through April , 2015 , Ocwen , as servicer for the mortgagee , sent nineteen letters stating the amount owed on the debt as the “ amount you must pay ,” and providing payment due dates . Some of the letters contained the disclaimer that , “ if you have received a discharge in bankruptcy , this notification is for informational purposes only and is not intended to collect a pre-petition or discharged debt .” Ocwen also made approximately one hundred calls to the Marinos seeking payment on the discharged debt . The Marinos moved to reopen their bankruptcy and sought an order of contempt against Ocwen for violation of the discharge injunction . At trial they testified that Ocwen ’ s conduct caused them to argue to the point of considering divorce . Mr . Marino also testified to anxiety attacks , humiliation and stress . Ms . Marino testified to stomach pains and sadness . In its defense , Ocwen argued that the letters were computergenerated and not attempts to collect a debt but merely informational and in accordance with state and federal law .
The bankruptcy court awarded the Marinos $ 119,000 in compensatory damages , representing $ 1,000 per violation , but found that Ninth Circuit law precluded it from awarding punitive damages . It denied Ocwen ’ s motion for reconsideration .
Ocwen appealed the sanctions award and the bankruptcy court ’ s denial of reconsideration . The Marinos appealed the failure to award punitive damages .
On appeal , the BAP began with the sanctions award . The Ninth Circuit has a two-part test for addressing claims of discharge injunction violations : “ the movant must prove [ by clear and convincing evidence ] that the creditor ( 1 ) knew the discharge injunction was applicable and ( 2 ) intended the actions which violated the injunction .” Violations of the discharge injunction may be remedied under the court ’ s contempt powers under section 105 ( a ).
As there was no dispute that Ocwen knew of the discharge , the court addressed whether the letters and calls violated the injunction , bearing in mind that the purpose of the discharge injunction is to give the debtors freedom from the weight of their financial woes . The panel noted that discharge relieves debtors from in personam liability leaving in rem liability intact . Recognizing that in some circumstances it is necessary for a lienholder to contact a discharged debtor , the panel explained that such communication must be solely to protect or enforce the lien and may not be coercive or harassing with respect to the underlying debt payments . The BAP agreed with the bankruptcy court that Ocwen ’ s letters to the Marinos went beyond that which was necessary to protect its lien . The letters suggested that the Marinos were responsible for payments on the debt and for such things as force-placed insurance and taxes . The panel took into consideration the volume of letters in finding that even if some of them did not seek payments , the cumulative effect was to create the impression that the Marinos were still responsible for the debt .
The disclaimers did not change this conclusion . Some of the letters did not contain disclaimers at all , and the ones that did improperly treated bankruptcy discharge as a theoretical possibility . But in fact Ocwen had actual knowledge of the Marinos ’ bankruptcy discharge . Moreover , Ocwen ’ s disclaimers were juxtaposed against statements that payments must be made in specific amounts by specific dates . The panel found that a reasonable debtor would be confused by this contradiction .
Nor was the panel persuaded by Ocwen ’ s attempt to distance itself from the letters by calling them “ generic .” The panel found that Ocwen ’ s failure to tailor its correspondence according to specific situations , and its placement of payment demands at the beginning of the letters and the disclaimer at the end , smacked of a deliberate attempt to confuse recipients and induce payments .
To the extent any of the letters contained information Ocwen was required by law to send , such as notice of force-placed insurance , such legitimate notifications did not negate the inclusion of improper payment demands .
18 CONSUMER BANKRUPTCY JOURNAL Winter 2018 National Association of Consumer Bankruptcy Attorneys