Michael Fuller, Oregon Bar No. 09357 Special Counsel for ... · PDF fileDoes clear and convincing evidence prove that Wells Fargo willfully violated this Court’s discharge ... discharge

DEBTORS’ MOTION FOR ORDER OF CONTEMPT AND JUDGMENT AGAINST WELLS FARGO BANK N.A. - Page 1 of 11

Olsen Daines PC US Bancorp Tower 111 SW 5th Ave., Suite 3150 Portland, Oregon 97204

Michael Fuller, Oregon Bar No. 09357 Special Counsel for Debtors Olsen Daines PC US Bancorp Tower 111 SW 5th Ave., Suite 3150 Portland, Oregon 97204 [email protected] Direct 503-201-4570

UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF OREGON In re Robert Michael Ruegger Christy Annette Ruegger Debtors.

Case No. 10-65929-fra13 DEBTORS’ MOTION FOR ORDER OF CONTEMPT AND JUDGMENT AGAINST WELLS FARGO BANK N.A. Discharge Injunction Violation Evidentiary Hearing Requested

LBR 7007-1 CERTIFICATION

As of the date of this motion, Wells Fargo has refused written and verbal requests to

communicate through counsel. Ruegger decl. ¶¶ 7, 10-11; Exhibit 2.

“Wells Fargo’s conduct exhibits a clear disregard for the bankruptcy process and the sanctity of Debtor’s discharge.”

In re Haemmerle, 529 B.R. 17 (Bankr. E.D.N.Y. 2015)

Case 10-65929-fra13 Doc 63 Filed 03/15/16



MOTION

Under 11 U.S.C. §§ 105 and 524 and this Court’s inherent and equitable power, Robert

and Christy Ruegger (“debtors”) move for entry of an order of contempt and money judgment

against Wells Fargo Bank N.A. (“Wells Fargo”) based on clear and convincing evidence that

after receiving actual notice of this Court’s discharge order, Wells Fargo (1) repeatedly indicated

to debtors over the phone that its mortgage debt was not discharged, (2) threatened to assign its

discharged mortgage debt to collections, (3) attempted to make payment arrangements on its

discharged mortgage debt from debtors over the phone, (4) attempted to collect its discharged

mortgage debt from debtors in writing, (5) furnished false derogatory credit information about its

discharged mortgage debt to Equifax and Experian, and (6) refused to promptly correct its false

derogatory credit reporting.

PRAYER FOR RELIEF

Pursuant to LBR 9020-1, debtors pray for damages and relief as follows:

A. IT IS ORDERED that Wells Fargo is held in contempt of the discharge injunction;

B. IT IS ORDERED AND ADJUDGED that Wells Fargo must pay debtors compensatory

damages for their emotional harm and economic loss, and/or mild sanctions;

C. IT IS ORDERED AND ADJUDGED that after a short evidentiary hearing, Wells Fargo

must reimburse the law firm of Olsen Daines PC for its reasonable attorney fees and costs

in this contempt proceeding.




QUESTION TO BE DECIDED

Does clear and convincing evidence prove that Wells Fargo willfully violated this Court’s

discharge order entered February 2, 2016? (Yes)

RELEVANT FACTS

A. Bankruptcy Protection

In 2010, debtors sought bankruptcy protection under Chapter 13 of Title 11 and later

surrendered the real property that secured their mortgage debt with Wells Fargo. Doc. 1, 34.1 On

May 27, 2015, Wells Fargo was granted relief from stay to foreclose on its security interest. Doc.

41, 48.

B. Discharge Order

On February 2, 2016, this Court entered an order discharging debtors’ personal liability

to pay Wells Fargo’s mortgage debt. Doc. 57. Wells Fargo received actual notice of this Court’s

discharge order from the bankruptcy noticing center and from debtors over the phone on multiple

occasions. Id.; Ruegger decl. ¶¶ 4, 7.

C. Debt Collection After Bankruptcy

After receiving actual notice of the discharge order, Wells Fargo repeatedly indicated to

debtors over the phone that its mortgage debt was not discharged, attempted to make payment

arrangements on its discharged mortgage debt from debtors over the phone, and attempted to

collect its discharged mortgage debt from debtors in writing. Ruegger decl. ¶¶ 3-4, 7.

1 All references to “Doc.” are to the docket in District of Oregon bankruptcy case number 10-65929-fra13.




D. False Credit Reporting After Bankruptcy

After receiving actual notice of the discharge order, Wells Fargo furnished false derogatory

credit information about its discharged mortgage debt to Equifax and Experian, and willfully

refused to promptly correct its false derogatory credit reporting. Ruegger decl. ¶¶ 5, 7, 9; Exhibit

1.

E. Assignment of Debt After Bankruptcy

After receiving actual notice of the discharge order, Wells Fargo coercively threatened to

assign debtors’ discharged mortgage debt to collections. Ruegger decl. ¶ 7.

F. Refusal to Communicate Through Counsel

On March 1, 2016, Wells Fargo told debtors over the phone that after consulting the

bank’s attorney, debtors remained personally liable to pay its discharged debt. Ruegger decl. ¶ 4.

On March 4, 2016 over the phone, debtors provided Wells Fargo contact information for its

attorney. Id. at ¶ 7. In a letter dated March 4, 2016, debtors’ special counsel wrote to Wells Fargo

requesting to be put in touch with the bank’s attorney. Exhibit 2.

As of the date of this motion, Wells Fargo has refused debtors’ multiple written and

verbal requests to communicate through counsel. Ruegger decl. ¶ 10; Exhibit 2.




LEGAL POINTS AND AUTHORITIES

A. Authority to Enforce the Discharge Order

Section 105 of Title 11 empowers bankruptcy courts to issue orders and judgments as

necessary to enforce section 524’s discharge order provisions. Bankruptcy courts also possess

inherent powers to sanction bad faith conduct, so long as the sanctions don’t contravene express

Code provisions. Law v. Siegel, 134 S. Ct. 1188, 1194 (2014).

B. Effect of Discharge

Section 524 of Title 11 provides for a broad injunction to ensure debtors receive a fresh

start. Alan N. Resnick & Henry J. Sommer, 4 Collier on Bankruptcy ¶524.02[2] (16th ed. 2012).

1. Legislative history

Legislative history demonstrates that the purpose of the discharge order was to “eliminate

any doubt concerning the effect of the discharge as a total prohibition on debt collection efforts.”

H.R. Rep. No. 95-595, at 365-66 (1977), as reprinted in 1978 U.S.C.C.A.N. 5963, 6321. The

discharge injunction “is intended to insure that once a debt is discharged, the debtor will not be

pressured in any way to repay it. In effect, the discharge extinguishes the debt, and creditors may

not attempt to avoid that.” Id. at 366 (emphasis added).

“Given its important role in achieving the Bankruptcy Code’s overall policy aim of

giving a debtor a ‘fresh start,’ § 524(a)(2) is an expansive provision that is sensitive to the

diversity of ways a creditor might seek to collect a discharged debt.” Green Point Credit, LLC v.

McLean (In re McLean), 794 F.3d 1313, 1321 (11th Cir. 2015) (creditor’s proof of claim on




discharged debt constituted coercive conduct in violation of § 524(a)(2) even though creditor

made no explicit demand for payment to debtor).

2. Debt collection prohibited

The plain language of § 524 prohibits any act to collect or recover payment of discharged

debt. 11 U.S.C. § 524(a)(2). After bankruptcy, mortgage servicers may generally contact

borrowers to collect voluntary payments and discuss voluntary loan modifications. In re Garske,

287 B.R. 537 (9th Cir. BAP 2002). However, objectively coercive conduct with respect to

surrendered property violates § 524, even in the absence of direct threats or demands for

payment on secured debts. See, e.g., In re Pratt, 462 F.3d 14 (1st Cir. 2006); In re Culpepper,

481 B.R. 650 (Bankr. D. Or. 2012) (aff’d, Mosman, J.) (mortgage servicer’s unwanted

communications after bankruptcy that served no legitimate purpose violated the discharge order.)

3. False credit reporting prohibited

“Trap hunting” after bankruptcy is an illegal but effective method of collecting

discharged mortgage debts. “The errors are not clerical mistakes, but debt-collection tactics,

current and former bankruptcy judges suspect. The banks refuse to fix the mistakes, the

borrowers say, unless they pay for the purged debts.” Jessica Silver-Greenberg, Debts Canceled

by Bankruptcy Still Mar Consumer Credit Scores, N.Y. Times, Nov. 12, 2014.

The discharge order prohibits creditors from willfully failing to take prompt action to

correct false derogatory credit reporting of discharged debt. See, e.g., Puller v. Credit Collections

USA, Inc. (In re Puller), Nos. 05-1881, 06-157, 2007 Bankr. LEXIS 2017 (U.S. Bankr. N.D.W.

Va. June 20, 2007); McKenzie-Gilyard v. HSBC Bank Nev., N.A. (In re McKenzie-Gilyard), 388




B.R. 474 (Bankr. E.D.N.Y. 2007); Torres v. Chase Bank USA, N.A. (In re Torres), 367 B.R. 478

(Bankr. S.D.N.Y. 2007); Haynes v. Chase Bank USA, N.A. (In re Haynes), Nos. 11-23212

(RDD), 13-08370-rdd, 2014 Bankr. LEXIS 3111 (U.S. Bankr. S.D.N.Y. July 22, 2014).

4. Assignment of debt prohibited

The discharge order prohibits creditors from assigning or coercively threatening to assign

discharged accounts to collection agencies after bankruptcy. See, e.g., In re Laboy, 2010 Bankr.

LEXIS 345 (Bankr. D.P.R. Feb. 2, 2010) (denying motion to dismiss § 524 claim based on

creditor’s post-discharge assignment of debtor’s account to a collection agency); In re Nassoko,

405 B.R. 515 (Bankr. S.D.N.Y. 2009) (denying motion to dismiss contempt claim based on

creditor’s assignment of discharged debt to third party collector after bankruptcy); In re Faust,

270 B.R. 310 (Bankr. M.D. Ga. 1998) (holding creditor in contempt based on its assignment of

discharged debt to collection agency after bankruptcy); In re Lafferty, 229 B.R. 707 (Bankr. N.D.

Ohio 1998) (creditor held in contempt of discharge injunction by referring debtor’s account to a

collection agency after bankruptcy), etc.

C. Enforcement of the Discharge Order

In the Ninth Circuit, debtors must enforce discharge orders by filing motions for

contempt. Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 506-07 (9th Cir. 2002); Barrientos v.

Wells Fargo Bank, 633 F.3d 1186, 1191 (9th Cir. 2011); Fed. R. Bnkr. P. 9020.




D. Elements of Contempt

Contempt requires proof a creditor (1) had knowledge of a bankruptcy court order and (2)

intended conduct that violated the order. ZiLOG, Inc. v. Corning, 450 F.3d 996, 1007 (9th Cir.

2006).

E. Legal Standard for Contempt

To recover sanctions against a creditor, a violation must be proved with clear and

convincing evidence. Renwick v. Bennett, (In re Bennett), 298 F.3d 1059, 1069 (9th Cir. 2002).

Creditors are generally entitled to an evidentiary hearing as to whether they received

actual notice of a court order. Yen v. Pedroche (In re Pedroche), 2014 Bankr. LEXIS 4689 (9th

Cir. BAP Nov. 10, 2014).

F. Sanctions for Contempt

A willful violation of the discharge order entitles aggrieved debtors to compensatory

sanctions including actual damages, mild coercive sanctions, and reimbursed attorney fees and

costs through trial. Knupfer v. Lindblade (In re Dyer), 322 F.3d 1178, 1197 (9th Cir. 2003); In re

Segal, BAP No. CC-14-1175-KuPaTa, pg. 19 (9th Cir. BAP Jan. 29, 2015); In re Culpepper,

2013 Bankr. LEXIS 541, 2013 WL 501662 (Bankr. D. Or. Feb. 11, 2013) (aff’d, Mosman, J.).

1. Compensation for emotional harm

A debtor is entitled to recover compensation for emotional harm resulting from a

violation, even in the absence of any economic loss. In re Feldmeier, 335 B.R. 807, 813-814

(Bankr. D. Or. 2005) (awarding $10,000 emotional harm damages under § 524 without any




economic loss); In re Culpepper, 481 B.R. 650, 655 (Bankr. D. Or. 2012) (aff’d, Mosman, J.)

(awarding $4,000 emotional harm damages under § 524 without any economic loss).

ARGUMENT

This Court should hold Wells Fargo in contempt of the discharge order. Clear and

convincing evidence shows Wells Fargo received actual notice of this Court’s February 2, 2016

discharge order from the bankruptcy noticing center [Doc. 57] electronically and by mail, and

from debtors’ over the phone and by mail. Ruegger decl. ¶¶ 4, 7, 9-10.

The discharge order is unambiguous and Wells Fargo is intimately familiar with its broad

prohibitions. See, e.g., In re Haemmerle, 529 B.R. 17 (Bankr. E.D.N.Y. 2015) (holding Wells

Fargo in contempt of the discharge order and awarding debtor $69,500 punitive damages plus

attorney fees and costs); Schinabeck v. Wells Fargo Bank, N.A. (In re Schinabeck), Nos. 08-

41942, 11-4022, 2014 Bankr. LEXIS 4444 (U.S. Bankr. E.D. Tex. Oct. 20, 2014) (holding Wells

Fargo in contempt of the discharge order based on its unwanted post-bankruptcy mortgage

statements); In re Culpepper, 481 B.R. 650, 655 (Bankr. D. Or. 2012) (aff’d, Mosman, J.)

(holding Wells Fargo in contempt of the discharge order based on its post-bankruptcy mortgage

servicing of debtor’s surrendered property); etc.

Wells Fargo willfully violated the discharge order entered in debtors’ bankruptcy case by

(1) repeatedly indicating to debtors over the phone that its mortgage debt was not discharged, (2)

threatening to assign its discharged mortgage debt to collections, (3) attempting to make payment

arrangements on its discharged mortgage debt from debtors over the phone, (4) attempting to

collect its discharged mortgage debt from debtors in writing, (5) furnishing false derogatory




credit information about its discharged mortgage debt to Equifax and Experian, and (6) refusing

to promptly correct its false derogatory credit reporting.

For the reasons above, after notice and opportunity to appear at an evidentiary hearing,

debtors respectfully request entry of an order of contempt and a money judgment against Wells

Fargo.

CONCLUSION

Under 11 U.S.C. §§ 105 and 524 and this Court’s inherent and equitable power, debtors

respectfully request entry of an order holding Wells Fargo in contempt of this Court’s discharge

order and entry of a money judgment awarding debtors fair compensation for their emotional

harm and economic losses to be proved at trial. See Ruegger decl. ¶ 6.

After evidentiary hearing, debtors request entry of a money judgment awarding the law

firm of Olsen Daines PC reimbursement of its reasonable attorney fees and costs in this contempt

proceeding. Debtors also move for any other equitable relief that this Court may determine is fair

and just.

DATED: March 15, 2016

RESPECTFULLY FILED,

/s/ Michael Fuller Michael Fuller, Oregon Bar No. 09357 Special Counsel for Debtors Olsen Daines PC US Bancorp Tower 111 SW 5th Ave., Suite 3150 Portland, Oregon 97204 [email protected] Direct 503-201-4570




CERTIFICATE OF SERVICE

I certify that on the date below, I caused this document and all attachments to be served on creditor at the address below by U.S. Mail, first class regular and certified mail, postage pre-paid: Wells Fargo Bank N.A.

c/o CEO John G. Stumpf 101 North Phillips Ave Sioux Falls, SD 57104

DATED: March 15, 2016 /s/ Michael Fuller

Michael Fuller, Oregon Bar No. 09357 Special Counsel for Debtors Olsen Daines PC US Bancorp Tower 111 SW 5th Ave., Suite 3150 Portland, Oregon 97204 [email protected] Direct 503-201-4570


In re

UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF OREGON

Case No. 10-65929-fra13

OF CHRISTY Robert Michael Ruegger Christy Annette Ruegger

DECLARATION RUEGGER

Debtors. IN SUPPORT OF DEBTORS' MOTION FOR ORDER OF CONTEMPT AND JUDGMENT AGAINST WELLS FARGO BANKN.A.

DECLARATION

I, Christy Ruegger, declare the following under penalty of perjury to be used as evidence

in court:

1. I know the facts I am testifying about based on my personal knowledge.

2. In 2010, my husband and I filed bankruptcy and later surrendered our real property that

secured our mortgage debt with Wells Fargo.

3. After entry of our bankruptcy discharge, my husband and I started receiving collection

letters from Wells Fargo demanding payment on its discharged mortgage debt.

4. My husband and I called Wells Fargo on or around March 1, 2016 to dispute its

collection letters and provided notice of our bankruptcy discharge. Wells Fargo put us on

a lengthy hold, then said it spoke with its attorney and its attorney said it would continue

its collection attempts against us. My husband and I were shocked. We protested but

Wells Fargo was adamant that we remained personally liable for its discharged mortgage

debt.

DECLARATION OF CHRISTY RUEGGER- Page 1of3


5. After our March 1, 2016 phone call, my husband and I checked our credit reports and

discovered that Wells Fargo continues to report false derogatory information about our

discharged mortgage debt.

6. Wells Fargo's ongoing harassment after bankruptcy is causing me and my husband

severe stress and frustration. Now we've had to incur attorney fees to special counsel

after bankruptcy just to realize our fresh start.

7. I called Wells Fargo again on March 4, 2016. I asked Wells Fargo to fix the false

derogatory credit information about us that it furnished to the reporting agencies. Wells

Fargo could not comply with my request and would not confirm that its debt was

discharged in our bankruptcy. During the call, Wells Fargo asked me to setup payment

arrangements to pay its discharged mortgage debt. I told Wells Fargo that my attorney

said the mortgage debt was discharged. I gave Wells Fargo my attorney's name and

number. Wells Fargo told me that it had assigned its mortgage debt to collections and that

my husband and I would continue to receive collection demands.

8. We would never have filed bankruptcy if our Wells Fargo debt was not discharged!

Please help.

9. The document attached as Exhibit 1 is a true and correct redacted copy of a letter I sent

requesting correction of the false derogatory information Wells Fargo reported about its

discharged mortgage debt. As of the date of this declaration, Wells Fargo has not

corrected its false derogatory credit reporting.

DECLARATION OF CHRISTY RUEGGER - Page 2 of 3


10. The document attached as Exhibit 2 is a true and correct redacted copy of a letter my

attorney sent to Wells Fargo requesting the bank to communicate through counsel. As of

the date ofthis declaration, Wells Fargo's counsel has not contacted my attorney.

11. Pursuant to 28 U.S.C. § 1746, I declare under penalty of perjury that the foregoing is true

and correct.

DATED: March l'-1 , 2016

DECLARATION OF CHRISTY RUEGGER~ Page 3of3








Ex. 2 - Page 1 of 5Case 10-65929-fra13 Doc 63 Filed 03/15/16





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Michael Fuller, Oregon Bar No. 09357 Special Counsel for ... · PDF fileDoes clear and convincing evidence prove that Wells Fargo willfully violated this Court’s discharge ... discharge