Bloomberg Law’s® Bankruptcy Law News publishes case summaries of the most recent important bankruptcy law decisions, tracks major commercial bankruptcies, and reports on developments in bankruptcy...
By Daniel Gill
A Vermont bankruptcy court didn’t have the authority to issue $375,000 of sanctions against a mortgage company, a Vermont district court judge held.
Specifically, the court wasn’t empowered by Bankruptcy Rule 3002.1(i) to issue punitive sanctions, nor could it do so under 11 U.S.C. §105 or the court’s inherent powers, Judge Geoffrey W. Crawford, District of Vermont, said in his Dec. 18 opinion.
This is the first time a court has considered whether Rule 3002.1(i) allows a judge to issue punitive sanctions, the court said.
The matter arose with PHH Mortgage Corp.'s acts in three separate Chapter 13 cases pending in the District of Vermont.
In Chapter 13, individuals receiving regular income can obtain debt relief while retaining their property. To do so, debtors must propose a plan that uses future income to repay all or a portion of their debts over a three- to five-year period.
In these three cases, the plans provided for payment of the debtors’ mortgages going forward, plus installments to pay off pre-bankruptcy arrearages. This type of arrangement is typical in Chapter 13.
The mortgage company improperly billed the debtors for “property inspection fees” without filing a special notice required by Rule 3002.1(c). On Sept. 12, 2016, the bankruptcy court awarded sanctions of $25,000 for each case, pursuant to Rule 3002.1(i), which authorizes the court to “award other appropriate relief, including reasonable expenses and attorneys fees caused by the failure” to file and serve the notice.
In addition, in two of the cases, the court awarded sanctions against PHH because it violated court orders by sending statements representing that post-bankruptcy fees were due. These sanctions were for $100,000 and $200,000, respectively, for a total of $375,000 which the court ordered be paid to Legal Services Law Line of Vermont.
The district court reversed the order. First, it found that Rule 3002.1(i) didn’t authorize punitive sanctions.
Then, noting that the U.S. Courts of Appeals have been deeply divided on the question of whether bankruptcy courts have the power to impose punitive sanctions under Section 105 or the court’s inherent powers, the court followed those circuits which found these were not proper sources of authority for imposing serious punitive sanctions.
The court noted the “crucial institutional differences” between Article III judges (such as district court judges) and bankruptcy court judges, who are not appointed for life.
But the court also said that its conclusions don’t “leave bankruptcy litigants free to engage in contemptuous conduct with impunity.” It points out that the district court retains authority to impose such sanctions, and the bankruptcy courts can refer matters to the district court.
The case is PHH Mortg. Corp. v. Sensenich , 2017 BL 452107, Bankr. D. Vt., 5:16-cv-00256-gwc; 5:16-cv-00257-gwc; 5:16-cv-00258-gwc, 12/18/17 .
To contact the reporter on this story: Daniel Gill in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Jay Horowitz at email@example.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)