United States District Court, D. New Hampshire
Timothy J. Bates, Debtor, Cathy N. Bates, Debtor, also known
as Cathy Lynn Bates, also known as Cathy Lynn Nichols,
Appellants: Terrie L. Harman, LEAD ATTORNEY, Harman Law
Offices, Portsmouth, NH.
CitiMortgage, Inc., s/b/m to ABN AMRO Mortgage Group, Inc.
other ABN AMRO Mortgage Group, Inc., Federal Home Loan
Mortgage Corporation, Appellee: Andrea Lasker, LEAD ATTORNEY,
Harmon Law Offices PC, Newton, MA; David D. Christensen, LEAD
ATTORNEY, PRO HAC VICE, K& L Gates LLP (MA), Boston, MA;
Gregory N. Blase, LEAD ATTORNEY, K& L Gates LLP (MA), Boston,
Victor W. Dahar, Trustee: Victor W. Dahar, LEAD ATTORNEY,
Victor W. Dahar, PA, Manchester, NH.
U.S. Trustee, U.S. Trustee: Geraldine L. Karonis, LEAD
ATTORNEY, U.S. Trustee (NH), Manchester, NH.
J. McAuliffe, United States District Judge.
Timothy and Cathy Bates, filed an adversary proceeding in
bankruptcy court, alleging that CitiMortgage, Inc. ("
Citi" ) and Federal Home Loan Mortgage Corp. ("
Freddie Mac" ) committed several violations of the
discharge injunction provisions of 11 U.S.C. § 524(a),
by improperly harassing them and/or coercing them to pay a
discharged debt. The bankruptcy court ruled in favor of
defendants on all of plaintiffs' claims, except one. As
to that one claim, the bankruptcy court held that Citi
violated the discharge injunction by telephoning plaintiffs
with an inquiry related to homeowners' insurance on
property plaintiffs had lost to foreclosure two years
earlier. See Bankruptcy Court Order dated Sept. 23, 2014
(document no. 1) at 33-44 (the " Liability Order"
). Following a damages hearing, the court held that
plaintiffs failed to demonstrate an entitlement to
compensatory damages. But, the court did order defendants to
pay plaintiffs $2,500 in punitive damages and roughly $6,300
in attorney's fees and expenses. See Bankruptcy Court
Order dated April 16, 2015 (document no. 1) at 15-32 (the
" Damages Order" ).
appeal, plaintiffs assert that the bankruptcy court erred in
ruling against them on one of their claims that Freddie Mac
also violated the discharge injunction of 11 U.S.C. §
524(a). Plaintiff's also challenge the bankruptcy
court's conclusion that they failed to prove they were
entitled to an award of compensatory damages for emotional
distress stemming from Citi's violation of the discharge
injunction. Finally, plaintiff's challenge - as
insufficient - the bankruptcy court's award of punitive
damages, attorney's fees, and expenses.
their part, defendants do not challenge any of the bankruptcy
court's holdings and move this court to affirm all
aspects of that court's decisions - including the
relatively modest award of punitive damages and
the reasons discussed, the challenged orders of the
bankruptcy court are affirmed in all respects.
to seeking bankruptcy protection, plaintiffs obtained a loan
from Citi, which was secured by a mortgage deed to their home
in Newport, New Hampshire. In November of 2008, plaintiffs
filed chapter 7 bankruptcy and listed Citi as a secured
creditor. They did not, however, reaffirm their mortgage debt
with Citi while in bankruptcy. In February of 2009, Citi was
granted relief from the automatic stay (and, therefore, was
no longer precluded from foreclosing on plaintiffs'
residence). On April 2, 2009, plaintiffs received a
discharge, notice of which was sent to Citi. So, while
plaintiffs were no longer personally obligated on the debt to
Citi (since that personal obligation had been discharged in
bankruptcy), Citi retained the right to foreclose upon the
collateral that had been pledged to secure repayment of that
loan: plaintiffs' residence.
their bankruptcy case was closed, plaintiffs received a
notice of foreclosure. In an effort to keep their home,
plaintiffs negotiated a " loan modification"
agreement with Citi in November of 2009. That agreement
specifically provided that it did not affect the bankruptcy
discharge of plaintiffs' personal liability on the
original debt to Citi. Plaintiffs made payments under that
agreement until some point in 2010. After payments stopped,
Citi began foreclosure proceedings and, on April 25, 2011, it
foreclosed on plaintiffs' home. Plaintiffs moved out of
their home in October of 2011.
three months later, in January of 2012, Freddie Mac sent to
each plaintiff an IRS Form 1099-A. That form provided that,
" certain lenders who acquire an interest in property
that was security for a loan . . . . must provide you with
this statement." (emphasis supplied). Here, that
obligation was triggered by the foreclosure on
plaintiffs' home. The Form 1099-A informed plaintiffs
that they may (or may not) have either " reportable
income or loss because of such acquisition." It also
reported the unpaid balance on the loan for which plaintiffs
were initially personally liable, and the fair market value
of the collateral that was sold to pay down that debt (i.e.,
plaintiffs' home). The Form 1099-A informed plaintiffs
that the difference - representing the amount of the debt
that was discharged, forgiven, cancelled, or deemed
uncollectible - could, under certain circumstances, be
treated as taxable income. Accordingly, the Form 1099-A
advised plaintiffs to " [p]lease consult with your tax
advisor or the Internal Revenue Service for any tax-related
short, that IRS form constituted a notice that Freddie Mac
was required to provide to plaintiffs following the
foreclosure upon their home, and it merely notified them that
there could be tax consequences arising from that event. It
was plainly not an effort by Freddie Mac to "
collect" any debt from plaintiffs. And, merely providing
notice to plaintiffs hardly seemed to impose any tax
liability upon them. Nevertheless, plaintiffs said they
believed Freddie Mac's issuance of that form violated the
discharge injunction because Box 5 on the form was checked.
That box provides, " If checked, the borrower was
personally liable for repayment of the debt." According
to plaintiffs, that was inaccurate, since their personal
obligation to repay that debt had been discharged in
of 2013, plaintiffs moved to reopen their bankruptcy case so
they could file a complaint seeking damages arising out of
violations of the discharge injunction allegedly committed by