In Re: DiBattista

Background

Bret S. DiBattista filed for Chapter 7 bankruptcy in 2009. The bankruptcy court later discharged his personal liability for the mortgage debt on his property, while the lender retained its lien and foreclosure rights. In 2018, after Selene Finance LP became the mortgage servicer, Selene sent DiBattista a letter headed “Validation of Debt Notice,” made more than 30 calls to DiBattista and members of his family, and reported that he was delinquent on mortgage payments to credit agencies.

The letter included a bankruptcy disclaimer stating that it was not an attempt to collect the debt personally if DiBattista had received a bankruptcy discharge. The disclaimer appeared at the bottom of the second page. After DiBattista’s lawyer sent a cease-and-desist letter, Selene made three more calls. Selene later said it would stop contacting DiBattista, and it instructed credit agencies to delete its earlier reporting. The bankruptcy court found Selene in contempt and ordered it to pay $9,046.60 for legal fees and expenses and $17,500 described in the written order as punitive damages.

Legal standard

The district court reviewed the bankruptcy court’s factual findings for clear error and its legal conclusions independently. It reviewed the contempt finding and sanctions for abuse of discretion, meaning whether the bankruptcy court used the wrong legal rule, clearly misunderstood the facts, or made a decision outside the range of permissible choices.

Under 11 U.S.C. § 524(a)(2), a bankruptcy discharge acts as an injunction against attempts to collect a discharged debt from the debtor personally. Under the standard described by the Supreme Court in Taggart v. Lorenzen, civil contempt may be imposed when there is no objectively reasonable basis for believing that the discharge order allowed the creditor’s conduct. The district court also stated that proof of noncompliance must be clear and convincing. A creditor’s lack of willful intent does not automatically prevent civil contempt.

Contempt finding

The district court affirmed the finding that Selene’s phone calls violated the discharge injunction. It reasoned that the calls occurred shortly after Selene sent a debt-collection letter and reported DiBattista’s delinquency to credit agencies. The court found that these circumstances contradicted Selene’s claim that the calls were only intended to determine DiBattista’s plans for the property. The volume of calls, the collection letter, the credit reporting, the calls made after the cease-and-desist letter, and Selene’s delay in correcting the credit reporting supported the finding that Selene was attempting to collect the discharged debt.

The court also affirmed the finding concerning the credit reporting. It distinguished cases involving a creditor’s failure to update information reported before a bankruptcy discharge. Here, Selene affirmatively reported delinquency after the discharge and did so alongside other collection activity. The district court held that a credit report showing an amount past due after discharge could be inaccurate and misleading and could itself violate the discharge order.

Damages and disposition

The district court affirmed the $9,046.60 award for reasonable legal fees and expenses. It vacated the $17,500 award because the bankruptcy court’s oral ruling referred to the amount as actual damages, while the written order called it punitive damages. The district court also noted that the written order appeared to use language from a proposed order submitted by DiBattista. Because it was unclear whether the $17,500 was compensatory, punitive, or both, the district court remanded the matter to the bankruptcy court solely to reconsider that amount, identify the type of award, and explain how it was calculated.

The court therefore affirmed in part and vacated and remanded in part the bankruptcy court’s order. It affirmed the contempt finding and the $9,046.60 award, vacated the $17,500 award, directed the clerk to close the case, and denied Selene’s request for oral argument.