In Re: Kimberly Bruce

Background

Kimberly Bruce incurred a debt with Citigroup Inc. and Citibank, N.A. in 2007. After she fell behind on payments, the banks reported the account as “charged off.” Bruce later filed for bankruptcy and received a discharge on or about May 7, 2013. The banks were informed of the discharge.

Bruce alleged that her credit report still described the debt as “charged off” rather than discharged in bankruptcy. She contacted the bank in December 2013 and asked it to remove the notation. The banks did not ask the credit reporting agencies to remove it until March 25, 2014, after Bruce had moved to reopen her bankruptcy case to seek contempt sanctions.

Bruce’s amended complaint sought to hold the banks in contempt of her discharge order and discharge orders protecting similarly situated debtors issued by other bankruptcy courts. She sought declaratory and injunctive relief, as well as compensatory and punitive damages, on behalf of a proposed class. She also alleged that the banks regularly left “charged off” notations on credit reports after bankruptcy discharges to pressure debtors to pay discharged debts.

Bankruptcy-court proceedings and motions

The banks moved to compel arbitration, but the bankruptcy court denied that motion. The denial was later affirmed in related appellate proceedings, and the case returned to the bankruptcy court.

The bankruptcy court later considered the banks’ motion to dismiss the amended complaint and their motion to strike or dismiss the class allegations. After a hearing, the bankruptcy court denied the motion to dismiss in part and denied the motion to strike. It ruled that it did not categorically lack authority to adjudicate nationwide class claims involving alleged violations of discharge injunctions. It also ruled that Bruce had adequately pleaded a contempt claim under the standard established in Taggart v. Lorenzen.

The banks asked the district court to certify a direct appeal to the Second Circuit under 28 U.S.C. § 158(d)(2), or alternatively to hear an interlocutory appeal in the district court under 28 U.S.C. § 158(a)(3). The district court addressed the request for direct certification first.

Question presented for certification

The central question was whether the bankruptcy court could adjudicate contempt claims based on violations of discharge orders issued by other bankruptcy courts, including through a proposed nationwide class action. The district court described this as the “nationwide class issue.”

Under 28 U.S.C. § 158(d)(2), certification of a direct bankruptcy appeal is required when, among other circumstances, the order involves a legal question for which there is no controlling decision from the relevant federal appeals court or the Supreme Court. The Second Circuit may then decide whether to accept and hear the direct appeal; it has discretion to decline jurisdiction.

Ruling

Judge Seibel found that no controlling Second Circuit or Supreme Court decision resolved whether a bankruptcy court may hold a creditor in contempt for violating another court’s discharge injunction. She relied in part on the Second Circuit’s statement in Belton that it had not addressed whether a nationwide class action could be used to adjudicate thousands of contempt proceedings. She also concluded that the authorities cited by Bruce, including Taggart and Anderson, did not decide the specific nationwide class and cross-court enforcement question.

Because the order involved a legal question without controlling circuit or Supreme Court authority, Judge Seibel granted the motion to certify the bankruptcy court’s order for direct appeal. She certified the order as a whole, even though it involved multiple issues, because the statute refers to a judgment, order, or decree that involves a qualifying legal question.

Judge Seibel denied the banks’ motion for leave to pursue an interlocutory appeal in the district court without prejudice to renewal if the Second Circuit declined to accept the direct appeal. She directed the clerk to transmit the order to the Second Circuit and close the district-court case. The opinion did not decide whether the Second Circuit would accept the appeal or resolve the underlying nationwide class issue.