Opinion
Case No. 15-13347
10-18-2019
In Re BRITTANY L. MENTION Debtor(s)
Chapter 7
MEMORANDUM OPINION AWARDING DAMAGES FOR TOYOTA MOTOR CREDIT'S VIOLATION OF THE DISCHARGE INJUNCTION
[This opinion is not intended for publication or citation.]
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(a) and 1334, and the standing General Order of Reference in this District. This matter is before this Court following a hearing on damages pursuant to its Order Granting Debtor's Motion for Contempt [Docket Number 21] (the "Contempt Order") as it relates to Debtor's Motion for Contempt and Notice [Docket Number 19] filed against Toyota Motor Credit Corporation d/b/a/ Toyota Financial Services ("Toyota").
On December 11, 2018, this Court entered its Contempt Order holding Toyota in contempt of court for violating the discharge injunction by knowingly and willfully seeking to collect a debt from Debtor Brittany Mention ("Ms. Mention") that was discharged in bankruptcy. Toyota was ordered to cease its collection efforts and report to the three major credit reporting bureaus "forthwith" that Ms. Mention's debt to Toyota had been discharged in bankruptcy and that the debt was not reaffirmed.
In the Contempt Order, Toyota was ordered to pay Ms. Mention's attorney fees, actual damages, damages for her pain and suffering and/or punitive damages to be established by separate hearing. A hearing to quantify damages was held on April 18, 2019. Ms. Mention appeared and presented witnesses and exhibits [Docket Numbers 30 - 32 (containing Exs. 1 - 15)]. Toyota did not appear. Following the hearing, Ms. Mention's counsel filed a brief in support of the requested damages with two additional exhibits which this Court considered in making its determinations [Docket Number 34 (containing Exs. 16 - 17)].
The exhibits presented with the post-hearing brief include documentation of time and expenses preparing for and attending the hearing incurred by Ms. Mention's witness, Mr. Baumann, and debtor counsel's itemized fees including those for attending the hearing and preparing the post-hearing brief. By necessity, these exhibits could only be submitted after the hearing.
The following constitutes this Court's findings of facts and conclusions of law pursuant to Rules 9014(c) and 7052(a) of the Federal Rules of Bankruptcy Procedure.
I. FINDINGS OF FACT
A. Toyota's Erroneous Reporting and Ms. Mention's Attempts to Fix It
On August 28, 2015, Ms. Mention filed a chapter 7 bankruptcy petition. In early December of 2015, Ms. Mention amended her Statement of Intent and Schedule G to reject a vehicle lease with Toyota and surrender the vehicle, a 2014 Toyota Camry, to Toyota [Docket Numbers 12 and 13]. She subsequently received her discharge on December 15, 2015. The vehicle was surrendered to Toyota and sold.
Around June of 2017, Ms. Mention needed to purchase a more reliable vehicle because of significant travel required for a new job. She inquired about purchasing a vehicle at the McCluskey dealership. However, she was informed that her credit report showed that Toyota had repossessed the 2014 Camry and that she still owed more than $9,000.00 to Toyota. Indeed, her credit reports, pulled from Equifax and TransUnion, two of the three major credit reporting bureaus, list the Toyota debt as a "charge off" or repossession with an amount still owing of $9,932.00 [Exs. 2 and 4]. Based on her credit history, McCluskey rejected her request for a loan and she was told that her poor relationship with Toyota was going to hurt her ability to finance a new vehicle.
Two credit reports further indicated, in error, that the Toyota lease debt was reaffirmed [Exs. 1 and 2].
A few weeks later, she engaged Lexington Law to help clean up her credit report at a cost of $99.95 per month. From September of 2017 to February of 2019, Lexington Law sent four electronic challenges to the three major credit reporting bureaus (Equifax, TransUnion, and Experian) to challenge Toyota's reporting of the debt on Ms. Mention's credit report [Exs. 3 and 8]. In total, Ms. Mention paid Lexington Law $1,009.45, although a portion of the fees went towards other credit issues [Ex. 9]. However, Toyota never responded nor did Toyota change its reporting of the debt.
Between the date she received her bankruptcy discharge in December of 2015 and the date she was finally able to purchase a vehicle in March of 2019, Ms. Mention testified that she was rejected by approximately fifteen different lenders when attempting to purchase a vehicle. Those lenders pulled her credit more than forty times. Each time, she asked the lenders why she was denied financing wondering if the cause was her student loan debt acquired while she finished her doctorate degree or Toyota's reporting of the lease debt to the credit reporting bureaus. The lenders told her that it was the repossession and her poor relationship with Toyota that caused them to reject her for financing. Rejection letters from dealerships were included in Ms. Mention's exhibits admitted into evidence [Exs. 6 and 7].
In 2018, Ms. Mention called Toyota directly on at least three different occasions. During her calls, Toyota initially tried to collect on the discharged debt. When she explained that she had filed for bankruptcy and was calling to ask Toyota to report the debt as discharged because it was impacting her ability to finance a new vehicle, she was transferred to "escalations." Each time, the Toyota representative told her she would receive a returned call. She never received a call or other contact from Toyota.
In August of 2018, Ms. Mention's bankruptcy counsel, Mr. Minnillo, sent Toyota a letter [Ex. 5]. In the letter, he noted that Toyota had erred by reporting Ms. Mention's debt on her credit report as having a balance owed and, when she called to correct the error, Toyota representatives actively sought to collect the discharged debt. He asked that Toyota cease collection efforts and to report the status of the debt properly. Mr. Minnillo never received a response from Toyota nor did it change its reporting of Ms. Mention's debt to the credit reporting bureaus. As of a credit report pulled in April of 2019, Toyota continues to report the debt as "charged off" with a $9,932.00 balance owing [Ex. 11].
B. Impact on Ms. Mention's Life
Ms. Mention testified to the impact of Toyota's erroneous reporting of the lease debt. In addition to the time and money Ms. Mention expended in attempts to have Toyota correct its reporting, Ms. Mention testified to the embarrassing and expensive process she went through to purchase a reliable vehicle. The many rejections by lenders negatively impacted her and, although she is a hard working individual, she often felt like giving up. She sometimes had to use other people's vehicles and was worried what affect her failure to obtain a reliable vehicle would have on her job. Nonetheless, she testified that she never sought medical or mental health treatment of any kind.
After months of searching, Ms. Mention was finally able to purchase a vehicle from CarMax on March 15, 2019 but with less than ideal terms. Per the installment agreement entered into evidence [Ex. 12], she financed $21,265.36 over 72 months with an annual interest rate of 25% giving her a finance charge totaling $20,379.44. She opined that if Toyota had reported the debt correctly, she would qualify for better financing.
C. Calculation of Damages
Brent Baumann ("Mr. Baumann"), president and owner of Credit Links, was called to testify to a reasonable calculation of damages caused by Toyota's inaccurate reporting. Credit Links is a credit repair firm in Cincinnati that is licensed and bonded in Ohio and 26 other states by the Department of Commerce. Mr. Baumann, who has a bachelor's degree in finance, is a credit analyst and strategic planner who has been in the credit repair field since September 2016. He contributes to several blogs on credit reporting and has been interviewed for a credit publication.
As part of his job helping people correct credit reporting issues, Mr. Baumann reviews and analyzes credit reports every day. He believes he has analyzed between 12,000 and 15,000 credit reports since 2016. His specialty is breaking down credit reports and finding commonly misreported items. He develops plans to work with creditors and the credit reporting bureaus to correct the errors. His goal is to improve his clients' credit scores quickly so that they can obtain financing. He charges approximately $500.00 to fix credit issues and is charging $100.00 per hour for his testimony.
Mr. Baumann reviewed Ms. Mention's credit history and concluded that there were errors in the way Toyota reported the lease debt. It should have been coded as a debt discharged in bankruptcy and not as a charge-off, repossession or listed as carrying any balance or amount past due.
When an individual is faced with incorrect reporting, Mr. Baumann testified that the individual can dispute the items herself or engage a company to obtain help. He testified that Ms. Mention's efforts, in engaging Lexington Law to help clean up her credit report and making direct calls to Toyota, were reasonable. Lexington Law used a common practice to initiate electronic disputes although Mr. Baumann testified that his firm might have provided a more detailed description of what was in dispute. Regardless, he determined that Lexington Law's electronic disputes were sufficient to cause the credit reporting bureaus to process the challenges and notify Toyota. Upon notification from the credit reporting bureau, the creditor has thirty days to investigate, communicate back and then the credit report is updated. Mr. Baumann testified that the end result in Ms. Mention's situation was that Toyota failed to respond to the credit reporting bureaus or change its reporting of the debt to reflect the bankruptcy.
Mr. Baumann testified that this failure of Toyota to accurately report the debt in Ms. Mention's credit reports greatly impacted her credit score, which is currently listed as between 465 and 527 [Ex. 13], and ultimately her ability to qualify for good financing terms. He noted that a person's credit score is what a lender uses to determine whether the person will be able to pay back the loan. Ms. Mention's credit score was negatively impacted not only by Toyota's reporting error, but by the number of credit pulls by multiple lenders while Ms. Mention searched for a vehicle.
Mr. Baumann used a simulator to project Ms. Mention's credit score if Toyota changed the status of the debt from "charge-off / repossession" to discharged in bankruptcy. Mr. Baumann calculated that Ms. Mention's credit score would increase by 39-60 points if Toyota corrected its reporting error as of the day before the hearing [Ex. 14]. Mr. Baumann further projected that if Toyota had accurately reported the debt over three years ago, at the time of the bankruptcy discharge, her credit score would be even higher, in the range of 550 to 650. Mr. Baumann noted that a 650 credit score would represent a big increase in the credibility of a borrower to a lender.
Relying on his industry experience and a recent article showing interest rates people could obtain for financing the purchase of used vehicles based a range of credit scores [Ex. 15], Mr. Baumann testified that Ms. Mention would qualify for a much lower rate of interest, between 10.34 and 16.14%, with a credit score between 550 and 650. Mr. Baumann calculated that applying an interest rate of 16.14% to Ms. Mention's vehicle purchase (while other terms remain the same), would reduce her finance charges from $20,379.44 to $12,065.64, a difference of $8,313.80. Applying the interest rate of 10.34%, her finance charges would be reduced even lower - from $20,379.44 to $7,362.64, a difference of $13,016.80.
Based on the testimony of Ms. Mention and Mr. Baumann, as well as the exhibits presented at trial and with the post-trial brief, Ms. Mention seeks the following damages:
| Finance charges: | |
| Lexington Law charges: |
| Expert Fees [Ex. 16]: | |
| Estimated future credit repair fees: | $ 500.00 |
| Estimated cost in attending court:(parking, etc.) | $ 20.00 |
|---|---|
| Total actual damages: | $ 12,252.60 |
The finance charges are calculated as the difference between Ms. Mention's finance charges in the March 15, 2019 installment agreement and the average of the highest and lowest finance charges Ms. Mention would qualify for had Toyota reported the lease debt correctly ($8,318.80 + $13,016.80 divided by 2 = $10,667.80).
Although the Debtor paid more to Lexington Law, she seeks recovery of only four monthly fees to cover the four challenges Lexington Law made to Toyota's reporting of the lease debt ($99.95 x 4).
This amount includes the fees on the invoice plus an additional $41.00 covering the cost of the simulations.
II. LEGAL ANALYSIS
Ms. Mention seeks compensatory and punitive damages for Toyota's violation of the discharge injunction. Bankruptcy Code Section 524 provides:
(a) A discharge in a case under this title —
11 U.S.C.. § 524(a)(2). The Bankruptcy Code does not provide statutory redress for violations of the discharge injunction and the Sixth Circuit has held that a private cause of action does not exist under § 524. Pertuso v. Ford Motor Credit Co., 233 F.3d 417, 422-23 (6th Cir. 2000). This in sharp contrast to the Bankruptcy Code's provision of damages for a willful violation of the automatic stay. See 11 U.S.C. § 362(k). Accordingly, the Sixth Circuit has held that a debtor's recourse to address a creditor's violation of the discharge injunction is to bring a motion for contempt against the creditor. Pertuso, 233 F.3d at 421 (noting that "the traditional remedy for violation of an injunction lies in contempt proceedings, not a lawsuit"). See also Badovick v. Greenspan (In re Greenspan), 464 B.R. 61 (Table), 2011 Bankr. LEXIS 272, at *8, 2011 WL 310703, at *3 (B.A.P. 6th Cir. Feb. 2, 2011); Frambes v. Nuvell Nat'l Auto Fin., LLC (In re Frambes), 454 B.R. 437, 440 (Bankr. E.D. Ky 2011); In re Pervis, 302 B.R. 357, 370 (Bankr. N.D. Ohio 2003).* * *
(2) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived[.]
Once a creditor is found in contempt for violating the discharge injunction, as Toyota has been found by this Court's Contempt Order, civil contempt sanctions may be issued. Greenspan, 2011 Bankr. LEXIS 272, at *8, 2011 WL 310703, at *3; Pervis, 302 B.R. at 370. "As a transgression against the court, broad discretion is invested in the court in selecting an appropriate sanction." Chambers v. Greenpoint Credit (In re Chambers), 324 B.R. 326, 329 (Bankr. N.D. Ohio 2005). See also Greenspan, 2011 Bankr. LEXIS 272, at *12; 2011 WL 310703, at *5.
Although a range of sanctions are available, it is generally acknowledged that a creditor's contemptible violation of the discharge injunction is likely to cause the debtor to incur damages. Chambers, 324 B.R. at 329. Accordingly, "[t]he modern trend in civil contempt proceedings is for courts to award actual damages for violations of § 524's discharge injunction, and, where necessary to effectuate the purposes of the discharge injunction, a debtor may be entitled to attorney fees." Greenspan, 2011 Bankr. LEXIS 272, at *9, 2011 WL 310703, at *3 (noting that, otherwise, the discharge injunction is without meaning or effect) (citations omitted). In this case, Ms. Mention's requests three types of damages, actual damages, attorney fees, and punitive damages, addressed separately below.
A. Actual Damages
Before a bankruptcy court may award actual or compensatory damages, a debtor must prove injury or loss by a preponderance of the evidence. In re Haltermon, 592 B.R. 311, 321 (Bankr. S.D. Ohio 2018). "The debtor must support [a] claim of actual injury by establishing 'adequate proof and cannot rely on speculation." Id. (further citation omitted).
In this case, Ms. Mention testified to the lengths she went to in order to clean up Toyota's errors in reporting her vehicle lease debt to the credit reporting bureaus. She hired Lexington Law at a cost of $99.95 a month. Lexington Law followed a common practice in these situations of issuing four electronic challenges to the credit reporting bureaus in attempts to call attention to and cause Toyota to fix its credit reporting errors. Although she paid more, Ms. Mention limits her damages request to four months of Lexington Law's fees, totaling $399.80, which this Court deems reasonable.
Because neither Lexington Law's electronic challenges nor Ms. Mention's own phone calls to Toyota resulted in Toyota taking corrective action, Ms. Mention estimates that it will cost an additional $500.00 for future credit repair fees. This amount is reasonable and in line with what her expert witness, Brent Baumann, President of Credit Links, would charge for his firm's services to correct credit reporting errors.
Next this Court turns to the evidence of Toyota's impact on Ms. Mention's ability to obtain financing. Mr. Baumann testified that Ms. Mention would qualify for a much lower interest rate, reducing the rate from 25% to between 10.34 - 16.14%, had Toyota correctly reported to the credit reporting bureaus that her lease debt was discharged in bankruptcy. Mr. Baumann testified that this decrease in the interest rate translates to an average of a $10,667.80 reduction in finance charges compared to what she is paying for her recently purchased vehicle. With no contradictory evidence advanced, this Court concludes that Ms. Mention has proven, to a sufficient degree of certainty, that Toyota's continued credit reporting errors caused her additional finance charges of $10,667.80. See Archer v. Macomb County Bank, 853 F.2d 497, 499 (6th Cir. 1988) (noting that the law does not require impossibilities when it comes to proof of damages but does require that degree of certainty that the nature of the case permits).
This Court further deems reasonable Ms. Mention's expert witness fees of $665.00 for Mr. Baumann's testimony and Ms. Mention's costs of $20.00 for attending the hearing. In total, Ms. Mention has proven, by a preponderance of the evidence, actual damages in the amount of $12,252.60.
Ms. Mention further requests damages for mental or emotional distress in an amount that this Court deems appropriate. To establish an actual injury in the form of mental or emotional distress resulting from a creditor's violation of the discharge injunction, the debtor must demonstrate "some appreciable emotional [or] mental harm" and the creditor's actions must be severe in nature. Phillips v. Deutsche Nat'l Trust (In re Phillips), 2012 Bankr. LEXIS 1042, at *7, 2012 WL 830517, at *3 (Bankr. N.D. Ohio March 9, 2012); Perviz, 302 B.R. at 371 (noting that the less severe the creditor's conduct, the more important medical or other corroborating evidence will become). "Absent corroborating medical testimony, simple stress and frustration are not sufficient to support an award for mental [or] emotional distress." Phillips, 2012 Bankr. LEXIS 1042, at *9, 2012 WL 830517 at *3.
In this case, Ms. Mention testified to the exhaustive search required for her to purchase a vehicle and the embarrassment caused by multiple lenders rejecting her for financing. Undoubtedly, these rejections, along with Toyota ignoring her requests to fix the reporting errors, caused Ms. Mention needless stress and frustration. However, she testified that she did not seek medical help. Without more, her damages for mental or emotional distress are not quantified or compensable.
Accordingly, Ms. Mention's actual damages are limited to $12,252.60.
B. Attorney Fees
Ms. Mention further seeks attorney fees for the services rendered by her counsel, Minnillo & Jenkins, in the amount of $12,950.00 as itemized on Exhibit 17 [Docket Number 34]. As noted previously, this Court may award attorney fees when a creditor is held in contempt for a discharge injunction violation. Greenspan, 2011 Bankr. LEXIS 272, at *9, 2011 WL 310703, at *3; Chambers, 324 B.R. at 329-30. However, the debtor carries the burden of establishing that those attorney fees are reasonable rather than "a profit making endeavor." Haltermon, 592 B.R. at 321-24; Mitchell v. Anderson (In re Mitchell), 545 B.R. 209, 227 (Bankr. N.D. Ohio 2016). When reviewing the reasonableness of attorney fees, courts often look to what actions the debtor or debtor counsel took to resolve the matter in a non-litigious manner prior to filing an action in bankruptcy court. Cousins v. CitiFinancial Mortg. Co. (In re Cousins), 404 B.R. 281, 290 n.9 (Bankr. S.D. Ohio 2009) (reviewing attorney fees requested in connection with a creditor's willful violation of the automatic stay). "If no such mitigative steps are taken, courts often limit attorney fees to the reasonable value of legal services that should have been sufficient to resolve the matter in an expeditious manner." Id. See also Haltermon, 592 B.R. at 324.
In this case, debtor counsel's pre-litigation services were limited to meeting with Ms. Mention and drafting one letter to Toyota requesting that it stop collection efforts and fix its misreporting of her debt to the credit reporting bureaus [Exs. 5 and 17]. These pre-litigation actions totaled less than one and a half hours of time with debtor counsel's remaining efforts, over twenty-five hours, devoted to litigating contempt and damages in this Court [Ex. 17].
While limited, the reasonableness of these pre-litigation services must be viewed in context with the additional actions taken by Ms. Mention to remedy Toyota's credit reporting errors. Ms. Mention hired Lexington Law which issued four electronic challenges to Toyota's reporting of the vehicle lease debt to the credit reporting bureaus. Further, Ms. Mention made at least three phone calls directly to Toyota. Undoubtedly, the combined efforts of Ms. Mention, Lexington Law and debtor counsel were sufficient to alert Toyota to the problem and should have led Toyota to take corrective action. Instead, Toyota failed to respond. Accordingly, this Court concludes that any additional pre-litigation efforts on the part of debtor counsel would have been ineffectual and wasted.
This Court has further reviewed debtor counsel's litigation fees and finds them reasonable and necessary to litigate Toyota's contempt and Ms. Mention's damages [Ex. 17]. See Greenspan, 2011 Bankr. LEXIS 272, at *13-14, 2011 WL 310703, at *5 (finding no abuse of discretion in the bankruptcy court's award of $12,510.00 in attorney fees for litigating contempt proceedings and other actions necessary to resolve creditor-attorney's actions in violation of the discharge injunction).
Accordingly, this Court awards Ms. Mention $12,950.00 in attorney fees against Toyota.
C. Punitive Damages
In addition to actual damages and attorney fees, Ms. Mention requests punitive damages against Toyota calculated as five times her actual damages (but excluding attorney fees) or $61,263.00. To support this request, debtor counsel notes Toyota's lack of participation in these proceedings and that its erroneous reporting continues to this day making the discharge injunction violation "egregious" in nature. In addition, counsel argues that such a penalty may coerce Toyota into compliance with the discharge injunction by correcting its misreporting.
Within the post-hearing brief, debtor counsel calculates punitive damages to total $62,938.00 in one place [Docket Number 34, p. 8] and $61,263.00 in another place [Id., p. 10]. Using the Debtor's actual damages of $12,252.60, this Court calculates the punitive damages request of five times actual damages to equal $61,263.00. --------
The authority of bankruptcy courts to issue punitive sanctions, also called noncompensatory damages, has been the subject of much debate. The Sixth Circuit has recognized bankruptcy courts' inherent power to sanction parties for improper conduct. Adell v. John Richards Homes Bldg. Co. LLC (In re John Richards Homes Bldg. Co., LLC), 552 F. App'x 401, 413-14 (6th Cir. 2013) (citing Mapother & Mapother, P.S.C. v. Cooper (In re Downs), 103 F.3d 472, 477 (6th Cir. 1996)). The Sixth Circuit has further held that bankruptcy courts have some authority to award punitive damages for abuse of process and fraud on the court under both 11 U.S.C. § 105(a) and the bankruptcy courts' inherent powers. Id. at 414. However, noting that bankruptcy courts have limited jurisdiction, are not Article III courts, and are less capable of providing the necessary procedural protections afforded by district courts, the Sixth Circuit has stated that the authority is not "without limits." Id. at 414-15 (noting that "§ 105(a) is prospective rather than retrospective; as such, that provision is best read not to encompass a power to award criminal-like punitive sanctions"). Accordingly, while bankruptcy courts retain the authority to award "mild noncompensatory punitive damages" they do not have the inherent or general statutory power to award "serious noncompensatory punitive damages," which are more criminal in nature. Id. at 415.
In this case, the $61,263.00 in punitive damages requested by Ms. Mention is beyond the type of mild noncompensatory damages that the Sixth Circuit contemplates. Moreover, while an award for civil contempt may include coercive penalties intended to "cajole the party in contempt" to comply with court orders and the requirements of the Bankruptcy Code, In re Biery, 543 B.R. 267, 298-99, Ms. Mention's request for punitive damages seeks more to punish Toyota rather than coerce Toyota into correcting its reporting errors. "Using contempt to punish is generally viewed as criminal, not civil," id. at 299, and therefore beyond the purview of this Court.
Toyota, however, is on further notice that its failure to correct its reporting of Ms. Mention's discharged debt and attempts to collect on that debt when Ms. Mention called to report the errors are blatant violations of the discharge injunction. If Toyota does not correct its reporting errors with the three major credit reporting bureaus or if Toyota takes other action in violation of the discharge injunction, an award of additional contempt sanctions is possible.
III. CONCLUSION
For Toyota's contemptible actions in violation of the discharge injunction, this Court awards the following to Ms. Mention:
1. Actual compensatory damages totaling $12,252.60; and,
2. Attorney fees totaling $12,950.00. A separate order will be entered consistent with this memorandum opinion.
SO ORDERED.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
/s/_________
Beth A. Buchanan
United States Bankruptcy Judge Dated: October 18, 2019 Distribution List:
Default List Plus:
Toyota Motor Credit Corporation
c/o its statutory agent for service of process
CT Corporation System
4400 Easton Commons Way, Suite 125
Columbus, OH 43219
Toyota Financial Services
PO Box 4102
Carol Stream, IL 60197-4102