United States Bankruptcy Court, E.D. California
In re LINDA JOYCE ALLEN, Debtor. Docket Control No. RHS-1
NOT FOR PUBLICATION
This memorandum decision is not approved for publication and may not be cited except when relevant under the doctrine of law of the case or the rules of claim preclusion or issue preclusion.
MEMORANDUM OPINION AND DECISION ORDER TO SHOW CAUSE - JPMORGAN CHASE BANK, N.A.
RONALD H. SARGIS, Bankruptcy Judge.
On March 7, 2013, the court conducted a hearing on an Order to Show Cause why corrective sanctions should not be imposed on JPMorgan Chase Bank, N.A. ("Creditor") for failure to comply with the prior order of this court to appear and explain the terms of a reaffirmation agreement that Creditor presented to this court for approval. The Order to Show Cause was served on Creditor by the Clerk of the Court through the Bankruptcy Noticing Center on February 4, 2013. Service was made on this federally insured financial institution at the addresses required by Federal Rule of Bankruptcy Procedure 7004(h). Certificate of Service, Dckt. 46.
The prior order of the court, with which Creditor failed to comply, was for Creditor to appear at a January 17, 2013 hearing to approve a proposed reaffirmation agreement. The prior order was served on Creditor at the addresses required by Federal Rule of Bankruptcy Procedure 7004(h). This is a core proceeding pursuant to 28 U.S.C. §§ 1334 and 157(b), and the referral of bankruptcy cases and all related matters having been made to the bankruptcy judges in this District. E.D. Cal. Gen. Orders 182, 223.
REAFFIRMATION AGREEMENT PRESENTED TO COURT
The court has been presented with a reaffirmation agreement executed between Linda Allen, the pro se Chapter 7 debtor in this case, ("Debtor") and Creditor. The terms of the agreement are for Debtor to reaffirm a debt in the amount of $11, 537.16, which is to be repaid over a period of 57 months, amortized with interest of 21.5% per annum ("Reaffirmation Agreement"). The collateral for this debt is a 2007 Toyota Camry, which is asserted to have a value of $11, 000.00. The monthly payments for Debtor would be $322.24. No adjustments to the interest rate or amount of the debt from the pre-petition amounts for those items have been made under the Reaffirmation Agreement.
Value of Vehicle
Creditor has presented information for the value of the vehicle securing its claim in the form of a Kelley Blue Book Report. The Kelley Blue Book Report values a 2007 Toyota Camry in excellent condition at $13, 331.00. No information is provided as to the actual condition of the vehicle securing this debt. Commonly in bankruptcy cases, vehicles are not in excellent condition, but suffer from the real-life day-to-day events (dings, stains, tears, scratches, and damages) of the average consumer. Additionally, consumers who ultimately need to file bankruptcy often have significant deferred maintenance on their vehicle.
Inferences From 21.5% Interest Rate
The court is concerned when it is presented with this Reaffirmation Agreement for a six model-year-old vehicle for which the reaffirmed debt is based on an excellent condition retail sales price and Creditor has extracted a 21.5% interest rate from Debtor. Such a high interest rate is often a declaration by a creditor that a debtor cannot make the required payments. While Debtor is responsible for making her own economic decisions, Creditor has sought to enlist the assistance of this court in placing a 21.5% interest rate millstone around this consumer debtor's neck.
It appears from the information provided that Creditor has a reaffirmation policy which is not premised on entering into reaffirmation agreements with debtors who have a reasonable ability to pay the debt. It is necessary and proper for the court to require Creditor to appear and provide the court with information as to why and how this is reasonable, necessary, and consistent with reaffirmation of debts under the Bankruptcy Code for the court to put its stamp of approval on the Reaffirmation Agreement.
FAILURE OF CREDITOR TO APPEAR AT THE JANUARY 17, 2013 HEARING AS ORDERED BY THE COURT
Because of the issues raised by Creditor presenting this Reaffirmation Agreement, which burdens the post-discharge Debtor with a 21.5% interest rate for debt secured by a six model-year-old vehicle, the court ordered Creditor and counsel to appear at a reaffirmation hearing on January 17, 2013. Order, Dckt. 32.
Creditor failed to appear on January 17, 2013, as ordered by the court. The court infers from this failure to appear and the response to this Order to Show Cause that Creditor, who has not missed other appearances when it is seeking relief from the court or defending itself from a proceeding commenced by a debtor, intentionally chose not to appear to avoid providing an explanation as to why it was requesting the court approve a reaffirmation agreement with a 21.5% interest rate for this consumer debtor.
Order to Show Cause, Order to Appear on March 7, 2013
The court issued this Order to Show Cause for Creditor to appear and to present to the court arguments and evidence in support of the court approving the Reaffirmation Agreement. The court ordered Creditor to provide the court with its policies concerning reaffirmation of debts in Chapter 7 cases and an analysis of how this debt and a 21.5% interest rate are consistent with such policies. The court further ordered Creditor to show cause why the court should not order, or conduct an evidentiary hearing, concerning corrective sanctions to be imposed.
BANKRUPTCY COURT AUTHORITY TO ISSUE CORRECTIVE SANCTIONS
Bankruptcy courts have jurisdiction and the authority to impose sanctions, even when the bankruptcy case itself has been dismissed. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 395 (1990); Miller v. Cardinale (In re DeVille), 631 F.3d 539, 548-49 (9th Cir. 2004). The bankruptcy court also has the inherent civil contempt power to enforce compliance with its lawful judicial orders. Price v. Lehtinen (In re Lehtinen), 564 F.3d 1052, 1058 (9th Cir. 2009); see also 11 U.S.C. § 105(a).
Federal Rule of Bankruptcy Procedure 9011 imposes obligations on both attorneys and parties appearing before the bankruptcy court. This Rule covers pleadings filed with the court. If a party or counsel violates the obligations and duties imposed under Rule 9011, the bankruptcy court may impose sanctions, whether pursuant to a motion of another party or sua sponte. These sanctions are corrective, and limited to what is required to deter repetition of conduct of the party before the court or comparable conduct by others similarly situated. Fed.R.Bankr.P. 9011(c)(2).
A bankruptcy court is also empowered to regulate the practice of law in the bankruptcy court. Peugeot v. U.S. Trustee (In re Crayton), 192 B.R. 970, 976 (B.A.P. 9th Cir. 1996). The authority to regulate the practice of law includes the right and power to discipline attorneys who appear before the court. ...