2005 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

6-16-2005

In Re: Joubert

Precedential or Non-Precedential: Precedential

Docket No. 04-1373

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Recommended Citation

"In Re: Joubert " (2005). 2005 Decisions. Paper 917.

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PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Case No: 04-1373

IN RE: MARIANNE JOUBERT

MARIANNE JOUBERT,

 Appellant

 v.

ABN AMRO MORTGAGE GROUP, INC.

f/k/a ATLANTIC MORTGAGE AND

INVESTMENT CORPORATION

 

On Appeal from the United States District Court 

for the Eastern District of Pennsylvania

District Court No.: 03-CV-4290

District Judge: The Honorable Herbert J. Hutton

 

Argued on January 20, 2005

Before: ALITO, McKEE, and SMITH, Circuit Judges
2

(Filed: June 16, 2005)

Stuart A. Eisenberg, Esquire [Argued]

McCullough & Eisenberg

530 West Street Road

Suite 201

Warminster, PA. 18974

Counsel for Appellant

Daniel S. Bernheim, 3rd, Esquire

Jonathan J. Bart, Esquire [Argued]

Silverman, Bernheim & Vogel

Two Penn Center Plaza

Suite 910

Philadelphia, PA 19102

Counsel for Appellee

 

OPINION OF THE COURT

 

SMITH, Circuit Judge.

Marianne Joubert, a discharged debtor in bankruptcy,

initiated this putative class action in the District Court seeking

damages and injunctive relief to combat what she contends is a

widespread practice by mortgagees of assessing, without notice

to mortgagors, post-petition, pre-confirmation attorney fees.
 Because Joubert’s complaint requires a determination of the 1

scope of a statutory provision within the Bankruptcy Code, the

District Court had jurisdiction pursuant to 28 U.S.C. §§ 1331,

1334. We exercise appellate jurisdiction pursuant to 28 U.S.C. §

1291.

3

According to Joubert, this practice violates 11 U.S.C. § 506(b)’s

command that the bankruptcy court first adjudge such fees

“reasonable.” Though Joubert concedes that § 506(b) does not

in itself afford her a private cause of action, she asserts that a

private remedy may be implied under 11 U.S.C. § 105(a) to

redress the § 506(b) violation. The District Court rejected that

assertion, granted ABN AMRO Mortgage Company’s Rule

12(b)(6) motion to dismiss, and declined to exercise

supplemental jurisdiction over Joubert’s state law claims. For

the reasons set forth below, the judgment of the District Court

will be affirmed.1

I. Background and Facts

According to Joubert’s amended complaint, in January

1996 she entered into a residential mortgage with ABN AMRO

Mortgage Company’s (ABN) predecessor-in-interest. In

September 1999, Joubert filed a Chapter 13 petition with the

United States Bankruptcy Court for the Eastern District of

Pennsylvania. ABN’s amended proof of claim in that action

included pre-petition attorney fees related to its earlier

foreclosure action, but it did not include post-petition attorney
4

fees related to its preparation of proofs of claim. Joubert’s

Chapter 13 plan, which provided for ABN’s claim to be paid in

full, was confirmed on May 2, 2000. Joubert met her payment

obligations to ABN in accordance with the plan.

In September 2002, Joubert refinanced her mortgage with

another lender. ABN’s notice advising Joubert of the amount

due on her mortgage with ABN included a $500 charge

denominated “corporate advance balance.” Joubert paid and

did not challenge the $500 charge at her refinancing settlement.

Joubert made her final payment to the Chapter 13 trustee as part

of the settlement, and, following the trustee’s final report and

accounting, an order discharging Joubert was entered on

February 28, 2003.

Five months after her discharge, Joubert initiated this

purported class action in the District Court for the Eastern

District of Pennsylvania. Joubert alleged that the $500

“corporate advance balance” ABN charged Joubert when she

refinanced represented ABN’s post-petition, pre-confirmation

attorney fees. According to Joubert, the collection of this sum,

which ABN had not included in its proofs of claim prior to

confirmation, violated 11 U.S.C. §§ 506(b) and 1132(e).

Joubert asserted that she was entitled to seek redress, for herself

and on behalf of the purported class, for this “Violation of Title

11” in a lawsuit brought in the District Court “through the

injunctive powers of 11 U.S.C. § 105.”
Section 506(b) provides: 2

To the extent that an allowed secured

claim is secured by property the

value of which, after any recovery

5

The District Court granted ABN’s Rule 12(b)(6) motion

to dismiss, and refused to exercise supplemental jurisdiction

over Joubert’s state law claims. In doing so, the District Court

adopted the rationale of earlier decisions in the District which

held that §§ 506(b) and 105(a) do not afford a private right of

action to redress a violation of § 506(b) of the Bankruptcy Code.

D. Ct. Order, at 1 n.2 (citing Henthorn v. GMAC Mortgage

Corp., 299 B.R. 351 (E.D. Pa. 2003); Willis v. Chase Manhattan

Mortgage Corp, 2001 WL 1079547 (E.D. Pa. 2001)). 

II. Analysis

As we exercise plenary review over the grant of a motion

to dismiss, “we accept as true all allegations in the complaint,

giving the Plaintiff the benefit of every favorable inference that

can be drawn from the allegations.” Board of Trustees of

Teamsters Local 863 Pension Fund v. Foodtown, Inc., 296 F.3d

164, 168 (3d Cir. 2002). 

Section 506(b) allows oversecured creditors to add

reasonable post-petition, pre-confirmation attorney fees, interest,

and costs to the amount of their secured claim. Joubert 2
under subsection (c) of this section,

is greater than the amount of such

claim, there shall be allowed to the

holder of such claim, interest on such

claim, and any reasonable fees, costs,

or charges provided for under the

agreement under which such claim

arose.

11 U.S.C. § 506(b) (2005). 

6

acknowledges that the mortgage agreements common to the

purported class provide for attorney fees under these

circumstances, but she contends that ABN failed to give

mortgagors written notice of the fees as required by the

agreements, thus depriving the class of bankruptcy court

oversight of the fees’ reasonableness. Joubert concedes that §

506(b) does not in itself afford a private right of action. Rather,

she asks us to imply such a remedy derivatively through §

105(a), which authorizes federal courts to “issue any order,

process or judgment that is necessary or appropriate to carry out

the provisions” of the Bankruptcy Code. 

Joubert is correct that this case presents a matter of first

impression in the federal courts of appeals, but the novelty is

only a matter of timing, not principle. Typically, challenges to

creditor collection efforts occur post-discharge, and thus arise

under 11 U.S.C. § 524, which governs the effect of bankruptcy

discharges. Indeed, Joubert alleges that for most of the putative
7

class, ABN waited until the debtor’s discharge or other exit from

bankruptcy before attempting to collect the attorney fees.

In her case, if not that of most members of the would-be

class, however, Joubert alleges that the contested attorney fees

were first disclosed in the interim between confirmation and

discharge. Therefore, Joubert could not challenge the

reasonableness of the $500 charge before the bankruptcy court

at the time of the Chapter 13 plan confirmation, nor was there a

discharge in place to violate when she first learned of the

charge, so § 524 was not implicated. Although we sympathize

with the dilemma suggested by the facts Joubert alleges, we

consider the analogous § 524 case law applicable to her §

506(b)-based claim, and hold that § 105(a) does not afford a

private cause of action to redress an alleged 506(b) violation.

Joubert’s lone remedy is a contempt proceeding pursuant to §

105(a) in bankruptcy court.

In In re Continental Airlines, 203 F.3d 203 (3d Cir.

2000), we observed that § 105(a) “supplements courts’

specifically enumerated bankruptcy powers by authorizing

orders necessary or appropriate to carry out provisions of the

Bankruptcy Code.” Id. at 211. We cautioned that § 105(a) “has

a limited scope. It does not ‘create substantive rights that would

otherwise be unavailable under the Bankruptcy Code.’”

Id. (quoting United States v. Pepperman, 976 F.2d 123, 131 (3d

Cir. 1992)). This instruction was consistent with our earlier

observation in In re Morristown & Erie Railroad Co., 885 F.2d
8

98 (3d Cir. 1990), that § 105(a) 

authorize[s] the bankruptcy court,

or the district court sitting in

bankruptcy, to fashion such orders

as are required to further the

substantive provisions of the Code.

Section 105(a) gives the court

general equitable powers, but only

insofar as those powers are applied

in a manner consistent with the

Code. Nor does section 105(a) give

the court the power to create

substantive rights that would

otherwise be unavailable under the

Code.

Id. at 100 (citations omitted). 

Morristown reveals this Court’s considered view that §

105(a) is a powerful, versatile tool, but that it operates only

within the context of bankruptcy proceedings. Section 105(a)

empowers bankruptcy courts and district courts sitting in

bankruptcy to fashion orders in furtherance of Bankruptcy Code

provisions. To add private causes of action to § 105(a)’s arsenal

of remedies, we would have to conclude that such was the intent

of Congress. Alexander v. Sandoval, 532 U.S. 275 (2001):

Like substantive federal law itself,
9

private rights of action to enforce

federal law must be created by

Congress. The judicial task is to

interpret the statute Congress has

passed to determine whether it

displays an intent to create not just

a private right but also a private

remedy. Statutory intent on this

latter point is determinative.

Without it, a cause of action does

not exist and courts may not create

one, no matter how desirable that

might be as a policy matter, or how

compatible with the statute.

Id. at 286 (citations omitted).

Under § 524(a)(2), a discharge operates as an injunction

against a broad array of creditor efforts to collect debts as

personal liabilities of the discharged debtor. This Court has not

addressed whether § 524 implies a private right of action, either

alone or through § 105(a), but the weight of circuit authority is

that it does not. See Pertuso v. Ford Motor Credit Co., 233 F.3d

417, 421-23 (6th Cir. 2000) (analyzing the legislative history of

§ 524, contrasting § 524 with Congress’s choice in § 362(h) to

create private causes of action for violations of bankruptcy stays,

and concluding § 524 does not impliedly create a private right

of action); Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 507-

10 (9th Cir. 2002) (tracking and adopting Pertuso’s analysis);
Contrary to the suggestion in Pertuso, 233 F.3d at 423 n. 1, 3

we do not read Bessette as supporting the proposition that § 105(a)

can bootstrap private causes of action from Bankruptcy Code

provisions that do not otherwise provide this remedy. Bessette was

an appeal from a district court sitting in bankruptcy, and we view

Bessette’s holding simply to be that § 105(a) contempt proceedings

grounded in § 524 do not have to be brought in the same court that

issued the original discharge order. See Bessette, 230 F.3d at 446. 

Indeed, Bessette observed, “[Section] 105 does not itself create a

private right of action, but a court may invoke § 105(a) ‘if the

equitable remedy utilized is demonstrably necessary to preserve a

right elsewhere provided in the Code... .’” Id. at 444-45 (citation

omitted). Consistent with this reading of Bessette, in Walls the

10

Cox v. Zale Delaware, Inc., 239 F.3d 910, 917 (7th Cir. 2001)

(agreeing with the result in Pertuso and concluding that a

contempt action in the bankruptcy court that issued the

discharge is the only relief available to remedy alleged § 524

violations); see also Bessette v. AVCO Fin. Servs, Inc., 230 F.3d

439, 444-45 (1st Cir. 2000) (refusing to address whether § 524

implies a right of action, because, in the First Circuit’s view, a

bankruptcy court’s contempt power under § 105(a) offers

sufficient remedies). 

Moreover, the Sixth Circuit in Pertuso and the Ninth

Circuit in Walls, in separate sections of those opinions, rejected

the argument that § 105(a) authorizes private causes of action to

remedy bankruptcy discharge violations. See Walls, 276 F.3d at

507 (reasoning that to add this remedy to § 105(a) would be an

act of legislating); Pertuso, 233 F.3d at 423 (same). We agree 3
Ninth Circuit noted that the district court in that case had referred

the § 105(a) contempt proceeding to the bankruptcy court while

rejecting the plaintiff’s argument that §§ 524 and 105(a) create a

private right of action. Walls, 276 F.3d at 506-07. 

11

with the reasoning of these cases, and see no reason why the rule

should be different for actions asserted under § 506(b) rather

than § 524. The essence of the complaint is the same regardless

of when the alleged violation was disclosed: The mortgagee

purposely omitted post-petition, pre-confirmation attorney fees

from its proof of claim and then asserted that the fees were part

of its secured interest at a time when the mortgagor was in no

position to contest their reasonableness. Whether the asserted

security interest, which arose before confirmation, was disclosed

in the interim between confirmation and discharge (invoking

§506(b)), or after discharge (invoking both §§ 506(b) and

524(a)(2)), has no bearing in determining whether § 105(a)

authorizes an independent cause of action in District Court.

Thus, we conclude that the decisions holding that § 105(a) does

not authorize separate lawsuits as a remedy for bankruptcy

violations, though established in the § 524 context, are equally

applicable when the underlying complaint is grounded in §

506(b).

III. Conclusion

Because § 105(a) of the BankruptcyCode does not afford

debtors a private cause of action to remedy alleged violations of
12

§ 506(b), we will affirm the District Court’s order granting

ABN’s motion to dismiss.