Opinion ID: 177561
Heading Depth: 2
Heading Rank: 2

Heading: Facial Validity of Redmond's Bankruptcy Claims

Text: The motion's lack of timeliness was one of three reasons given by the bankruptcy judge for denying the motion to reopen. The judge also held that Redmond's arguments had no substantive merit. Redmond contended that Pinnacle's actions in the state-court foreclosure suit violated various bankruptcy-court orders. The bankruptcy judge held that Pinnacle's actionsissuing payoff letters and initiating a foreclosure proceeding after Redmond had defaulted and the automatic stay had been liftedwere not attempts to collect in violation of the bankruptcy stay or other orders. We agree. As an initial matter, we cannot accept Redmond's contention that the bankruptcy court disregarded the district court's remand instructions. In the remand order, the district judge took issue with the bankruptcy court's distinction between a lien placed on real, as opposed to personal, property because both types of liens could violate the terms of a bankruptcy plan. The district court directed the bankruptcy judge to d[i]g deeper, take into account all relevant factors, and make all necessary inquiries into whether Redmond had cause to reopen his bankruptcy case. As a general matter, the bankruptcy judge was free to base his postremand ruling on factors relevant to but not specifically addressed in the remand order, see United States v. Morris, 259 F.3d 894, 898 (7th Cir.2001), and here the district court expressly directed the bankruptcy judge to do so. And the bankruptcy judge did exactly what he was instructed to do: He considered all relevant factors in determining whether to reopen Redmond's case. The judge issued a lengthy opinion in which he analyzed in detail whether Pinnacle had violated the automatic stay, the Agreed Order, the Chapter 13 plan, or the discharge injunction. Specifically, the bankruptcy court held that Pinnacle had not sought to collect prepetition debt in violation of the bankruptcy plan by issuing the payoff letters. This is the exact issue Redmond claims the judge failed to decide earlier. Redmond also ignores the fact that when the case returned to the district court after remand, the district court affirmed the denial of reopening. We have held that a district court is clearly in the best position to know the scope of its own remand order, and its affirmance of the bankruptcy court's ruling indicates that its concerns were adequately addressed. Ingersoll, 562 F.3d at 864. Tellingly, Redmond quotes at length from the district court's remand order, but disregards the affirmance after remand. As for Redmond's specific allegations of error, we agree with the district court that none have merit. He argues that Pinnacle's inclusion of certain prepetition debts in the payoff letters violated (1) the automatic stay, (2) the Agreed Order, (3) the Chapter 13 plan, and (4) the bankruptcy discharge. We take each of these arguments in turn, beginning with the automatic stay. The bankruptcy court properly concluded that the payoff letters did not violate the automatic-stay provision of § 362(a) of the Bankruptcy Code. 11 U.S.C. § 362(a). Section 362(a) prohibits collection activities in violation of the stay, such as attempting to convert an unsecured prepetition claim into a secured claim, attempting to obtain possession of property of the Chapter 13 estate, or attempting to perfect a lien against property of the estate. See Mann v. Chase Manhattan Mortg. Corp., 316 F.3d 1, 3-4 (1st Cir.2003) (citing 11 U.S.C. § 362(a)). Payoff letters, however, are not acts of collection and therefore do not constitute violations of the automatic stay. As the bankruptcy judge explained, the payoff letters were simply statements of the bank's position as to what was owed issued in response to Redmond's demand. Banks furnish payoff letters at the debtor's request to help the debtor prepare to pay off a loan. To hold that a payoff letter violates an automatic stay would be preposterous; it would enable debtors to draw banks into violations of bankruptcy law merely by requesting a statement of what they owed. Moreover, the language of Pinnacle's payoff letters confirms the finding that they were not attempts to collect. The March 19, 1998 letter, for example, explains that it is a statement of the amount required to be paid off on April 1, 1998 (the date the balloon payment was due). The amounts given in the letter are subject to a final confirmation, and the itemization of charges clearly indicates the Total Amount [is] Due on April 1, 1998. [6] Redmond relies on In re Sullivan, 367 B.R. 54 (Bankr.N.D.N.Y.2007), but that case is distinguishable and in any event contrary to the weight of authority. [7] Unlike the present case, Sullivan involved additional creditor conduct that clearly violated the automatic stay. That is, the creditor in Sullivan did more than just issue a payoff letter; it also prevented the sale of the debtor's property by withholding an abstract of title until the debtor had paid the debt. Id. at 63-65. Further, the automatic stay in Sullivan had not yet been lifted and therefore the creditor's subsequent collection activities violated an ongoing stay. By contrast, the automatic stay in this case had terminated at the time the balloon payment went unpaid, and therefore Pinnacle could initiate the state-court foreclosure suit without violating it. [8] We also conclude that the bankruptcy judge did not abuse his discretion in rejecting Redmond's claim that Pinnacle violated the Agreed Order. The bankruptcy judge found that Pinnacle could not have violated the Agreed Order because the order did not require the bank to do or refrain from doing anything that affected Redmond. The Agreed Order simply (1) reinstated the automatic stay, (2) froze the first foreclosure proceeding, and (3) permitted Redmond to pay off his mortgage on or before the balloon payment date. Because the payoff letters did not constitute collection activity in violation of the stay, they cannot have violated the Agreed Order either. Furthermore, the payoff letters were issued at Redmond's request and had no relation to the frozen foreclosure proceedings. Finally, the payoff letters in no way prevented Redmond from paying his claim, so they were fully consistent with the Agreed Order's provision requiring Redmond to pay his mortgage on or before the balloon payment date. When Pinnacle ultimately filed its second foreclosure suit in state court, Redmond had already defaulted for a second time and the automatic stay had been lifted pursuant to the terms of the Agreed Order. Therefore, neither the payoff letters nor the foreclosure suit could have violated the Agreed Order. Redmond does not appear to have a valid claim that Pinnacle violated the Chapter 13 plan. He contends that the payoff letters improperly included payments that were to be made under the bankruptcy plan and that in effect Pinnacle was seeking to collect that amount twiceonce from Redmond and a second time from the Chapter 13 trustee. The payoff letters, however, reflected Redmond's outstanding debt without regard to how that balance was to be paid. The inclusion of unpaid plan amounts in the payoff letters was not an attempt to collect those amounts twice because it was not an attempt to collect in the first place. In addition, the bankruptcy judge noted that if Redmond had paid the plan amounts as part of his balloon payment, the plan could have been modified to extinguish further payments. It also makes sense that the payoff letters would reflect the entire debt, including that owed under the plan, because according to Redmond, he needed to know the outstanding balance in order to refinance the mortgage. Redmond relies heavily on the holding in In re Barton that collection of a debt in excess of the amount allowed in a Chapter 13 plan may form a basis for bankruptcy sanctions. 359 B.R. 681 (Bankr.N.D.Ill. 2006). Barton is inapposite, however. It involved neither a motion to reopen nor payoff letters solicited by the debtor; instead, the creditor in that case refused to accept the Chapter 13 trustee's payments of real-estate taxes under the confirmed plan and subsequently attempted to collect those taxes plus interest outside of the bankruptcy case. Id. at 683-84. Pinnacle, by contrast, did not refuse to accept Redmond's payments under the plan and then turn around to collect the full debt, plus interest, via a state-court foreclosure after the plan had been discharged. Rather, Redmond defaulted by failing to pay his mortgage under the plan, which resulted in the lifting of the automatic stay. Once the stay was lifted, Pinnacle proceeded against him in state court on the default. Barton's holding regarding bankruptcy sanctions for debt collection outside of a bankruptcy plan therefore has no relevance to this case. Finally, we agree with the bankruptcy judge's conclusion that Pinnacle did not violate the discharge injunction. The judge rejected this contention for two reasons. First, Redmond's debt to Pinnacle was never discharged because he defaulted by failing to make the balloon payment in accordance with the Agreed Order. Second, as the bankruptcy judge explained, even if there had been a discharge under § 524(a) of the Bankruptcy Code, the discharge could never have affected the bank's right to foreclose on its lien. The judge noted that a § 524(a) discharge only affects personal judgments against the debtor, not in rem foreclosure proceedings. Since the lien was neither avoided under another provision of the Code nor paid in full, Pinnacle was entitled to recover its property in a foreclosure proceeding regardless of whether the debt had been discharged under the plan. As the bankruptcy judge held, a closed bankruptcy proceeding should not be reopened where it appears that to do so would be futile and a waste of judicial resources. In re Carberry, 186 B.R. 401, 402 (Bankr.E.D.Va.1995); see Antonious, 373 B.R. at 406 (bankruptcy court may deny motion to reopen where it is clear at the outset the debtor would not be entitled to relief); Arleaux v. Arleaux, 210 B.R. 148, 149 (8th Cir. BAP 1997) (motion to reopen denied on ground that it would provide no relief to the debtor). That was certainly the case here.