Notable Decision

Saccheri v. St. Lawrence Valley Dairy (In re Saccheri), BAP No. 12-1269-JuKiD, (B.A.P. 9th Cir. Nov. 1, 2012) (UNPUBLISHED) :

In a nondischargeable action under Sections 523(a)(2)(A) and (a)(4) of the Bankruptcy Code, the Bankruptcy Appellate Panel for the Ninth Circuit (“B.A.P.”) held that the bankruptcy court erred when it awarded plaintiff attorneys fees pursuant to the terms of a pre-bankruptcy settlement agreement between the parties.   Citing Cohen v. de la Cruz, 523 U.S. 213, 223 (1998), for its holding that attorneys’ fees may be awarded and declared nondischargeable in a nondischargeability action, the B.A.P. concluded that the fee award was not appropriate in the instant case.

The Court noted that 2 requirements must be met before attorneys’ fees can be awarded in a nondischargeability action:

  1. An underlying contract or nonbankruptcy law must provide a right to recover attorneys’ fees, and
  2. The issues litigated in the dischargeability action must fall within the scope of the contractual or statutory attorneys’ fees provision.

Simply stated, the issue for the court should turn upon whether the claims litigated in the dischargeability action fall within the scope of the contractual or statutory attorneys’ fees provision in dispute.  In concluding that attorneys fees were not warranted, the Court noted that plaintiff’s claims in the nondischargeability proceeding were not brought to enforce the terms of the settlement agreement or allege that the agreement had been breached.  Rather, plaintiff’s action before the bankruptcy court sought the remedy of nondischargeability based on the tort claims of fraud, breach of fiduciary duty and embezzlement.  As such, the attorneys’ fee clause in the settlement agreement was inapplicable to the claims litigated in the nondischargeability action.

Debt Collectors Have a New Target on Their Backs

Last week, the Consumer Financial Protection Bureau (“CFPB”) published its Final Consumer Debt Collection Rule.  Under the final rule, the CFPB has supervisory authority over entities that operate as debt collectors, debt purchasers and collection attorneys.

Some of the questionable collection practices that the CFPB intends to focus on include:

  • Filing litigation without providing the debtor with proper notice;
  • Initiating debt collection litigation without proof of the debt owed;
  • Utilizing letterhead from the local prosecutor in order to intimidate the debtor into paying the debt to avoid jail; and
  • Masquerading as hospital workers and demanding payment on old bills before medical care will be provided.

A multi-billion-dollar industry, the business of collecting debt has a significant impact on consumers and the originating creditors.  While the debt collection process helps reduce creditors’ losses from non-repayment and keep credit accessible and more affordable for consumers, illegal debt collection tactics can cause consumers substantial harm when they result in the unintentionally waiver of consumers’ legal rights, invasion of privacy and inflict emotional distress.

For a full copy of the final rule, click here.