Allen Sanchez and Tisha Sanchez

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re:
ALLEN SANCHEZ and
TISHA SANCHEZ, Case no. 15-11463 ts7
Debtors.
MEMORANDUM OPINION
Before the Court is Debtors’ motion to sanction North Central Solid Waste Authority
(“NCSWA”) for violating the discharge injunction. Debtors allege NCSWA violated the
injunction when it discontinued Debtors’ trash service, refused to reinstate it, and demanded that
Debtors reaffirm the pre-petition debt. Although aware of the motion, NCSWA did not respond
to it. For the reasons below, the Court finds NCSWA violated the discharge injunction and should
be sanctioned.
I. FACTS
Debtors live in San Juan Pueblo, a Native American pueblo in a rural part of northern New
Mexico. Debtors filed this Chapter 7 bankruptcy case on June 1, 2015. They listed NCSWA as a
general unsecured creditor with a claim of $880, representing several years of unpaid bills.
NCSWA was given notice of the bankruptcy filing.
NCSWA provides trash service to Santa Juan Pueblo residents pursuant to a Joint Powers
Agreement (the “Agreement”) among the County of Rio Arriba, the City of Espanola, the Santa
Clara Pueblo, and the San Juan Pueblo. The Agreement was made under the authority of the Joint
Powers Agreement Act, N.M.S.A. 1978 § 11-1-1, et seq., and the Solid Waste Act, N.M.S.A. 1978
§ 74-9-1, et seq. (the “SW Act”). The Agreement provides that NCSWA is not a “waste authority”
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as defined in the Solid Waste Authority Act, N.M.S.A. 1978 § 74-10-1, et. seq. (the “SW Authority
Act”).
Prior to the bankruptcy filing, NCSWA provided Debtors with trash pick-up service. When
Debtors signed up for the service, they paid a $150 deposit. NCSWA gave Debtors a trash bin.
The monthly charge for the service was about $18.
As a joint venture of various local and tribal governmental units, NCSWA is a
governmental unit, not a private enterprise. See § 101(26) 1 (governmental unit includes, inter alia,
a department, agency, or instrumentality of a state, municipality or other foreign or domestic
government). Its function—curbside trash pick-up—is a utility service within the meaning of 11
U.S.C. § 366. See, e.g., In re Oaks, 2012 WL 5717940 (Bankr. N.D. Ill. 2012) (treating trash pick-
up as a utility service); In re Spansion, Inc., 2010 WL 2905001 (Bankr. D. Del. 2010) (same).
The Court entered its standard discharge order on September 8, 2015. The debt to NCSWA
for unpaid prepetition trash service was discharged on that date.
On or about November 25, 2015, NCSWA removed the trash bin from Debtors’ property
and discontinued service. Debtors filed a report with the Rio Arriba County Sheriff, reporting the
trash bin as stolen.
On November 30, 2015, Mr. Sanchez visited NCSWA’s office to pay his bill. He paid
$150 for services provided between the petition date and December 31, 2015. During that visit,
NCSWA manager Gino Romero threatened to place a lien on the Debtors’ house unless they signed
an agreement reaffirming the discharged debt. The agreement required Debtors to pay $78.54 a
month for twelve months in addition to the regular monthly payment of $18. Mr. Sanchez signed
the agreement. Despite this, NCSWA never restored service to the Debtors.
1 Unless otherwise noted, all statutory references are to 11 U.S.C.
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On December 11, 2015, Debtors reopened their bankruptcy case and filed the Motion.
Debtors served the Motion, together with a notice of the 21-day deadline to object, on NCSWA
by mailing them to: (1) Bernardino Chavarria, Chairman of the Board of Directors, North Central
Solid Waste Authority, 1101 Industrial Park Rd., Española, NM 87532; (2) North Central Solid
Waste Authority, Attn: Manager Gino Romero, 1101 Industrial Park Rd., Española, NM 87532;
and (3) New Mexico Attorney General, Attn: Litigation Group, P.O. Drawer 1508, Santa Fe, NM
87504. Service was sufficient.
Five days after Debtors filed the Motion, they received a letter from NCSWA stating their
account had been closed “due to the bankruptcy.” The letter included a copy of the first page of
the Motion and a check for $150, presumably a refund of the November 30, 2015 payment.
NCSWA also directed Debtors to submit a new application and pay a $50 security deposit.
NCSWA ordinarily requires a $25 deposit for new customers.
Debtors did not submit a new service application or pay a new deposit. NCSWA has not
returned Debtors’ trash bin or picked up their trash since before November 25, 2015. Debtors have
about 20 bags of trash in their back yard. They cannot remove the trash themselves because their
truck needs a new transmission. Ms. Sanchez contacted two private trash removal services, but
neither provided service to them.
There is no evidence that NCSWA’s prepetition debt was or could be secured by a lien.
The SW Authority Act gives “waste authorities” the right to impose liens for unpaid trash fees, but
NCSWA is not a “waste authority.” Nothing in the Agreement, NCSWA’s bylaws, or the SW Act
gives NCSWA the right to a lien. The bylaws simply provide that if NCSWA’s conditions are not
met, service may be discontinued.
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NCSWA did not object or otherwise respond to the Motion. The deadline to object expired
January 4, 2016. The Court held a hearing on the Motion on January 19, 2016. NCSWA did not
appear.
Debtors incurred $3,800 in attorney fees filing the Motion and attending the January 19,
2016 hearing.
II. DISCUSSION
A. Utility Companies and the Bankruptcy Code.
Unlike most service providers, public utility companies often hold monopoly or quasi-
monopoly power. Utilities that provide gas, electricity, water, and sewer service, for example,
typically are the only source of those essential services. Because their services are both needed
and unavailable elsewhere, utilities can easily pressure debtors to pay their pre-petition debt or
lose service.
One response to this situation was the addition of § 366 to the Bankruptcy Code, which
prohibits utilities from discontinuing services in response to a bankruptcy filing while providing
reasonable assurance that utilities will be paid for post-petition service.
Section 366 of the Bankruptcy Code recognizes the monopoly powers of most
utilities who provide services such as electricity, water and gas. Unlike other
creditors, who usually may decline to do business with the debtor after bankruptcy
provided they do not violate some other provisions of the Code, a public utility is
required to continue to provide service to the debtor after a bankruptcy case is
commenced. Without section 366, a debtor might well be unable to obtain essential
services.
3 Collier on Bankruptcy, ¶ 366.01 (16th ed.). Section 366 “strike[s] a balance between the general
right of a creditor to refuse to do business with a debtor post-petition and the debtor’s need for
utility service.” In re Martinez, 504 B.R. 722, 729 (Bankr. D.P.R. 2014).
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Refusing to provide utility service is not a per se violation of the Bankruptcy Code. For
example, many cases have upheld a utility company’s right to discontinue service where there is
evidence of equipment tampering or unauthorized use. See, e.g., In re Crome, 2008 WL 5645100,
*3 (Bankr. N.D. Ill. 2008) (collecting cases and holding that the electric company’s refusal to
reinstate service after debtor filed bankruptcy did not violate §§ 362(a) or 366 because of debtor’s
pre-petition tampering); In re Parks, 2008 WL 2003163, *4 (Bankr. N.D. Ohio 2008) (“no one
disputes that a utility can refuse service … for tampering or unauthorized use” without violating
the stay).
Similarly, utilities can discontinue service post-petition without violating the Bankruptcy
Code if the debtor fails to pay for post-petition service. In re Martinez, 504 B.R. 722, 731 (Bankr.
D. Puerto Rico 2014); In re Jones, 369 B.R. 745, 749 (1st Cir. BAP 2007) (“[F]ailure to make
post-petition payments … allows for termination” of service).
In the absence of equipment tampering, service theft, or failure to pay for post-petition
service, most courts have held that sole-source utilities may not discontinue service post-petition
without violating the automatic stay. See, e.g., In re Smith, 170 B.R. 111, 116 (Bankr. N.D. Ohio
1994) (“In view of the fact that GTE intentionally disconnected the Smiths’ telephone service after
receiving notice [of the bankruptcy], the Court finds that GTE willfully violated the automatic
stay.”); In re Tarrant, 190 B.R. 704, 712 (Bankr. S.D. Ga. 1995) (the refusal to restore utility
service was an act to collect a prepetition debt and violated the automatic stay); In re Rivera, 511
B.R. 6, 8 (Bankr. D.P.R. 2014) (defendant violated the stay by, inter alia, discontinuing water
service); In re Lanford, 10 B.R. 129 (Bankr. D. Minn. 1981) (disconnecting telephone service
violated the automatic stay).
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B. Utility Companies and the Discharge Injunction.
Sections 362(a) and 366 only apply while a bankruptcy case is pending. Where, as here, a
discharge has been entered and the case closed, the primary restriction on utility companies’
dealings with former debtors is the discharge injunction of § 524(a)(2).2
1. The Discharge Injunction. Section 524(a)(2) provides that a bankruptcy
discharge:
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.
In other words, the discharge injunction “prohibits efforts to collect a [prepetition] debt as a
personal liability of the debtor[.]” In re Paul, 534 F.3d 1303, 1309 n. 6 (10th Cir. 2008) (emphasis
in original) (citing 11 U.S.C. § 524(a)).
There is no private right of action under § 524(a)(2) when a creditor violates the discharge
injunction. In re Otero, 498 B.R. 313, 319 (Bankr. D.N.M. 2013) (surveying the case law). The
remedy lies in contempt proceedings, in which the Court may assess sanctions pursuant to § 105.
Paul, 534 F.3d at 1306-1307 (“Under 11 U.S.C. § 105(a), bankruptcy courts have the equitable
power to enforce and remedy violations of substantive provisions of the Bankruptcy Code,
including in particular the discharge injunction in § 524(a)(2)… Thus, a bankruptcy court may
2 Some courts have held that § 525(a), which prohibits governmental units from discriminating
against debtors when deciding whether to “deny, revoke, suspend, or refuse to renew a license,
permit, charter, franchise, or other similar grant. . . .” restricts a utility’s ability to discontinue
service post-discharge. See, e.g., In re Webb, 38 B.R. 541, 545 (Bankr. E.D. Pa. 1984) (while
implying that § 525(a) governed a utility company’s post-petition refusal to provide service, the
court held that no violation occurred because the refusal was based on debtor’s utility equipment
tampering, not his bankruptcy filing). Other courts have been unwilling to read § 525(a) so
broadly. See, e.g., Rees v. Employment Security Comm. Of Wyo., 61 B.R. 114 (Bankr. D. Utah
1986) (collecting cases on the scope of § 525(a) and adopting a narrow construction based on the
legislative history and circuit court decisions). The Court need not rule on the issue.
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sanction a party for violating the discharge injunction….”). See also Bessette v. Avco Financial
Services, Inc., 230 F.3d 439, 445 (1st Cir. 2000) (collecting cases for the proposition that sanctions
are the generally recognized remedy).
2. The Objective Standard for Determining Violations. Certain actions, such
as collection calls, are facially impermissible and plainly prohibited by § 524(a)(2). In re Montano,
488 B.R. 695, 708 (Bankr. D.N.M. 2013) (listing facial violations). Other actions that are facially
permissible can nevertheless violate the discharge injunction if the effect of the actions is to coerce
payment of discharged debts. Paul, 534 F.3d at 1308 (“Notwithstanding the facial permissibility
of a[n] … action taken by a creditor vis a vis a discharged debtor, a violation of § 524(a)(2) may
still be found if the debtor proves ‘the creditor acted in such a way as to ‘coerce’ or ‘harass’ the
debtor improperly,’ i.e., so as to obtain payment of the discharged debt.”) (quotations omitted).
“The inquiry is objective; the question is whether the creditor’s conduct had the practical, concrete
effect of coercing payment of a discharged debt[.]” Id. See also In re Mahoney, 368 B.R. 579,
589 (Bankr. W.D. Tex. 2007) (under the objective standard, “for any act to count as an act that
violates the discharge, there must be evidence of an effective connection between the conduct of
the creditor and the collection of the debt”).
Bad faith is not required for an action to be coercive. Paul, 534 at 1308. “By the same
token,” any error or wrongdoing by the creditor will not warrant sanctions “if the objective effect
is not to coerce payment of a discharged debt.” Id.
3. NCSWA Violated the Discharge Injunction. NCSWA’s conduct before
receiving the Motion and notice clearly violated § 524. NCSWA discontinued service post-
discharge and threatened to place a lien on Debtors’ house if they refused to pay the discharged
debt. NCSWA did not resume service even after coercing Mr. Sanchez to sign an unenforceable,
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quasi-reaffirmation agreement to repay the discharged debt.3 The Court therefore concludes
“NCSWA acted in such a way as to ‘coerce’ or ‘harass’ the debtor improperly,’ … so as to obtain
payment of the discharged debt.” In re Paul, 534 F.3d 1303, 1309 n. 6 (10th Cir. 2008). See also
In re Palazzola, 2011 WL 3667624 at *10 (Bankr. N.D. Ohio 2011) (debtors stated a cause of
action under § 524 where the City of Toledo allegedly disconnected water service to their house
post-discharge and refused to reinstate the service unless their pre-petition water bill was paid).
NCSWA’s actions after receiving the Motion and notice are more ambiguous. It could
well be that NCSWA’s return of the $150 payment and the invitation to submit a new service
application were attempts to restore service without collecting the discharged debt. Because
NCSWA did not respond to the Motion or appear at the hearing, it is difficult to know. The Court
believes that Debtors should have taken NCSWA up on its proposal and determined whether the
problem could have been resolved. Nevertheless, whether or not NCSWA is now willing to restore
service without seeking to collect the pre-petition debt, NCSWA’s actions before it received the
Motion violated the discharge injunction.
C. Sanctions.
“In cases in which the discharge injunction was violated willfully, courts have awarded
debtors actual damages, punitive damages and attorney’s fees.” Collier on Bankruptcy (16th ed.)
¶ 524.02[2][c], citing In re Hardy, 97 F.3d 1384 (11th Cir. 1996). See also In re Culley, 347 B.R.
115 (10th Cir. BAP 2006) (upholding award of actual damages, attorney fees, and punitive
damages as a sanction for violating the discharge injunction); Paul, 534 F.3d at 1306 (bankruptcy
courts can impose sanctions for violating the discharge injunction); In re Otero, 498 B.R. 313, 321
3 The agreement is unenforceable because, inter alia, it was executed after the discharge was
entered. See In re Kirk, 2014 WL 1248040, *1 (Bankr. D.N.M. 2014) (“case law is nearly universal
that post-discharge reaffirmation agreements are barred”).
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(Bankr. D.N.M. 2013) (awarding actual damages, attorney fees, and punitive damages against
creditor for violating § 524).
The Court finds NCSWA’s conduct violated the discharge injunction and was willful.
Debtor is entitled to actual damages and attorney fees. The amount of actual damages is not
entirely clear. Based on the Affidavit in Support of Damages filed January 14, 2016, doc. 21, the
Court concludes it is appropriate to award $150 in actual damages, which represents the value of
the trash bin NCSWA removed from the Debtor’s property. Debtor is also entitled to $3,800 in
attorney fees.
The Court will therefore enter an award in the Debtor’s favor as follows:
Actual damages: $ 150
Attorney Fees: $ 3,800
Total: $ 3,950
The Court will impose additional damages if NCSWA continues to violate the discharge
injunction, or if NCSWA refuses to pick up the trash that has accumulated at the Debtor’s
residence.
III. CONCLUSION
Debtor proved that NCSWA willfully violated the discharge injunction when it refused to
provide trash service, refused to return Debtors’ trash bin, forced Debtor to sign a reaffirmation
agreement, and threatened to place a lien on the Debtors’ house.
A separate sanctions order will be entered.
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______________________________
Honorable David T. Thuma
United States Bankruptcy Judge
Entered: February 3, 2016
Copies to:
Tami L Schneider
P.O. Box 23563
Santa Fe, NM 87502
North Central Solid Waste Authority
Attn: Manager Gino Romero
1101 Industrial Park Rd.
Española, NM 87532
Bernardino Chavarria
Chairman of the Board of Directors, NCSWA
1101 Industrial Park Rd.
Española, NM 87532
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