Haynes v. Chase Bank U.S.A., N.A.

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
IN RE: 	. 	Chapter 7
.
RUSTY HAYNES 	. 	Case No. 11-23212 (RDD)
.
.
Debtor. 	.
___________________________.
RUSTY HAYNES, INDIVIDUALLY 	.
AND ON BEHALF OF ALL OTHERS .
SIMILARLY SITUATED 	. Adv. Pro. No. 13-08370- rdd
.
v. 	.
.
.
CHASE BANK USA, N.A. 	.
___________________________.
Modified Bench Ruling on Motion to Dismiss or to Strike Class
Allegations
BEFORE THE HONORABLE ROBERT D. DRAIN
UNITED STATES BANKRUPTCY COURT JUDGE
U.S. Bankruptcy Court, SDNY
300 Quarropas Street Room 248
White Plains, NY 10601
APPEARANCES:
Attorney for Rusty Haynes: 	Charles W. Juntikka, ESQ.
CHARLES JUNTIKKA & ASSOCIATES
George F. Carpinello, ESQ.
Adam R. Shaw, ESQ.
BOIES, SCHILLER & FLEXNER, LLP
Attorneys for Chase: 	Michael Y. Scudder, ESQ.
Al Hogan, ESQ.
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SKADDEN ARPS SLATE MEAGHER &
FLOM
Also present: 	Deborah A. Reperowitz
via telephone 	TROUTMAN SANDERS
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THE COURT: 	I have before me a motion by Chase	1
Bank 	USA, 	N.A., 	the 	defendant 	in 	this 	adversary 	proceeding,	2
to dismiss the proceeding under Bankruptcy Rule 7012,	3
incorporating Federal Rule of Civil Procedure 12(b)(6),	4
for failure to state a claim on behalf of the lead	5
plaintiff, Mr. Haynes, or, in the alternative, to strike	6
the class action allegations in the complaint, premised	7
again on Bankruptcy Rule 7012, in this instance as it	8
incorporates Federal Rule of Civil Procedure 12(b)(1), on	9
the basis that the Court lacks subject matter jurisdiction	10
or the statutory authority to adjudicate a class action of	11
this nature.	12
The standard for dismissal under Rule 12(b)(6)	13
is well known. 	When considering such a motion, the Court	14
must assess the legal feasibility of the complaint, not	15
weigh the evidence that might be offered in its support.	16
Koppel v. 4987 Corp., 167 F.3d 125, 133 (2d Cir. 1999).	17
The Court's consideration is limited to facts stated on	18
the face of the complaint and in the documents appended to	19
the complaint or incorporated into the complaint by	20
reference, as well as to matters of which judicial notice	21
may be taken. 	Hertz Corp. v. City of New York, 1 F.3d.	22
121, 	125 	(2d 	Cir. 	1993), 	cert. 	denied, 	510 	U.S. 	1111(1994).	23
See also Difolco v. MSNBC Cable, LLC, 62 F.3d 104, 111 (2d	24
Cir. 2010) ("Where a document is not incorporated by	25
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reference, the court may nevertheless consider it where	1
the complaint relies heavily upon its terms and effect.").	2
The Court accepts the complaint's factual allegations as	3
true, even if they are doubtful in fact, and must draw all	4
reasonable inferences in favor of the plaintiff. 	Tellabs,	5
Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 321-23	6
(2007). 	However, if a complaint's allegations are clearly	7
contradicted by documents incorporated into the pleadings	8
by reference, the Court need not accept them. 	Labajo v.	9
Best Buy Stores, LP, 478 F.Supp.2d 523, 528 (S.D.N.Y.	10
2007). 	Moreover, the Court "is not bound to accept as	11
true a legal conclusion couched as a factual allegation."	12
Papasan v. Allain, 478 U.S. 265, 286 (1986). 	Instead, the	13
complaint must “state more than labels and conclusions,	14
and a formulaic recitation of the elements of the cause of	15
action will not do." 	Bell Atlantic Corp. v. Twombly, 550	16
U.S. 544, 555 (2007).	17
In addition, while the Supreme Court has	18
confirmed, in light of the notice pleading standard of	19
Federal Rule of Civil Procedure 8(a), that a complaint	20
does not need detailed factual allegations to survive a	21
motion under Rule 12(b)(6), see Erickson v. Pardus, 551	22
U.S. 89, 93, (2007), and Twombly 550 U.S. at 556, its	23
"factual allegations must be enough to raise a right to	24
relief above the speculative level." 	Twombly, 550 U.S. at	25
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555. 	If the claim would not otherwise be plausible on its	1
face, therefore, the complaint must allege sufficient	2
facts, to “nudge the claim across the line from	3
conceivable to plausible." 	Id. at 570. 	Otherwise, the	4
defendant should not be subjected to the burdens of	5
continuing discovery and the worry of overhanging	6
litigation. 	Id. at 556.	7
Applying this plausibility standard is "a	8
context-specific task that requires the reviewing court to	9
draw on its judicial experience and common sense."	10
Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).	11
"Plausibility thus depends on a host of considerations:	12
the full factual picture presented by the complaint, the	13
particular cause of action and its elements, and the	14
existence of alternative explanations so obvious that they	15
render plaintiff's inferences unreasonable." 	L-7 Designs	16
Inc. v. Old Navy, LLC, 647 F.3d 419, 430 (2d Cir. 2011).	17
In sum, the Court applies a two-step approach	18
under Rule 12(b)(6). 	After identifying the elements of	19
the applicable cause of action, Iqbal, 556 U.S. at 675,	20
the Court must first note where the allegations are not	21
entitled to the assumption of truth because they are only	22
legal conclusions, id. at 679-80, and, second, it must	23
assess the factual allegations in context to determine	24
whether they plausibly suggest an entitlement to relief.	25
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Id. at 681. 	See generally, Harris v. Mills, 572 F.3d 66,	1
72, (2d Cir. 2009), and L-7 Designs Inc., 647 F.3d at 430.	2
With regard to a motion to dismiss under Federal	3
Rule of Civil Procedure 12(b)(1), the plaintiff bears the	4
burden of proving jurisdiction by a preponderance of the	5
evidence. 	Aurecchione 	v. 	Schoolman 	Transportation 	Systems,	6
Inc. 426 F.3d 635, 638 (2d Cir. 2005). 	Where the Court	7
relies solely on the pleadings and supporting affidavits,	8
the plaintiff need only make a prima facie showing of	9
jurisdiction, however. 	Robinson v. Overseas Military	10
Sales Corp., 21 F.3d 502, 507 (2d Cir. 1994). 	Here, the	11
issue of jurisdiction pertains to the Court's power to	12
issue an order granting the ultimate class action relief	13
sought. Whether the Court has subject matter jurisdiction	14
over a nationwide class action to remedy alleged	15
widespread breaches of debtors’ discharges under Section	16
524(a) of the Bankruptcy Code is a question of law;	17
therefore, extrinsic facts are not relevant.	18
The Court addresses Chase’s Rule 12(b)(6) motion	19
first. 	In an action premised upon the alleged violation	20
of Mr. Haynes and the class members' discharges for	21
failure to correct their credit reports that list their	22
debt, post-discharge under Section 727 of the Bankruptcy	23
Code, as being only “charged off,” rather than being	24
“discharged in bankruptcy,” Chase contends that, under the	25
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circumstances pled in the complaint, it in fact has no	1
obligation to revise or correct the credit reporting that	2
it has previously done.	3
Chase recognizes, for purposes of the motion	4
before me, although reserving its rights on appeal, the	5
general case law on this issue, which, as discussed at	6
length in In re Torres, 367 B.R. 478 (Bankr. S.D.N.Y.	7
2007), as well as in a number of other bankruptcy cases,	8
including In re Nassoko, 405 B.R. 515 (Bankr. S.D.N.Y.	9
2009); McKenzie-Gilyard v. HSBC Bank, Nevada NA, 388 B.R.	10
474 (Bankr. E.D.N.Y. 2007); Russell v. Chase Bank, U.S.A.,	11
NA, 378 B.R. 735 (Bankr. E.D.N.Y. 2007); and Laboy v.	12
Firstbank 	P.R. 	(In 	re 	Laboy), 	2010 	Bankr. 	LEXIS 	345 	(Bankr.	13
D. P.R. Feb.2, 2010), holds to the effect that, as stated	14
by Collier,	15
"The failure to update a credit report to	16
show that a debt has been discharged is also a	17
violation of the discharge injunction if shown to be	18
an attempt to collect the debt. 	Because debtors	19
often feel compelled to pay debts listed in credit	20
reports when entering into large transactions, such	21
as a home purchase, it should not be difficult to	22
show that the creditor, by leaving discharged debts	23
on a credit report, despite failed attempts to have	24
the creditor update the report, is attempting to	25
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collect the debt.”	1
4 Collier on Bankruptcy, paragraph 524.02[2][B] (16th Ed.	2
2013), at page 524-23.	3
Chase contends, however, that under the facts of	4
the complaint this case law, much of which has arisen in	5
the context of motions to dismiss, is not applicable for	6
two reasons. 	First, because Chase, as acknowledged by the	7
plaintiff with respect to the lead plaintiff's claim, sold	8
its debt pre-bankruptcy and therefore pre-discharge, to a	9
third party, Chase contends that it neither has an ongoing	10
obligation with respect to credit reporting under the Fair	11
Credit Reporting Act, 15 U.S.C. § 1681 et seq., nor, as it	12
no longer has a debt to enforce, under Section 524(a) of	13
the Bankruptcy Code. 	Second, Chase argues that, if, as it	14
contends, it has no continuing obligation after the sale	15
of the debt, prepetition, under the Fair Credit Reporting	16
Act, it has no other duties under Section 524(a) of the	17
Bankruptcy Code.	18
Let me address that latter argument first. 	The	19
complaint does not specifically assert a claim under the	20
FCRA. 	Instead, it asserts a claim specifically under	21
Sections 105(a) and 524(a) of the Bankruptcy Code for	22
violation of the discharge under Section 727 of the Code.	23
In essence, then, Chase is asserting that the Fair Credit	24
Reporting Act has implicitly repealed Section 524(a) of	25
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the Bankruptcy Code as interpreted by the foregoing case	1
law, or at least circumscribes Chase's duties under	2
Section 524(a) of the Bankruptcy Code with respect to	3
correcting debtors’ credit reports. 	Of course, the FCRA	4
did not expressly repeal or curtail Section 524(a) of the	5
Bankruptcy Code. 	Absent a clearly expressed congressional	6
intention, moreover, repeal by implication is not favored.	7
Branch v. Smith, 538 U.S. 254, 273 (2003). 	An implied	8
repeal will only be found where provisions in two federal	9
statutes are in fact in irreconcilable conflict or where	10
the latter statute covers the whole subject of the earlier	11
one and is clearly intended as a substitute. 	Id. at 273,	12
quoting Posadas v. National Citibank, 296 U.S. 497, 503	13
(1936). 	See 	also 	In 	re 	Jacques, 	416 	B.R. 	63, 	71-72 	(Bankr.	14
E.D.N.Y. 2009).	15
Generally speaking, with regard to Section	16
524(a)/105(a) fact patterns, the case law as to implied	17
repeal has been contrary to Chase’s argument. 	That is,	18
courts have found that Sections 524(a) and 105(a) of the	19
Bankruptcy Code preempt other federal statutes that might,	20
on their face, otherwise be applicable, such as the FCPA.	21
See Diamonte v. Solomon & Solomon P.C., 2001 U.S. Dist.	22
LEXIS 14818 (N.D.N.Y. Sept. 18, 2001), and the cases cited	23
therein. 	Where courts have allowed a federal statute to	24
be applied, even in the context of a Section 524(a)/105(a)	25
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cause of action, they have done so by showing that the two	1
statutes are not in irreconcilable conflict and not by	2
ruling out the Section 524 cause of action. 	See, for	3
example, Randolph v. IMBS Inc., 368 F.3d 726 (7th Cir.	4
2004).	5
I conclude that there is no irreconcilable	6
conflict between the Fair Credit Reporting Act and	7
Sections 524(a) and 105(a) of the Bankruptcy Code. 	While,	8
as discussed in In re Torres, 367 B.R. at 489-90, a	9
lender's compliance with the FCRA is relevant to the	10
factual analysis of a Section 524(a)/105(a) claim, I	11
conclude that Section 524(a) of the Bankruptcy Code, as a	12
matter of drafting and Congressional intent, is intended	13
to be read broadly, given Congress' purpose, evident from	14
the face of the statute as well as its legislative history	15
-- including not only the legislative history of the	16
specific provision, but also its evolution from the	17
Bankruptcy Act of 1898 -- that Section 524(a) give as	18
complete effect as possible to the discharge under Section	19
727 of the Code. 	See 4 Collier on Bankruptcy, paragraph	20
524.02 at 524-19. 	See also, Robert P. Lawson Jr.,	21
Remedying Violation of the Discharge Injunction under	22
Bankruptcy Code 524, 20 Bankr. Dev. J. 77 (2003). 	See	23
also Marrama v. Citizens Bank of Massachusetts, 549 U.S.	24
365, 367 (2007), noting that the discharge is a, if not	25
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the, primary purpose of the Bankruptcy Code or the primary	1
protection offered by the Bankruptcy Code. 	See also In re	2
Bogdanovich, 292 F.3d 104, 107 (2d Cir. 2007), and In re	3
Rizzo-Cheverier, 364 B.R. 532, 537 (Bankr. S.D.N.Y. 2007)	4
(same). Thus, even if Chase did not have an ongoing duty	5
under the FCRA to correct Mr. Haynes’ credit reports, the	6
complaint’s Section 524(a)/105(a) claim is not preempted.	7
Chase's other argument is closely related,	8
namely that, having sold its debt it cannot be seen in a	9
plausible way to have any interest in continuing to	10
enforce that discharged debt and, therefore, not only does	11
it 	lack 	an 	ongoing 	FCRA 	duty 	to 	correct 	the 	credit 	reports,	12
it also cannot be liable under Section 524 of the	13
Bankruptcy Code, which “operates as an injunction against	14
the commencement or continuation of an action, the	15
employment of process, or an act, to collect, recover or	16
offset 	any 	such 	debt 	as 	a 	personal 	liability 	of 	the 	debtor,	17
whether or not discharge of such debt has been waived.”	18
11 U.S.C. Section 524(a). 	See also In re Torres, 367 B.R.	19
at 489-90.	20
In support of this apparently common sense	21
contention, Chase relies upon an advisory note in	22
connection with proposed rule-making under the FCRA, which	23
states that, "The agencies do not expect that, after	24
transferring an account to a third-party, a furnisher	25
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would update the current status of the account beyond	1
providing information to a credit reporting agency that	2
the account has been transferred.” 	This appears at Volume	3
74 of the Federal Register, paragraph 31494. 	I should	4
note, however, that no rules were adopted as part of this	5
process and the FCRA itself is more broadly worded,	6
requiring reporting, including a duty to correct and	7
update information, by a person who "regularly, in the	8
ordinary course of business, furnishes information to one	9
or more consumer reporting agencies about the person's	10
transactions or experiences with any consumer, and has	11
furnished to a consumer reporting agency information that	12
the person determines is not complete or accurate.” 	15	13
U.S.C. Section 1681s-2(a)(2). 	Such a person "shall	14
promptly notify the consumer reporting agency of that	15
determination and provide to the agency any corrections to	16
that information or any individual information that is	17
necessary to make the information provided by the person	18
to the agency complete and accurate and shall not,	19
thereafter, furnish to the agency any of the information	20
that remains not complete or accurate.” 15 U.S.C. Section	21
1681s-2(a)(2).	22
Even applying that statutory language to the	23
exclusion of the advisory note, however, Chase contends	24
that its last "transaction or experience" with respect to	25
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plaintiff's debt was the sale itself to a third party,	1
pre-bankruptcy and, thus, pre-discharge, and, therefore,	2
that it has no obligation to continue to deal with the	3
credit reporting agencies to report that the debt is no	4
longer merely charged off, but, instead, has been	5
discharged through bankruptcy, or that it has any interest	6
in 	the 	debt’s 	subsequent 	collection. 	Thus, 	Chase 	contends,	7
the complaint does not show even inferentially that Chase	8
intended to assist the collection of Mr. Haynes’	9
discharged debt when it refused to correct his credit	10
report	11
The complaint, however, suggests otherwise.	12
First, as stated in paragraph 29, after the debt	13
was, in fact, discharged post-sale, Mr. Haynes called	14
Chase to request removal of the “charged-off” notation	15
next to his Chase account in light of the discharge, but	16
Chase refused to remove the “charged off” notation.	17
Paragraph 30 of the complaint goes on to state that “Chase	18
only did so after the Court issued an opinion involving	19
another Chase matter, In re Odenthal, at which time Chase	20
requested that the credit reporting agencies delete and	21
suppress the former Chase debt on Haynes' record.”	22
Standing alone, such allegations, particularly	23
in light of Chase’s prior sale of the debt, might not	24
support a claim that Chase refused Mr. Haynes’ request to	25
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correct his credit reports with the intention of assisting	1
in the debt’s collection. 	Significantly, however, other	2
sections of the complaint put Chase’ handling of Mr.	3
Haynes’ request in a context that sufficiently supports	4
such an inference.	5
Thus the complaint asserts in paragraph 16 that	6
“Chase has chosen not to advise the credit reporting	7
agencies to the fact that the class members' debts have	8
been discharged because Chase continues to receive payment	9
either directly or indirectly on discharged debts.” 	More	10
specifically, paragraph 19 states that “Chase has adopted	11
a pattern and practice of failing and refusing to update	12
credit information with regard to debts discharged in	13
bankruptcy because it sells those debts and profits by the	14
sale. 	Chase knows that if credit information is not	15
updated, many class members will feel compelled to pay off	16
the debt, even though it is discharged in bankruptcy.	17
Thus, buyers of Chase debt know and are willing to pay	18
more for the fact that they will be able to collect	19
portions of Chase debt, despite the discharge of that debt	20
in bankruptcy.” 	Paragraph 20 then states, “Upon	21
information and belief, Chase receives a percentage fee of	22
the proceeds of each debt repaid to Chase and forwarded to	23
the buyer of Chase debt.”	24
I conclude, therefore, based on the foregoing	25
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allegations in the complaint that the complaint, if true -	1
- and I need to accept it as true -- states a cause of	2
action against Chase for breach of the discharge under	3
Sections 727 and 524(a)(2) of the Bankruptcy Code for	4
intentionally assisting in the collection of discharged	5
debt by not correcting the debtors’ credit reports to	6
reflect that the debt has, in fact, been discharged.	7
I do so for two reasons. 	First, paragraph 20 of	8
the complaint alleges that Chase continues to receive a	9
percentage payment of the proceeds of each debt repaid to	10
Chase 	and 	forwarded 	to 	the 	buyer 	of 	the 	debt. 	In 	addition,	11
therefore, to having an economic interest in the debt	12
notwithstanding its sale, as alleged in paragraph 16,	13
Chase is alleged to act as the buyer's agent in forwarding	14
payments to the buyer of debt that it is aware has been	15
discharged after retaining a percentage. 	Instead of	16
sending the money back or at least acting as if that debt	17
has been discharged, it thus is helping to enforce the	18
debt’s collection for its and its buyer’s benefit. 	Given	19
Chase’s continuing relationship with the debt, therefore,	20
and drawing, as I should, all inferences in favor of the	21
plaintiff in a motion to dismiss context, I conclude that	22
the complaint shows a motive and intent to assist the	23
collection of the discharged debt lying behind Chase’s	24
refusal to correct the credit reports.	25
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Based on the plain language of the FCRA Section	1
1681s-2(a)(2), as well, it appears to me, given paragraphs	2
16 and 20 of the complaint, that Chase is, notwithstanding	3
the sale of the debt, engaging in a “transaction or	4
experience” involving its former debtor. 	Thus, limited	5
even to a reading of Section 524 that largely overlaps	6
with Chase’s duties under the FCRA, the complaint alleges	7
a cause of action for Chase’s ongoing intentional failure	8
to correct the credit reports and thereby assist in the	9
collection of discharged debt.	10
Furthermore, by failing on a systematic basis to	11
correct the credit reports, as alleged in the complaint,	12
Chase is enhancing its purchasers’ ability to collect on	13
the debt, which is, after all, charged-off debt when	14
purchased, with a relatively high, I can infer, prospect	15
of the borrower going into bankruptcy. 	Chase profits, I	16
can infer and as the complaint states, from that practice	17
by getting a higher purchase price from its buyers, even	18
if those buyers buy the debt before the bankruptcy has	19
occurred. 	The buyers know, that is, that post-sale Chase	20
will refuse to correct the credit report to reflect the	21
obligor’s bankruptcy discharge, which means that the	22
debtor will feel significant added pressure to obtain a	23
“clean” report by paying the debt. 	Separate and apart	24
from Chase seemingly having a duty to correct the report	25
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under the FCRA, as discussed above, no one has pointed to	1
any provision of applicable law that prohibits Chase from	2
correcting the credit reports. 	And, in fact, Chase	3
eventually did so in respect of Mr. Haynes' credit report.	4
Therefore, I believe the complaint sets forth a cause of	5
action that Chase is using the inaccuracy of its credit	6
reporting on a systematic basis to further its business of	7
selling debt and its buyer’s collection of such debt.	8
How the sale of the debt is reported supports	9
this conclusion. 	In other words, such disclosure, or,	10
more aptly, its limited nature, also puts Chase’s refusal	11
to correct the credit reports in context. 	Mr. Haynes’	12
credit reports have been referred to repeatedly in the	13
complaint, as well as at oral argument; obviously, they	14
are front and center in this litigation and may be	15
considered in connection with Chase’s 12(b)(6) motion. 	It	16
is acknowledged that although those credit reports list	17
the debt as “sold,” they do not identify the purchaser.	18
Therefore, as far as the debtor is concerned, the only	19
creditor to approach to correct the credit reports is	20
Chase, which, though it appears to be the only game in	21
town, 	as 	a 	matter 	of 	policy 	refuses 	to 	correct 	them 	(while,	22
in addition, retaining a percentage of payments sent to	23
Chase by the debtor, as opposed to Chase’s -- undisclosed	24
-- buyer), highlighting further the perniciousness of	25
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Chase’s allegedly systematic approach in refusing to	1
correct such reports.	2
So, I will deny the motion for those reasons.	3
The motion also asserts, as noted, that the	4
complaint's class action request should be circumscribed	5
on jurisdictional grounds only to those breaches of	6
Section 524(a)(2) that have occurred in this District	7
during the time set forth in the complaint, that is, in	8
the Southern District of New York. 	The basis for that	9
assertion is that the Court lacks subject matter	10
jurisdiction, more specifically, the power to enforce the	11
discharge of any debtor with the exception of debtors who	12
received a discharge in the Southern District of New York.	13
The 	motion 	accurately 	states 	that 	class 	actions 	comprising,	14
or brought on behalf of, debtors seeking to correct	15
alleged violations of their discharge under Section 524 of	16
the Bankruptcy Code have received a very mixed reception;	17
in fact, the majority of courts have either held that they	18
lack the power to determine such class actions or, as	19
stated in Chase’s motion, can do so only with respect to	20
debtors who have been discharged in cases in their	21
district. 	See generally, Kara Bruce, The Debtor Class, 88	22
Tulane Law Review 21 (2013).	23
There are three theories upon which courts have	24
refused to entertain nationwide debtor class actions to	25
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remedy discharge violations or have circumscribed them on	1
a district-by-district basis. 	The motion, I think	2
correctly, focuses on the third, which, as I stated during	3
oral argument, raises a close question for the Court. 	But	4
before turning to that rationale, I should note the other	5
two grounds for dismissing on jurisdictional grounds a	6
nationwide class action regarding alleged violations of	7
the discharge.	8
The first is premised upon the notion that the	9
Court's exercise of jurisdiction over debtors other than	10
the debtor before it, or, in some courts, the debtors in	11
its district, will not lie because that determination does	12
not affect the lead plaintiff's estate, its bankruptcy	13
estate, and there is no “related to” jurisdiction in	14
respect of the other debtor class members' claims under 28	15
U.S.C. Section 1334(b). 	See, for example, In re Knox, 237	16
B.R. 687, 693-94 (Bankr. N.D. Ill. 1999), and Fisher v.	17
Federal National Mortgage Ass’n, 151 B.R. 895 (Bankr. N.D.	18
Ill. 1993). 	This line of cases is premised upon a	19
misreading of the statutory basis for bankruptcy	20
jurisdiction, however.	21
While it is true that a substantial portion of	22
bankruptcy jurisdiction is in rem, that is, jurisdiction	23
over the debtor's estate wherever located, it is not the	24
only basis for bankruptcy jurisdiction, which, under 28	25
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U.S.C. Section 1334(b), extends to “all civil proceedings	1
arising under title 11,” including under 11 U.S.C.	2
Sections 524 and 727. 	In fact, as I noted before, these	3
fundamental, if not the fundamental, provisions of the	4
Bankruptcy Code have nothing to do with the debtor’s	5
estate or in rem jurisdiction. 	They have everything to do	6
with prohibiting the collection of in personam debts that,	7
before the bankruptcy discharge, were owed by the debtor.	8
In fact, the discharge does not even apply to in	9
rem interests, such as liens, which can be enforced	10
notwithstanding 	the 	discharge. 	Canning 	v. 	Beneficial 	Maine,	11
Inc. (In re Canning), 706 F.3d 64, 69 (1st Cir. 2013);	12
Holloway v. John Hancock Mut. Life Ins. Co. (In re	13
Holloway), 81 F.3d 1062, 1063 n. 1 (11 th Cir. 1996).	14
Therefore, it is an abdication of the Court's jurisdiction	15
to limit it, as cases like Knox and Fisher have done, to	16
in rem matters.	17
Similarly, some courts have dismissed similar	18
national class actions on jurisdictional grounds based on	19
28 U.S.C. Section 1334(e), which states, "Only the	20
district court in which a case under title 11 is commenced	21
or is pending shall have exclusive jurisdiction of all the	22
property, wherever located, of the debtor as of the	23
commencement of such case, and of property of the estate	24
and overall claims or causes of action that involve	25
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construction of section 327 of title 11 [which pertains to	1
the retention and compensation of professionals.]” 	See	2
Williams v. Sears Roebuck & Company, 244 B.R. 858, 866	3
(Bankr. S.D. Ga. 2000). 	Again, however, the present class	4
action does not involve a debtor's interests in property	5
or property of the estate, and, of course, it is not	6
related to the retention of professionals or other matters	7
under Section 327 of the Bankruptcy Code. 	It is an action	8
to enforce the discharge, that is, to protect a statutory	9
right prohibiting the collection of in personam claims	10
against the members of the debtor class that arose pre-	11
bankruptcy.	12
The Court's jurisdiction here, as previously	13
noted, is premised instead upon a different provision of	14
the Judicial Code, 28 U.S.C. Section 1334(b). 	It is worth	15
quoting first, however, 28 U.S.C. Section 1334(a), which	16
states, "Except as provided in Subsection (b) of this	17
section, the district courts shall have original and	18
exclusive jurisdiction of all cases under title 11." 	That	19
provision thus gives the district courts exclusive	20
jurisdiction of the bankruptcy case generally, that is,	21
this Chapter 7 case, for example, which is located in a	22
particular venue. 	That section, however, has a proviso:	23
“except as provided in Subsection (b).” 	And Subsection	24
(b) states, “except as provided in Subsection (a)(2)	25
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[which is irrelevant], and notwithstanding any act of	1
Congress that confers exclusive jurisdiction on a court or	2
courts other than the district courts, the district courts	3
shall have original, but not exclusive, jurisdiction of	4
all civil proceedings arising under title 11, or arising	5
in or related to cases under title 11.” 	11 U.S.C. Section	6
1334(b). (Emphasis added.) 	As noted, the cause of action	7
before me arises under title 11; it arises under Sections	8
727, 524(a)(2) and 105(a) of the Bankruptcy Code, which	9
latter section provides, “The Court may issue any order,	10
process or judgment that is necessary or appropriate to	11
carry out the provisions of this title,” i.e., in this	12
case, Sections 524(a)(2) and 727.	13
For purposes of this adversary proceeding,	14
therefore, 28 U.S.C. Section 1334(b) is the source of	15
bankruptcy jurisdiction in the federal courts generally,	16
lodging it with the district courts and then, by the	17
General Order of Reference, referring it pursuant to 28	18
U.S.C. Section 157(a)-(b) to the bankruptcy judges for	19
this district. 	See 28 U.S.C. Section 157(b)(1), which	20
provides that bankruptcy judges “may hear and	21
determine . . . all core proceedings arising under title	22
11.” 	A “core proceeding” includes enforcement of the	23
discharge, there being few matters as “core” to the basic	24
function of the bankruptcy courts as the enforcement of	25
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the discharge under Sections 524 and 727 of the Bankruptcy	1
Code.	2
I would spend more time on the foregoing two	3
ineffective rationales for denying jurisdiction over	4
nationwide class actions to address allegedly systemic	5
discharge violations; however, they are well dealt with in	6
an opinion from the Southern District of Texas Bankruptcy	7
Court, In re Cano, 410 B.R. 506 at pages 550 through 554	8
(Bankr. S.D. Tex. 2009). 	As noted by Judge Isgur in that	9
opinion, one never gets to the issue of “related to”	10
jurisdiction under 28 U.S.C. Section 1334(b) or to 28	11
U.S.C. Section 1334(e) in this context, given the proper	12
source of the Court's “arising under title 11”	13
jurisdiction in 28 U.S.C. Section 1334(b).	14
The remaining rationale for the courts that have	15
found a lack of jurisdiction over nationwide debtor class	16
actions to address systematic discharge violations, is, as	17
I said, more closely reasoned. 	In essence, these courts	18
contend that the basis for enforcing the discharge under	19
Sections 524(a)(2) and 727 of the Bankruptcy Code is the	20
individual court's discharge order. 	These courts then	21
note extensive precedent in the non-bankruptcy context	22
under the All Writs Act, currently at 28 U.S.C. Section	23
1651 but going back to cases such as In re Debs, 158 U.S.	24
564, 594-95 (1895), for the proposition that only the	25
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issuing court, that is, only the court issuing an	1
injunction, should have the power to enforce that	2
injunction. 	This was the analysis undertaken by Cox v.	3
Zale 	Delaware, 	Inc., 	239 	F.3d, 	910, 	916-17 	(7th 	Cir. 	2001),	4
and several other courts cited in Chase’s motion.	5
There is, however, a fundamental difference	6
between the normal injunction issued by a court after	7
considering the factors required to be applied in issuing	8
an injunction order and the injunction created by Congress	9
in Section 524(a) to support the discharge under Section	10
727 of the Bankruptcy Code.	11
As I noted during oral argument, the bankruptcy	12
discharge order is a form, a national form, which is	13
issued in every case when there is, in fact, a discharge.	14
By statute, in 524(a)(2), it operates as an injunction.	15
For the discharge injunction to be granted, the debtor	16
does not have to prove the factors required for an	17
injunction under Federal Rule of Civil Procedure 65. 	He	18
or she merely needs to prove that the debt was, in fact,	19
subject to the discharge under Section 727 and not	20
declared non-dischargeable under Section 523 of the	21
Bankruptcy Code. 	It is not a handcrafted order. 	As I	22
stated during oral argument, although I review every order	23
that comes before me, I make one exception, the discharge	24
orders. 	Those are entered routinely on my behalf and on	25
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behalf of every judge in this district and I believe every	1
judge in the nation, by the Clerk of the Court once	2
certain milestones have been met in a bankruptcy case.	3
In addition, the logic behind Cox and similar	4
cases, which rely upon, in turn, cases in the context of	5
the All Writs Act, do not consider the difference between	6
Section 105(a) of the Bankruptcy Code and the All Writs	7
Act. 	The latter states that “[t]he Supreme Court, and all	8
courts established by act of Congress, may issue all writs	9
necessary or appropriate in aid of their respective	10
jurisdictions and agreeable to the usages and principles	11
of law.” 	Very clearly, that statute is court-specific,	12
referring to “their respective jurisdictions,” or the	13
respective jurisdictions of the individual courts whose	14
orders are to be enforced.	15
Section 105(a) of the Bankruptcy Code is quite	16
different. 	Although modeled on the All Writs Act, it	17
states "The court may issue any order, process or judgment	18
that is necessary or appropriate to carry out the	19
provisions of this title." 	It does not refer to aiding	20
the 	Court's 	own 	jurisdiction. 	As 	I 	noted 	at 	oral 	argument,	21
the legislative history of this section, in H.R. Rep. 95-	22
595, states that, among other things, Section 105 is	23
intended to "cover any powers traditionally exercised by a	24
bankruptcy court that are not encompassed by the all writs	25
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statute." (Emphasis added.) 	The statutes are different,	1
in other words. 	And I believe it is a mistake to rely	2
upon All Writs Act cases to hold that a bankruptcy court	3
has power under the applicable statute only to enforce its	4
own orders, as opposed to the Bankruptcy Code generally	5
and Sections 524(a) and 727 of the Code, in particular.	6
Again, this is well-discussed in the In re Cano case, 410	7
B.R. at 555. 	The Court has its own contempt power, but it	8
also has Section 105(a) of the Code, which goes beyond its	9
own contempt power by, in its own terms, enabling the	10
Court to carry out specific provisions of the Bankruptcy	11
Code.	12
I should note that, in a somewhat different	13
context, although still relevant, the Second Circuit has	14
made it clear that the bankruptcy court does not have	15
exclusive jurisdiction to enforce the automatic stay under	16
Section 362(a) of the Bankruptcy Code, a similarly-worded	17
statutory injunction to Section 524(a). 	That is, contrary	18
to the rationale of the Cox line of cases, its enforcement	19
is not “issuing court” specific. 	See In re Baldwin-United	20
Corp. Litigation, 765 F.2d 343 (2d Cir. 1985); see also In	21
re Colasuonno, 697 F.3d 164, 172 n.4 (2d Cir. 2012).	22
Other courts have recognized a similar non-exclusivity	23
concept with regard to interpretation and enforcement of	24
the discharge under sections 524 and 727. 	See In re	25
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Watson, 192 B.R. 739, 746 (B.A.P. 9th Cir. 1996), aff’d	1
U.S. App. LEXIS 14663 (9th Cir., June, 16, 1997), and	2
Cisneros v. Cost Control Marketing & Sales Management, 862	3
F.Supp 	1531, 1533 (W.D. Va. 1994), aff’d 64 F.3d 970 (4th	4
Cir. 1995), cert. denied, 517 U.S. 1187 (1996). 	(There is	5
a caveat to this case law, at least as applied in the	6
Second Circuit, which is that while courts other than the	7
bankruptcy court have concurrent jurisdiction over	8
disputes pertaining to Section 362 of the Bankruptcy Code,	9
the automatic stay provision, and Section 524, if they are	10
erroneous their decision may be viewed as void ab initio	11
as being in violation of the stay or the discharge. 	See	12
In re Kilmer, 501 B.R. 208, 214-15 (Bankr. S.D.N.Y. 2013),	13
and In re Enron Corp., 306 BR 465, 477 (Bankr. S.D.N.Y.	14
2004).)	15
There should be no issue here, either, that	16
Section 105(a) is properly exercisable to enforce the	17
discharge under Sections 524(a) and 727 of the Bankruptcy	18
Code. 	Whereas Section 105(a) of the Code is not a license	19
for the Court to exercise general equity powers except in	20
furtherance of specific provisions of the Bankruptcy Code,	21
here there are such specific provisions, Sections	22
524(a)(2) and 727, for which Section 105(a) provides the	23
Court with enforcement power. 	See In re Rizzo-Cheverier,	24
364 	B.R. 	532, 	536-37 	(Bankr. 	S.D.N.Y. 	2007); 	see 	generally,	25
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In re Kalikow, 662 F.3d 82, 97 (2d Circuit 2010):	1
“[A] court may invoke Section 105(a) if the	2
equitable remedy utilized is demonstrably necessary	3
to preserve a right elsewhere provided in the Code.	4
Those powers are in addition to whatever contempt	5
powers the court may have and must include the award	6
of monetary and other forms of relief to the extent	7
such awards are necessary and appropriate to carry	8
out the provisions of the Bankruptcy Code and provide	9
full remedial relief.”	10
(Internal quotations and citations omitted.)	11
I conclude for the foregoing reasons, therefore,	12
that the Court has the statutory power and the subject	13
matter 	jurisdiction 	to 	decide 	this 	nationwide 	class 	action.	14
I have again been largely informed by the analysis	15
undertaken by Judge Isgur in the Cano case. 	I also rely	16
heavily upon the First Circuit's analysis of 28 U.S.C.	17
Section 1334 and Section 105(a) of the Bankruptcy Code in	18
Bessette v. Avco Financial Services, Inc., 230 F.3d 439	19
(1st Cir. 2000), which reversed and remanded the District	20
Court's determination that only the court that had issued	21
a discharge order could decide a claim based on the	22
violation of the discharge.	23
It is true that, on remand, the district court,	24
rather than certifying a nationwide class, concluded that	25
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the class should comprise only those debtors who received	1
discharges in the applicable district, in that case, the	2
District of Rhode Island. 	See Bessette v. Avco Financial	3
Services Inc., 279 B.R. 442 (D.R.I. 2002). 	As noted, that	4
approach has been taken by several other courts in other	5
districts, as well. 	See, for example, In re Montano, 2012	6
Bankr. 	LEXIS 	5155 	(Bankr. 	D.N.M. 	Nov. 	2, 	2012). 	I 	believe,	7
however, that the Court has broader jurisdiction than	8
those courts have applied, which is a hybrid, if you will,	9
of the two internally consistent approaches, (1) the	10
approach that premises the right to enforce the discharge	11
upon the All Writs Act, i.e., finding the power to enforce	12
only in the issuing court, or (2), alternatively, the	13
approach applying the full reach of bankruptcy	14
jurisdiction under Section 1334(b) of the Judicial Code	15
and Sections 105(a), 524 and 727 of the Bankruptcy Code to	16
the issue. 	Therefore, I decline to follow the “district	17
only” cases and believe that any particular bankruptcy	18
court has the power to decide a nationwide class action	19
intended to remedy the alleged systematic violation of the	20
discharge.	21
That, of course, leaves the issue of whether	22
class certification itself is appropriate, and that's left	23
for another day.	24
So, I'm going to ask counsel for the plaintiffs	25
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to submit an order to chambers, copying counsel for Chase,	1
consistent with that ruling.	2
3
Dated: 	White Plains, New York	4
July 22, 2014	5
6
/s/ Robert D. Drain 	_____________	7
Hon. Robert D. Drain	8
United States Bankruptcy Judge	9
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