COLON ROJAS v. MONEY EXPRESS et al

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Case:08-00083-ESL Doc#:55 Filed:09/17/09 Entered:09/24/09 09:47:49 Desc: Main
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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF PUERTO RICO

In re:
HIRAM COLON ROJAS, : Case No. 98-6078 (ESL)

Debtor : Chapter 13

HIRAM COLON ROJAS,
Plaintiff,
Vv. : Adv. No. 08-0083

MONEY EXPRESS, JOHN DOE, RICHARD
ROE and ABC INSURANCE COMPANY,

Defendants

DECISION AND ORDER

This proceeding is before the Court upon a motion by the
defendant, Money Express, to dismiss the debtor’s amended
complaint. For the reasons stated below, the motion to dismiss is
granted.

BACKGROUND

The debtor, Hiram Colon Rojas (“Colon”), filed a petition
under Chapter 13 of the Bankruptcy Code on May 6, 1998. On May 29,
1998, Money Express filed a proof of claim in the amount of
$2,652.64 for money loaned. Colon completed payments pursuant to
a modified Chapter 13 plan and the Chapter 13 trustee filed a Final
Report and Account on June 13, 2005, which represented that Money
Express was paid the amount of $326.90 on its unsecured claim.

Colon obtained a discharge on July 27, 2005, and the trustee was

AUTHENTICATED
U.S. GOVERNMENT
INFORMATION
GPO

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discharged and the case was closed.

On May 9, 2008, Colon filed a motion to reopen the case to
obtain relief related to the discharge injunction. The case was
reopened on May 30, 2008 and on even date, Colon filed this
adversary complaint against Money Express, alleging a violation of
the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq.,
and damages and injunctive relief for violation of the discharge
injunction of 11 U.S.C. § 524(a) (2).

On August 28, 2008, Money Express filed a motion to dismiss,
contending that the complaint failed to state a claim upon which
relief may be granted (dkt. #18). Colon opposed the motion to
dismiss (dkt. #23), but subsequently filed an amended complaint
(dkt. #45).

The amended complaint alleges that Money Express, John Doe,
Richard Roe and ABC Insurance Company, violated the discharge
injunction. The relevant allegations are that Money Express
participated in Colon’s bankruptcy case and the unpaid portion of
its unsecured debt was discharged. Thereafter, Money Express
assigned or conveyed the discharged debt to Advanced Collection
Services, Inc. Colon specifically alleges that “[u]pon information
and belief, Money Express informed Advanced Collection Services,
Inc., that all actions or proceedings to enforce any discharged
debt or to levy on plaintiff’s [Colon’s] property, subsequent to

the entry of the discharge order, were prohibited and foreclosed by

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law.” Yet, Colon alleges that on February 18, 2008, Advanced
Collection Services, Inc. (“Advanced”), an entity that is not a
party to this adversary proceeding, sent Colon a written demand for
payment of a $4,837.41 debt owed to Money Express. Colon claims
that through these actions, Money Express has continued efforts to
collect the discharged balance since the conveyance or sale of the
discharged debt is objectively coercive and therefore a violation
of the discharge injunction.

On June 22, 2009, Money Express filed a motion to dismiss the
amended complaint (dkt. #49). Money Express alleges that the
complaint fails to state a claim upon which relief may be granted
and that it fails to join indispensable parties. Money Express
argues that the complaint hinges on allegations that Advanced took
actions to collect a discharged debt. Money Express states that
far from alleging that Money Express violated the discharge
injunction, the complaint alleges specific and unequivocal conduct
by Money Express conducive to preventing a violation of the
injunction.

DISCUSSION

The United States Bankruptcy Appellate Panel of the First
Circuit recently discussed the standard for dismissal of an
adversary complaint, which alleges a violation of the discharge
injunction. The Panel stated that:

[t]o survive a Rule 12(b)(6) motion to dismiss, a
complaint must allege “a plausible entitlement to

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relief,” [Thomas v. Rhode Island, 542 F.3d 944, 948 (1st
Cir. 2008)]. (quoting Bell Atl. Corp. v. Twombly, 550
U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)), and
must contain factual allegations sufficient to “raise a
right to relief above the speculative level. Morales-
Tanon v. Puerto Rico Elec. Power Authority, 524 F.3d 15,
18 (1st Cir. 2008) (citing Twombly, 127 S.Ct. at 1965).
‘While a complaint attacked by a Rule 12(b) (6) motion to
dismiss does not need detailed factual allegations, a
plaintiff's obligation to provide the ‘grounds’ of his
‘entitle[ment] to relief’ requires more than labels and
conclusions, and a formulaic recitation of the elements
of a cause of action will not do.” Twombly, 127 S.Ct. at
1964-65 (citations omitted). “Dismissal for failure to
state a claim is appropriate if the complaint fails to
set forth ‘factual allegations, either direct or
inferential, respecting each material element necessary
to sustain recovery under some actionable legal theory.’”
Gagliardi v. Sullivan, 513 F.3d 301, 305 (lst Cir. 2008)
(quoting Centro Medico del Turabo, Inc. v. Feliciano de
Melecio, 406 F.3d 1, 6 (1st Cir. 2005)).

In re Lumb, 401 B.R. 1, 6 (B.A.P. ist Cir. 2009) (footnote omitted).

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.” 11 U.S.C. § 524(a) (2); Pratt v. Gen. Motors
Acceptance Corp. (In re Pratt), 462 F.3d 14, 17 (1st Cir. 2006).
A creditor violates the discharge injunction when it has notice of
the debtor’s discharge, intended the actions which constituted the
violation and acts in a way that improperly coerces or harasses the
debtor. Id. at 19.

In a case similar to the present case, the United States

District Court for the Eastern District of Virginia, held that a

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creditor’s sale of a discharged debt was not a violation of the
discharge injunction. Finnie v. First Union Nat’l Bank, 275 B.R.
743 (E.D.Va. 2002). The court concluded that “[r]egardless of how
broadly this court construes the language in § 524(a) (2), the
statute’s prohibitions apply only to actions taken by a creditor to
collect from the debtor.” Id. at 746 (emphasis in original). The
court explained that “[wlhile a creditor is prohibited from
utilizing a collection agency to recover a discharged debt on its
behalf, see e.g. In re Walker, 180 B.R. at 844, there is no
prohibition on the creditor selling the discharged debt, presumably
at a greatly discounted rate, to a third party.” Id. (emphasis in
original). Moreover, the court opined that “[a]bsent an agency
relationship between the seller of the discharged debt and the
purchaser of that debt... the seller of a discharged debt is not
liable for the purchaser’s subsequent attempt to collect on that
debt.” Id.

Other courts, however, have concluded that the seller of a
discharged debt may have violated the discharge injunction by
selling debts with full knowledge that the buyer would attempt to
collect on the debts and by failing to indicate to the purchaser
that the debts were discharged. See e.g. In re Birakoye Nassoko,
405 B.R. 515 (Bankr. §.D.N.Y. 2009) and In re Lafferty, 229 B.R.
707 (Bankr. N.D.Ohio 1998). In these cases, debt portfolios were

sold without classifying the debts as discharged. These cases have

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focused on whether the creditor maintained adequate procedures to
prevent a violation of the discharge injunction; procedures which
informed the assignee or collection agent that the debt was
discharged.

In the present case, Money Express had notice of Colon’s
discharge. However, the actions which constituted the alleged
violation were undertaken by the assignee of the debt, Advanced.
Colon does not allege facts from which the Court could conclude
that there was an agency relationship between Money Express and
Advanced. Rather, Colon alleges that the mere conveyance of the
discharged debt to Advanced, violated the injunction.

The Court concludes that the flaw in Colon’s complaint is that
Money Express specifically informed Advanced that all actions or
proceedings to enforce the discharged debt or to levy on Colon’s
property were prohibited and foreclosed by law. The Court can
envision reasons, other than collection, for selling discharged
debts, such as for use as a tax credit. Since Money Express
specifically informed Advanced that the debt was discharged and
that any action to collect it was illegal, the Court can not
conclude that Colon’s complaint alleges a plausible entitlement to
relief. The Court concludes that Colon’s complaint fails to set
forth factual allegations respecting each material element
necessary to sustain recovery for violation of the discharge

injunction, namely that Money Express intended the actions which

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constituted the violation and that it acted in a way that
improperly coerced or harassed Colon. Accordingly, the Court will
grant the motion to dismiss the amended complaint for failure to
state a claim upon which relief may be granted and finds it
unnecessary to discuss whether the complaint could also be
dismissed for failure to join an indispensable party.
ORDER

Wherefore IT IS ORDERED that the motion to dismiss the amended
complaint (dkt. #49), filed by Money Express, shall be, and it
hereby is, GRANTED.

Judgment of dismissal will enter accordingly.

SO ORDERED.

San Juan, Puerto Rico, this {J aay of September, 2009.

BY THE COURT:

ENRIQUE S. LAMOUTTE
U.S. Bankruptcy Judge