Opinion
BK. No. 16-05437-LT7
11-16-2017
In re: MELISSA CARIN MATHER BOBKA, Debtor.
WRITTEN DECISION - NOT FOR PUBLICATION
MEMORANDUM DECISION
INTRODUCTION
This opinion is intended only to resolve the dispute between these parties and is not intended for publication.
Debtor Melissa Carin Mather Bobka filed a chapter 7 bankruptcy and executed a lease assumption agreement in connection with a vehicle. Second thoughts then arose; she surrendered the leased vehicle and advised the lessor. Toyota Motor Credit Corporation ("Toyota"), that she did not want the car. Toyota took the position that she assumed the lease under § 365(p)(2) and, thus, was responsible for the $3,892.59 that remained owing notwithstanding surrender. In response, Ms. Bobka's attorneys took the position that Toyota's actions violated the automatic stay and the discharge injunction; they requested and obtained an order to show cause from the Court in relation to these requested violations (the "OSC") and alleged actual and punitive damages of more than $50,000.
Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532 , and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
The Court now determines that the automatic stay terminated both as to the Vehicle and as to claims against Ms. Bobka before any actionable stay violation occurred. The Court also concludes that Ms. Bobka assumed the lease under § 365(p)(2) and that reaffirmation was not required; as a result, there was no discharge violation. Based on these determinations, Ms. Bobka is not entitled to damages.
FACTS
Ms. Bobka filed a chapter 7 case on August 31, 2016. When filing the case, and at all relevant times thereafter, the Doan Law Firm represented her interests.
Ms. Bobka listed two automobiles in her bankruptcy schedules and made clear that she did not intent to retain one of them. See Dkt. # 1 at 41: Part 1. As to the second automobile, a 2014 Toyota RAV (the "Vehicle"), she stated an intention to reaffirm what she described as a secured debt. Id. A review of the schedules, thus, evidences a preliminary intention to do what was necessary to retain the use of the Vehicle.
Ms. Bobka's schedules, however, erroneously described her relationship with Toyota. Toyota was a lessor of the Vehicle, not a lender with a claim secured by a lien against the Vehicle. As a result, she should have completed Part 2 of the Statement of Intention which requires specificity as to her intention to assume the lease in relation to the Vehicle (the "Lease").
Ms. Bobka's chapter 7 Trustee had a right to assume the Lease during the first 60 days of the bankruptcy case. See § 365(d)(1). He, not surprisingly, did nothing to assume it on behalf of the estate. Thus, as of October 31, 2016, the Vehicle was not an asset of the estate, and the automatic stay in relation to the Vehicle terminated. See id. & § 365(p)(1).
Section 365(p)(2), however, provides that, where a trustee rejects or fails to timely assume a lease, a debtor has the right to attempt assumption, and she may advise her lessor "in writing" of her desire for lease assumption.
Ms. Bobka did not send Toyota a writing requesting Lease assumption, but no one disputes that she made her desire for Lease assumption known. On September 8, 2016, she called Toyota and requested that she be allowed to continue payments in order to retain the Vehicle. See Dkt. # 19, Debtor's Declaration in Support of Application for Order to Show Cause for Contempt for Violations of Automatic Stay and Discharge per [sections 362 and 524] and [section 105] Request for Damages ("Declaration of Debtor") at ¶ 4. Toyota, through its agent, National Bankruptcy Services, LLC ("NBS"), advised Ms. Bobka that she needed to assume the Lease if she wanted to retain the Vehicle. Id. at ¶ 5.
Toyota did not require that Ms. Bobka confirm her request in writing. Instead, NBS prepared an assumption document and sent it to Ms. Bobka's attorney. Id. at ¶ 6 and Attachment A (the "Lease Assumption Agreement"). At oral argument, Ms. Bobka's counsel refused to confirm that she obtained the assumption agreement only through his office. But the only evidence before the Court, including direct evidence from Ms. Bobka, establishes that Toyota did not send anything to Ms. Bobka directly. See id. at ¶ 6; ("On 9/16/16, Shelly Segovia from [NBS] emailed [the Doan Law Firm] a Toyota Lease Assumption Agreement.")
The Lease Assumption Agreement included a signature line for the responsible Doan Law Firm attorney and Ms. Bobka; it provided that execution of the document by either the attorney or Ms. Bobka would constitute an assumption of the Lease under its original terms that would be effective once Toyota received the executed document. Id. at Attachments A and B.
Section 365(p), however, also provides a temporal limitation on a debtor's right to assume a personal property lease; the debtor must notify the lessor in writing that the lease is assumed within 30 days of the lessor's agreement to allow lease assumption. See § 365(p)(2)(A) & (B). NBS's email to the Doan Law Firm dated September 16, 2016, met the requirement of notice by Toyota of its intent to allow Ms. Bobka to assume the Lease. This suggests that Ms. Bobka lost the right to compel assumption (subject to expiration of her trustee's superior assumption rights) as of October 16, 2016.
Apparently, Ms. Bobka was traveling shortly after October 31, 2016, and in the midst of an attempted marital reconciliation. Declaration of Debtor at ¶ 10. She eventually executed the Lease Assumption Agreement on December 5, 2016. Id. at ¶¶ 10 & 12 and Attachment B. Because she delayed execution of the assumption agreement, Toyota could have rejected it as untimely under § 365(p)(2)(B). Toyota, however, accepted her request for assumption through its agent NBS. Id. at ¶ 12-13 and Attachment C. NBS acknowledged receipt of the executed document on December 6, 2016. Id. at ¶ 13 and Attachment C.
Ms. Bobka was not in default under the Lease when she entered bankruptcy, and she also made some Lease payments during the course of the case. But, beginning in November of 2016, she stopped Lease payments notwithstanding her execution and delivery of the Lease Assumption Agreement in December.
Debtor received her discharge on December 6, 2016; her case closed on December 12, 2016. See Dkt. ## 14 & 16.
Toyota does not dispute that it engaged in collection activity from December 20, 2016 through approximately February 25, 2017. See Declaration of Debtor at ¶¶ 11, 18-21. Ms. Bobka also provides hearsay testimony that Toyota called her parent's home while she was traveling. But she admits that there is no record of these calls, and there is no evidence that they related to collection attempts as opposed to, for example, requests for status on Lease assumption or Vehicle turnover.
Debtor surrendered the Vehicle on January 2, 2017. Id. at ¶ 20(e). But collection activity continued. Ms. Bobka consistently advised Toyota that her bankruptcy precluded collection and that her assumption of the Lease was irrelevant as it was not coupled with reaffirmation. Id. at ¶ 20.
The record establishes that Ms. Bobka involved the Doan Law Firm on January 8, 2017. Declaration of Debtor at ¶ 20(h). There is no evidence that they attempted a prompt, informal resolution through call, letter, or email. Instead, on February 25, 2017, they requested an Order to Show Cause Re Violation of the Automatic Stay and Violation of the Plan Discharge. See Dkt. # 18.
Ms. Bobka alleges that Toyota's collection actions caused her significant emotional distress and other actual damages, and she requests over $50,000 in compensatory and punitive damages, remedial or coercive sanctions as appropriate, and attorneys' fees. She also requested injunctive relief and "[i]ncarceration of an Officer if the unlawful conduct does not stop." Id. at p. 9 (emphasis in the original).
The Court issued the OSC (see Dkt. # 23); briefing and two hearings followed. See Dkt. ## 29, 30, 32-4, 36-7, 39-41, and 42-3.
There is no evidence that Toyota continued collection activity of any type after the OSC issued.
DISCUSSION
There are several issues that must be decided in connection with Ms. Bobka's assertion of a stay and discharge violation. First, when did the stay expire and did stay violative collection activity occur before that date? The Court concludes that the stay terminated before any otherwise actionable collection activity took place and that the transmission of the Lease Assumption Agreement at Ms. Bobka's request and to her attorneys was not a stay violation. Second, was Toyota required to obtain both Lease assumption and reaffirmation before it had a claim that survived discharge? The Court concludes that reaffirmation is not required when a debtor has the right to lease assumption and exercises those rights under § 365(p)(2). Finally, did Ms. Bobka actually assume the Lease when her assumption request was verbal and she executed the Lease Assumption Agreement after the 30 day deadline of § 365(p)(2)(B)? The Court concludes that these statutory requirements are protections for the lessor and, thus, could be waived by Toyota; Lease assumption occurred.
The Evidence Does Not Establish that Toyota Violated the Automatic Stay.
Alleged collection activity. The automatic stay of § 362(a) bars a wide range of debt collection activity. Thus, post-petition calls demanding payment on an unassumed lease would be stay violative. As to the Vehicle itself, the stay terminated, at the latest, on October 30, 2016, when the chapter 7 trustee failed to assume the Lease. See § 365(p)(1). After that date, calls demanding turnover of the Vehicle would not violate the automatic stay. Id. The automatic stay otherwise terminated when Ms. Bobka's case closed on December 12, 2016. See § 362(c)(2)(A). Thus, the automatic stay terminated for all purposes before the documented collection calls that commenced on December 20, 2016.
True, as to efforts to collect a deficiency from Ms. Bobka, the automatic stay was replaced with the bankruptcy discharge. See Dkt. # 14. But to the extent Ms. Bobka claims a stay violation for Toyota's actions after October 30, 2016, in relation to the Vehicle, or after December 12, 2016, for any purpose, her claims fail.
There is limited hearsay evidence that Toyota may have made calls to Ms. Bobka between November 9, 2016, and December 12, 2016. But Ms. Bobka admits that there is no log of the calls; she does not know when Toyota made calls, how many calls Toyota made, and why Toyota made the calls. She provides no evidence that Toyota made the calls for a collection purpose. As of case closure, the Lease was not in serious default, and Ms. Bobka's Lease assumption request was pending; it is possible that the calls related to the pending Lease assumption or to recovery of the Vehicle. Calls on these topics would not have been stay violative. Ms. Bobka has the burden on this point; a debtor has the burden of establishing both that a willful violation occurred and that he or she was injured. In re Westman, 300 B.R. 338 (Bankr. D. Minn. 2003) ("To prevail on a claim for violation of the stay, Debtor must establish that: (1) a violation occurred; (2) the violation was committed willfully; (3) the violation caused actual damages."). See also In re Jean-Francois, 532 B.R. 449, 454 (Bankr. E.D.N.Y. 2015) ("The party moving for damages [under § 362(k)] bears the burden of proof.") Ms. Bobka's burden in this case is not met through hearsay evidence and vague reference to calls on an unknown topic.
And finally, even if Toyota made collection calls during this period, there is no nexus between these calls and Ms. Bobka's alleged injuries. Her detailed declaration makes clear that she did not answer these calls and that she has no knowledge of their content. And they apparently occurred while she was still contemplating Lease assumption; she signed the Lease Assumption Agreement on December 5, 2016. In short, there is no evidence that either actual damages or punitive damages are appropriate based on the only evidence before the Court in relation to collection activity, vague hearsay, and there is no evidence that the calls occurring before stay termination - which Ms. Bobka never heard - caused her actual damage.
Transmission of the Lease Assumption Agreement. The Court also determines that the transmission of the Lease Assumption Agreement was not a stay violation. Because Toyota did not require a writing evidencing Ms. Bobka's request for lease assumption, it was vulnerable to question in this area. But Ms. Bobka was honest; she admits that she called Toyota to ask how she could keep the Vehicle. The transmission of a lease assumption agreement based on an oral request from a debtor is not a stay violation except in the most hyper-technical sense imaginable. And here, an assertion of stay violation is even more obviously lacking in merit because NBS sent the Lease Assumption Agreement to the Doan Law Firm. Had Toyota initiated a Lease assumption discussion by sending an agreement directly to Ms. Bobka before she made a unilateral request for the document, it might be a different case. But the Court does not find evidence of a stay violation on the current record. And even if a hyper-technical stay violation occurred, there is no evidence in the record justifying actual or punitive damages in response.
There Was no Discharge Violation: A Review of the BAPCPA Amendments to §§ 524 & 365 and Other Provisions of the Bankruptcy Code Supports a Conclusion that a Lessor is not Required to Obtain Both Lease Assumption and Reaffirmation.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") added § 365(p) to the Bankruptcy Code; under certain circumstances, it allows a consumer chapter 7 debtor to assume a personal property lease obligation. This statutory change was a response to pre-BAPCPA cases that held that a chapter 7 debtor could not assume a personal property lease; it also clarifies that the automatic stay terminates upon the rejection of a personal property lease. In re Ebbrecht, 451 B.R. 241, 244 (Bankr. E.D.N.Y. 2011). No one questions, in this case or otherwise, that Ms. Bobka had to assume the Lease under § 365(p)(2) if she wanted to retain the Vehicle. In re Perlman, 468 B. R. 437, 439 (Bankr. S.D. Fla. 2012). (§ 365(p)(2) "has become the operative section regarding assumption of unexpired leases of personal property for Chapter 7 individual debtors" (citations omitted)). The issue is whether a lessor must also obtain reaffirmation to preserve its rights to enforce the payment provisions of the lease after discharge.
BAPCPA also made substantial changes to § 524, which governs reaffirmation, among other things adding § 524(k) which details disclosures required for reaffirmation of otherwise dischargeable debts. After BAPCPA, § 524(c) provides that a debtor's dischargeable obligations are enforceable after discharge only if the debtor, before discharge, enters into a reaffirmation agreement that contains the disclosures required by § 524(k) and the reaffirmation is otherwise appropriate under § 524(c).
Unfortunately, BAPCPA never discusses the interplay between these sections. Similarly, the legislative history related to any interplay is nonexistent. The Court, thus, must utilize standard canons of statutory construction in order to determine whether lease assumption under § 365(p)(2) sufficiently creates post-bankruptcy and post-discharge liability or whether the chapter 7 consumer debtor must also obtain reaffirmation of the lease for the obligation to survive discharge.
After application of the relevant canons of statutory interpretation, the Court concludes that reaffirmation is not required for personal property lease obligations to survive discharge once the lease is assumed under § 365(p)(2).
A plain language analysis is inconclusive. When the language of a statute is unambiguous a court must interpret the language in accordance with its plain meaning. See, e.g., Patterson v. Shumate, 504 U.S. 753, 760 (1992) (parties seeking to defeat plain meaning of the Bankruptcy Code bear an "exceptionally heavy burden" (internal quotation marks omitted)). And this is true even when the clear terms of the statute deviate from prior practice. See, e.g., Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 10 (2000); BFP v. Resolution Trust Corp., 511 U.S. 531, 546 (1994). Thus, Congress says "in a statute what it means and means in a statute what it says there." Conn. Nat'l Bank v. Germain, 503 U.S. 249, 253-54 (1992).
While some courts have relied on this "plain language" interpretation to require reaffirmation in addition to assumption under § 365(p)(2), other courts relying on the same plain language doctrine find that only assumption is required. As this duality suggests, the Court does not find the plain language doctrine particular helpful here. Section 365(p)(2) says that a personal property lease can be assumed by the debtor. As discussed below, assumption in the parlance of the Bankruptcy Code means that it becomes a post-petition obligation, in this case of Ms. Bobka personally. Further a plain language definition of the word assumption, in this context, is consistent with a taking on of a duty. There is nothing in § 365(p), or in § 524 for that matter, which expressly limits or conditions this acquisition of a duty by the dual requirement of reaffirmation.
On the other hand, the discharge and reaffirmation statutes speak very broadly. A chapter 7 debtor receives a discharge of all prepetition debts except as provided in § 523. 11 U.S.C. § 727(b). The exceptions consist of obligations that are automatically exempt such as domestic support obligations (see § 523(a)(5)) or obligations where a creditor can obtain coerced continuation of debt (see, e.g., § 523(a)(6) which allows a creditor to obtain nondischargeability for claims arising from willful and malicious injury by the debtor). And the "Effect of Discharge" section, § 524, which contains the reaffirmation provisions, states broadly that an agreement in relation to dischargeable debt is enforceable only if it complies with the discharge statute. 11 U.S.C. § 524(c). The Court, thus, concludes that a plain language interpretation results in a stalemate. As a result, it invokes other canons of statutory construction in an attempt to bridge the impasse.
The specific provisions of § 365(p) arguably control over the general provisions of § 524. Where a particular matter is specifically dealt with in one part of the Bankruptcy Code, that specific provision will govern over more general provisions in the Bankruptcy Code. See Law v. Segal, 574 U.S. ___, 134 S.Ct. 1188, 1194 (2014); RadLax Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. 639, 645-46 (2012). In the Court's view, the more specific provision is § 365, a statute specifically dealing with executory contracts such as personal property leases. And § 365(p)(2) is the even more specific provision dealing with assumption of personal property leases in consumer chapter 7 cases. Thus, in the absence of specific statutory language to the contrary, or specific legislative history to the contrary, one could assume that, in the case of a conflict, § 365(p) governs.
The Court acknowledges, however, that reasonable minds can differ as to which statute is more specific. Thus, the Court does not use this canon of statutory interpretation as the finishing point in the analysis.
Interpretation of the Bankruptcy Code as a coherent statutory scheme supports the conclusion that assumption under § 365(p)(2) creates a claim that survives discharge and that reaffirmation is not required. The Court must construe statutory language as a whole. See, e.g., Duparquet Huot & Moneuse Co. v. Evans, 297 U.S. 216, 218 (1936) (there is need to keep in view also the structure of the statute, and the relation, physical and logical, between several parts). As a result, one must interpret the Bankruptcy Code to produce a coherent statutory scheme. Such an analysis requires a determination that allowing pre-petition personal property lease claims to survive discharge in a consumer chapter 7 case through means other than reaffirmation is not incongruous. The Court can easily reach this conclusion.
As a general matter, it is not inconsistent with anything in the Bankruptcy Code to assume that Congress would create more than one method for allowing claims to survive discharge. First, it identifies numerous claims which are never dischargeable. See § 523(a)(1), (5), (7), (9)-(19). Second, it allows creditors under certain circumstances to obtain a determination that a particular claim is not appropriate for discharge. See § 523(a)(2), (4), & (6). Finally, since the Bankruptcy Code's earliest days, § 365 has been a method for converting dischargeable executory contract claims into nondischargeable post-petition claims through assumption. See § 365(a) & (b).
And no specific Bankruptcy Code provision expressly states that reaffirmation is essential notwithstanding § 365(p)(2) lease assumption. A more searching review of the Bankruptcy Code as a whole supports the view that reaffirmation is not required when a lease is assumed under § 365(p)(2).
Contrary to Ms. Bobka's assertion, the Bankruptcy Code does not require close judicial supervision of all reaffirmation decisions; as a result, it is not incongruous to assume that Congress allowed personal property lease assumption without judicial supervision. Ms. Bobka argues that Congress has a fixed intention to assure that debtors are closely supervised when agreeing to reaffirm debt. She, thus, argues that it is illogical to assume that Congress would not require judicially supervised reaffirmation in tandem with lease assumption under § 365(p)(2). Toyota argues to the contrary; Toyota has the better argument.
At oral argument, Ms. Bobka was forced to concede that Congress in drafting the Bankruptcy Code did not take a consistent position that judicial supervision is required when a debtor agrees to convert a pre-petition obligation to a post-petition debt. In particular, Congress does not require judicial supervision when a pro se consumer debtor assumes a consumer loan secured by real property. See § 524(c)(6)(B). Thus, judicial supervision is not required for a pro se debtor to assume what is typically their largest debt: their real property secured residential mortgage.
A review of the 2005 BAPCPA amendments also evidences latitude in allowing unrepresented debtors to make decisions. In addition to adding § 365(p)(2), BAPCPA substantially modified § 524, which relates to reaffirmation and, in some respects, made reaffirmation more creditor friendly. In particular, a provision was added that made reaffirmation of credit union transactions of any type more likely to survive judicial review by eliminating the presumption of undue hardship. See § 524(m)(2).
Reading the Bankruptcy Code as a whole, thus, supports the view that it is not incongruous to assume that Congress did not require judicial supervision through reaffirmation of a debtor's decision to assume a prepetition personal property lease.
A review of the BAPCPA amendments directly relating to reaffirmation supports the conclusion that Congress did not intend for dual reaffirmation and assumption of personal property leases under § 365(p). BAPCPA added both § 365(p) and § 524(k) which outlines detailed disclosures that must be made in connection with a reaffirmation. In one broad respect, the disclosures required in connection with reaffirmation could be used in both the lease and secured loan context; the statute requires conspicuous disclosure of the amount reaffirmed. See § 524(k)(2) & (3)(C).
But § 524(k) otherwise speaks exclusively to secured transactions. It requires conspicuous disclosure of the "annual percentage rate." See § 524(k)(2) & (3)(E). This term is irrelevant to a lease transaction. And at § 524(k)(3)(E)(i) & (ii) the document references the terms "credit" and "open end credit plan" as defined in section 103 of the Truth in Lending Act ("TILA"); these terms are relevant to loans not true leases. For example, the TILA defines "credit" as the right granted by a creditor to a debtor to defer payment of debt or to incur debt and defer its payment." 15 U.S.C. § 1602(f).
The definition of a credit sale as used in this portion of TILA includes only a lease which is a disguised loan, not a true lease. See 15 U.S.C. § 1602(h) ("The term [credit sale] includes [a] lease if the . . . lessee contracts to pay as compensation for use a sum substantially equivalent to or in excess of the aggregate value of the [leased] property . . . and it is agreed that the . . . lessee will become, or for no or nominal consideration has the option to become, the owner of the [leased] property upon full compliance with his obligations under the [lease].")
True, the TILA regulates both credit transactions and certain consumer personal property leases. See 15 U.S.C. § 1601. But it does so in different portions of the statute. Chapter 2 and Regulation Z govern credit transactions. 15 U.S.C. § 1601 et seq.; 12 C.F.R. § 1026 et seq. The consumer lease related portion of the TILA is found at chapter 5 and Regulation M. 15 U.S.C. § 1667 et seq.; 12 C.F.R. § 213.1 et seq. And the TILA requires specific disclosures in relation to consumer personal property leases that are the counterpart to those required for consumer credit transactions. For example, it requires detailed disclosure about liabilities at lease termination. 15 U.S.C. § 1667a(5); 12 C.F.R. § 213.4(m). But no such disclosures were required by BAPCPA and new § 524(k)(1).
Where the Bankruptcy Code requires disclosure relevant to the TILA, it exclusively references the credit transactions portion of the statute. Section 524(k)(3)(F) & (G), for example, specifically discuss variable rate transactions under the TILA, interest rate, and the security interest, including purchase money security interest all as defined or discussed in the credit transaction portion of the TILA. The new disclosures required by BAPCPA contain no provision specific to a consumer lease transaction.
Thus, Congress did not require reaffirmation disclosures relevant to consumer personal property lease transactions when it significantly amended the reaffirmation disclosure provisions of the Bankruptcy Code in BAPCPA. And this fact strongly suggests that Congress did not require that a debtor both assume a lease under § 365(p)(2) and also obtain reaffirmation under § 524. It is illogical to assume that Congress would require reaffirmation in a personal property lease assumption situation yet require not a single disclosure relevant to a consumer lease beyond the amount assumed. Put another way, if Congress wanted dual lease assumption and reaffirmation it is reasonable to assume that it would require disclosures related to the portion of the TILA dealing with consumer leases; it included no such requirements.
The Court finds additional support for its position in § 362(h) and § 521(a)(6). BAPCPA also added § 362(h)(1) to the Bankruptcy Code. It provides:
In a case in which the debtor is an individual, the stay provided by subsection (a) is terminated with respect to personal property of the estate or of the debtor securing in whole or in part a claim, or subject to an unexpired lease, and such personal property shall no longer be property of the estate if the debtor fails within the applicable time set by section 521(a)(2)—
(A) to file timely any statement of intention required under section 521(a)(2) with respect to such personal property or to indicate in such statement that the debtor will either surrender such personal property or retain it and, if retaining such personal property, either redeem such personal property pursuant to section 722, enter into an agreement of the kind specified in
section 524(c) applicable to the debt secured by such personal property, or assume such unexpired lease pursuant to section 365(p) if the trustee does not do so, as applicable; and11 U.S.C.A. § 362(h) (emphasis added).
(B) to take timely the action specified in such statement, as it may be amended before expiration of the period for taking action, unless such statement specifies the debtor's intention to reaffirm such debt on the original contract terms and the creditor refuses to agree to the reaffirmation on such terms.
The "either" before the options to retain the property and the "or" between reaffirmation under § 524(c) and assumption under § 365(p) provide clear indications that reaffirmation and assumption are independent actions and that a debtor need not satisfy both for the obligations under an unexpired lease of personal property to survive discharge. As the Ninth Circuit in In re Dumont explained when analyzing the recently added § 362(h):
Section 362(h)(1)(A) makes clear that the debtor now has two duties with respect to the statement of intention. As before, the debtor must "file timely any statement of intention required under section 521(a)(2)." Id. But now, he must "indicate in such statement that" he will do one of four things: surrender, redeem, reaffirm, or assume an unexpired lease. Id. To be specific, he must indicate "either" surrender "or" retention; if he chooses the latter, he must indicate "either" redemption, reaffirmation, "or" assumption. Id. "Either" means "[t]he one or the other." American Heritage Dictionary of the English Language 572 (4th ed. 2000). Although traditionally it has referred to only two items, the standards of the English language have degenerated such that either is now acceptable with more than two clauses. See id. at 572-73 (usage note). However, the "either . . . or" disjunction has always meant that one of the listed alternatives must be satisfied.581 F.3d 1104, 1113-14 (9th Cir. 2009).
A similar disjunctive treatment of reaffirmation under § 524(c) and assumption under § 365(p)(2) also appears in § 521(d), which discusses the consequences of a failure to comply with either secured loan "or" lease obligations. Once again, the use of the disjunctive is consistent with the separate finality, for survival of discharge purposes, of reaffirmation and assumption.
Congress is assumed to understand how assumption worked under the Bankruptcy Code before BAPCPA and the enactment of § 365(p)(2), and, in the absence of a clear indication to the contrary, a court should not assume a departure from established practices or conclude that "assumption" as used in § 365(p) has a meaning inconsistent with the use of the term otherwise in the statute. Ms. Bobka does not dispute that § 365(p)(2) was added in order to allow debtors to assume personal property leases notwithstanding deemed rejection or actual rejection by a trustee in a chapter 7 case. Prior to BAPCPA, the contract was treated as rejected and could not be assumed.
When Congress allowed assumption, it provided a benefit to the debtor. But in the absence of contrary authority, one must presume that Congress understood the meaning of assumption and how assumption had been treated otherwise under the Bankruptcy Code before BAPCPA. Thus, in the absence of express statutory language to the contrary, a court is required to assume that assumption under § 365(p)(2) has the same consequence as an assumption under other provisions of § 365. See, e.g., Cohen v. de la Cruz, 523 U.S. 213, 221 (1998) ("[W]e . . . will not read the Bankruptcy Court to erode past bankruptcy practice absent a clear indication that Congress intended such a departure." (internal quotation marks and citation omitted)). Similarly, a court must presume that a word, in this case "assumption," has the same meaning throughout a statute. See Bank of Am., N.A. v. Caulkett, 575 U.S. ___, 135 S.Ct. 1995, 2000 (2015); Hall v. United States, 566 U.S. 506, 519 (2012); Cohen, 523 U.S. at 220.
In applying this canon of statutory construction, the Court must assume that Congress would understand that before BAPCPA rejection of a lease or other executory contract rejection resulted in a pre-bankruptcy breach of the contract. See § 365(g)(1). The result of rejection was and is to create a pre-bankruptcy obligation that is subject to discharge. Id.
Assumption, on the other hand, created a different result. At that point, the debtor created post-petition obligations. See § 365(a) & (b). See also In re Mortensen, 444 B.R. 225, 231 (Bankr. E.D.N.Y. 2011) (a lease is assumed cum onere and the debtor is bound to accept the obligations and the benefits). Even if an assumed contract is later rejected, the debtor would have some liability on account of the debt. See § 365(g)(2).
Based on the pre-BAPCPA understanding of the meaning and consequences of lease assumption, it is reasonable to assume that in enacting § 365(p)(2), Congress intended that assumption of an obligation under a consumer personal property lease created a post-petition obligation that survived discharge.
The absence of Court approval of § 365(p)(2) lease assumption does not require a different conclusion. Ms. Bobka argues that the absence of judicial oversight of § 365(p)(2) assumption also supports the conclusion that reaffirmation is required for the lease obligation to survive discharge. She correctly points out that assumption by a chapter 7 trustee, or a debtor-in-possession, requires court approval. See § 365(a); Rule 6006. See also § 1322(b)(7) (a chapter 13 plan may provide for lease assumption.).
But this point, while valid, is an insufficient basis for inferring a requirement of judicial oversight through reaffirmation. First, as already discussed, reaffirmation does not always require judicial involvement. Second, the assumption under § 365(a) is by the estate, debtor-in-possession, chapter 13 debtor, or reorganized debtor - it has a direct impact on the availability of assets to pay other creditors, particularly in a chapter 7 context. Thus, general unsecured creditors are parties in interest with a right to be heard. This justifies judicial oversight but not based on interests unique to the debtor. A § 365(p)(2) assumption, in contrast, creates an obligation of the debtor, not her estate, and the obligation is payable only from assets not generally available to pre-petition creditors.
Finally, § 365(b) provides the non-debtor party with the right for cure and adequate assurance; again judicial oversight of the process makes sense. But § 365(p) allows the lessor the unilateral right to decide whether to allow assumption and to establish conditions consistent with the contract terms. Judicial oversight of a lessor's unilateral right to make a decision makes little sense.
In short, this argument is insufficient to justify a determination that reaffirmation is required in addition to § 365(p)(2) assumption.
The Court also notes Ms. Bobka's argument that reaffirmation should be required because a debtor has a right to rescind a reaffirmation agreement for a 60-day period. See § 524(c)(4). She argues that there is no similar provision in the assumption statute. The Court notes that this is less than clear. First, § 365 contemplates that rejection may follow assumption. See § 365(g)(2)(A) (discussing the consequences of a rejection following assumption in a case that has not been converted). Whether a chapter 7 debtor can successfully reject a contract post-assumption is not an issue before the Court. But the statute generally contemplates this possibility. The Court acknowledges that post-assumption rejection requires a court order and typically involves ongoing case activity such as a plan amendment. See In re Wright, 256 B.R. 858 (Bankr. W.D.N.C. 2001) (post-assumption rejection through modified chapter 13 plan). The Court also emphasizes that a lease rejection following assumption does not relieve the debtor from all obligations. Id. at 859-61. At a minimum, the debtor would remain bound for lease payments prior to rejection. See § 365(g)(2)(A). And, if allowable, the decision to allow a rejection after assumption would be based on the facts of a particular case with an eye toward the policies of the Bankruptcy Code, the facts of the debtor's case, and the rights of the lessor. But a decision on this point is for another day. --------
A statute should not be interpreted so as to render it superfluous or nonsensical; Ms. Bobka's ride through argument results in both. A statute should be construed so as to give effect "to all its provisions, so that no part will be inoperative or superfluous, void or insignificant." Corey v. United States, 556 U.S. 303, 314 (2009). See also Rake v. Wade, 508 U.S. 464, 471 (1993) ("To avoid deny[ing] effect to a part of a statute we accord significant and effect . . . to every word." (citations and internal quotation marks omitted)). Similarly, a court must not interpret a statute to produce an absurd result "if alternative interpretations consistent with the legislative purpose are available." Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 575 (1982).
Ms. Bobka argues that § 365(p)(2) merely allows a lessor to recover its claim from the leased property. She posits that a § 365(p)(2) assumption does not create personal liability; instead, she equates the post-lease-assumption rights of a car lessor to a secured creditor's rights to recover its claim from its collateral. This argument lacks merit; it produces an absurd result, and it renders § 365(p)(2) superfluous.
First, this argument fails because a personal property lessor has the immediate right to possession of the leased property once the chapter 7 trustee declines to assume and the debtor fails to timely assume. See §§ 362(h)(1) & 365(p)(1). Assumption under § 365(p)(2) neither enhances nor creates the personal property lessor's right to possess and then manage its own property. Ms. Bobka's argument, thus, makes § 365(p)(2) mere surplusage. But the canons of statutory construction require that a court assume that Congress drafts statutes that have a purpose. See In re Bailly, 522 B.R. 711, 716 (Bankr. M.D. Fla. 2014).
Second, Ms. Bobka ignores the fundamental difference between the economics of a true lease as opposed to a secured transaction. A secured creditor has a lien on the debtor's property, whereas a lessor owns property subject to the debtor's rights as a lessee. A consumer lender or provider of credit, thus, agrees to make funds available and to defer repayment of the loan. The lender may secure repayment of the loan with a lien on an asset acquired with the proceeds of a loan. For example, when a consumer buys a car, they own the car subject to any lien securing repayment of the car loan. If the consumer obtains a chapter 7 discharge, her personal liability on the car loan is extinguished unless she reaffirms the debt. But the lender retains its in rem right to recover payment of its loan from its collateral, the car. See Johnson v. Home St. Bk., 501 U.S. 78, 84 (1991).
A lessor, on the other hand, agrees to make an asset available for possession and use in exchange for periodic payments. 12 C.F.R. § 213.2(e)(1) & (2). If a consumer leases a car and then files a chapter 7 case, she loses the right to continued possession and use of the car once the lease is rejected by operation of law or otherwise. The lessor can then recover its leased vehicle, but it cannot recover its claim in the manner available to a secured lender. True, it can sell the car or lease it to someone else, but the economic value of the leased car was calculated based on its ability to generate a stream of income in exchange for use and, typically, the declining value of the car through normal use. See 15 C.F.R. § 213.4(f) . Future rental income does not compensate the lender for lost rental income in the past. And a true lease envisions ultimate surrender of the car for sale at lease termination; earlier possession and an opportunity for sale do not equate to compensation for missed rental income which took into account the depreciating value of the vehicle.
Once the economics of a vehicle lease are considered squarely, it is clear that an assumption that does not create personal liability for ongoing lease payments gives the lessor nothing; the lessor does not get any realizable compensation for a debtor's use of the leased vehicle or for the decline in vehicle value while a debtor uses the car. The argument renders § 365(p)(2) nonsensical.
And finally, there is a timing issue that renders § 365(p)(2) nonsensical if reaffirmation is also required. Reaffirmation must occur before discharge. See § 524(c)(1). Section 365(p)(2) has no such timing limitations and expressly states that negotiation of a cure does not violate the § 524(a)(2) discharge. See § 365(p)(2)(C). If successful reaffirmation must precede discharge, it makes no sense to allow a negotiation of a § 365(p)(2) assumption after discharge if it is valid only if coupled with a reaffirmation that is an impossibility. The Court agrees with others concluding: "Congress would not require the debtor and lessors to negotiate lease assumption agreements that would be unenforceable as a matter of law." In re Mortenson, 444 B.R. at 230. See also In re Ebbrecht, 451 B.R. at 247.
A review of relevant case law does not suggest a different result. Ms. Bobka requests that the Court rely on a District Court decision, Thompson v. Credit Union Financial Group, 453 B.R. 823 (W. D. Mich. 2011), in order to determine that a debtor must both assume a personal property lease and reaffirm the lease before the lease obligations survive bankruptcy discharge. The Court declines to do so.
In Thompson, the District Court correctly noted that lease rejection under the Bankruptcy Code typically converts a claim for defaults under the lease into a pre-petition obligation that is subject to discharge. 453 B. R. at 826. It next correctly observed the paucity of legislative history in relation to § 365(p) and the ambiguities inherent in this statutory language. Id. at 827. The Thompson court ultimately concluded that the better reading of the statute is that Congress did not intend to obviate the requirement for reaffirmation and that the assumption of a lease merely provides for continued possession as opposed to renewed obligation for debt. Id. at 828. It emphasized that Congress required strict judicial oversight of reaffirmations and focused on the centrality of discharge. Id.
The Court finds the Thompson analysis lacking in several respects. First, it assumes that judicial supervision is an absolute requirement for reaffirmation. Id. But, as previously discussed, that assumption is erroneous. Thus, the Thompson court placed inappropriate emphasis on this factor.
Second, the Thompson court focused on the commonly understood consequences of executory contract rejection under the Bankruptcy Code but failed to consider the commonly understood consequences of lease assumption. Statutory construction, however, requires that a court assume that Congress understands how a statute worked before statutory amendment and that it does not intend to alter those understandings except where it says so expressly. In connection with contract assumption, Congress would understand that when it allows assumption this results in an obligation that can be enforced notwithstanding discharge. The Thompson court ignores this reality.
Also, the Thompson court completely ignores the economic reality of lease assumption when it limits the impact of assumption to the right to possession. First, the lessor already has the right to possession; the stay would lift if the contract is not assumed. The Thompson court's view of the statute renders § 365(p)(2) meaningless. Second, it ignores the economic differences between a lease and a secured transaction. Its analysis creates a surplus statute with nonsensical terms.
Finally, it ignores the consequences of a reading of the Bankruptcy Code as a whole. In particular, it requires reaffirmation, but never explains why this is appropriate where the reaffirmation disclosures created concurrently with § 365(p)(2) are almost entirely irrelevant to personal property lease transactions. The Court cannot rely on this case; and other courts have had similar difficulty. See Williams v. Ford Motor Credit Co., 2016 WL 2731191 (E.D. Mich. May 11, 2016).
After Employing Numerous Canons of Statutory Construction the Court Joins Those Courts Concluding That Separate Reaffirmation Is Not Required. The Court is persuaded that creation of a personal property lease obligation that survives discharge is governed by § 365(p)(2), not § 524(c). In the Court's view, the better reading, indeed the only reading constant with rigorous application of the canons of statutory construction, is that a debt under a lease agreement assumed under § 365(p)(2) need not be separately reaffirmed under § 524(c).
Whatever the Conclusions Regarding § 365(p)(2), This Case Does Not Justify Punitive Damages and an Award of Significant Actual Damages Is Questionable.
The Court, as discussed at length, reaches the conclusion that reaffirmation is not required under these facts. To the extent an appellate court disagrees, remand would be appropriate for the Court to consider whether sanctions are appropriate. In this regard, the Court notes that it is highly unlikely that an award of punitive damages would be appropriate. The law in this area is far from clear. At the time Toyota made the decision to treat § 365(p)(2) as sufficient for the debt to survive discharge, there was no controlling law and there was persuasive authority going both ways.
The Court's concerns about the appropriateness of punitive damages are supported by the fact that Ms. Bobka's own actions led Toyota into this morass of decisional law. The only evidence before the Court indicates that Ms. Bobka initiated contact and requested to keep the Vehicle. The only evidence before the Court is that Ms. Bobka, who was represented by able attorneys, voluntarily signed the Assumption Agreement. To assess punitive damages under these circumstances and in the eye of the confused case law could be to participate in something of a bait and switch, even if innocently caused.
Actual damages would present another issue. There is no evidence that counsel for Ms. Bobka made demand on Toyota before they requested the OSC. Instead, her lawyers initiated a full frontal attack requesting $50,000 in damages and potential incarceration of Toyota officers. There is no evidence that they made any attempt to contact Toyota for an informal resolution. It is thus questionable whether Ms. Bobka can establish that the all of the attorneys' fees incurred in connection with this endeavor were necessary to stop Toyota's collection activity.
Finally, the Court remains perplexed about the relationship between Ms. Bobka's alleged injury and her relationship with her attorneys. She alleges the highest level of emotional distress, yet her attorneys took the time to draft detailed documents and a declaration as opposed to immediately and informally contacting Toyota. She acknowledges calling her attorneys on January 8, 2017. See Declaration of Debtor at ¶ 20(h). They never contacted Toyota and, instead, took 48 days to request the OSC. See Dkt. # 18. This may be reasonable, but it certainly raises questions.
The Lease Was Assumed.
The final issue here relates to whether Toyota obtained a valid assumption. The Court concludes that it did.
Section 365(p)(2) provides:
(A) If the debtor in a case under chapter 7 is an individual, the debtor may notify the creditor in writing that the debtor desires to assume the lease. Upon being so notified, the creditor may, at its option, notify the debtor that it is willing to have the lease assumed by the debtor and may condition such assumption on cure of any outstanding default on terms set by the contract.The assumption procedure was summarized by the Court in In re Ebbrecht:
(B) If, not later than 30 days after notice is provided under subparagraph (A), the debtor notifies the lessor in writing that the lease is assumed, the liability under the lease will be assumed by the debtor and not by the estate.
(C) The stay under section 362 and the injunction under section 524(a) (2) shall not be violated by notification of the debtor and negotiation of cure under this subsection.
Section 365(p)(2) provides a consensual, non-judicial procedure for the assumption of a personal property lease by a debtor if the lease has been rejected or not timely assumed by the chapter 7 trustee under Section 365(d). 'In what some refer to as a "handshake," the debtor must first offer in writing to the lessor to assume the lease obligations, the timing of which is not established by the Bankruptcy Code or Rules. The lessor then must decide whether to accept such offer, the timing of which is also not specified. If the lessor determines that it is willing to allow the debtor to assume the lease, it will then notify the debtor of this decision, and may condition such assumption on cure of any outstanding defaults on terms set by the contract. Section 365(p) does not provide that the lessor is under any obligation to accept the debtor's offer. Once the debtor has notified the lessor of its desire to assume the lease under
Section 365(p)(2)(A), Section 365(p)(2)(C) provides the lessor with a safe harbor to notify debtor it has accepted the request to assume the lease and to negotiate a cure, without violating either the automatic stay of Section 362 or the discharge injunction under Section 524(a)(2). The third and final step required by the statute is that a writing between the lessor and the debtor be signed to memorialize the terms of the lease assumption.451 B.R. at 244-45 (citations omitted).
Though Ms. Bobka acknowledges that she verbally informed Toyota that she wished to assume the lease, she argues that the Lease was not properly assumed because she did not "notify the creditor in writing that the debtor desires to assume the lease." There are two issues here. First, the Court must decide whether Ms. Bobka notified Toyota in writing and, if not, second, whether the lack of a writing is fatal to an attempted assumption, despite the fact that she ultimately signed the Assumption Agreement.
Arguably, there is a written notification here. As noted above, in her Statement of Intention Ms. Bobka indicated that she intended to retain the Vehicle and enter into a reaffirmation agreement with Toyota. The Statement of Intention was served on Toyota. But Ms. Bobka's written intent was to reaffirm, as opposed to assume, so the Court does not find this to be a written notification within the meaning of § 365(p)(2)(A).
The Court, however, also finds that a written notification is not absolutely required for assumption under § 365(p)(2). In the Court's view there are three things accomplished by a debtor's notification under § 365(p)(2). One, it lets the lessor know that debtor is interested in assumption - the "handshake." Two, it provides the lessor with the safe harbor protections of § 365(p)(2)(C), so that the lessor can enter into negotiation, including demanding cure, without the risk of violating the stay or discharge order. Three, if the written statement is filed, it forestalls the termination of the automatic stay under § 362(h). The Court is inclined to find that the writing requirement is only relevant to the latter two. That is, the writing is not a sine qua non to assumption, but rather a passport to safe harbor and method to preserve the stay.
Without a writing, a lessor proceeds to negotiate at its own risk in the event a debtor denies initiating the procedure or extending the "handshake," and the debtor risks losing the stay under § 362(h) and §365(p)(1). However, if an assumption agreement is ultimately signed, as in this case, the lack of a written notification does not invalidate it. Thus, the Court determines that although Ms. Bobka's Statement of Intention does not qualify as a written notification, her oral notification nevertheless satisfied the notification prong of § 365(p)(2)(A); the fact that it was not in writing does not invalidate the lease assumption. Toyota had the right to waive the requirement of a writing; it did so.
Ms. Bobka also argues that the Lease was not properly assumed because she did not notify Toyota in writing that the Lease was assumed within the 30 days required by § 365(p)(2)(B). The Court concludes that the 30-day period of § 365(p)(2)(B) is for the benefit of the lessor and can be waived. See Williams v. Ford Motor Credit Company, LLC, 2016 WL 2731191 at *8. Debtor's failure to accept the Assumption Agreement within 30 days does not invalidate it.
The interpretation of the written offer and timing requirements is also consistent with the policies underlying enactment of § 365(p). As discussed at this decision's beginning, the statute was intended to allow a debtor an opportunity to assume personal property leases. In order to ensure that lessors were not placed at a disadvantage, it provided protections that a lessor could insist on. These protections ensure that the lessor was not inappropriately targeted for a stay or discharge violation and that the lessor had the right to repossess the automobile if the debtor did not promptly take the steps necessary to assume the lease. But the policy of allowing a debtor to assume a personal property lease obligation, particularly for something as critical as an automobile, is not well served if assumption is impossible in the absence of strict compliance with the writing and timing requirements. The debtor loses the right to compel lease assumption if she does not assume the lease in a timely fashion and the lessor takes on a risk when it proceeds with the assumption process in the absence of a written request. But where both the lessor and the debtor remain willing to proceed based on an oral, rather than written request, as is the case here, and where the lessor remains willing to allow assumption even after the 30 days, as was the case here, the Court is unwilling to create a policy that would deprive a debtor of this opportunity in the absence of statutory language expressly so stating.
CONCLUSION
The Court concludes that the facts of this case do not support an award of damages based on a violation of the automatic stay or the discharge injunction. As a result, the Court discharges its Order to Show Cause. DATED: November 16, 2017
/s/_________
LAURA S. TAYLOR, Chief Judge
United States Bankruptcy Court In re Melissa Carin Mather Bobka, Bk. No. 16-05437-LT7
CERTIFICATE OF MAILING
The undersigned, a regularly appointed and qualified employee in the office of the United States Bankruptcy Court for the Southern District of California, at San Diego, hereby certifies that a true copy of the attached document, to wit:
MEMORANDUM DECISION
was enclosed in a sealed envelope bearing the lawful frank of the bankruptcy judges and mailed via first class mail to the party at their respective address listed below: Toyota Financial Services International
Corporation
CT Corporation System
818 West 7th St., Suite 930
Los Angeles, CA 90017 Toyota Financial Services
PO Box 4102
Carol Stream, IL 60197-4102 Austin P. Nagel, Esq.
Law Offices of Austin P. Nagel
111 Deerwood Road, Suite 305
San Ramon, CA 94583 Melissa Carin Mather Bobka
2109 Silverado Street
San Marcos, CA 92078 Michael G. Doan, Esq.
Christopher R. Bush, Esq.
Doan Law LLP
1930 S. Coast Highway #206
Oceanside, CA 92054 Ronald E. Stadtmueller
10755 Scripps Poway Pkwy., #370
San Diego, CA 92131 United States Trustee
Office of the U.S. Trustee
880 Front Street, Suite 3230
San Diego, CA 92101
Said envelope(s) containing such document was deposited by me in the City of San Diego, in said District on November 16, 2017.
/s/_________
Regina A. Fabre, Judicial Assistant