In Citigroup, Inc. v. Bruce (In re Bruce), 2021 WL 6111925 (No. 21-CV-7455 (CV)) (S.D.N.Y. December 27, 2021) (“Bruce”), finding that there was no controlling authority in the Supreme Court or the Second Circuit, the United States District Court for the Southern District of New York (the “Court”) granted the appellant banks’ motion to certify for direct appeal to the Second Circuit Court of Appeals (the “Circuit Court”) the Bankruptcy Court’s order denying the banks’ motion to dismiss the debtor’s complaint asserting a nationwide class action against the banks seeking damages and contempt for violation of a discharge order and injunction.
Bruce can be found here.
Debtor and appellee Bruce (the “Appellee”) filed a Chapter 7 and received a discharge. Defendants and appellants banks (the “Appellants”) received timely notice of the bankruptcy case and discharge but failed to timely correct their reporting to credit agencies. The Appellee brought an adversary proceeding in the Bankruptcy Court alleging that the Appellants thereby violated the discharge injunction. Adding that the Appellants’ conduct stemmed from a deliberate nationwide practice, the complaint included a claim for a nationwide class action. The complaint sought a contempt citation and damages for the Appellee and the class.
The Appellants moved to dismiss. Among their grounds was that the Bankruptcy Court could not impose contempt in any cases except those before the judge who issued the discharge injunction. The Bankruptcy Court denied the motion after finding that there was no controlling precedent on whether it could issue contempt citations for violation of other judges’ injunctions. Because it did not end the litigation, the order was interlocutory. The Appellants appealed the order to the Court asking it to either certify the matter for direct appeal to the Circuit Court under 28 U.S.C. § 158(d)(2) (“§ 158(d)(2)”) or to itself entertain an interlocutory appeal. The Court certified the appeal to the Circuit Court, denying without prejudice the motion’s request for it to entertain an interlocutory.
§ 158(d)(2) mandates certification of an appeal from a bankruptcy court directly to the Circuit Court of Appeals, leaving it to the discretion of the latter whether to take the case. A motion to certify a matter for direct appeal from the Bankruptcy Court to the Circuit Court of Appeals is made to the intervening District Court. Among the circumstances for a direct appeal identified in § 158(d)(2) is if there is an issue of law for which there is no controlling authority from the Supreme Court or the presiding Court of Appeals. That was the issue on which Bruce turned.
The Court cited Second Circuit authority to the effect that the best candidates for direct appeal are cases that depend little on facts, where there is conflict in the bankruptcy courts in the Circuit on the issue or where the Bankruptcy Court’s decision is obviously wrong or right. The Court then found that, despite the Appellee’s arguments otherwise, there was no controlling authority. In reaching that conclusion, the Court considered various cases cited by the Appellee as controlling authority, but found none on point. Many of the cases were within the zone of the issue, but not on point or close enough to be decisive. Inferring a result from the intersection of the holdings or dicta in those various decisions simply did not establish controlling authority.
In other instances, the Court found it easy to distinguish the cases or even to find contrary language in them, either pointing the other way or clearly disavowing any holding on the central question. And the Court noted there is a national split in authority on the contempt issue, including within the Second Circuit. A number of cases, including at the Circuit level (the 5th, 7th, 9th and 11th) hold that bankruptcy courts cannot enforce the discharge injunctions issued by other bankruptcy courts.
Finally, the Court noted that the Second Circuit itself had ruled that two of the Bankruptcy Code sections that the Appellee had relied upon as giving bankruptcy courts the power to enforce other courts’ discharge injunctions (§§ 105(a) and 524(a)(2)) provide no support. In Belton v. GE Capital Retail Bank (In re Belton), 961 F3d 612, 618 (2d Cir. 2018), the Second Circuit pointed to the language in the Supreme Court’s decision in Taggart v. Lorenzen, 139 S.Ct. 1795, 1802 (2019) explaining that the contempt provisions of those sections at issue bring with them the “old soil” of contempt jurisprudence that limits enforcement of contempt to the court that issued the injunction.
Bruce is an exemplary opinion in its thorough, clear and systematic reasoning. Needless to say, this author thinks it also is the right result, whatever one may think of the underlying issue of who may enforce contempt remedies. Bruce is the very kind of case for which § 158(d)(2) is designed. In that regard, it is worth noting that among the cases permitting a nationwide contempt action in the Second Circuit is the Bankruptcy Court’s decision is Golden v. Discover Bank (In re Golden), 630 B.R. 896 (Bankr. E.D.N.Y. 2021), reported in this newsletter at 2021-33 Comm. Fin. NL 66. Golden agreed with courts that focus on the statutorily-prescribed form of the discharge order in a Chapter 7 case to conclude that imposition of a contempt sanction for violation of the discharge order does not require any special knowledge of the case that may have accrued to the issuing judge. Note that Golden arose in the Eastern District of New York. (N.B.: Discover Bank moved the District Court for leave to appeal, but both that matter and the adversary proceeding have been continued by request of the parties while they explore settlement.)
This article was authored by Adam A. Lewis, Senior Counsel, Morrison & Foerster LLP, a member of the ad hoc group, with editorial assistance by Meredith Jury, (bankruptcy judge, C.D. Cal. (Ret.), a member of the ad hoc group. Thomson Reuters holds the copyright to these materials and has permitted the Insolvency Law Committee to reprint them. This material may not be further transmitted without the consent of Thomson Reuters.