Campbell v. Countrywide Home Loans, Inc. , 545 F.3d 348 ( 2008 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
August 26, 2008
No. 07-20499 Charles R. Fulbruge III
Clerk
CAESAR R CAMPBELL; PAMELA A CAMPBELL
Plaintiffs-Appellees
v.
COUNTRYWIDE HOME LOANS INC.
Defendant-Appellant
Appeal from the United States Bankruptcy Court
for the Southern District of Texas
Before HIGGINBOTHAM, STEWART, and SOUTHWICK, Circuit Judges.
Leslie H. Southwick, Circuit Judge:
The Plaintiffs, Caesar and Pamela Campbell, brought this suit against the
purchase money lender on their residence, Countrywide Home Loans, Inc. They
alleged Countrywide violated the automatic stay in their Chapter 13 bankruptcy.
The bankruptcy court granted partial summary judgment in favor of the
Campbells, finding that Countrywide had violated the automatic stay by the
wording of the claim it filed. Countrywide was granted the right to appeal from
this interlocutory order. We agree with the bankruptcy court’s determination
that certain unpaid amounts due under the Campbells’ security agreement to
Countrywide were claims under the Bankruptcy Code, but reverse its holding
that Countrywide’s actions in the bankruptcy court violated the automatic stay.
No. 07-20499
I. Factual and Procedural Background
The principal issue in this case is whether the following is a claim to be
submitted by a lender under the Bankruptcy Code: the amount by which a
bankrupt homeowner is delinquent in monthly payments during the bankruptcy
year for insurance and property taxes that would be maintained in escrow by the
lender until due. The relevant loan was obtained on October 23, 2002, by Caesar
Campbell, in the principal amount of $72,800, for the purchase of a home in
Richmond, Texas. Caesar Campbell and his wife Pamela also executed a Texas
Home Security Instrument. Countrywide is the servicer of the loan.
Under the terms of the Note and Security Instrument (collectively “loan
documents”), the Campbells’ monthly mortgage payment contained two distinct
elements. The first was a monthly payment for principal and interest in the
amount of $620.13. In addition, the loan documents provided Countrywide the
right (which it exercised) to collect other amounts on a monthly basis to cover
expenses such as insurance and taxes, to retain these payments in an escrow
account, and to pay these expenses as they became due.
The amount Countrywide could collect as a monthly escrow is governed by
the Real Estate Settlement Procedures Act (“RESPA”). 12 U.S.C. § 2601 et seq.
RESPA provides that a loan servicer can estimate the property taxes and
insurance that will be due on the property for the ensuing twelve months and
adjust the monthly payments under the mortgage by 1/12 of the total
calculations to cover the estimated expenses. RESPA also allows the lender to
include an additional 1/6 of the monthly escrow payment to provide a cushion to
cover any estimate shortfalls. See § 2609(a)(1).
On April 3, 2006, the Campbells filed a Voluntary Petition under Chapter
13 of the Bankruptcy Code. Countrywide was listed as a creditor and filed a
Proof of Claim on April 10, 2006. Countrywide’s Proof of Claim was for
$16,348.32. Countrywide had three categories of claims. First, Countrywide
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No. 07-20499
listed fifteen delinquent pre-petition monthly principal and interest payments.
Second, Countrywide’s claim included amounts that Countrywide expended to
cover escrow expenses in years prior to the petition year (with credit for any
escrow payments made by the Campbells). Finally, Countrywide included
certain other costs and fees it was entitled to recover under the loan documents.
Countrywide did not include in its claim the unpaid escrow payments that
accrued between January 2006 and the date of the Campbells’ bankruptcy
petition in April 2006.
Significant for this appeal, in addition to its listed claims, Countrywide
included the following language in its Proof of Claim – indicating that
Countrywide intended to increase the Campbells’ monthly mortgage payment
post-petition:
THE POST PETITION PAYMENT FOR THIS LOAN IS $1,047.35.
EFFECTIVE 6/1/2006 THE POST PETITION PAYMENT WILL
INCREASE TO $1,124.97 . . . .
The increased amount would have recouped the escrow monthly payments
that were unpaid beginning in January 2006 and ending on the filing of the
bankruptcy petition in April 2006. The Campbells filed an objection to this
increase in the mortgage payment. The bankruptcy court ultimately approved
Countrywide’s $16,348.32 arrearage claim but disallowed the increased
mortgage payment. The confirmed plan required mortgage payments in the
amount of the Campbells’ pre-petition payments.
According to the Campbells’ complaint, Countrywide’s actions were an
impermissible attempt to “recover a claim against the debtor that arose before
the commencement of the case.” 11 U.S.C. § 362(a)(6). The bankruptcy court
agreed with the Campbells – granting partial summary judgment and holding
that Countrywide’s actions were an attempt to collect a pre-petition debt. The
court also held that this action constituted a willful violation of the automatic
stay. Countrywide challenges both the finding that it was attempting to collect
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No. 07-20499
a pre-petition debt and the finding that its actions violated the automatic stay.
The statute under which the Campbells bring their claim allows costs, attorneys’
fees, and punitive damages in certain circumstances. 11 U.S.C. § 362. The
bankruptcy court left open the issue of damages. The bankruptcy court granted
Countrywide’s petition for permission to appeal under 28 U.S.C. § 158. In
addition, we subsequently granted Countrywide’s petition to appeal.
II. Discussion
(a) The contractual relationship between the Campbells and Countrywide
As with other summary judgments, a bankruptcy court’s fact findings are
reviewed for clear error and conclusions of law are reviewed de novo. Robertson
v. Dennis (In re Dennis), 330 F.3d 696, 701 (5th Cir. 2003).
To understand the relevant law, we begin with the relationship between
Countrywide and the Campbells as set out in the loan documents. The
promissory note established the principal and interest on the loan; the following
provisions in the mortgage documents also required monthly escrow payments:
1. Payment of Principal, Interest, Escrow Items, and Late Charges.
Borrower shall pay when due the principal of, and interest on, the
debt evidenced by the Note and any late charges due under the
Note. Borrower shall also pay funds for Escrow Items pursuant to
Section 3.
...
3. Funds for Escrow Items. Borrower shall pay to Lender on the
day Periodic Payments [defined as “the regularly scheduled amount
due for (i) principal and interest under the Note, plus (ii) any
amounts under Section 3 [Escrow Items] of this Security
Agreement”] are due under the Note, until the Note is paid in full,
a sum (the “Funds”) to provide for payment of amounts due for: (a)
taxes . . .; (c) premiums for any and all insurance required by
Lender . . . . These items are called “Escrow Items.”. . . Borrower
shall pay Lender the Funds for Escrow Items unless Lender waives
Borrower’s obligation to pay the Funds for any or all Escrow Items.
...
Lender may, at any time, collect and hold Funds in an amount
(a) sufficient to permit Lender to apply the Funds at the time
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No. 07-20499
specified under RESPA, and (b) not to exceed the maximum amount
a lender can require under RESPA. Lender shall estimate the
amount of Funds due on the basis of current data and reasonable
estimates of expenditures of future Escrow items or otherwise in
accordance with Applicable Law.
...
4. Charges; Liens. Borrower shall pay all taxes . . . attributable to
the Property which can attain priority over this Security Instrument
. . . . To the extent that these items are Escrow Items, Borrower
shall pay them in the manner provided in Section 3.
Upon the Campbells’ failure to make their monthly mortgage payment, the
loan documents granted Countrywide the right to “do and pay for whatever is
appropriate to protect Lender’s interest in the Property and rights under the
Security Instrument . . . .” Though Countrywide disputes that the unpaid escrow
amounts were Bankruptcy Code “claims,” it concedes that it had the right under
the just-quoted provision to proceed against the Campbells for unpaid monthly
mortgage payments, including escrow sums. We find that under the loan
documents, the Campbells had an obligation to pay, and Countrywide had a
right to collect, past-due mortgage payments.
Though Countrywide had contractual rights to collect the principal,
interest and escrow amounts, its argument for not having to file these unpaid
amounts as a claim arises from additional rights under RESPA (which are
expressly incorporated by the loan documents). RESPA arguably allowed
Countrywide to recalculate monthly escrow payments if necessary to ensure that
there would be a sufficient balance in the Campbells’ escrow account to satisfy
the escrow expenses as they became due. According to Countrywide, RESPA
allows recalculation any time there were insufficient funds in the escrow account
to cover escrow expenses in the ensuring year. Though that may be true, the
issue is whether such a right overrides bankruptcy principles.
(b) The Campbells’ bankruptcy
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No. 07-20499
We now turn to the relevant portions of the Bankruptcy Code. After a
bankruptcy petition is filed, an automatic stay arises in favor of the debtor. The
stay prohibits “all entities” from making collection efforts against the debtor or
the property of the debtor’s estate. 11 U.S.C. § 362(a). The stay prohibits the
collection of any pre-petition debt, but does not apply to claims that arise post-
petition. United States v. Ripley (In re Ripley), 926 F.2d 440, 443 (5th Cir. 1991).
While the automatic stay halts collection efforts, the Bankruptcy Code
provides creditors a procedure to assert claims against the debtor’s estate. The
Bankruptcy Code entitles each creditor of the bankrupt “to file a proof of claim
– i.e., a document providing proof of a ‘right to payment’ . . . against the debtor’s
estate.” Travelers Cas. & Sur. Co. of America v. Pacific Gas & Elec. Co., 127 S.
Ct. 1199, 1204 (2007) (quoting 11 U.S.C. § 101(5)(a)). A “claim” is a “right to
payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured, or unsecured.” 11 U.S.C. § 101(5)(a). The concept of
a claim is broad, and it includes “all legal obligations of the debtor, no matter
how remote or contingent . . . [that will] be dealt with in the bankruptcy case.”
In re Egleston, 448 F.3d 803, 812 (5th Cir. 2006).
(c) The Countrywide claim
Having set out the relevant contractual and statutory provisions, we now
turn to the first question raised in this appeal: when the Campbells failed to pay
the escrow portion of their mortgage payment between January and April 2006,
and then filed bankruptcy, were these unpaid amounts a “claim” which
Countrywide was prohibited from recovering post-petition without authorization
of the bankruptcy court?
Countrywide alleges that it had no “claim” to the January through April
escrow payments at the time that the Campbells filed bankruptcy. Instead,
Countrywide argues that a claim for the unpaid escrow payments would only
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No. 07-20499
accrue when Countrywide paid an escrow expense, and there were insufficient
funds in the escrow account to cover the expenses. For example, Texas property
taxes are assessed and billed in October and become due in January.
Countrywide argues that it had no claim to assert regarding the property tax
until Countrywide actually paid the taxes and there was a deficit in the
Campbells’ escrow account. Countrywide asserts that its position is supported
by RESPA, which requires Countrywide to make payments from the escrow
account for taxes “as such payments become due.” 12 U.S.C. § 2605(g).
Countrywide’s imaginative argument disregards its rights and the debtor’s
obligations under the loan documents. We have discussed that Countrywide had
the contractual right to proceed against the Campbells upon a failure to pay
monthly escrow payments. The “touchstone of any ‘claim’ is that there is an
‘enforceable obligation’ of the debtor or an enforceable ‘right to payment’ from
the debtor.” Carrieri v. Jobs.com Inc., 393 F.3d 508, 524 (5th Cir. 2004). There
was a right to the pre-petition escrow payments – which matured into a claim
on behalf of Countrywide – each time the Campbells failed to make the payment.
Countrywide’s argument that it had no rights against the Campbells until the
escrow expenses were paid ignores the terms of the loan documents.
Countrywide responds that the loan documents incorporate its rights
under RESPA. It points to a provision of RESPA which states that a servicer
such as Countrywide “shall not be prohibited from requiring additional monthly
deposits in such escrow account to avoid or eliminate such deficiency.” 12 U.S.C.
§ 2609(a). Based on this contractual right, Countrywide argues that it is entitled
to disregard the January through April escrow defaults, recalculate the monthly
escrow estimates, and increase the mortgage payments post-petition in the
manner that it did. Countrywide argues that any attempt by the bankruptcy
court to modify its right to recalculate the escrow payments (and increase the
mortgage payment post-petition) is a violation of 11 U.S.C. § 1322(b)(2), which
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No. 07-20499
provides that a bankruptcy court does not have the power to modify the rights
of a secured creditor whose claim is secured only by a security interest in real
property that is the debtor’s principal residence.
We agree with the bankruptcy court that the pre-petition escrow payments
are a “claim” for purposes of the automatic stay, a holding that does not limit
Countrywide’s rights under RESPA or the Bankruptcy Code. The automatic
stay operates to halt collection of pre-petition claims, even those claims held by
a creditor protected by the anti-modification provision of Section 1322(b)(2):
[E]ven if a claim secured only by a security interest in real property
used as the principal residence of the debtor is not subject to
modification under the chapter 13 plan by reason of section
1322(b)(2), the holder of such claim is nonetheless stayed from
collection of its claim, from taking possession of the real property
encumbered by the lien, and from enforcement of its lien. The
holder of such a claim must obtain relief from the automatic stay
before proceeding unless the stay does not come into effect or
terminates because of a prior bankruptcy filing.
8 COLLIER ON BANKRUPTCY ¶ 1322.06[1][a] (15th ed. rev. 2007). The stay does
not determine a creditor’s claim but merely suspends an action to collect the
claim outside the procedural mechanisms of the Bankruptcy Code. Therefore,
staying Countrywide’s attempt to collect pre-petition escrow amounts does not
bar Countrywide from asserting its contractual rights in the bankruptcy court.
Our decision is a narrow one. We determine only that unpaid escrow
payments that accumulate pre-petition in the year that a bankruptcy petition
is filed, and which the creditor had a right to collect under the loan documents,
constitute a “claim” under the Bankruptcy Code. We do not address a right to
recalculate the amount of escrow payments in subsequent years.
In sum, we affirm the bankruptcy court’s determination that the escrow
obligations that arose pre-petition were “claims” of Countrywide as that term is
utilized in the Bankruptcy Code. Countrywide could not attempt to collect those
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No. 07-20499
amounts post-petition. We now turn to whether the bankruptcy court properly
held that Countrywide violated the automatic stay.
(d) Violation of the automatic stay
When a bankruptcy petition is filed, an automatic stay operates as a self-
executing injunction. The stay prevents creditors from taking any collection
actions against the debtor or the property of the debtor’s estate for pre-petition
debts. 11 U.S.C. § 362(a). When the automatic stay is violated, the Bankruptcy
Code creates a private right of action in favor of the debtor:
[A]n individual injured by any willful violation of a stay provided by
this section shall recover actual damages, including costs and
attorney’s fees, and, in appropriate circumstances, may recover
punitive damages.
11 U.S.C. § 362(k). This court has held that a “willful” violation of the automatic
stay means acting with knowledge of the stay:
A willful violation does not require a specific intent to violate the
automatic stay. Rather, the statute provides for damages upon a
finding that the defendant knew of the automatic stay and the
defendant’s actions which violated the stay were intentional.
Whether the party believes in good faith that it had a right to the
property is not relevant to whether the act was “willful” or whether
compensation must be awarded.
In re Chesnut, 422 F.3d 298, 302 (5th Cir. 2005) (citation omitted). Therefore,
to establish an actionable violation of the automatic stay the Campbells must
establish: (1) that Countrywide knew of the existence of the stay; (2) that
Countrywide’s actions were willful; and (3) that Countrywide’s actions violated
the automatic stay. In re Repine, – F.3d – , No. 06-20807, 2008 WL 2801898, at
*4 (5th Cir. July 22, 2008). It is undisputed that Countrywide knew of the
existence of the stay and that it acted willfully and intentionally when it
asserted the right to an increased mortgage payment in its Proof of Claim. The
only legitimate issue is whether Countrywide’s actions violated the stay.
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No. 07-20499
The bankruptcy court found that the amount by which Countrywide stated
in its Proof of Claim that it would increase the debtor’s mortgage payment post-
petition was an attempt to collect the escrow payments that the Campbells had
failed to pay in January through April, 2006. This factual finding is reviewed
for clear error and may only be set aside if, after reviewing the evidence, the
court is left with “the definite and firm conviction that a mistake has been
committed.” In re Dennis, 330 F.3d at 701 (quotation marks and citation
omitted). Having considered the bankruptcy court’s calculations, we find no
clear error.
The bankruptcy court then held that by including these amounts in its
Proof of Claim, Countrywide violated the automatic stay. In assessing the
validity of that conclusion, we review Countrywide’s actions. It filed a Proof of
Claim and included a paragraph that the Campbells’ post-petition payments
would be higher. Countrywide did not collect this new amount or take any
action outside the bankruptcy proceeding to collect it. We must decide whether
making an assertion in a Proof of Claim violates the automatic stay.
Certain categories of actions are statutorily identified as prohibited by the
automatic stay, including: (1) the commencement or continuation of a judicial,
administrative, or other action or proceeding against the debtor that was or
could have been commenced before the bankruptcy filing; (2) enforcement of a
judgment obtained before the commencement of the bankruptcy case; (3) acts to
obtain possession or exercise control over property of the bankruptcy estate; (4)
acts to create, perfect, or enforce a lien against property of the bankruptcy
estate; (5) acts to create, perfect, or enforce liens against property of the debtor
(as opposed to property of the bankruptcy estate); (6) any act “to collect, assess,
or recover a claim against the debtor that arose before the commencement” of the
bankruptcy case; (7) any setoff of a debt owing to the debtor that arose pre-
petition; and (8) the commencement or continuation of certain proceedings before
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No. 07-20499
the United States Tax Court. 11 U.S.C. § 362(a)(1) - (8); see generally 3 COLLIER
ON BANKRUPTCY ¶ 362.03 (15th ed. rev. 2007).
None of these sections bars a creditor’s filing a Proof of Claim pursuant to
Section 501 of the Bankruptcy Code. We find no precedents in which a court has
held that asserting a right to payment in a Proof of Claim constitutes a violation
of the automatic stay.1 In fact, a number of courts, including the District of
Columbia Circuit, have found that an automatic stay has no effect on actions
that are expressly allowed under the Bankruptcy Code. United States v. Inslaw,
Inc., 932 F.2d 1467, 1474 (D.C. Cir. 1991). In a case similar to ours, the
Bankruptcy Court for the District of South Carolina put a finer point on this
more general principle:
[T]he automatic stay serves to protect the bankruptcy estate from
actions taken by creditors outside the bankruptcy court forum, not
legal actions taken within the bankruptcy court. The filing of a
Proof of Claim before a bankruptcy court . . . is the logical
equivalent of a request for relief from the automatic stay, which
cannot itself constitute a violation of the stay . . . .
In re Sammon, 253 B.R. 672, 681 (Bankr. D.S.C. 2000); see also Rogers v. B-Real,
L.L.C. (In re Rogers), No. 3:08-ap-01011, 2008 WL 2810593, at *6 (Bankr. M.D.
La. July 21, 2008) (adopting In re Sammon’s analysis and collecting other cases
that have done so).
The just-quoted In re Sammon opinion analyzed procedural rules, Code
provisions, and case law before concluding that even the filing of a “grossly
overstated” amount on a Proof of Claim would not violate the automatic stay.
Id. at 680. Most convincing to us is the point that there would not be any
damages because any disagreement with the claim may be addressed
1
Our discussion is limited to whether Countrywide’s conduct in this case constitutes a
violation of the automatic stay under Section 362. Of course, the bankruptcy court has other
mechanisms to impose sanctions on parties who may attempt to abuse the procedural
mechanisms within the bankruptcy court. See 11 U.S.C. § 105 and Fed. R. Bankr. P. 9011.
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No. 07-20499
immediately by the debtor’s counsel by responding to that official court filing.
Id. at 681. Indeed, a dispute within the bankruptcy court over the Countrywide
filing began almost immediately.
The analysis in these cases is persuasive. The Bankruptcy Code allows
creditors to assert any claim even if that claim is contingent, unmatured, or
disputed. 11 U.S.C. §§ 101(5), 501(a). A debtor may object to the claim; the
bankruptcy court then determines whether to allow the claim. 11 U.S.C. § 502;
see Simmons v. Simmons (In re Simmons), 765 F.2d 547, 552 (5th Cir. 1985)
(filing an objection “join[s] issue in a contested matter, thereby placing the
parties on notice that litigation is required to resolve an actual dispute between
the parties”). In this case, Countrywide filed a claim asserting a right to
increased mortgage payments under the loan documents. The Campbells
objected, and the bankruptcy court sustained the objection. These actions were
permitted by the Bankruptcy Code and did not violate the automatic stay.
For the foregoing reasons, we agree with the bankruptcy court’s
determination that the pre-petition monthly escrow payments were a pre-
petition “claim” of Countrywide, but we REVERSE and RENDER on the holding
that Countrywide’s actions violated the automatic stay.
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