ORDER. Signed by District Judge Julian Abele Cook. (CGre)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
TOM D. JOHNSON,
Case No. 10-14292
Honorable Julian Abele Cook, Jr.
This case relates to an appeal by the appellant-debtor, Tom D. Johnson, from a decision by
the Bankruptcy Court in the Eastern District of Michigan to grant a summary judgment in favor of
the appellee-creditor, the Comerica Bank. The underlying action arose out of a claim for damages
by Johnson who had contended that the Comerica Bank had violated the discharge injunction
imposed under 11 U.S.C. § 524(a)(2). See Amended Opinion Regarding Debtor’s Motion for
Damages for Comerica Bank’s Alleged Violations of the Discharge Injunction, No. 94-48884,
(Bankr. E.D. Mich. Oct. 14, 2010), Bankr. Docket No. 776 (“Amended Opinion”).
Factual and Procedural History
In connection with his employment at The Equitable Life Assurance Society of the United
States (“Equitable”), Johnson became a participant in a long-term disability plan.1 Following a
The Equitable Life Assurance Society of the United States Employees, Managers and
Agents Long Term Disability Plan (“Plan”).
stroke which left him disabled in 1991, he began to receive disability benefits from Equitable in
accordance with the Plan, which included the following anti-alienation or spendthrift clause:
Spendthrift Clause – To the extent permitted by law, Members are prohibited from
anticipating, encumbering, alienating or assigning any of their rights, claims or
interest in this Trust or in any of the assets thereof, and no undertaking or attempt
to do so shall in any way bind the plan Administrator or the Trustee or be of any
force or effect whatsoever. Furthermore, to the extent permitted by law, no such
rights, claims or interest of a Member in this Trust or in any of the assets thereof
shall in any way be subject to such Member’s debts, contracts or engagements, nor
to attachment, garnishment, levy or other legal or equitable process.
Plan, Article IX, § 9.2.
In addition to his employment with Equitable, Johnson was also involved in an independent
real estate development enterprise. In 1985, Johnson, acting in his capacity as an independent
entrepreneur, co-signed and guaranteed repayment of a promissory note to the Comerica Bank in
exchange for a loan that it extended to the Greenwood Centre, Inc. (“Greenwood”), a corporation
that was wholly owned by him. This note had been secured by (1) a mortgage on the Greenwood
commercial real estate, and (2) a security interest granted to the Comerica Bank in Johnson’s
accounts receivable, general intangibles and contract rights. Comerica Bank v. Johnson (In re
Johnson), 166 F.3d 1214, 1998 WL 833774, at *1 (6th Cir. 1998) (unpublished table decision). The
terms within the security agreement specified that (1) “accounts receivable” referred to “all
accounts and general intangibles including, but not limited to . . . insurance proceeds, [and]
beneficial interests in trusts;” and (2) the agreement was to be governed by and construed in
accordance with Michigan law. (See Amended Op. at 4).
However, Greenwood subsequently defaulted in its contractual obligations to the Comerica
Bank. In February 1994, the Comerica Bank initiated legal proceedings against Johnson, Equitable,
and other entities in the Jackson County Circuit Court of Michigan in an effort to enforce its
In September 1994, the state court proceedings were stayed when Johnson sought protection
under Chapter 11 of the Bankruptcy Code.2 At that time, Johnson owed the Comerica Bank an
amount in excess of one million dollars. In a May 1996 order, the Bankruptcy Court determined,
inter alia, that (1) the Comerica Bank had a valid and perfected security interest in Johnson’s
general intangibles, contract rights, and accounts receivable; and (2) Johnson’s disability benefits
under the Plan were exempt under Michigan law. An appeal to this Court followed. In its order, this
Court generally affirmed the decision of the Bankruptcy Court, but noted that it “did not determine
whether the disability payments are subject to a security interest of [the Comerica Bank] and, if so,
whether [Johnson] has waived his right to claim an exemption for such benefits under Michigan
law.” Thereafter, the case was remanded to the Bankruptcy Court for such action as would be
necessary to address these stated issues. See Comerica Bank v. Johnson, No. 96-74790 (E.D. Mich.
May 30, 1997), ECF No. 11.
In a portion of the May 1996 order that was not appealed, the Bankruptcy Court had granted
the Comerica Bank’s request for a partial lifting of its automatic stay. In so doing, it authorized the
Comerica Bank to proceed with the previously-filed state court action to enforce its contractual
rights and security agreement. In October 1996, the state court (1) granted a summary judgment in
favor of the Comerica Bank “in rem only as to all [of Johnson’s] collateral held by Comerica Bank”
and (2) determined that the Comerica Bank “holds and shall continue to hold a perfected security
interest in all contract rights, general intangible and accounts receivables of [Johnson].” (Order
Granting Summary Disposition, Case No. 94-68152 (Jackson Cty. Cir. Ct. Oct. 10, 1996), Copy
The case was subsequently converted to a Chapter 7 bankruptcy.
at Bankr. Docket No. 643, Ex. D). However, in recognition of the decision by the Bankruptcy Court
that Johnson’s disability benefits were exempt, the state court excluded them from its judgment.
Following the entry of the state court ruling, Equitable began to withhold certain fees, excluding
the disability payments, that were otherwise payable to Johnson.
Johnson received a discharge in October 1997. The following month, the Comerica Bank
filed a motion seeking a determination of the remanded issues by the Bankruptcy Court. Although
the Bankruptcy Court held a hearing on this motion and requested - and received - suggested
findings of fact and conclusions of law from the parties, it took no further action on the motion and
the Bankruptcy Judge left the bench shortly thereafter. These issues apparently remained
unresolved. The case was closed in 2001, with no further action by either Comerica or Johnson to
seek the bankruptcy court’s resolution of these issues for the next six years.
However, during the latter part of 2005, the Comerica Bank, through its new counsel, Scott
S. Brinkmeyer, sought to determine the status of any unresolved claims relating to its perfected
security interests in Johnson’s contract rights, accounts receivable, and general intangibles. In
February 2006, Brinkmeyer wrote a letter to Peter Teholiz, who had represented Equitable in a
majority of the court proceedings that preceded the closure of the bankruptcy case. Brinkmeyer
stated that his predecessor’s files were “in complete disarray,” “seemingly incomplete,” and
“hopelessly disorganized,” and sought Teholiz’s assistance in determining whether and how certain
issues (including those issues that had been remanded by this Court) were resolved between the
Comerica Bank and Equitable. (Brinkmeyer letter of February 24, 2006, Copy at Bankr. Docket No.
713-2, Ex. 3, at 1, 2). This and subsequent letters reflect a substantial degree of confusion that was
generated by the court proceedings and related rulings (or lack thereof) in this case. Nevertheless,
Brinkmeyer expressed his belief that the issue of the disability benefits had been resolved in favor
of his client. This understanding was based in part on an unsigned order that had been filed by the
Bankruptcy Court clerk and entered on the court docket in October 1998. This unsigned order
facially appeared to hold that the Comerica Bank (1) had a perfected lien on Johnson’s disability
payments, and (2) was granted a partial lift of the stay with regard to these payments. The parties
have since agreed that this docket entry (1) was not an official order of the Bankruptcy Court, and
(2) only contained proposed findings of fact and conclusions of law that had been prepared and
entered by the Comerica Bank’s prior counsel.
Brinkmeyer’s letter to Teholiz on March 29th reads, in relevant part:
The purpose of this letter is to summarize my understanding of key issues
between the parties arising from the bankruptcy of Tom D. Johnson, and the related
lawsuit instituted by my client in the Jackson County Circuit Court. I will also
provide my understanding of the impact of the Orders issued by the respective
courts and the status of the parties’ positions as a result of the court rulings.
Over the past few weeks I have attempted to organize [my predecessor’s]
files, which as I informed you were both disorganized and incomplete, and to
acquire updated docket sheets and copies of the pertinent pleadings and Orders from
both courts.3 I have reviewed box loads of information and now believe that the
following chronology of events is accurate, barring contradictory information from
you. In the event that you disagree with any of my conclusions, please reply at your
earliest opportunity and provide whatever information you may have to the
The portion of the docket of the bankruptcy court which I retrieved from
[my predecessor’s] file stopped abruptly at entry number 453 on October 14, 1997.
I subsequently obtained a copy of the remainder of that file . . . . It also included
docket number 553, which was filed with the bankruptcy court on October 8, 1998.
That judgement [sic] is entitled “Findings of Fact, Conclusions of Law and
Judgment,’ a copy of which is attached . . . .
The files of the Bankruptcy Court files had been moved to the National Archives in
Chicago, Illinois for purposes of security and safe-keeping.
Notably, although the judgment was stamped as filed by the clerk on
October 8, 1998, it is not signed. Nevertheless, the docket from the bankruptcy court
reflects that the judgment was entered on October 9, 1998. . . . The conclusions of
law therein include a determination that the 26 USC § 501(c)(9) disability payments
being made by The Equitable to Mr. Johnson were covered by [the Comerica
Bank’s] security agreement, subject to its perfected lien and the partial lift of stay
granted by the bankruptcy court. I could find no docket entry reflecting an appeal
of that judgment by either party.
Insofar as disability benefits, service fees and the applicable interest rate
issues are concerned, my reading of the decisions by [the Bankruptcy Court Judge]
and the Jackson County Circuit Court suggests that those issues have been decided
in favor of [the] Comerica Bank. I have nothing to indicate that there was any
further appeal of those decisions which yielded a different result, but I stand to be
corrected if you have contrary information. I appreciate that you have indicated that
The Equitable has been accumulating the service fees, presumably with interest, and
has not made any payments to Mr. Johnson. . . .
It is my expectation, however, that the same cannot be said for the § 501(c)(9)
disability benefits. I would like to think that they, likewise, have been retained and
would certainly like to know the status of those payments. The documents I have
retrieved from [my predecessor’s] file reflect his calculations of those accrued
amounts to be quite substantial. As a consequence, it would appear that there is a
judgment in place in favor of [the] Comerica Bank and against The Equitable
pertaining to those disability payments and service fees, which needs to be resolved.
If you disagree, please provide copies of any documentation which you suggest
contradicts this conclusion.
It is naturally my hope that these issues can be resolved amicably as between
[the] Comerica Bank and The Equitable. I would hope to save the time and expense
of having to reopen one or both of these cases in order to resolve these issues, but
far to [sic] much time has passed for my client to wait too much longer.
Consequently, I encourage you to pass this information along to The Equitable as
quickly as possible and reply to this letter at your earliest opportunity so that we
may explore the possibilities of prompt resolution.
(Brinkmeyer letter of March 29, 2006, Copy at Bankr. Docket No. 691, Ex. A).
Teholiz does not recall Brinkmeyer ever having made a request or a demand that Equitable
withhold Johnson’s disability payments. Nevertheless, Equitable wrote to Johnson on May 26,
2006, and notified him that it (1) had received an “apparent ruling from the U.S. Bankruptcy Court
in 1998 holding that you lawfully assigned your long-term disability (‘LTD’) benefit to [the]
Comerica Bank,” and therefore (2) would commence freezing payments of his disability benefits.
(Equitable letter of May 26, 2006, Copy at Bankr. Docket No. 713-2, Ex. 7). The “ruling” referred
to in the letter was apparently the unsigned-but-docketed order that has been discussed above.
Equitable stated that it would hold these benefits in trust until it could confirm whether the ruling
was valid and enforceable. On June 26th, Equitable sent another letter to Johnson in which it stated
that, “[a]fter thoroughly researching the outstanding issue, we understand that there is no final
ruling as to your assignment of your Plan benefits.” (Equitable letter of June 26, 2006, Copy at
Bankr. Docket No. 713-2, Ex. 8). However, Equitable asserted that it remained obligated to freeze
the payments pending a final resolution of the contested issue. Thereafter, Equitable withheld its
payments to Johnson for the months of September and October 2006. After further litigation in the
state court, Equitable subsequently resumed these payments to Johnson and paid the previously
withheld monies to him.
In May 2007, Johnson filed a motion in the Bankruptcy Court, in which he sought an order
that would require the Comerica Bank to pay him more than three million dollars in actual and
punitive damages for several alleged violations of the discharge injunction. Because under Sixth
Circuit precedent, there is no private right of action under 11 U.S.C. § 524(a)(2) for a violation of
a discharge injunction, Pertuso v. Ford Motor Credit Co., 233 F.3d 417, 422-23 (6th Cir. 2000),
the Bankruptcy Court construed Johnson’s request for relief as a motion to hold the Comerica
Bank in civil contempt. Thereafter, the case was reopened to permit Johnson to proceed with this
Following a hearing in January 2008, the Bankruptcy Court directed the Comerica Bank to
submit a motion for summary judgment with respect to some of its defenses to Johnson’s motion.
In March 2008, the Bankruptcy Court granted a summary judgment in favor of the Comerica Bank
- and denied Johnson’s motion - on all issues “except with respect to the allegations contained in
¶ 18 of [his] damages motion.” (Bankr. Docket No. 679, ¶¶ 1-2).4 The Bankruptcy Court ordered
additional briefing and oral argument, and subsequently permitted the parties to conduct additional
discovery regarding this unresolved claim. After yet another hearing and another round of
supplemental filings, the Bankruptcy Court issued an order in December 2008 in which it (1)
concluded that no court had made a definitive final ruling in this case regarding whether the
security interest of the Comerica Bank covered Johnson’s disability benefits, and (2) ordered the
parties to submit additional briefing on this issue. Analysis of this issue led the Bankruptcy Court
to require the parties to brief the questions of whether (1) an anti-alienation provision in the Plan
was enforceable under New York law5 and (2) that provision was invalidated by Article 9 of the
Uniform Commercial Code.
Finally, on October 14, 2010,6 the Bankruptcy Court issued an order in which it held:
(1) Brinkmeyer’s March 29 letter - in particular, the paragraph beginning with “It
is my expectation” - constituted an implied demand that Equitable withhold
Paragraph 18 alleged that the “Comerica [Bank], through fraudulent and/or careless
misrepresentation of the existence of a court order, caused The Equitable to stop paying Debtor’s
disability income until Debtor succeeded in a separate state court action to recover the disability
income.” (Debtor’s Verified Mot. for Damages From Creditor for Violation of Stays and Other
Relief, Bankr. Docket No. 639, ¶ 18).
The Plan contained a choice of law clause which provided that, to the extent it was not
preempted by the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq.,
(“ERISA”), its terms and conditions were to be construed and administered under New York
The Bankruptcy Court had initially rendered an opinion on October 11, 2008, but issued
an amended opinion three days later in which it made several minor changes to the first version.
Johnson’s disability payments and an implied threat of litigation if it did not do so;
(2) The Comerica Bank’s security interest covers Johnson’s right to receive
disability payments because:
(a) his right to these payments was a contract right, which qualifies as an
“account” or “general intangible” within the meaning of the security
(b) the anti-alienation provision in the Plan was ineffective as against the
Comerica Bank’s security interest; and
(c) New York trust law does not invalidate the Comerica Bank’s security
interest because the Plan is not an express trust within the meaning of New
(3) Johnson, in granting a security interest to the Comerica Bank, had waived his
right to claim an exemption as against the Comerica Bank in his right to receive
disability payments; and
(4) The Comerica Bank’s valid lien was not avoided during the bankruptcy case and
thus survived Johnson’s discharge and remained enforceable.
This appeal followed.
Standard of Review
A federal district court has jurisdiction to hear appeals - and an aggrieved litigant may
appeal as of right - from “final judgments, orders, and decrees” of a bankruptcy court. 28 U.S.C.
§ 158(a)(1). On appeal, this Court reviews a bankruptcy court’s findings of fact for clear error and
its conclusions of law de novo. Made In Detroit, Inc. v. Official Cmte. of Unsecured Creditors of
Made In Detroit, Inc. (In re Made In Detroit, Inc.), 414 F.3d 576, 580 (6th Cir. 2005); see also Fed.
R. Bankr. P. 8013 (“On an appeal the district court or bankruptcy appellate panel may affirm,
modify, or reverse a bankruptcy judge’s judgment, order, or decree or remand with instructions for
further proceedings. Findings of fact, whether based on oral or documentary evidence, shall not be
set aside unless clearly erroneous, and due regard shall be given to the opportunity of the
bankruptcy court to judge the credibility of the witnesses.”). Under the clearly erroneous standard,
“if the trial court’s account of the evidence is plausible in light of the record viewed in its entirety,
a reviewing court may not reverse even if convinced that it would have weighed the evidence
differently as trier of fact. . . . Indeed, reversal under the clearly erroneous standard is only
warranted if the reviewing court on the entire evidence is left with the definite and firm conviction
that a mistake has been committed.” Matter of Love, 957 F.2d 1350, 1354 (7th Cir. 1992) (citation
and internal quotation marks omitted).
The Parties’ Arguments
The parties state that a resolution of this appeal depends primarily upon whether (1) the
Comerica Bank, through Brinkmeyer’s letters, undertook an action that was designed to collect a
discharged debt as a personal liability of Johnson, and (2) if so, whether the Comerica Bank had
a perfected lien on Johnson’s disability benefits that survived the bankruptcy discharge. If a lien
attached to the post-petition disability benefits, the Comerica Bank, notwithstanding the discharge
injunction, had a right to seek the collection of those benefits. This latter question, in turn, is
dependent upon the answers to the following underlying questions.
The first question is whether the Plan’s spendthrift clause prevented Johnson from validly
assigning his right to benefits under the Plan. If so, the Comerica Bank never obtained a valid
security interest in these benefits. The Comerica Bank argues that the spendthrift clause was
invalidated by Section 9-318(4) of the former New York Uniform Commercial Code (N.Y.U.C.C.)
which provides as follows:
A term in any contract between an account debtor and an assignor is ineffective if
it prohibits assignment of an account or prohibits creation of a security interest in
a general intangible for money due or to become due or requires the account
debtor’s consent to such assignment or security interest.
Johnson counters by asserting that Article 9 - including the restraint on spendthrift clauses -
does not apply to the transaction at issue because it falls within an exclusion from its coverage.
Specifically, he claims that the transaction was a transfer of a claim for an employee’s other
compensation, which is excluded from Article 9 by § 9-104(d), and/or a transfer of a claim under
a policy of insurance that is excluded from Article 9 by § 9-104(g). Moreover, Johnson submits
that, even if Article 9 has applicability to the transaction at issue, the specific anti-anti-alienation
provision does not apply because the disability benefits are not an “account” within the meaning
of that provision. He also asserts that § 9-318(4) is preempted by the trust law of New York and,
as such, it does not invalidate the Plan’s spendthrift clause.
The second question is whether the security interest of the Comerica Bank, if valid, was cut
off by the operation of 11 U.S.C. § 552. Johnson maintains that, even if the security agreement
effected a valid transfer of benefits, § 552 prevented the pre-petition lien from attaching to his postpetition assets. Hence, according to him, the Comerica Bank - acting without a valid lien on his
disability benefits - violated the discharge injunction by attempting to collect them. Thus, Johnson
asks the Court to remand this matter to the Bankruptcy Court for appropriate action on his motion
The N.Y.U.C.C. was revised, with an effective date of July 1, 2001. However, the
provisions in force on the date when the parties executed their security agreement are applicable
here because the Revised N.Y.U.C.C. § 9-702(a) provides that the revisions do not apply to those
actions or proceedings which had commenced before the revisions took effect. Unless otherwise
stated, all citations to N.Y.U.C.C. will refer to the provisions as they existed when the security
agreement was executed.
to hold the Comerica Bank in civil contempt of the discharge injunction. As a counter position, the
Comerica Bank asserts that (1) Johnson is precluded from raising this argument inasmuch as this
issue has already been resolved by a state court; and (2) § 552 does not cut off pre-petition security
interests in those post-petition proceeds that have been generated from pre-petition collateral, such
as the disability benefits here at issue.
However, the Comerica Bank submits that the Court need not even consider these issues
because the correspondence between Brinkmeyer and Teholiz did not represent an attempt to
recover a discharged debt as a personal liability to the debtor. Rather, it is the position of the
Comerica Bank that Brinkmeyer was proceeding in good faith to determine the current status of the
Bankruptcy Court’s resolution of the disability payments issue. Thus, the argument goes, even if
the Comerica Bank did not have a valid security interest in the payments, mere inquiry - effectively
informal discovery - would not constitute a violation of the discharge injunction.
The Comerica Bank argues that, for the purposes of responding to Johnson’s motion to
hold it in contempt, the issue of whether it had a valid security interest in his right to receive
disability payments before or after the discharge is not relevant to this controversy because
Brinkmeyer’s letters did not constitute a violation of the discharge injunction in either case. The
discharge injunction is found in 11 U.S.C. § 524(a), which provides, in relevant part, as follows:
A discharge in a case under this title –
(2) 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 [debt
discharged under section 727] as a personal liability of the debtor, whether or not
discharge of such debt is waived. . . .
11 U.S.C. § 524(a)(2). “The § 524(a) post-discharge injunction embodies the ‘fresh start’ concept
inherent in the Bankruptcy Code by allowing the debtor to begin anew with a debt-free start and
without pressure from creditors to repay discharged debts.” In re Lafferty, 229 B.R. 707, 712
(Bankr. N.D. Ohio 1998); see also In re Borowski, 216 B.R. 922, 924 (Bankr. E.D. Mich. 1998)
(citation and internal quotation marks omitted) (“The purpose of the permanent injunction . . . is
to effectuate one of the primary purposes of the Bankruptcy Code: to afford the debtor a financial
Unlike the automatic stay provision in 11 U.S.C. § 362, the discharge injunction provision
does not specify any remedy for its violation. Cf. 11 U.S.C. § 362(k)(1) (“[A]n individual injured
by any willful violation of a stay provided by this section shall recover actual damages, including
costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.”).
Nevertheless, upon a finding of a willful violation of the discharge injunction, courts routinely
award damages pursuant to their contempt power under 11 U.S.C. § 105(a). See, e.g., Paul v.
Iglehart (In re Paul), 534 F.3d 1303, 1306 (10th Cir. 2008) (“Under 11 U.S.C. § 105(a), bankruptcy
courts have the equitable power to enforce and remedy violations of substantive provisions of the
Bankruptcy Code, including in particular the discharge injunction in § 524(a)(2).”); In re Waldo,
417 B.R. 854, 891 (Bankr. E.D. Tenn. 2009).
It is not enough to find that a discharge violation has occurred - in order to impose sanctions
upon an alleged violator, the court must also conclude that the challenged act was contemptuous which, in this context, means that it was willful. E.g., Gunter v. Kevin O’Brien & Assocs., LPA (In
re Gunter), 389 B.R. 67, 75 (Bankr. S.D. Ohio 2008) (“In light of the Sixth Circuit’s holding in
Pertuso, this court cannot award damages for violations of the discharge injunction that are
technical or inadvertent and do not rise to the level of contempt.”); Kanipe v. First Tenn. Bank (In
re Kanipe), 293 B.R. 750, at 756 (Bankr. E.D. Tenn. 2002) (denying sanctions because, “although
a violation of the discharge injunction occurred, the violation was not willful and therefore not
contemptuous”). “[W]hen determining whether to hold a creditor in contempt for violating the
discharge injunction, courts tend to utilize the standard employed when determining whether or not
a creditor willfully violated the automatic stay; i.e., whether the creditor deliberately acted with
knowledge of the bankruptcy case.” In re Waldo, 417 B.R. at 891. This standard does not require
a determination that the creditor deliberately violated the injunction. Rather, it is sufficient if the
creditor intended the acts that constituted the violation. Hardy v. I.R.S. (In re Hardy), 97 F.3d 1384,
1390 (11th Cir. 1996). A debtor who alleges a violation of § 524(a)(2) must establish by clear and
convincing evidence that the violation occurred and that the alleged violator acted with knowledge
of the injunction. In re Gunter, 389 B.R. at 72(citing Liberte Capital Grp., LLC v. Capwill, 462
F.3d 543, 550 (6th Cir. 2006)) (“The plaintiff bears the burden of proving both elements - violation
and knowledge - by clear and convincing evidence”); Lover v. Rossman & Co. (In re Lover), 337
B.R. 633, 635 (Bankr. N.D. Ohio 2005). But see, e.g., Glenn v. Ocwen Loan Serv., LLC (In re
Glenn), No. 03-15220, 2010 WL 2203042, at *2 (Bankr. S.D. Ala. May 28, 2010) (noting that many
- but not all - courts require clear and convincing evidence).
There is no question that the Comerica Bank was aware of the discharge injunction.
Moreover, there is not any question that the Comerica Bank intended its actions. Therefore, the
only question is whether Brinkmeyer’s letters, in the absence of a valid lien, would constitute a
violation of the discharge injunction - that is, whether the challenged act was an attempt to collect
a debt as a personal liability of Johnson.
The Bankruptcy Court, without any analysis or an explanation, concluded that Brinkmeyer’s
March 29th letter contained an implied demand that Equitable withhold Johnson’s disability
payments. (See Amended Opinion at 9 (“Teholiz states in his affidavit that he does not ‘recall Mr.
Brinkmeyer ever asking [him] to advise or demand that . . . Equitable withhold disability payments
to [Johnson].’ But the Court finds that such a demand was implied by the language in Brinkmeyer’s
March 29, 2006 letter . . . . In any case, after receiving the letter, The Equitable withheld disability
payments . . . .”)). Moreover, it neither analyzed nor determined whether such a demand, if
unaccompanied by a valid lien, would constitute a contemptuous violation of the discharge
injunction. On one hand, it could be presumed that the Bankruptcy Court operated under the
assumption that this implied demand would have violated the discharge injunction. If it had been
otherwise, its careful, persuasive, and thorough analysis of the efficacy of the Comerica Bank’s lien
would have been unnecessary.8 On the other hand, it is plausible that the Bankruptcy Court simply
preferred to rest its ruling on the alternative ground that the Comerica Bank possessed a valid lien
on the disability benefits, and thus did not find it necessary to determine whether, in the absence
of the lien, the Comerica Bank would have violated the discharge injunction. In any event, the
The Court notes that this issue is only relevant with respect to Johnson’s allegation that
the Comerica Bank violated the discharge injunction because it has expressly abandoned any
claim to his disability benefits. (See Amended Opinion at 46 n.90). The Comerica Bank has
reasserted this position on appeal. (See Appellee’s Br. on Appeal at 14 (“What benign remedy
would a creditor otherwise have to verify and enforce such a lien? Only three possible
approaches come to mind: (1) seek to resolve the claim via settlement, (2) seek the [C]ourt’s
interpretation, and (3) simply abandon the the [sic] claim. Once it became apparent that attempts
at settlement were going nowhere, [the Comerica Bank] elected the third option - it ended up not
pursuing its claim. Counsel for the [Comerica Bank advised] the Court as to this fact in the
proceedings below.”)). The Court makes no ruling as to whether the Comerica Bank would be
permitted to change course and seek to revive this claim inasmuch as the issue is neither before it
nor has this matter been briefed.
Bankruptcy Court neither discussed the appropriate legal standard and burden of proof nor
expressly determined that Johnson had met his burden of establishing by clear and convincing
evidence that the Comerica Bank violated the discharge injunction. However, the Court concludes
that it is appropriate to initially resolve the threshold question of whether the actions by the
Comerica Bank would have violated the discharge injunction before attempting to address the
secondary question of whether it possessed a valid lien. This approach is necessary because a
creditor must be able to engage in a reasonable and necessary inquiry in order to determine the
validity, if any, of its liens without fear of being sanctioned if it - or a court - concludes that the
debt in question was discharged.
As an initial matter, the Court notes that the parties have expressed their respective
disagreements as to the appropriate standard of review for this issue. The Comerica Bank argues
that the Bankruptcy Court’s determination that the Brinkmeyer letters constituted an implied
demand for payment was a conclusion of law which is subject to de novo review. Johnson, on the
other hand, argues that the finding by the Bankruptcy Court “that [the Comerica Bank] was
attempting to collect a prepetition debt from Mr. Johnson, and to exercise possession over the
postpetition disability benefits,” was a finding of fact, in which case the clear error standard would
be applicable. (Appellant’s Reply Br. at 9). Neither party has it exactly right. The Bankruptcy
Court’s determination that the quoted language constituted an implied demand is a finding of fact
that this Court reviews for clear error. However, the Bankruptcy Court’s determination - if indeed
one was made - that Johnson had met his burden of demonstrating by clear and convincing evidence
that the challenged conduct by the Comerica Bank constituted a contemptuous violation of the
discharge order is a conclusion of law that the Court reviews de novo.
As both parties agree, a discharge injunction does not prohibit the holder of a valid lien from
seeking to enforce it because such conduct is not considered to be an action to collect a discharged
debt as a personal liability of the debtor under § 524(a)(2). See, e.g., Johnson v. Home State Bank,
501 U.S. 78 (1991); In re Reuss, No. DT-07-05279, 2011 WL 1522333, at *2 (W.D. Mich. Apr.
12, 2011) (“After the automatic stay terminates as to the property, a secured creditor may take any
appropriate action to enforce a valid lien surviving the discharge, as long as the creditor does not
pursue in personam relief against the debtor.”). The ability to enforce a valid lien post-discharge
would be severely undermined if a creditor is not permitted to take necessary and appropriate action
to determine whether it holds a valid lien that survived the bankruptcy or if, instead, it possessed
a debt that was discharged by the proceedings:
The § 524(a)(2) discharge injunction casts a wide shadow, with a large penumbra.
For example, applying the phrase “collect . . . as a personal liability of the debtor”
can be a confusing concept . . . . Cautious litigants who recognize that the boundary
is fuzzy seek the comfort of clarification whether their particular situations are
subject to the injunction.
Ruvacalba v. Munoz (In re Munoz), 287 B.R. 546, 553 (9th Cir. BAP 2002).
This is precisely the approach that the Comerica Bank undertook. First, in response to the
remand order by this Court in 1997, the Comerica Bank filed a motion which sought the aid of the
Bankruptcy Court in resolving those issues in its favor. Notably, Johnson did not raise any
argument at that time that the Comerica Bank had acted in violation of the discharge injunction. For
reasons that are unclear to the Court, these issues do not appear to have been resolved until the
order which is now on appeal.
After the bankruptcy case was closed in 2001, the parties continued to litigate their dispute
in the state court. It was in connection with this litigation that the Comerica - via its new counsel,
Brinkmeyer - sent the letters to Equitable in the hope of sorting out the bankruptcy proceedings.
The Comerica Bank chose the path of seeking a direct but informal clarification of this issue from
Equitable’s counsel rather than rushing to fire up the judicial machinery. In light of the confusing
procedural history of this case, as compounded by the state of the files that had been left to his
successor by the Comerica Bank’s prior counsel (described by Brinkmeyer as being “incomplete”
and “disorganized”), Brinkmeyer’s letters strike the Court as not only permissible, but preferable
to other courses of action that he may have chosen to undertake. Secured - or potentially secured creditors should not be placed in the untenable position of being permitted to enforce their valid
liens but simultaneously being at risk of the imposition of sanctions for merely making inquiries
as to the validity of their liens.
It is clear to the Court, upon review of the entire record, that Brinkmeyer was attempting
to determine whether any court had conclusively ruled whether the Comerica Bank had or did not
have an enforceable security interest in the post-petition disability benefit payments - and was not,
as Johnson would have it, taking any action to collect a debt.
Therefore, to the extent that the Bankruptcy Court concluded that Brinkmeyer’s actions
would have constituted a violation of the discharge injunction, such a conclusion - in the opinion
of this Court - is not supported by the evidence. Moreover, to the extent that the Bankruptcy Court
made an implicit finding that the Comerica Bank took action to collect the disability payments, this
Court concludes that such a finding is clearly erroneous.9
As noted above, although the Bankruptcy Court did not explicitly make this
determination, it is unclear whether it did so implicitly. Ordinarily, “[i]f the [B]ankruptcy
[C]ourt’s factual findings are silent or ambiguous as to an outcome-determinative factual
question, the district court may not engage in its own fact finding but must remand the case to
the [B]ankruptcy [C]ourt for the necessary factual determination.” Brown v. Mt. Prospect State
Brinkmeyer’s letters repeatedly make reference to (1) the sources of his uncertainty (i.e.,
the incomplete and disorganized state of his predecessor’s files and the unsigned-but-docketed
order that appeared to resolve these issues in the Comerica Bank’s favor); (2) the state of his
uncertainty (e.g., “Insofar as disability benefits . . . are concerned, my reading of the decisions by
[the Bankruptcy Judge] and the Jackson County Circuit Court suggests that those issues have been
decided in favor of Comerica Bank. I have nothing to indicate that there was any further appeal of
those decisions which yielded a different result, but I stand to be corrected if you have any contrary
information.” (Brinkmeyer letter of March 29, 2006, Copy at Bankr. Docket No. 691, Ex. A, at 4));
and (3) the fact-finding nature of his correspondence (e.g., “Do you have anything in your file to
indicate whatever happened to [the issues remanded by this Court? If so, can you please forward
that information at your earliest opportunity? It would go a long way toward resolving what, if any,
further collection issues remain from the litigation.” (Brinkmeyer Letter of February 24, 2006,
Copy at Bankr. Docket No. 713-2, Ex. 4, at 2)).
Therefore, it is implausible to claim that these letters represent an attempt to collect these
payments - and is still more implausible to claim, as Johnson does, that they represent the
“fraudulent and/or careless misrepresentation of the existence of a court order [that] caused The
Equitable to stop paying Debtor’s disability income . . . .” (See Debtor’s Verified Mot. for Damages
From Creditor for Violation of Stays and Other Relief, Bankr. Docket No. 639, ¶ 18). Brinkmeyer
Bank (In re Muncrief), 900 F.2d 1220, 1224 (8th Cir. 1990). However, “[i]n a bankruptcy case,
remand is not necessary when the evidence is documentary, the facts are undisputed or the
record presents no genuine issue of material fact.” Id. (citation and internal quotation marks
omitted). Here, the relevant facts - the letters from Brinkmeyer - are both undisputed and
documentary, and the Court need not remand the matter. See id. at 1225 (upholding district
court’s finding that bankruptcy court’s finding of insolvency was clearly erroneous where district
court recalculated assets and liabilities based on undisputed evidence and associated testimony).
specifically stated that the order in question was not signed and, under these circumstances, asked
for any information in Teholiz’s possession with respect to the status of that order (see Brinkmeyer
letter of March 29, 2006, Copy at Bankr. Docket No. 691, Ex. A at 3 (“Notably, although the
judgment was stamped as filed by the clerk on October 8, 1998, it is not signed. Nevertheless, the
docket from the bankruptcy court reflects that the judgment was entered on October 9, 1998. . . .”);
id. at 4 (“If you disagree, please provide copies of any documentation which you suggest
contradicts this conclusion.”).
In support of his contention that the Comerica Bank violated the discharge injunction,
Johnson points to a letter that was authored by Brinkmeyer on June 20, 2006. Johnson claims that,
in this letter, Brinkmeyer “explicitly sought to collect from [him] and to take possession of [his]
post-petition property. . . .” (Appellant’s Reply Br. at 6-7). Johnson correctly notes that Brinkmeyer
had asserted that it was the Comerica Bank’s position that the disability payments were covered
by the security agreement and advised Equitable to begin withholding disability payments lest they
expose themselves to the potential of dual liability. This statement - by far the most assertive in all
of Brinkmeyer’s letters - does not support Johnson’s claim that the Comerica Bank had
misrepresented the existence of a court order. Furthermore, this statement does not represent an
attempt by Brinkmeyer or his client to collect a personal debt, especially when it is considered in
the context of the entire series of letters. To the contrary, in this letter, Brinkmeyer set out the
Comerica Bank’s position - a position that was known to all parties by virtue of the extended
litigation on this very question - but did not make any representation as to what any court’s
resolution of the question was. Certainly, the outcome here could be different if the inquiries by
Brinkmeyer were of a harassing or an abusive nature with an overall objective of attempting to
coerce Johnson into paying a discharged debt. See In re Paul, 534 F.3d at 1308 (citation and
internal quotation marks omitted) (“Notwithstanding the facial permissibility of a lawsuit or some
other action taken by a creditor vis a vis a discharged debtor, a violation of § 524(a)(2) may still
be found if the debtor proves the creditor acted in such a way as to coerce or harass the debtor
improperly, i.e., so as to obtain payment of the discharged debt.”). For the reasons that have been
stated above, Brinkmeyer’s letters plainly do not meet this threshold.
Although the Court expresses no disagreement with the Bankruptcy Court’s analysis and
resolution of the remaining issues, and while the outcomes reached below and here are identical
in ultimate result, it is, in the view of this Court, necessary to explicitly address the basic question
of whether the actions by the Comerica Bank could have constituted a violation of the discharge
injunction regardless of the validity of its lien. A creditor should not be required to prove the
validity of its lien to successfully defend its otherwise permissible actions in attempting to
determine the validity of the lien in the first place. Were it otherwise, a creditor who reasonably and
without harassment or coercion makes reasonable inquiries to determine the validity of its lien
would be subject to sanctions if it turns out that the debtor’s fiscal obligation had been discharged
in the bankruptcy proceedings. However, the right to enforce a valid lien on post-petition benefits
should not be held hostage to the threat of sanctions in every instance in which a creditor must
make reasonable inquiry to determine the continued validity of the debtor’s obligations.
Accordingly, the order from the Bankruptcy Court which denied Johnson’s motion for
damages is affirmed - albeit on different grounds.
IT IS SO ORDERED.
Dated: May 23, 2011
s/Julian Abele Cook, Jr.
JULIAN ABELE COOK, JR.
United States District Court Judge
CERTIFICATE OF SERVICE
The undersigned certifies that the foregoing Order was served upon counsel of record via the Court's ECF System to their respective
email addresses or First Class U.S. mail to the non-ECF participants on May 23, 2011
s/ Kay Doaks
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