United States of America v. Giles
Filing
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DECISION AND ORDER signed by Judge Lynn Adelman on 8/8/16 granting 23 Motion to Dismiss the defendant's counterclaims; denying 26 Motion for Referral to bankruptcy judge. (cc: all counsel) (dm)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
______________________________________________________________________
UNITED STATES OF AMERICA,
Plaintiff,
v.
Case No. 14-C-0978
JEAN P GILES,
Defendant.
______________________________________________________________________
DECISION AND ORDER
Plaintiff, the United States, seeks to recover funds from defendant, Jean P Giles,
allegedly owed as the result of a loan. Defendant contends that her debt was
discharged in bankruptcy. She asserts counterclaims alleging that, in attempting to
collect the debt, plaintiff (1) violated her rights under the Fair Debt Collection Practices
Act (“FDCPA”), (2) converted her tax refunds, and (3) committed a contempt of court by
violating her bankruptcy discharge. Before me now are plaintiff’s motion to dismiss
defendant’s counterclaims and defendant’s motion to refer this matter to a bankruptcy
judge.
The material facts appear to be uncontested. Defendant took out student loans to
finance her education. In 1995, she filed a chapter 7 petition in the bankruptcy court in
this district and received a discharge of her debts, including her student loans. Soon
after, she took out a loan consolidating her student loans, even though they had already
been discharged in her bankruptcy case, and defaulted on it. Plaintiff, as the reinsurer of
the loan, acquired it by reimbursing the original insurer, which had done the same with
the original lender. Plaintiff brings this action to collect on the loan. Defendant does not
oppose dismissal of her first two counterclaims, so I turn to the remaining counterclaim.
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I. Defendant’s Counterclaim for Contempt
Plaintiff argues that defendant’s counterclaim for contempt should be dismissed
under Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction and Fed. R. Civ. P.
12(b)(6) for failure to state a claim. With respect to plaintiff’s Rule 12(b)(1) motion, I
conclude that I have subject-matter jurisdiction to adjudicate defendant’s claim for
contempt. Federal courts have authority to remedy contempt of their orders, see, e.g.,
18 U.S.C. § 401, and bankruptcy courts are “units” of their district courts, 28 U.S.C.
§ 151. Thus, a district court can adjudicate a claim of contempt of a bankruptcy court
order from its own bankruptcy court. This district’s bankruptcy court granted defendant’s
discharge, so I may adjudicate defendant’s claim for contempt of the discharge order.
Further, 11 U.S.C. § 524(b) functions as an injunction against attempts to collect on
discharged debts, and “the district court, the court with primary jurisdiction in bankruptcy
. . . , can hold a party in . . . contempt for violating a statutory injunction.” Cox v. Zale
Del., Inc., 239 F.3d 910, 917 (7th Cir. 2001) (citing United States v. Guariglia, 962 F.2d
160, 162–63 (2d Cir. 1992)).
I turn next to plaintiff’s motion to dismiss under Rule 12(b)(6). To survive
plaintiff’s motion, defendant need not provide “detailed factual allegations” but must
offer “more than labels and conclusions, and a formulaic recitation of the elements of a
cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
Defendant’s “complaint must contain sufficient factual matter, accepted as true, to ‘state
a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(quoting Twombly, 550 U.S. at 570). Under this standard, defendant’s counterclaim
does not survive. The entirety of the counterclaim states as follows:
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Plaintiff has committed a contempt of court by attempting to and collecting
upon the debt underlying its claims which the bankruptcy court
discharged, in violation of 11 U.S.C. § 524.
Def.’s Am. Answer, Affirmative Defenses and Countercls., ECF No. 22, at 4. The
counterclaim is deficient on its face because it is no more than a legal conclusion and
fails to provide sufficient facts to state a plausible claim. It also does not adequately
allege contempt. A party can be in contempt of a bankruptcy discharge only if the
violation is “willful.” Randolph v. IMBS, Inc., 368 F.3d 726, 728 (7th Cir. 2004)
(discussing 11 U.S.C. §§ 362, 524(a)(2)). “Willfulness entails actual knowledge that a
bankruptcy is under way or has ended in a discharge.” Id. Defendant does not allege
this element or provide sufficient facts to support a plausible inference of it.
II. Referral to a Bankruptcy Judge
Turning to defendant’s motion to refer the matter to the bankruptcy court, original
jurisdiction of bankruptcy matters is vested in the district courts, 28 U.S.C. § 1334(a)–
(b). However, “[e]ach district court may provide that any or all cases under title 11[, the
Bankruptcy Code,] and any or all proceedings arising under title 11 or arising in or
related to a case under title 11 shall be referred to the bankruptcy judges for the
district.” 28 U.S.C. § 157(a). This district has exercised such authority by providing in a
standing order that “all cases under title 11 and any or all proceedings arising under title
11 or arising in or related to a case under title 11 shall be referred to the bankruptcy
judges of this District.” The standing order does not require me to refer the present case
to the bankruptcy court. The present case does not arise under title 11 and is only
minimally related to title 11. The case involves an attempt to collect a debt on a
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defaulted loan. While it may touch on bankruptcy issues on the margin, it is not within
the category of cases described in the standing order.
Even if it were, I would not be required to refer the case to the bankruptcy court.
A district court may withdraw “any case or proceeding referred” to a bankruptcy judge
under § 157 “on its own motion or on timely motion of any party, for cause shown.”
§ 157(d). The minimal role of title 11 in this case would be cause enough to justify
withdrawal, had it been referred. Inasmuch as I would be authorized to withdraw the
matter from the bankruptcy court, I surely am authorized to refrain from referring it there
in the first place.
I need not discuss in any detail whether the present case or any part thereof is of
a type that I could in my discretion refer to the bankruptcy court. As stated, the case is
primarily a debt collection case, and I believe it is appropriately heard in the district
court.
For the reasons stated, IT IS ORDERED that the plaintiff’s motion to dismiss the
defendant’s counterclaims (ECF No. 23) is GRANTED.
IT IS FURTHER ORDERED that the defendant’s motion to refer this action to a
bankruptcy judge in this district (ECF No. 26) is DENIED.
Dated at Milwaukee, Wisconsin, this 8th day of August, 2016.
s/ Lynn Adelman
__________________________________
LYNN ADELMAN
District Judge
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