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 SB&V is a Leader In Protecting Lenders From Bankruptcy Class Action Claims Silverman Bernheim & Vogel A major worry for consumer mortgage lenders is that borrowers who file consumer bankruptcies may have the terms of their mortgage modified by the bankruptcy courts and that those modifications are overlooked or missed in the post-bankruptcy administration of the loan. Of course, loan administration is generally automated, so if charges are erroneously inputted, incorrect charges will be generated. Both consumer class actions attorneys and bankruptcy attorneys have attempted to assert class action claims against lenders based on post-bankruptcy imposition of fees or costs permitted by the loan documents, but which had been modified in the bankruptcy process. In two major cases, over the past eighteen months, SB&V bankruptcy attorneys have obtained dismissal of class action cases asserted against lenders and their agents for allegedly imposing fees or asserting claims which the debtors believe to be overstated. In a landmark case In re: Joubert, 411 F.3d 452 (3d Cir. 2005), a bankruptcy debtor attempted to bring a class action in the United States District Court for the Eastern District of Pennsylvania asserting that subsequent to an agreed upon bankruptcy claim by the defendant bank, which included no attorney's fees, the debtor refinanced her property only to have a $500 attorney's fee imposed at the closing. This fee had not been included in the bank's proof of claim and the debtor argued that it had a right to pursue class action relief for the debtor and all other similarly situated debtors who had fees imposed upon them which were not sanctioned by the bankruptcy plan of that debtor. She asserted that the Bankruptcy Code implies a private right of action for violations of the plan injunction and the automatic stay created by the Bankruptcy Code. SB&V successfully argued that no private right of action is implied such that a class action claim case could be maintained outside of the bankruptcy court. Rather, a debtor's sole basis for relief is through a petition to the bankruptcy court under Section 105 of the Bankruptcy Code, 11 U.S.C. §105, limited to that debtor's individual claim. The District Court agreed and dismissed the case. The debtor appealed the case to the Third Circuit which affirmed the District Court. In so holding, the Third Circuit firmly decided that no class action relief is available for violation of the Bankruptcy Code provisions and that the sole remedy is a contempt action limited to the individual claim. This ruling protects lenders from what otherwise could be an almost limitless supply of class action claims emanating from administrative oversights. In a similar attempt to create class action claims, the debtor in In re: Abramson, 313 B.R. 195 (W.D. Pa. 2004), asserted that the law firm representing a number of mortgage lenders in bankruptcy cases routinely overstated the proofs of claim filed in those cases and attempted to allege that these practices violated the Pennsylvania Unfair Trade Practices and Consumer Protection Law and other state consumer protection statutes. On behalf of its client, SB&V argued that the Bankruptcy Code creates a "complex, detailed and comprehensive . . . " scheme to "create a whole system under federal control which is designed to bring together and adjust all of the rights and duties of creditors and embarrassed debtors alike." The Code pre-empts state consumer protection laws and that the claims resolution process in bankruptcy court provides an opportunity for each debtor to contest a proof of claim. As such, no right of action outside the provisions of the Bankruptcy Code itself are available by which a debtor can assert a class action claim. The District Court agreed and dismissed that class action complaint as well. Both Joubert and Abramson have now been followed by several courts in the Third Circuit, including the Eastern District of Pennsylvania and the District of Delaware and have provided SB&V's lender clients with a measure of security against the rapid expansion of class action litigation claims against lenders. SB&V is a general practice law firm with specialties in creditor's rights/bankruptcy, insurance coverage and defense and corporate work. Jonathan J. Bart of SB&V is a member of the American Bankruptcy Institute and has lectured on class action claims. His partner, Daniel S. Bernheim, 3d, has lectured on creditor's rights and secured transactions. SB&V has offices in Philadelphia and Pittsburgh, Pennsylvania and Westmont, New Jersey. Copyright 2005 by Silverman Bernheim & Vogel - All Rights Reserved. << Back to Article Index |
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