Amicus Curiae Brief — PHH Mortgage Corporation, Petitioner v. Mark Anthony Guthrie

No. 23-785

In the Supreme Court of the United States

PHH MORTGAGE CORPORATION,

Petitioner,

v.

MARK ANTHONY GUTHRIE,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals for the Fourth

Circuit

BRIEF OF AMICUS CURIAE

ACA INTERNATIONAL IN

SUPPORT OF PETITIONER

SARAH J. AUCHTERLONIE

COURTNEY E. BARTKUS

ROSA L. BAUM

BROWNSTEIN HYATT

FARBER SCHRECK, LLP

675 15TH STREET,

SUITE 2900

DENVER, CO 80202

(303) 223-1100

LEAH C. DEMPSEY

Counsel of Record

BROWNSTEIN HYATT

FARBER SCHRECK, LLP

1155 F Street N.W.

Washington, DC 20004

(202) 296-7353

ldempsey@bhfs.com

Attorneys for Amicus Curiae

i

QUESTION PRESENTED

1. Whether the exclusive vehicle to remedy an alleged violation of the Federal Bankruptcy Code’s discharge order under 11 U.S.C. § 524(a) is a motion for

contempt in the Bankruptcy Court that issued the discharge order?

ii

TABLE OF CONTENTS

Page

QUESTION PRESENTED......................................... I

TABLE OF CONTENTS ........................................... II

TABLE OF AUTHORITIES ..................................... IV

INTEREST OF AMICUS CURIAE............................ 1

SUMMARY OF THE ARGUMENT ........................... 2

ARGUMENT............................................................... 2

I.

LEFT UNCORRECTED, THE FOURTH

CIRCUIT’S DECISION WILL CAUSE

MULTIPLE PROBLEMS OF

NATIONAL SIGNIFICANCE. ........................ 2

A.

The Court Should Address this

Case Because it Threatens the

Precedential Value of this Court’s

Decision in Taggart. .............................. 4

B.

The Fourth Circuit’s Decision

Undermines the Uniformity and

Consistent Application of the

Bankruptcy Code. ................................. 7

C.

The Fourth Circuit’s Decision

Disturbs the Balance of Interests

that Congress Intended when

Creating the Bankruptcy Code........... 10

D.

E.

II.

iii

If Permitted to Stand, the Fourth

Circuit’s Decision will Cause

Consumer Forum Shopping,

Waste Judicial Resources, and

Destabilize the Credit Industry. ........ 11

The Fourth Circuit’s Decision

Creates a Risk of Frivolous Class

Action Litigation Previously

Precluded under the Bankruptcy

Code. .................................................... 13

THE SUPREME COURT SHOULD

ADDRESS THE FOURTH CIRCUIT’S

DECISION TO HARMONIZE THE

CONFLICT IT CREATES WITH

OTHER CIRCUITS. ...................................... 14

A.

The Fourth Circuit’s Decision

Directly Conflicts with Authority

Established by the First, Sixth,

and Seventh Circuits. ......................... 15

B.

The Fourth Circuit’s Decision is

Also Incompatible with Authority

from the Ninth Circuit. ....................... 19

C.

Consumers Should Not be

Permitted to Circumvent the

Plain Language and Limitations

of the Bankruptcy Code. ..................... 23

CONCLUSION ......................................................... 24

iv

TABLE OF AUTHORITIES

Page(s)

Cases

Barrientos v. Wells Fargo Bank, N.A.,

633 F.3d 1186 (9th Cir. 2011) ..................... 14, 22

In re Bernhard, No. 23-1358, 2024 WL

379468 (3d Cir. Feb. 1, 2024) .............................. 8

Bessette v. Avco Financial Services, Inc.

230 F.3d 439 (1st Cir. 2000) ....................... 15, 16

Bibbo v. Dean Witter Reynolds, Inc.,

151 F.3d 559 (6th Cir. 1998) ................................ 8

Ex parte Bradley, 74 U.S. 364 (1868) ..................... 14

Bruce v. Citigroup Inc.,

75 F4th 297 (2d Cir. 2023) ............................ 8, 13

Clark v. Rameker,

573 U.S. 122 (2014) ............................................. 7

Cox v. Zale Del., Inc.,

242 B.R. 444 (N.D.Ill.1999)............................... 16

Cox v. Zale Del., Inc.,

239 F.3d 910 (7th Cir. 2001) ................. 16, 17, 18

E. Equip. & Servs. Corp. v. Factory Point

Nat’l Bank,

236 F.3d 117 (2d Cir. 2001)

................................................................. 7, 18, 19

v

French v. Liebmann (In re French), 440 F.3d

145 (4th Cir. 2006) ............................................ 11

Grady v. A.H. Robins Co., Inc.,

839 F.2d 198 (4th Cir. 1988) ............................... 7

In re Gravel, 6 F.4th 503 (2d Cir. 2021) .................. 8

Guthrie v. PHH Mortg. Corp.,

79 F.4th 328 (4th Cir. 2023) ................... 3, 4, 6, 7

Int’l Union, United Mine Workers of Am. v.

Bagwell, 512 U.S. 821 (1994)………… ............. 13

In re Joubert, 411 F.3d 452 (3d Cir. 2005)… ........... 8

Katchen v. Landy, 382 U.S. 323 (1966)…….. .......... 6

Moses v. CashCall, Inc.,

781 F.3d 63 (4th Cir. 2015) ..................... 9, 10, 11

MSR Exploration, Ltd. v. Meridian Oil, Inc.,

74 F.3d 910 (9th Cir.1996) ...................... 9, 17, 19

Patriot Portfolio, LLC v. Weinstein (In re

Weinstein), 164 F.3d 677 (1st

Cir.1999)…. ....................................................... 16

Pertuso v. Ford Motor Credit Co.,

233 F.3d 417 (6th Cir. 2000) ......... 7, 8, 17, 18, 20

Taggart v. Lorenzen,

139 S. Ct. 1795 (2019) ....... 1, 4, 5, 6, 7, 11, 12, 13

Walls v. Wells Fargo Bank, N.A.,

276 F.3d 502 (9th Cir. 2002) 8, 10, 11, 14, 20, 21,

22, 23

vi

Statutes

11 U.S.C. § 524 ........... 3, 8, 15, 16, 17, 18, 20, 21, 22

11 U.S.C. § 105 ....................................... 7, 15, 20, 21

11 U.S.C. § 362 ................................................. 18, 20

11 U.S.C. § 727 ......................................................... 5

28 U.S.C. § 1334………………………….................. 17

Other Authorities

Report on the Commission on Bankruptcy

Laws of the United States H.R. Doc. No.

137, 93d Cong., 1st Sess. (1973) ................... 9, 12

H.R. Rep. No. 95–595 (1978) .................................... 9

Sup. Ct. R. 10(a) ....................................................... 2

U.S. Const. art. I, § 8 .......................................... 7, 17

United States Courts, Order of Discharge:

Official Form 318 (Dec. 2015) ............................. 5

1

INTEREST OF AMICUS CURIAE1

ACA International (“ACA”) represents approximately 1700 members, including credit grantors,

third-party collection agencies, asset buyers, attorneys, and vendor affiliates in an industry that employs over 113,000 people worldwide. The accounts receivable management industry is instrumental in

keeping America’s credit-based economy functioning

with access to credit at the lowest possible cost.

Many of ACA’s members engage in debt collection

activities across the country and are therefore responsible for compliance with applicable federal and state

laws governing debt collection.

Creditors, as well as those collecting debts on

their behalf, rely on the consistent application of the

Bankruptcy Code to guide collection efforts during

and after bankruptcy proceedings. When a bankruptcy proceeding concludes and a discharge order is

issued by the bankruptcy court, the injunctive power

of that order guides further collection efforts, if any.

And sometimes, like here, the effect of that discharge

order may be subject to different, yet objectively reasonable, interpretations.

Indeed, this Court has already held that alleged

violations of a bankruptcy court’s discharge order

must be measured against an objective standard and

are not subject to a strict liability analysis. See Taggart v. Lorenzen, 139 S. Ct. 1795 (2019). The Fourth

1 All parties were given timely notice and have consented to

this filing. No party’s counsel authored this brief in whole or in

part, and no person or entity other than amicus curiae, its counsel, or its members made a monetary contribution intended to

fund the brief’s preparation or submission.

2

Circuit’s decision in the instant matter, however,

would undermine the Court’s Taggart holding. It

would thus undermine the efficiency, fairness, and

balancing of creditor and consumer interests that

Congress strove to achieve in enacting the Bankruptcy Code and on which ACA members rely.

SUMMARY OF THE ARGUMENT

The Fourth Circuit’s decision in this case threatens the viability of this Court’s precedential decisions

and creates a split in circuit authority, making this

question a critical one for this Court’s review. See Sup.

Ct. R. 10(a). By permitting a plaintiff to pursue state

law causes of action that are otherwise unavailable

under the Bankruptcy Code, the Fourth Circuit has

effectively nullified the standard set forth in Taggart.

Thus, this decision creates a risk of inconsistent application of the Bankruptcy Code and the comprehensive

remedies established therein. Additionally, if the

Fourth Circuit’s decision is allowed to stand, it will

open the door to costly class actions that the Bankruptcy Code otherwise precludes.

ARGUMENT

I.

LEFT UNCORRECTED, THE FOURTH

CIRCUIT’S DECISION WILL CAUSE

MULTIPLE PROBLEMS OF NATIONAL

SIGNIFICANCE.

The Fourth Circuit departed from established law

regarding the applicability of the Bankruptcy Code

and its preemption of federal and state law claims that

invade the exclusive purview of the Bankruptcy Code.

Respondent Mark Anthony Guthrie (“Respondent”) and his former wife had a mortgage through

3

Petitioner PHH Mortgage Corporation (“PHH”). Respondent and his wife separated, and Respondent

filed for Chapter 13 bankruptcy in April 2011. The

couple later divorced and Respondent was granted a

discharge order in 2016. PHH holds an interest in the

property for which Respondent’s personal liability

(but not necessarily in rem liability) was discharged in

the bankruptcy proceeding.

The bankruptcy court provided PHH with the discharge order in May 2016. See 11 U.S.C. § 524 (“section 524”). Respondent alleged that PHH violated the

discharge order and sued it for improper collection attempts on the discharged debt, and for allegedly furnishing inaccurate credit information. Instead of filing

a motion for contempt in the bankruptcy court that issued the discharge order, Respondent asserted numerous state law and federal statutory claims, some

of which hold creditors, like PHH, to a stricter standard of liability than that contemplated in Taggart.

Following cross motions for summary judgment,

the court granted PHH’s motion in full and denied Respondent’s. Respondent then appealed to the Fourth

Circuit Court of Appeals. In a split ruling, the Fourth

Circuit detoured from the authority established by

every other circuit to consider the issue and held that

“the Bankruptcy Code does not preempt Guthrie’s

state law claims arising from alleged improper collection attempts of a discharged debt.” See Guthrie v.

PHH Mortg. Corp., 79 F.4th 328, 348 (4th Cir. 2023).

Circuit Judge Wynn dissented in part, opining

that Respondent’s state law claims, to the extent they

are premised on a violation of the discharge injunction

issued by the bankruptcy court, are preempted by the

Bankruptcy Code. Id. at 349 (Wynn, J., concurring in

4

part and dissenting in part). Indeed, Judge Wynn

highlighted Congress’s intent in forming the Bankruptcy Code, as well as the contrary and incompatible

holdings in the First, Second, Sixth, Seventh and

Ninth Circuits. Id.

The Fourth Circuit’s departure from this Court’s

precedent, federal preemption holdings across the

country, and demonstrated congressional intent underlying the Bankruptcy Code, now raises a host of issues with national significance.

A.

The Court Should Address this Case

Because it Threatens the Precedential Value of this Court’s Decision

in Taggart.

The Fourth Circuit’s decision allows consumers to

circumvent this Court’s holding in Taggart. Failure to

address this conflict will damage Taggart’s precedential value and the ability of creditors and consumers

across the country to rely on its holding.

The Taggart Court explained that the “bankruptcy statutes incorporate the traditional standards

in equity practice for determining when a party may

be held in civil contempt for violating an injunction.”

139 S.Ct. at 1801. This standard is generally an objective one. Id. at 1802. In rejecting a strict liability

standard, the Court observed that such a standard

“may lead risk-averse creditors to seek an advance determination in bankruptcy court even where there is

only slight doubt as to whether a debt has been discharged.” Id. at 1803.

Thus, this Court rejected anything less than an

objective standard, including strict liability, as the

measure for the legality of creditors’ and debt

5

collectors’ efforts to collect on debts in the face of discharge orders. Id. at 1804.

Unlike Respondent, in Taggart, a Chapter 7 consumer used the appropriate bankruptcy court contempt process for challenging a perceived violation of

the discharge order. Taggart was sued in Oregon state

court for breach of contract, but before trial, filed his

petition for bankruptcy. Taggart obtained a discharge

order in his bankruptcy proceeding. As this Court recognized, Taggart’s discharge order went “no further

than the statute: It simply says that the debtor ‘shall

be granted a discharge under § 727.’” Id. at 1800.

These form orders note only that “[m]ost debts are covered by the discharge, but not all,” and that “[e]xamples of debts that are not discharged are . . . debts that

the bankruptcy court has decided or will decide are

not discharged,” or “some debts for which the debtors

did not properly list,” to name just two. United States

Courts, Order of Discharge: Official Form 318 (Dec.

2015),

http://www.uscourts.gov/sites/default/files/

form_b318_0.pdf (last visited February 16, 2024).

These form letters do not indicate with specificity

which debts survive.

Subsequently, the Oregon state court entered

judgment against Taggart in the pre-bankruptcy suit

and awarded the prevailing party their post-petition

attorneys’ fees. Taggart filed a motion with the bankruptcy court to hold the attorney and his clients in

contempt when they attempted to collect their postpetition attorneys’ fees award. Taggart claimed that

the collection attempts violated the bankruptcy

court’s discharge order. See Taggart, 139 S.Ct. at

1800. This Court was ultimately asked to rule on the

6

correct standard against which to analyze an alleged

violation of the discharge order.

This Court determined that “a court may hold a

creditor in civil contempt for violating a discharge order if there is no fair ground of doubt as to whether

the order barred the creditor’s conduct.” Id. at 1799

(emphasis in original). The Court explicitly rejected

Taggart’s request for a strict liability standard when

analyzing alleged violations of a discharge order. The

decision highlighted the importance of an objective

standard for these proceedings. Id. at 1801 (“In our

view, these provisions authorize a court to impose civil

contempt sanctions when there is no objectively reasonable basis for concluding that the creditor’s conduct might be lawful under the discharge order.”).

The Court’s decision turned on the understanding

that a “chief purpose of the bankruptcy laws” is “to secure a prompt and effectual resolution of bankruptcy

cases within a limited period.” Id. at 1803 (quoting

Katchen v. Landy, 382 U.S. 323, 328 (1966)). The no

fair ground of doubt standard, while based in principles of equity, can differ from the statutory and common law standards available in state causes of action.

See Guthrie, 79 F.4th at 336 (discussing Respondent’s

state law claims including those under the North Carolina Debt Collection Act, which imposes a strict liability standard in some cases).

Accordingly, to allow a private right of action

based in state law claims would permit—or incentivize—consumers to circumvent this Court’s Taggart

holding. Consumers could pursue creditor and debt

collectors for purported violations of the discharge

without having to prove that those creditors had “no

7

fair ground of doubt” that their conduct was unlawful

under the discharge order.

B.

The Fourth Circuit’s Decision Undermines the Uniformity and Consistent Application of the Bankruptcy Code.

The Bankruptcy Code is a uniform system designed to balance consumer and creditor interests and

resolve any arising disputes. See Taggart, 139 S. Ct.

at 1804; see also Clark v. Rameker, 573 U.S. 122, 129

(2014). As Judge Wynn observed, the Bankruptcy

Code is characterized by the “comprehensive and particularly federal nature of bankruptcy law.” Guthrie,

79 F.4th at 349 (Wynn, J., concurring in part and dissenting in part). Congress commands the express

power to enact “uniform Laws on the subject of Bankruptcies.” U.S. Const. art. I, § 8, cl. 4. And it has done

so: “Congress has wielded [its bankruptcy] power by

creating comprehensive regulations on the subject

and by vesting exclusive jurisdiction over bankruptcy

matters in the federal district courts.” Pertuso v. Ford

Motor Credit Co., 233 F.3d 417, 425 (6th Cir. 2000).

Through the Bankruptcy Code, Congress created an

integrated system in which it “intended that all legal

obligations of the debtor, no matter how remote or contingent, will be able to be dealt with.” Grady v. A.H.

Robins Co., Inc., 839 F.2d 198, 202 (4th Cir. 1988).

To that end, the Bankruptcy Code “provides a

comprehensive federal system of penalties and protections to govern the orderly conduct of debtors’ affairs

and creditors’ rights.” E. Equip. & Servs. Corp. v. Factory Point Nat’l Bank, 236 F.3d 117, 120 (2d Cir. 2001)

(per curiam). As acutely relevant here, the

8

Bankruptcy Code has “an enforcement mechanism for

violations of § 524 via the contempt remedies available under § 105(a).” Walls v. Wells Fargo Bank, N.A.,

276 F.3d 502, 509 (9th Cir. 2002). And the “‘weight of

circuit authority’ holds that ‘§ 105(a) does not authorize separate lawsuits as a remedy for bankruptcy violations.’” In re Bernhard, No. 23-1358, 2024 WL

379468, at *2 (3d Cir. Feb. 1, 2024) (quoting In re

Joubert, 411 F.3d 452, 456 (3d Cir. 2005)).

Allowing the Fourth Circuit’s decision here to

stand “could put enforcement of the discharge injunction in the hands of a court that did not issue it (perhaps even in the hands of a jury), which is inconsistent

with the present scheme that leaves enforcement to

the bankruptcy judge whose discharge order gave rise

to the injunction.” Walls, 276 F.3d at 509. And the present system “makes a good deal of sense, given that

the equities at issue are bankruptcy equities, and it

would undermine Congress’s deliberate decision to

place supervision of discharge in the bankruptcy

court.” Id.; Pertuso, 233 F.3d at 426 (quoting Bibbo v.

Dean Witter Reynolds, Inc., 151 F.3d 559, 563 (6th Cir.

1998)) (“Permitting assertion of a host of state law

causes of action to redress wrongs under the Bankruptcy Code would undermine the uniformity the

Code endeavors to preserve and would ‘stand[] as an

obstacle to the accomplishment and execution of the

full purposes and objectives of Congress.’”). Assuring

these adjudications remain within the Bankruptcy

Code also comports with the unremarkable acknowledgment that “a bankruptcy court has ‘unique expertise in interpreting its own injunctions and determining when they have been violated.’” Bruce v. Citigroup

Inc., 75 F.4th 297, 304 (2d Cir. 2023) (quoting In re

Gravel, 6 F.4th 503, 513 (2d Cir. 2021)).

9

Condoning the viability outside bankruptcy court

proceedings of “disputes over discharge . . . might

gravely affect the already complicated processes of the

bankruptcy court.” MSR Exploration, Ltd. v. Meridian

Oil, Inc., 74 F.3d 910, 914 (9th Cir. 1996). “[T]he

highly complex laws needed to constitute the bankruptcy courts and regulate the rights of consumers

and creditors also underscore the need to jealously

guard the bankruptcy process from even slight incursions and disruptions.” Id. This is a question of courts

“interfering with the whole complex, reticulated bankruptcy process itself.” Id.

Congress was deliberate in its efforts to construct

a Bankruptcy Code that presided over all matters related to discharge. In Congress’s own words: “Since

1898, in all but extraordinary situations the effect of

a discharge had been a matter which would be determined only in a state court or, where there was some

ground of jurisdiction other than the involvement of

the discharge, in a federal court.” Report of the Commission on the Bankruptcy Laws of the United States,

H.R. Doc. No. 137, 93d Cong., 1st Sess. (1973), quoted

in H.R. Rep. No. 95–595 at 46–47 (1978). But, given

that the equities at issue are bankruptcy equities,

“Congress became convinced that relegating a discharged bankrupt to other courts for vindication of his

discharge resulted so often in the loss of its intended

benefit and frustration of the objective of the federal

legislation that jurisdiction of determining the effect

of a discharge was given to the bankruptcy court.” Id.

C.

10

The Fourth Circuit’s Decision Disturbs the Balance of Interests that

Congress Intended when Creating

the Bankruptcy Code.

The Bankruptcy Code necessarily involves a balancing of interests: the competing aims of giving debtors a “fresh start” while protecting creditors’ rights to

repayment. Moses v. CashCall, Inc., 781 F.3d 63, 72

(4th Cir. 2015) (“bankruptcy provides consumers with

a fresh start and creditors with an equitable distribution of the debtor’s assets”). Indeed, as the Fourth Circuit has penned, “a principal purpose of the Bankruptcy Code is to provide consumers and creditors

with ‘the prompt and effectual administration and settlement of the [debtor’s] estate.’” Id. (quoting Katchen,

382 U.S. 328) (alternation in original).

Numerous courts have held that allowing state

law claims, when the Bankruptcy Code provides the

exclusive remedies for alleged violations of its provisions, “would circumvent the remedial scheme of the

Code under which Congress struck a balance between

the interests of debtors and creditors by permitting

(and limiting) debtors’ remedies for violating the discharge injunction to contempt.” Walls, 276 F.3d at

510. “[A] mere browse through the complex, detailed,

and comprehensive provisions of the lengthy Bankruptcy Code . . . demonstrates Congress’s intent 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.” Id. (quoting MSR, 74 F.3d at 914).

In order to effectuate this balance, Congress constructed the Bankruptcy Code with the authority,

11

power, and jurisdiction to address all disputes arising

thereunder or in connection with a consumer’s bankruptcy estate. As acknowledged by the Fourth Circuit,

“a principal purpose of the Bankruptcy Code is . . . to

centralize dispute over the debtor’s assets and obligations in one forum, thus protecting both consumers

and creditors from piecemeal litigation and conflicting

judgments.” Moses, 781 F.3d at 72 (emphasis added).

“Ease and centrality of administration are thus foundational characteristics of bankruptcy law.” Id. (quoting French v. Liebmann (In re French), 440 F.3d 145,

154–55 (4th Cir. 2006) (Wilkinson, J., concurring)). In

practice, for example, a claim that a financial service

provider violated the Fair Debt Collection Practices

Act (“FDCPA”) by attempting to collect on a debt following discharge, “necessarily entails bankruptcyladen determinations,” and thus the consumer’s “protection and remedy remain[ed] in the Bankruptcy

Code.” Walls, 276 F.3d at 510.

D.

If Permitted to Stand, the Fourth

Circuit’s Decision will Cause Consumer Forum Shopping, Waste Judicial Resources, and Destabilize

the Credit Industry.

As this Court acknowledged in Taggart, the “typical discharge order entered by a bankruptcy court is

not detailed,” rather it is “written in general terms.”

139 S.Ct. at 1803, 1802. These short form letters do

not explicitly denote which debts are discharged and

which are not. And yet, these orders “operate against

a complex statutory backdrop.” Id. at 1803. Presumably, it is this dynamic that, at least in part, necessitated the Court’s decision in Taggart and contributed

to its conclusion that the appropriate standard for

12

whether a creditor violated a discharge order is

whether there is “a ‘fair ground of doubt’ as to whether

the creditor’s conduct might be lawful under the discharge order.” Id. at 1804 (emphasis added).

Allowing the Fourth Circuit’s decision to go unreviewed will lead to opportunistic consumer forumshopping and the potential for incompatible determinations.

Consumers could turn to state courts, who are not

versed in interpreting discharge orders, and secure incorrect and inconsistent decisions, thus degrading

bankruptcy court determinations. See H.R. Doc. No.

137, supra (“relegating a discharged bankrupt to other

courts for vindication of his discharge resulted so often

in the loss of its intended benefit and frustration of the

objective of the federal legislation”). Consumers would

be able to pursue more expansive claims as private

rights of action (rather than a limited motion for contempt) with potentially lower burdens of proof than

the objective standard set forth in Taggart, resulting

in the risk that collecting debts post-discharge would

become exponentially more fraught. Not only would

this prioritize the rights of consumers over creditors,

disturbing Congress’s intended balance, it would create unnecessary inefficiencies in the creditor and debt

collection markets.

As this Court noted in Taggart, creditors and debt

collectors would be incentivized to rush to bankruptcy

courts to secure a final determination of the viability

of a consumer’s debt before undertaking any collection

efforts. 139 S.Ct. at 1800. Bankruptcy courts across

the country would become backlogged because of creditor and debt-collector actions to interpret discharge

orders.

13

And, if creditors and debt collectors forgo collection, all consumers and the entire credit industry will

suffer as the cost of credit for everyone increases due

to the increased risk in lending. Ultimately, if the

precedential value of Taggart is eroded, it will destabilize the credit industry.

E.

The Fourth Circuit’s Decision Creates a Risk of Frivolous Class Action Litigation Previously Precluded under the Bankruptcy Code.

The Fourth Circuit’s decision also provides a novel

opportunity for consumers and the plaintiffs’ bar to

assert frivolous class actions that would otherwise be

barred by the Bankruptcy Code.

In a recent decision, the Second Circuit plainly

laid out the logic behind the Bankruptcy Code’s barring of class actions suits. See Bruce, 75 F.4th 297.

The court reasoned that the bankruptcy statutes incorporate “traditional standards in equity practice for

determining when a party may be held in civil contempt for violating an injunction.” Id. at 303 (quoting

Taggart, 139 S.Ct. at 1801). This honors the

“longstanding equitable principle that ‘civil contempt

proceedings leave the offended judge solely responsible

for identifying, prosecuting, adjudicating, and sanctioning the contumacious conduct.’” Id. (quoting Int’l

Union, United Mine Workers of Am. v. Bagwell, 512

U.S. 821, 831 (1994)) (emphasis in original). “The civil

contempt power is, at its core, uniquely personal to

each court; by providing a mechanism to mandate

compliance when a court is confronted with disobedience, it is a necessary corollary to a court’s authority

to issue binding orders.” Id. at 304.

14

Thus, any path leading to “a free-wielding contempt authority, capable of exercise by one court on

behalf of another court, would ‘present the anomalous

proceeding of one court taking cognizance of an alleged contempt committed before and against another

court, which possessed ample powers, itself to take

care of its own dignity and punish the offender.’” Id.

(quoting Ex parte Bradley, 74 U.S. 364, 372 (1868)).

Indeed, as noted above, the Ninth Circuit ascribes the

authority to enforce a discharge order not only to the

bankruptcy court, but to the specific judge. See Walls,

276 F.3d at 509; Barrientos v. Wells Fargo Bank, N.A.,

633 F.3d 1186, 1188–89 (9th Cir. 2011). The Fourth

Circuit’s decision here, therefore, has extensive consequences that are incompatible with Congress’s Bankruptcy Code and prior interpretations of courts across

the country.

II.

THE SUPREME COURT SHOULD ADDRESS THE FOURTH CIRCUIT’S DECISION TO HARMONIZE THE CONFLICT

IT CREATES WITH OTHER CIRCUITS.

The Fourth Circuit’s decision creates a split in circuit authority. The Supreme Court’s review would allow it to harmonize conflicting decisions in a way that

upholds the precedential value of other Supreme

Court cases, like Taggart, as well as creating certainty

in the legal system upon which consumers and creditors alike, can rely.

A.

15

The Fourth Circuit’s Decision Directly Conflicts with Authority Established by the First, Sixth, and

Seventh Circuits.

The Fourth Circuit is the only circuit to hold that

a consumer can pursue private causes of action for alleged violations of section 524 discharge orders issued

by bankruptcy courts. This decision is wrong. The rationale behind the holdings in the First, Sixth, and

Seventh (and analogously the Second) Circuits aligns

with the purpose of the Bankruptcy Code, Congress’s

intent, and widely accepted principles of federal

preemption.

In Bessette v. Avco Financial Services, Inc., the

First Circuit found a consumer’s unjust enrichment

claim was preempted by the Bankruptcy Code.

230 F.3d 439 (1st Cir. 2000). A Chapter 7 consumer

brought a purported class action against the defendant consumer finance companies for alleged violations

of a discharge order issued at the conclusion of her

bankruptcy proceeding. After explaining that the

proper vehicle to challenge purported violations of the

discharge order was to seek contempt under section

105 of the Bankruptcy Code, the court turned to the

viability of Bessette’s state law claims. The First Circuit agreed with the district court below that the consumer’s state law cause of action for unjust enrichment was preempted. Id. at 448.

The First Circuit observed that an alternative

state court remedy conflicts with Congress’s plan that

federal courts enforce section 524 through section 105:

[W]e concur with [the district court’s] conclusion that the appellant’s state law claim for

16

unjust enrichment for collecting debt under

an improper reaffirmation agreement is

preempted. Because we concluded . . . that §

105 of the Code authorizes federal courts to

order damages for violations of § 524 when

necessary—i.e., disgorgement of unjust

profit—an alternative state court remedy for

unjust enrichment in these circumstances is

inevitably in conflict with Congress’s plan

that federal courts enforce § 524 through §

105.

Id. at 447.

While acknowledging that both field and conflict

preemption could apply, the court found that field

preemption was evident from the comprehensive

structure of the Bankruptcy Code, as well as its view

of Congress’s intent. Id. (relying on existence of a

“statutory scheme so pervasive that Congress clearly

intended to ‘occupy the field’ to the exclusion of state

law”). The court drew from prior decisions noting that

“[s]tates may not pass or enforce laws to interfere with

or complement the Bankruptcy Act or to provide additional or auxiliary regulations.” Id. (quoting Patriot

Portfolio, LLC v. Weinstein (In re Weinstein), 164 F.3d

677, 682–83 (1st Cir.1999)). It went on: “the broad enforcement power under the Bankruptcy Code

preempts virtually all alternative mechanisms for

remedying violations of the Code” and “[o]ther courts

that have been faced with a state unjust enrichment

claim have held that Congress’s intent in enacting the

remedial provisions of the Bankruptcy Code leaves ‘no

room for the state cause of action.’” Id. (quoting Cox v.

Zale Del., Inc., 242 B.R. 444,450 (N.D.Ill.1999) aff’d

239 F.3d 910 (7th Cir. 2001)).

17

The Sixth Circuit similarly affirmed the district

court’s holding and dismissed all claims in Pertuso.

See generally, 233 F.3d 417. There, discharged Chapter 7 consumers brought a purported class action alleging that the defendant creditor had violated both

the automatic stay and the discharge order.

After finding that section 524 of the Bankruptcy

Code does not confer a private right of action, the court

analyzed the consumer’s unjust enrichment and accounting claims. The court explained that “[s]everal

factors highlight the exclusively federal nature of

bankruptcy proceedings. The Constitution grants

Congress the authority to establish ‘uniform Laws on

the subject of Bankruptcies.’” Id. at 425 (quoting U.S.

Const. art. I, § 8). The court went on: “Congress has

wielded this power by creating comprehensive regulations on the subject and by vesting exclusive jurisdiction over bankruptcy matters in the federal district

courts.” Id. (citing 28 U.S.C. § 1334(a)). And finally,

the court reasoned that “[w]hile it is true that bankruptcy law makes reference to state law at many

points, the adjustment of rights and duties within the

bankruptcy process itself is uniquely and exclusively

federal. It is very unlikely that Congress intended to

permit the superimposition of state remedies on the

many activities that might be undertaken in the management of the bankruptcy process.” Id. (quoting

MSR, 74 F.3d at 914).

In Cox v. Zale Delaware, the Seventh Circuit affirmed dismissal of a consumer’s state law unjust enrichment claim on the basis of federal preemption. See

generally 239 F.3d 910. There the consumer filed a

class-action suit alleging that Zale had violated the

bankruptcy court’s discharge order and claim. The

18

consumer sought to rescind a reaffirmation agreement

and to recover amounts paid thereunder. Id. at 913.

He also pled a claim for unjust enrichment.

The Seventh Circuit held that “remedies against

debt-affirmation agreements contended to violate the

Bankruptcy Code are a matter exclusively of federal

bankruptcy law.” Id. (citing Pertuso, 233 F.3d at 426;

Bessette, 230 F.3d at 447–48); see also MSR, 74 F.3d

at 913–14. This, the court determined, “extinguishes

the plaintiff’s claim for unjust enrichment, which is

based on state law.” Cox, 239 F.3d at 913.

Thus, for nearly 25 years, circuit courts have consistently held that the Bankruptcy Code preempts

state law causes of action arising out of a creditor’s or

debt collector’s alleged violation of a section 524 discharge order.

Analogously, the Court of Appeals for the Second

Circuit addressed preemption in the context of the

Bankruptcy Code’s automatic stay provisions. While

sections 362 and 524 of the Bankruptcy Code differ—

mostly in the former’s express grant of a private right

of action—their preemption analysis remains the

same. Indeed, in Eastern Equipment, Chapter 7 consumers filed a complaint in federal district court to recover for creditors’ alleged violations of the automatic

stay under various state law theories, including, intentional infliction of emotional distress, abuse of process, negligence, fraud, and harassment. 236 F.3d at

119.

After discussing the preemptive power of the Supremacy Clause, the Second Circuit affirmed the district court’s grant of the creditors’ motion for judgment

on the pleadings reasoning that : “courts that have

19

examined this issue have held that the federal Bankruptcy Code preempts any state law claims for a violation of the automatic stay, and precludes jurisdiction in the district courts. Any relief for a violation of

the stay must be sought in the Bankruptcy Court.” Id.

at 121.

The court articulated the various reasons claims

based in state law were necessarily preempted:

(1) Congress placed bankruptcy jurisdiction

exclusively in the district courts under 28

U.S.C. § 1334(a); (2) Congress created a

lengthy, complex and detailed Bankruptcy

Code to achieve uniformity; (3) the Constitution grants Congress exclusive power over

the bankruptcy law; (4) the Bankruptcy

Code establishes several remedies designed

to preclude the misuse of the bankruptcy

process; and (5) the mere threat of state tort

actions could prevent individuals from exercising their rights in bankruptcy, thereby

disrupting the bankruptcy process.

Id. (internal citations omitted).

The rationale underlying the Second Circuit’s

preemption decision in Eastern Equipment applies

equally to cases involving purported violations of discharge orders.

B.

The Fourth Circuit’s Decision is

Also Incompatible with Authority

from the Ninth Circuit.

While not specifically addressing the preemptive

effect of the Bankruptcy Code, the Ninth Circuit has

also issued compelling authority that is incompatible

20

with the Fourth Circuit’s decision here. These Ninth

Circuit cases highlight the “complex, detailed, and

comprehensive provisions of the lengthy Bankruptcy

Code” and Congress’s “intent 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 consumers alike.” MSR, 74 F.3d

at 914.

Just like in the cases discussed above, in Walls,

the Ninth Circuit addressed whether a consumer

could assert a private right of action for alleged violations of a discharge order. See 276 F.3d 502. The court

held that, reading sections 524 and 105(a) together, as

we must, the Bankruptcy Code is clear that the exclusive vehicle for challenging an alleged violation of a

discharge order is to file a motion for contempt with

the court that issued the order. Id. at 510–11.

The court explained, “we decline Walls’s invitation to expand the remedies available under the Bankruptcy Code for violating § 524” because “to create a

new remedy would put us in the business of legislating. We agree with the Sixth Circuit’s view in [Pertuso] that it is not up to us to read other remedies into

the carefully articulated set of rights and remedies set

out in the Bankruptcy Code.” Id. at 507. Rather, “[t]he

provisions of this title simply denote a set of remedies

fixed by Congress. A court cannot legislate to add to

them.” Id. (quoting Pertuso, 233 F.3d at 423).

Highlighting the impact of Congressional intent,

the Ninth Circuit opined, “to whatever extent this legislative history is relevant, nothing in it manifests any

intent to create a private right of action; indeed, nothing in it gives any indication that these concerns are

not adequately addressed through the contempt

21

remedy that Congress expressly provided.” Id. at 508.

“Had Congress meant to create a private right of action for violations of § 524, it could easily have done

so; that it did not is a strong indiction [sic] that it did

not intend any such remedy.” Id. at 509 (contrasting

affirmative creation of private right of action for violations of automatic stay provision at section 362, with

apparent decision not to provide such remedies for violations of discharge orders under section 524 in 1984

amendments to Bankruptcy Code).

Ultimately, the court held, “to imply a private

right of action would undercut the ‘complex, detailed,

and comprehensive provisions of the lengthy Bankruptcy Code,’ because it has an enforcement mechanism for violations of section 524 via the contempt

remedies available under § 105(a).” Id. (quoting MSR,

74 F.3d at 914) (emphasis in original).

The Walls decision is also instructive for the

Court’s analysis here because it addressed whether

the consumer could assert an FDCPA claim premised

on a creditor’s purported violations of the discharge

order. Id. at 510–11. The analysis concerned federal

preclusion of competing statutes, rather than federal

preemption of conflicting state law claims, but the

court’s rationale is persuasive here and further illustrates the incompatibility of the Fourth Circuit’s decision with prevailing law.

Importantly, the court held that the FDCPA did

not provide a means of skirting the Bankruptcy Code:

There is no escaping that Walls’s FDCPA

claim is based on an alleged violation of

§ 524. As the district court noted, this necessarily

entails

bankruptcy-laden

22

determinations . . . The Bankruptcy Code

provides its own remedy for violating § 524,

civil contempt under § 105. To permit a simultaneous claim under the FDCPA would allow through the back door what Walls cannot

accomplish through the front door—a private

right of action. This would circumvent the remedial scheme of the Code under which Congress struck a balance between the interests

of debtors and creditors by permitting (and

limiting) debtors’ remedies for violating the

discharge injunction to contempt. . . . Nothing in either Act persuades us that Congress

intended to allow consumers to bypass the

Code’s remedial scheme when it enacted the

FDCPA. While the FDCPA’s purpose is to

avoid bankruptcy, if bankruptcy nevertheless occurs, the consumer’s protection and

remedy remain under the Bankruptcy Code.

Because Walls’s remedy for violation of § 524

no matter how cast lies in the Bankruptcy

Code, her simultaneous FDCPA claim is precluded.

Id. at 510–11 (internal citations omitted).

The Ninth Circuit addressed section 524 discharge orders again in Barrientos in which a consumer attempted to challenge a creditor’s purported

violation of a discharge order by bringing an adversary proceeding. See 633 F.3d 1186. Citing Walls, the

Ninth Circuit reaffirmed its holding there and extended it further to explain that a motion for contempt

against an alleged violator of the discharge order must

be brought in the core bankruptcy proceeding before

the judge who issued the order. Id. at 1191.

C.

23

Consumers Should Not be Permitted to Circumvent the Plain Language and Limitations of the Bankruptcy Code.

Other circuits that have spoken on this issue

make clear that state law claims premised on an alleged violation of a discharge order are preempted as

a matter of law. But even setting preemption aside,

the rationale underlying the Ninth Circuit’s decisions

in Walls and Barrientos demonstrates how it makes

little sense to allow a consumer to pursue punishment

for an alleged violation of a discharge order anywhere

but in the original core bankruptcy proceeding and

through the exclusively recognized vehicle of a contempt motion.

The bar on independent, private actions—as compared to motions for contempt which remain components of the original bankruptcy proceeding—extends

to those that are the “functional equivalent” to a claim

for violation of the discharge order. This means that

regardless of how they characterize their affirmative

causes of action, consumers challenging violations of

a discharge order may not sneak through the back

door what they cannot accomplish through the front

door—a private right of action. Because, as the Ninth

Circuit so plainly articulated, “this would circumvent

the remedial scheme of the Code under which Congress struck a balance between the interests of consumers and creditors.” Walls, 276 F.3d at 510.

Respondent is attempting to do just that. Instead

of utilizing the remedies provided by the Bankruptcy

Code, Respondent is trying to circumvent the comprehensive law, disregard Congress’s intent, and pursue

24

his creditor through improper means. But, like in

Walls, Respondent’s state law causes of action hinge

on the alleged violation of the discharge order. Given

the “bankruptcy-laden” issues surrounding whether

his discharge order was violated, the only appropriate

place and method for him to pursue PHH is through a

motion for contempt in the core bankruptcy case before the judge who issued the order. To allow otherwise would be to permit consumers to asymmetrically

wield their discharge orders as a weapon in a way that

undermines the very purpose of the Bankruptcy Code.

CONCLUSION

This case warrants Supreme Court review. It

presents numerous issues of national significance, including the erosion of the comprehensive federal

Bankruptcy Code, which is intended to fairly and expeditiously adjudicate the interests of both consumers

and creditors. Review is also necessary to resolve a circuit split created by the Fourth Circuit’s decision. Until this case, circuits that addressed this issue were in

agreement. But now, the Fourth Circuit has disturbed

the balance of authority, which will inevitably lead to

inconsistent application of the law regarding discharge orders. Finally, the Fourth Circuit’s decision

threatens the precedential value of Taggart, issued by

this Court only a few years ago. Because consumers

and creditors alike rely on the consistent application

of the Bankruptcy Code and fair and balanced interpretations of their rights thereunder, this Court

should grant certiorari and review the decision of the

Fourth Circuit.

25

Respectfully submitted,

SARAH J. AUCHTERLONIE

COURTNEY E. BARTKUS

ROSA L. BAUM

BROWNSTEIN HYATT

FARBER SCHRECK, LLP

675 15TH STREET,

SUITE 2900

DENVER, CO 80202

(303) 223-1100

LEAH C. DEMPSEY

Counsel of Record

BROWNSTEIN HYATT

FARBER SCHRECK, LLP

1155 F Street N.W.

Washington, DC 20004

(202) 296-7353

ldempsey@bhfs.com

Attorneys for Amicus Curiae

FEBRUARY 21, 2024