Arruda v. Sears, Roebuck & Co.

United States Court of Appeals
For the First Circuit

No. 02-1198

DOROTHY ARRUDA ET AL.,

Plaintiffs, Appellants,

v.

SEARS, ROEBUCK & CO. ET AL.,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF RHODE ISLAND

[Hon. Ronald R. Lagueux, Senior U.S. District Judge]

Before

Selya, Circuit Judge,

Coffin, Senior Circuit Judge,

and Howard, Circuit Judge.

Christopher M. Lefebvre, with whom Law Offices of Claude
Lefebvre & Sons, Daniel A. Edelman, Tara L. Goodwin, and Edelman,
Combs & Latturner, LLC were on brief, for appellants.
Philip D. Anker, with whom Bruce M. Berman, Steven E. Hugie,
Michael D. Leffel, Wilmer, Cutler & Pickering, Howard A. Merten,
Jr., Vetter & White, David Grossbaum, Maura K. McKelvey, Cetrulo &
Capone, LLP, James R. DeGiacomo, and Murtha Cullina Roche &
DeGiacomo were on brief, for appellees.

October 30, 2002
 SELYA, Circuit Judge. A discharge in bankruptcy,

simpliciter, ordinarily does not wipe out previously perfected

security interests in tangible personal property. The lienholder

retains a right of repossession, subject, however, to the

bankrupt's possible right of redemption. If timely exercised, this

right of redemption allows an individual Chapter 7 debtor to

"redeem [certain] tangible personal property intended primarily for

personal, family, or household use, from a lien securing a

dischargeable consumer debt" by paying the lienholder a sum equal

to "the amount of the allowed secured claim." 11 U.S.C. § 722

(2000).

The cases that undergird this appeal present something of

an anomaly. They involve a preserved security interest but no

secured claim per se. Thus, they involve a right of repossession,

and the parties, by instruments that they refer to as "redemption

agreements" — we shall honor that characterization even though,

technically, this may not be the type of redemption agreement that

section 722 contemplates — have agreed to cancel that right of

repossession on payment of an "agreed value" for the collateral.

That value is not in issue; as we shall see, the parties agreed to

specific dollar figures, and they are bound by those agreements.

What is in issue are particular aspects of the negotiated

transactions.

2
 To be specific, the appellants — several former Chapter

7 debtors seeking to represent a putative class — maintain that the

principal defendant, Sears, Roebuck & Company,1 habitually violated

the Bankruptcy Code by the manner in which it essayed to enforce

security liens in household goods and other personal property.

Their claim has two subparts. First, they allege that redemption

agreements between lienholders and debtors, entered into after the

granting of a discharge in bankruptcy, invariably violate the

prohibitions of the bankruptcy discharge injunction, codified in 11

U.S.C. § 524. Second, they allege that, in all events, such

agreements require bankruptcy court approval (which was never

obtained).

In addition to these bankruptcy-related asseverations,

the appellants also advance a claim under the Fair Debt Collection

Practices Act (FDCPA), 15 U.S.C. §§ 1692-1692o (2000). This claim

— that the individual defendants (lawyers representing Sears)

transgressed the FDCPA while supposedly attempting to effect

repossession — requires a determination of whether the FDCPA

reaches the defendants' activities. That, in turn, requires us to

consider the nature of a "debt" as that term is employed in the

FDCPA.

1
Sears National Bank (which financed many of the appellants'
purchases) is also named as a defendant. Because its presence adds
nothing to the explication of the issues on appeal, we refer to the
two corporations, collectively, as "Sears."

3
 The district court wrote a thoughtful opinion in which it

answered both the bankruptcy and the FDCPA questions adversely to

the appellants. Arruda v. Sears, Roebuck & Co., 273 B.R. 332

(D.R.I. 2002). It thereupon dismissed their complaints. Id. at

351. For the reasons that follow, we affirm the district court's

order.

I. BACKGROUND

The district court has furnished an exegetic account of

each appellant's situation and the litigation's procedural history.

See id. at 340-42. Rather than repastinate that well-plowed soil,

we present here only the background facts necessary to frame the

issues on appeal. Because the district court acted under Fed. R.

Civ. P. 12(b)(6), we derive these facts from the several

complaints, purged, however, of empty rhetoric. See SEC v. SG

Ltd., 265 F.3d 42, 44 (1st Cir. 2001); Aulson v. Blanchard, 83 F.3d

1, 3 (1st Cir. 1996).

The appellants are Rhode Island residents, all of whom

had filed for personal bankruptcy under Chapter 7 of the Bankruptcy

Code, 11 U.S.C. §§ 701-784 (2000). Each had purchased consumer

goods from Sears (e.g., refrigerators, sewing machines) prior to

filing for bankruptcy. On the filing date, each owed money to

Sears for the purchases and each listed the Sears debt as an

unsecured, nonpriority claim on his/her bankruptcy schedules. The

4
bankruptcy court granted each appellant a general discharge

encompassing the Sears indebtedness.

Of course, the discharges did not erase Sears's

prepetition security interest in the purchased property. See id.

§ 522(c) and (f); see also In re Brown, 73 B.R. 740, 745 (Bankr.

W.D. Wis. 1987) (discussing how section 522 operates in connection

with purchase money security interests in household goods).

Relying on this fact, Sears thereafter asserted its rights of

repossession. Its correspondence with the appellant Dorothy Arruda

was typical. Sears's letter asked Arruda to contact its office to

arrange for turning over the collateral (in her case, a range hood,

a lawn mower, and a sewing machine). Arruda no longer possessed

two of the three items in which Sears claimed an interest. When

she called to discuss the situation, she was told by a Sears

representative that she could either surrender the goods or redeem

them by paying their fair market value as determined by Sears.

Two other appellants, Melanie Velleco and Blanche Sroka,

had similar experiences. In each instance, lawyers representing

Sears insisted that the discharged debtor either surrender the

affected property voluntarily, state an intention to redeem it, or

forfeit it through state replevin proceedings in which "the Sheriff

[would] go out with [a Sears representative] to take possession of

the items in question."

5
 Sears's interaction with the appellants Vincent and

Kathleen Kowal was along the same lines. The Kowals allege that

various individuals representing Sears sent them letters offering

to allow them to retain the articles that were the subject of the

replevin action (a bicycle, a gas range, a sofa, and some exercise

equipment) in exchange for a payment equaling the merchandise's

fair market value. These letters indicated that the Kowals had

"requested payment terms to settle Sears' claim of repossession"

and that "Sears will settle the claim[s] for a lump sum payment"

(totaling $1,165.37 for the four items) that "Sears believe[d] . .

. represent[ed] the fair market value of the items."

In every case, the appellants eventually received

documents which, for present purposes, were materially identical to

the memorandum of redemption received by Velleco and reproduced in

the appendix. Arruda, Velleco, and Sroka each signed the proffered

redemption agreement and returned it to Sears with a check

reflecting the "agreed value" specified therein. The Kowals signed

a similar redemption agreement for the sofa and gas range, paying

the amount established by Sears for those items. They did not

attempt to redeem either the bicycle or the exercise equipment, and

Sears subsequently repossessed those articles.

Without exception, Sears asserted its right of

repossession only after an appellant's bankruptcy proceedings were

completed. Once a discharged debtor signed a redemption agreement,

6
Sears notified his/her attorney that it was unable to file the

agreement because the bankruptcy case was closed. See generally 11

U.S.C. § 501 (permitting, but not requiring, secured creditor to

file a proof of claim or interest during the pendency of bankruptcy

proceedings). It stated, however, that it nonetheless intended to

honor the agreement.

The appellants allege that the amounts Sears required in

order to release its security liens on the goods bore no

correlation to actual market values (and, in fact, exceeded market

value). The appellants also allege that the cost of replevying the

goods outweighed any residual value that Sears realistically could

have hoped to realize from a resale of the merchandise.

Conspicuously absent are allegations that the redemption values

were in any way linked to the amount of the debt owed with respect

to the purchase of the goods.

Against this backdrop, the appellants portray Sears's

activities as part of an illicit scheme: they envision Sears as

lying in wait until a debtor's bankruptcy case is closed and then

— with the Bankruptcy Court's attention focused elsewhere —

contacting the debtor and threatening to repossess useful household

goods unless the debtor enters into a high-priced redemption

agreement. This scheme, the appellants say, violates the

bankruptcy discharge injunction, 11 U.S.C. § 524, as an attempt to

collect discharged debt without judicial approval of either the

7
redemption agreements or the valuations assigned to individual

items of collateral. The Kowals add two further arguments: that

Sears's use of inaccurate valuation tables and other scurrilous

tactics constitute fraud and false pretenses, and that the debt

collectors' actions violate the FDCPA.

Treating the several cases as an integrated whole, the

district court dismissed the complaints insofar as they purported

to allege federal claims. As to the bankruptcy issues, the court

ruled that Sears's efforts anent repossession (and the ensuing

redemption agreements) did not offend the Bankruptcy Code. Arruda,

273 B.R. at 348. As to the remaining federal issue, the court held

that the FDCPA did not apply to the challenged activities. Id. at

349-51. Finally, the court declined to retain supplemental

jurisdiction over the appellants' state-law claims, dismissing them

without prejudice. Id. at 351 (citing 28 U.S.C. § 1367(a)). This

appeal followed.

II. ANALYSIS

We review a district court's dismissal of an action for

failure to state a claim de novo. Garrett v. Tandy Corp., 295 F.3d

94, 97 (1st Cir. 2002). In so doing, we follow the same rules that

bound the district court. Consequently, we assume the truth of all

well-pleaded facts and indulge all reasonable inferences therefrom

that fit the plaintiff's stated theory of liability. Rogan v.

Menino, 175 F.3d 75, 77 (1st Cir. 1999). In that process, we give

8
no weight to "bald assertions, unsupportable conclusions, and

opprobrious epithets." Chongris v. Bd. of Appeals, 811 F.2d 36, 37

(1st Cir. 1987) (citation and internal quotation marks omitted).

Within these guidelines, we will affirm a Rule 12(b)(6) dismissal

only if "the factual averments do not justify recovery on some

theory adumbrated in the complaint." Rogan, 175 F.3d at 77.

Two special principles are also relevant here. For one

thing, the appellants attached various documents, including the

memoranda of redemption, to their complaints. When a complaint

annexes and incorporates by reference a written instrument, any

inconsistencies between the complaint and the instrument must be

resolved in favor of the latter. See Clorox Co. P.R. v. Proctor &

Gamble Commercial Co., 228 F.3d 24, 32 (1st Cir. 2000); see also

Young v. Lepone, ___ F.3d ___, ___ (1st Cir. 2002) [No. 01-2622,

slip op. at 17-18]. For another thing, the Civil Rules require

fraud to be pleaded with particularity. Fed. R. Civ. P. 9(b).

This requirement "entails specifying in the pleader's complaint the

time, place, and content of the alleged false or fraudulent

representations." Powers v. Boston Cooper Corp., 926 F.2d 109, 111

(1st Cir. 1991).

With this framework in place, we turn to the appellants'

assignments of error.

9
 A. The Bankruptcy Discharge Injunction.

The most pervasive issue in this case hinges on the scope

and operation of the bankruptcy discharge injunction, 11 U.S.C. §

524. This is a matter of statutory construction, and we approach

it by examining the language of the pertinent statutes. United

States v. Charles George Trucking Co., 823 F.2d 685, 688 (1st Cir.

1987). In determining the meaning of a statute, we presume that

Congress intended all of the constituent words and passages to have

meaning and effect. Lopez-Soto v. Hawayek, 175 F.3d 170, 173 (1st

Cir. 1999). Concomitantly, we "defer to Congress's choice of

phrase and give words used in a statute their ordinary and accepted

meaning." C.K. Smith & Co. v. Motiva Enters. LLC, 269 F.3d 70, 76

(1st Cir. 2001).

Section 524(c) deals specifically with agreements between

debtors and those who hold claims against them. It states in

pertinent part:

An agreement between a holder of a claim and
the debtor, the consideration for which, in
whole or in part, is based on a debt that is
dischargeable in a case under this title is
enforceable only to any extent enforceable
under applicable nonbankruptcy law . . . [and]
only if [certain elements not relevant here
are satisfied].

11 U.S.C. § 524(c). For present purposes, then, the threshold

inquiry is whether the consideration underlying a particular

redemption agreement is based to any degree on a debt that is

dischargeable (or that has been discharged) in bankruptcy. This

10
inquiry involves two different bodies of law: the dischargeability

of a debt is a matter of federal bankruptcy law, but whether the

consideration for the underlying agreement is based on that debt is

a matter of state contract law.

We start with the federal question. Although the terms

"discharge" and "dischargeable" are not explicitly defined in the

Bankruptcy Code, 11 U.S.C. § 524(a) sheds considerable light upon

the matter. It states that a "discharge . . . voids any judgment

. . . to the extent that [it] is a determination of the personal

liability of the debtor . . . [and enjoins] the commencement or

continuation of an action, the employment of process, or any act,

to collect, recover or offset any such debt as a personal liability

of the debtor . . . ." Id. § 524(a)(1)-(2) (emphasis supplied).

Thus, only a debtor's personal liability is dischargeable in a

Chapter 7 case. It follows, therefore, that the strictures of

section 524(c) apply only to those agreements the consideration for

which involves, in whole or in part, the imposition (or

reimposition) of personal liability with respect to a debt

dischargeable (or previously discharged) in bankruptcy.

This brings us to the second phase of our inquiry. Here,

the relevant state law is the law of Rhode Island. Under Rhode

Island law, "[u]nambiguous language is to be accorded its plain and

natural meaning." Newport Plaza Assocs. v. Durfee Attleboro Bank,

985 F.2d 640, 645 (1st Cir. 1993). The interpretation of such

11
language presents a question of law. Id. at 644 (citing Judd

Realty, Inc. v. Tedesco, 400 A.2d 952, 955 (R.I. 1979)). And when

intent is plainly revealed by the express terms of a written

contract, an inquiring court should not search for "some

undisclosed intent . . . but [rather, look to that intent] . . .

expressed by the language contained in the contract." Woon.

Teachers' Guild, Local 951 v. School Comm., 367 A.2d 203, 205 (R.I.

1976).

Each redemption agreement at issue here contains an

explicit acknowledgment that "the Debtor's failure to redeem as

described within this agreement shall not impose any personal

liability on the Debtor." Each agreement adds that "if the debtor

fails to pay the redemption amount, Sears' only recourse is against

the collateral." This language appears just above the agreement's

signature line and just below the underscored heading: "No

Personal Liability." The appellants do not allege that they were

unaware of this language; indeed, their complaints confirm that

they consented to this very formulation. Given these facts, the

agreements cannot plausibly be interpreted to impose personal

liability on the appellants in any way. To cinch matters, the

appellants do not allege any facts which, under Rhode Island law,

might justify judicial disregard of the clear contractual text. We

conclude, therefore, that because these agreements do not purport

12
to impose any personal liability on account of discharged debts,

section 524(c) does not affect their enforceability.

The appellants labor to avoid this dead end. Their

escape route involves two related points: that Sears, by means of

its self-serving valuation tables, greatly overstated the worth of

the collateral, and that the district court disregarded the method

of Rule 12(b)(6) when it failed to indulge the appellants'

allegation that these inflated valuations represented veiled

attempts to collect on account of discharged debts. But this route

also leads to a blind alley, for it overlooks the express terms of

the redemption agreements.

In these agreements, the appellants attest that they

"agreed [to] the replacement value of the . . . property, for the

purpose of redemption." They then agreed that, upon payment of the

stipulated amount(s), "Sears [sic] security interest in the . . .

merchandise shall be terminated." Each agreement, therefore, makes

manifest the parties' objective intent: to leave the goods in

situ, settle upon an agreed fair market value, and exchange that

sum for extinguishment of Sears's right of repossession. The

appellants' attempt to contradict this clear contractual language

cannot be credited. See Clorox, 228 F.3d at 32.

In an effort to rebut this reasoning, the appellants

suggest that the redemption agreements lack force because they were

not judicially approved. This is a red herring: neither the

13
Bankruptcy Code nor the implementing rules demand judicial approval

of all redemption agreements. The relevant section of the

Bankruptcy Code provides that an "individual debtor may" redeem

certain property. 11 U.S.C. § 722. In a similar vein, the

relevant bankruptcy rule provides that "the court may authorize the

redemption" upon the debtor's motion. Fed. R. Bankr. P. 6008.

These provisions are obviously precatory. There is no imperative

requiring judicial approval in every instance; "only when there is

some disagreement between the individual debtor and the secured

creditor, usually . . . over value, is the court called upon to

act." 10 Lawrence P. King et al., Collier on Bankruptcy ¶ 6008.04

(15th rev. ed. 2002). The complaints in these cases do not contain

any allegation that the parties reached any such impasse in their

redemption negotiations.

That omission conclusively rebuts the appellants'

suggestion. Taken in light of the explicit terminology of the

redemption agreements, the omission reveals the appellants'

"motive" allegation to be nothing but a bald assertion about an

undisclosed intent. Because such an assertion flies in the teeth

of explicit contractual language, it must be disregarded. To hold

otherwise would frustrate both Rhode Island contract law, e.g.,

Newport Plaza, 985 F.2d at 644-46; Woon. Teachers' Guild, 367 A.2d

at 205, and federal procedural orthodoxy, e.g., Young, ___ F.3d at

___ [slip op. at 17-18]; Clorox, 228 F.3d at 32.

14
 The appellants next asseverate that Sears violated

section 524 by deliberately awaiting the conclusion of bankruptcy

proceedings before asserting its right of repossession. They say

that redemption under 11 U.S.C. § 722 is supposed to occur during

the pendency of a bankruptcy proceeding, and that, therefore, Sears

had no right to wait until after the granting of a discharge to

propose settlement terms. Because Sears failed to file a claim

during the bankruptcy proceedings, this thesis runs, any payment

for the goods would necessarily be on account of discharged debt

(and, thus, violative of the bankruptcy discharge injunction). To

this they add that the district court erred in finding, contrary to

the allegations of the complaints, that "Sears only sought to

recover property in which it had a security interest." Arruda, 273

B.R. at 344. These contentions are meritless.

It is hornbook law that a valid lien survives a discharge

in bankruptcy unless it is avoidable and the debtor takes the

proper steps to avoid it. Holloway v. John Hancock Mut. Life Ins.

Co. (In re Holloway), 81 F.3d 1062, 1063 (11th Cir. 1996). A

surviving lien remains enforceable, for "a bankruptcy discharge

extinguishes only one mode of enforcing a claim — namely, an action

against the debtor in personam — while leaving intact another —

namely, an action against the debtor in rem." Johnson v. Home

State Bank, 501 U.S. 78, 84 (1991).

15
 Generally speaking — the possible exceptions are not

apposite here — nothing in the Bankruptcy Code imposes an

affirmative duty on a lienholder to assert its in rem rights prior

to the debtor's securing of a discharge. See Farrey v. Sanderfoot,

500 U.S. 291, 297 (1991). This flexible sequencing is fully

consistent with the Bankruptcy Code's automatic stay provision, 11

U.S.C. § 362, which — unless and until the stay is lifted —

ordinarily will prevent a creditor from attempting to take

possession of any part of the debtor's estate prior to discharge.

Accordingly, we conclude that a lienholder does not violate section

524(a) by waiting until a bankruptcy case is closed before

asserting its in rem rights.

We also conclude, notwithstanding the appellants'

importunings, that a lienholder does not violate any provision of

the Bankruptcy Code merely by proposing redemption terms to a

debtor after the latter has received a general discharge. Cf. Jamo

v. Katahdin Fed. Credit Union (In re Jamo), 283 F.3d 392, 399 (1st

Cir. 2002) (holding, in the bankruptcy reaffirmation context, that

"a creditor may discuss and negotiate terms for reaffirmation with

a debtor without violating the automatic stay as long as the

creditor refrains from coercion or harassment"). Even after the

termination of a bankruptcy case, a discharged debtor who wishes to

redeem property pursuant to section 722, but who believes that the

terms proposed by the lienholder are unfair, can ask the bankruptcy

16
court to reopen the bankruptcy case and adjudicate the matter. See

In re Cassel, 41 B.R. 737, 740 (Bankr. E.D. Va. 1984). It follows

that, at least in the absence of factually supported allegations of

coercion or harassment,2 the appellants fail to state a claim

simply by juxtaposing Sears's timing and its proposed settlement

terms.

The appellants' last bankruptcy-related argument hinges

on their assertion that Sears never wanted to enforce its rights in

the property, but, rather, aspired all along to collect money. The

district court found this argument unpersuasive, Arruda, 273 B.R.

at 344-45, and so do we.

Home State Bank makes clear that the in rem right that

survives bankruptcy is a "'right to payment' in the form of [the

lienholder's] right to the proceeds from the sale of the debtor's

property." 501 U.S. at 84. Section 722 gives the debtor, in

effect, "a right of first refusal . . . in consumer goods that

might otherwise be repossessed." H.R. Rep. No. 95-595, at 381

(1978), reprinted in 1978 U.S.C.C.A.N. 5963, 6337. Thus, the

lienholder's right to repossess is nothing more than a right to an

2
The instant complaints are devoid of any such allegations.
Although the Kowals charge Sears with "obtaining possession of
collateral for the purpose of coercing debtors into paying money,"
the most that can be inferred from the facts upon which this naked
conclusion rests is that Sears drove a hard bargain. A creditor's
use of its leverage, in and of itself, does not constitute
coercion. Jamo, 283 F.3d at 401. Whether there is the basis for
a state-law claim is, of course, another matter — and one on which
we take no view.

17
equitable remedy for the debtor's default. Home State Bank, 501

U.S. at 84. The fact that this surviving right is in rem only

limits the recourse that the lienholder can take to repossession or

obtaining an amount of money reflecting the value of the

collateral.

Here, all the complaints admit that the parties agreed to

the values and that Sears's only proposed course of action, absent

such an agreement, was replevin. Given these uncontested facts,

the complaints fail to state a cognizable claim, for Sears was

acting within the scope of its in rem rights — rights that survived

the granting of the debtors' bankruptcy discharges. Consequently,

any conflict between the allegation that Sears was more interested

in money than in goods and the district court's conclusion that

Sears's intent was to repossess property is harmless.

That ends our inquiry into the alleged Bankruptcy Code

violations. The redemption agreements that Sears proposed do not

seek to impose personal liability on the debtors on account of

discharged debts — indeed, they relate to discharged debts in only

the most tangential way. They therefore fall outside the purview

of section 524(c). Thus, the district court correctly concluded

that the facts as alleged in the several complaints failed to state

actionable claims for federal bankruptcy-law violations.3

3
We do not reach the question of whether the complaints limn
actionable claims for fraud, false pretenses, or the like. Those
are matters for a state court to determine.

18
 B. The FDCPA Claim.

The FDCPA is a landmark piece of consumer credit

legislation designed to eliminate abusive, deceptive, and other

unfair debt collection practices. 15 U.S.C. § 1692. The Kowals'

amended complaint charges that the individual defendants (lawyers

retained by Sears) violated this statute.4 The FDCPA is detailed

and prohibits many activities. The basic premise of the statutory

scheme, however, is that its prophylaxis applies in connection with

the collection of debts. See, e.g., id. § 1692e. At a minimum,

therefore, a complaint must allege a scenario involving the

collection (or attempted collection) of a debt.

The FDCPA defines debt, in pertinent part, to mean "any

obligation or alleged obligation of a consumer to pay money." Id.

§ 1692a(5). Although this language is broad, it is plain that the

sine qua non of a debt is the existence of an obligation (actual or

alleged). See Ernst v. Jesse L. Riddle, P.C., 964 F. Supp. 213,

215 (M.D. La. 1997). We mine the Kowals' complaint in search of an

allegation pertaining to this element.

The complaint avers that the individual defendants

infracted the FDCPA by, inter alia, communicating to the appellants

the option of retaining the collateral "in exchange for the payment

of money." The complaint further alleges that this offer was made

4
The Kowals do not accuse Sears of violating the FDCPA,
presumably because Sears would not fit within the statutory
definition of "debt collector." 15 U.S.C. § 1692a(6).

19
"for the purpose of coercing [the appellants] into paying money on

discharged debts." Except for multiple references to "discharged

debts," the complaint is silent as to the "debt" element of the

asserted FDCPA cause of action.

It is readily evident, therefore, that the complaint

refers to the payment of money — but the FDCPA does not broadly

forbid practices in connection with all payments of money. The

practices that it proscribes are in connection with the collection

of debts, and the complaint makes no reference to any obligation to

pay money — the crux of "debt" as that term is defined by the

FDCPA. Moreover, none of the facts set forth in the complaint

support an inference that the Kowals were obligated to pay any

money to Sears. Thus, to allow these allegations to trigger the

FDCPA would require us to read the word "obligation" out of the

statute. There is no principled way to indulge such a reading.

See Lopez-Soto, 175 F.3d at 173 (explaining that all words in a

statute must be given meaning and effect).

The complaint's references to discharged debts do not

salvage the FDCPA claim. A "discharge extinguishes . . . 'the

personal liability of the debtor.'" Home State Bank, 501 U.S. at

83 (quoting 11 U.S.C. § 524(a)(1)). Once that liability has been

extinguished in bankruptcy, the debtor no longer has a personal

"financial or pecuniary obligation" for the debt. Black's Law

20
Dictionary 925 (7th ed. 1999). Hence, a discharged debt carries

with it no personal obligation to pay money.

In sum, the FDCPA's definition of debt is broad, but it

requires at least the existence or alleged existence of an

obligation to pay money. To permit the mere mention of a

discharged debt, for which the debtor has no personal financial

obligation, to satisfy the FDCPA requirement would contradict the

plain language of the statute. Although a court, faced with a Rule

12(b)(6) motion, must mine the factual terrain of the complaint and

indulge every reasonable inference in the pleader's favor, it

cannot uphold a complaint that fails to establish an essential

nexus between the underlying events and the theory of relief. See

Miranda v. Ponce Fed. Bank, 948 F.2d 41, 44 (1st Cir. 1991). This

is such a case: the complaint fails to link the Kowals' discharged

personal liability with any obligation on their part to pay money.

Let us be perfectly clear. We recognize that a plaintiff

may bring a claim under the FDCPA by pleading that a debt collector

falsely alleged an obligation to pay money. But the complaint in

this case fails to state a claim under that theory. The complaint

never asserts that the lawyers told the Kowals that they were

obligated to pay money on account of the discharged debts or

otherwise, nor does it allege facts sufficient to support an

inference that the lawyers acted so as to create this false

21
impression. Indeed, the collection letters (attached to the

complaint) conclusively refute any such illation.

Those letters presented the Kowals with the terms under

which Sears was willing to abandon its right of repossession, no

more and no less. The letters indicated the amount of money that

"Sears believe[d] . . . represent[ed] the fair market value of the

items," and stated that if the Kowals did "not agree with these

values, [they had] the option of reopening the bankruptcy and

seeking a valuation hearing." Given this correspondence, the most

that can be said is that the Kowals faced an unhappy choice in

these transactions, not an obligation to pay money.

III. CONCLUSION

We need go no further. Painting a pumpkin green and

calling it a watermelon will not render its contents sweet and

juicy. That analogy is useful here: the bald assertion that the

redemption agreements were efforts to collect discharged debts will

not suffice to transform them into something they plainly are not.

By failing to show that these agreements sought to impose personal

liability, the appellants fail to state a claim that Sears violated

the bankruptcy discharge injunction. By the same token, the

appellants' failure to make out a nexus between the discharged debt

and any existing or alleged obligation to pay money undermines any

claim against the individual defendants for transgressing the

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FDCPA. Consequently, the district court did not err in dismissing

the appellants' complaints.

Affirmed.

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 APPENDIX

MEMORANDUM OF REDEMPTION

I, Melanie Velleco (debtor), hereby elect to exercise my right
under Section 722 of the Bankruptcy Code to redeem the personal
property listed below from the purchase money security interest
held by Sears, Roebuck and Co. or one or more of its affiliates
("Sears"):

Merchandise: Agreed Value
REFRIGERATOR $303.99

Total: $303.99

The above listed property is intended for personal, family or
household use and is either exempted under Section 522 of the
Bankruptcy Code or was abandoned under Section 554 of the
Bankruptcy Code. The property was purchased under my Sears Account
# 03-59272-23430-3.

Sears and I have agreed that the replacement value of the above
listed property, for the purpose of redemption, is $303.99, and
that I will pay the agreed upon redemption amount by March 11,
1999.

Termination of Security Interest. Upon payment and delivery of a
signed copy of this memorandum, Sears security interest in the
above described merchandise shall be terminated.

No Personal Liability. The parties acknowledge that the Debtor's
failure to redeem as described within this agreement shall not
impose any personal liability on the Debtor and that, if the Debtor
fails to pay the redemption amount, Sears only recourse is against
its collateral.

_____________________ ______________________
Debtor's Signature Date

_____________________ ______________________
Debtor's Attorney Date

_____________________ ______________________
Sears Representative Date

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