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
22
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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