                                                                                                                           Opinions of the United
2005 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


6-16-2005

In Re: Joubert
Precedential or Non-Precedential: Precedential

Docket No. 04-1373




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                                     PRECEDENTIAL

    UNITED STATES COURT OF APPEALS
         FOR THE THIRD CIRCUIT

                Case No: 04-1373


         IN RE: MARIANNE JOUBERT


             MARIANNE JOUBERT,

                         Appellant

                          v.

    ABN AMRO MORTGAGE GROUP, INC.
     f/k/a ATLANTIC MORTGAGE AND
       INVESTMENT CORPORATION




  On Appeal from the United States District Court
      for the Eastern District of Pennsylvania
           District Court No.: 03-CV-4290
  District Judge: The Honorable Herbert J. Hutton


            Argued on January 20, 2005

Before: ALITO, McKEE, and SMITH, Circuit Judges
                     (Filed: June 16, 2005)

Stuart A. Eisenberg, Esquire [Argued]
McCullough & Eisenberg
530 West Street Road
Suite 201
Warminster, PA. 18974
       Counsel for Appellant


Daniel S. Bernheim, 3rd, Esquire
Jonathan J. Bart, Esquire [Argued]
Silverman, Bernheim & Vogel
Two Penn Center Plaza
Suite 910
Philadelphia, PA 19102
       Counsel for Appellee




                 OPINION OF THE COURT


SMITH, Circuit Judge.

        Marianne Joubert, a discharged debtor in bankruptcy,
initiated this putative class action in the District Court seeking
damages and injunctive relief to combat what she contends is a
widespread practice by mortgagees of assessing, without notice
to mortgagors, post-petition, pre-confirmation attorney fees.


                                2
According to Joubert, this practice violates 11 U.S.C. § 506(b)’s
command that the bankruptcy court first adjudge such fees
“reasonable.” Though Joubert concedes that § 506(b) does not
in itself afford her a private cause of action, she asserts that a
private remedy may be implied under 11 U.S.C. § 105(a) to
redress the § 506(b) violation. The District Court rejected that
assertion, granted ABN AMRO Mortgage Company’s Rule
12(b)(6) motion to dismiss, and declined to exercise
supplemental jurisdiction over Joubert’s state law claims. For
the reasons set forth below, the judgment of the District Court
will be affirmed.1

I. Background and Facts

       According to Joubert’s amended complaint, in January
1996 she entered into a residential mortgage with ABN AMRO
Mortgage Company’s (ABN) predecessor-in-interest.              In
September 1999, Joubert filed a Chapter 13 petition with the
United States Bankruptcy Court for the Eastern District of
Pennsylvania. ABN’s amended proof of claim in that action
included pre-petition attorney fees related to its earlier
foreclosure action, but it did not include post-petition attorney



  1
    Because Joubert’s complaint requires a determination of the
scope of a statutory provision within the Bankruptcy Code, the
District Court had jurisdiction pursuant to 28 U.S.C. §§ 1331,
1334. We exercise appellate jurisdiction pursuant to 28 U.S.C. §
1291.

                                3
fees related to its preparation of proofs of claim. Joubert’s
Chapter 13 plan, which provided for ABN’s claim to be paid in
full, was confirmed on May 2, 2000. Joubert met her payment
obligations to ABN in accordance with the plan.

       In September 2002, Joubert refinanced her mortgage with
another lender. ABN’s notice advising Joubert of the amount
due on her mortgage with ABN included a $500 charge
denominated “corporate advance balance.” Joubert paid and
did not challenge the $500 charge at her refinancing settlement.
Joubert made her final payment to the Chapter 13 trustee as part
of the settlement, and, following the trustee’s final report and
accounting, an order discharging Joubert was entered on
February 28, 2003.

       Five months after her discharge, Joubert initiated this
purported class action in the District Court for the Eastern
District of Pennsylvania. Joubert alleged that the $500
“corporate advance balance” ABN charged Joubert when she
refinanced represented ABN’s post-petition, pre-confirmation
attorney fees. According to Joubert, the collection of this sum,
which ABN had not included in its proofs of claim prior to
confirmation, violated 11 U.S.C. §§ 506(b) and 1132(e).
Joubert asserted that she was entitled to seek redress, for herself
and on behalf of the purported class, for this “Violation of Title
11” in a lawsuit brought in the District Court “through the
injunctive powers of 11 U.S.C. § 105.”



                                4
        The District Court granted ABN’s Rule 12(b)(6) motion
to dismiss, and refused to exercise supplemental jurisdiction
over Joubert’s state law claims. In doing so, the District Court
adopted the rationale of earlier decisions in the District which
held that §§ 506(b) and 105(a) do not afford a private right of
action to redress a violation of § 506(b) of the Bankruptcy Code.
D. Ct. Order, at 1 n.2 (citing Henthorn v. GMAC Mortgage
Corp., 299 B.R. 351 (E.D. Pa. 2003); Willis v. Chase Manhattan
Mortgage Corp, 2001 WL 1079547 (E.D. Pa. 2001)).

II. Analysis

       As we exercise plenary review over the grant of a motion
to dismiss, “we accept as true all allegations in the complaint,
giving the Plaintiff the benefit of every favorable inference that
can be drawn from the allegations.” Board of Trustees of
Teamsters Local 863 Pension Fund v. Foodtown, Inc., 296 F.3d
164, 168 (3d Cir. 2002).

      Section 506(b) allows oversecured creditors to add
reasonable post-petition, pre-confirmation attorney fees, interest,
and costs to the amount of their secured claim.2 Joubert



  2
      Section 506(b) provides:

               To the extent that an allowed secured
               claim is secured by property the
               value of which, after any recovery

                                 5
acknowledges that the mortgage agreements common to the
purported class provide for attorney fees under these
circumstances, but she contends that ABN failed to give
mortgagors written notice of the fees as required by the
agreements, thus depriving the class of bankruptcy court
oversight of the fees’ reasonableness. Joubert concedes that §
506(b) does not in itself afford a private right of action. Rather,
she asks us to imply such a remedy derivatively through §
105(a), which authorizes federal courts to “issue any order,
process or judgment that is necessary or appropriate to carry out
the provisions” of the Bankruptcy Code.

       Joubert is correct that this case presents a matter of first
impression in the federal courts of appeals, but the novelty is
only a matter of timing, not principle. Typically, challenges to
creditor collection efforts occur post-discharge, and thus arise
under 11 U.S.C. § 524, which governs the effect of bankruptcy
discharges. Indeed, Joubert alleges that for most of the putative



              under subsection (c) of this section,
              is greater than the amount of such
              claim, there shall be allowed to the
              holder of such claim, interest on such
              claim, and any reasonable fees, costs,
              or charges provided for under the
              agreement under which such claim
              arose.

11 U.S.C. § 506(b) (2005).

                                6
class, ABN waited until the debtor’s discharge or other exit from
bankruptcy before attempting to collect the attorney fees.

        In her case, if not that of most members of the would-be
class, however, Joubert alleges that the contested attorney fees
were first disclosed in the interim between confirmation and
discharge.      Therefore, Joubert could not challenge the
reasonableness of the $500 charge before the bankruptcy court
at the time of the Chapter 13 plan confirmation, nor was there a
discharge in place to violate when she first learned of the
charge, so § 524 was not implicated. Although we sympathize
with the dilemma suggested by the facts Joubert alleges, we
consider the analogous § 524 case law applicable to her §
506(b)-based claim, and hold that § 105(a) does not afford a
private cause of action to redress an alleged 506(b) violation.
Joubert’s lone remedy is a contempt proceeding pursuant to §
105(a) in bankruptcy court.

        In In re Continental Airlines, 203 F.3d 203 (3d Cir.
2000), we observed that § 105(a) “supplements courts’
specifically enumerated bankruptcy powers by authorizing
orders necessary or appropriate to carry out provisions of the
Bankruptcy Code.” Id. at 211. We cautioned that § 105(a) “has
a limited scope. It does not ‘create substantive rights that would
otherwise be unavailable under the Bankruptcy Code.’”
Id. (quoting United States v. Pepperman, 976 F.2d 123, 131 (3d
Cir. 1992)). This instruction was consistent with our earlier
observation in In re Morristown & Erie Railroad Co., 885 F.2d

                                7
98 (3d Cir. 1990), that § 105(a)

              authorize[s] the bankruptcy court,
              or the district court sitting in
              bankruptcy, to fashion such orders
              as are required to further the
              substantive provisions of the Code.
              Section 105(a) gives the court
              general equitable powers, but only
              insofar as those powers are applied
              in a manner consistent with the
              Code. Nor does section 105(a) give
              the court the power to create
              substantive rights that would
              otherwise be unavailable under the
              Code.

Id. at 100 (citations omitted).

       Morristown reveals this Court’s considered view that §
105(a) is a powerful, versatile tool, but that it operates only
within the context of bankruptcy proceedings. Section 105(a)
empowers bankruptcy courts and district courts sitting in
bankruptcy to fashion orders in furtherance of Bankruptcy Code
provisions. To add private causes of action to § 105(a)’s arsenal
of remedies, we would have to conclude that such was the intent
of Congress. Alexander v. Sandoval, 532 U.S. 275 (2001):

              Like substantive federal law itself,


                                  8
              private rights of action to enforce
              federal law must be created by
              Congress. The judicial task is to
              interpret the statute Congress has
              passed to determine whether it
              displays an intent to create not just
              a private right but also a private
              remedy. Statutory intent on this
              latter point is determinative.
              Without it, a cause of action does
              not exist and courts may not create
              one, no matter how desirable that
              might be as a policy matter, or how
              compatible with the statute.

Id. at 286 (citations omitted).

         Under § 524(a)(2), a discharge operates as an injunction
against a broad array of creditor efforts to collect debts as
personal liabilities of the discharged debtor. This Court has not
addressed whether § 524 implies a private right of action, either
alone or through § 105(a), but the weight of circuit authority is
that it does not. See Pertuso v. Ford Motor Credit Co., 233 F.3d
417, 421-23 (6th Cir. 2000) (analyzing the legislative history of
§ 524, contrasting § 524 with Congress’s choice in § 362(h) to
create private causes of action for violations of bankruptcy stays,
and concluding § 524 does not impliedly create a private right
of action); Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 507-
10 (9th Cir. 2002) (tracking and adopting Pertuso’s analysis);


                                  9
Cox v. Zale Delaware, Inc., 239 F.3d 910, 917 (7th Cir. 2001)
(agreeing with the result in Pertuso and concluding that a
contempt action in the bankruptcy court that issued the
discharge is the only relief available to remedy alleged § 524
violations); see also Bessette v. AVCO Fin. Servs, Inc., 230 F.3d
439, 444-45 (1st Cir. 2000) (refusing to address whether § 524
implies a right of action, because, in the First Circuit’s view, a
bankruptcy court’s contempt power under § 105(a) offers
sufficient remedies).

        Moreover, the Sixth Circuit in Pertuso and the Ninth
Circuit in Walls, in separate sections of those opinions, rejected
the argument that § 105(a) authorizes private causes of action to
remedy bankruptcy discharge violations. See Walls, 276 F.3d at
507 (reasoning that to add this remedy to § 105(a) would be an
act of legislating); Pertuso, 233 F.3d at 423 (same).3 We agree

  3
     Contrary to the suggestion in Pertuso, 233 F.3d at 423 n. 1,
we do not read Bessette as supporting the proposition that § 105(a)
can bootstrap private causes of action from Bankruptcy Code
provisions that do not otherwise provide this remedy. Bessette was
an appeal from a district court sitting in bankruptcy, and we view
Bessette’s holding simply to be that § 105(a) contempt proceedings
grounded in § 524 do not have to be brought in the same court that
issued the original discharge order. See Bessette, 230 F.3d at 446.
Indeed, Bessette observed, “[Section] 105 does not itself create a
private right of action, but a court may invoke § 105(a) ‘if the
equitable remedy utilized is demonstrably necessary to preserve a
right elsewhere provided in the Code... .’” Id. at 444-45 (citation
omitted). Consistent with this reading of Bessette, in Walls the

                                10
with the reasoning of these cases, and see no reason why the rule
should be different for actions asserted under § 506(b) rather
than § 524. The essence of the complaint is the same regardless
of when the alleged violation was disclosed: The mortgagee
purposely omitted post-petition, pre-confirmation attorney fees
from its proof of claim and then asserted that the fees were part
of its secured interest at a time when the mortgagor was in no
position to contest their reasonableness. Whether the asserted
security interest, which arose before confirmation, was disclosed
in the interim between confirmation and discharge (invoking
§506(b)), or after discharge (invoking both §§ 506(b) and
524(a)(2)), has no bearing in determining whether § 105(a)
authorizes an independent cause of action in District Court.
Thus, we conclude that the decisions holding that § 105(a) does
not authorize separate lawsuits as a remedy for bankruptcy
violations, though established in the § 524 context, are equally
applicable when the underlying complaint is grounded in §
506(b).

III. Conclusion

       Because § 105(a) of the Bankruptcy Code does not afford
debtors a private cause of action to remedy alleged violations of



Ninth Circuit noted that the district court in that case had referred
the § 105(a) contempt proceeding to the bankruptcy court while
rejecting the plaintiff’s argument that §§ 524 and 105(a) create a
private right of action. Walls, 276 F.3d at 506-07.

                                  11
§ 506(b), we will affirm the District Court’s order granting
ABN’s motion to dismiss.




                            12
