No Implied Right of Action Under the Bankruptcy Code’s Reaffirmation Provisions
At issue was the remedy for the defendant’s failure to file reaffirmation agreements by which bankrupt debtors accept a repayment plan for collateralized debt. While these agreements must be filed with the Bankruptcy Court, until the issue was brought to public attention by the Sears cases, finance companies often failed to file them because the expense was high compared to the small amount at stake. The Bankruptcy Code does not contain any explicit penalty for violation of the reaffirmation requirements. The plaintiff asked the court to imply a private right of action with the possibility of punitive damages. The plaintiff also argued that her state law claim for unjust enrichment was not preempted. Defendants contended, and the District Court in Rhode Island held, that the Bankruptcy Court’s contempt powers provide an adequate remedy and that the state law claim was preempted. The debtor appealed.
NELF filed an amicus brief in the First Circuit, arguing that the legislative history and purpose of the statute weigh against implying a right of action, that contempt is an adequate remedy, and that the Code preempts the unjust enrichment claim. The First Circuit agreed that the Code preempted the state law claim and declined to consider whether there was an implied right of action because it held that the District Court, like the Bankruptcy Court, could enforce the reaffirmation requirements through its equitable powers under §105 of the Code.
At issue was the remedy for the defendant’s failure to file reaffirmation agreements by which bankrupt debtors accept a repayment plan for collateralized debt. While these agreements must be filed with the Bankruptcy Court, until the issue was brought to public attention by the Sears cases, finance companies often failed to file them because the expense was high compared to the small amount at stake. The Bankruptcy Code does not contain any explicit penalty for violation of the reaffirmation requirements. The plaintiff asked the court to imply a private right of action with the possibility of punitive damages. The plaintiff also argued that her state law claim for unjust enrichment was not preempted. Defendants contended, and the District Court in Rhode Island held, that the Bankruptcy Court’s contempt powers provide an adequate remedy and that the state law claim was preempted. The debtor appealed.
NELF filed an amicus brief in the First Circuit, arguing that the legislative history and purpose of the statute weigh against implying a right of action, that contempt is an adequate remedy, and that the Code preempts the unjust enrichment claim. The First Circuit agreed that the Code preempted the state law claim and declined to consider whether there was an implied right of action because it held that the District Court, like the Bankruptcy Court, could enforce the reaffirmation requirements through its equitable powers under §105 of the Code.
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