Summary:
In a thorough oral ruling from the bench (a Google transcription of which is attach- use with caution!), Judge Lena James denied Select Portfolio Servicing, Inc.’s (“SPS”) defense under Rule 12(b)(6), holding that plaintiff Bonita Napper plausibly alleged violations of Bankruptcy Rule 3002.1, the automatic stay under § 362, and the North Carolina Debt Collection Act. The ruling cleared the case to proceed into discovery.
1. Rule 3002.1(i) – Inaccurate Cure Response
Judge James rejected SPS’s argument that Rule 3002.1(i) sanctions only apply when no response is filed. Even though SPS had filed a Response to Notice of Final Cure, it was inaccurate and incomplete. The judge emphasized that:
“Filing a notice containing incorrect statements can be as damaging as failing to file such notice timely.”
Citing Harlow, Ferrell, and other persuasive decisions, Judge James found an implicit requirement of accuracy and transparency in Rule 3002.1(g). She held that Napper plausibly alleged that SPS misrepresented the account’s status and omitted key payment details, triggering remedies under 3002.1(i) including fee-shifting and evidentiary preclusion.
2. § 362(a) Stay Violation – Misapplied Payments & Coercion
The Court found the complaint stated a plausible claim for willful violation of the automatic stay. SPS allegedly misapplied plan payments, told the debtor she was behind when she wasn’t, and then used that misrepresentation to try to collect an additional payment. The judge cited Mann v. Chase Manhattan but distinguished it, noting this was no mere internal bookkeeping error:
“The defendant acted to exercise improper control over estate property... and communicated the resulting inaccurate balance to the plaintiff.”
Judge James further concluded that Napper had also plausibly pled a § 362(a)(6) violation. SPS allegedly told her it would not remove the bankruptcy designation from her mortgage account unless she signed a reaffirmation agreement — a tactic Judge James noted could be considered “sufficiently threatening or coercive” depending on the facts developed in discovery.
3. North Carolina Debt Collection Act Claim
While filing a proof of claim alone is not “debt collection,” Judge James ruled that SPS’s direct postpetition communications demanding payment for a month already paid, along with its reaffirmation-related pressure, could support a claim under the NCDCA:
“Such direct attempts can constitute an attempt to collect a debt sufficient to meet the required element for a claim under the NCDCA.”
Judge James concluded that all claims were sufficiently pled to proceed. She acknowledged that the dollar value of damages might not be high but emphasized the legal sufficiency of the allegations — particularly the seriousness of misapplied payments, misrepresentations to the debtor and the Court, and improper coercive tactics following plan completion.
Commentary:
Great work by Craig Shapiro and Wes Schollander! Keep your fingers crossed for their continued success.
In rejecting that defense, Judge James aligned squarely with a powerful recent decision out of her sister court in the Western District: In re Peach (W.D.N.C., March 2025, Judge Laura Beyer). There, Judge Beyer sanctioned Shellpoint Mortgage Servicing for precisely the same pattern of conduct: using vague mortgage statements, hidden fees, and noncompliance with Rule 3002.1 to sow confusion, extract charges, and preserve claims for future collection.
As Judge Beyer made clear:
“Shellpoint must file an FRBP 3002.1 notice... regardless of whether it intends to collect the fees during the case or at some point in the future. A contrary holding would frustrate the purpose of the rule and be a tremendous disservice to debtors.”
— In re Peach, at ¶ 32
That sentiment echoes Judge James’s reasoning in Napper, where she held that an inaccurate or misleading response under Rule 3002.1(g) is not just procedurally insufficient—it strikes at the heart of the Chapter 13 system. Both judges correctly identify that Rule 3002.1 is a transparency tool, not a procedural technicality.
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To read a copy of the transcript, please see:
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