Bank Conduct, Witness Credibility The Focus Of Contempt Ruling Sanctioning Wells For Giving Ch.13 Couple The Jerk-Around After Finishing Payback Plan

In Houston, Texas, U.S. Bankruptcy Judge Jeff Bohm recently found Wells Fargo in civil contempt for its seemingly egregious conduct in failing to correct errors in its bookkeeping records with regard to the payment history on a home mortgage loan of a homeowner-couple. The couple, who had successfully completed their proposed 60-month repayment plan in connection with a Chapter 13 petition filed in order to save their home and reorganize its debts, nevertheless received a subsequent jerk-around by Wells Fargo which lead to the litigation in this matter.

According to Judge Bohm:

• This adversary proceeding involves a sad and frustrating tale of how two successfully reorganized debtors unsuccessfully attempted to deal directly with their home lender, Wells Fargo Bank, N.A. (Wells Fargo). Their communications concerned the proper amounts that they owe Wells Fargo pursuant to certain orders of this Court entered during their Chapter 13 case. Only when their efforts at direct dialogue failed did the debtors turn to their counsel for assistance. This assistance first came through the filing of the above referenced adversary proceeding. Second, it came through the filing of a motion for contempt (the Motion for Contempt) when Wells Fargo failed to correct the debtors' loan records pursuant to an agreed judgment that it signed in order to settle the adversary proceeding and avoid a trial.

Not surprisingly, Judge Bohm found that the credibility of the testimony of the Wells Fargo witness called to testify in the matter, a certain John Grissom, should be attributed little weight. Grissom identified himself as a senior counsel of Wells Fargo.(1)(2)

For Judge Bohm's entire ruling, see In re: De La Fuente, Case No. 03-43483-H4-13, Adversary No. 08-03291 (Bankr. S.D. Texas, Houston Div. May 18, 2010).

(1) Among other statements made throughout the opinion, Judge Bohm made this observation with respect to Grissom's testimony under oath (bold text is my emphasis, not contained in the original text):

• At the February 23 Hearing, counsel for Wells Fargo called one witness, Grissom, Senior Counsel for Wells Fargo, to testify on Wells Fargo's handling of the De La Fuente's mortgage loan and the corrections made to Wells Fargo's records in relation to this loan.

• The Court finds Grissom's credibility to be lacking in certain respects. First, he gave a Shermanesque statement that Wells Fargo was now in compliance with the Agreed Judgment, but then subsequently had to admit that Wells Fargo's records still contained errors in violation of the Agreed Judgment. Second, he could not explain why there are late charges appearing on Wells Fargo's records.

• Grissom's failure on these key points, combined with his nonchalance on the stand, reflects a troubling lack of perspective regarding how much is at stake for honest and diligent Chapter 13 debtors, such as the De La Fuentes, who are trying to hold on to their home, and how important it is for Wells Fargo to abide by this Court's orders when dealing with debtors. Grissom appears to be representative of the absence of any sense of urgency within Wells Fargo to maintain accurate records and comply with the law.

• Indeed, the following testimony from Grissom underscores this point:
  
  Question (from counsel for the De La Fuentes): "And is that a correct figure?"
  
  Answer (from Grissom): "Well, it is—I don't believe it is correct. However, it is correct because that's what we're presenting to the Court today."

• Apparently, it does not bother Wells Fargo, whose representative is a licensed attorney at law, to testify under oath in one breath that an escrow amount is both correct and incorrect. And, perhaps even worse, to say that this amount is correct because "that's what we're presenting to the Court today," even though he knows full well that it is incorrect.

(2) In concluding his ruling, Judge Bohm gave this observation:

• The passing of BAPCPA [Bankruptcy Abuse Prevention and Consumer Protection Act (2005)] was applauded by the financial industry. The American Financial Services Association (AFSA), a financial industry lobbying entity which Wells Fargo has been and continues to be involved in, lobbied vigorously for BAPCPA and applauded its passage. An AFSA press release sent out on the day BAPCPA went into effect, stated that: "[t]he bankruptcy law going into effect today . . . encourages personal accountability and responsibility, the law also will bring changes to an overburdened, antiquated system, allowing it to better serve those in need of bankruptcy relief." (emphasis added).

• This Court certainly agrees that personal accountability and responsibility are critical to maintaining the integrity of the bankruptcy system. However, in its zeal to see debtors be held personally accountable for their actions, Wells Fargo seems to have forgotten—at least in the case at bar—that the integrity of the bankruptcy system requires the good faith of both debtors and creditors.

***

• Grissom's testimony, and Wells Fargo's own records, indicate that in with respect to the De La Fuentes' loan, Wells Fargo has had difficulty accepting personal accountability and responsibility.