Sears, Roebuck and Co. knew it should stop dunning bankrupt credit-card holders, but kept at it despite a judge’s warnings, court records show.
And Sears stopped filing debt repayment agreements with the court after it was told such agreements contained prohibited language urging debtors to pay their debts and even to keep using Sears charge accounts.
That is the picture emerging from U.S. Bankruptcy court records in Boston showing that Hoffman Estates-based Sears was found in contempt on April 16 for “willful and intentional flouting of the Bankruptcy Code.”
Spokesman Ron Culp declined further comment on Friday pending a review of Sears’ reaffirmation agreement procedures in its nine regions.
Sears admitted “flawed legal judgment” on April 10 in cases involving 2,700 Massachusetts debtors and said it was making amends.
More Top Picks Best Nordictrack Treadmills
These cases involve people who filed for Chapter 7 bankruptcy protection, which liquidates non-exempt assets but ultimately forgives obligations to pay off debts.
But the severity of the Sears national imbroglio appeared to deepen Friday with new disclosures.
In a strongly worded memorandum of decision on April 16, U.S. bankruptcy Judge Carol Kenner found Sears in contempt of an order and said she will order Sears to pay compensatory and punitive damages to one of the debtors, Francis M. Latanowich, who filed for personal bankruptcy in December 1995. Also named in the memorandum were other Sears debtors, husband and wife Ann and Gerald Iappini.
An important issue in the Sears case is reaffirmation of debt statements, in which debtors may express willingness to pay their debts to certain creditors even when declaring bankruptcy.
A Sears reaffirmation statement signed by the Iappinis, said the court document, called for “nondischargeability” of debt, meaning it could not be forgiven, and allowed them to “continue to use the Sears charge account by reaffirming said debt and security agreement.”
In that case, U.S. bankruptcy Judge William Hillman on Nov. 28, 1995, found the use of such language “in bad faith” and that all further agreements coming before the court should not contain that language, under penalty of being held in contempt of court.
Under Chapter 7 bankruptcy law, reaffirmation agreements must be approved in court before they can be acted upon by creditors.
In a second case, involving Franz Mendes, at a hearing on Feb. 28, 1996, the court found Sears still was using the forbidden reaffirmation agreement language.
Hillman reportedly fined Sears in the Mendes case, and the sanction was upheld on appeal July 29, 1996, by Judge Nancy Gertner of the U.S. District Court.
In her April 16 memorandum of decision, Judge Kenner said that after the Iappini order, “Sears continued for many months to solicit such agreement from debtors in this district.”
“Sears took these actions deliberately, with full knowledge that the agreement had not been filed and, consequently, that the debt was subject to the discharge injunction,” said Kenner. “Through Mr. Harris, Sears admitted that its failure to file the agreement was not inadvertent but deliberate: to avoid the Iappini injunction and thus exposing itself to sanctions.” (William Harris, partner in Schreiber & Associates, Danvers, Mass., represented Sears on the Latanowich case.)
Sears knew it was enjoined from collecting debt, said Kenner, and “this was deliberate disregard of a known law.”
“Moreover, Sears’ action in this case was no isolated incident,” said the judge. “Sears admits that from Jan. 1, 1995, through Jan. 29, 1997, in over 2,700 cases in this district alone, it solicited and obtained reaffirmation agreements that it then failed to file. That fact underscores Sears’ willful and intentional flouting of the bankruptcy code.”
Sears spokesman Culp said Sears senior management did not know about the case involving Judge Kenner until March 31.
But court records show that Emma G. Scott, Sears assistant general counsel, attended the Franz Mendes hearing Feb. 28, 1996, and was introduced on the record.