KEVIN J. CAREY, Bankruptcy Judge.
On September 2, 2008, Cedric Muhammad filed a request for payment of administrative expenses (the "Claim") (D.I. 8901). The New Century Liquidating Trust (the "Trust") filed an objection to the Claim (the "Objection") (D.I. 9028). The Objection sought to (i) disallow and expunge the Claim as an invalid administrative claim; or in the alternative, (ii) reclassify the Claim as a general unsecured claim, and (iii) disallow and expunge the reclassified general unsecured claim, because it was filed after the claims bar date. Mr. Muhammad did not appear at the hearing scheduled for the Objection on November 19, 2008. (Tr. 11/19/08 at 84:23-86:15). By Order dated November 20, 2008, the Court sustained the Trust's Objection and disallowed the Claim (D.I. 9174).
On December 18, 2008, Mr. Muhammad filed a motion for reconsideration of the November 20, 2008 Order disallowing the Claim (D.I. 9267), to "correct errors of fact brought before this Honorable Court" and asking the Court to consider the "Affidavit of Truth," which he filed in response to the Objection on November 12, 2008, and which he claimed was not docketed properly. The Trust objected to the motion for reconsideration (D.I. 9286). On January 29, 2009, the Court entered an order granting the motion for reconsideration and setting an evidentiary hearing regarding the Trust's objection to the Claim.
An evidentiary hearing was held on March 26, 2009 to consider the Trust's objection to the Claim. The Trust and Mr. Muhammad filed post-hearing proposed findings of fact and conclusions of law. For the reasons set forth below, the Claim will be disallowed.
On or about March 19, 2004, Mr. Muhammad signed a Note promising to pay a loan received from New Century Mortgage Corporation ("NCMC") in the principal amount of $78,030.00 (the "Note") (Ex. T-2, Tr. at 58:25-59:4).
On April 24, 2004, NCMC sold the Note and Mortgage pursuant to the terms of the Second Amended and Restated Mortgage Loan Purchase and Warranties Agreement between Morgan Stanley Mortgage Capital, Inc., as purchaser ("Morgan Stanley"), and NC Capital Corporation, as seller, dated as of July 1, 2003 (the "Sale Agreement"). (Ex. T-1, Tr. at 81:1-81:8).
Mr. Muhammad made sporadic payments to HomEq Servicing Corporation between June 2006 and May 2007. (Ex. M-4). By letter dated April 25, 2008, however, the law firm of Shapiro and Kirsch, LLP advised Mr. Muhammad that they had been retained to initiate foreclosure proceedings on the mortgage to collect the indebtedness due on the Loan. (Ex. M-8).
On April 2, 2007, the Debtors filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. By order dated June 28, 2007 (the "Bar Date Order"), this Court established August 31, 2007 at 5:00 p.m. (prevailing Pacific Time) as the last date and time for filing proofs of claim in this chapter 11 case (the "Bar Date") (D.I. 1721). The Debtors' claims and noticing agent, Xroads Case Management Service LLC (the "Claims Agent"), (a) mailed a copy of the Notice of Bar Date (the "Bar Date Notice") and a proof of claim form substantially similar to Official Form No. 10 ("Proof of Claim Form") to all known entities holding potential pre-petition claims and their counsel (if known), all known potential claimants and their counsel (if known), all parties that have requested notice in these cases, the Office of the United States Trustee, and all taxing authorities for the jurisdictions in which the Debtors conducted business, and (b) published the Bar Date Notice in The Wall Street Journal (National Edition) and the Orange County Register. The Claims Agent filed an affidavit of service on July 9, 2007 (D.I. 1861), and affidavits of publication on August 3, 2007 (D.I. 2148 and D.I. 2149).
On July 15, 2008, the Court entered the Order Confirming the Second Amended Joint Chapter 11 Plan of Liquidation of the Debtors and the Official Committee of Unsecured Creditors Dated as of April 23, 2008 (the "Confirmation Order") (D.I. 8596). The Order Amending the Confirmation Order was entered on July 22, 2008 (D.I. 8626).
On August 4, 2008, the Notice of (I) Entry of Order Confirming Second Amended Joint Chapter 11 Plan of Liquidation of the Debtors and the Official Committee of Unsecured Creditors Dated as of April 23, 2008(II) Effective Date and (III) Bar Dates for Administrative Claims, Professional Fee Claims, Subordination Statement, and Rejection Damage Claims (the "Notice of Effective Date") was filed (D.I. 8705). The Notice of Effective Date set August 31, 2008 as a deadline for filing administrative claims, and set September 30, 2008 as the deadline for the Trustee to file Objections to administrative claims. Section 3.3 of the Trust Agreement gave the Trustee the exclusive right to object to the allowance of any claim.
The 47-page Claim filed on September 2, 2008 is a collection of notices, letters and "Affidavits of Truth" which assert a claim in the amount of $2,500,000.00 against the Debtors based on the decisions and actions taken in connection with the Loan. The Claim asserts that the Debtors, and their "assignees, successor loan servicer, successor of interest, collection agencies," and others deliberately defrauded Mr. Muhammad and caused damages to Mr. Muhammad and his family.
In an affidavit provided in March 2009, Mr. Muhammad recounted his serious health issues, including open heart surgery on May 3, 2003, and heart transplant surgery on February 9, 2006. (See March Affidavit, Ex. D Timeline of Events for Cedric Muhammad) (D.I. 9387). According to the records, Mr. Muhammad was hospitalized a number of times between 2003 and 2008. (Id.). At the hearing, Mr. Muhammad testified that the transfer of the Loan caused him great stress. (Tr. at 49:2-50:19). Mr. Muhammad's wife also testified that he was under "major stress throughout the whole process of . . . finding out that the loans had been sold and that New Century was in bankruptcy." (Tr. at 62:23-62:25). She stated that he spent a great deal of time "reading and studying, and I would say lamenting over what he received. And he'd be trying to explain that there was no substance. . . ." (Tr. at 62:12-62:15). In short, Mr. Muhammad
Section 503 of the Bankruptcy Code governs the allowance of administrative expenses in a bankruptcy case, providing (in part), that "after notice and a hearing, there shall be allowed administrative expenses ..., including the actual and necessary costs and expenses of preserving the estate." 11 U.S.C. § 503(b)(1)(A). Claimants who seek to have their claims paid ahead of general unsecured creditors bear the burden of establishing that their claim qualifies for priority status. In re Unidigital, Inc., 262 B.R. 283, 288 (Bankr. D.Del.2001).
Courts generally apply a two-prong test to determine whether a claim qualifies as an administrative expense: (1) the expense must have arisen from a post-petition transaction between the creditor and the debtor, and (2) the expense must have been "actual and necessary" to preserve the estate. Id., In re DBSI, Inc., 407 B.R. 159, 165 (Bankr.D.Del.2009).
Here, the Claim is alleged to arise out of the Loan and the Debtors' sale or transfer of the Loan and the servicing rights to the Loan, all of which occurred pre-petition. Moreover, the allegations underlying the claim clearly are not actual or necessary costs of preserving the estate. Mr. Muhammad has not asserted any valid basis for according administrative expense status to the Claim.
August 27, 2007 was fixed as the bar date for filing proofs of claim in this case. If Mr. Muhammad's request for payment of an administrative expense is treated as the filing of a general unsecured proof of claim, its filing on September 2, 2008 was untimely. Bankruptcy Rule 3003(c)(2) provides that:
Fed.R.Bankr.P. 3003(c)(2) (emphasis added).
Although Mr. Muhammad received notice of the Debtors' bankruptcy case, he did not file any notice of his claim against the Debtors with the Bankruptcy Court until September 2, 2008, more than a year after the Bar Date for general unsecured claims. (See Tr. at 64:21-65:5). Mr. Muhammad does not assert that he failed to receive adequate notice of the Bar Date or that he is entitled to file a late proof of claim as a result of excusable neglect.
Furthermore, even if I were to consider the Claim on its merits, it would have to be disallowed for failure to provide sufficient evidence to support its validity. When a claim objection is filed in a bankruptcy case, the burden of proof as to the validity of the claim shifts between parties. In re Sea Containers, Ltd., 2009 WL 2208128, *2 (Bankr.D.Del. July 22, 2009) citing In re Allegheny Int'l, Inc., 954 F.2d 167, 173 (3d Cir.1992). The shifting burdens of proof are described in Allegheny Int'l as follows:
Allegheny Int'l, 954 F.2d at 173-74 (citations omitted). Here, Mr. Muhammad has failed to prove facts sufficient to support the Claim. The 47-page Claim includes court notices, letters, and documents drafted by Mr. Muhammad using legalistic language but lacking in any substance. However, even assuming the Claim was entitled to a presumption of validity, the Trustee has presented evidence and testimony rebutting any claim that New Century Mortgage Corporation acted fraudulently by entering into the Loan with Mr. Muhammad. The Trustee's records further show that the Loan was transferred prepetition, notice of the sale and transfer was given to Mr. Muhammad, and that the Debtors no longer had any interest in the Loan as of the petition date. The burden of proving the validity of the claim shifts back to Mr. Muhammad.
The basis of Mr. Muhammad's claim is that the Loan transaction was a "horrific nexus of fraud." Mr. Muhammad repeatedly argues that the facts underlying the "horrific nexus of fraud" are not in dispute because a number of entities (including the Debtors, HomEq Servicing Corporation, Deutsche Bank National Trust Company, and Shapiro and Kirsch, LLP) failed to respond when he served them with various documents with names such as an "Affidavit of Truth," a "Statement-of-Specific-Facts," or a "Statement-of-the-Un-rebutted-Facts" (the "Affidavits and Statements"). (See D.I. 9670, ¶¶ 21, 22, 23, 24, 25, 26, 27, 28, 29). Mr. Muhammad also filed a number of these Affidavits and Statements with the Office of the Shelby County Register of Deeds, Memphis, Tennessee (the "Shelby County Register"). (Id.)
I know of no legal authority (and Mr. Muhammad has not offered any) that would require the Debtors to respond to the Affidavits and Statements or be bound by their contents by failing to respond. When considering an "Affidavit of Truth" in the case Bryant v. Washington Mutual
Bryant, 524 at 762. Similarly, in this case, there is no basis for obligating the Debtors or the Trustee to respond. The Affidavits and Statements cannot be considered requests for admissions under Fed. R.Bankr.P. 7036 because most of the documents were filed prior to the Claim, and therefore were not filed or served in connection with a contested matter or adversary proceeding. Fed.R.Bankr.P 7001, 9014. Moreover, Rule 36 should not be used unless the statements of fact sought to be admitted are phrased so that they can be admitted or denied without explanation. See United Coal Co. v. Powell Constr. Co., 839 F.2d 958, 968 (3d Cir. 1988). The Affidavits and Statements do not meet such criteria and the "facts" as alleged therein are not deemed admitted.
What, then, are the fraudulent acts or misrepresentations by the Debtors that form the basis of Mr. Muhammad's Claim that the Loan was a "horrific nexus of fraud?"
First, Mr. Muhammad cites to 18 U.S.C. §§ 1001 and 1006 as the bases for his fraud claim against the Debtors, but his citations are to criminal statutes providing, in part, that an officer or employee of a lending or mortgage institution authorized or acting under the laws of the United States who makes a false or fraudulent statement shall be fined or imprisoned. No private right of action is provided under this statute. Williams v. McCausland, 791 F.Supp. 992, 1001 (S.D.N.Y.1992).
Second, Mr. Muhammad repeatedly suggests that there was no substance underlying the Loan transaction; in other words, he disputes that any monies were actually loaned to him in connection with the Note and Mortgage. It is difficult to pinpoint why Mr. Muhammad believes no funds were loaned to him, even though he admittedly obtained the benefit of the Loan by accepting the Loan proceeds, enabling him to purchase a $90,000 Property.
Finally, Mr. Muhammad indicates that he has no obligations under the loan documents due to the "Reconveyance" that he filed on October 28, 2008 with the Shelby County Register.
For the reasons set forth above, Mr. Muhammad's Claim is not an administrative expense of the estate. Even if the Claim is considered a general unsecured claim, it is disallowed since it was not timely filed and Mr. Muhammad has neither alleged nor proven facts sufficient to support a valid claim.
An appropriate Order will be entered.
AND NOW, this 11th day of April, 2011, upon consideration of the objection by The New Century Liquidating Trust to the request for payment of administrative expenses filed by Cedric Muhammad (D.I. 8901, D.I. 9028), and the response thereto, after a hearing on notice, and for the reasons set forth in the foregoing Memorandum, it is hereby
On September 30, 2009, the Trust filed the Modified Second Amended Joint Chapter 11 Plan of Liquidation (the "Modified Plan") (D.I. 9905). On November 20, 2009, the Bankruptcy Court entered an order confirming the Modified Plan (D.I. 9957). On December 1, 2009, the Modified Plan became effective and (a) confirmed that all actions taken by the Trustee subsequent to the August 1, 2008 Effective Date were valid and binding, (b) adopted, ratified and confirmed the formation of the Trust as of the August 1, 2008 Effective Date, (c) adopted, ratified and confirmed the Trust Agreement as of the August 1, 2008 Effective Date, and (d) adopted, ratified and confirmed the appointment of Alan M. Jacobs as Trustee as of the August 1, 2008 Effective Date.
