Filed: Mar. 23, 2000
Latest Update: Mar. 02, 2020
Summary: United States Bankruptcy Appellate Panel FOR THE EIGHTH CIRCUIT _ No. 99-6078 MN _ In re: * * Steven James Annen, * Sandra Dee Annen, * * Debtors. * * Appeal from the United States Bank One Wisconsin, N.A., * Bankruptcy Court for the * District of Minnesota Plaintiff - Appellee, * * v. * * Steven James Annen, * Sandra Dee Annen, * * Defendants - Appellants, * * Cityscape Mortgage Corp., * * Defendant. * _ Submitted: January 26, 2000 Filed: March 23, 2000 _ Before William A. HILL, SCHERMER, and J
Summary: United States Bankruptcy Appellate Panel FOR THE EIGHTH CIRCUIT _ No. 99-6078 MN _ In re: * * Steven James Annen, * Sandra Dee Annen, * * Debtors. * * Appeal from the United States Bank One Wisconsin, N.A., * Bankruptcy Court for the * District of Minnesota Plaintiff - Appellee, * * v. * * Steven James Annen, * Sandra Dee Annen, * * Defendants - Appellants, * * Cityscape Mortgage Corp., * * Defendant. * _ Submitted: January 26, 2000 Filed: March 23, 2000 _ Before William A. HILL, SCHERMER, and JA..
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United States Bankruptcy Appellate Panel
FOR THE EIGHTH CIRCUIT
____________
No. 99-6078 MN
____________
In re: *
*
Steven James Annen, *
Sandra Dee Annen, *
*
Debtors. *
* Appeal from the United States
Bank One Wisconsin, N.A., * Bankruptcy Court for the
* District of Minnesota
Plaintiff - Appellee, *
*
v. *
*
Steven James Annen, *
Sandra Dee Annen, *
*
Defendants - Appellants, *
*
Cityscape Mortgage Corp., *
*
Defendant. *
____________
Submitted: January 26, 2000
Filed: March 23, 2000
____________
Before William A. HILL, SCHERMER, and JACKWIG1, Bankruptcy Judges.
1
The Honorable Lee M. Jackwig, United States Bankruptcy Judge for the Southern
District of Iowa, sitting by designation.
____________
JACKWIG, Bankruptcy Judge.
Chapter 7 Debtors Steven and Sandra Annen (“Annens”) appeal the order of the
bankruptcy court2 dismissing their counterclaim against Bank One Wisconsin, N.A. (“Bank
One”). The Annens had argued that Bank One violated 11 U.S.C. section 524(a)(2) by
commencing a state court declaratory judgment action to determine the existence and nature
of its mortgage lien on their homestead. The bankruptcy court concluded the action was an
in rem proceeding that did not seek the imposition of any personal liability and, therefore,
held the counterclaim failed to state a claim upon which relief could be granted. We have
jurisdiction over this appeal from the final order of the bankruptcy court. See 28 U.S.C. §
158(b). For the reasons set forth below, we affirm.
BACKGROUND
The Annens made, executed and delivered a mortgage on their homestead to Bank
One on May 23, 1995. The mortgage was recorded on June 1, 1995. In early 1997 Bank
One started sending the Annens billing statements understating the balance due. The Annens
allege they notified Bank One of the error.
Thereafter the Annens applied for debt consolidation financing with Cityscape
Mortgage Corp. (“Cityscape”). The Bank One debt was among the debts to be consolidated.
Cityscape contacted Bank One for the pay-off balance. Bank One understated the balance.
Cityscape paid Bank One that amount. Bank One executed a satisfaction of its mortgage on
or about June 5, 1997. The satisfaction was recorded on or about June 19, 1997.
Meanwhile, the Annens made, executed and delivered a mortgage on their homestead to
Cityscape, and that mortgage was recorded.
The Annens filed their Chapter 7 petition on April 23, 1998. They listed Bank One
on Schedule F (Creditors Holding Unsecured Nonpriority Claims). The bankruptcy court
entered the General Discharge on July 29, 1998.
2
The Honorable Gregory F. Kishel, United States Bankruptcy Judge for the
District of Minnesota.
2
Bank One commenced a declaratory judgment action against the Annens and
Cityscape in the District Court in and for the County of Scott, State of Minnesota, on August
21, 1998. Bank One alleged scrivener’s error, inadvertence or mistake resulted in the
satisfaction being executed and recorded. Bank One specifically requested the state court
adjudge the satisfaction was void and annulled and the underlying mortgage was revived,
with its former priority and priority over the mortgage held by Cityscape.3
The Annens filed an answer and a counterclaim against Bank One on September 10,
1998. In the counterclaim, they alleged the commencement of the lawsuit violated the
discharge injunction because it was an attempt to coerce them into paying the discharged
debt rather than incur the expense of the pending litigation. They argued any claim Bank
One had against them or their property had been discharged in their Chapter 7 case. They
requested the state court deny Bank One’s claim for relief and award them compensatory
damages for the physical injuries and emotional distress they had and would suffer as a result
of the lawsuit.
Since the Annens’ counterclaim raised an issue under federal law, Bank One filed a
Notice of Removal to the United States District Court for the District of Minnesota. The
federal district court granted the removal and then referred the matter to the United States
Bankruptcy Court for the District of Minnesota. The bankruptcy court treated the
controversy as an adversary proceeding pursuant to Federal Rules of Bankruptcy Procedure
7001-87.
On December 29, 1998, Bank One’s motion to dismiss the Annens’ counterclaim
pursuant to Federal Rule of Civil Procedure 12(b)(6) was docketed in the bankruptcy court.
In its motion, Bank One argued the declaratory judgment action was an in rem proceeding
to determine the existence and nature of its mortgage lien against the Annens’ homestead
and, as such, could not be the basis for a cause of action under 11 U.S.C. section 524.
On January 19, 1999, the Annens filed an objection to the motion to dismiss and a
3
According to the record on appeal, Cityscape did not appear in any of the
proceedings in state court and has not appeared in any of the proceedings in federal court.
3
motion for finding of contempt and imposition of sanctions against Bank One.4 Following
a hearing on those matters, the bankruptcy court directed the parties to submit briefs
addressing whether Bank One retained a lien or other in rem right after the execution and
filing of the satisfaction of its May 1995 mortgage. The parties complied.
At a telephonic hearing on October 25, 1999, the bankruptcy court recited its decision
on the record as permitted by Federal Rule of Bankruptcy Procedure 7052. The court
observed: that the Annens’ counterclaim pled only the commencement of the lawsuit as the
ground for relief under section 524(a)(2); that Bank Ones’ complaint did not seek and would
not result in an adjudication that the Annens were personally liable; and that the state law
under which Bank One was proceeding could be construed to provide for the in rem relief
that Bank One sought. The Court concluded the Annens failed to state a claim upon which
relief could be granted and ruled Bank One was entitled to a dismissal of the counterclaim.
The court then addressed the Annens’ motion as one for summary judgment and set forth
procedural and substantive grounds for its denial.
Pursuant to that decision and on the same date it was recited, the court entered a
written order dismissing the Annen’s counterclaim and denying their motion for contempt
and sanctions. On November 3, 1999, the Annens filed a notice of appeal.5
STANDARD OF REVIEW
We review a dismissal under Federal Rule of Civil Procedure 12(b)(6) de novo. See
Duffy v. Landberg, 133 F.3d 1120, 1122 (8th Cir. 1998), cert. denied
119 S. Ct. 62 (1998);
Frey v. City of Herculaneum,
44 F.3d 667, 671 (8th Cir. 1995).
4
The Annens’ Appendix contains the bankruptcy court docket sheets evidencing
the filing of these documents. The record on appeal, however, does not contain copies of
their objection or their motion.
5
Though their Notice of Appeal references the October 25, 1999 Order, the
Annens limit their Statement of Issue on Appeal to the dismissal of the counterclaim.
Accordingly, we do not review the bankruptcy court’s denial of their motion for contempt
and sanctions.
4
DISCUSSION
Federal Rule of Civil Procedure 12(b)(6) states in relevant part:
Every defense, in law or fact, to a claim for relief in any
pleading, whether a claim, counterclaim, cross-claim, or third-
party claim, shall be asserted in the responsive pleading thereto
if one is required, except that the following defenses may at the
option of the pleader be made by motion: . . . (6) failure to state
a claim upon which relief can be granted, . . . . If, on a motion
asserting the defense numbered (6) to dismiss for failure of the
pleading to state a claim upon which relief can be granted,
matters outside the pleading are presented to and not excluded
by the court, the motion shall be treated as one for summary
judgment and disposed of as provided in Rule 56, and all parties
shall be given reasonable opportunity to present all material
made pertinent to such a motion by Rule 56.
This rule applies in adversary proceedings. See Fed. R. Bankr. P. 7012(b).
Bank One’s motion to dismiss did not present matters outside the counterclaim.
Accordingly, we treat the allegations in the counterclaim as true and we construe the
counterclaim in the light most favorable to the Annens. See Scheuer v. Rhodes, 416 U.S.
232, 236 (1974), overruled on other grounds by Davis v. Scheuer,
468 U.S. 183 (1984). We
may not dismiss the counterclaim if any set of facts, consistent with the allegations, would
support granting the requested relief. See Hishon v. King & Spaulding,
467 U.S. 69, 73
(1984); Conley v. Gibson,
355 U.S. 41, 45-46 (1957). Nevertheless, the counterclaim must
set forth facts that state a claim as a matter of law and must not be conclusory. See Briehl
v. General Motors Corp.,
172 F.3d 623, 627 (8th Cir. 1999) (citing
Frey, 44 F.3d at 671).
Though the Annens’ counterclaim does not cite any specific statutory authority in
support of the relief requested, the allegations in the counterclaim and the record before us
indicate they are relying on 11 U.S.C. section 524(a)(2). That statute provides:
(a) A discharge in a case under this title–
....
(2) operates as an injunction against the commencement
or continuation of an action, the employment of process,
5
or an act, to collect, recover or offset any such debt as a
personal liability of the debtor, whether or not discharge
of such debt is waived;
11 U.S.C. § 524(a)(2). As is evident from the plain language of the statute, the discharge
injunction applies to in personam actions. It does not apply to in rem actions.
Bank One’s complaint, based on events that occurred in 1997, seeks only declaratory
relief — specifically, an adjudication that the satisfaction was void and annulled and the
mortgage was revived with its original priority and priority over Cityscape. That is all.
There is no request for relief in personam. Yet, the Annens’ counterclaim alleges the very
commencement of the declaratory judgment action constituted a violation of the discharge
injunction.
Implicit in the Annens’ argument are two legal conclusions. First, that the execution
of the satisfaction extinguished Bank One’s lien on any unpaid balance remaining after the
Cityscape payment. Second, that an intervening Chapter 7 discharge trumps any remedies
available to Bank One under state law. Bank One, on the other hand, represents it properly
proceeded with the state court action because the lien on the unpaid balance survived both
the execution of the satisfaction and the Chapter 7 discharge.6
That liens pass through bankruptcy proceedings unaffected is well-established. See
Dewsnup v. Timm, 502 U.S. 410, 417,
112 S. Ct. 773, 778,
116 L. Ed. 2d 903 (1992); Long
v. Bullard,
117 U.S. 617, 620-21,
6 S. Ct. 917, 918,
29 L. Ed. 1004 (1886). Hence, if the
lien on the unpaid balance survived the execution of the satisfaction, it would survive the
Chapter 7 discharge absent other action and adjudication in the bankruptcy proceedings.7
6
The parties otherwise agree that the filing of the satisfaction extinguished Bank
One’s priority status on the mortgage.
7
The bankruptcy court concluded the comments on the October 25, 1999 record
by noting the Chapter 7 trustee would be given an opportunity to review the matter to
determine whether an avoidance action pursuant to 11 U.S.C. section 544(b) should be
brought on behalf of the bankruptcy estate.
Aside from that passing remark to the contrary, the record on appeal lacks
information regarding the exempt status of the Annens’ homestead. With respect to the
survival of liens on property exempted from the bankruptcy estate, 11 U.S.C. section
6
If no lien survived the execution of the satisfaction, Bank One could not commence an
action to foreclose on the Annens’ homestead without first reviving the mortgage. The
declaratory judgment is limited to that first step and a clarification about the priority of the
Bank One lien.
We note the Annens on appeal do not challenge the bankruptcy court’s determination
that the declaratory action was in rem. Rather, the Annens contend they should be given an
opportunity to present evidence on Bank One’s ulterior motive in bringing the declaratory
judgment action. They maintain that motive was to circumvent the prohibition against
collecting a discharged debt from debtors personally. However, our thorough review of the
allegations in the counterclaim, in a light most favorable to the Annens, fails to yield more
than their conclusory statements that the commencement of the lawsuit was in reality an in
personam action.
From our review of the entire record on appeal,8 we realize the Annens might have
522(c)(2) provides in relevant part:
(c) Unless the case is dismissed, property exempted under this
section is not liable during or after the case for any debt of the
debtor that arose, or that is determined under section 502 of
this title as if such debt had arisen, before the commencement
of the case, except–
....
(2) a debt secured by a lien that is –
(A) (i) not avoided under subsection (f) or (g)
of this section or under section 544, 545,
547, 548, 549, or 724(a) of this title; and
(ii) not void under section 506(d) of this
title;
11 U.S.C. § 522(c)(2).
8
Bank One’s Appendix, not the Annens’ Appendix, contains copies of the
Annens’ Memorandum of Law and Supplemental Memorandum in opposition to Bank
7
grounds based on events that occurred in August of 1998 to bring a section 524(a)(2) action
in the bankruptcy court separate from and regardless of the commencement of the state court
lawsuit. Nevertheless, Rule 12(b)(6) and the case law interpreting it will not permit us to
consider those allegations as part of the counterclaim itself.
CONCLUSION
We find the Annens’ counterclaim fails to set forth any facts in support of their claim
that Bank One violated the 11 U.S.C. section 524(a)(2) discharge injunction by commencing
the declaratory judgment action in state court. Accordingly, we affirm the order of the
bankruptcy court.
A true copy.
Attest:
CLERK, U.S. BANKRUPTCY APPELLATE PANEL FOR THE
EIGHTH CIRCUIT.
One’s motion to dismiss and in support of their motion for contempt and sanctions.
Attached to the first memorandum is a copy of a letter dated August 4, 1998, addressed
to Steven Annen, and signed by a representative of Bank One’s collection department.
The content of the letter acknowledges the bankruptcy discharge and then proceeds to
discuss payment of the balance on the loan.
8
