ERIC L. FRANK, Chief Bankruptcy Judge.
In these adversary proceedings, Plaintiff Susan Boltz-Rubinstein ("the Debtor") seeks damages from the Defendants based upon their purported fraud, TILA and RESPA violations, and violations of certain sections of the Bankruptcy Code, including the automatic stay provision, 11 U.S.C. §362(a). She also seeks the invalidation of the mortgage liens on her home.
All of the Defendants are alleged to be either the holder or the servicer of the Debtor's home mortgages. Bank of America, N.A. ("Bank of America:) is the successor by merger to BAC Home Loans Servicing. (Adv. No. 16-265, Complaint ¶ 6). United Guaranty Residential Insurance Company ("United Guaranty") is the mortgage subsidiary of AIG.
Presently before the court are the Defendants' motions to dismiss the complaints. The primary issue involves the court's subject matter jurisdiction.
The Debtor claims that the bankruptcy court has jurisdiction and should exercise it, because this is a proceeding "related to" the bankruptcy case. The Defendants argue that the bankruptcy court does not have jurisdiction because the issues presented in the complaint cannot affect the administration of the Debtor's now-concluded chapter 13 bankruptcy case. The Defendants alternatively argue that if the bankruptcy court has jurisdiction to hear the cases, I should abstain from doing so, dismissing these cases so they may be brought in a more appropriate, non-bankruptcy forum.
As explained below, I conclude that:
On October 8, 2010, the Debtor commenced this bankruptcy case by filing a chapter 13 petition (Bky. No. 10-16541, Doc. #1) ("the Main Case").
Two (2) proofs of claim were filed asserting secured claims (collectively "the Mortgage Claims") against the Debtor's primary residence ("the Property"). United Guaranty filed a secured proof of claim for $114,027.24 on August 5, 2010, which it amended on July 15, 2011 ("the United Guaranty Claim"). (Claim Nos. 1-1, 1-2). Bank of America,
The Debtor's Third Amended Plan ("the Plan") was confirmed on January 10, 2012. (Main Case, Doc. #167). The Plan provided primarily for the payment of priority tax claims. It did not provide for either of the Mortgage Claims. In fact, the Plan did not even mention the United Guaranty Claim. As for the Bank of America Claim, the Plan stated that "pre-petition mortgage arrears owed to Bank of America . . .
In May of 2015, the Debtor commenced two (2) adversary proceedings (Adv. Nos. 15-176 and 15-183) (the "Prior Adversaries"). The complaints in the Prior Adversaries made the same factual allegations against roughly the same parties as the instant proceedings.
While those Prior Adversaries were pending, NRAC filed a motion for relief from the automatic stay on May 4, 2016, alleging that its interest in the Property was not adequately protected. (Bky. No. 10-1654, Doc. #283). The Debtor contested the motion. Following a June 23, 2016 hearing, the motion was granted. (
The Debtor full performed her payment obligation under the Plan. The Trustee filed his Final Report on June 16, 2016. (Main Case, Doc. # 289). The Debtor received a chapter 13 discharge on September 15, 2016. (
On August 17, 2016, about one (1) month before the entry of the discharge order, the Debtor initiated the first of the two (2) adversary proceedings presently before the court by filing a complaint against Bank of America. She later amended the complaint, adding National Residential Assets Corp. as a defendant. (
The Debtor filed the second adversary proceeding against Bank of America and United Guaranty on October 2, 2016, about one (1) month after receiving her discharge. She later amended that complaint as well. (
The Defendants filed motions to dismiss both matters. (Adv. No. 16-265, Doc. #10; Adv. No. 16-362 Doc. #'s 6, 7, 16, 17, 18, 19, 21, 29, 41, 42) (collectively, "the Motions"). The Debtor responded to the Motions. (Adv. No. 16-265, Doc. #13; Adv. No. 16-362, Doc. #'s 31, 32, 34, 35, 36, 38, 39). The Motions raise issues of subject matter jurisdiction,
A motion to dismiss pursuant to Rule 12(b)(1) challenges the existence of subject matter jurisdiction over a claim. When a motion to dismiss challenges subject matter jurisdiction, the court must distinguish between a Rule 12(b)(1) motion that attacks the complaint on its face and one that attacks the existence of subject matter jurisdiction in fact, quite apart from the allegations in the pleadings. In ruling on a Rule 12(b)(1) motion that attacks the complaint on its face, as the Motions do here, the court must consider the allegations of the complaint as true.
A motion to dismiss under Fed. R. Civ. P. 12(b)(6) tests the legal sufficiency of the factual allegations of a complaint,
In evaluating the plausibility of the plaintiff's claim, the court conducts a context-specific evaluation of the complaint, drawing from its judicial experience and common sense.
The Third Circuit Court of Appeals has condensed these principles into a three (3) part test:
In assessing a Rule 12(b)(6) motion, the court may "consider the allegations in the complaint, exhibits attached to the complaint and matters of public record. . . [as well as] `undisputedly authentic' documents where the plaintiff's claims are based on the documents and the defendant has attached a copy of the document to the motion to dismiss.
The Debtor has pled the following facts:
The Debtor has asserted a number of causes of action against the Defendants. To simplify the analysis, I have taken all of the claims from both adversary complaints and grouped them into three (3) categories.
Category 1 encompasses claims under provisions of the Bankruptcy Code employed in case administration (other than the automatic stay violation claim, which is in Category 3):
All of the claims in Category 1 will be dismissed because they fail to state a claim upon which relief can be granted.
Category 2 covers the non-Bankruptcy Code claims involving breach of contract, fraud and violation of consumer protection statutes:
The Category 2 claims will be dismissed for lack of jurisdiction. Alternatively, if jurisdiction exists, the court will abstain from hearing these claims.
Category 3 is limited to the automatic stay violation claim against Bank of America. This claim is based on Bank of America's action in sending the Debtor an "Act 91" notice and seeks damages under 11 U.S.C. §362(k).
The Debtor asserts claims against the Defendants under §§502, 506 and 105 of the Bankruptcy Code. Implicit in these claims is the premise that every provision of the Code can give rise to a private right of action, entitling a party to relief. This premise is incorrect.
Sections 502 and 506 both play a significant role in bankruptcy case administration, but neither Code provision creates a freestanding private right of action.
The Debtor apparently anticipated this issue and invokes §105(a) as an alternative way to remedy the alleged violations of §§502 and 506.
It is black letter law that §105(a) may be invoked only as authority for the entry of an order enforcing another Code provision. This provision may not be employed to create a new substantive right; nor will it provide a remedy that conflicts with another Code provision.
While perhaps there are circumstances in which it may be appropriate for the court to exercise its §105(a) power to enforce a §502 or §506 determination,
At bottom, because the Plan did not provide for this claim and the filing of the proof of claim had no effect on case administration and caused the Debtor no discernible harm, the use of the court's §105(a) power is inappropriate. Consequently, the Debtor's attempt to leverage §105 to create a claim under §502 cannot survive the Motions.
The Debtor has invoked §105(a) in another way. She asserts that relief under §105(a) is necessary to remedy the Defendants' alleged filing of fraudulent proofs of claims. She argues that the mortgage companies voluntarily "brought their fraud into the court" and that the court should sanction them through its §105 power. (Audio Transcript of Hearing, 3/2/17 at 2:45 P.M). This theory does not fare any better.
Section 105(a) expressly authorizes the court to issue an appropriate order "to prevent an abuse of process." 11 U.S.C. §105(a). Undoubtedly, there are circumstances in which §105 may be invoked to vindicate the integrity of the bankruptcy process and to respond to a fraud perpetuated or attempted to be perpetuated upon the court.
At the hearing on the Motions, the Debtor argued that if the true owner of her mortgage had filed a proof of claim in the case, she would have opted to cure her arrears through the plan, instead of seeking a loan modification outside of the bankruptcy process. At the factual level, this argument is implausible and perhaps disingenuous.
At the time the Debtor opted not to provide for Bank of America's claim in her chapter 13 plan and, instead, chose to pursue a loan modification, she believed that Bank of America was the proper party. The Debtor discovered the alleged fraud later. Thus, regardless of the identity of the true mortgagee, the Debtor made a conscious choice to treat the debt in a particular way, i.e., not to provide for the claim in her plan. The Debtor has alleged no facts or circumstances making it reasonable to believe that the knowledge that her mortgage was held by a different entity would have caused the Debtor to act differently.
Furthermore, even if the Debtor had some interest in curing the default and was discouraged from doing so due to the identities of the parties filing proofs of claim (as implausible as that is), she has alleged no facts to suggest that she had the financial wherewithal to propose and implement a cure plan for her mortgage arrears.
Finally, the Debtor's legal theory essentially is that she has a cause of action for a "federal bankruptcy tort" —
In short, none of the factual allegations and legal theories in Category 1 give rise to any plausible entitlement for relief.
Bankruptcy Courts are courts of limited jurisdiction. Bankruptcy subject matter jurisdiction is conferred by 28 U.S.C. §1334(a) and (b) potentially extends to four (4) types of title 11 matters:
The Debtor's Category 2 claims all are non-Code based claims. They are not a bankruptcy "case" and they do not arise under title 11
To determine whether the bankruptcy court has "related to" jurisdiction over a claim, the Third Circuit employs iconic standard enunciated in
Under
The Debtor has not advanced any theory why the various non-Code based claims can have an impact on the administration of her chapter 13 case. Indeed, it is self-evident that the non-Code based claims, all of which arose post-petition, can no longer affect a bankruptcy case that has been fully administered and is ready to be closed.
At the hearing on March 2, 2017, the Debtor argued that her plan was affected because the Defendants' fraud denied her the right to make informed decisions. The Debtor thus contends that she would have done things differently if she had known about the misrepresentations.
Certainly, hindsight is 20/20, but that is beside the point. Whatever might have happened differently had the Debtor been aware of different "facts," her chapter 13 plan has been confirmed and completed; it is no longer possible to alter the administration of this case.
The remedy the Debtor seeks for her contract and fraud claims further illustrates this court's lack of jurisdiction. She seeks the return of money she paid — all of which was paid to a creditor that was not provided for in her confirmed plan, and some of which was paid prepetition. If the Debtor recovered that money, there would be no impact on the completed plan. The same holds true with respect to the Debtor's TILA and RESPA claims.
A finding of no subject matter jurisdiction is ordinarily sufficient to resolve a case. However, even if there is subject matter jurisdiction over any of these Category 2 claims, it is appropriate to abstain under 28 U.S.C. §1334(c)(1).
There are a number of factors used to determine whether a bankruptcy court should permissively abstain from deciding a matter
In this proceeding, the most relevant factors are: the questionable jurisdictional basis for determining the claims in the bankruptcy court, the effect on the administration of the bankruptcy plan or estate, the degree of remoteness from the main bankruptcy case, the feasibility of severing bankruptcy claims from non-bankruptcy claims, and the possibility of forum shopping.
As discussed above in relation to subject matter jurisdiction, the adjudication of these non-Code claims cannot impact the plan or bankruptcy estate.
For all of these reasons, I would abstain from hearing the causes of action in Category 2 even if the bankruptcy court had subject matter jurisdiction.
As discussed earlier, the Bankruptcy Code does not generally create private rights of action that are separable from the administration of a case. One of the few exceptions is 11 U.S.C. §362(k), which creates a cause of action for damages and attorney fees for willful violations of the automatic stay.
The cause of action under 11 U.S.C. §362(k) exists to vindicate the power of the automatic stay, a key part of the bankruptcy process.
The Third Circuit's explanation of a willful stay violation is:
In the complaint, the Debtor alleges that, while the stay was in place, Bank of America sent an Act 91 notice stating that the Debtor's mortgage was in default and that if she did not cure the default a foreclosure would be filed against her. The Debtor alleges that Bank of America was acting on behalf of BNY Mellon when it filed this Act 91 notice. The Debtor produced evidence that as recently as August 6, 2016, Bank of America claimed it was moving to foreclose on behalf of BNY Mellon, which Bank of America described as the "investor or owner" of the note. (Adv. No. 16-265, Am. Complaint Exhibits A, E).
Bank of America indisputably had knowledge of the automatic stay; it was actively involved in the case as of the petition date. Accordingly, if Bank of America acted on behalf of BNY Mellon (rather than NRAC, which had obtained relief from the automatic stay), it may have wilfully violated the automatic stay. The Debtor alleges that this violation has caused her actual and emotional damages.
These allegations are sufficient to state a claim for a violation of the automatic stay, and therefore, this cause of action will not be dismissed.
For the reasons discussed, the Complaint in Adv. No. 16-362 will be dismissed in its entirety. Adversary 16-265 will be dismissed, with the exception of Count IV, which states a claim based upon 11 U.S.C. §362(k).
An order consistent with this Memorandum will be entered.
The Debtor concedes that NRAC obtained relief from the stay before the Act 91 notice was sent. It is well-settled that an entity that obtains stay relief can delegate that relief to an agent, which can properly take action without violating the stay.
The Debtor has questioned the nature of the relationships among Bank of America, NRAC and BNY Mellon with respect to her note and mortgage during this bankruptcy. At the March 2, 2017 hearing on the Motions, Bank of America's counsel also represented NRAC and stated that: (a) NRAC owns the legal interest in the mortgage; (b) BNY Mellon is an investor in the securitized trust which obtains the beneficial interest in the mortgage; and (c) Bank of America services this mortgage on behalf of both these interests. Additionally, Bank of America has represented that it merged with NRAC into a single entity. Under either of these scenarios, stay relief obtained by NRAC might have been properly exercised by Bank of America. However, at the motion to dismiss stage, there is no evidentiary record to support Bank of America's representations in response to the Motions. Of course, that could change at summary judgment.
