ERIC L. FRANK, U.S. BANKRUPTCY JUDGE.
In this adversary proceeding, Plaintiff Geraldine Bernadin ("the Debtor"), a chapter
U.S. Bank holds the mortgage on the Debtor's residential real property. Ocwen Loan Servicing, LLC ("Ocwen") services the mortgage and also is a named defendant.
U.S. Bank and Ocwen filed a motion to dismiss the Complaint ("the Motion" or "Ocwen's Motion").
By Order dated October 24, 2019, as modified on October 28, 2019 (collectively, "the Order"), I granted the Motion in large part. I dismissed causes of action against U.S. Bank with prejudice, except for Count II. Count II was dismissed in part, but survived insofar as the Debtor seeks partial disallowance of the charges included in the POC for escrow advances made by U.S. Bank after it obtained a judgment in mortgage foreclosure against the Debtor's property.
With respect to Ocwen, the Order recommended that the district court dismiss Count IV of the Complaint, which asserts a claim for violation of the FDCPA.
The Order was accompanied by a lengthy memorandum, now reported as
On November 7, 2019, the Debtor filed a Motion to Reconsider the Order ("the Reconsideration Motion"), asking the court to reverse itself with regard to the disposition of Count IV against Ocwen.
Essentially, the Reconsideration Motion argues that I failed to consider certain facts alleged in the Complaint which the Debtor contends adequately state a claim for relief under the FDCPA. Alternatively, the Debtor argues that even if the facts alleged in the Complaint with regard to Count IV fell short, she should have been given the opportunity to file an amended complaint to supplement those facts.
Ocwen filed a response to the Reconsideration Motion on November 22, 2019. On December 10, 2019, a hearing on the Reconsideration Motion was held and concluded.
As explained below, upon further consideration of the allegations in the Complaint and the POC attached as an Exhibit to the Complaint, and after drawing reasonable inferences in favor of the Debtor, as I must,
Having reached this initial conclusion, it becomes necessary to consider a legal argument advanced in the Ocwen Motion and repeated in response to the Reconsideration Motion,
As explained below, I am unpersuaded by Ocwen's "
For these reasons, the Reconsideration Motion will be granted. Paragraph 4 of the October 24, 2019 Order will be vacated and the Ocwen Motion will be denied insofar as it requests dismissal of Count IV of the Complaint.
In federal practice, the rules of court do not expressly provide for a "motion for reconsideration." Nevertheless, such motions are filed regularly, and if timely (
In this adversary proceeding, the Reconsideration Motion was timely filed under Rule 59(e).
Requests for reconsideration are "not to be used as a means to reargue matters already argued and disposed of or as an attempt to relitigate a point of disagreement between the Court and the litigant."
The traditional requirement for reconsideration is either: (1) an intervening change in controlling law; (2) the existence of new evidence not previously available; or (3) the need to correct a clear error of law or fact or prevent manifest injustice.
In
Further review of both the Reconsideration Motion and the record in this proceeding leads me to conclude that I overlooked certain material alleged facts, and failed to make certain reasonable inferences therefrom, making it appropriate to reconsider the recommended dismissal of Count IV. After giving appropriate consideration to the Complaint and related exhibits, and drawing all reasonable inferences in favor of the Debtor, I conclude that the Debtor adequately pled that Ocwen participated in the filing of the POC that the Debtor contends violated the FDCPA.
In
609 B.R. at 48-49.
The Debtor contends that the Complaint adequately alleges that Ocwen was involved in filing the POC.
In making this argument, the Debtor points to the following portions of the Complaint:
(
This part of the Debtor's argument is not persuasive.
It is an uncontestable fact that Ocwen did
But that does not end the inquiry. The Debtor suggests that, regardless of who actually filed the POC, its unlawful content was prepared or derived from information provided by Ocwen. (Reconsideration Motion ¶¶ 5, 13, 15).
Taking into account the requirement that all reasonable inferences be drawn from the allegations in the Complaint and viewed in the light most favorable to the plaintiff, one can reasonably infer that the Complaint alleges that Ocwen bore at least some responsibility for the content of the POC filed by Phelan Hallinan. I reach this conclusion for two (2) reasons.
First, it is undisputed that at all relevant times U.S. Bank engaged Ocwen to service the subject mortgage loan. Drawing on my judicial experience and common sense, as I am obliged to do in evaluating a motion under Rule 12(b)(6),
Second, there are some textual clues in the POC that point to Ocwen.
The POC directs that all payments be made to Ocwen. Further, Part 2 of the Mortgage Proof of Claim Attachment contains a calculation of various charges included in the "total debt calculation," accompanied by supporting invoices submitted to Ocwen, as well as an escrow account disclosure statement prepared on Ocwen letterhead. It is fair to infer from these documents that Ocwen maintained the account records used in calculating and preparing the demand for payment made in the POC.
Thus,
The next issue is whether Ocwen's participation in the process resulting in Phelan Hallinan's filing of the POC is sufficient to state a claim under the FDCPA, even though Ocwen itself did not file the POC. At oral argument, Ocwen suggested that Phelan Hallinan bore responsibility
As explained below, Ocwen's role in the POC process (based on the facts stated in the Complaint and the reasonable inferences therefrom) suffices to make out a plausible claim for relief under FDCPA.
In this Circuit, it is settled that if a creditor retains two (2) debt collectors,
Recently, in
Neither Pollice nor
Here, if Ocwen retained Phelan Hallinan to assist in its servicing efforts by filing the POC, case law supports the conclusion that Ocwen may be held liable if the filing of the POC violated the FDCPA.
I am cognizant that the Complaint contains no express allegation that Ocwen retained Phelan Hallinan. But again, given the responsibilities that Ocwen had as the servicer of the mortgage, it is a reasonable to infer from the facts alleged in the Complaint and the relevant record that Ocwen engaged Phelan Hallinan to assist in the collection efforts in the bankruptcy case, which included the preparation and filing of the POC.
Whether the degree of Ocwen's participation in the filing of the POC suffices to establish an FDCPA claim ultimately will depend on the facts developed by the Debtor. My conclusion today is simply that the Debtor has pled enough to warrant further proceedings on the issue.
Ocwen's next line of defense is that the filing of a proof of claim in a bankruptcy case,
The Debtor asserts that the POC filed by Phelan Hallinan (with Ocwen's assistance) on behalf of U.S. Bank failed to recognize the consequence of the merger doctrine on the prepetition judgment in foreclosure that U.S. Bank obtained against the Debtor and, as a result, demanded payment of charges that were legally uncollectible. In
The Debtor asserts that in demanding payment of these uncollectible charges in the POC, Ocwen misrepresented the character, amount, or legal status of the debt, see 15 U.S.C. § 1692e(2), and used "unfair or unconscionable means to collect or attempt to collect" the debt by attempting to collect an amount not "expressly authorized by the agreement creating the debt or permitted by law," see 15 U.S.C. § 1692f(1).
At its core, the Debtor's argument is that by filing (or participating in the filing of) a proof of claim that ignored the existence of the foreclosure judgment and the merger doctrine, Ocwen falsely characterized the legal status of the debt and demanded payment of certain charges incurred post-judgment (lender advances for taxes and insurance) that were not authorized by law.
If the payment demands made in the POC had been made by a letter communication or in a civil court complaint
The Debtor contends that the if the FDCPA is violated by a communication in a letter or in a civil court filing, so too the statute is violated by the same conduct when a proof of claim is filed in a bankruptcy case.
Ocwen argues that, as a matter of law, the filing of a proof of claim in a bankruptcy case, cannot be the basis for imposing liability under the FDCPA.
Respectfully, I reject this legal argument.
As explained below, I conclude that, based on the facts and circumstances presented here, the Debtor may invoke the FDCPA and has stated a claim against Ocwen under the statute.
In support of its argument that filing a proof of claim in a bankruptcy case cannot give rise to a claim under the FDCPA, Ocwen cites three (3) cases from within the Third Circuit: a nonprecedential Third Circuit opinion,
Significantly, however, Ocwen fails to cite the Third Circuit's precedential opinion,
As this passage suggests, when two (2) different laws address overlapping subject matter, courts first attempt to interpret those laws so that there is no conflict.
Implicit repeal is a narrow, disfavored doctrine in part because it is not always clear which law controls.
Because bankruptcy is a distinct legal system, with its own procedures and rules, the Bankruptcy Code will usually be the "more specific" provision and override an irreconcilable conflict with the FDCPA.
In
The court reasoned:
732 F.3d at 279.
In short, Simon instructs that if a creditor can comply with both the Bankruptcy Code and Rules and the FDCPA, the creditor
As discussed, Simon establishes the framework for analyzing a proceeding involving the intersection of the FDCPA and the Bankruptcy Code. However, because the dispute here arises in connection with the bankruptcy claims process, the Supreme Court's decision in
In
The Court's primary rationale for its ruling was the broad definition of "claim" under the Bankruptcy Code, which includes a "disputed" claim. But the Court also discussed: (1) certain differences between ordinary civil litigation and the bankruptcy claims process (including the existence of a bankruptcy trustee who may raise an affirmative defense to a proof of claim based on the expiration of the statute of limitations); and (2) more generally, differences between the purposes and structural features of the Bankruptcy Code and the FDCPA.
Certain portions of
137 S. Ct. at 1414-15.
Ocwen proposes a broad reading of
I decline Ocwen's invitation to hold that a debt collector can never violate the FDCPA when it files a proof of claim in a bankruptcy case. The language in
In
In these circumstances — where the Supreme Court has not spoken definitively on
Turning back to the analysis required by Simon, the question presented here is whether an FDCPA claim based on alleged unlawful payment demands made in proof of claim conflicts with the Bankruptcy Code due to the specialized characteristics of the bankruptcy claims allowance process.
The purpose of a proof of claim is to demand payment from the debtor's bankruptcy estate based on an existing debt. In this respect, the claims process mirrors the demand for judgment made by a creditor-plaintiff in a civil action complaint.
At the same time, however, the claims allowance process is heavily "regulated" by
Form B410A includes three (3) sections relevant to the issue before this court.
In Part 2, titled "Total Debt Calculation," the creditor must add the principal balance, interest due, fees and costs due, and any escrow deficiency for funds advanced, then subtract any suspense funds on hand.
The "total debt" calculated in Part 2 of Official Form 410A is the "total debt" number that is placed on the Proof of Claim, Official Form 410, Part 2, Paragraph 7 in answer to the question, "How much is the claim?"
In Part 3 of Form B410A, titled "Arrearage as of Date of the Petition," the creditor must calculate the prepetition arrears by adding principal and interest (past) due, prepetition fees and any existing escrow deficiency, plus a projected escrow shortage, minus funds on hand. This calculation gives the "prepetition arrearage" which also is placed on the proof of claim, Form B410, in Part 2, Paragraph 9 as the "Amount necessary to cure any default as of the date of the petition."
Finally, Part 5 of Form 410B provides a grid for setting forth a loan payment history from the first date of default. The claimant must itemize every payment and charge made by a borrower or incurred by a lender. The numbers in the payment history should match the numbers placed in Parts 2 and 3.
A creditor is obliged to complete Forms B410 and B410A "without alteration, except as otherwise provided in these rules, in a particular Official Form, or in the national instructions for a particular Official Form." Fed. R. Bankr. P. 9009(a).
Parts 2 and 3 of Form B410A mandate these two (2) distinct methodologies for computing a claim (the "total debt" and the "total prepetition arrearage") because 11 U.S.C. § 1322(b)(5) and § 1325(a)(5) give a chapter 13 debtor the option of either proposing a plan to cure a prepetition default or paying off the debt in its entirety.
Requiring the creditor to state both the "cure" and "payoff" amounts in Form B410A thus facilitates case administration. Bearing in mind that a debtor may choose either manner of treating the debt (and might even switch the proposed treatment prior to confirmation). requiring the creditor to state both the "cure" and "payoff" amounts in its proof of claim provides the debtor, the chapter 13 trustee, and interested parties with all relevant information needed to make informed decisions.
In applying Simon to the circumstances presented, the key issue is whether a residential mortgage lender can provide the information required by Forms B410 and B410A (as mandated by Fed. R. Bankr. P. 3001(c)(2)(C)) without violating the FDCPA. If so, there is no conflict between the bankruptcy system and the FDCPA and the Debtor's FDCPA claim may be viable.
I conclude that a creditor can complete Official Forms B410 and B410A (as mandated by the Federal Rules of Bankruptcy Procedure) accurately and without violating the FDCPA. In this respect, there is no conflict between the bankruptcy claims allowance process and the FDCPA.
Admittedly, the term "principal balance" is commonly employed as the starting point in calculating the "payoff" amount of a mortgage debt that has not been reduced to judgment, after which the creditor may add the other components itemized in Part 2 in order to calculate the "total debt." Thus, the drafters of the Form did not tailor the terminology of the Form with precision to account for cases in which the traditional concept of the "principal balance" (and the additional charges accruing under the note and mortgage) have merged into a prepetition judgment.
Based on its use of the term "principal balance," Part 2 of Form 410B might be read superficially as requiring a creditor that holds a foreclosure judgment to calculate its total claim in its proof of claim (as U.S. Bank and its agents did in this case) as if no judgment had been entered — even in a jurisdiction in which the merger doctrine applies! But merely stating that proposition demonstrates the obvious: that cannot possibly be what Part 2 of the Form requires.
The purpose of a proof of claim and the accompanying attachment is to state accurately the amount and itemize the components of the total debt. No official bankruptcy form could be intended to require a creditor (or its debt collector agent) to itemize and request payment of charges that the creditor has no legal right to collect. It is inconceivable that an Official Form would require or permit a creditor to submit misinformation to the court.
Resolution of the issue boils down to this:
Completing the Part 2 of Form 410A in this manner does not require dramatic linguistic, legal or conceptual gymnastics; this approach is not a big "stretch."
For these reasons, I conclude that the Bankruptcy Code and Rules do not conflict with the FDCPA and the Debtor may pursue a claim based on Ocwen's participation in the filing of the POC in this bankruptcy case.
For the reasons stated above, I conclude that the Reconsideration Motion should be granted.
To be clear, I have not determined that Ocwen is liable to the Debtor under the FDCPA. I have determined only that, in Count IV of the Complaint, the Debtor has pled sufficient facts to states a claim against Ocwen under the FDCPA and that there is no rigid, categorical bar against asserting an FDCPA violation based on conduct relating to the filing of a proof of claim in bankruptcy case.
Accordingly, I will enter an order: (1) vacating my prior order as it recommended that the district court dismiss Count IV of the Complaint and (2) denying Ocwen's Motion to Dismiss Count IV of the Complaint.
1. The Motion
2. Paragraph 4 of the court's order dated
3. Defendant Ocwen Loan Servicing, LLC's Motion to Dismiss Count IV of the Complaint (Doc. # 12) is
However, it is worth noting that the FDCPA does not provide relief under 15 U.S.C. §§ 1692e(2), 1692f(1) simply because it is ultimately determined that a debt collector is not entitled to 100% of the amount demanded in its communication. There is a limiting principle: an FDCPA violation arises
Rule 3001(c)(2)(D) and the FDCPA are complementary. The Rule provides a remedy for failure to provide information required by the Rule. The FDCPA provides a remedy when the information required by the Rule is provided but is false, deceptive, misleading, unfair or unconscionable.
For example, while the Court correctly observed that chapter 13 bankruptcy cases have trustees who may object to a proof of claim, 137 S. Ct. at 1414, the Court inexplicably added: ("[t]he trustee normally bears the burden of investigating claims and pointing out that a claim is stale." The assumption that, in actual practice, chapter 13 trustees "normally bear the burden" of evaluating the allowability of claims in chapter 13 cases may lack empirical support. The reality of chapter 13 bankruptcy practice in many districts is that the chapter 13 trustee has no incentive to object to claims and leaves that task to the chapter 13 debtor (or his or her counsel) who may have the incentive to do so only in cases in which the allowance or disallowance of a claim may affect the debtor's ability to obtain confirmation of his or her proposed chapter 13 plan or may reduce the amount the debtor needs to pay into the plan.
Another flaw in the Court's analysis is its statement that "[a]nd, at least on occasion, the assertion of even a stale claim can benefit a debtor. Its filing and disallowance `discharge[s]' the debt. 11 U.S.C. § 1328(a)." 137 S. Ct. at 1414. The Court here suggests that the filing and disallowance of a stale claim is better for a debtor (for discharge purposes) than if the claim was not filed at all. Respectfully, this statement is legally inaccurate. The discharge of a debt pursuant to 11 U.S.C. § 1328(a) does not depend upon the allowance or disallowance of a claim. If a debtor schedules an unsecured debt, gives notice to the claimant and provides for treatment of the claim (presumably, as part of the class of general unsecured creditors) — a provision that exists in virtually every chapter 13 plan — the debt is discharged, regardless whether the creditor files a proof of claim (assuming that it is not subject to an exception to discharge). In these common circumstances, the claim is dischargeable regardless whether a claim is filed, allowed, or disallowed.
