PAUL M. BLACK, Bankruptcy Judge.
This matter comes before the Court on the Motion for Rule 9011 Sanctions (the "Motion") filed by Doris W. Tucker (the "Debtor") against Beneficial Mortgage Co. of Va. a/k/a Beneficial Financial, Inc. ("Beneficial"),
On October 19, 2014, the Debtor filed a pro se bankruptcy petition for relief under Chapter 7 of the Bankruptcy Code. On February 12, 2013, the Debtor received a discharge in her bankruptcy case, and her case was closed on the same date. On July 31, 2014, this Court granted the Debtor's Motion to Reopen her bankruptcy case. The Debtor filed the Motion on July 29, 2014, alleging that Beneficial and its counsel violated the automatic stay and requested sanctions, and Beneficial, by its counsel, filed a Response, attaching a copy of a State Court Complaint ("Complaint") pending in the Circuit Court of the City of Roanoke, Virginia (the "State Court"). A hearing on the Motion and the Response was held on August 19, 2014.
In her Motion, the Debtor alleges that she filed a Suggestion of Bankruptcy in the State Court on February 27, 2013, and that Beneficial's refusal to dismiss the pending case in State Court violates the automatic stay of 11 U.S.C. § 362. The Response and the Complaint tell a somewhat different story. The Response reflects that on September 25, 2012, Beneficial and Surety Trustees, LLC, filed a complaint against the Debtor, Theodore Tucker ("Tucker"), Freedom First Federal Credit Union, and Paul Phillips, Trustee in the State Court.
The Complaint further alleges that the following documents were placed of record pertaining to the Residence: (1) a Quitclaim Deed dated August 3, 2004 from Nance and the Debtor to Heineman and Johnson, Trustees of the Tucker Family Trust, (2) Notice of Intent to Correct Title dated August 18, 2004, (3) Substitution of Trustee dated November 2, 2004 under which Heineman purported to act as attorney-in-fact on behalf of Beneficial to substitute Heineman as the Trustee under the Beneficial Deed of Trust, (4) document of "Full Conveyance" dated September 7, 2004 executed by Heineman purportedly as substitute Trustee under the Beneficial Deed of Trust, (5) Quitclaim Deed dated in the year 2005 from Heineman and Johnson, Trustees of the Tucker Family Trust to Nance and Tucker, purporting to recover the Residence, and (6) Common Law Lien dated January 9, 2009, executed by Nance which purported, among other things, to assert a $150,000.00 lien against the Residence in reliance upon the Magna Carta and Declaration of Independence, among other authorities. The Complaint further alleges that in 2008, Heineman and Johnson were convicted on 35 counts of operating a conspiracy to defraud mortgage lenders and were sentenced to federal prison sentences of 21 and 25 years, respectively.
According to the Complaint, pursuant to Va.Code § 55-66.10, Beneficial executed and recorded multiple Documents of Rescission to rescind the releases of its deed of trust. After demanding payments due and receiving no payments, but before the Debtor filed for bankruptcy, Beneficial commenced the action in State Court seeking a declaratory judgment that Beneficial holds a first Deed of Trust on the property, a constructive trust on the property, and judgment against the Debtor and Tucker for all amounts due under the Note at that time, totaling $176,797.07, plus the recovery of the overpayment refund. The Response also admitted that the Debtor filed a Notice of Suggestion of Bankruptcy in the State Court on February 27, 2013, and it is undisputed that Beneficial and its counsel received notice of her bankruptcy case.
The Response alleges that the State Court granted Beneficial's demurrer to various counterclaims the Debtor filed against it, along with its motion for entry of default against Tucker, but required evidence before setting damages against him. Beneficial asked for a pre-trial hearing in State Court, which was set for July 30, 2014, and on July 29, 2014, the day before the pre-trial hearing, the Debtor filed her motion to reopen her bankruptcy case, which was followed by the pending Motion for sanctions.
At the hearing on the Motion, the Debtor testified that in addition to the pending State Court foreclosure proceedings, letters sent from Beneficial requesting payment on her discharged debt also provide grounds for Rule 9011 sanctions. A letter dated June 17, 2014 by Beneficial to the Debtor was admitted as Plaintiff's Exhibit 1. The Debtor also testified that she and Tucker did not conspire with Heineman or Johnson, and stated that Heineman and Johnson were imprisoned in 2007, while the check at issue was written in 2009. Further, the Debtor testified that Beneficial has not produced the original check and has not produced any evidence in their State Court case. In response to a question from the Court, the Debtor testified that although she had spoken to three different legal aid attorneys about the pending matter, she did not receive any
At the hearing, counsel for the Respondents reiterated Beneficial's position that although it did obtain a default judgment against Tucker, Beneficial has not tried to collect from the Debtor personally since she filed her bankruptcy petition. Counsel also argued that Beneficial's State Court proceeding is purely in rem in nature and that the letter admitted as Exhibit 1 contains a notification that it is not applicable to a debtor that is currently protected by the automatic stay or a debtor that has received a discharge in bankruptcy. Consequently, the Respondents contend that neither the State Court proceeding nor the letter violate the discharge injunction of 11 U.S.C. § 524.
This Court has jurisdiction of this matter by virtue of the provisions of 28 U.S.C. §§ 1334(a) and 157(a) and the delegation made to this Court by Order from the District Court on July 24, 1984 and Rule 3 of the Local Rules of the United States District Court for the Western District of Virginia. This Court further concludes that consideration of a motion for sanctions for a violation of the automatic stay is a "core" bankruptcy proceeding within the meaning of 28 U.S.C. § 157(b)(2)(G).
Fed. R. Bankr.P. 9011 provides in part:
FED. R. BANKR.P. 9011(a)-(c).
Rule 9011 conforms to Fed. R.Civ.P. 11, and accordingly, "[c]ourts may look to case law interpreting Rule 11 when deciding cases under Bankruptcy Rule 9011." In re Babcock, 258 B.R. 646, 651 (Bankr.E.D.Va.2001) (citing McGahren v. First Citizens Bank & Trust Co. (In re Weiss), 111 F.3d 1159, 1170 (4th Cir.1997)); In re Atlas Mach. & Iron Works, Inc., 190 B.R. 796, 806 (Bankr.E.D.Va.1995). The primary purpose of Rule 11 is "to deter baseless filings ... and thus, streamline the administration and procedure of the federal courts." Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 393, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990). Rule 9011, like Fed.R.Civ.P. 11, "only applies to acts undertaken in a case before the court." Davant v. Bailey (In re Bailey), No. 09-2564, Adv. No. 10-15, 2010 WL 3277908, at *2, 2010 Bankr.LEXIS 2449, at *4 (Bankr. N.D.W.Va. Aug. 13, 2010) (citing Nationwide Mut. Ins. Co. v. Burke, 897 F.2d 734, 739 (4th Cir.1990)).
As evidence in support of her Motion, the Debtor cites to Beneficial's failure to dismiss the Circuit Court case and the letter she received from Beneficial. Rule 9011 only applies to documents filed in this Court; therefore, the documents filed in State Court cannot be a basis for granting the Debtor's Motion. See Nationwide, 897 F.2d at 739 (holding that misrepresentations in documents filed in state court in no way constituted a basis for imposing federal Rule 11 sanctions); In re Bailey, 2010 WL 3277908, at *2-4, 2010 Bankr.LEXIS at *9 (holding that "[r]egarding Rule 9011, this court is only concerned with documents filed ... in this court" and thus, filings in state court provide no basis to impose sanctions under Rule 9011). In the present case, neither Beneficial nor its counsel signed or filed any documents with this Court that would give rise to the imposition of Rule 9011 sanctions; therefore, Rule 9011 sanctions are not appropriate in this case.
Further, even if Rule 9011 applied here, the actions of Beneficial and its counsel in the State Court proceeding do not provide grounds for sanctions because the actions do not violate the discharge injunction of Section 524. After the Debtor received her discharge on February 12, 2014, the automatic stay of Section 362 terminated. 11 U.S.C. § 362(c)(2)(C). Nevertheless, the discharge injunction of Section 524 went into effect to protect the Debtor from collection actions on personal liability for pre-petition debts. See, e.g., In
In general, a discharge in bankruptcy does not affect any in rem rights that a creditor may have against the debtor's property. Rather, a discharge only extinguishes the debtor's personal liability on a claim. Johnson v. Home State Bank, 501 U.S. 78, 84, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991) ("[A] bankruptcy discharge extinguishes only one mode of enforcing a claim — namely, an action against the debtor in personam — while leaving intact another — namely, an action against the debtor in rem."); see also Cen-Pen Corp. v. Hanson, 58 F.3d 89, 92 (4th Cir. 1995) (explaining that courts in the Fourth Circuit "have long followed the principle that in rem claims survive the bankruptcy discharge, while in personam claims are extinguished"); In re Rountree, 448 B.R. at 401 (citing 11 U.S.C. § 524(a)(2) (2011)) ("[T]he discharge injunction does not prohibit the creditor from enforcing an in rem claim against the debtor's property").
Beneficial's State Court proceeding seeks an order finding that it holds a valid first priority lien on the Debtor's Residence. While the pre-bankruptcy request for a judgment is intertwined with the request for in rem relief, Beneficial and its counsel have taken no action to establish any debt as a personal liability of the Debtor post-discharge. It has sought only in rem relief. Given the state of title on the Residence with the many allegedly dubious filings in the land records, and the alleged fraudulently induced release of its deed of trust, Beneficial's in rem proceeding is not without basis. Therefore, neither Beneficial nor its counsel have violated the discharge injunction through their actions in State Court seeking a declaratory judgment as to its lien position.
In addition, the letter from Beneficial to the Debtor, admitted into evidence as Exhibit 1, does not violate the discharge injunction. The letter does indicate that the Debtor's "account is currently past due." Ex. 1. On the back of the letter, and in all capital letters, is a notification that "[t]his statement and any reference in this notice to a personal obligation to make payment do not apply to you if you filed a bankruptcy petition and received a discharge of your personal liability for the obligation identified in this letter or if there is an automatic stay currently in effect. In either case we may not and do not intend to pursue collection of the obligation from you personally and this letter is not intended as a demand from you personally...." Ex. 1.
Harlan, cited above, and Curtis v. LaSalle National Bank (In re Curtis), 322 B.R. 470 (Bankr.D.Mass.2005), both addressed similar letters sent to debtors in the past. However, the present case differs from Harlan and Curtis in that the notification in this case was not hidden in the letter, but set out separately in all capital letters. See Harlan, 402 B.R. at 707 (noting that "[t]he lone indication that [the creditor] was only attempting to enforce its in rem rights is embedded in regular font in the middle of the second paragraph"); Curtis, 322 B.R. at 484 n. 18 (noting that the notification appeared "on the backside of the first page ... and without the capital letters and bold print employed for other sections of the letter"); see also Anderson v. Bank of Am., No.
For the foregoing reasons, the Debtor's Motion is denied. An Order to such effect shall be entered contemporaneously herewith.
