In re Gray

• Decision Date: 15 March 2011
• Docket Number: No. 11–10640.,11–10640.
• Citation: 447 B.R. 524
• Parties: In re Derrick GRAY, Debtor.
• Court: U.S. District Court — Eastern District of Michigan

447 B.R. 524

In re Derrick GRAY, Debtor.

No. 11–10640.

United States District Court, E.D. Michigan, Southern Division.

March 15, 2011.

Eric J. Simonson, McGlinchey Stafford, PLLC, New Orleans, LA, for Appellant.Kelley L. Callard, U.S. Department of Justice Office of the Trustee, Detroit, MI, for Appellee.

ORDER

JULIAN ABELE COOK, JR., District Judge.

On June 29, 2010, the debtor, Derrick Gray, filed a voluntary bankruptcy petition under Chapter 13 of the bankruptcy code. Wells Fargo Bank, N.A. (“Wells Fargo”)—a secured creditor by virtue of holding and servicing a mortgage loan secured by Gray's real property—filed a proof of claim in which it itemized fees that it claimed Gray owed. This itemization included certain fees—denominated “Inspection Fees” and “Other Advance—Property Preservation”—the necessity and reasonableness of which the United States Trustee (“Trustee”) questioned. The Trustee filed a motion in which he requested an order from the Bankruptcy Court for Wells Fargo to produce certain documents and appear for an examination pursuant to Bankruptcy Rule 2004. Wells Fargo opposed the motion. After a hearing, the Bankruptcy Judge granted the Trustee's request. Currently before the Court is Wells Fargo's motion for leave to appeal the Bankruptcy Court's order.

I.

Before the Trustee filed the Rule 2004 motion in the Bankruptcy Court, he sent a letter to Wells Fargo in which he requested clarification of the nature of $105 in fees denominated “Other Advance—Property Preservation.” Wells Fargo responded to this request by listing the dates on which property preservation services were performed and providing “all of the invoices, work orders, and inspection reports for each of the seven property inspections that made up the $105 charge.” (Appellant's Mot. for Leave at 3). It appears that inspections performed before foreclosure were charged as “Inspection Fees,” but inspections performed after foreclosure were charged as “Property Preservation” fees.

The Trustee questioned whether so many inspections were necessary and whether the associated fees were reasonable, and thus filed his Rule 2004 motion for document production and an examination. The Trustee sought to examine Wells Fargo on the following topics: (1) the total arrearage on Gray's account; (2) the reasonableness of the inspection fees imposed against Gray's account; (3) Wells Fargo's policies and procedures applicable to Gray's account in (a) ordering an inspection and (b) referring a proof of claim; and (4) documents and other information relied on in referring the proof of claim. In addition, the Trustee sought a subpoena duces tecum compelling Wells Fargo to produce the following documents: (1) all communication sent to Gray between May 1, 2009, and June 29, 2010; (2) all documents constituting Wells Fargo's records of Gray's account; (3) all aspects of any agreements between Wells Fargo and a default servicer associated with the Gray case; (4) Wells Fargo's policies and procedures applicable to the Gray case concerning (a) the ordering of and accounting for inspections and property preservation fees; (b) filing proofs of claims on its accounts; and (5) all documents that Wells Fargo relied upon in referring the Gray account for a proof of claim.

At a hearing on the Rule 2004 motion, the Trustee acknowledged that the motivation behind his letter to Wells Fargo—to wit, his concern that Wells Fargo was “double dipping” by charging twice, once under each denominated category of fees, for home inspections—was alleviated by Wells Fargo's responsive letter. (1/19/11 Hr'g Tr. at 4:14–21, attached as Ex. B to Appellant's Mot. for Leave). However, the Trustee stated that he continued to be concerned about the reasonableness of those fees as well as the necessity of performing so many home inspections. (Trustee's Resp. at 2). Wells Fargo objected to the examination, arguing that the “double dipping” theory lacked legal or factual basis and therefore the Trustee had not demonstrated the “good cause” required to support a request for Rule 2004 examination. Moreover, Wells Fargo maintained that the documents and topics encompassed by the request exceeded the permissible scope of a Rule 2004 examination.

In response, the Trustee argued that—even leaving aside the “double dipping” issue—there was still good cause for the examination because: (1) Wells Fargo's labeling of inspections differently depending on whether they were done before or after foreclosure lacked transparency and made it difficult for parties to determine if fees were reasonable; (2) a pre-foreclosure inspection was performed in early December and a post-foreclosure inspection was performed in late December, which appears, on its face, to be unreasonable; and (3) the existence of separate tracking systems pre- and post-foreclosure may—as here—result in unnecessary inspections and raise the specter of Well Fargo attempting to collect unreasonable fees through the bankruptcy process. (1/19/11 Hr'g Tr. at 4:14–5:23).

During the hearing, the Bankruptcy Judge inquired whether the fact that Wells Fargo filed a proof of claim might not be sufficient, by itself, to constitute good cause for a Rule 2004 examination. Separately, the Bankruptcy Judge referred to academic studies that demonstrated that approximately half of mortgage claims contain errors, and suggested that that fact, by itself, might be sufficient to constitute not only good cause—but an obligation—for the Trustee to investigate the reasonableness of the fees reflected in the claim.

On February 10, 2011, the Bankruptcy Court entered an order in which it granted the Trustee's request for a Rule 2004 examination and the issuance of a subpoena duces tecum. Wells Fargo presents three questions on appeal; to wit, whether the Bankruptcy Court (1) erred as a matter of law by permitting the Trustee to proceed with a Rule 2004 examination that exceeds the permissible scope of a Rule 2004 exam; (2) erred as a matter of law by not requiring the Trustee to demonstrate good cause for the requested examination; and (3) abused its discretion in finding that the Trustee had met his burden of demonstrating good cause.

Wells Fargo timely filed a notice of appeal of, and motion for leave to appeal, the Rule 2004 order, and has separately filed the following motions related to its appeal: (1) emergency motion to stay the Rule 2004 order pending this appeal; (2) motion to expedite the motion to stay; and (3) motion for leave to file a reply brief in further support of its motion to appeal. In a prior order, the Court granted the last-listed motion.

Wells Fargo argues that its appeal to this Court is proper on three separate bases: (1) the Rule 2004 order is a final decision as to which Wells Fargo has an appeal of right and over which the District Court properly has jurisdiction, 28 U.S.C. § 158(a)(1); (2) the challenged order is appealable as of right under the collateral order doctrine of Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949); and (3) even if the challenged order is interlocutory, the Court should grant leave to appeal under 28 U.S.C. § 158(a)(3). The Court will consider each argument seriatim.

II.

A federal district court has jurisdiction to hear appeals—and an aggrieved litigant may appeal as of right—from “final judgments, orders, and decrees” of a bankruptcy court. 28 U.S.C. § 158(a)(1). In the Sixth Circuit, “finality ‘is considered in a more pragmatic and less technical way in bankruptcy cases than in other situations.’ ” Winget v. JP Morgan Chase Bank, N.A., 537 F.3d 565, 578 (6th Cir.2008) (quoting Lindsey v. O'Brien, Tanski, Tanzer & Young Health Care Providers of Conn. (In re Dow Corning ), 86 F.3d 482, 488 (6th Cir.1996)); see also Millers Cove Energy Co. v. Moore (In re Millers Cove Energy Co.), 128 F.3d 449, 451 (6th Cir.1997) (citation and internal quotation marks omitted) (“[T]he concept of finality applied to appeals in bankruptcy is broader and more flexible than the concept applied in ordinary civil litigation.”). This is so because “[b]ankruptcy cases frequently involve protracted proceedings with many parties participating.... [Therefore] courts have permitted appellate review of orders that in other contexts might be considered interlocutory.” Dow Corning, 86 F.3d at 488 (quoting A.H. Robins Co. v. Piccinin, 788 F.2d 994, 1009 (4th Cir.1986)).

The test for finality in the bankruptcy context has often been stated as requiring a showing that the challenged order “finally dispose[s] of discrete disputes within the larger case.” E.g., id. (quoting In re Saco Local Dev. Corp., 711 F.2d 441, 444 (1st Cir.1983)); Intercontinental Enters., Inc. v. Keller (In re Blinder, Robinson & Co. Inc.), 127 B.R. 267, 271 (D.Colo.1991) (quoting Adelman v. Fourth Nat'l Bank & Trust Co., N.A. (In re Durability, Inc.), 893 F.2d 264, 265 (10th Cir.1990)) (“The concept of finality.... applies ‘not in the overall case, but rather the particular adversary proceeding or discrete controversy pursued within the broader framework cast by the petition.’ ”). This test has also been said to require a showing that the order “ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.” E.g., In re Barrett, 337 B.R. 896 (6th Cir. BAP 2006), aff'd, 487 F.3d 353 (6th Cir.2007); In re Smelser, 327 B.R. 815, 817 (E.D.Mich.2005).

Analyzing nearly identical language in 28 U.S.C. § 158(d) regarding the jurisdiction of the courts of appeal, the Seventh Circuit has drawn a distinction between “discrete disputes” and “discrete issues,” with only the former being subject to immediate appeal. In re Comdisco, Inc., 538 F.3d 647, 651–52 (7th Cir.2008). A discrete dispute is one that is essentially separable from the larger case, and “disposition of a claim that would be final as a stand-alone suit outside of bankruptcy is also final under § 158(d) in bankruptcy.”...