Faulkner v. M & T Bank (In re Faulkner)

• Decision Date: 03 October 2018
• Docket Number: Adv. No. 17-276,Bky. No. 17-10660 ELF
• Parties: IN RE: Mattie Mae FAULKNER, Debtor. Mattie Mae Faulkner, Plaintiff, v. M & T Bank, Defendant.
• Court: United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania

593 B.R. 263

IN RE: Mattie Mae FAULKNER, Debtor.

Mattie Mae Faulkner, Plaintiff,

v.M & T Bank, Defendant.

Bky. No. 17-10660 ELF

Adv. No. 17-276

United States Bankruptcy Court, E.D. Pennsylvania.

Signed October 3, 2018

Irwin Lee Trauss, Philadelphia Legal Services, Philadelphia, PA, for Plaintiff.

Denise Elizabeth Carlon, Thomas I. Puleo, KML Law Group, P.C., Philadelphia, PA, for Defendant.

MEMORANDUM

ERIC L. FRANK, U.S. BANKRUPTCY JUDGE

I. INTRODUCTION

Mattie Mae Faulkner ("the Debtor") filed this chapter 13 bankruptcy on January 30, 2017. On March 27, 2017, M & T Bank ("M & T") filed a proof of claim in the amount of $126,523.43, secured by a mortgage on the Debtor's residential real property, 5432 North Fairhill Street, Philadelphia, PA ("the Property").

On September 12, 2017, the Debtor filed a Complaint commencing this adversary proceeding against M & T. She filed an Amended Complaint on January 2, 2018.

This adversary proceeding is the latest legal skirmish involving the Property, going back to 2002. Prior to the commencement of this adversary proceeding, the Property was the subject of four (4) mortgage foreclosure lawsuits in state court and three (3) prior bankruptcy cases.

The Amended Complaint raises eight (8) causes of action, invoking a broad range of legal theories, including lack of standing to enforce the secured debt, the Rooker - Feldman doctrine, res judicata, breach of contract, and violation of state and federal consumer protection statutes. Some of the claims are purely defensive in nature, designed to reduce or entirely eliminate M & T's allowed claim; others are affirmative claims for damages.

On January 19, 2018, M & T filed a motion to dismiss ("the Motion") the Amended Complaint under Fed. R. Bankr. P. 7012 (incorporating Fed. R. Civ. P. 12(b)(6) ), asserting that it has an enforceable right to collect the debt embodied in its secured proof of claim and that the Debtor's claims lack merit as a matter of law. The Debtor filed her response to the Motion on February 19, 2018.

Some of the issues presented by the parties are so clear cut that I wonder why they bothered to press them. Others are more problematic, sometimes involving difficult, unsettled issues of state law.

The task of working through the claims and M & T's asserted grounds for dismissal was made more arduous because the Debtor's forty (40) page, more than 200 paragraph Amended Complaint is unnecessarily prolix and filled with legal conclusions interspersed in the statement of facts and factual allegations interspersed in the statement of claims. But see Fed. R. Bankr. P. 7008 (incorporating Fed. R. Civ. P. 8 ) (complaint should contain "a short and plain statement of the claim showing that the pleader is entitled to relief").

The Motion will be granted in small part and denied in large part.

For the reasons set out below, I will:

• grant the Motion and dismiss Counts II and III, which request that M & T's proof of claim be disallowed based on the Rooker- Feldman doctrine and res judicata;

• grant the Motion in part as to Count VI, insofar as the Debtor seeks affirmative damages for breach of contract, but I will permit Count VI to go forward insofar as it constitutes a defensive objection to M & T's claim, seeking a partial disallowance of the claim;

• deny the Motion as to all of the remaining claims:

Count I – lack of authority to collect the secured debt;

Count IV – partial claim disallowance based on the merger doctrine;

Count V – partial claim disallowance based on Pennsylvania Act 6 of 1974;

Count VII – damages for violation of the Pennsylvania Unfair Trade Practice and Consumer Protection Law; and

Count VIII – damages for violation of the Federal Fair Debt Collection Practices Act.¹

II. RULE 12(b)(6) LEGAL STANDARDS

The Defendant has moved to dismiss the Amended Complaint for failure to state a claim under Fed. R. Civ. P. 12(b)(6) (made applicable in adversary proceedings by Fed. R. Bankr. P. 7012 ).

A motion to dismiss under Fed. R. Civ. P. 12(b)(6) tests the legal sufficiency of the factual allegations of a complaint, see Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993), and determines whether the plaintiff is entitled to offer evidence to support the claims, Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 563 n.8, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A defendant is entitled to dismissal of a complaint only if the plaintiff has not pled enough facts to state a claim for relief that is plausible on its face. Twombly, 550 U.S. at 547, 127 S.Ct. 1955. A claim is facially plausible where the facts set forth in the complaint allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).

In evaluating the plausibility of the plaintiff's claims, the court conducts a context-specific evaluation of the complaint, drawing from its judicial experience and common sense. See, e.g., Fowler v. UPMC Shadyside, 578 F.3d 203, 211 (3d Cir. 2009) ; In re Universal Mktg., Inc., 460 B.R. 828, 834 (Bankr. E.D. Pa. 2011) (citing authorities). In doing so, the court is required to accept as true all allegations in the complaint and all reasonable inferences that can be drawn therefrom, viewing them in the light most favorable to the plaintiff. See, e.g., Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984) ; Taliaferro v. Darby Twp. Zoning Bd., 458 F.3d 181, 188 (3d Cir. 2006). The court is not bound to accept as true a legal conclusion couched as a factual allegation. Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 ; Twombly, 550 U.S. at 555, 127 S.Ct. 1955.

In the Motion and the Debtor's response, each party refers to various documents that were docketed in the prior state court and bankruptcy proceedings. Consequently, Fed. R. Civ. P. 12(d) also is relevant. It provides:

If, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Rule 56. All parties must be given a reasonable opportunity to present all the material that is pertinent to the motion.

In Schmidt v. Skolas, 770 F.3d 241, 249 (3d Cir. 2014), the Court of Appeals explained that there are situations in which a court may consider matters outside of the factual allegations in the complaint without transforming a Rule 12(b)(6) motion into a Rule 56 motion for summary judgment:

To decide a motion to dismiss, courts generally consider only the allegations contained in the complaint, exhibits attached to the complaint and matters of public record. However, an exception to the general rule is that a document integral to or explicitly relied upon in the complaint may be considered without converting the motion to dismiss into one for summary judgment . The rationale underlying this exception is that the primary problem raised by looking to documents outside the complaint—lack of notice to the plaintiff—is dissipated [w]here the plaintiff has actual notice ... and has relied upon these documents in framing the complaint. [W]hat is critical is whether the claims in the complaint are ‘based’ on an extrinsic document and not merely whether the extrinsic document was explicitly cited.

Schmidt, 770 F.3d at 249 (quotations and citations omitted) (emphasis added).

III. FACTS

The following facts are based on the Amended Complaint and the court records of the Court of Common Pleas of Philadelphia County and this court.²

In 1994, the Property was solely owned by Kevin Faulkner, then the Debtor's spouse. At that time, Kevin Faulkner entered into a loan transaction with Provident Mortgage Corporation, secured by a mortgage ("the Mortgage") on the Property in the amount of $53,900.00. Kevin Faulkner was the sole obligor on the associated note ("the Note"). Later, the Mortgage was assigned to Provident Bank of Maryland.

In 2002, Provident Bank of Maryland filed a mortgage foreclosure action against the Property, naming Kevin Faulkner as the sole defendant ("the 2002 First Foreclosure"). On February 24, 2003, Provident Bank of Maryland obtained a default judgment in foreclosure for $59,830.40 ("the 2003 Judgment").

Soon after the 2003 Judgment was entered, the Debtor finalized her divorce from Kevin Faulkner. On June 26, 2003, pursuant to a court order, the Prothonotary of the Court of Common Pleas executed a deed, transferring the Property to the Debtor. The deed was recorded on July 14, 2003.

On February 27, 2003, (three (3) days after the entry of the 2003 Judgment, but prior to the execution and recording of the Prothonotary's deed to the Property), the Debtor filed her first chapter 13 bankruptcy case, docketed at Bky. No. 03-12945. In the course of that case, she filed an adversary proceeding against Provident Mortgage Corporation, Adv. No. 04-058, that was settled on terms not apparent on the record. The Debtor's chapter 13 plan was confirmed on September 9, 2003, but the case was dismissed on September 14, 2004 for failure to make plan payments.

On November 29, 2004, the Debtor filed her second chapter 13 bankruptcy case, docketed as Bky. No. 04-35789. The Debtor's chapter 13 plan, which was confirmed on June 28, 2005, was designed to cure the default on the Mortgage. The case was dismissed on motion of the chapter 13 trustee, by order dated December 20, 2005.

On April 11, 2006, the Debtor filed her third chapter 13 bankruptcy case, docketed as Bky. No. 06-11509. Her chapter 13 plan was confirmed on February 27, 2007. Again, the plan was designed to cure the default on the Mortgage. The case was dismissed on April 29, 2008 for failure to make the required plan payments.

On October 16, 2008, Provident Bank filed its second mortgage foreclosure action ("the 2008 Second Foreclosure") against the Debtor and Kevin Faulkner. On November 11, 2008, while the action was pending, Provident Bank of Maryland assigned the Mortgage to Provident Bank. On February 17, 2009...