Anthony v. Ocwen Loan Servicing, LLC

• Decision Date: 23 August 2011
• Docket Number: CASE NO. 07-33275 HCD,PROC. NO. 09-3140
• Parties: IN THE MATTER OF BILLY GENE ANTHONY and KIMBERLY ELAINE ANTHONY, DEBTORS. BILLY GENE ANTHONY, KIMBERLY ELAINE ANTHONY, and DEBRA L. MILLER, TRUSTEE, PLAINTIFFS, v. OCWEN LOAN SERVICING, LLC; BANK OF NEW YORK TRUST COMPANY, NA; BANK ONE, N.A., as Trustee of the Amortizing Residential Collateral Trust, 2002-BC1; THE CIT GROUP/CONSUMER FINANCE INC., and JPMORGAN CHASE BANK, N.A., DEFENDANTS.
• Court: U.S. Bankruptcy Court — Northern District of Indiana

IN THE MATTER OF BILLY GENE ANTHONY

and KIMBERLY ELAINE ANTHONY, DEBTORS.

BILLY GENE ANTHONY, KIMBERLY ELAINE ANTHONY, and DEBRA L. MILLER, TRUSTEE, PLAINTIFFS, v. OCWEN LOAN SERVICING, LLC;

BANK OF NEW YORK TRUST COMPANY, NA;

BANK ONE, N.A., as Trustee of the Amortizing

Residential Collateral Trust, 2002-BC1;

THE CIT GROUP/CONSUMER FINANCE INC.,

and JPMORGAN CHASE BANK, N.A., DEFENDANTS.

CASE NO. 07-33275 HCD

PROC. NO. 09-3140

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF INDIANA SOUTH BEND DIVISION

August 23, 2011

Appearances:

Brad A. Woolley, Esq., for plaintiff debtors, 103 East Broadway, Monticello, Indiana 47960;

Debra L. Miller, Esq., and Sarah Elisabeth Willms, Esq., for plaintiff Trustee, P.O. Box 11550, South Bend, Indiana 46634; and

Carl A. Greci, Esq., and Scott J. Fandre, Esq., for defendants, Baker & Daniels LLP, 202 South Michigan Street, Suite 1400, South Bend, Indiana 46601.

MEMORANDUM OF DECISION

At South Bend, Indiana, on August 23, 2011.

Before the court is the Motion to Dismiss of the defendant Ocwen Loan Servicing, LLC (which describes itself as the "Servicing Agent for The Bank of New York, as Successor-in-Interest to JPMorgan Chase Bank, N.A., as Trustee, Successor-in-Interest to Bank One, N.A., as Trustee of the AmortizingResidential Collateral Trust, 2002-BC1", R.7, p. 1) ("Ocwen" or, collectively, "defendant"), seeking to dismiss the Complaint of the plaintiffs Billy Gene Anthony and Kimberly Elaine Anthony, chapter 13 debtors, and Debra L. Miller, Standing Chapter 13 Trustee of this bankruptcy case.¹ The Motion was brought pursuant to Federal Rule of Civil Procedure 12(b)(6) on the ground that the Complaint failed to state a claim upon which relief could be granted. After the parties' briefs were filed, the court took the matter under advisement.²

BACKGROUND

This adversary proceeding has been filed in the second bankruptcy case of the debtors herein ("Second Case"). In the previous case ("First Case"), the court dismissed an adversary complaint brought by the debtors' chapter 7 Trustee against these defendants. The dismissal, with prejudice, was based upon the fact that the complaint was time-barred under 11 U.S.C. § 546(a)(1). The court then dismissed the bankruptcy case itself, pursuant to 11 U.S.C. § 349, without prejudice to the debtors' refiling another bankruptcy case if they qualified. No appeal was taken in either of the dismissals in the First Case.

Before the court now is Ocwen's Motion to Dismiss the Complaint in the adversary proceeding of the Second Case. The underlying facts are unchallenged, and the pertinent factual background will clarify the issues now before the court. The court is mindful that, when weighing whether to grant a motion to dismiss, it "must accept as true all of the factual allegations contained in the complaint." Erickson v. Pardus, 551 U.S. 89, 94, 127 S. Ct. 2197, 167 L.Ed.2d 1081 (2007); see also Seidel v. Byron, 405 B.R. 277, 284 (N.D. Ill. 2009). A court may also consider documents referenced in the plaintiff's complaint and central to the plaintiff's claims. See Seidel, 405 B.R. at 284. In addition, a court may take judicial notice of therecords in its own cases. See In re Fink, 351 B.R. 511, 517 n. 1 (Bankr. N.D. Ill. 2006) (noting documents in previous bankruptcy).

On June 28, 2001, the debtors and The CIT Group/Consumer Finance, Inc. ("CIT") executed a promissory note and mortgage, pledging the debtors' residential property in Medaryville, Indiana, as collateral. The debtors filed their first chapter 13 petition on August 1, 2003. See Case No. 03-34359, First Case. Among their assets was the fee simple interest in the Medaryville property. Ocwen (on behalf of Bank One, N.A.) filed a Proof of Claim ("Claim No. 11") asserting that it was a secured creditor under the note and mortgage on the Medaryville property. The debtors' confirmed plan deemed Ocwen a secured creditor, and Ocwen received payments under it as a secured creditor.

However, when the Trustee determined that the mortgage lien had not been recorded or perfected, she filed a complaint ("complaint") under 11 U.S.C. § 544 to avoid Ocwen's mortgage lien. See Adv. Proc. No. 06-3085. Ocwen responded with a motion to dismiss, contending that the complaint had been filed untimely and was barred by the two-year statute of limitations set forth in 11 U.S.C. § 546(a)(1). The court found that § 546 applied to bar the complaint, and it dismissed the complaint with prejudice for failure to state a claim. (See R. 24, 25, Adv. Proc. No. 06-3085, "Judgment").

Soon thereafter, the court ordered the debtors' bankruptcy case dismissed because its plan was underfunded and the debtors' payments were delinquent. That Order of Dismissal was without prejudice to the debtors' refiling another bankruptcy case. Four days later, the debtors filed a second chapter 13 petition, one that commenced the bankruptcy case now before the court. See Case No. 07-33275 ("Second Case"). Ocwen (on behalf of JPMorgan Chase Bank) filed a Proof of Claim ("Claim No. 16"), again asserting its secured status, but it was filed one month after the claims bar date. The debtors' Third Amended Plan, confirmed on July 6, 2010, listed the debtors' debt to Ocwen as a secured debt "if allowed by the court" and as an unperfected lien.

To resolve Ocwen's status as a creditor, the debtors and Trustee commenced this adversary proceeding against Ocwen by filing a Complaint to Determine Extent and Priority of Lien ("Complaint") pursuant to § 544. In the factual allegations, the plaintiffs stated that CIT claimed to hold a mortgage on the property; that the Bank of New York, Bank One, and JPMorgan Chase Bank claimed to be successors in interest and/or trustees of the mortgage; and that Ocwen Federal Bank, FSB, filed the proof of claim and appeared to service the mortgage. According to the Complaint, a title search revealed that the mortgage executed on June 28, 2001, was not recorded. In addition, alleged the Complaint, the defendants admitted that the original warranty deed, quit-claim deed, and mortgage were lost and that the Pulaski County Recorder's Officer had refused to record the documents submitted as copies. The Complaint also contended that Ocwen's proof of claim was untimely and defective and that the plaintiffs could not tell from the defendants' pleadings who was the rightful owner of the note and mortgage.

In Count I, the plaintiffs sought to avoid the unrecorded, unperfected mortgage lien under § 544. In Count II, the plaintiffs argued that Ocwen's proof of claim, which attached the unrecorded, unperfected mortgage and copy of the note, should be disallowed as a secured claim and deemed an unsecured claim. Count III alleged that, because Ocwen did not produce the original note and did not file a timely proof of claim, Ocwen's proof of claim should be disallowed in its entirety. Count IV asserted that, under UCC 3, defendants were required to produce the original note in order to receive payment in the case. Because Ocwen allegedly could not produce the original note, the plaintiffs requested that Ocwen's proof of claim be disallowed in its entirety.

Ocwen, representing all the defendants with the exception of CIT, filed a Motion to Dismiss and a supporting Memorandum. It pointed out that, in the First Case, this court found the complaint barred by the applicable statute of limitations; it then argued that the court should reject the same complaint filed in this adversary proceeding. It asked the court to dismiss this second attempt to avoid its mortgage for three reasons: (1) The dismissal of the debtors' First Case did not vacate the court's order dismissing theavoidance action; (2) the plaintiffs' avoidance claim was barred by the doctrine of res judicata; and (3) avoidance of Ocwen's mortgage claim violates policies underlying the Bankruptcy Code and policies of fairness.

DISCUSSION

Motions to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6)³ are reviewed under the Supreme Court's directives established in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 167 L.Ed.2d 929 (2007), and Ashcroft v. Iqbal, _ U.S. _, 129 S. Ct. 1937, 173 L.Ed.2d 868 (2009). Those decisions dictate that a complaint must be dismissed if its allegations do not "contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Iqbal, 129 S. Ct. at 1949 (quoting Twombly, 550 U.S. at 555); see also Atkins v. City of Chicago, 631 F.3d 823, 831-32 (7th Cir. 2011); Reger Dev., LLC v. National City Bank, 592 F.3d 759, 764 (7th Cir.), cert. denied, 130 S. Ct. 3507 (2010). In addition, when a party alleges fraud in the complaint, he "must state with particularity the circumstances constituting fraud." Fed. R. Civ. P. 9(b); Fed. R. Bankr. P. 7009; see also Reger Dev., 592 F.3d at 764. In this case, however, the defendant does not base his arguments on the insufficiency of the complaint's factual allegations. Instead, it asserts that the Complaint fails to state a claim for relief on statutory, procedural and equitable grounds.

A. Dismissal under 11 U.S.C. § 349

Ocwen first claimed that the dismissal of the First Case did not vacate the court's Order dismissing the avoidance action. When the debtors' First Case was dismissed, the effect of that dismissal was governed by § 349 of the Bankruptcy Code:

(a) Unless the court, for cause, orders otherwise, the dismissal of a case under this title does not bar the discharge, in a later case under this title, of debts that were dischargeable in the case dismissed; nor does the dismissal of a case under this title prejudice the debtor with regard to the filing of a subsequent petition under this title, except as provided in section 109(g) of this title.

(b) Unless the court, for cause, orders otherwise, a dismissal of a case other than under section 742 of this title -

(1) reinstates -

(A) any proceeding or custodianship superseded under

...