Barkley v. Santander Consumer U.S. Inc. (In re Martin)

• Citation: 617 B.R. 866
• Decision Date: 30 March 2020
• Docket Number: ADV. PROC. NO. 19-00041-KMS,CASE NO. 19-02193-NPO
• Parties: IN RE: Bernell MARTIN, Debtor Harold J. Barkley Jr., Trustee, Plaintiff v. Santander Consumer USA Inc., Defendant
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Mississippi

617 B.R. 866

IN RE: Bernell MARTIN, Debtor

Harold J. Barkley Jr., Trustee, Plaintiff

v.Santander Consumer USA Inc., Defendant

CASE NO. 19-02193-NPO

ADV. PROC. NO. 19-00041-KMS

United States Bankruptcy Court, S.D. Mississippi.

Signed: March 30, 2020

Harold J. Barkley, Jr., Jackson, MS, pro se.

Jordan L. Ash, Ash Law Firm, PLLC, Jackson, MS, James Matthew Stephens, Methvin, Terrell, Yancey, Stephens & Miller, PC, Birmingham, AL, for Plaintiff.

Thomas A. Connop, Jason R. Marlin, Locke Lord LLP, Dallas, TX, Stephen T. Masley, McGlinchey Stafford PLLC, Ridgeland, MS, H. Hunter Twiford, III, McGlinchey Stafford PLLC, Jackson, MS, for Defendant.

OPINION AND ORDER GRANTING MOTION TO DISMISS

Judge Katharine M. Samson, United States Bankruptcy Judge This matter came on for hearing on the Motion to Dismiss, ECF No. 16,¹ by Defendant Santander Consumer USA Inc., with Opposition, ECF No. 21, by Plaintiff Harold J. Barkley Jr., chapter 13 trustee in the underlying bankruptcy case. The dispute as described in the amended complaint ("Complaint") centers on the allegation that Santander filed a proof of claim for a debt that under state law was not merely time-barred but extinguished. The Complaint includes counts that are core under 28 U.S.C. § 157(b)(2)(A) and (C) and one count that is non-core. Santander has consented to the bankruptcy court's entry of final orders or judgment in non-core proceedings. Mot. ¶ 9, ECF No. 16 at 2. The Trustee, by not including a statement of consent in the Complaint, has waived the right to contest the bankruptcy court's authority in non-core proceedings. See Miss. Bankr. L.R. 7008-1.

The Complaint pleads five counts: Count I - Violation of Rule 9011(b)(2) and (b)(3) of the Federal Rules of Bankruptcy Procedure ("Rule 9011 Count"), Count II - Violation of the Fair Debt Collection Practices Act, § 1692e and § 1692f ("FDCPA Count"), Count III - Declaratory Judgment Pursuant to 11 U.S.C. § 105(a) ("Declaratory Judgment Count"), Count IV - Injunction Pursuant to 11 U.S.C. § 105(a) ("Injunctive Relief Count"), and Count V - Fraud on the Court, Including False and Fraudulent Proof of Claim ("Fraud on the Court Count"). Compl. ¶¶ 19-45, ECF No. 5 at 4-8. The Complaint also alleges a class action under Rule 23(b)(2) and (b)(3) of the Federal Rules of Civil Procedure ("Civil Rules"), made applicable by Rule 7023 of the Federal Rules of Bankruptcy Procedure ("Bankruptcy Rules"), on behalf of "[a]ll chapter 13 bankruptcy estates in Mississippi in which Santander filed a time-barred Proof of Claim."² Id. ¶ 46, ECF No. 5 at 8.

Santander moves for dismissal under Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure, made applicable by Rule 7012(b) of the Federal Rules of Bankruptcy Procedure. Under Rule 12(b)(1) as to every count in the Complaint, Santander argues that the Trustee lacks constitutional standing or, alternatively, that Santander's withdrawal of the proof of claim made all counts moot. Mot. ¶¶ 3, 4, ECF No. 16 at 2. Under Rule 12(b)(6) as to the FDCPA Count, Santander argues principally that its filing of the proof of claim is not actionable under Midland Funding, LLC v. Johnson , ––– U.S. ––––, 137 S. Ct. 1407, 197 L.Ed.2d 790 (2017). Id. ¶ 6; Br., ECF No. 18 at 9-10. As to the remaining counts, Santander argues that § 105 does not create a private right of action. Mot. ¶ 7.

Santander is correct that all counts of the Complaint must be dismissed, whether for lack of standing or for failure to state a claim upon which relief can be granted. The Motion is therefore granted. But the dismissal is without prejudice, and the Trustee may amend the Complaint.

THE STANDARD UNDER RULES 12(b)(1) AND 12(b)(6)

"When a Rule 12(b)(1) motion is filed in conjunction with other Rule 12 motions, the court should consider the Rule 12(b)(1) jurisdictional attack before addressing any attack on the merits. This requirement prevents a court without jurisdiction from prematurely dismissing a case with prejudice." Ramming v. United States , 281 F.3d 158, 161 (5th Cir. 2001) (citation omitted).

A challenge to subject matter jurisdiction under Rule 12(b)(1) may be either facial or factual. Paterson v. Weinberger , 644 F.2d 521, 523 (5th Cir. 1981). Where, as here, the defendant has not submitted affidavits or other evidence, the challenge is facial. See id. On a facial attack, the court may consider either "the complaint alone [or] the complaint supplemented by undisputed facts evidenced in the record." Williamson v. Tucker , 645 F.2d 404, 413 (5th Cir. 1981). "The burden of proof for a Rule 12(b)(1) motion to dismiss is on the party asserting jurisdiction." Ramming , 281 F.3d at 161 (citing McDaniel v. United States , 899 F. Supp. 305, 307 (E.D. Tex. 1995) ).

To defeat dismissal under Rule 12(b)(6), the plaintiff must plead enough facts to state a claim that is "plausible on its face." Hale v. King , 642 F.3d 492, 498-99 (5th Cir. 2011) (quoting Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ). A claim that is facially plausible supports a reasonable inference that the defendant is liable for the alleged misconduct, not merely the inference that the defendant might have engaged in misconduct. Id. at 499 (citing 556 U.S. at 678-79, 129 S.Ct. 1937 ). The court considers the complaint and its attachments and may also consider (1) documents incorporated by reference into the complaint, (2) documents attached to the motion to dismiss that are central to the plaintiff's claim and referred to in the complaint, (3) matters of which the court may take judicial notice, and (4) matters of public record. Rome v. HCC Life Ins. Co. , 323 F. Supp. 3d 862, 866 (N.D. Tex. 2018).

Whether on a facial challenge to standing under Rule 12(b)(1) or a challenge to the factual sufficiency of the complaint under Rule 12(b)(6), the court accepts as true all well-pleaded facts and construes them in favor of the plaintiff. Henley v. Malouf (In re Roberts) , 556 B.R. 266, 270 (Bankr. S.D. Miss. 2016) (citing Warth v. Seldin , 422 U.S. 490, 501, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975) ); Martin K. Eby Constr. Co. v. Dallas Area Rapid Transit , 369 F.3d 464, 467 (5th Cir. 2004). Facts must be specific. Guidry v. Bank of LaPlace, 954 F.2d 278, 281 (5th Cir. 1992) ("[c]onclusory allegations and unwarranted deductions of fact are not admitted as true").

FACTS ACCEPTED AS TRUE

Santander is a debt collector. Compl. ¶ 7, ECF No. 5 at 2. Its practice for years has been to file proofs of claim in chapter 13 cases that on their face are time-barred under Mississippi's statute of limitations. Id. ¶ 1, ECF No. 5 at 1. Santander files these claims knowing they are time-barred and has filed many such claims in Mississippi bankruptcy courts. Id. ¶¶ 1, 18, ECF No. 5 at 1, 3.

Here, the Debtor bought a truck in 2006, financing the $24,754.68 purchase price with a loan secured by the truck. Id. ¶ 8, ECF No. 5 at 2. The Debtor defaulted on the loan and the truck was repossessed. Id. ¶ 9. On February 10, 2009, the truck was sold for $9,278.65. Id. The Debtor made no payments on the loan after February 9, 2009. Id. ¶ 13, ECF No. 5 at 3. In 2010, Santander took over the servicing of the loan from the original servicer and began attempting to collect the deficiency. Id. ¶ 10, ECF No. 5 at 2.

On June 18, 2019, the Debtor filed the underlying bankruptcy case. Id. ¶ 11, ECF No. 5 at 3. On June 27, 2019, Santander filed a proof of claim for a deficiency balance of $39,243.54. Id. ¶ 12; Ex. A, ECF No. 1-1.

The applicable limitations period for an action on an installment note on a vehicle is one year from the date the pledged vehicle was sold. Compl. ¶ 15 (citing Miss. Code Ann. § 15-1-23 ). The running of the limitations period extinguishes the creditor's right to payment as well as the remedy. Id. ¶ 16 (citing Miss. Code Ann. § 15-1-3(1) ). The debt Santander sought to collect had been extinguished for more than nine years when Santander filed its proof of claim. See Ex. A, ECF No. 1-1 at 5. Santander knew this fact, as evidenced by the Payoff Itemization in its proof of claim. See id.

The Trustee objected that Santander's claim was barred by Mississippi's statute of limitations. Case ECF No. 17 at 2. Santander failed to respond, and on August 13, 2019, an order was entered sustaining the objection and disallowing the claim. Case ECF No. 26.

The Trustee served Santander with a proposed motion for sanctions under Rule 9011 for filing the proof of claim. Compl. ¶ 26. Twelve days after the Trustee served Santander with the proposed motion, Santander withdrew the proof of claim. Id. ; Case ECF No. 33. After Santander withdrew the proof of claim, the Trustee filed the motion for sanctions and, on the same day, this adversary proceeding. Case ECF No. 37; ECF No. 1.

CONCLUSIONS OF LAW

The doctrine of standing limits the category of litigants who may sue in federal court and is inseparable from the Constitution's limitation of federal court jurisdiction to "Cases" and "Controversies." See Spokeo, Inc. v. Robins , ––– U.S. ––––, 136 S. Ct. 1540, 1547, 194 L.Ed.2d 635 (2016) (quoting U.S. Const. art. III, § 2). To establish the "irreducible constitutional minimum" of standing, the plaintiff must clearly allege facts demonstrating three elements: "The plaintiff must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision." Id. (citing Lujan v. Defenders of Wildlife , 504 U.S. 555, 560-61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) ; Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc. , 528 U.S. 167, 180-81, 120 S.Ct. 693, 145 L.Ed.2d 610 (2000) ).

Here, Santander asserts that the Trustee has failed to establish the first element of standing, injury in fact. ECF No. 18 at 6. "To establish injury in fact, a plaintiff must show that he or she suffered ‘an invasion of a legally protected interest’ that is ‘concrete and...