Birmingham v. PNC Bank, N.A. (In re Birmingham)

Decision Date18 January 2017
Docket NumberNo. 15–1800,15–1800
Parties IN RE: Gregory BIRMINGHAM, Debtor. Gregory Birmingham, Plaintiff–Appellant, v. PNC Bank, N.A., Defendant–Appellee.
CourtU.S. Court of Appeals — Fourth Circuit

ARGUED: John Douglas Burns, The Burns Law Firm, LLC, Greenbelt, Maryland, for Appellant. Daniel J. Tobin, Ballard Spahr LLP, Washington, D.C., for Appellee. ON BRIEF: Bryan J. Harrison, Matthew G. Summers, Ballard Spahr LLP, Baltimore, Maryland, for Appellee.

Before THACKER and HARRIS, Circuit Judges, and Gerald Bruce LEE, United States District Judge for the Eastern District of Virginia, sitting by designation.

Affirmed by published opinion. Judge Lee wrote the opinion, in which Judge Harris and Judge Thacker joined.

LEE, District Judge:

The anti-modification clause in 11 U.S.C. § 1322(b)(2) of the Bankruptcy Code protects a mortgagee from having its claim in a Chapter 13 bankruptcy proceeding modified, if the mortgage is secured "only by a security interest in real property that is the debtor's principal residence." 11 U.S.C. § 1322(b)(2). The issue in this appeal is whether reference in the Deed of Trust to escrow funds, insurance proceeds, or miscellaneous proceeds constitute additional collateral or incidental property for purposes of § 1322(b)(2). We hold that these items constitute incidental property, which entitles Appellee to anti-modification protection under § 1322(b)(2). The district court's determination is therefore affirmed.


On May 23, 2014, Appellant Gregory John Birmingham ("Birmingham") filed a voluntary petition for Chapter 13 bankruptcy. J.A. 342–45. One of the claims against Birmingham is a mortgage in the amount of $343,101.87 held by Appellee PNC Bank, N.A. ("PNC"), and secured by a deed of trust ("Deed of Trust") on Birmingham's primary residence at 11721 Chilcoate Lane, Beltsville, Maryland 20705 ("Property"). J.A. 329. According to the District of Maryland Claims Register, there is an arrearage on the mortgage of $93,386.58 as of June 23, 2015. J.A. 329.

Birmingham filed his Original Chapter 13 Bankruptcy Plan on June 4, 2014. J.A. 378. At that point in time, the Property was valued at only $206,400. J.A. 362. The Bankruptcy Plan included a cram-down of PNC's interest in the Property. J.A. 385–86. After a series of objections and amendments to the Bankruptcy Plan, Birmingham filed a Complaint for Declaratory Action pursuant to 28 U.S.C. §§ 2201 –2202 ; 11 U.S.C. §§ 105(a), 506(a), 2201 (11721 Chilcoate Ln Beltsville, MD 20705). J.A. 378–400. Birmingham's Complaint requested a declaration that that PNC's claim be treated as a partially unsecured claim subject to modification. J.A. 399–400.

Birmingham argued that certain provisions of the Deed of Trust required collateral other than real property, which would remove the claim from 11 U.S.C. § 1322(b)(2)'s anti-modification protection. J.A. 397–99. Birmingham cited three specific provisions of the Deed of Trust, involving escrow items (Section Three), property insurance proceeds (Section Five), and miscellaneous proceeds (Section Eleven). J.A. 398. PNC filed a Motion to Dismiss the Adversary Complaint and an accompanying memorandum, contending that the items referred to in the Deed of Trust provisions cited by Birmingham constituted "incidental property," which is part of a debtor's principal residence. J.A. 674. Consequently, PNC argued that the additional items would not expose the PNC mortgage to a cram-down. J.A. 674. After Birmingham filed a response to the motion to dismiss, Bankruptcy Judge Wendelin I. Lipp granted the motion, noting that "the issues raised by [Birmingham] were identical to arguments that repeatedly have been denied by the Bankruptcy Court for this District." J.A. 674.

Birmingham then appealed the Bankruptcy Court's decision to the United States District Court for the District of Maryland. J.A. 405. Birmingham raised the same arguments on appeal, namely that the inclusion of miscellaneous proceeds, escrow funds, and insurance proceeds in the Deed of Trust constitute a waiver of the anti-modification provision of 11 U.S.C. § 1322(b)(2). J.A. 422. The district court affirmed the bankruptcy court's decision, holding that the miscellaneous proceeds, escrow funds, and insurance proceeds provisions describe "benefits which are merely incidental to an interest in real property" and generally are not "additional security for purposes of § 1322(b)(2)." J.A. 679. The district court further noted that the items at issue do not "have any value of their own separate and apart from the Property and the [PNC Deed of Trust]; to the contrary, they all exist only to give effect to the PNC's security interest, which otherwise could be frustrated by a superior lien or by destruction or condemnation of the Property." J.A. 681.

Birmingham filed a timely appeal before this circuit. J.A. 685–88. This case was consolidated with a nearly identical case that similarly originated in the District Court of Maryland, Akwa v. Residential Credit Solutions, Inc., 530 B.R. 309 (D. Md. 2015). The Akwa appeal was dismissed on February 16, 2016. ECF No. 69–2. Accordingly, only the Birmingham appeal is currently before the Court.


This dispute requires us to determine whether the district court properly concluded that the bankruptcy court did not err in dismissing the adversary proceedings against PNC. Specifically, we are to analyze whether the district court correctly affirmed the bankruptcy court's finding that PNC is entitled to the anti-modification protections of 11 U.S.C. § 1322 (b)(2).

Because the district court sits as an appellate tribunal in bankruptcy, our review of the district court's decision is plenary. Bowers v. Atlanta Motors Speedway (In re Se. Hotel Properties Ltd. P'ship), 99 F.3d 151, 154 (4th Cir. 1996) (citation omitted). "We apply the same standard of review as the district court applied to the bankruptcy court's decision." Id."Findings of fact are reviewed for clear error, and conclusions of law are reviewed de novo." Id.(citation omitted).


The bankruptcy court granted PNC's motion to dismiss Birmingham's complaint under Federal Rule of Civil Procedure 12(b)(6). J.A. 675. The district court applied this same standard of review to the bankruptcy court's decision. Id.

A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the legal sufficiency of the complaint. Papasan v. Allain, 478 U.S. 265, 283, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986). The motion should be granted unless the complaint "states a plausible claim for relief." Walters v. McMahen, 684 F.3d 435, 439 (4th Cir. 2012) (citing Ashcroft v. Iqbal, 556 U.S. 662, 679, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ). In considering a Rule 12(b)(6) motion, the Court "must accept as true all of the factual allegations contained in the complaint," drawing "all reasonable inferences" in the non-moving party's favor. E.I. du Pont de Nemours and Co. v. Kolon Indus., Inc., 637 F.3d 435, 440 (4th Cir. 2011) (citations omitted). The court is not obligated to assume the veracity of the legal conclusions drawn from the facts alleged. Adcock v. Freightliner LLC, 550 F.3d 369, 374 (4th Cir. 2008) (citing Dist. 28, United Mine Workers of Am., Inc. v. Wellmore Coal Corp., 609 F.2d 1083, 1085–86 (4th Cir. 1979) ).

The complaint must contain sufficient factual allegations, taken as true, "to raise a right to relief above the speculative level" and "nudge [the] claims across the line from conceivable to plausible." Vitol, S.A. v. Primerose Shipping Co., 708 F.3d 527, 543 (4th Cir. 2013) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). The facial plausibility standard requires pleading of "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Clatterbuck v. City of Charlottesville, 708 F.3d 549, 554 (4th Cir. 2013) (quoting Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 ). The plausibility requirement imposes not a probability requirement but rather a mandate that a plaintiff "demonstrate more than a ‘sheer possibility that a defendant has acted unlawfully.’ " Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009) (quoting Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 ). Accordingly, a complaint is insufficient if it relies upon "naked assertions" and "unadorned conclusory allegations" devoid of "factual enhancement." Id.(citations omitted). The complaint must present " ‘enough facts to raise a reasonable expectation that discovery will reveal evidence’ of the alleged activity." US Airline Pilots Ass'n v. Awappa, LLC, 615 F.3d 312, 317 (4th Cir. 2010) (quoting Twombly, 550 U.S. at 556, 127 S.Ct. 1955 ).

In addition to the complaint, the court will also examine "documents incorporated into the complaint by reference," as well as those matters properly subject to judicial notice. Clatterbuck, 708 F.3d at 557 (citations omitted); see also Matrix Capital Mgmt. Fund, LP v. BearingPoint, Inc., 576 F.3d 172, 176 (4th Cir. 2009) (quoting Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007) ).


Certain provisions of the Bankruptcy Code are relevant to this appeal. "Under Chapter 13 of the Bankruptcy Code, individual debtors may obtain adjustment of their indebtedness through a flexible repayment plan approved by a bankruptcy court." Nobelman v. Am. Sav. Bank, 508 U.S. 324, 327, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993). The relationship between 11 U.S.C. § 506(a) and § 1322(b)(2) is pertinent to this circuit's review of the district court's decision to affirm the bankruptcy court's dismissal of Birmingham's complaint. Section 506(a) is used in conjunction with § 1322 to allow modification, or bifurcation, of a secured creditor's claim into secured and unsecured portions when the claim exceeds the value of the secured property. Nobelman, 508 U.S. at 328, 113 S.Ct. 2106.

In Nobelm...

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