Burch v. Freedom Mortg. Corp.
| Decision Date | 12 July 2019 |
| Docket Number | Civil Action No. 3:18-CV-2731-M-BH |
| Parties | WILLIAM PAUL BURCH, Plaintiff, v. FREEDOM MORTGAGE CORPORATION, LOAN CARE SERVICING CENTER, AND JPMORGAN CHASE BANK, Defendants. |
| Court | U.S. District Court — Northern District of Texas |
Before the Court for recommendation are Defendant Freedom Mortgage Corporation's Motion to Invoke Bankruptcy Reference, filed November 20, 2018 (doc. 26), and Plaintiff's Motion to Sell, filed April 29, 2019 (doc. 65-1). Based on the relevant filings and applicable law, the defendant's motion should be GRANTED, and the case should be referred to the bankruptcy court.
This case involves a dispute over property located at 1713 Enchanted Lane, Lancaster, Texas 75146 (the Property). (doc. 6 at 4.)2 On September 20, 2018, William Paul Burch (Plaintiff) filed this suit against Freedom Mortgage Corporation (Freedom), Loan Care Servicing Center (LCSC), and JP Morgan Chase Bank (Chase) (collectively Defendants) in state court alleging fraud, gross negligence, violations of § 12.002 of the Texas Civil Practice and Remedies Code, and violations of the Texas Deceptive Trade Practices Act (DTPA).3 (See doc. 1-3 at 8-45.)
On or about November 17, 2006, Plaintiff's wife executed a promissory note (the Note) payable to the order of Freedom in the original principal amount of $104,250 (the Loan), as well as a deed of trust (the Deed of Trust) securing payment of the Note. (docs. 1-3 at 18-36; 6 at 4.) Plaintiff also executed the Deed of Trust. (See doc. 1-3 at 35-36.) The Deed of Trust was made for the benefit of Mortgage Electronic Registration Systems, Inc. (MERS), acting solely as nominee for Freedom and its successors and assigns. (doc. 14-1 at 3.) Plaintiff contends that LCSC "was hired to service the Loan, effective November 28, 2006." (doc. 6 at 4.) On April 1, 2007, Chase began servicing the Loan. (docs. 1-3 at 37; 6 at 4.)
On December 1, 2008, Plaintiff and his wife filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. See In re William Burch and Juanita Burch, No. 08-45761-rfn11 (Bankr. N.D. Tex.) (the First Bankruptcy). On December 9, 2009, the bankruptcy court entered an order confirming their Third Amended Plan of Reorganization, which reaffirmed Chase's status as the mortgage holder on the Property and required Plaintiff to enter into a new note in the original principal amount of $68,000 (the First Plan). (id., doc. 246 at 13; doc. 6 at 4.) The First Bankruptcy was closed on September 11, 2012.
On November 27, 2012, MERS assigned its interest in the Deed of Trust to Freedom.4 (docs. 14-1 at 23-24; 54 at 25-26.) On December 28, 2012, Plaintiff filed for bankruptcy under Chapter 13 of the Bankruptcy Code. See In re William Paul Burch, No. 12-46959-mxm7 (Bankr. N.D. Tex.) (the Second Bankruptcy). The Second Bankruptcy was converted to Chapter 11 on December 23, 2013. (id., doc. 100). On February 1, 2016, the bankruptcy court entered an order confirming Plaintiff's Plan of Reorganization (the Second Plan). (id., doc. 188.) The Second Plan, which wasaccepted by Plaintiff and Freedom, provided in relevant part:
[Freedom] shall retain its lien on the [Property]. [Plaintiff] shall retain the [Property] by paying the sum of $77,547.51 with four and one-half percent (4.5%) interest per annum in 360 equal monthly payments with the first being made on the first day of the month after the effective date of the Plan. [Plaintiff] shall resume making payment to Freedom for escrow of taxes for the [Property]. Freedom shall retain the right to declare a default, accelerate payments and foreclosure its lien should [Plaintiff] fail to make any payment within thirty (30) days of its due date.
(Id. at 11.) It stated that the bankruptcy court "shall retain jurisdiction to the maximum extent possible to enforce the Plan, interpret the Plan, and provide for all proceedings and matters for which jurisdiction is preserved by the Plan, and otherwise." (Id. at 9.)
On January 30, 2018, the Second Bankruptcy was converted to Chapter 7. (Second Bankruptcy, doc. 354.) The bankruptcy court entered an order of discharge under 11 U.S.C. § 727, on June 13, 2018. (id., doc. 475.) On August 16, 2018, the bankruptcy court granted the Chapter 7 trustee's request to abandon the Property, finding the abandonment "necessary and in the best interests of the Bankruptcy Estate and its creditors." (id., doc. 586 at 1-2.) The order provided that the bankruptcy court "retains jurisdiction to hear and determine all matters arising from or related to the implementation, interpretation and/or enforcement of this Order." (Id. at 2.) The Second Bankruptcy case is still open.
On September 20, 2018, Plaintiff sued the defendants in state court. (See doc. 1-3 at 8-45.) On September 27, 2018, he filed an amended complaint that added his wife as a plaintiff, abandoned his original claims, removed LCSC and Chase as defendants, and asserted new claims against Freedom for quiet title, slander of title, and breach of contract, and that sought to enjoin it from foreclosing on the Property. (See doc. 1-3 at 67-83.) On October 10, 2018, the state district court issued a temporary injunction restraining Freedom from foreclosing on the Property. (Id. at 97-98.)
On October 16, 2018, Freedom removed the suit, asserting diversity jurisdiction under 28 U.S.C. § 1332. (See doc. 1.) On October 28, 2018, Plaintiff filed a second amended complaint, which added the claims in his original complaint and LCSC and Chase as defendants.5 (See doc. 6.) It asserts claims for fraud, gross negligence, violations of § 12.002 of the Texas Civil Practice and Remedies Code, and violations of the DTPA and seeks "monetary relief of more than $10,000,000," compensatory, punitive, and exemplary damages, court costs, "reasonable attorney's fees pursuant to state statute," and pre- and post-judgment interest. (Id. at 2-9.)
On November 20, 2018, Freedom filed a "Motion to Invoke Bankruptcy Reference." (doc. 26.) Plaintiff responded on December 4, 2018. (doc. 33.) Freedom did not file a reply brief. On April 29, 2019, Plaintiff filed a "Motion to Sell." (doc. 65-1.) Both motions are ripe for consideration.
Under 28 U.S.C. § 157(a), "each district court may provide that proceedings arising under title 11 as core proceedings or arising in or related to a case under title 11, shall be referred to the bankruptcy judges for the district." Like most district courts, the Northern District of Texas has issued a standing order of reference. See Miscellaneous Order No. 33, Order of Reference of Bankruptcy Cases and Proceedings Nunc Pro Tunc (N.D. Tex. Aug. 3, 1983); see also Oxford Expositions, LLC v. Questex Media Grp., LLC, No. 3:10-CV-00095, 2011 WL 1135354, at *2 (N.D. Miss. Mar. 25, 2011) (). Miscellaneous Order No. 33 provides that "any or all cases underTitle 11 and any or all proceedings arising under Title 11 or arising in or related to a case under Title 11 . . . [are to be] referred to the Bankruptcy Judges of this district for consideration and resolution consistent with law." Id.6
Notwithstanding the automatic referral process in Miscellaneous Order 33, the district court retains discretion to refer cases to the bankruptcy court. See Matter of Hipp, Inc., 895 F.2d 1503, 1514 (5th Cir. 1990). Cases should be referred if "(1) the proceeding is one that the Court would, indeed, normally refer to the bankruptcy court under Miscellaneous Order No. 33; and (2) the Court would be unlikely to withdraw the reference in any event—either, permissively, for cause, or because the opposing party could and would file a timely motion that would require withdrawal." Texas United Hous. Program, Inc. v. Wolverine Mortg. Partner Ret., No. 3:17-CV-977-L, 2017 WL 3822754, at *3 (N.D. Tex. July 18, 2017) (citing 28 U.S.C. § 157(d)). Given the textual similarities between Miscellaneous Order No. 33 and § 1334(b), inherent in the first condition is a determination that bankruptcy jurisdiction exists. See Tolliver v. Bank of New York Mellon, No. 4:18-CV-00977-O-BP, 2019 WL 2541018, at *2 (N.D. Tex. Apr. 29, 2019). Accordingly, "where this Court's bankruptcy jurisdiction has been established, the matter should be referred to the Bankruptcy Court absent a compelling reason against referral." Windham v. Mechanics Bank, No. 314CV00087DMBSAA, 2016 WL 129521, at *3 (N.D. Miss. Jan. 12, 2016).
Freedom removed this case based solely on diversity jurisdiction under § 1332, and now seeks to refer the case to the bankruptcy court under § 157. "28 U.S.C. § 157 does not givebankruptcy courts jurisdiction beyond that granted by section 1334; it merely allows district courts to assign cases to bankruptcy courts." In re The Heritage Organization, L.L.C., 454 B.R. 353, 359 fn.4 (2011) ). Accordingly, bankruptcy subject matter jurisdiction must first be established before a case may be referred to the bankruptcy court. See In re Canion, 196 F.3d 579, 584 (5th Cir. 1999) (citing Bass v. Denney (In re Bass), 171 F.3d 1016, 1021 (5th Cir. 1999) ().
"While all federal courts are courts of limited jurisdiction, defined by the Constitution and statute, a bankruptcy court's jurisdiction is even more restricted and wholly defined by statute. In re Enron Corp. Sec., Derivative & "ERISA" Litig., No. CIV.A. G-02-0299, 2002 WL 32107216, at *6-7 (S.D. Tex. Aug. 12, 2002) (citing 28 U.S.C. § 1334(b). "The source of the bankruptcy court's jurisdiction is 28 U.S.C. §§ 1334 and 157."...
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