Cawood v. Seterus, Inc. (In re Cawood)

• Decision Date: 29 September 2017
• Docket Number: Adversary Proceeding Case No. 1:15–AP–1116–SDR,Case No. 1:14–BK–13504–SDR
• Citation: 577 B.R. 538
• Parties: IN RE: Joseph C. CAWOOD, Debtor; Joseph C. Cawood, Plaintiff, v. Seterus, Inc., SunTrust Mortgage, Inc., RCO Legal P.C., fka RCO Legal P.S., Priority Trustee Services of TN, LLC, and Federal National Mortgage Association, Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of Tennessee

577 B.R. 538

IN RE: Joseph C. CAWOOD, Debtor;Joseph C. Cawood, Plaintiff,

v.Seterus, Inc., SunTrust Mortgage, Inc., RCO Legal P.C., fka RCO Legal P.S., Priority Trustee Services of TN, LLC, and Federal National Mortgage Association, Defendants.

Case No. 1:14–BK–13504–SDR

Adversary Proceeding Case No. 1:15–AP–1116–SDR

United States Bankruptcy Court, E.D. Tennessee, Southern Division.

Signed September 29, 2017

Appearances for the Plaintiff Debtor, Richard L. Banks, Richard Banks & Associates, P.C., 393 Broad Street NW, Cleveland, TN 37311

Appearances for the Defendants Seterus, Inc., and Federal National Mortgage Association, Carrie Meade Hartfield, Bradley Arant Boult Cummings LLP, One Federal Place, 1819 Fifth Avenue North, Birmingham, AL 35203, Austin L. McMullen, Bradley Arant Boult Cummings LLP, 1600 Division Street, Suite 700, Nashville, TN 37203, J. Douglas Minor, Bradley Arant Boult Cummings, LLP, 188 Capitol Street, Suite 400, Jackson, MS 39201

MEMORANDUM OPINION

Shelley D. Rucker, UNITED STATES BANKRUPTCY JUDGE

On August 11, 2015, Joseph C. Cawood ("Plaintiff," "Debtor," or "Mr. Cawood"), filed this adversary proceeding against defendants Seterus, Inc. ("Seterus"), SunTrust Mortgage, Inc. ("SunTrust"), RCO Legal P.C. ("RCO"), Priority Trustee Services of TN, LLC ("Priority"), and Federal National Mortgage Association ("FNMA"). [Doc. No. 1].¹ On June 10, 2016, Plaintiff amended his complaint to seek class action relief against Seterus and FNMA for "willfully and systematically failing to implement and use appropriate business and accounting practices relating to Chapter 13 debtors after those individuals successfully completed their respective Chapter 13 cases and who have home mortgages owned by Fannie Mae and serviced by Seterus." [Doc. No. 108, at 2]. Plaintiff's Amended Complaint contains six claims for relief: (1) an objection to the claim filed by Seterus in the amount of $72,455.06 and a request pursuant to Federal Rule of Bankruptcy Procedure 7001(2) to determine the validity and amount of the lien; (2) breach of contract; (3) intentional and/or negligent misrepresentation; (4) negligence; (5) failure to credit payments upon receipt in violation of 15 U.S.C. § 1639f ; and (6) violation of the Fair Debt Collections Practices Act ("FDCPA"). [Id. at 21–25]. Plaintiff seeks to have the court order FNMA to amend its claim to reflect an accurate accounting of the amount due and seeks to recover actual, statutory, and punitive damages as well as attorney's fees and expenses. [Id. at 25–26].

On July 8, 2016, Seterus and FNMA (collectively "Defendants") respectively filed motions to dismiss. [Doc. Nos. 121–122]. On September 20, 2016, the court heard oral argument on the motions to dismiss.

Seterus argues for dismissal on the following grounds:

1. The Amended Complaint fails to establish this court's subject matter jurisdiction over Plaintiff's claims. Plaintiff's claims are attempts to enforce a discharge injunction, and the appropriate court to enforce the injunction is the court that issued it. In this case that would be the United States Bankruptcy Court for the Southern District of Texas, where Plaintiff previously completed a chapter 13 case.

2. If this court has jurisdiction, the Amended Complaint fails to state valid claims against Seterus.

a. Count 1 fails to state a claim for relief under Federal Rule of Bankruptcy Procedure 7001(2).

b. Counts 2 through 4 are preempted by the Bankruptcy Code.

3. The Truth in Lending claim in Count 5 fails to satisfy the minimum pleading standards of Federal Rule of Civil Procedure 8(a) because Plaintiff has not made any allegations regarding a failure to credit payments.

4. The class action claims are independently subject to dismissal because this court cannot enforce a discharge injunction issued by another bankruptcy court.

FNMA argues for dismissal on the basis that there are no factual allegations of its misconduct. To the extent that the court finds that the allegations are alleged against FNMA, it adopts the arguments of Seterus.

I. Factual Allegations

Plaintiff's Amended Complaint alleges that he and his then wife bought a home in Cleveland, Tennessee, in 2004. [Doc. No. 108, at ¶ 19]. They financed the purchase through SunTrust and secured the loan with a mortgage on the home. [Id. at ¶ 19]. The loan was made August 3, 2004, in the original principal amount of $86,000. [Id. at ¶ 23]. It was secured by a Deed of Trust recorded in Bradley County, Tennessee. [Id.].

After moving to Texas, Mr. Cawood fell behind on his payments in 2008. [Id. at ¶ 19]. The loan went into default, and SunTrust instituted a foreclosure. To stop the foreclosure, the Cawoods filed chapter 13 bankruptcy on May 12, 2008, in the United States Bankruptcy Court for the Southern District of Texas, In re Cawood, Case No. 08–80227. [Id. at ¶¶ 10, 24]. The court will refer to this proceeding as the "Texas Case." The Cawoods completed the Texas Case on May 31, 2013. [Id. at ¶ 25]. On June 4, 2013, the Texas Case trustee filed a "Notice of Final Cure Payment and Motion to Deem the Mortgage Current and Direct Debtor to Begin Making Direct Payments to SunTrust Bank." [Id. at ¶ 26]. The motion was granted.² [Id. at ¶ 36]. Mr. Cawood received a discharge in the Texas Case on July 8, 2013. [Id. at ¶ 29].

Mr. Cawood resumed making payments on his mortgage. [Id. at ¶¶ 19, 27]. Specifically, on June 11, 2013, he sent SunTrust a payment of $668.78. [Id. at ¶ 27]. On July 6, 2013, he sent SunTrust a second payment of $668.78. [Id. at ¶ 28]. On August, 2, 2013, he sent SunTrust a third payment of $680.45. [Id. at ¶ 30]. On September 6, 2013, he sent SunTrust a fourth payment of $680.45. [Id. at ¶ 31].

In October 2013, SunTrust transferred his mortgage to mortgage servicer Seterus. [Id. at ¶ 20]. That transfer was reflected as recorded in the Office of the Register of Deeds for Bradley County, Tennessee, on November 4, 2013, by a Corporate Assignment of the Deed of Trust. [Id. at ¶ 35]. The assignment states that the servicing of the loan was transferred to Seterus as successor by merger to SunTrust Mortgage, Inc. [Id.]. Mr. Cawood received a letter from Seterus dated October 14, 2013. [Id. at ¶ 32]. The letter notified him that Seterus was now the servicer of his loan on behalf of FNMA and that his loan had a principal balance of $74,479.14, unpaid interest of $2,591.62, and an escrow overdraft of $745.33. [ Id. at ¶ 32]. The letter also returned the September payment that Mr. Cawood had made. [Id. at ¶ 32].

Despite this notification, on October 3, 2013, Mr. Cawood sent Seterus a fifth post discharge payment of $680.45. [Id. at ¶ 33]. On October 30, 2013, Mr. Cawood sent Seterus a sixth payment of $680.45. [Id. at ¶ 34]. Around this time, Mr. Cawood also proceeded to obtain counsel. [Id. at ¶ 36]. In November, his attorney sent Seterus a letter along with a copy of the order deeming the loan current from the Texas Case. [Id.]. He also resent the September payment. [Id.]. On November 12, 2013, Mr. Cawood sent Seterus a seventh payment of $680.45. [Id. at ¶ 37].

Seterus responded to Mr. Cawood's November correspondence by first sending him a letter dated November 14, 2013, congratulating him on having been chosen to participate in a trial period plan for the FNMA modification program and requesting additional documents. [Id. at ¶ 38]. Then, on November 25th, Mr. Cawood received an account summary from Seterus dated November 18th, showing a principal balance of $74,047.35 and an interest rate of 6%. [Id. at ¶ 39].

On December 9, 2013, Mr. Cawood sent an eighth payment of $680.45. [Id. at ¶ 42]. That same day, Mr. Cawood received a letter from Seterus dated December 3, 2013, stating that his loan was in default and that $4,149.23 was due by January 7, 2014. [Id. at ¶ 40]. Mr. Cawood received a letter from Seterus dated December 5, 2013, with an escrow account statement showing a shortage of $554.89. [Id. at ¶ 41]. Seterus offered to spread that shortage over sixty installments and include the escrow payment with his maintenance payment if Mr. Cawood sent payment within thirty days. [Id.]. Seterus also stated that the new payment amount would be $675.28. [Id.]. The December 5th letter was followed by a December 13th letter from Seterus providing an escrow account statement showing the payment amount to be $684.53. [Id. at ¶ 43].

In the latter half of December 2013, Seterus asked Mr. Cawood twice for documentation needed in order to "review the foreclosure proceedings." [Id. at ¶¶ 45–46]. Seterus acknowledged receipt of the December payment but informed Mr. Cawood that his loan was still in default. [Id. at ¶ 44].

Another account summary from Seterus arrived on January 2, 2014. [Id. at ¶ 47]. The current principal balance of Mr. Cawood's loan had increased to $73,901.98. [Id.]. On January 8, 2014, Mr. Cawood sent a ninth payment for $680.45 by money order No. 21499993372. [Id. at ¶ 48]. Seterus acknowledged receipt of the payment but informed Mr. Cawood that it still considered the loan in default. [Id. at ¶ 49].

On February 10, 2014, Mr. Cawood sent a tenth payment of $675.28 by money order No. 20996182225. [Id. at ¶ 51]. Seterus did not send an acknowledgment of receipt of the February payment. [Id.]. On March 1, 2014, Mr. Cawood received a letter from Seterus demanding that $4,030.03 be paid by March 30, 2014. [Id. at ¶ 52]. On March 12, Mr. Cawood sent an eleventh payment of $675.45 for March by money order No. 21499991638. [Id. at ¶ 53]. Seterus acknowledged receipt of the payment on March 17, 2014, but stated that the loan was still in default. [Id. at ¶ 54]. On April 15, 2014, Mr. Cawood sent Seterus a twelfth payment of $675.45 for April by money order No. 21652927018. [Id. at ¶ 55]. On April 18, 2014, Seterus acknowledged receipt of the payment but stated that the loan remained in default. [Id. at ¶ 56].

Seterus sent Mr. Cawood a letter dated April 29, 2014, informing him that his loan had been turned over to RCO Legal...