Connor v. Prop. Fund 629, LLC (In re Connor)
| Decision Date | 09 September 2021 |
| Docket Number | Adv. Proc. No. 3:21-ap-90037 (Lead Adversary Proceeding),Case No. 3:21-bk-00276, Adv. Proc. No. 3:21-ap-90051 |
| Citation | 632 B.R. 506 |
| Parties | IN RE: David Silas CONNOR, Debtor. David Connor, Plaintiff, v. Property Fund 629, LLC, 1 Public Homes, LLC, Edward Dale Russell, and Trent Notestine, Defendants. David S. Connor and Courtney T. Connor, Plaintiffs, v. MEB Loan Trust IV (aka Specialized Loan Servicing, LLC), Edward Dale Russell, 1 Public Homes, LLC, Property Fund 629, LLC, Mackie Wolf Zientz & Mann, P.C., and Eric Sox, Defendants. |
| Court | U.S. Bankruptcy Court — Middle District of Tennessee |
Keith David Slocum, Harlan Slocum & Quillen, Columbia, and G. Kline Preston, IV, Kline Preston Law Group, Nashville, for David and Courtney Connor Plaintiffs.
Robert T. Lieber, Jr., Mackie Wolf Zientz & Mann, P.C., Brentwood, for MEB Loan Trust IV, Specialized Loan Servicing, LLC, Mackie Wolf Zientz & Mann, P.C. (the "Foreclosure Defendants")
(Removed from Williamson County Circuit Court, Case No. 2021-100)
An attorney involved in the eviction of a debtor in bankruptcy has been sued for violation of the automatic stay. He seeks refuge from a narrow exception in the automatic stay statute that protects certain post-petition evictions that arise from a pre-petition judgment for possession. The reliance on this limited exception is misplaced under the facts of this case, and the motion to dismiss is denied.
David S. Connor, a debtor in a Chapter 13 proceeding, has sued eight different defendants over the foreclosure sale of his residence and the subsequent eviction of his family.1 The litigation includes claims against two attorneys and a law firm involved in various aspects of the foreclosure and eviction. One of the attorneys sued is Edward Russell.
Mr. Russell became involved after the foreclosure was completed and after a state court writ of possession had been obtained for the eviction of Mr. Connor and his family. While Mr. Russell's role was circumscribed, his actions occurred after the bankruptcy was filed and after the automatic stay was in place.
Mr. Russell asserts that Mr. Connor cannot state a claim for relief because the continuation of the eviction was excepted from the automatic stay pursuant to 11 U.S.C. § 362(b)(22). That subsection of the Bankruptcy Code provides a safe harbor for lessors in certain defined circumstances where the lessor wins the race to the courthouse, obtaining an eviction order in state court before the tenant files a petition in bankruptcy court. There are multiple problems with trying to apply this limited exception to the facts alleged in the Complaint, but the most basic obstacles are that there is no "lease or rental agreement," and the evicting party was not a "lessor," as required by the statute.
Mr. Connor owned a residence subject to two deeds of trust. The holder of the second deed of trust, MEB Loan Trust IV, foreclosed on the property on November 5, 2020. Property Fund 629, LLC was the purchaser at foreclosure. The deed transferring title to Property Fund 629 was recorded on November 20, 2020.
In his complaints, Mr. Connor raises numerous issues about the foreclosure and subsequent eviction process and accuses the eight defendants of multiple improprieties. Some of those defendants have filed their own motion to dismiss which is addressed in a separate opinion. Mr. Russell's motion to dismiss is limited to the claim for violation of the automatic stay, so the Court's focus in ruling on his motion is on the allegations tied to his role in the eviction process as it relates to the stay.
Tennessee law has a process known as "unlawful detainer" that provides a procedure for landlords to evict tenants. That process is initiated by filing a "detainer summons" in the state General Sessions Court where the property is located. On November 23, 2020, prior to Mr. Russell getting involved, 1 Public Homes LLC filed a detainer summons in Williamson County General Sessions Court, seeking possession of the property. Mr. Connor raises an issue in the Complaint about whether 1 Public Homes had any right to file the detainer action. He alleges that 1 Public Homes was not the purchaser at foreclosure and its deed was not recorded at the time it filed the detainer summons. Mr. Connor attached to the Complaint a copy of an unrecorded quitclaim deed transferring the property from Property Fund 629 to 1 Public Homes that purports to have been signed on November 16, 2020, thus potentially contradicting his allegations. (Compl. Ex. 14.) However, counsel for Property Fund 629 and 1 Public Homes stipulated during the hearing on the motion to dismiss that the signature date was incorrect, and 1 Public Homes did not have title ownership to the property when it filed the detainer summons, asserting the right to possession.
When the eviction matter first came before the General Sessions Court for hearing on December 7, 2020, the case was dismissed for failure to prosecute. 1 Public Homes got an attorney involved – not Mr. Russell – and was able to have the dismissal set aside. As a part of the same order setting aside the dismissal, 1 Public Homes obtained a default judgment against Mr. Conner on January 4, 2021, for possession of the property.
The eviction was scheduled for February 3, 2021, prompting Mr. Connor to file bankruptcy on January 28, 2021. According to the Complaint, having been informed that Mr. Russell now represented 1 Public Homes, Mr. Connor's bankruptcy counsel contacted Mr. Russell and informed him about Mr. Connor's bankruptcy filing. After receiving that information, Mr. Russell allegedly advised county officials to move forward with the eviction. Mr. Russell contends that he was justified in doing so because of the exception to the automatic stay.
To complicate matters further, the default judgment for a writ of possession was subsequently found by the General Sessions Court to be "void ab initio " based upon issues about the filing of the motion to set aside the dismissal, the fact that Mr. Connor had not been served with notice of the hearing, and because the General Sessions Court concluded that it had "relied on the highly questionable and unproven representations of counsel" for 1 Public Homes. This voiding of the order did not occur until March 3, 2021, roughly a month after the bankruptcy and eviction.
"A motion to dismiss pursuant to Rule 12(b)(6) tests the sufficiency of a complaint." Smith v. Bank of Am. Corp. , 485 F. App'x 749, 751 (6th Cir. 2012).2 To survive a Rule 12(b)(6) motion to dismiss, "a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). It is not enough to allege facts that show a "mere possibility of misconduct" or "that are merely consistent with a defendant's liability." Ashcroft , 556 U.S. at 678–79, 129 S.Ct. 1937 (internal quotation marks omitted). The plaintiff must "plead enough ‘factual matter’ to raise a ‘plausible’ inference of wrongdoing." 16630 Southfield Ltd. P'ship v. Flagstar Bank, F.S.B. , 727 F.3d 502, 504 (6th Cir. 2013) (quoting Ashcroft , 556 U.S. at 678, 129 S.Ct. 1937 ). This pleading standard is construed liberally. Ryan v. Blackwell , 979 F.3d 519, 524 (6th Cir. 2020). "[I]f a plaintiff's claim is plausible, the availability of other explanations—even more likely explanations—does not bar the door to discovery." 16630 Southfield Ltd. P'ship , 727 F.3d. at 505.
"[I]f a factual assertion in the pleadings is inconsistent with a document attached for support, the Court is to accept the facts as stated in the attached document." Williams v. CitiMortgage, Inc ., 498 F. App'x 532, 536 (6th Cir. 2012) (internal quotation marks omitted).
On motion to dismiss, the defendant bears the burden of showing that the plaintiff has failed to state a claim for relief. Raymond v. Avectus Healthcare Sols., LLC , 859 F.3d 381, 383 (6th Cir. 2017).
For purposes of the motion to dismiss, it is uncontested that the automatic stay applies to this case unless it fits within the exception for certain pre-bankruptcy judgments for possession. Likewise, for purposes of the motion, there is no dispute about the knowledge of Mr. Russell regarding the existence of the bankruptcy and intent to move forward with eviction despite the bankruptcy. Although the focus of this motion is about one narrow exception to the automatic stay, a review of the basic function of the automatic stay and policy considerations is warranted, particularly since some of the policy considerations may be pertinent to understanding the scope of the exception.
Under section 362, except as provided in subsection (b), the filing of a bankruptcy petition operates as a stay of the "enforcement, against the debtor or against property of the estate, of a judgment obtained before commencement of the [bankruptcy case]." 11 U.S.C. § 362(a)(2). The stay imposed by section 362 is an "automatic consequence" of filing bankruptcy. City of Chicago, Illinois v. Fulton , ––– U.S. ––––, 141 S. Ct. 585, 589, 208 L.Ed.2d 384 (2021). Its scope is broad in that it "stops all collection efforts, all harassment, and all foreclosure actions." Easley v. Pettibone Mich. Corp. , 990 F.2d 905, 910 (6th Cir. 1993) (citing H.R. Rep. No. 595, 95th Cong., 1st Sess. 340 (1978), reprinted in 1978 U.S. Code Cong. & Admin. News 6297); In re Javens , 107 F.3d 359, 363 (6th Cir. 1997) ; In re Glenn , 760 F.2d 1428, 1436 (6th Cir. 1985).
The automatic stay is "one of the fundamental debtor protections provided by the bankruptcy laws." Midlantic Nat. Bank v. New Jersey Dep't of Env't Prot. , 474 U.S. 494, 503, 106 S.Ct. 755, 88 L.Ed.2d 859 ...
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