D'Angelo v. J.P. Morgan Chase Bank, N.A. (In re D'Angelo)

Decision Date19 July 2012
Docket NumberBankruptcy No. 11–14926–MDC.,Adversary No. 12–00301–MDC.
Citation475 B.R. 424
PartiesIn re James Albert D'ANGELO, Sr. and Carolyn Marie D'Angelo, Debtors. James Albert D'Angelo, Sr. and Carolyn Marie D'Angelo, Plaintiffs, v. J.P. Morgan Chase Bank, N.A., Defendant.
CourtU.S. Bankruptcy Court — Eastern District of Pennsylvania

OPINION TEXT STARTS HERE

David A. Scholl, Law Office of David A. Scholl, Philadelphia, PA, for Plaintiffs.

Anne M. Aaronson, Dilworth Paxson LLP, Philadelphia, PA, for Defendant.

MEMORANDUM

MAGDELINE D. COLEMAN, Bankruptcy Judge.

INTRODUCTION

On May 8, 2012, this Court held an expedited hearing (the “Expedited Hearing”) to address a Motion for a Preliminary Injunction [Docket No. 5] (the Injunction Motion) filed by James Albert D'Angelo, Sr. and Carolyn Marie D'Angelo (the Debtors). Pursuant to the Injunction Motion, the Debtors requested that this Court issue a preliminary injunction enjoining J.P. Morgan Chase Bank, N.A. (J.P. Morgan) from prosecuting a sheriff's sale scheduled for June 8, 2012 (the “Sheriff's Sale”) of the Debtors' residence located at 102 Pickwick Drive, Doylestown, Pennsylvania (the “Property”). The Debtors contended that the sale is beyond the scope of this Court's August 4, 2011 Order (“Stay Relief Order”) granting J.P. Morgan relief from the automatic stay to proceed with enforcement of its equitable lien against the Property. In the alternative, the Debtors sought an injunction based upon the strong likelihood that they would prevail in a recently filed adversary proceeding seeking to avoid J.P. Morgan's liens on the Property pursuant to 11 U.S.C. § 544.

At the close of the Expedited Hearing, this Court took the matter under advisement. Since then, this Court has received two supplemental briefs from J.P. Morgan and a supplemental brief from the Debtors addressing matters raised by the parties at the Expedited Hearing.1 In addition, J.P. Morgan filed a letter advising that the Debtors had sought and obtained from the Bucks County Court of Common Pleas (the Bucks County Court) a stay of the Sheriff's Sale. The Debtors' counsel subsequently confirmed that the Bucks County Court has stayed the Sheriff Sale to September 14, 2011.

In the interim, J.P. Morgan filed a Motion to Dismiss Adversary Proceeding or, Alternatively, Abstention (the Motion to Dismiss). J.P. Morgan requested this Court dismiss the Amended Complaint (the “Amended Complaint”) filed by the Debtors, pursuant to Fed.R.Civ.P. 12(b) and Fed.R.Civ.P. 19, or, in the alternative, exercise permissive abstention pursuant to 28 U.S.C. § 1334(c)(1) and abstain from hearing the matters raised by the Amended Complaint in favor of adjudication by currently-pending state court proceedings. 2 On May 19, 2012, the Debtors filed their response to the Motion to Dismiss (the “Response”). On June 5, 2012, this Court held a hearing to address the Motion to Dismiss (the “Dismissal Hearing”). At the Dismissal Hearing and after hearing arguments from the parties, this Court advised the parties that it would grant J.P. Morgan's Dismissal Motion and (1) dismiss the claims seeking to avoid the Equitable Lien for failure to state a claim, and (2) exercise permissive abstention and abstain from hearing the Debtors' claims relating to the validity of the Mortgage in favor of pending State Court Proceedings that involved the same issue and several other defendants. The Court further advised as a result of the Debtors' failure to set forth a claim for avoidance of the Equitable Lien, let alone to demonstrate a strong likelihood that they would prevail on such a claim, the Debtors' Injunction Motion would be denied.

This memorandum is consistent with this Court's bench ruling and is submitted to further expound upon the reasons for its ruling.

FACTUAL AND PROCEDURAL HISTORY3A. The Present Proceedings Before The Court

On April 9, 2012, the Debtors filed a complaint initiating this adversary proceeding. On the same day, the Debtors filed the Amended Complaint. The Amended Complaint contains one count and seeks to invalidate J.P. Morgan's interests in the Property pursuant to 11 U.S.C. §§ 544(a)(1), (2), (3) and (b)(1). The Debtors contend that J.P. Morgan's mortgage on the Property should be invalidated because, among other things, J.P. Morgan's predecessor-in-interest failed to comply with Pennsylvania law governing the notarizing and recording of mortgages as set forth in 21 P.S.A. § 444. The Debtors also contend that an equitable lien granted to J.P. Morgan in the amount of $1,339,387.30 against the Property (the “Equitable Lien”) and imposed by the Bucks County Court pursuant to an order dated April 11, 2011 (the “Lien Order”) is avoidable. The Debtors contend, without reference to any factual or legal basis, that the Equitable Lien may be avoided because the ‘equitable lien’ arises only as a result of the presence of an allegedly-valid mortgage, and cannot stand if its underlying supportive mortgage cannot stand.” Amended Complaint, ¶ 24. In their request for relief, the Debtors ask this Court to:

(1) Declare the mortgage and any other claims or rights claimed by J.P. Morgan under the mortgage against the Plaintiffs, including any “equitable liens” invalid;

(2) enjoin the MF Action, as it is based solely on the validity of this mortgage;

(3) declare that J.P. Morgan has no valid claim in this case;

(4) award the Plaintiffs their reasonable attorney's fees and costs for defending the invalid MF Action;

(5) provide any other relief which this Court may deem necessary and proper to vindicate the Plaintiffs.

Amended Complaint, p. 4.

On April 15, 2012, the Debtors filed the Injunction Motion and requested that the Court consider the matter on an expedited basis. On May 2, 2012, J.P. Morgan filed its Objection to Motion for Preliminary Injunction (the “Objection”) opposing the issuance of an injunction and argued that (1) the Motion represented a request to re-impose the stay and was simply the Debtors' latest attempt to circumvent the Stay Relief Order, and (2) the Debtors failed to establish any of the requirements necessary for imposition of an injunction.

Both Debtors appeared and testified at the Expedited Hearing. Mr. D'Angelo testified that neither he nor Mrs. D'Angelo had executed the mortgage dated August 11, 2005 (the “Mortgage”), issued against the Property. Rather, he stated that his son, James A. D'Angelo, Jr. (“D'Angelo, Jr.”) had forged his signature on the Mortgage. He also testified that a deed dated August 11, 2005, transferring ownership of the Property from Mr. D'Angelo individually to a joint tenancy with his wife, Mrs. D'Angelo, was signed by D'Angelo, Jr. and therefore a forgery. He testified that he learned of the Mortgage sometime shortly after it had been issued when advised by his homeowner's insurer that the premiums had increased to $6,000.00 as a result of the increased amount of the mortgage. Although he knew of the Mortgage in 2005 and had discussed its issuance with D'Angelo, Jr., D'Angelo testified that he first took action regarding the Mortgage after being served with the notice of the foreclosure proceedings commenced by J.P. Morgan in 2006. Thereafter, he sought the assistance of the local Sheriff and the Office of the United States Attorney to address the alleged forgeries. Mr. D'Angelo also testified regarding the Debtors' ability to reorganize. He testified regarding the Debtors' assets, income, expenses and proposed plan of reorganization (the “Plan”). Mr. D'Angelo testified that the Debtors would fund a Plan with a combination of future earnings and a loan secured by the Property.

Mrs. D'Angelo testified very briefly in support of the Motion. She confirmed Mr. D'Angelo's testimony that neither had signed the Mortgage or Deed and that the signatures on both documents were forgeries. She did not testify regarding the Debtors' reorganization efforts or ability. Both Debtors testified that the signatures set forth on the retainer agreement with their present bankruptcy counsel reflected their actual signatures.

J.P. Morgan did not call any witnesses in support of its Opposition to the Injunction Motion. Instead, J.P. Morgan relied upon the testimony elicited from Mr. D'Angelo during cross-examination and documents it submitted into evidence including, inter alia, (1) a copy of the Judgment Index relating to the Lien Order, (2) J.P. Morgan's Memorandum in Support of Partial Summary Judgment, and (3) the Lien Order.

At the close of the Expedited Hearing, the Debtors requested an opportunity to address the import of In re Funches, 381 B.R. 471 (Bankr.E.D.Pa.2008) and whether a debtor could utilize § 544 to “invalidate” an allegedly defective or void mortgage. This Court granted the Debtors' request and required the parties to submit briefs addressing Funches by May 16, 2012. The parties submitted their briefs addressing this issue.

Thereafter, this Court held the Dismissal Hearing. This Court heard arguments from counsel for both parties and received no documents into evidence. At the close of the Dismissal Hearing, this Court advised the parties that it would grant J.P. Morgan's Dismissal Motion for several reasons. First, the Amended Complaint failed to comply with the pleading requirements set forth by the U.S. Supreme Court in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) and Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), and contained only conclusory statements. 4 Second, this Court found that even if the Amended Complaint was properly pled, the Debtors had failed to state a legal basis upon which they could avoid the Equitable Lien. Third, the relief sought by the Debtors including “invalidation” of the Mortgage and Equitable Lien, were not remedies provided for under § 544 of the Code. In addition, the Court did not have the authority to “invalidate” the Equitable Lien as such a remedy was barred by the Rooker–Feldman doctrine which...

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