DLJ Mortg. Capital, Inc. v. Arnolds (In re Arnolds)
| Decision Date | 09 January 2023 |
| Docket Number | 15-14215-BFK,Adversary Proceeding 22-01046-BFK |
| Parties | In re: DEE ARNOLDS, Debtor. v. DEE ARNOLDS, AMER ALI FAROOQ, NORINA FAROOQ, NICOLE FAROOQ ABU-GHANNAM, AND UNITED WHOLESALE MORTGAGE, LLC., Defendants. DLJ MORTGAGE CAPITAL, INC., Plaintiff, |
| Court | U.S. Bankruptcy Court — Eastern District of Virginia |
DLJ MORTGAGE CAPITAL, INC. Plaintiff.
Dee Arnolds Defendant/Debtor.
James M. Towarnicky, Esq. Counsel for Dee Arnolds.
Amer Ali Farooq Defendant.
Norina Farooq Defendant.
Nicole Farooq Abu-Ghannam Defendant.
John E. Rinaldi, Esq. Counsel for Amer Ali Farooq, Norina Farooq and Nicole Farooq Abu-Ghannam.
UNITED WHOLESALE MORTGAGE, LLC Defendant.
Russell Scott Drazin, Esq. Counsel for UNITED WHOLESALE MORTGAGE, LLC.
This matter comes before the Court on the Plaintiff's, DLJ Mortgage Capital, Inc. ("DLJ"), motion to remand this removed action to the Circuit Court of Fairfax County. Docket Nos. 21, 22. Alternatively, DLJ requests that the Court abstain from hearing this adversary proceeding. Id. Defendant Dee Arnolds ("Ms. Arnolds," or "the Debtor") opposes DLJ's request for a remand or abstention. Docket No. 38. The co-defendants, Amer Ali Farooq, Nicole Farooq Abu-Ghannan, Norina Farooq ("the Farooqs"), and United Wholesale Mortgage, LLC ("UWM"), have not taken a position on the Motion. For the reasons stated below, the Motion to Remand or Abstain will be granted and the matter will be remanded to the Circuit Court.
Although the parties disagree vehemently on many of the facts in this case, the basic contours are undisputed.[1]
A. Ms. Arnolds' Acquisition of the Pohick Road Property.
1. In November 2005, Ms. Arnolds acquired the property known as 8006 Pohick Road, Springfield, VA 22153 ("the Pohick Road property"), for a purchase price of $890,000.00. Complaint at 13, Docket No. 1.
2. She financed the purchase with a loan from BankUnited FSB, in the principal amount of $712,000.00, which was secured with a Deed of Trust against the property. Id. at 34.
3. She also took out an equity line of credit (a "HELOC") with IndyMac Bank, FSB, in the amount of $89,000.00, which was secured by a subordinate Deed of Trust against the property. Id. at 13.
4. In August 2006, Ms. Arnolds borrowed an additional $124,000.00 from Navy Federal Credit Union ("NFCU"), which was secured by a subordinate lien against the Pohick Road property. Id.
5. In June 2009, BankUnited mistakenly recorded a Certificate of Satisfaction in the land records, thereby releasing its lien. Id. at 59-61.
B. Ms. Arnolds files for Bankruptcy.
6. Ms Arnolds filed a Voluntary Chapter 7 Petition with this Court on November 30, 2015. Case No. 15-14215, Docket No. 1.
7. She listed the Pohick Road property in her Schedules with a value of $798,848.00. Schedules and/or Statements at 3, Docket No. 12.
8. She listed BankUnited as having a lien against the Pohick Road property in the amount of $811,000.00. Id. at 11. She did not list this claim as being contingent, unliquidated, or disputed. Id.
9. She also listed Specialized Loan Servicing as having a "Second Mortgage" against the Pohick Road property in the amount of $88,411.00, although she listed this as being wholly unsecured, due to the amount of the BankUnited debt relative to the value of the property. Id. at 12.
10. The Trustee filed a Report of No Distribution. Case No. 15-14215, Docket No. 13.
11. Ms. Arnolds received a Chapter 7 discharge, and the case was closed on March 18, 2006. Case No. 15-14215, Docket Nos. 17, 19.
C. Ms. Arnolds Sells the Pohick Road Property and Purchases the Mariah Jefferson Court Property.
12. In August 2019, Ms. Arnolds entered into a Lien Modification Agreement ("the LMA") with the servicer of the BankUnited loan, Select Portfolio Servicing, Inc. ("SPS"). Complaint at 67-69, Docket No. 1.
13. In the LMA, Ms. Arnolds confirmed the validity of the Note and the Deed of Trust. Id.
14. In December 2021, Ms. Arnolds sold the Pohick Road property to the Farooqs for approximately $1,059,000.00. Id. at 94-95.
15. The Farooqs borrowed $836,385.00 from UMW, which recorded a Deed of Trust against the Pohick Road property. Id. at 97.
16. DLJ, which by the time of the sale had purchased the BankUnited loan, did not receive any proceeds from the sale.
17. Ms. Arnolds then purchased the property at 9101 Mariah Jefferson Court, Lorton, Virginia 22079 ("the Mariah Jefferson Court property"), for $550,000.00 in cash. Id. at 23.
18. On April 21, 2022, BankUnited executed a Document of Rescission, purporting to rescind the Certificate of Satisfaction. Id. at 114-115. The Document of Rescission was recorded in the land records of Fairfax County on recorded, on May 13, 2022. Id.
D. DLJ Files a Lawsuit in the Circuit Court of Fairfax County.
19. On July 1, 2022, DLJ filed a Complaint in the Circuit Court of Fairfax County against Ms. Arnolds, the Farooqs, and UMW. Case No. 2022-08827 and Id. at 10-23.
20. In its Complaint, DLJ asserts the following claims:
21. On September 7, 2022. Ms. Arnolds filed a Notice of Removal, removing the State court case to this Court. Id. at 1-6.
22. DLJ filed a Motion to Remand or Abstain on October 7, 2022. Docket Nos. 21, 22.
23. The Court heard the parties' argument on December 20, 2022. Docket No. 41.
DLJ seeks to remand this adversary proceeding to the State court for lack of subject matter jurisdiction in this Court. Alternatively, DLJ requests that the Court abstain from hearing this adversary proceeding. The Court will address these issues below.
Ms. Arnolds removed the action to this Court under 28 U.S.C. § 1452, which allows for removal if the District Court (here, the Bankruptcy Court as an arm of the District Court) "has jurisdiction of such claim or cause of action under Section 1334 of [Title 11]." 28 U.S.C. § 1452(a). This Court has jurisdiction over matters "arising under," "arising in," or "related to" cases under Title 11. 28 U.S.C. § 1334(a)-(b).
Matters arising under Title 11 are main bankruptcy cases. Matters arising in Title 11 are those matters which would not exist outside of a bankruptcy case, such as preference claims under § 547 of the Bankruptcy Code, or motions for the authority to use cash collateral under § 363 of the Code. Valley Historic Ltd. P'ship v. Bank of New York, 486 F.3d 831, 835 (4th Cir. 2007); Grausz v. Englander, 321 F.3d 467, 471 (4th Cir. 2003). A controversy arises in Title 11 when "it would have no practical existence but for the bankruptcy." A.H. Robins Co., Inc. v. Dalkon Shield Claimants Trust, 86 F.3d 364, 372 (4th Cir. 1996).
In this case, DLJ's claims arise under State law and would exist had Ms. Arnolds never filed for bankruptcy. Ms. Arnolds argues that her affirmative defense of a bankruptcy discharge constitutes a core proceeding. The Court will assume that Ms. Arnolds' affirmative defense of a bankruptcy discharge constitutes a core proceeding, and that the Court has core jurisdiction, arising in jurisdiction over this adversary proceeding.
With respect to "related to" jurisdiction, the Fourth Circuit has adopted the Pacor test. Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984); Valley Historic Ltd. P'ship, 486 F.3d at 836. The Pacor test holds that a matter is "related to" a bankruptcy case where "the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy." Pacor, Inc., 743 F.2d at 994.
DLJ's claims, as noted above, are all State law claims. Ms. Arnolds' discharge is not a related proceeding; it only exists as a result of her bankruptcy filing. The Court concludes, therefore, that it does not have non-core, "related to," jurisdiction over this adversary proceeding.
Bankruptcy Code § 524(a)(2) provides that a discharge operates as an injunction against the commencement or continuation of any legal action against a debtor "as a personal liability." 11 U.S.C. § 524(a)(2). Mortgage liens will survive a debtor's discharge unless they are avoided in a bankruptcy case. See Hamlett v. Amsouth Bank (In re Hamlett), 322 F.3d 342, 347 (4th Cir. 2003) () citing Long v Bullard, 117 U.S. 617, 620-21 (1886). It is not a violation of the discharge injunction to pursue purely in rem claims against the Debtor, post-discharge. Johnson v. Home State Bank, 501 U.S. 78, 84 (1991); Rountree v. Nunnery (In re Rountree), 448 B.R. 389, 401 (Bankr. E.D. Va. 2011); see also 11 U.S.C. § 524(j) (). The pursuit of discharged claims against the Debtor in personam, on the other hand,...
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