Appeal
from the United States Bankruptcy Court for the Western
District of Tennessee at Memphis. Nos. 2:11-bk-21571;
2:21-ap-00098-Ruthie Hagan, Bankruptcy Judge.
OPINION
JOHN
P. GUSTAFSON, Bankruptcy Appellate Panel Judge.
This
appeal reviews a bankruptcy court's determination that it
did not have jurisdiction to consider the claims raised in an
adversary proceeding brought several years after Linda Elam
(the "Debtor") received a discharge and her case
was closed. The Panel finds that the complaint only seeks
declaratory
judgment as to the validity and/or enforceability of the
mortgage lien against the property itself and does not raise
issues concerning Debtor's personal liability.
Accordingly, the bankruptcy court lacks jurisdiction because
whatever property interest the Debtor had that became
property of the estate was abandoned at the conclusion of the
bankruptcy case and is no longer property of the estate. For
the reasons stated below, the bankruptcy court's order
dismissing the case is AFFIRMED.
The
sole issue on appeal is whether the bankruptcy court erred by
dismissing the adversary proceeding for lack of jurisdiction.
JURISDICTION
AND STANDARD OF REVIEW
Because
the United States District Court for the Western District of
Tennessee has authorized appeals to the Panel and no party
has timely filed to have this appeal heard by the district
court, the Bankruptcy Appellate Panel of the Sixth Circuit
has jurisdiction to decide this appeal. 28 U.S.C. §
158(b)(6), (c)(1). A final order of the bankruptcy court may
be appealed as of right pursuant to 28 U.S.C. §
158(a)(1). "Orders in bankruptcy cases qualify as
'final' when they definitively dispose of discrete
disputes within the overarching bankruptcy case."
Ritzen Grp., Inc. v. Jackson Masonry, LLC, 140 S.Ct
582, 586 (2020) (citing Bullard v. Blue Hills Bank,
575 U.S. 496, 501, 135 S.Ct. 1686, 1692 (2015)).
An
order dismissing an adversary proceeding is a final order and
the trial court's legal rationale is reviewed de novo.
Giese v. Lexington Coal Co. (In re HNRC
Dissolution Co.), 585 B.R. 837, 841 (B.A.P. 6th Cir.
2018) ("The Panel reviews the Bankruptcy Court's
order of dismissal de novo." (citing Hughes v.
Sanders, 469 F.3d 475, 477 (6th Cir. 2006)),
aff'd, 761 Fed.Appx. 553 (6th Cir. 2019).
"Jurisdictional questions are reviewed de novo."
Schwab v. Oscar (In re SII Liquidation
Co.), 517 B.R. 72, 74 (B.A.P. 6th Cir. 2014) (citing
Kahn v. Regions Bank (In re Khan), 544
Fed.Appx. 617, 619 (6th Cir. 2013), cert. denied,
572 U.S. 1016 (2014)). "When conducting a de novo
review, the Panel decides the issues independent of and
without deference to the Bankruptcy Court's
conclusions." In re HNRC Dissolution Co., 585
B.R. at 840
(citing Menninger v. Accredited Home Lenders (In
re Morgeson), 371 B.R. 798, 800 (B.A.P. 6th Cir. 2007)).
The
bankruptcy court adopted the pertinent facts as set forth in
the Sixth Circuit's order entered August 9
2019.[1] As background, those facts are as follows:
On December 2, 2002, Linda Elam acquired title by warranty
deed to real property located on Brierwood Circle in
Piperton, Tennessee ("the Property"). The Elams
subsequently created the "L &F Irrevocable Trust
dated December 12, 2002" ("the Trust"), naming
Frederick Elam as the trustee. Linda Elam then conveyed the
Property, owned by her individually, to the Trust by
quitclaim deed. On December 23, 2002, Frederick Elam, in his
capacity as trustee, executed a deed of trust pledging the
Property as collateral to secure a construction loan from
Merchants &Farmers Bank in the amount of $386,669.63.
In March 2004, the Elams, in their individual capacities,
received a loan from Realty Mortgage Corporation in the
amount of $540,000. The Elams, purportedly in their
individual capacities, secured the loan by executing a deed
of trust pledging the Property as collateral. The Elams used
the $540,000 loan to repay their loan to Merchants
&Farmers Bank, as well as to make improvements to the
house situated on the Property. Aurora Loan Services, LLC
("Aurora") eventually obtained ownership of the
Elams' note and loan held by Realty Mortgage Corporation.
In December 2007, the Elams executed a "Workout
Agreement" with Aurora regarding late payments on the
$540,000 loan. In May 2008, the Elams executed a "Loan
Modification Agreement" with Aurora, also regarding
their ability to repay the loan. In the years
following these agreements, the Elams filed several
bankruptcy actions, which helped them avoid multiple
foreclosure attempts on the Property.[2]
In April 2012, Aurora filed suit in the Chancery Court for
Fayette County (Tennessee) against the Elams, the Trust, and
several other defendants for notice purposes, in which it
sought a declaratory judgment that the December 12, 2002,
deed conveying the Property from Linda Elam to the Trust was
void. Aurora alternatively sought to "assume the
priority position of the Merchants &Farmers
Bank mortgage." Aurora additionally asked the chancery
court to find that the Property was pledged as collateral for
the $540,000 loan, or, in the alternative, that it held an
equitable lien on the Property. FirstBank, one of the
defendants named for notice purposes, filed a cross-claim
against the Elams, also seeking a declaratory judgment that
the quitclaim deed conveying the Property from Linda Elam to
the Trust was void.
During that state court proceeding, Nationstar Mortgage, LLC
("Nationstar") became the servicer of the
Elams' loan and, on May 16, 2013, the chancery court
entered a consent order substituting Nationstar for Aurora as
the plaintiff. Nationstar thereafter filed a motion for
summary judgment, in which it asked the chancery court to
declare that the Elams had pledged the Property as collateral
to secure the $540,000 loan from Realty Mortgage Corporation.
Nationstar alternatively sought a declaration that it held
either a priority position "of the Merchants
&Farmers Bank mortgage" or a "first priority
equitable lien" on the Property. In May 2015, the
chancery court granted Nationstar's motion for summary
judgment. In doing so, it found that the Elams, the Trust,
and Realty Mortgage Corporation intended that the Property
would be collateral for the loan. The chancery court thus
ordered that the March 2004 deed of trust securing the
Property as collateral for the $540,000 loan "be
reformed to reflect that the interest of the [L &F
Irrevocable Trust] was effectively conveyed in said deed of
trust through its Trustee, Fred Elam." Frederick Elam
appealed the chancery court's judgment, but the Tennessee
Court of Appeals dismissed the attempted appeal for lack of
jurisdiction. Aurora Loan Servs. LLC v. Elam, No.
W2015-01097-COA-R3-CV, 2016 WL 659821, at *3-4 (Tenn. Ct.
App. Feb. 18, 2016), perm. app. denied (Tenn. June
24, 2016) (per curiam).
In March 2017, the Elams filed this federal lawsuit against
the following defendants: Aurora; Aurora Commercial
Corporation; HSBC Bank, N.A.; Lehman Brothers; FirstBank;
Nationstar; Mortgage Electronic Registration Services
("MERS"); and others. The Elams alleged that the
defendants violated the Truth in Lending Act
("TILA"), see 15 U.S.C. §§ 1601-1667f,
unlawfully attempted to foreclose on the Property, and
attempted to collect on "an illegal judgment." They
sought monetary damages and the removal of all liens and
mortgages.
FirstBank, Nationstar, Aurora Commercial Corporation, Aurora,
MERS, and HSBC Bank moved to dismiss the Elams' claims
under Rule 12(b)(6), arguing, in part, that they were either
time-barred or barred by the doctrine of res judicata. The
Elams opposed the defendants' motions to dismiss and
moved for leave to amend their complaint. The Elams'
proposed amended complaint clarified the nature of their TILA
claims, argued that the defendants' alleged TILA
violations amounted to fraudulent concealment, introduced a
Racketeer Influenced and Corrupt Organizations
("RICO") claim, see 18 U.S.C. § 1961, et seq.,
and sought remedies beyond what they requested in their
initial complaint. The defendants argued in opposition that
any amendment to the Elams' complaint would be futile.
The magistrate judge agreed with the defendants, determining
that: (1) the Elams failed to assert a plausible TILA claim;
(2) the TILA, RICO, fraudulent concealment, and illegal
foreclosure claims were barred by the doctrine of res
judicata; (3) the TILA and RICO claims were barred by the
applicable statutes of limitations; (4) the Elams'
proposed amended complaint contained insufficient factual
allegations to support a civil RICO cause of action; and (5)
the Elams' allegation that FirstBank possessed an
"illegal judgment" was conclusory and failed to
make the requisite showing of entitlement to relief. The
magistrate judge therefore recommended that the district
court deny the Elams' motion for leave to amend their
complaint and grant the defendants' motions to dismiss.
The district court adopted the magistrate judge's report
and recommendation over the Elams' objections, denied the
Elams' motion for leave to amend their complaint, and
granted the defendants' Rule 12(b)(6) motions. The
district court further denied the Elams' subsequent
motion for reconsideration.
Elam v. Aurora Loan Servs., LLC, No. 18-5743, 2019
WL 7603379, at *1-2 (6th Cir. Aug. 9, 2019) (emphasis...
