Fauley v. ResCap Liquidating Tr. (In re Residential Capital, LLL)
| Decision Date | 30 March 2022 |
| Docket Number | 18-CV-4748 (VSB),12-12020 (MG) |
| Parties | In re RESIDENTIAL CAPITAL, LLC, Debtor. ROBYNNE ARIEL FAULEY, interested party, Appellant, v. RESCAP LIQUIDATING TRUST et al., Appellees. |
| Court | U.S. District Court — Southern District of New York |
Wayne Michael Pressel Pressler and Pressler Parsippany, Counsel for Appellant.
Adam A. Lewis, Norman S. Rosenbaum, Morrison & Foerster LLP Counsel for Appellee ResCap Liquidating Trust.
Casey Brian Howard, Samantha Anne Ingram, Locke Lord Bissell & Liddell LLP Counsel for Appellee LNV Corporation.
Appellant Robynne Ariel Fauley (“Fauley”) appeals two orders entered by now-Chief Judge Martin Glenn of the United States Bankruptcy Court for the Southern District of New York in the underlying bankruptcy action. These orders found that Fauley's prolix filings did not request any relief and directed the Clerk of Court not to accept further filings from her. Currently before me is Fauley's appeal of the two orders. Because I find that Fauley's filings in the underlying bankruptcy action were improper and requested no relief that a bankruptcy court could grant, and that the Bankruptcy Judge should have fashioned his order barring any future filings by Fauley by providing a mechanism for review the order filed on April 24, 2018, is AFFIRMED, and the order filed on May 2, 2018, is AFFIRMED AS MODIFIED.
This appeal arises from the bankruptcy of Debtors Residential Capital, LLC and certain of its subsidiaries (collectively, “Debtors”), which were some of “the largest servicers of residential mortgage loans in the country” prior to the financial crisis at the end of the 2000s. (See Doc. 32, at 11.) Debtors each filed a petition for relief under Chapter 11 of the Bankruptcy Code on May 14, 2012 in the Bankruptcy Court for the Southern District of New York (“Bankruptcy Court”). (Bankr. Doc. 1.)[1] I will refer to this Chapter 11 action as the “Bankruptcy.” On December 11, 2013, the Bankruptcy Court entered an order approving the terms of a Chapter 11 plan (the “Plan”). (Bankr. Doc. 6065). The Plan provided for the creation of Appellee ResCap Liquidating Trust (“Trust”) to handle making payments to creditors under the Plan and to take other actions to effectuate the winding down of the Debtors' bankruptcy estates. (See id.)
On July 17, 2012, the Bankruptcy Court entered an order authorizing Debtors to retain Perkins Coie LLP (“Perkins Coie”) as counsel to handle specific matters. (Bankr. Doc. 799.) Other Bankruptcy Court orders authorized Perkins Coie to play various other roles as counsel in the Bankruptcy. (See, e.g., Bankr. Doc. 3853 ().) As part of undertaking its representation of Debtors, Perkins Coie performed a conflicts check, and it filed with the Bankruptcy Court an extensive list of entities to which it had connections and which may have interests in the Bankruptcy. (Bankr. Doc. 3759 Ex. 2.) The list states that Appellee LNV Corporation (“LNV”) was a current and former client of Perkins Coie, and that LNV is one of several “Other Counterparties to Servicing Agreements” relevant to the Bankruptcy, but that LNV is not a creditor or a party with an interest otherwise adverse to that of Debtors. (See generally id.) Trust also retained Perkins Coie as its counsel in the Bankruptcy. (See Bankr. Doc. 10482-1 (“Nye Decl.” or “Nye Declaration”).)
In March 2013, Fauley, who had a residential mortgage with Debtor Residential Funding Company LLC (“RFC”)-a subsidiary of Debtor Residential Capital, LLC-filed an action in the Circuit Court of the State of Oregon against RFC and other parties, including LNV, challenging the validity of her mortgage note and raising a No. of other allegations of illegal conduct relating to her mortgage (the “Fauley Action”). (See Nye Decl. Ex. 5.) The Fauley Action was removed to federal court, and by stipulation and order with RFC it was dismissed without prejudice as to RFC. (See Nye Decl. ¶ 6 & Ex. 7.) Subsequently, LNV and other Fauley Action defendants moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), and then-Chief Judge Michael W. Mosman of the District of Oregon dismissed the Fauley Action with prejudice. (Nye Decl. Ex. 7.)
In July 2015, LNV filed suit against Fauley in the United States District Court for the District of Oregon, through which LNV sought judicial foreclosure against Fauley. See generally LNV Corp. v. Fauley, No. 15-cv-1422-HZ (D. Or.) (the “LNV Action”). On April 18, 2016, LNV was granted summary judgment in the LNV Action. (LNV Action Doc. 52.) On March 5, 2018, the judgment in the LNV Action was affirmed by the Ninth Circuit Court of Appeals. (LNV Action Doc. 101.)
On January 22, 2018, Fauley and three other individuals who were unrepresented by counsel (collectively, the “Cosignatories”) filed in the Bankruptcy a document that I will refer to as the “Notice of Fraud.” (Bankr. Doc. 10469 (“NoF”).) The Notice of Fraud is 38 pages of main text and includes an additional 53 pages of attachments and exhibits. The Cosignatories, including Fauley, all appear to have had residential mortgages and to have lost foreclosure actions brought by LNV. (See NoF 4.) The Cosignatories use the Notice of Fraud to describe allegations of misconduct, chiefly against Perkins Coie. Their allegations include that Perkins Coie had various conflicts of interest due to its representation of LNV in other matters, (id. at 22), that Perkins Coie had filed “false forged counterfeit mortgage instruments [sic], ” (id. at 3), and that a Perkins Coie attorney had “viciously” litigated an eviction proceeding against one of the Cosignatories even though the attorney “knows she has CANCER and eviction threatens her recovery and therefore her life, ” (id. at 5). The Cosignatories accuse Perkins Coie, LNV, and others of misconduct; however, it is often difficult to discern how this alleged misconduct relates to the Bankruptcy Action.[2] On the 38th page of the Notice of Fraud, the Cosignatories “request this court to appoint a special class counsel to for them [sic] and the class they represent.” (Id. at 38.)
Trust filed an objection to the Notice of Fraud on March 2, 2018. (Bankr. Doc. 10482.) LNV joined this objection on March 3, 2018. (Bankr. Doc. 10485.) On March 19, 2018, the Cosignatories requested time to file a response to Trust's objection. (Bankr. Doc. 10494.) The Bankruptcy Court granted them two weeks to file a response. (Bankr Doc. 10495.) However, instead of filing a response addressed to Trust's objection, the Cosignatories filed, either together or individually, a No. of additional documents that essentially replicate the Notice of Fraud (“Supplements to the Notice of Fraud”). The initial Supplements to the Notice of Fraud span five pages, (Bankr Doc. 10506), 121 pages, (Bankr Doc. 10505), 137 pages, (Bankr. Doc. 10504), and 141 pages, (Bankr. Doc. 10503). Further Supplements to the Notice of Fraud span 54 pages, (Bankr Doc. 10508), and 24 pages, (Bankr Doc. 10509).
On April 24, 2018, the Bankruptcy Court entered an order stating that it was denying the Notice of Fraud and Supplements to the Notice of Fraud, because the filings made “no motion or request for relief available under the Bankruptcy Code.” (Bankr. Doc. 10516 (the “First Order”).)
On April 27, 2018, Fauley filed a document styled as “Motion - Response to Continue and Stay.” (Bankr. Doc. 10521 (the “Fauley Motion”).) The Fauley Motion is 44 pages long and begins by stating that it “present[s] claims against the trust of ongoing injuries and damages by Residential Funding Co. LLC, which does include criminal acts, forgery and fraud.” (Id. at 2.) However, the Fauley Motion does not appear to plead any claims entitling Fauley to relief. Instead, it asks the Bankruptcy Court to “provide” Fauley with “proof that Debtors and LNV legally could have foreclosed upon Fauley's home. (See Id. at 2-3.) The Fauley Motion attaches certain briefing that Fauley filed in the Fauley Action. (Id. at 9-37.)
On May 2, 2018, the Bankruptcy Court entered an order related to the Fauley Motion. (Bankr. Doc. 10422 (“Second Order”).) The Second Order states that (Id. at 1-2.)
A district court has jurisdiction pursuant to 28 U.S.C. § 158(a)(1) to hear appeals from “final judgments, orders, and decrees” of a bankruptcy court. On such an appeal, a district court reviews the bankruptcy court's findings of fact for clear error, and any conclusions of law are reviewed de novo. See In re Momentum Mfg. Corp., 25 F.3d 1132, 1136 (2d Cir. 1994). A bankruptcy court's discretionary decisions are reviewed for abuse of discretion. See, e.g., In re Boodrow, 126 F.3d 43, 47 (2d Cir. 1997). A bankruptcy court's “rulings on the credibility of witnesses . . . are [also] reviewed under an abuse of discretion standard.” In re CBI Holding Co., 419 B.R. 553, 563 (S.D.N.Y. 2009) ().
In reviewing the decision of a bankruptcy court, the district court “may affirm on any ground that finds support in the record, and need not limit its review to the bases raised or relied upon in the decisions below.” Freeman v Journal Register Co., 452 B.R. 367, 369 (S.D.N.Y. 2010). However, the district court may not consider...
To continue reading
Request your trial