First Am. Title Ins. Co. v. Stevenson (In re Stevenson)
| Decision Date | 04 January 2013 |
| Docket Number | Case No. 06-00306 |
| Parties | In re DEBRA M. STEVENSON, Debtor. FIRST AMERICAN TITLE INSURANCE COMPANY, et al., Plaintiffs, v. DEBRA M. STEVENSON and EUGENE SMITH, Defendants. |
| Court | United States Bankruptcy Courts – District of Columbia Circuit |
The document below is hereby signed
______________
S. Martin Teel, Jr.
DEFENDANTS IN THEIR SECOND MOTION FOR SUMMARY JUDGMENT
(A MOTION TITLED AS A MOTION TO STRIKE AFFIRMATIVE DEFENSES)
Fremont Investment & Loan made a loan ("the Fremont Loan") to Debra M. Stevenson secured by a deed of trust executed only by Stevenson, and not by her son, Eugene Smith, on real property owned by Stevenson and Smith. The plaintiffs, which include Fremont's successor in interest on the Fremont Loan, have asserted claims seeking to enforce the Fremont Loan against thereal property. In their second motion for summary judgment, the defendants belatedly asserted defenses to the Fremont Loan under state and federal lending laws that they had failed to raise via an answer. Only Stevenson was an obligor on the Fremont Loan, and only she had standing to attack the Fremont Loan obligation based on the state and federal lending laws designed for her protection. Stevenson could have asserted the same claims of invalidity by objecting to the proof of claim that had been filed regarding the Fremont Loan, and that would have been a core proceeding under 28 U.S.C. § 157(b)(1). Her assertion of those claims of invalidity via the defendants' second motion for summary judgment similarly presented a core proceeding going to enforceability of Fremont's deed of trust against Stevenson's interest in the real property and resolution of the debtor-creditor relationship. See 28 U.S.C. § 157(b)(2)(K) () and § 157(b)(2)(O) ().1 Accordingly, it is unnecessary to issue proposed findings of fact and conclusions of law to the districtcourt as to those challenges, and the defendants may appeal the court's orders disposing of those challenges. In the event, however, that I lack such authority, this decision constitutes my proposed findings of fact and conclusions of law with respect to the claims regarding violations of state and federal lending laws.
Debra M. Stevenson is the debtor in the case under chapter 13 of the Bankruptcy Code (11 U.S.C.) within which this adversary proceeding is pending. Eugene Smith is her son. At issue in this adversary proceeding is a loan that was extended by Fremont Investment & Loan ("Fremont") to Stevenson, who used the Fremont Loan to refinance a pre-existing loan secured by real property (known as 3721 Grant Place, NE, Washington, D.C.) owned by Smith and Stevenson as joint tenants (the "Fremont Loan"). First American was Fremont's title insurer in the transaction. Smith did not execute the promissory note or the deed of trust for the Fremont Loan, thus giving rise to the issue of whether the Fremont lien extends to the entire property or the Fremont Loan can otherwise be enforced against the entire property.
The proceeds of the Fremont Loan were used, in part, to satisfy the lien position previously held by Wells Fargo Bank, N.A., whose lien had encumbered both Stevenson's and Smith's interest in the property. The plaintiffs have sought adeclaration that Smith should be treated as obligated on the Fremont Loan and his interest in the property subjected to the Fremont Loan deed of trust, and, alternatively, that the holder of Fremont's rights is entitled to be equitably subrogated to Wells Fargo's lien to the extent that the Fremont Loan proceeds paid off the Wells Fargo obligation. The defendants sought, belatedly, to show that the Fremont Loan is unenforceable based on violations of federal and state lending laws.
The district court has subject matter jurisdiction over this adversary proceeding pursuant 28 U.S.C. § 1334(b), and has referred the adversary proceeding to this court pursuant to 28 U.S.C. § 157(a). Wells Fargo Bank, N.A. is administering the loan for Fremont's successor,2 and sought relief from the automatic stay to proceed with foreclosure against the real property based on Stevenson's failure to make postpetition monthly mortgage payments. The extent of the lien that could be enforced against the property will have an impact on the amount of debt that Stevenson would owe after a foreclosure, and thus the amount of any deficiency claim that could be asserted as an unsecured claim against the estate. Moreover, the defendantshave raised challenges to the enforceability of the Fremont Loan. Wells Fargo needed to know the extent of the lien, and the enforceability of the underlying Fremont Loan secured by the lien, before proceeding with a foreclosure sale. A foreclosure sale could have impacted Stevenson's ability to continue to make plan payments. The claims asserted are at the very least "related to" the bankruptcy case within the meaning of 28 U.S.C. § 1334(b). The challenges to the validity of the Fremont Loan that was asserted by way of a proof of claim against Stevenson in the main bankruptcy case "arise in" the bankruptcy case within the meaning of § 1334(b). Adjudication of the validity of the Fremont Loan affects the creditor-debtor relationship and is a core proceeding that this court is authorized to decide. 28 U.S.C. § 157(b)(2)(K) () and § 157(b)(2)(O) ().
The court has issued a Memorandum Decision re Cross-Motions for Summary Judgment (Dkt. No. 82), concluding that Fremont's successor is not entitled to treat Smith as personally obligated on the debt but that equitable subrogation is appropriate if such relief is being pursued by a party with standing to do so, and depending on the disposition of the claims raised by the defendants regarding the alleged unenforceability of the FremontLoan based on lending law violations. The issue of standing, and the issue of the propriety of the conclusions set forth in the Memorandum Decision re Cross-Motions for Summary Judgment are being addressed by way of proposed findings of fact and conclusions of law for consideration by the district court. This decision addresses the lending law challenges to the validity of the Fremont Loan.
First American commenced this adversary proceeding by filing a complaint against Stevenson and Smith as the defendants. On March 20, 2007, the defendants filed a motion to dismiss or in the alternative for summary judgment (Dkt. No. 8). The defendants' motion was denied in its entirety on May 2, 2007 (Dkt. No. 20). The defendants failed, however, as required by Fed. R. Bankr. P. 7012(a), to file an answer to the complaint within 10 days after the denial of that motion.3 Instead, several months later, on October 17, 2007, after the existingdeadline for completing discovery had expired,4 the defendants filed their second motion for summary judgment (Dkt. Nos. 38 & 39), in which the defendants claimed that:
The defendants asserted that the Fremont Loan was void based on those violations, and defended against the claim for equitable subrogation on the basis that there was no enforceable obligation to assert against the property via equitable subrogation. First American filed a motion to strike those claims, characterizing them as affirmative defenses, and contending that the defendants were required, but failed, to raise the affirmative defenses in a timely-filed answer to the complaint (Dkt. No. 52).
The court, as well, proceeded in its oral rulings to view the challenges to the Fremont Loan as affirmative defenses. The challenges could have been treated as counterclaims for a declaration of invalidity of the Fremont Loan--the same as objections to the Fremont Loan claim--which, if granted, would have mooted the claims for equitable subrogation. However, the balance of this decision will, for ease of discussion, treat the claims of invalidity as though they were affirmative defenses because the parties treated them as such. Either way, the belated assertion of the challenges was untimely.
The plaintiffs were entitled to a ruling adjudicating whether they were entitled to equitable subrogation to enforce whatever debt might be owed by Stevenson pursuant to the Fremont Loan. Their right to a ruling ought not have been delayed based on the defendants' belatedly attempting to inject the challenges to the validity of the Fremont Loan into the adversary proceeding.
The court held a hearing to address the defendants' second motion for summary judgment and the plaintiffs' motion to strike on March 18, 2008, which carried over to and was completed on March 31, 2008. At the time of the hearing, more than a year after the filing of this adversary proceeding and almost eleven months after the court had denied the defendants' original motion to dismiss, the defendants still had not filed an answer to thecomplaint.
At the hearing, the court determined that most of the defendants' affirmative defenses should be stricken as either legally deficient or untimely raised. As to Stevenson's remaining affirmative defenses (e.g. , those relating to the reasonableness and bona fides of fees charged), the court found that the defendants had earlier raised those defenses in such a fashion that the plaintiffs were on adequate notice of the defendants' intention to rely upon...
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