Gordon v. Wells Fargo Bank, N.A. (In re Banks)

• Decision Date: 31 March 2020
• Docket Number: ADVERSARY PROCEEDING NO. 19-05172-LRC,BANKRUPTCY CASE 13-77274-LRC
• Parties: IN THE MATTER OF: LATIRA SHAYONICA BANKS Debtor. NEIL C. GORDON, Chapter 7 Trustee for the Estate of Latira Shayonica Banks, Plaintiff, v. WELLS FARGO BANK, N.A., and UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, Defendants.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

IN THE MATTER OF: LATIRA SHAYONICA BANKS Debtor.

NEIL C. GORDON, Chapter 7 Trustee for the Estate of Latira Shayonica Banks, Plaintiff, v. WELLS FARGO BANK, N.A., and UNITED STATES DEPARTMENT OF HOUSINGAND URBAN DEVELOPMENT, Defendants.

BANKRUPTCY CASE 13-77274-LRC

ADVERSARY PROCEEDING NO. 19-05172-LRC

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION

March 31, 2020

IT IS ORDERED as set forth below:

IN PROCEEDINGS UNDER CHAPTER 7 OF THE BANKRUPTCY CODE

ORDER

Before the Court is a Partial Motion to Dismiss Complaint (Doc. 11) (the "Motion") filed by the United States of America on behalf of the United States Department of Housing and Urban Development ("HUD"). The Motion arises in connection with a Complaint (Doc. 1) filed by Neil C. Gordon ("Plaintiff"), the Chapter 7 Trustee for the Estate of Latira Shayonica Banks for avoidance of a post-petition transfer and damages arising from a violation of the automatic stay. This matter constitutes a core proceeding, over which this Court has subject matter jurisdiction. See 28 U.S.C. §§ 1334; 157(b)(2)(A).

I. Procedural History

Plaintiff initiated this adversary proceeding against Wells Fargo Bank, N.A. ("Wells Fargo") and HUD by filing the Complaint on April 8, 2019. On May 28, 2019, HUD filed the Motion seeking partial dismissal of the Complaint. On July 25, 2019, Plaintiff filed a Response to the Motion (Doc. 19) (the "Response"). Then, on August 8, 2019, HUD filed a Reply to the Plaintiff's Response (Doc. 21) (the "Reply").

II. Introduction and Background

Latria Shayonica Banks (the "Debtor") filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code (Doc. 1, Case No. 13-77274-LRC) on December 20, 2013 (the "Petition Date"). In her Bankruptcy Schedules, the Debtor listed a sole ownership interest in real property located at 456 Crested View Drive, Loganville, Georgia 30052 (the "Property"). The Debtor indicated that Wells Fargo held a first priority lien on the Property in the amount of $85,873. Additionally, through an amendment to her Schedules, theDebtor claimed a homestead exemption in the Property of $13,727 pursuant to O.C.G.A. § 44-13-100(a)(1).

After the Petition Date, the Debtor and Wells Fargo entered into a Loan Modification Agreement (Security Deed) (the "Loan Modification"). This Loan Modification, dated December 23, 2013, was executed on January 26, 2014, but was not recorded until August 18, 2014. Through the Loan Modification, the Debtor's pre-petition arrears on the mortgage owed to Wells Fargo were made subject to a junior Security Deed of Trust (the "Junior Security Deed") in favor of HUD. This Junior Security Deed, also dated December 23, 2013, and executed on January 26, 2014, was recorded on June 3, 2014.

Based on his initial investigations, Plaintiff determined that the Property was worth $129,000. Further, an initial title report confirmed that Wells Fargo was the only lienholder on the Property, and the payoff statements from Wells Fargo indicated there was equity in the Property.¹ Accordingly, Plaintiff began efforts to sell the Property. This prompted a series of litigation between the Debtor and Plaintiff, which caused the bankruptcy estate to incur in excess of $30,000 in professional fees. After the resolution of this litigation with the Debtor, Plaintiff obtained an updated title report for the Property in April of 2018.Through this second title report, Plaintiff discovered the existence of the Loan Modification and Junior Security Deed (collectively referred to as the "Post-Petition Transactions"). After discovering the Post-Petition Transactions, Plaintiff realized that there was almost $15,000 less equity in the Property than he initially anticipated, due to Wells Fargo's pre-petition arrears being reallocated to HUD's junior note and deed. Had Wells Fargo disclosed its pre-petition arrears or the existence of the Post-Petition Transactions, Plaintiff would not have expended attorney's fees and other professional fees in an attempt to sell the Property.

Plaintiff contends that the execution and recordation of the Loan Modification Agreement and Junior Security Deed were violations of the automatic stay of 11 U.S.C. § 362(a).² Through the Complaint, Plaintiff alleges that these violations of the automatic stay caused the bankruptcy estate to incur the $30,000 in professional fees. Accordingly, the Complaint seeks recovery of actual damages and punitive damages pursuant to 11 U.S.C. § 362(k).³ The Complaint also seeks avoidance of the Post-Petition Transactions pursuant to § 549, recovery of the Post-Petition Transactions pursuant to § 550, and preservation of the avoided Post-Petition Transactions pursuant to § 551.

Through the Motion, HUD seeks dismissal of Plaintiff's claim for violation of the automatic stay because it contends Plaintiff is not an "individual" entitled to recover damages under § 362(k). Alternatively, if Plaintiff's claim for violation of the automatic stay is not dismissed, HUD contends that Plaintiff's request for punitive damages against HUD is precluded by sovereign immunity and the application of § 106(a)(3), and, therefore, must be dismissed. HUD also seeks dismissal of Plaintiff's claim for avoidance, preservation, and recovery of the Post-Petition Transactions because Plaintiff's claim for avoidance under § 549 is time-barred pursuant to § 549(d).

III. Motion to Dismiss Standard

HUD seeks dismissal of the Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, made applicable to this adversary proceeding by Rule 7012(b) of the Federal Rules of Bankruptcy Procedure, for "failure to state a claim upon which relief can be granted." See FED. R. CIV. P. 12(b)(6). When considering whether to dismiss a complaint for failure to state a claim upon which relief can be granted, the Court must accept as true all factual allegations set forth in the complaint and, on the basis of those facts, determine whether the plaintiff is entitled to the relief requested. The Court must draw all reasonable inferences in the light most favorable to the non-moving party. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 554-56 (2007); Daewoo Motor America Inc. v. General Motors Corp., 459 F.3d 1249, 1271 (11th Cir. 2007); Hill v. White, 321 F.3d 1334,1335 (11th Cir. 2003); Grossman v. Nationsbank, Nat'l Ass's, 225 F.3d 1228, 1231 (11th Cir. 2000); Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1273, n. 1 (11th Cir. 1999).

IV. Discussion

A. Plaintiff's Claim for Violation of the Automatic Stay

HUD contends that Plaintiff's claim for damages under § 362(k) must be dismissed because Plaintiff is not an "individual." Section 362(k) states that: "an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys' fees, and, in appropriate circumstances, may recover punitive damages." While the term "individual" is not defined in the Bankruptcy Code, many courts have held that § 362(k) remedies are not available to Chapter 7 trustees in their capacities as trustees of a debtor's bankruptcy estate. See Gordon v. Taylor (In re Taylor), 430 B.R. 305, 314-15 (Bankr. N.D. Ga. 2010) ("In addition to [the Chapter 7] Trustee's lack of injury, recovery under § 362(h) [which is now located in § 362(k)] is limited to individuals... [w]hile a trustee can be an 'individual' if the trustee is a natural person (as opposed to, e.g., a corporate entity), the individual's status as trustee precludes any finding that the trustee suffered any damages as an individual, because any harm suffered in the form of costs and attorney's fees is actually incurred by a thing, viz., the bankruptcy estate, and not by the trustee as a natural person." (quoting Havelock v. Taxel (In re Pace), 67 F.3d 187, 192 (9th Cir. 1995)); Gordon v. White (In re Morgenstern), 542 B.R. 650, 659 (Bankr.D.N.H. 2015) ("The Court agrees with the cases that apply the more narrow definition of individual, because a trustee represents the bankruptcy estate, not herself as an individual. Accordingly, the Court finds that the Trustee may not seek relief under § 362(k)."). Additionally, the Eleventh Circuit Court of Appeals, in agreeing with the narrow interpretation of the term "individual," has held that a corporate debtor "is not an 'individual' entitled to relief under 11 U.S.C. § 362(h) [now § 362(k)]." Jove Eng'g Inc. v. IRS, 92 F.3d 1539, 2560 (11th Cir. 1996).

In response, Plaintiff contends that he is entitled to recover damages for violations of the automatic stay under § 105(a), which states, in relevant part, that: "[t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." In support of this argument, Plaintiff cites cases which have held that the court may award a Chapter 7 trustee damages for violations of the automatic stay as sanctions pursuant to § 105(a). See In re Taylor, 430 B.R. at 316 ("Courts have found that otherwise ineligible parties under § 362(h) [now § 362(k)] may recover sanctions under § 105. If the automatic stay provision is violated, courts may award damages under the separate statutory contempt power of § 105." (citing Havelock, 67 F.3d at 193)). HUD, in its Reply, contends that the United States Supreme Court case of Law v. Siegel, 571 U.S. 415 (2014), precludes the use of § 105(a) to award damages to a non-individual for violations of the automatic stay.

In Law, the Supreme Court held that § 105(a) "does not allow the bankruptcy court to override explicit mandates of other sections of the Bankruptcy Code" and that a bankruptcy court "may not contravene specific statutory provisions" when exercising its statutory authority under § 105(a) or its inherent powers. Law, 571 U.S. at 421. In that case, a Chapter 7 debtor had fraudulently represented on his bankruptcy schedules that there was a lien on his property, which left no equity available for creditors....