Harlow v. Wells Fargo & Co. (In re Harlow)
| Decision Date | 12 December 2022 |
| Docket Number | 17-71487,Adversary Proc. 20-07028 |
| Parties | In re: TROY SHANNON HARLOW, Debtor. v. WELLS FARGO & CO. and WELLS FARGO BANK, N.A., Defendants. TROY SHANNON HARLOW, et al., Plaintiffs, |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Western District of Virginia |
This matter is before the Court on a motion filed by the Defendants Wells Fargo & Co. and Wells Fargo Bank, N.A. (collectively "Wells Fargo") to dismiss the Second Amended Class Action Complaint ("SAC") filed by the Plaintiffs Troy Shannon Harlow, Mark Stephen Estes, Kimberly Porter Fewell, Beatriz Villegas-Rodriguez, and Rodolfo Rodriguez. After dismissal of numerous counts by the United States District Court for the Western District of Virginia (Case No. 7:22-cv-00267), five remaining counts were referred back to this Court by the District Court. These remaining counts allege violations of various sections of the Bankruptcy Code and Rules. Count III alleges violations of Federal Rule of Bankruptcy Procedure 3002.1(b). Count V alleges violations of the automatic stay pursuant to 11 U.S.C. § 362(a). Counts VI, VII, and VIII allege abuse of process, contempt and fraud on the bankruptcy court, all invoking 11 U.S.C § 105.
Wells Fargo has moved to dismiss all remaining counts pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted, in addition to moving to dismiss the holding company Wells Fargo & Co. as a party for failure to sufficiently plead facts to pierce the corporate veil.[1] The parties fully briefed the issues and this Court heard argument from counsel on November 14, 2022. The matter is now ripe for resolution.
This adversary proceeding stems from alleged acts by Wells Fargo after the onset of the COVID-19 pandemic. The Plaintiffs' key allegations of fact are that the Plaintiffs, who are debtors in open Chapter 13 bankruptcy cases in various courts around the country, had their mortgage loans placed in forbearance status by Wells Fargo without the Plaintiffs' permission, knowledge or request. Additionally, the Plaintiffs allege that Wells Fargo filed a notice of forbearance on the claims register through a Rule 3002.1 notice or a notice of forbearance on the main case docket in each case, all of which contained false statements that the Plaintiffs had requested forbearance from Wells Fargo. The notices of forbearance, whether on the claims register or the main case docket, provided, in part, as follows:
See Estes, No. 17-70327, ECF 77. The Plaintiffs contend they never asked for the forbearances, despite the notices explicitly saying they were debtor requested. Many, if not all, of the Plaintiffs were forced to file motions to strike the forbearance notices through counsel. See Estes, No. 17-70327, ECF 78. In some instances, the notices were withdrawn by Wells Fargo with the recitation they were erroneously filed. See Estes, No. 17-70327, ECF 79.
The Plaintiffs further claim Wells Fargo's placement of the Plaintiffs' mortgages in forbearance and the filing of false forbearance notices were part of a scheme by Wells Fargo to benefit from, among other things, CARES Act financial incentives for mortgage companies that were triggered when forbearance was requested by a debtor. Wells Fargo denies all intentional wrongdoing and any scheme for financial gain, asserting that the pandemic and the subsequent implementation of CARES Act forbearances brought tumultuous times in the administration of the mortgage loans, that Wells Fargo intended only to help struggling debtors, and that there was no intention to cause any negative effect upon any debtor.[2]
This Court has jurisdiction of this matter by virtue of the provisions of 28 U.S.C. §§ 1334(a) and 157(a) and the delegation made to this Court by Order from the District Court on December 6, 1994, and Rule 3 of the Local Rules of the United States District Court for the Western District of Virginia. This Court further concludes that this matter is a "core" bankruptcy proceeding within the meaning of 28 U.S.C. § 157(b)(2)(A) and (O).
Wells Fargo filed a Motion to Dismiss the SAC under Federal Rule of Civil Procedure 12(b)(6), incorporated into adversary proceedings by Federal Rule of Bankruptcy Procedure 7012(b). The Defendants move to dismiss all remaining counts (Count III -Violation of Federal Rule of Bankruptcy Procedure 3002.1; Count V - Violation of Automatic Stay; Count VI - Abuse of Process; Count VII - Contempt; and Count VIII - Fraud on the Court) for failure to state a claim upon which relief can be granted, and move to dismiss the parent company Wells Fargo & Co. as a party for failure to sufficiently plead facts to pierce the corporate veil.[3]
Under Rule 12(b)(6), a party may move a court to dismiss a complaint if the plaintiff has not alleged sufficient facts, taken as true, to show that the claim for relief is plausible at best. Fed.R.Civ.P. 12(b)(6); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570-72 (2007); Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of a complaint to determine whether the plaintiff has properly stated a claim; "it does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses." Republican Party of North Carolina v. Martin, 980 F.2d 943, 952 (4th Cir. 1992). Consequently, "only a complaint that states a plausible claim for relief survives a motion to dismiss." Iqbal, 556 U.S. at 679.
Only facts can render a claim for relief plausible. "[F]ormulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555. Nor is it sufficient for a plaintiff to plead facts merely consistent with liability. The plaintiff must plead enough factual content to nudge a claim across the border from mere possibility to plausibility. Id. at 570. See also Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009). The well-pleaded factual allegations in the SAC and summarized above are accepted as true and all reasonable inferences drawn from those facts are construed in the light most favorable to the Plaintiffs. See King v. Rubenstein, 825 F.3d 206, 212 (4th Cir. 2016) (reiterating the appropriate standard of review); Ironworks Development LLC v. Truist Bank, No. 3:21-CV-00032, 2022 WL 16834592 ).
The Defendants move to dismiss Count III as Rule 3002.1 does not give rise to a cause of action, the notices at issue explicitly disclaimed compliance with that Rule, and that this Court lacks jurisdiction over the claims for debtors in other courts.[4] The Plaintiffs allege the following in the SAC: Wells Fargo violated Federal Rule of Bankruptcy Procedure 3002.1(b) by filing false forbearance notices using Rule 3002.1 Notices of Mortgage Payment Change ("NOMPC") and Official Bankruptcy Form 410S1. The Plaintiffs allege that the Defendants did not comply with the time mandates in the Rule by filing the notices after the Plaintiffs had supposedly been in forbearance for months, and thus were unknowingly making their monthly payments without obligation to do so. The Plaintiffs further state that Wells Fargo's misconduct has damaged the Plaintiffs and caused them to incur attorneys' fees to correct the errors.
Wells Fargo responds by arguing that a procedural rule does not give rise to a private cause of action. Further, Wells Fargo states that the notices at issue filed on the claims register explicitly disclaimed compliance with the Rule within the text of the notice. The disclaimer states:
The use of Official Form 410S1 and of the electronic filing method for a Notice of Payment Change is being used to provide interested parties with notice of the forbearance arrangement, detailed below. It is only being used due to limitations on existing functionality available to limited users within the Courts' CMECF systems. The use of this form in no way implies that a payment change is occurring or has occurred on the account. This filing does not imply...
To continue reading
Request your trial