Hollie v. Bank of N.Y. Mellon (In re Hollie)

• Decision Date: 28 October 2020
• Docket Number: ADVERSARY NO. 19-3703,CASE NO: 19-36429
• Citation: 622 B.R. 221
• Parties: IN RE: Judy HOLLIE, Debtor Judy Hollie, Plaintiff v. The Bank of New York Mellon; fka The Bank of New York, et al., Defendants
• Court: U.S. Bankruptcy Court — Southern District of Texas

622 B.R. 221

IN RE: Judy HOLLIE, Debtor

Judy Hollie, Plaintiff

v.The Bank of New York Mellon; fka The Bank of New York, et al., Defendants

CASE NO: 19-36429

ADVERSARY NO. 19-3703

United States Bankruptcy Court, S.D. Texas, Houston Division.

Signed October 28, 2020

Greg DeVries, McGlinchey Stafford PLLC, Houston, TX, Brian A. Paino, McGlinchey Stafford, Irvine, CA, for Defendants.

Jacob Hyde, Hyde Law PLLC, The Woodlands, TX, for Plaintiff.

MEMORANDUM OPINION

Eduardo V. Rodriguez, United States Bankruptcy Judge

On December 27, 2019, Judy Hollie ("Plaintiff ") filed her initial complaint ("Complaint "),¹ asking this Court to declare the deed of trust on her property void, set aside the recent foreclosure sale, and quiet title in Plaintiff's name. Plaintiff's Complaint is currently the live pleading before the court. On July 20, 2020, The Bank of New York Mellon, f/k/a The Bank of New York, as Successor Trustee to JPMorgan Chase Bank, N.A., as Trustee First Franklin Mortgage Loan Trust 2005-FF1, Mortgage Backed Pass-Through Certificates, Series 2005-FF1 ("BONY "), and PHH Mortgage Corporation ("PHH ," and together with BONY, "Defendants ") filed a single matter self-styled as Defendants' Motion for Judgment on the Pleadings ("Motion ")."² Defendants ask this Court to dismiss Plaintiff's claims, arguing that Plaintiff could and should have brought her claims in two prior lawsuits involving foreclosure on her property.

On August 25, 2020, the Court held a hearing on the Motion and at the conclusion, ordered briefing on the issue of whether the doctrine of res judicata precludes Plaintiff bringing her constitutional claims in the instant adversary proceeding. Briefing is now closed, and the matter is ripe for determination. For the reasons set forth below, Defendants' Motion for Judgment on the Pleadings is granted, and the case is dismissed with prejudice.

I. Findings of Fact

A. Jurisdiction and Venue

This Court holds jurisdiction pursuant to 28 U.S.C. § 1334, which provides "the district courts shall have original and exclusive jurisdiction of all cases under title 11." Section 157 allows a district court to "refer" all bankruptcy and related cases to the bankruptcy court, wherein the latter court will appropriately preside over the matter.³ Additionally, this Court may only hear a case in which venue is proper.⁴ In her petition, Plaintiff states that Pearland, Brazoria County, Texas is her principal residence and that she has resided in Pearland at least 180 days before the bankruptcy petition was filed;⁵ therefore, venue is proper.

B. Constitutional Authority to Enter a Final Judgment

This Court has an independent duty to evaluate whether it has the constitutional authority to sign a final order.⁶ In Stern, which involved a core proceeding brought by the debtor under § 157(b)(2)(C), the Supreme Court held that a bankruptcy court "lacked the constitutional authority to enter a final judgment on a state law counterclaim that is not resolved in the process of ruling on a creditor's proof of claim."⁷ The pending dispute before this Court is a core proceeding pursuant to § 157(b)(2)(K) because it concerns the validity of Defendants' lien on Plaintiff's property. The ruling in Stern was only limited to the one specific type of core proceeding involved in that dispute, which is not implicated here. Accordingly, this Court concludes that the narrow limitation imposed by Stern does not prohibit this Court from entering a final judgment here.⁸ In the alternative, this Court has the constitutional authority to enter a final judgment regarding Plaintiff's Complaint because both Plaintiff and Defendants consented to entry of all final orders and final judgments by this Court.⁹ As the Supreme Court held in Wellness International Network v. Sharif , " Article III [of the US Constitution ] is not violated when the parties knowingly and voluntarily consent to adjudication by a bankruptcy judge."¹⁰

II. Analysis

A. Plaintiff's Complaint

This case involves allegations of actions or inactions by Defendants that occurred in September 2004. Plaintiff alleged that in acquiring a home equity loan on her residence, Defendants failed to comply with Texas Constitution Article XVI, section 50 (a)(6), as well as Defendants' enforcement of a power of sale on the void lien and as a result, Plaintiff seeks to remove a cloud on her homestead, quieting title in favor of Plaintiff. Plaintiff's factual allegations¹¹ are summarized as follows:

1. Plaintiff resides and owns the property at 3245 Autumn Forest Drive, Pearland, TX 77584 ("Property "). This Property is her homestead.

2. On September 17, 2004,¹² Plaintiff, being the owner of the Property, obtained a home equity loan to refinance an original loan obtained on October 25, 2001 ("Loan ").

3. Plaintiff simultaneously entered into a Home Equity Security Agreement ("Deed of Trust ") with the lender, which details the parties' rights and obligations regarding the lien.

4. Prior to obtaining the Loan, Plaintiff was supposed to receive notice that the loan was governed by Texas Constitution article XVI, § 50 (a)(6)(g) on September 6, 2017. This did not occur.

5. This Loan refinanced a loan obtained on October 25, 2001, identified in the rider as Brazoria County Clerk's File No. 2001050185.

6. Plaintiff did not receive a copy of all the executed documents on the day of closing. Plaintiff received only some of the documents.

7. On July 2, 2019, Defendant BONY, foreclosed on Plaintiff's homestead.

8. As of December 27, 2019, the Acknowledgment of Fair Market Value has not been signed by either party because it does not exist.

Based on these factual allegations, Plaintiff pleads two causes of action. First, Plaintiff seeks to quiet title to Plaintiff's home alleging that the Note and Deed of Trust upon which the Defendants assert an interest, although facially valid, is in fact invalid and of no force or effect because Defendants' uncured constitutional violations have rendered Defendants' underlying lien void from origination.¹³ Second, Plaintiff seeks a declaratory judgment pursuant to Chapter 37 of the Texas Civil Practice & Remedies Code, and requests that this Court issue a declaratory judgment that (a) declares Defendants failed to cure Constitutional defects in the loan documents, (b) declares that the mortgage lien is noncompliant with the Texas Constitution and thereby void.¹⁴

B. Defendants' Motion for Judgment on the Pleadings

In their Motion, Defendants assert the following:¹⁵

1. On or about September 17, 2004, Plaintiff obtained a non-purchase money Loan from First Franklin Financial Corporation in the original principal sum of $200,000, the terms of which were set forth in a promissory note (the "Note ") secured by a Deed of Trust encumbering the Property.

2. On December 15, 2011, Plaintiff filed an original petition (the "First Petition ") against BONY and Ocwen in the 23rd Judicial District Court of Brazoria County, Texas, which BONY and Ocwen subsequently removed to the U.S. District Court for the Southern District of Texas (the "Prior Action ").¹⁶ Pursuant to the First Petition, Plaintiff challenged the validity of BONY's 2011 foreclosure sale under the terms of the Deed of Trust.¹⁷

3. On May 9, 2012, the Southern District of Texas entered an agreed judgment (the "2012 Judgment ") in the Prior Action, which voided a completed foreclosure sale and reinstated Plaintiff's ownership interest in the Property. In the 2012 Judgment, the court found:

"[T]hat certain Note signed by Plaintiff on or about September 17, 2004 for $200,000.00 payable to the order of First Franklin Financial Corporation and as may be modified by the parties, remains a continuing obligation of Plaintiff, and that that certain Deed of Trust dated September 17, 2004 ... remains a live and binding security instrument, providing security for the afore-referenced Note by providing a first-money lien on the Subject Property."¹⁸

4. On May 2, 2016, BONY filed a judicial foreclosure action (the "Foreclosure Action ") against Plaintiff in the 149th Judicial District Court of Brazoria County, Texas.¹⁹

5. On February 12, 2019, the 149th Judicial District Court of Brazoria County, Texas entered a final judgment (the "2019 Judgment ") against Plaintiff and in favor of BONY in the Foreclosure Action.²⁰ In the 2019 Judgment, the court concluded that Plaintiff committed an event of default under the Loan, that the outstanding balance of the Note is secured by the Deed of Trust on the Property, and that the Deed of Trust allows BONY to foreclose on the Property.²¹

6. On July 2, 2019, BONY foreclosed on the property due to Plaintiff's default.²²

7. On December 27, 2019, Plaintiff initiated this action by filing her Complaint, which alleges the Loan violates the Texas Constitution. Plaintiff brings two causes of action—quiet title and suit for declaratory judgment—which seek a determination that the Deed of Trust is invalid and void.²³

C. Legal Standard for a Motion for Judgment on the Pleadings Pursuant to Rule 12(c)

Rule 12(c) of the Federal Rules of Civil Procedure permits a party to move for judgment on the pleadings "[a]fter the pleadings are closed – but early enough not to delay trial."²⁴ "A motion brought pursuant to [ Rule 12(c) ] is designed to dispose of cases where the material facts are not in dispute and a judgment on the merits can be rendered by looking to the substance of the pleadings and any judicially noticed facts."²⁵ The standard for deciding a motion under Rule 12(c) is the same as the one for deciding a motion to dismiss under Rule 12(b)(6).²⁶

To survive a motion under Rule 12(c), "a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ "²⁷ "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged."²⁸ Factual allegations that only...