Hull v. Cenlar FSB (In re Gistis)

• Decision Date: 03 January 2020
• Docket Number: Adv. Proc. No. 19-1008,Case No. 18-10710
• Parties: In re: Christopher D. Gistis, Debtor Nathaniel R. Hull, chapter 7 trustee for Christopher D. Gistis, Plaintiff v. Cenlar FSB & Federal National Mortgage Association, Defendants
• Court: U.S. Bankruptcy Court — District of Maine

In re: Christopher D. Gistis, Debtor

Nathaniel R. Hull, chapter 7 trustee for Christopher D. Gistis, Plaintiff
v.
Cenlar FSB & Federal National Mortgage Association, Defendants

Case No. 18-10710
Adv. Proc. No. 19-1008

UNITED STATES BANKRUPTCY COURT DISTRICT OF MAINE

January 3, 2020

Chapter 7

MEMORANDUM OF DECISION

Nathaniel R. Hull, chapter 7 trustee for Christopher D. Gistis, has filed a multi-count complaint [Dkt. No. 1] (the "Complaint") seeking, among other things, to: (a) avoid a transfer of the proceeds of an unauthorized, postpetition sale of real property; (b) recover those proceeds or their value; and (c) secure an award of damages for the application of those proceeds to the debt secured by a mortgage on the property. Cenlar FSB and Federal National Mortgage Association (the "Defendants") have moved, under Fed. R. Civ. P. 12(b)(6), for dismissal of the Complaint in its entirety. That motion will be granted in large part.

FACTUAL BACKGROUND

The following facts are drawn from the Complaint, the mortgage incorporated therein [Dkt. No. 50], and matters that appear on the docket in this adversary proceeding and the associated chapter 7 case. See Banco Santander de P.R. v. Lopez-Stubbe (In re Colonial Mortg.

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Bankers Corp.), 324 F.3d 12, 15 (1st Cir. 2003) (explaining that a court analyzing a Rule 12(b)(6) motion may consider "not only the complaint but also matters fairly incorporated within it and matters susceptible to judicial notice").

The Debtor owned certain real estate in Westbrook, Maine (the "Property"). In 2017, Federal National Mortgage Association ("FNMA") became the holder of a mortgage on the Property. Cenlar was the loan servicing agent for FNMA. In June 2018, the Debtor entered into a listing agreement giving Century 21 North East the exclusive right to sell the Property for $179,900 for a one-year period.¹ Five months later, the Debtor agreed to sell the Property to an unrelated third party for $166,700.

Two weeks later, on December 13, 2018 ("the Petition Date"), the Debtor started a chapter 7 case. On Schedule A/B, he listed an interest in the Property, which he valued at $182,000. On Schedule D, the Debtor indicated that Cenlar held a claim of $181,311 secured by the Property. Neither the listing agreement nor the purchase and sale agreement were disclosed on Schedule G. Instead, the Debtor affirmatively represented that "No" executory contracts were in existence. On his Statement of Intent, the Debtor indicated that he wished to retain the Property and enter into a reaffirmation agreement. A few days after the Petition Date, counsel for FNMA entered an appearance in the case.

Cenlar provided the Debtor with a payoff statement (the "Payoff Statement") indicating that the sum of $154,034.10 would be necessary to pay off the loan secured by the Property on or before January 23, 2019. On January 4, 2019, the Debtor sold the Property without obtaining authority from the Court. The buyer paid $166,700 (the "Sale Proceeds") for the Property at closing. From the Sale Proceeds, Cenlar or FNMA received a payment of $154,034.10 in

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satisfaction of the debt secured by the mortgage. On January 11, 2019, a warranty deed was recorded evidencing the sale. About two months later, FNMA recorded a discharge of the mortgage. To date, neither Cenlar nor FNMA have filed a proof of claim in the chapter 7 case.

In July 2019, the Trustee initiated this adversary proceeding, articulating fifteen counts for relief against the Defendants and Century 21 North East. Five counts in the Complaint were asserted only against Century 21 North East. The Trustee has reached a compromise with Century 21 North East, and it has been dismissed as a party to the proceeding. See [Dkt. No. 51]. The remaining counts of the Complaint—all asserted against both Cenlar and FNMA—are summarized below:

Count	Requested Relief
I	Declaration that the Sale Proceeds are unencumbered by the mortgage, and that any; claims held by the Defendants are unsecured (11 U.S.C. §§ 552 & 506)
II	Disgorgement of the Sale Proceeds distributed to the Defendants (11 U.S.C. § 726)
IV	Avoidance of unauthorized postpetition transfer of the Sale Proceeds to the; Defendants (11 U.S.C. § 549)
V	Recovery of the avoided unauthorized postpetition transfer of the Sale Proceeds to the; Defendants (11 U.S.C. § 550)
VIII	Turnover of the Sale Proceeds (11 U.S.C. § 542)
X	Objection to Payoff Statement as a claim (11 U.S.C. § 502)
XI	Disallowance of any claims held by the Defendants (11 U.S.C. § 502(d))
XIII	Damages for the Defendants' violation of the automatic stay (11 U.S.C. § 362(k))
XIV	Damages for the Defendants' civil contempt of the automatic stay (11 U.S.C. § 105)
XV	Equitable subordination any claims held by the Defendants (11 U.S.C. § 510(c))

The Trustee has not named the purchaser of the Property as a defendant; he is not seeking to avoid the sale of, or to recover, the Property from the purchaser. Instead, the Trustee's efforts are directed entirely at the Sale Proceeds.

ANALYTICAL FRAMEWORK

Rule 12(b)(6) requires dismissal of a complaint that does not contain "enough facts to state a claim to relief that is plausible on its face." See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that

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allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). In evaluating whether a complaint meets this threshold, the Court disregards legal conclusions and "[t]hreadbare recitals of the elements of a cause of action[.]" Id. at 678-79. The remaining well-pleaded factual allegations are accepted as true, and all reasonable inferences from those allegations are drawn in the plaintiff's favor. Lemelson v. U.S. Bank Nat'l Ass'n, 721 F.3d 18, 21 (1st Cir. 2013). "A complaint is subject to dismissal for failure to state a claim if the allegations, taken as true, show the plaintiff is not entitled to relief." Jones v. Bock, 549 U.S. 199, 215 (2007). For example, a complaint that contains a built-in defense may be dismissed under Rule 12(b)(6) if the complaint and the documents incorporated therein demonstrate that the defense applies. See San Gerónimo Caribe Project, Inc. v. Acevedo-Vilá, 687 F.3d 465, 491-92 (1st Cir. 2012) (citing 5 Wright & Miller, Federal Practice & Procedure § 1226, at 302-04 (3d ed. 2004)).

ANALYSIS

The analysis proceeds count-by-count, with closely related counts grouped together.

A. Counts I & II: Declaration with Respect to Extent of Interest in the Sale Proceeds & Disgorgement of Distribution of Property of the Estate

In Count I, the Trustee avers that the mortgage did not create a security interest in the Sale Proceeds.² He asks the Court to declare that the Sale Proceeds are unencumbered under 11 U.S.C. § 552 and that any claim that the Defendants may have against the estate is unsecured under 11 U.S.C. § 506. In Count II, the Trustee doubles down. Operating from the assumption that the Defendants are unsecured as to the Sale Proceeds, he contends that they should be ordered to disgorge the $154,034.10 they received because that distribution to them did not

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comply with the priority scheme of 11 U.S.C. § 726. In effect, the Trustee says that the Defendants' receipt of a portion of the Sale Proceeds elevated payment of their general unsecured claim ahead of claims of superior legal rank.

To determine whether Counts I and II state plausible claims for relief, an examination of section 552 is necessary. Except as provided in 11 U.S.C. § 552(b), "property acquired by...