In re Aegis Mortg. Corp.

Decision Date02 April 2008
Docket NumberBankruptcy No. 07-11119-BLS.,Adversary No. 07-51714 (BLS).
Citation385 B.R. 102
PartiesIn re AEGIS MORTGAGE CORPORATION, et al., Debtors. Equity Title of Nevada, Plaintiff, v. Aegis Wholesale Corporation, Wells Fargo Home Mortgage Inc., Community One Federal Credit Union, Bernard Rubin, Gloria Rubin, Joseph Reyes, and Evelyn Reyes, Defendants.
CourtU.S. Bankruptcy Court — District of Delaware

Karen C. Bifferato, Connolly, Bove, Lodge & Hutz, Jennifer Patone Cook, Bifferato Gentilotti LLC, Leslie C. Heilman, Ballard Spahr Andrews &" Ingersoll, LLP, James E. O'Neill, Pachulski Stang Ziehl & Jones LLP, Christina Maycen Thompson, Connolly Bove Lodge & Hutz LLP, Wilmington, DE, for Defendants.

Michael G. Busenkell, Eckert Seamans Cherin & Mellot, LLC, Margaret Fleming England, Eckert Seamans Cherin & Mellot, LLC, Donna L. Harris, Pinckney & Harris, LLC, Wilmington, DE, for Plaintiff.



Before the Court are two separate motions to dismiss filed by defendants Wells Fargo Bank, N.A. and Joseph and Evelyn Reyes, respectively. For the reasons set forth below, the motions to dismiss are granted in part and denied in part.


Equity Title of Nevada ("Plaintiff) is a business entity organized under the laws of Nevada. Complaint, 1. As part of its business, the Plaintiff functions as a settlement agent for real estate transactions occurring in Nevada. Complaint, 1. On July 31st, 2007, the Plaintiff acted as a settlement agent for a real estate transaction ("Real Estate Transaction") between sellers, Bernard and Gloria Rubin (collectively, "the Rubins"), and buyers, Joseph and Evelyn Reyes (collectively, "the Reyeses"). Complaint, ¶¶ 6 and 8. The subject of the Real Estate Transaction was property located at 4037 Cape Sand Drive, Las Vegas, Nevada ("Property"). Complaint, 8.

At the time of the Real Estate Transaction, Wells Fargo Home Mortgage, Inc. and Community One Federal Credit Union maintained secured loans on the property for $58,481.16 and $94,287.73, respectively. Complaint, 8. In order to acquire the Property, the Reyeses used Aegis Mortgage Corporation ("Debtor") as a lender, and the Debtor established a loan ("Loan") in the amount of $199,000 to fund the Reyeses' acquisition of the Property. Complaint, 9.

The Plaintiff acted as the escrow agent for the Real Estate Transaction and, in that role, the Plaintiff received a funding check from the Debtor for $199,954.87. Complaint, 9. A promissory note was executed and the Debtor was named as the payee on it. Complaint, 10. A deed of trust was executed and recorded and the Debtor was named as the beneficiary. Complaint, 10. On August 1st, 2007, the Plaintiff deposited the funding check into its trust account. Complaint, 11. Before the check cleared, however, the Plaintiff distributed to Wells Fargo Home Mortgage, Inc. and Community One Federal Credit Union the amounts due under their respective secured loans. Complaint, 11. In addition, the Plaintiff distributed $20,681.58 to the Rubins and paid certain closing costs associated with the sale of the property. Complaint, 11. The funding check never cleared, however, and was returned to the Plaintiff for insufficient funds. Complaint, 13. The Plaintiff was unaware that the Debtor ceased all mortgage activity and closed its business on August 3rd, 2007 and, on August 7th, 2007, terminated its employees. Complaint, 12. On August 13th, 2007, the Debtor and certain of its affiliates filed voluntary petitions for relief under chapter 11. Complaint, 3.

The Plaintiff states that on multiple occasions it requested that the Debtor fund the Loan or acknowledge that it does not own the Loan due to its failure to provide funding. Complaint, 15. According to the Plaintiff, the Debtor believes the Loan is property of its bankruptcy estate. Complaint, 7. Moreover, the Plaintiff believes that the Debtor will seek to sell the Loan. Complaint, 18. The Plaintiff further alleges that Wells Fargo Home Mortgage, Inc. and Community One Federal Credit Union have not returned the amounts paid to them, despite their knowledge that the Loan was not funded by the Debtor. Complaint, 16.

a. The Parties' Positions

The Plaintiff's Complaint for Declaratory Relief ("Complaint") contains five counts. In Count I, the Plaintiff requests that this Court enter a judgment declaring, "(i) the Loan and all proceeds related thereto are not property of the Debtor's estate, and (ii) the Loan and Real Estate Transaction are invalid in that the Debtor failed to provide consideration for the Loan." Complaint, p. 8.

Count II of the Complaint contains two related requests for relief. Complaint, p. 8. First, Count II requests that the Court "[e]stablish a constructive trust in favor of the Plaintiff in the amount of any proceeds received by the Debtor with respect to the Loan, including any sale thereof, and for the purpose of holding the Deed of Trust in favor of the Plaintifff[.]" Complaint, p. 8. Second, Count II requests that the Court order the "Debtor [to] pay to the Plaintiff all funds deposited into the constructive trust as the equitable owner of the Loan and any proceeds thereof, [and o]rder that the Plaintiff is the equitable beneficiary of the Deed of Trust." Complaint, p. 8.

Counts III and IV are pled in the alternative to Counts I and II and seek an order rescinding the Real Estate Transaction. Complaint, p. 8.

Count V is pled in the alternative to Counts I through IV and seeks an order "that the Deed of Trust and the Promissory Note be reformed to substitute the Plaintiff as beneficiary and payee."2 Complaint, p. 8.

The Wells Fargo Bank, N.A. ("Wells Fargo") and the Reyeses (collectively "Defendants") argue in their respective motions to dismiss (collectively "Motions to Dismiss") that the Court should dismiss each count in the Plaintiffs Complaint. With respect to Count I, the Defendants argue that the Court lacks subject matter jurisdiction to enter the declaratory judgment sought by the Plaintiff.3 The Defendants argue that the Court should dismiss Counts III and IV because the Plaintiff lacks the appropriate standing to rescind the Real Estate Transaction. Finally, the Defendants argue that the Court should dismiss Counts II and V because the Defendants are not named in either count.

The Plaintiff opposes the Motions to Dismiss. The Plaintiff first argues that the Court has jurisdiction over its request for declaratory judgment because the Court has the power to invalidate the entire Real Estate Transaction and Wells Fargo and the Reyeses would be implicated by such an order. Secondly, the Plaintiff believes it has standing to rescind the Real Estate Transaction because the equities of the situation demand it. Finally, the Plaintiff acknowledges that Counts II and V name neither of the Defendants. Therefore, the Plaintiff requests that the Court not take any action with respect to the Defendants and Counts II and V.

The matter has been fully briefed and argued and is ripe for decision.

a. Bankruptcy Court Jurisdiction

The basic statutory grant of bankruptcy court subject-matter jurisdiction is contained in 28 U.S.C. § 1334. Section 1334 provides the district court with "original and exclusive jurisdiction of all cases under title 11." 28 U.S.C. § 1334(a). The district court has original but not exclusive jurisdiction over "all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(b). Therefore, bankruptcy court jurisdiction fundamentally extends to four types of title 11 matters: "(1) cases under title 11, (2) proceeding[s] arising under title 11, (3) proceedings arising in a case under title 11, and (4) proceedings related to a case under title 11." Binder v. Price Waterhouse & Co., LLP (In re Resorts Int'l, Inc.), 372 F.3d 154, 162 (3d Cir.2004) (internal citations omitted).

"Related to" jurisdiction is the most expansive of the four types of bankruptcy court jurisdiction. The Third Circuit set forth in Pacor the seminal test for "related to" bankruptcy court jurisdiction. Id. at 164. Under Pacor for a proceeding to be "related to":

[It] need not necessarily be against the debtor or against the debtor's property. An action is related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate. The Supreme Court has explained that the critical component of the Pacor test is that "bankruptcy courts have no jurisdiction over proceedings that have no effect on the estate of the debtor."

Id. (internal citations omitted).

"Bankruptcy `arising under' jurisdiction is analogous to 28 U.S.C. § 1331 which provides for original jurisdiction in district courts of all civil actions arising under the Constitution, laws, or treaties of the United States.'" Stoe v. Flaherty, 436 F.3d 209, 216 (3d Cir.2006). Thus, "`arising undertitle 11' includes causes of action expressly authorized by the Bankruptcy Code, e.g., proceedings to recover a fraudulent transfer or an unauthorized postpetition transfer, or an action to avoid a preference." Sklar v. Munyon (In re Family Theatre, LLC), 2006 WL 3327317, *3 (Bankr.D.N.J. Nov.14, 2006).

Alternatively, "arising in" jurisdiction provides a bankruptcy court with jurisdiction over proceedings which "have no existence outside of the bankruptcy." Stoe, 436 F.3d at 216 (quoting United States Trustee v. Gryphon at the Stone Mansion, Inc., 166 F.3d 552, 556 (3d Cir. 1999)). "Arising in" proceedings are not based on a right created by the Bankruptcy Code; they are proceedings that can exist only in the context of bankruptcy. This category is illustrated by such things as "allowance and disallowance of claims, orders in respect to obtaining credit,...

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