In re Arsenault

• Decision Date: 19 September 2011
• Docket Number: Adversary No. 11–03006.,Bankruptcy No. 10–30022.
• Citation: 456 B.R. 627
• Parties: In re Henri J. ARSENAULT, Sheila B. Arsenault, Debtors.Henri J. Arsenault, Sheila B. Arsenault, Plaintiffsv.JP Morgan Chase Bank, N.A., Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Georgia

456 B.R. 627

In re Henri J. ARSENAULT, Sheila B. Arsenault, Debtors.Henri J. Arsenault, Sheila B. Arsenault, Plaintiffs

v.JP Morgan Chase Bank, N.A., Defendant.

Bankruptcy No. 10–30022.

Adversary No. 11–03006.

United States Bankruptcy Court, S.D. Georgia, Dublin Division.

Sept. 19, 2011.

Angela McElroy–Magruder, Augusta, GA, for Plaintiffs.Julie C. Jared, Atlanta, GA, Marvin A. Fentress, Gray & Pannell LLP, Savannah, GA, for Defendant.

ORDER

SUSAN D. BARRETT, Chief Judge.

The matter before me is JP Morgan Chase Bank, N.A.'s (“Chase['s]”) motion to dismiss the complaint filed by Henri and Sheila Arsenault (“Debtors” or “Plaintiffs”). This is a core proceeding pursuant to 28 U.S.C. § 157(0) and jurisdiction is proper pursuant to 28 U.S.C. § 1334. For the following reasons, Chase's motion to dismiss is granted.

FINDINGS OF FACTS

On January 18, 2010, Debtors filed a joint chapter 13 bankruptcy petition. Their confirmed chapter 13 plan provides that their real property located in Florida (the “Property”) will be surrendered “in full satisfaction” of Chase's claim. (Plan, Ex. C, Dckt. No. 3). Debtors do not reside at the Property. Debtors contend Chase's failure to cause the Property to be transferred out of Debtors' names is a veiled attempt to collect a debt in violation of the automatic stay and a violation of the confirmation order.

CONCLUSIONS OF LAW

Pursuant to Federal Rule of Civil Procedure 12(b)(6), as made applicable to bankruptcy proceedings by Federal Rule of Bankruptcy Procedure 7012(b), a party may seek to dismiss a complaint for “failure to state a claim upon which relief may be granted.” Fed.R.Civ.P. 12(b). To survive a motion to dismiss, the plaintiff cannot simply use labels and conclusory statements nor can a plaintiff just recite the elements of a particular cause of action. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Rather, the complaint must contain “sufficient factual matters, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009). A claim is considered factually plausible when “the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. This plausibility standard is not synonymous with a “probability requirement,” but it “asks for more than a sheer possibility that a defendant has acted unlawfully.” Id.

Failure to state a claim for which relief may be granted is a purely legal question. Sinaltrainal v. Coca–Cola Co., 578 F.3d 1252, 1270 n. 19 (11th Cir.2009). To analyze the motion, the court presumes well-pled facts as true, but the court is not required to accept a plaintiff's proclaimed legal conclusions. Id. at 1260. When considering a motion to dismiss, courts have the authority to “fully resolve any purely legal question” and consequently, there is no “inherent barrier to reaching the merits [of a claim] at the 12(b)(6) stage.” Marshall Cnty. Health Care Auth. v. Shalala, 988 F.2d 1221, 1226 (D.C.Cir.1993). “A complaint may be dismissed if the facts as pled do not state a claim for relief that is plausible on its face.” Sinaltrainal, 578 F.3d at 1260 citing Iqbal, 129 S.Ct. at 1950 and Twombly, 550 U.S. at 561–62, 570, 127 S.Ct. 1955.

The issue in this case is whether, under the facts of this case, the creditor can be compelled to take affirmative steps to accept surrendered collateral pursuant to 11 U.S.C. § 1325(a)(5)(C), and whether its failure to do so violates the automatic stay or confirmation order. There are no factual disputes in the current case. Debtors argue since § 1325(a)(5)(C) allows them to surrender collateral to the lender in full satisfaction of the debt, the lender must actively transfer title to the Property.

Section 1325(a)(5)(C) of the Bankruptcy Code provides that:

(a) Except as provided in subsection (b), the court shall confirm a plan if—

(5) with respect to each allowed secured claim provided for by the plan—

...

(C) the debtor surrenders the property securing such claim to such holder....

11 U.S.C. § 1325(a)(5)(C). Debtors acknowledge the Bankruptcy Code does not define “surrender” as it is used in § 1325. Nevertheless, Debtors argue the confirmation order creates a binding contract which requires Chase to affirmatively accept title to the Property. I disagree.

The act of surrender does not obligate Chase to take the affirmative action of transferring title. Black's Law Dictionary defines “surrender” as:

1. The act of yielding to another's power or control. 2. The giving up of a right or claim.... 3. The return of an estate to the person who has a reversion or remainder, so as to merge the estate into a larger estate.... Black's Law Dictionary 1484 (8th ed. 2004). As a matter of law, given the undisputed facts of this case the act of “surrender” does not obligate Chase to transfer title out of Debtors' names. “Consistently with the general principle that surrender of encumbered property leaves the secured creditor in control of the exercise of its remedies, a plan cannot require a secured creditor to accept a surrender of property or take possession of or title to it through repossession or foreclosure.” Hon. W. Homer Drake, Jr., Hon. Paul W. Bonapfel & Adam M. Goodman, Chapter 13 Practice and Procedure § 9C:9 at 682 (2010–11 ed.); In re Service, 155 B.R. 512, 515 (Bankr.E.D.Mo.1993) (“the Court cannot compel acceptance of the surrendered property”); In re White, 282 B.R. 418, 423 (Bankr.N.D.Ohio 2002) (“[T]he Code does not provide for the court or the debtor to direct the means by which the secured creditor deals with the surrendered property.”); Pratt v. Gen. Motors Acceptance Corp. (In re Pratt), 462 F.3d 14, 19 (1st Cir.2006) (in the context of 11 U.S.C. § 521(a)(2)(a) in a chapter 7 ¹ “nothing in subsection 521(a)(2) remotely suggests that the secured creditor is required to accept possession of the [collateral] ... as such a reading would be at odds with well-established law that a creditor's decision whether to foreclose on and/or repossess collateral is purely voluntary and discretionary. Thus, we agree with the [creditor's] contention that the [debtors'] surrender did not require that it repossess the collateral if [the creditor] deemed such repossession cost ineffective.”) (emphasis in original); Canning v. Beneficial Maine, Inc. et al. (In re Canning), 442 B.R. 165, 172 (Bankr.D.Me.2011) (in a chapter 7 “[t]hough the Code provides debtors with a surrender option, it does not force creditor to assume ownership or take possession of collateral.”); but see Pigg v. BAC Home Loans Servicing, LP (In re Pigg), 453 B.R. 728 (Bankr.M.D.Tenn.2011)(equitable remedy fashioned to address the attempted surrender of a condominium made uninhabitable by a flood, where bank had actively taken possession of the property).

There are no allegations that Chase has taken possession of the Property. The nature of the Debtors' interest in real property is determined by state law. See Butner v. United States, 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979). Under Florida law, Chase does not have a reversion or remainder interest in the Property.² Florida is a lien theory jurisdiction whereby “a mortgage shall be held to be a specific lien on the property therein described, and not a conveyance of the legal title or of the right of possession.” Fla. Stat. Ann. § 697.02 (West 2011). Under Florida law, a mortgage does not transfer title, possession or any other interest in property other than the lien. Wertkin v. Wertkin, 763 So.2d 461, 463–64 (Fla.Dist.Ct.App.2000). Since Chase has not foreclosed on the Property, Debtors remain the owners. Nothing in the loan documents requires Chase to take possession of the Property.

Furthermore, Debtors are not obligated to continue to make such payments. As one court has explained:

[Creditor's] chosen course of action, or inaction, did not make things easy for the [debtors]. Forces remained at work that could make their continued ownership of the real estate uncomfortable—forces like accruing real estate taxes and the desirability of maintaining liability insurance for the premises. But those forces are incidents of ownership. Though the Code provides debtors with a surrender option, it does not force creditors to assume ownership or take possession of collateral. And although the Code provides a discharge of personal liability for debt, it does not discharge the ongoing burdens of owning property.

In re Canning, 442 B.R. at 172 (involving chapter 7 debtor).

Contrary to Debtors' assertion, Chase is not in contempt, under 11 U.S.C. § 105(a) ³, of the confirmation order, nor has it violated the § 362 provisions of the automatic stay. As previously stated, Chase has not violated the confirmation order. Furthermore, “[f]ederal courts are courts in law and in equity, and a court of equity has traditionally had the power to fashion any remedy deemed necessary and appropriate to do justice in a particular case.” Carter–Jones Lumber Co. v. Dixie Distrib. Co., 166 F.3d 840, 846 (6th Cir.1999) (citing United States v. Price, 688 F.2d 204, 211 (3d Cir.1982)). Section 105(a) grants the bankruptcy court equitable power, but such power is constrained by the provisions of the Bankruptcy Code. Hemar Ins. Corp. of Am. v. Cox (In re Cox), 338 F.3d 1238, 1241 (11th Cir.2003), Childress v. Middleton Arms, L.P. (In re Middleton Arms, Ltd. P'ship), 934 F.2d 723, 724 (6th Cir.1991). Debtors argue Chase's inactions impede Debtors' ability to a fresh start thereby violating the fresh start concept of the Bankruptcy Code. However, “... in enacting the Bankruptcy Code, Congress sought to strike a balance among the competing interests of debtors, creditors and the government.” United States v. Sutton, 786 F.2d 1305, 1306 (5th Cir.1986). Debtors' fresh start is not the only interest addressed in the ...