In re Desrosiers, Bankruptcy No. 96-46084-HJB
| Decision Date | 24 September 1997 |
| Docket Number | Bankruptcy No. 96-46084-HJB,Adversary No. 97-4026. |
| Citation | 212 BR 716 |
| Parties | In re Michael D. DESROSIERS and Rose A. Desrosiers, Debtors. Michael D. DESROSIERS and Rose A. Desrosiers, Plaintiffs, v. TRANSAMERICA FINANCIAL CORPORATION, Defendant. |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
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David W. Ostrander, Northampton, MA, for Debtors.
Nicholas J. Psyhogeos, Boston, MA, for Transamerica.
Denise M. Papalardo, Chapter 13 Trustee.
Before the Court for determination are (1) a "Motion to Dismiss" the Chapter 13 case of Michael D. and Rose A. Desrosiers (individually "Mr." and "Mrs. Desrosiers," and jointly the "Debtors") (the "Case Dismissal Motion"); (2) an "Objection to Confirmation of Debtors' Chapter 13 Plan" (the "Plan Objection"); and (3) a "Motion to Dismiss the Adversary Proceeding" (the "AP Dismissal Motion"), all filed by creditor and defendant Transamerica Financial Corporation ("Transamerica" or the "Defendant").
In the adversary proceeding, the Debtors seek a determination that Transamerica does not have a valid claim against them. They argue that, pursuant to the Federal Truth in Lending Act ("TILA") and the Massachusetts Consumer Credit Cost Disclosure Act ("CCCDA"), they properly rescinded their mortgage with Aetna Finance Company, doing business as ITT Financial Services ("ITT") (Transamerica's predecessor in interest). The Debtors also request statutory damages, costs, and attorney fees. In the AP Dismissal Motion, Transamerica argues that the Debtor's claims are barred by the doctrine of res judicata. Transamerica contends that those claims were the subject of a previous case before the U.S. District Court for the District of Massachusetts that culminated in a final adjudication on the merits in Transamerica's favor.1 Transamerica's Case Dismissal Motion and Plan Objection are based on the Debtors' failure to treat Transamerica's secured claim in their Chapter 13 Plan.
The facts material to the resolution of the res judicata issue are without dispute.
In March 1986, the Debtors contacted Bentley-Royce, Inc., a Massachusetts-based loan broker, in their attempt to obtain a loan secured by a second mortgage on their residence in West Springfield, Massachusetts (the "West Springfield Property"). The broker referred the Debtors to the Money Tree, another loan broker. After the Debtors completed a loan application, a Money Tree employee drove the Debtors to ITT's Rhode Island office. ITT agreed to loan the Debtors the sum of $14,033.66, with interest payable at an annual percentage rate of 18%, and secured by a second mortgage on the West Springfield Property.
The Debtors rewrote this loan with ITT on three occasions. In April 1988, they refinanced, increasing the loan to the sum of $21,185.07, with interest payable at an annual percentage rate of 15%; in June 1989, they refinanced, increasing the loan to the sum of $38,796.72, with interest payable at an annual percentage rate of 16% interest; and on December 5, 1990, they refinanced, increasing the loan to the sum of $43,640.36, with interest payable at an annual percentage rate of 15%. Each refinancing was accompanied by a new second mortgage on the West Springfield Property.
On April 13, 1993, then-counsel for the Debtors, Edward O'Brien, sent to ITT a notice of recision of the second mortgage loan, pursuant to Mass. Gen. Laws ch. 140D, § 10 (1997). The notice, sent only on behalf of Mr. Desrosiers, alleged violations of CCCDA arid the regulations promulgated thereunder. Pursuant to the statute and applicable state regulations, Attorney O'Brien made demand, inter alia, that "ITT return and refund to Mr. Desrosiers all money paid by him to ITT in connection with the loan transaction being . . . rescinded."
Mr. Desrosiers' demand was not the first of its type received by ITT. In response to earlier notices, ITT had previously filed suit in the United States District Court for the District of Rhode Island against certain of the rescinding mortgagors, seeking a declaratory judgment as to the validity of the rescission claims (the "ITT Suit"). That action was subsequently transferred to the United States District Court for the District of Massachusetts (the "District Court"), and the complaint was amended on multiple occasions to include borrowers who filed notices of rescission after the ITT Suit was commenced. After Attorney O'Brien sent the notice of rescission on behalf of Mr. Desrosiers, ITT added him to the ITT Suit as a defendant.
In February 1995, Attorney O'Brien filed a counterclaim on behalf of Mr. Desrosiers and others. The counterclaim raised counts in which it was alleged that ITT (1) violated CCCDA; (2) conspired with and induced the loan brokers to breach the fiduciary duties they owed to the borrowers; (3) committed fraud; (4) violated the Rhode Island Secondary Mortgage Loan Act, R.I. Gen. Laws 19-25.2-24 (1995) (); (5) collected point overcharges prohibited by Mass. Gen. Laws ch. 183, § 63; and (6) violated section 9 of Mass. Gen. Laws ch. 93A. The alleged violations of CCCDA raised in the counterclaim related to unlawful finance charges and nondisclosure of finance charges, overcharges for filing and recording the mortgages and other documents, and inflated attorney fee charges. Attorney O'Brien also sought to have the claims of the plaintiffs-in-counterclaim consolidated as a class action against ITT. However, for reasons not relevant here, the District Court declined to certify the plaintiffs-in-counterclaim as a class. Settlement discussions then ensued.
In October, 1995, Attorney O'Brien and counsel for ITT agreed to a proposed overall settlement of the claims held by Attorney O'Brien's clients, and filed a "Stipulation of Dismissal" with respect to Attorney O'Brien's clients, excepting only Mr. Desrosiers. Mr. Desrosiers had refused to agree to the settlement, and his claims against ITT were excluded therefrom. Attorney O'Brien thereafter filed an "assented to" motion to withdraw as counsel for Mr. Desrosiers, stating therein:
This motion is made on the grounds that counsel has advised Mr. Desrosiers to settle this case upon the same terms as dozens of co-plaintiffs\'/defendants-in-counterclaim have already settled this case, the settlement being, in the opinion of counsel, fair and reasonable. It is not economically feasible for counsel to continue pressing this consolidated case against ITT . . . on behalf of just one person (this Court having already denied plaintiffs\' class motion).
Attorney O'Brien also requested a continuance of court proceedings relative to Mr. Desrosiers until December 1, 1995, so that if Attorney O'Brien were granted leave to withdraw, there would be time both for Mr. Desrosiers to obtain substitute counsel, and for that substitute counsel to prepare its representation. On October 10, 1995, the District Court allowed both the stipulation of dismissal and Attorney O'Brien's withdrawal motion.2
Mr. Desrosiers failed to obtain successor counsel by December 1, 1995, prompting ITT to file a motion to dismiss the case against him. That motion was allowed by the District Court on March 1, 1996. ITT then filed an additional motion to dismiss, pursuant to Rule 41(b) of the Federal Rules of Civil Procedure, with respect to the counterclaims asserted by Mr. Desrosiers. ITT alleged that Mr. Desrosiers had not appeared pro se and no attorney had filed an appearance on his behalf, and "had not communicated with counsel to ITT or the Court, had done nothing to indicate that he had any interest in prosecuting his counterclaim, and had ignored the Court's directive that substitute counsel should appear and be ready to proceed after December 1, 1995." This second motion was allowed by the District Court on March 4, 1996.
Approximately 6 months later, Mr. Desrosiers filed a motion for relief from the March 4, 1996 District Court judgment, pursuant to Rule 60(b) of the Federal Rules of Civil Procedure. On October 28, 1996, that motion was denied by the District Court. In the interim, ITT had assigned its note and mortgage to Transamerica, and Transamerica had initiated state court foreclosure proceedings.
On November 1, 1996, the Debtors filed a petition in this Court under Chapter 13 of the Bankruptcy Code. In their Chapter 13 Plan, the Debtors stated in a section entitled "Other Provisions" that they possessed a cause of action against Transamerica relating to violations of TILA and CCCDA. They further stated their intention to pursue that cause of action in ar adversary proceeding, but that if they failed to prevail, the Plan would be amended to pay the arrears owed to Transamerica. In the event that they prevailed in the cause of action and their mortgage with Transamerica was deemed rescinded, the Debtors proposed to amend their Plan to treat the claim of Transamerica as unsecured. Accordingly, the Chapter 13 Plan did not provide any treatment of Transamerica's claim.
Back in the District Court, Mr. Desrosiers filed a motion for reconsideration of that court's denial of his motion for relief from the March 4, 1996 judgment. The District Court denied the reconsideration motion on January 13, 1997.
On January 7, 1997, Transamerica filed its combined Case Dismissal Motion and Plan Objection. Transamerica contended that the Debtors' Plan did not comply with 11 U.S.C. § 1325(a)(3) and (a)(5),3 largely because its secured claim was not properly treated. Transamerica further argued that, because the Debtors' income was insufficient to pay both the prepetition arrearage4 and the mortgage payments, the proposed plan was not feasible. See 11 U.S.C. § 1325(a)(6).
On February 3, 1997, the Debtors, acting pro se, filed an Adversary Proceeding against Transamerica, seeking, pursuant to TILA and CCCDA, a...
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