In re Ditech Holding Corp.
| Decision Date | 02 February 2021 |
| Docket Number | Case No. 19-10412 (JLG) |
| Parties | In re: Ditech Holding Corporation, et al., Debtors. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
NOT FOR PUBLICATION
(Jointly Administered)
MEMORANDUM DECISION AND ORDER SUSTAINING THE THIRTY-SECOND OMNIBUS OBJECTION TO PROOF OF CLAIMS (NO BASIS CONSUMER CREDITOR LITIGATION CLAIMS) AGAINST DARRYL KEITH BROWDERAPPEARANCES:
WEIL, GOTSHAL & MANGES, LLP
Attorneys for Debtor
New York, New York 10153
By: Richard Slack, Esq.
Sunny Singh, Esq.
Mr. Darryl Keith Browder
1925 10th Street
Des Moines, IA 50314
HON. JAMES L. GARRITY, JR. U.S. BANKRUPTCY JUDGE
Under the Debtors' Plan, the Plan Administrator for the Wind Down Estates,2 the GUC Recovery Trustee, and the Consumer Representative have the exclusive authority to object to claims filed against the Debtors. In accordance with the Court's Claims Procedures Order,3 the Plan Administrator and the Consumer Representative have filed Omnibus Objections to Proofs of Claim that extend to hundreds of claims. Under the Claims Procedures Order, if a creditor challenges a claim objection, it is deemed to hold a "Contested Claim" and the Court will conduct either a "Sufficiency Hearing" or a "Merits Hearing" to resolve the objection. Daryl Keith Browder (the "Claimant" or "Browder") filed twelve proofs of claims against Ditech Financial LLC ("Ditech Financial") in these Chapter 11 Cases, one of which was duplicative and has been withdrawn (collectively the "Browder Claims").4 Those claims arise out of a lawsuit filed by Browder against Ditech Financial.
The Plan Administrator and Consumer Representative filed a joint objection to the Browder Claims (the "Objection")5 and seek to expunge those claims as "No Basis Consumer Creditor Litigation Claims." In considering the merits of the Objection, the Court conducted a Sufficiency Hearing on those claims. Pursuant to the Claims Procedures Order, the legal standard of review that the Court applies at a Sufficiency Hearing is equivalent to that which the Court applies under Rule 12(b)(6) of the Federal Rules of Civil Procedure.6
For the reasons stated herein, the Court finds that accepting all factual allegations asserted by the pro se Claimant in support of his claims as true, drawing all reasonable inferences in the Claimant's favor, and interpreting the Browder Claims and the Claimant's responses to the Objection to raise the strongest arguments that they suggest, the Browder Claims fail to state plausible claims against the Wind Down Estates or the Consumer Creditor Reserve, as a matter of law. For that reason, the Court sustains the Objection and expunges the Browder Claims.
A party invoking this Court's post-confirmation jurisdiction must demonstrate both (i) that the matter has a "close nexus to the bankruptcy plan or proceeding, as when a matter affects the interpretation, implementation, consummation, execution, or administration of the confirmed plan or incorporated litigation trust agreement," Penthouse Media Group v. Guccione (In re Gen. Media, Inc.), 335 B.R. 66, 73 (Bankr.S.D.N.Y.2005) (quoting Binder v. Price Waterhouse & Co., LLP (In re Resorts Int'l, Inc.), 372 F.3d 154, 168-69 (3d Cir. 2004)); and (ii) that the plan provides for the retention of jurisdiction over the dispute. Id. ). See also Cohen v. CDR Creances S.A.S. ( ), 549 F. App'x 52, 54 (2d Cir. 2014) () (internal citations omitted) (summary order); Ace Am. Ins. Co. v. State of Mich. Workers' Comp. Ins. Agency (In re DPH Holdings Corp.), 448 F. App'x 134, 137 (2d Cir. 2011) (summary order), cert. denied, 567 U.S. 935 (2012). See also Travelers Indem. Co. v. Bailey, 557 U.S. 137, 151 (2009) ().
The Objection has a "close nexus" to the Plan because the Plan Administrator and the Consumer Representative seek to determine the validity of the Browder Claims, and section 7.1 of the Plan gives the Plan Administrator and Consumer Representative the right to do so. See Plan, Art. VII, § 7.1. Thus, it affects the execution or administration of the Plan. Moreover, under the Plan the Court retained jurisdiction "to consider the allowance, classification, priority, compromise, estimation, or payment of any Claim or Class of Claims." Id. Art. XI, § 11.1(d). Accordingly, the Court has subject matter jurisdiction over the Objection.
On February 11, 2019 (the "Commencement Date"), the Debtors commenced voluntary cases under Chapter 11 of title 11 of the United States Code (the "Bankruptcy Code"). The Chapter 11 Cases are being jointly administered for procedural purposes only pursuant to Bankruptcy Rule 1015(b).
On February 22, 2019, the Court entered the Bar Date Order.7 That order fixed April 1, 2019 at 5:00 p.m. (prevailing Eastern Time) as the deadline for each person or entity, not including governmental units (as defined in section 101(27) of the Bankruptcy Code) to file a proof of claim in the Chapter 11 Cases (the "General Bar Date"). On March 27, 2019, the Court extended the General Bar Date to April 25, 2019 at 5:00 p.m. (prevailing Eastern Time) (the "Extended General Bar Date").8 On May 2, 2019, the Court extended the Extended General Bar Date solely for consumer borrowers to June 3, 2019 at 5:00 p.m. (prevailing Eastern Time).9 The claims register is prepared and maintained by Epiq Corporate Restructuring, LLC. It shows that approximately 7,800 proofs of claim (the claims therein, the "Claims") were filed in the Chapter 11 Cases. The Plan was confirmed by order dated September 26, 2019. Pursuant to the Confirmation Order, the Court set the deadline for each person or entity asserting Administrative Expense Claims to file proofs of claim in the Chapter 11 Cases to thirty-five (35) days from the date of service of the notice of entry of the Confirmation Order. The Claimant timely filed the Browder Claims herein.
Under the Plan, the Plan Administrator, on behalf of each of the Wind Down Estates, has exclusive authority to object to all Administrative Expense Claims, Priority Tax Claims, Priority Non-Tax Claims, and Intercompany Claims; the GUC Recovery Trustee, on behalf of the GUC Recovery Trust, has the exclusive authority to object to all General Unsecured Claims; and theConsumer Representative has the exclusive authority to object to all Consumer Creditor Claims. See Plan, Art. VII, § 7.1. On November 19, 2019, the Bankruptcy Court entered the Claims Procedures Order. That order authorizes the Estate Representatives to object to Claims in accordance with Claims Objection Procedures set forth therein. See Claims Procedures Order ¶ 2. Without limitation, the procedures authorize the Estate Representatives to file Omnibus Objections to Claims seeking reduction, reclassification, or disallowance of Claims. In support of those objections, they are permitted to rely on the grounds set forth in Bankruptcy Rule 3007(d), as well as on one or more of the following grounds:
See id. ¶ 2(i)(a)-(h).
Under the Claims Procedures Order, a properly filed and served response to an Omnibus Objection gives rise to a Contested Claim. The Estate Representative is required to schedule a contested hearing (each a "Claim Hearing") for each such claim. Id. ¶ 3(iv). The Claim Hearing is to be scheduled as either a "Sufficiency Hearing" or a "Merits Hearing." A Sufficiency Hearing is a non-evidentiary hearing to address whether the Contested Claim has stated a claim for relief that can be allowed against the Debtors. Id. ¶ 3(iv)(a). The legal standard of review that the Court will apply at a Sufficiency Hearing is equivalent to the standard that the Court applies to motions under Rule 12(b)(6). Id. A Merits Hearing is an evidentiary hearing on the merits of the Contested Claims. Id. ¶ 3(iv)(b).
The Browder Claims aggregate approximately $18,373,400. The Claimant characterizes those claims as (i) secured in the approximate aggregate amount of $12,105,087, (ii) administrative in the approximate aggregate amount of $3,107,787, (iii) entitled to priority in the aggregate amount of $1,051,437, and (iv) unsecured in an approximate aggregate amount of $2,109,087. In support of those claims, the Claimant has submitted more than five hundred pages of documents.
In support of their Objection, the Plan Administrator and Consumer Representative assert, as follows:
The Plan Administrator, with the assistance of its professionals, and the Consumer Representative have examined each [Browder Claim], documentation provided with respect to each [Browder Claim] and the Debtors' respective books and records, and have determined in each case that (i) there is no record of the [Browder Claim] on the docket of another court; or (ii) another court has issued a ruling denying the relief sought in the [Browder Claims], and the claimant has...
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