In re Ditech Holding Corp.

• Decision Date: 29 June 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

In re: Ditech Holding Corporation, et al., Debtors.¹

Case No. 19-10412 (JLG)

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

Files: June 30, 2021

June 29, 2021

NOT FOR PUBLICATION

Chapter 11

(Jointly Administered)

MEMORANDUM DECISION AND ORDER DENYING CLAIMANT JAMES BEEKMAN'S REQUEST FOR LEAVE TO AMEND

APPEARANCES:

Mr. James Beekman

Appearing Pro Se

427 9^th Street

West Palm Beach, FL 33401

WEIL, GOTSHAL & MANGES, LLP

Attorneys for Plan Administrator

767 Fifth Avenue

New York, New York 10153

By: Ray C. Schrock, P.C.

Richard W. Slack, Esq.

Sunny Singh, Esq.

JENNER & BLOCK LLP

Attorneys for the Consumer Claims Representative

919 Third Avenue

New York, NY 10022

By: Richard Levin, Esq.

HON. JAMES L. GARRITY, JR. U.S. BANKRUPTCY JUDGE

Introduction

James Beekman (the "Claimant") filed a proof of claim against Ditech Financial LLC f/k/a Green Tree Servicing LLC ("Ditech) in these jointly administered chapter 11 cases. On February 9, 2021, the Court sustained the objection to the Claim filed by the Plan Administrator and Consumer Representative (collectively, the "Estate Representatives") and expunged and disallowed the Claim. See Memorandum Decision and Order Sustaining the Ninth Omnibus Objection (No Basis Consumer Creditor Claims) With Respect to Claim of James Beekman (the "Decision") [ECF No. 3218].² The matter before the Court is the Claimant's Request For Leave To Amend the Claim (the "Request to Amend") [ECF No. 3361]. The Estate Representatives oppose the request. For the reasons stated herein, the Court denies it.

Jurisdiction

The Court has jurisdiction to consider this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the Amended Standing Order of Referral of Cases to Bankruptcy Judges of the United States District Court for the Southern District of New York, dated January 31, 2012 (Preska, C.J.). This is a core proceeding pursuant to 28 U.S.C. § 157(b).

Background

On February 11, 2019, Ditech Holding Corporation (f/k/a Walter Investment Management Corp.), and certain of its affiliates (the "Debtors") filed petitions for relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code"). On February 22, 2019, the Court entered an order fixing April 1, 2019 as the deadline for non-governmental units 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, and again to June 3, 2019, but only with respect to consumer borrowers (the "Second Extended Consumer Bar Date"). By order dated September 26, 2019, the Debtors confirmed their Third Amended Joint Chapter 11 Plan. In the Confirmation Order, the Court set the deadline for the filing Administrative Expense Claims to thirty-five days from the date of service of the notice of entry of the Confirmation Order.

Between March 29, 2019 and October 4, 2019, the Debtors served Claimant's counsel of record in his Florida state court action with notice of the bankruptcy proceedings, including notice of the Second Extended Consumer Bar Date and confirmation of the Plan. None of these notices were returned as undelivered. On October 9, 2019, after the Second Extended Consumer Bar Date expired, the Claimant filed proof of claim 24376 (the "Initial Claim") against Ditech. On November 8, 2019, the Claimant filed proof of claim 24609 (the "Claim"), which superseded and replaced the Initial Claim. The Claim seeks a total of $9 million in damages consisting of a $3 million administrative priority claim and $6 million priority expense status under sections 507(a)(7) and (a)(10) of the Bankruptcy Code.

On January 17, 2020, the Estate Representatives objected to the allowance of the Claim in their Ninth Omnibus Objection to Proofs of Claim (No Basis Consumer Creditor Claims) (the "Objection") [ECF No. 1741]. On February 20, 2020, Claimant filed his Objection to Proof of Claim and Request for Classification Claim Number: 24609 (the "Response") [ECF No. 1902]. The Court conducted a Sufficiency Hearing on the Objection and on February 9, 2021, the Court sustained the Objection and disallowed and expunged the Claim. The Court found that Claimant failed to state a claim against Ditech because, among other things, the allegations of potential wrongdoing by lenders occurred several years prior to Ditech's appointment as servicer of Claimant's Loan. See Decision at 14-15 ("The events that give rise to Beekman's claims againstDitech for its alleged misrepresentations arose prior to 2013, but Ditech did not begin to service the Loan until February 2016. In short, Beekman fails to state a claim for relief against Ditech for fraudulent misrepresentation, and he cannot do so."); 18 ("Moreover, Beekman cannot plausibly state a fraud claim against Ditech. That is because the source of Beekman's complaint are actions taken by the lenders prior to Ditech's appointment as servicer of the Loan."); and 20 ("All of the actions Beekman complains of pre-date Ditech's involvement as servicer. As such, he cannot state a claim for the intentional infliction of emotional distress against Ditech Financial.").

On February 22, 2021, Claimant filed a Motion for Rehearing asking the Court to reconsider the Decision (the "Motion for Rehearing") [ECF No. 3261]. On April 26, 2021, the Estate Representatives filed the Objection/Joint Opposition of Plan Administrator and Consumer Representative to Motion for Rehearing [ECF No. 3341]. On June 1, 2021, the Court denied the Motion for Rehearing. See Memorandum Decision and Order Denying Motion for Rehearing [ECF No. 3424].

On April 29, 2021, Claimant filed the Request to Amend. On May 20, 2021, the Estate Representatives filed their Joint Opposition to the Request to Amend (the "Opposition") [ECF No. 3394]. On May 24, 2021, Claimant filed an Affidavit In Support of Motion to Amend (the "Beekman Affidavit") [ECF No. 3401], which attaches a replacement Exhibit A to the Request to Amend.³ On May 27, 2021, the Court held a hearing on the Request to Amend. At the hearing, the Court authorized Claimant to serve and file copies of documents filed by Ditech in the State of Florida that Claimant believes supports the Claim. See Transcript of May 27, 2021 Hearing(the "Transcript") at 93:6-8, 93:24-94:2 [ECF No. 3423]; see also Minutes of Proceedings, May 27, 2021 [ECF No. 3342]. On June 3, 2021, Claimant submitted a Notice of Filing (the "Notice") [ECF No. 3437], attaching two assignments of mortgage. One is recorded on August 2, 2016 from Residential Credit Solutions, Inc. ("RCS") to Ditech (the "2016 Assignment of Mortgage"), and the other is recorded on December 9, 2019 from Ditech to Specialized Loan Servicing, LLC ("SLS") (the "2019 Assignment of Mortgage" and with the 2016 Assignment of Mortgage, the "2016 and 2019 Assignments of Mortgage"). The Court also authorized the Estate Representatives to serve and file a supplemental memorandum addressing any submission made by Claimant. See Transcript at 94:7-10; see also Minutes of Proceedings, May 27, 2021. On June 18, 2021, the Estate Representatives filed their Joint Supplemental Memorandum of Plan Administrator and Consumer Representative in Opposition to Request For Leave To Amend (the "Reply") [ECF No. 3463].

On June 24, 2021, the Court heard additional argument on the Request to Amend. At that time, the Court requested the Estate Representatives to supplement the record with (i) a highlighted excerpt of Federal Home Loan Mortgage Corporation's Freddie Mac Default-Related Legal Services Reference Guide, and (ii) a highlighted excerpt of the servicing guide of Federal National Mortgage Association, specifically A2-1-0, Execution of Legal Documents. On June 28, 2021, in response to that request, the Estate Representatives served and filed their Joint Supplemental Submission In Opposition To Request For Leave To Amend (the "Joint Supplemental Submission") [ECF No. 3482].

Legal Standard

The standards applicable to the Request to Amend are identical to those relevant to a motion to amend a complaint under Federal Rule 15 and Bankruptcy Rule 7015. See In reMcLean Industries, Inc., 121 B.R. 704, 710 (Bankr. S.D.N.Y. 1990) ("The test under Rule 15 is basically the same as that developed in the case law for amending claims in bankruptcy...."). See also In re Drexel Burnham Lambert Group, Inc., 159 B.R. 420, 425 (Bankr. S.D.N.Y. 1993) ("[T]he analysis for amendment of a proof of claim is identical to that of Rule 15 regardless of whether the rule is expressly adopted by the Bankruptcy Court."); Integrated Resources, Inc. v. Ameritrust Company National Assoc., et al., 157 B.R. 66, 70 (Bankr. S.D.N.Y. 1993) ("While Federal Rule 15 which governs amendment to pleadings is not directly applicable to claims proceedings under Bankruptcy Rule 9014, the determination regarding amendment parallels considerations under that rule.").

"Amendments [to pleadings] are favored as a general matter . . . in order to facilitate a proper decision on the merits." McCallister Bros. Inc. v. Ocean Marine Indem. Co., 742 F. Supp. 70, 80 (S.D.N.Y. 1989) (internal quotation marks omitted) (citations omitted). Federal Rule 15 provides that leave to amend the pleadings should be "freely give[n] ... when justice so requires." Fed. R. Civ. P. 15(a)(2). Nonetheless, it is settled that "futility of amendment" is a sufficient basis to deny a motion to amend a complaint. See State Teachers Ret. Bd. v. Fluor Corp., 654 F.2d 843, 856 (2d Cir. 1981) ("Reasons for a proper denial of leave to amend include undue delay, bad faith, futility of amendment, and ... prejudice to the opposing party."). A proposed amendment is considered to be 'futile' "if the proposed amendment fails to state a legally cognizable claim or fails to raise triable issues of fact." AEP Energy Servs. Gas Holding Co. v. Bank of Am., N.A., 626 F.3d 699, 726 (2d Cir. 2010) (citing Milanese v. Rust-Oleum Corp., 244 F.3d 104, 110-11 (2d Cir. 2001)). That standard applies equally to a request to amend a...