In re Ditech Holding Corp.
| Docket Number | 19-10412 JLG |
| Decision Date | 25 May 2023 |
| Parties | In re: Ditech Holding Corporation, et al., Debtors. [1] |
| Court | U.S. Bankruptcy Court — Southern District of New York |
NOT FOR PUBLICATION
On April 25, 2019, Hanan Mujahid Lancaster (the "Claimant") filed Proof of Claim No. 21392 (the "Claim") as a secured claim in the amount of $139,163.89 against Ditech Financial LLC. ("Ditech"). Claim at 1-2. The Claim arises out of Ditech's alleged wrongdoing in connection with a foreclosure action (the "State Foreclosure Action"), against certain real property located at 19 Post Office Avenue, Apartment 202, Laurel, Maryland 20707 (the "Property"), in the Circuit Court of Maryland for Prince George's County (the "Maryland Court"). On February 25, 2020, the trustee under the Deed of Trust (the "Trustee") sold the Property pursuant to the Third Foreclosure Sale.
In their Seventy-Second Omnibus Objection (the "Objection"),[3] the Plan Administrator and the Consumer Claims Trustee assert that the Claim has "no merit based on Company review." Objection, Ex. A (List of Claims) at 3. They maintain that the arguments in support of the Claim essentially repeat, word-for-word, the arguments the Claimant made in defense of the State Foreclosure Action in the Maryland Court. That action resulted in a final judgment on the merits against the Claimant and the foreclosure sale of the Property. They contend that application of the doctrine of res judicata bars the Claimant from relitigating the matters resolved in the State Foreclosure Action. Accordingly, they ask the Court to expunge the Claim. They also argue that even if the Court does not bar the Claim in its entirety, the Court should reclassify the Claim as a Consumer Creditor Claim, as defined by the Third Amended Plan, subject to further determination and objection by the Consumer Claims Trustee. The Claimant, acting pro se, responded to the Objection (the "Response"),[4] and the Plan Administrator and Consumer Claims Trustee jointly replied to the Response (the "Reply").[5]
Pursuant to the Claims Procedures Order,[6] the filing of the Response caused an adjournment of the Objection so that the Court could conduct a Sufficiency Hearing on the Claim. Under that order, the legal standard of review at a Sufficiency Hearing is equivalent to the standard applied to a motion to dismiss for failure to state a claim upon which relief may be granted under Rule 12(b)(6) of the Federal Rules of Civil Procedure ("Rule 12(b)(6)").[7] Claims Procedures Order ¶ 3(iv)(a). On May 25, 2023, the Court conducted a telephonic Sufficiency Hearing on the Claim. The Consumer Claims Trustee and Plan Administrator appeared at the hearing through counsel. The Claimant, acting pro se, appeared at the hearing. The Court heard argument on the Objection.
The Court has reviewed the Claim, Objection, Response, and Reply, including all documents submitted in support thereof, and it has considered the arguments made by the parties in support of their respective positions. As explained below, accepting all the well-pleaded factual allegations asserted by the Claimant in support of the Claim as true, drawing all reasonable inferences in the Claimant's favor, and liberally construing the Claim and the Response to the Objection to raise the strongest arguments that they suggest, the Claim fails to state plausible claims for relief against Ditech because it is barred by application of the doctrine of res judicata. Accordingly, the Court sustains the Objection and disallows and expunges the Claim. The Court denies, as moot, the Plan Administrator's and Consumer Claims Trustee's alternative request for relief.
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 (M-431), dated January 31, 2012 (Preska, C.J.). This is a core proceeding pursuant to 28 U.S.C. § 157(b).
On February 11, 2019 (the "Petition Date"), 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 the Bankruptcy Code in this Court (the "Chapter 11 Cases"). The Debtors remained in possession of their business and assets as debtors and debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. On February 22, 2019, the Court entered an order fixing 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").[8] Thereafter, the Court extended the General Bar Date for consumer borrowers like the Claimant twice, ultimately setting the date as June 3, 2019, at 5:00 p.m. (prevailing Eastern Time).[9]
On September 26, 2019, the Debtors confirmed their Third Amended Plan,[10] and on September 30, 2019, that plan became effective.[11]The Plan Administrator is a fiduciary appointed under the Third Amended Plan who is charged with the duty of winding down, dissolving, and liquidating the Wind Down Estates. Third Amended Plan, art. I, §§ 1.130, 1.184, 1.186. Under the Third Amended Plan, "[a]ny claim asserted by a Borrower against the Debtors" is a Consumer Creditor Claim. Id. art. I, § 1.36. The Third Amended Plan provides that each holder of an Allowed Consumer Creditor Claim "shall receive such holder's Pro Rata share of the Consumer Creditor Net Proceeds" in accordance with the plan. Id. art. IV, § 4.6. The Consumer Claims Trustee is a fiduciary appointed under the Third Amended Plan who is responsible for the reconciliation and resolution of Consumer Creditor Claims and distribution of funds to holders of Allowed Consumer Creditor Claims in accordance with the Third Amended Plan. Id. art. I, § 1.41. The Consumer Claims Trustee has the exclusive authority to object to all Consumer Creditor Claims. Id. art. VII, § 7.1. The Third Amended Plan also provides that the Plan Administrator, on behalf of each of the Wind Down Estates, is authorized to object to all Administrative Expense Claims, Priority Tax Claims, Priority Non-Tax Claims, and Intercompany Claims. Id.
On November 19, 2019, the Court entered the Claims Procedures Order. Under that order, the Plan Administrator and the Consumer Claims Trustee are authorized to file Omnibus Objections seeking reduction, reclassification, or disallowance of claims on the grounds set forth in Bankruptcy Rule 3007(d) and additional grounds set forth in the Claims Procedures Order. See Claims Procedures Order ¶ 2(i)(a)-(h). A properly filed and served response to an objection gives rise to a "Contested Claim" that will be resolved at a Claim Hearing. Id. ¶ 3(iv). The Plan Administrator and/or the Consumer Claims Trustee, as appropriate, has the option of scheduling the Claim Hearing as either a "Merits Hearing" or a "Sufficiency Hearing." Id. ¶ 3(iv)(a), (b). A "Merits Hearing" is an evidentiary hearing on the merits of the Contested Claim. A "Sufficiency Hearing" is a non-evidentiary hearing to address whether the Contested Claim states a claim for relief against the Debtors. The legal standard of review that the Court will apply at a Sufficiency Hearing is equivalent to the standard applied by the Court upon a motion to dismiss for failure to state a claim upon which relief can be granted under Rule 12(b)(6). Id. ¶ 3(iv)(a).
On or about August 17, 2007, the Claimant purchased the Property with the proceeds of a loan secured by a deed of trust (the "Deed of Trust") on the Property. Statement ¶¶ 2, 6. At some point thereafter, Ditech began servicing the loan. Reply ¶ 2. On June 30, 2017, the Trustee filed the State Foreclosure Action against the Property in the Maryland Court. Statement ¶¶ 3, 8. Over the course of the State Foreclosure Action, the Trustee conducted three foreclosure sales of the Property.
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