In re Dougal, Bankruptcy No. 07-70247-TPA.

• Decision Date: 29 October 2008
• Docket Number: Adversary No. 07-7069-TPA.,Bankruptcy No. 07-70247-TPA.
• Citation: 395 B.R. 880
• Parties: In re Howard E. DOUGAL, Denise R. Dougal, Debtors. Howard E. Dougal, Denise R. Dougal, Plaintiffs, v. Saxon Mortgage, as Servicer and Deutsche Bank Trust Company Americas, as Trustee and Custodian for Meritech Mortgage Loan Trust No. 2005-2 by Saxon Mortgage Services as its attorney-in-fact, Defendants.
• Court: U.S. Bankruptcy Court — Western District of Pennsylvania

395 B.R. 880

In re Howard E. DOUGAL, Denise R. Dougal, Debtors.

Howard E. Dougal, Denise R. Dougal, Plaintiffs, v. Saxon Mortgage, as Servicer and Deutsche Bank Trust Company Americas, as Trustee and Custodian for Meritech Mortgage Loan Trust No. 2005-2 by Saxon Mortgage Services as its attorney-in-fact, Defendants.

Bankruptcy No. 07-70247-TPA.

Adversary No. 07-7069-TPA.

United States Bankruptcy Court, W.D. Pennsylvania.

October 29, 2008.

COPYRIGHT MATERIAL OMITTED

Mary K. Wheeler, Ebensburg, PA, for Plaintiffs.

Sherri J. Braunstein, for Defendants.

MEMORANDUM OPINION AND ORDER

THOMAS P. AGRESTI, Bankruptcy Judge.

In this Adversary Proceeding, the Debtors/Plaintiffs ("Dougals") are seeking relief under various theories against the current holder of the mortgage on their residence, Deutsche Bank Trust Company Americas ("Deutsche Bank") and the mortgage servicer, Saxon Mortgage.¹ For the reasons stated below, the Court will grant summary judgment in favor of Deutsche Bank as to one of the Dougals' claims.

PROCEDURAL HISTORY

The pleading history of this case is somewhat complex but it is important to briefly recount it for an understanding of the Court's decision here. On October 15, 2007, the Dougals initially filed a Complaint Seeking Damages in a Core Adversary Proceeding ("Original Complaint") at Document No. 1, setting forth five counts, or "claims for relief" as the Dougals styled them, against Deutsche Bank and Saxon Mortgage, all related to a May 24, 2005 mortgage loan refinancing and an accompanying mortgage that was placed on their residence. The Original Complaint consisted of: a general claim that the Defendants had violated their duties to the Dougals in connection with the loan ("Count I"); a claim under the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. §§ 2601, et seq. ("Count II"); a claim for the imposition of improper and unauthorized fees ("Count III"); a claim under the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq. ("Claim IV"); and, a claim under the Pennsylvania Unfair Trade Practices and Consumer Protection Law ("Pa. UTP Law"), 73 P.S. § 201-1 et seq. ("Count V").

The Defendants filed an Answer on November 23, 2007, Document No 10, to the Original Complaint denying most of the key factual allegations and raising a number of affirmative defenses. On March 24, 2008, the Dougals filed a Motion to Amend Adversary Complaint, Document No. 21, which included a proposed Amended Complaint Seeking Damages in a Core Adversary Proceeding ("Amended Complaint") as an attachment. The Amended Complaint re-designated Count I as an "Objection" to the Defendants' Proof of Claim,² re-designated Count III as a violation of the automatic stay, and deleted the Count V claim under the Pa. UTP Law. The Defendants opposed the Motion to Amend, see Document No. 25. On May 23, 2008, the Court ultimately allowed the Amended Complaint to be filed, Document No. 35, except that any purported "class action" language was stricken.

On June 12, 2008, the Defendants filed an Answer to the Amended Complaint, Document No. 45. On that same date the Defendants filed the matter presently before the Court, that is, a Motion to Dismiss and Motion to Strike Pursuant to Fed.R.Civ.P. 12(b)(1), 12(b)(6), by Saxon Mortgage and Deutsche Bank Trust Company Americas, as Trustee and Custodian for Meritage Mortgage Loan Trust 2005-2 by Saxon Mortgage Service, Inc., as its Attorney-in-Fact ("Motion to Dismiss") at Document No. 46.

On July 7, 2008, the Dougals filed their Response to the Motion to Dismiss, Document No. 52, together with a Motion to [sic] for Leave to Amend Adversary Complaint to Delete an Allegation in Count IV and to add Two Allegations to Count III of the Complaint, Document No. 51, which included a proposed "Second Amended Complaint Seeking Damages in a Core Adversary Proceeding" as an attachment.

On July 18, 2008, the Court entered an Order, Document No. 56, providing that the portion of the Motion to Dismiss seeking to have the case dismissed would be treated as a motion for summary judgment because the Parties had submitted materials from outside the record in connection with the Motion to Dismiss. The Court's July 18, 2008 Order maintained a previously scheduled date of July 28, 2008 for argument on the Motion to Dismiss. In recognition of the conversion of part of the Motion to Dismiss into one for summary judgment, the Order also established a schedule for the Parties to submit statements of material fact along with an option to submit supplemental memorandums of law.

The Parties appeared before the Court on July 28, 2008, for argument on the Motion to Dismiss. The Court entered an Order the next day at Document No. 60 which resolved part of the Motion to Dismiss and deferred resolution, in part. As a result of that Order: (1) Paragraphs 15-22 of the Amended Complaint were stricken as setting forth impertinent matters; (2) claims for attorneys fees and punitive damages related to Count I (Objection to Proof of Claim) were dismissed; (3) the Dougals voluntarily withdrew the RESPA claim alleged in Count II of the Amended Complaint as to both Defendants; (4) the Court refused to dismiss the violation of automatic stay claim in Count III of the Amended Complaint; and, (5) The Dougals voluntarily withdrew the TILA claim in Count IV of the Amended Complaint as against Defendant Saxon Mortgage, only. In all other respects, final ruling on the Motion to Dismiss was deferred pending receipt of the Parties' statement of facts.

In addition to the above rulings on the Motion to Dismiss, that same date, the Court also entered an Order granting the Dougals' request to file a Second Amended Complaint but absent the proposed allegations set forth in Paragraphs 42(c) and 69 since they were objected to as irrelevant and surplusage ("Second Amended Complaint"). See Document No. 59. Also, at the July 28, 2008 argument the Court verbally advised Counsel for the Dougals that when she actually filed the Second Amended Complaint she should modify the document from the one that had been attached to her Motion so as to reflect the Court's rulings on the Motion to Dismiss (for example, deleting Paragraphs 15-22). The Second Amended Complaint, with the required modification, was thereafter filed on August 21, 2008 at Document No. 71.

On August 22, 2008, the Defendants filed an Answer to the Second Amended Complaint, Document No. 74. With this filing in place, the remainder of the Motion to Dismiss dealing with the TILA claim in Count IV against Deutsche Bank is now ripe for decision.

FACTS

Before turning to a legal analysis, it is necessary to provide some pertinent background information to explain the context in which the Dougals raised their TILA claim. The Dougals, husband and wife, have owned and resided in their residential property located at 215 North Avenue, Altoona, Pennsylvania, for over 30 years. Second Amended Complaint, Document No. 71, at ¶ 37-38. On May 24, 2005, the Dougals entered into a mortgage loan refinancing with Meritage Mortgage Corporation in the principal loan amount of $57,800. Id. at ¶ 39, Exhibit H. At the closing, most of the loan proceeds were used to pay off an existing mortgage on the property. The Dougals were provided with the requisite notices of their right to rescind³ and were also provided with the disclosure statements required under TILA. Id.

On July 18, 2006, after the loan went into default, the Dougals were named as defendants in a state court foreclosure action in Blair County, Pennsylvania. On August 11, 2006, their attorney of record in that case⁴ filed an answer on behalf of the Dougals. On an unknown date thereafter, the Dougals' state court attorney and the plaintiff in that foreclosure action Mortgage Electronic Registration Systems, Inc. ("MERS"), entered into a "Stipulation for Entry of Judgment in Mortgage Foreclosure" ("Stipulation"). The Stipulation provided that an in rem judgment in the amount of $65,031.31 as of July 12, 2006, would be entered against the Dougals but that the Stipulation would be held "in escrow" until December 9, 2006, to allow the Dougals time to reinstate or pay off the loan.⁵ See Motion, Exhibit A. Upon failure by the Dougals to comply with their duties in this regard, the Stipulation could then be filed with the court and a sheriff sale scheduled. The Stipulation also included a release of all claims by the Dougals as against MERS and its successors and assigns relating to the servicing of the loan and the foreclosure action.

The Dougals did not reinstate or pay off the loan. On December 12, 2006, MERS filed a "Praecipe for Judgment Based on Consent Judgment Order" ("Praecipe") with the Blair County Court in the amount of $67,701.78 consisting of the $65,031.31 as set out in the Stipulation, plus interest and late charges from 7/13/06 to 12/12/06 in the amount of $2,538.27 and $132.20, respectively. (Hereinafter this filing will be referred to as the "foreclosure judgment". See also n. 7, infra). MERS also filed a "Praecipe to Issue Writ of Execution" and a sheriff sale was scheduled for March 14, 2007.

The Dougals filed their bankruptcy petition on March 10, 2007, thereby preventing the sheriff sale from going forward. The present adversary proceeding was filed on October 15, 2007.

SUMMARY JUDGMENT STANDARD

For purposes of resolving a summary judgment motion, Fed.R. Civ.P. 56 is made applicable to adversary proceedings through Fed.R.Bankr.P. 7056. Summary judgment is appropriate if the pleadings, depositions, supporting affidavits, answers to interrogatories and admissions that are part of the record demonstrate that there exists no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Bankr.P. 56(c), Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Summary judgment is appropriate if no material factual issue exists and the only issue...