In re Funches

• Decision Date: 05 February 2008
• Docket Number: Bankruptcy No. 07-13883ELF.,Adversary No. 07-00270ELF.
• Citation: 381 B.R. 471
• Parties: In re Erma C. FUNCHES, Debtor. Erma C. Funches and William C. Miller, Plaintiffs, v. Household Finance Consumer Discount Company, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

381 B.R. 471

In re Erma C. FUNCHES, Debtor Erma C. Funches and William C. Miller, Plaintiffs, v. Household Finance Consumer Discount Company, Defendant.

Bankruptcy No. 07-13883ELF.

Adversary No. 07-00270ELF.

United States Bankruptcy Court, E.D. Pennsylvania.

February 5, 2008.

COPYRIGHT MATERIAL OMITTED

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David A. Scholl, Regional Bankruptcy Center of SE PA, Law Office of David A. Scholl, Newtown Square, PA, for Debtor/Plaintiffs.

William C. Miller, Philadelphia, PA, pro se.

William J. Levant, Kaplin Stewart, Blue Bell, PA, for Defendant.

OPINION

ERIC L. FRANK, Bankruptcy Judge.

                TABLE OF CONTENTS
                I. INTRODUCTION  ................................................................ 475
                    II. BACKGROUND   ...............................................................  476
                        A. The Main Bankruptcy Case—Overview .................................  476
                        B. The State Court Foreclosure Action ......................................  476
                        C. The AP Complaint and HFC's Motion to Dismiss ............................  478
                    III. THE PARTIES' ARGUMENTS ....................................................  480
                         A. Initial Briefing .......................................................  480
                         B. The Hearing and Post-Hearing Briefing ..................................  481
                            1. identity of the "transfers" the Debtor seeks to avoid ...............  481
                            2. the Debtor's authority to exercise the trustee's avoidance
                powers and the effect of Pennsylvania's Curative Statute ..........  482
                    IV. STANDARDS OF REVIEW UNDER RULES 12(b)(1) and 12(b)(6) ......................  482
                    V. DISCUSSION: JURISDICTIONAL ISSUES ...........................................  483
                       A. The Rooker-Feldman Doctrine Does Not Bar Consideration of the
                Debtor's Claims...........................................................  483
                       B. The Younger Abstention Doctrine Is Inapplicable ........................... 485
                    VI. "THE DEBTOR IS NOT A PARTY WHO CAN ASSERT THIS 544
                AVOIDANCE CLAIM............................................................  486
                       A. The Debtor May Not Maintain This Action Jointly with the Trustee .......... 487
                          1. The Trustee is not a voluntary joint plaintiff ......................... 487
                          2. The Trustee has not been effectively joined as an involuntary
                plaintiff under Fed., R. Bankr.P. 7019 ............................... 487
                             a. the standards for involuntary, joinder under Rule 19 have
                not been met ...................................................... 487
                             b. the cases the Debtor relies upon to justify naming the
                Trustee as an involuntary plaintiff are inapposite ................ 489
                

                B. The Debtor Lacks Statutory Authority to Maintain the § 544
                Avoidance Action ....................................................... 490
                          1. the elements of the statutory scheme authorizing a debtor to
                invoke the trustee's avoidance powers: 11 U.S.C. § 522(g)(1)
                and (h) .............................................................. 490
                          2. the § 522(h) requirement that the trustee has not attempted to
                avoid the transfer ................................................... 492
                          3. the Debtor's factual allegation regarding the alleged
                involuntariness of the mortgage transaction renders the
                Debtor's § 544 claim legally deficient .......................... 493
                          4. the Debtor may not invoke the Trustee's avoidance powers
                without satisfying the requirements of 11 U.S.C. § 522(g)(1)
                and (h) .............................................................. 495
                    VII. ASSUMING ARGUENDO THAT THE DEBTOR MAY ASSERT THE
                § 547 CLAIM, HER CLAIM IS LEGALLY DEFICIENT ........................  496
                    VIII. CONCLUSION ...............................................................  497
                

I. INTRODUCTION

Plaintiff-Debtor Erma C. Funches ("the Debtor") commenced this adversary proceeding ("AP") by filing a two-count complaint purportedly brought on her behalf and on behalf of the William C. Miller, Standing Chapter 13 Trustee ("the Trustee"). In the AP, the Debtor seeks to use the Trustee's strong arm powers to avoid a first-priority mortgage that Defendant Household Finance Consumer Discount Company ("HFC") holds on her home (the "HFC Mortgage"). The Debtor's main contentions are that the HFC Mortgage is avoidable under 11 U.S.C. § 544 because her "signature" on the mortgage is a forgery and because, at the time of its execution, HFC failed to obtain a contemporaneous acknowledgment¹ of the HFC Mortgage by a notary.

This is not the first time the Debtor has raised these alleged deficiencies concerning the HFC Mortgage. Indeed, prior to the filing of the Debtor's bankruptcy petition, the Debtor had asserted these same issues as a defense to a state court foreclosure action which, following a bench trial, resulted in a "non jury verdict" upholding the HFC Mortgage's validity. The Debtor's subsequent bankruptcy filing has frozen that state court action in place, preventing the non-jury verdict from ripening into a formal judgment. In the second count of the AP Complaint, the Debtor requests that the state court's non-jury verdict be avoided as a preference under 11 U.S.C. § 547.

Presently before the court is HFC's Motion to Dismiss ("the Motion"), which require consideration of the following questions:

1. Do the Rooker-Feldman or Younger abstention doctrines mandate the dismissal of the AP as an improper collateral attack on state court proceedings?

2. May the Debtor gain access to the arsenal of avoiding, powers Congress reserved for the trustee by naming the trustee as an additional or involuntary plaintiff in an adversary action without prior notice to or consent of the trustee?

3. If not, may the Debtor independently maintain an avoidance action in her capacity as a chapter 13 debtor?

4. Does a bench decision upholding the validity of a mortgage effect a "transfer" of property so as to form the basis for a preference action brought under 11 U.S.C. § 547?

I conclude that:

1. The Rooker Feldman and Younger abstention doctrines do not mandate the dismissal of the AP.

2 The Debtor may not maintain this avoidance action in the Trustee's name.

3. The Debtor may not independently maintain an avoidance action in her capacity as a chapter 13 debtor because the Complaint does not set forth facts that, if proven at trial, would satisfy the requirements set forth in 11 U.S.C. § 522(g)(1) and (h).

4. The Debtor has not pled a plausible cause of action under 11 U.S.C. § 547, mandating dismissal of Count I of her Complaint.

Accordingly, I will grant HFC's Motion and dismiss the Complaint. The dismissal will be without prejudice to the Debtor's right to file an amended complaint (if she can do so consistent with Fed. R. Bankr.P. 9011) with respect to her § 544 claim, but without leave to amend with respect to her § 547 claim. The dismissal also is without prejudice to the rights of the Trustee.

II. BACKGROUND

A. The Main Bankruptcy Case-Overview

The Debtor filed a chapter 13 bankruptcy petition on July 9, 2007. According to her bankruptcy schedules, she owns residential property located at 951 Route 113, Sellersville, Pennsylvania 18960 ("the Sellersville Property").² In her schedules, the Debtor valued the Sellersville Property at $545,000.³ The Sellersville Property is subject to a first priority mortgage held by HFC. HFC has filed a proof of claim in the Debtor's bankruptcy case asserting a secured claim of $574,387.55, with $147,990.61 in prepetition mortgage arrearages—by far, the largest claim filed against the Debtor's estate.

B. The State Court Foreclosure Action

Prior to the filing of the Debtor's bankruptcy petition, the Debtor and HFC litigated certain issues related to the validity " of the HFC Mortgage in a foreclosure action filed in the Bucks County Court of Common Pleas, docketed as No. 05-04428-24-1 ("the Foreclosure Action").⁴ The Debtor filed an Answer in the Foreclosure Action in which she denied that she had executed the note or mortgage and asserted that the signatures on those documents were forgeries. The Debtor also contended that the acknowledgment of her signature on the loan and mortgage documents was invalid because she never appeared before a notary at the loan closing.

On June 25 and 26, 2007, the state court held a bench trial in the Foreclosure Action, which resulted in the entry of a "non-jury verdict"⁵ in HFC's favor. The Non-Jury Verdict awarded HFC damages in the amount of $570,733.10 "plus interest at the rate of $148.83 per day far each day after June 25, 2007 until the entry of judgment and plus costs as provided by law."⁶ The state court judge also made certain factual findings on the record in support of the Non-Jury Verdict,⁷ including:

3. [the Debtor] financed $433,200 as the principal amount.

4. [the Debtor] obtained a mortgage loan from Delta Financial Corporation in the original principal amount of $433,200, which loan was intended to be secured.

11. [alt settlement [the Debtor] executed numerous documents in connection with the loan, including a note and mortgage.

12. that deed was recorded in the Bucks County Recorder of Deeds' office on November 19, 2004.

15. since the transaction of November 10, 2004 [the Debtor has] made no payment despite receiving monthly payment vouchers for the loan.

17. Mr. Nolan [the title agent who handled the transaction] testified that he personally witnessed the execution of all appropriate documents, including the mortgage documents, during the transaction of November 10, 2004.

19. it is undisputed that the [Debtor] admits that she applied for and re. ceived the loan.

20. it is undisputed that the [Debtor] attended the loan.

21. it's undisputed that the [Debtor] received title to the property.

22. it's undisputed that the [Debtor] could not have afforded the property without the...