In re Graves, Case No. 06-40845-JJR-13 (Bankr. N.D. Ala. 3/14/2007), Case No. 06-40845-JJR-13.
| Decision Date | 14 March 2007 |
| Docket Number | Case No. 06-40845-JJR-13.,Adv. P. No.: 06-40134. |
| Parties | In re: Terry W. Graves and Christy L. Graves, CHAPTER: 13 Debtors. Terry W. Graves and Christy L. Graves, Plaintiff(s), v. First Educators Credit Union, Defendant(s). |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Alabama |
On June 21, 2006, Terry W. Graves and Christy L. Graves ("Debtors") filed a petition for relief under Chapter13 of the Bankruptcy Code (). On September 13, 2006, the Debtors commenced this adversary proceeding against one of their secured creditors, First Educators Credit Union ("FECU"). In their complaint, the Debtors alleged FECU violated various provisions of the federal Truth In Lending Act (15 U.S.C. § 1601 et seq, and herein "TILA") when it made them a loan. This Court has jurisdiction to hear this matter pursuant to 28 U.S.C. §§ 157 and 1334, and the Order of Reference of the District Court. This adversary proceeding is a core proceeding pursuant to 28 U.S.C. § 157(b)(2), and this Court has jurisdiction to enter a final order or judgment herein.
BACKGROUND:
In their Schedule B — Personal Property, filed with their bankruptcy petition, the Debtors listed a 2001 Ford Mustang (the "Mustang") as one of their assets and valued it at $5,960.00. In their Schedule D — Creditors Holding Secured Claims, the Debtors listed FECU as one of their secured creditors. The Debtors scheduled FECU's claim at $7,107.21 and stated it was secured by the Mustang. However, they valued the Mustang at only $5,960.00 and, therefore, scheduled FECU's claim as secured for $5,960.00 and the balance of $1,147.21 as an unsecured claim. In Schedule D the Debtors asserted FECU's debt was CONTINGENT, UNLIQUIDATED and DISPUTED.1
On July 10, 2006, FECU filed a proof of claim in the Debtors' case. In its proof of claim, FECU stated the Debtors owed it $7,136.57 for the purchase money loan (the "Loan") used by the Debtors to acquire the Mustang. FECU claimed to be fully secured with a perfected purchase money security interest in the Mustang. Attached to the proof of claim were copies of the Truth In Lending Disclosure, the Credit Union Promissory Note/Security Agreement, the Agreement to Furnish Insurance, and the Certificate of Title covering the Mustang. The Certificate of Title listed FECU as the first and only lienholder.
The original Chapter 13 Plan ("Original Plan"), filed by the Debtors on June 21, 2006 reflected FECU's debt exactly as shown in the Debtors' schedules. The Original Plan proposed to pay secured claims in full but offered nothing on unsecured claims. Thus, under the Original Plan, the Debtors did not intend to pay any of the $1,147.21 shown as the unsecured portion of FECU's debt. They proposed to pay the secured portion of FECU's claim over the 60 month plan term with fixed monthly payments of $131.79 per month.
On June 26, 2006, the Debtors filed a Motion For Valuation of Assets ("Valuation Motion"). In their Valuation Motion, the Debtors asked the Court to find the value of the Mustang securing FECU's debt was the same value stated in the Debtors' schedules, i.e. $ 5,960.00. Also on July 26, 2006, the Debtors filed an amended Chapter 13 Plan ("First Amended Plan") in which they increased the total amount of FECU's debt to $7,136.57 (the amount shown in FECU's proof of claim), and they increased the amount of the unsecured portion of the debt to $1,176.57. The First Amended Plan, like the Original Plan, did not propose to pay anything to unsecured claimholders.
At this stage in the Debtors' Chapter 13 case, FECU and the Debtors held differing positions regarding the value of the Mustang and the treatment of FECU's claim: the Debtors' position was that FECU's claim was only partially secured, as reflected in the Debtors' Schedules B and D, the First Amended Plan, and the Valuation Motion; and FECU's position was that its claim was fully secured as reflected by its proof of claim, which constituted prima facie evidence of the validity and amount of its claim under Rule 3002(f) of the Federal Rules of Bankruptcy Procedure ("Fed. R. Bankr. P."). Their differences were significant because any unsecured portion of FECU's claim would not be paid under the provisions of the First Amended Plan.
On August 8, 2006, the Debtors filed a Notice of Dismissal of the Valuation Motion and filed another amended Chapter 13 Plan ("Second Amended Plan"). There is nothing in the record to indicate if the Notice of Dismissal and the Second Amended Plan were the product of a negotiated settlement between the Debtors and FECU or evidence of an acquiescence by the Debtors to FECU's valuation of the Mustang.2 In any event, under the Second Amended Plan, FECU's debt was treated as fully secured, and the Mustang's value was increased to $7,136.57, the exact amount of FECU's debt stated in its proof of claim. Also, the proposed fixed monthly payments to FECU increased to $157.81 to pay FECU's fully secured claim.
On August 9, 2006, and again on August 11, 2006, the Debtors filed further amended Chapter 13 Plans, neither of which changed the treatment of FECU's claim from that proposed in the Second Amended Plan. On September 5, 2006, the Court entered a Confirmation Order, confirming the Debtors' Chapter 13 Plan as last amended (the "Confirmed Plan"). The Confirmation Order instructed the Chapter 13 Trustee to pay the secured claim of FECU as proposed in the Confirmed Plan, i.e. monthly payments in the amount of $157.81 each.
The Debtors' TILA claims against FECU were not listed in their original Schedule B — Personal Property filed with their petition for relief. However, in their original Schedule B under line item 19, the Debtors did list as an asset "POTENTIAL CLAIMS V LISTED CREDITORS" and stated the value of these claims was "$4,905.00."3 In their original Schedule C — Property Claimed As Exempt, the Debtors claimed the $4,905.00 value attributable to their "POTENTIAL CLAIMS V LISTED CREDITORS" as exempt. Similarly, the Debtors' Original Plan and each amended plan, including the Confirmed Plan, contained a provision that read,
On October 12, 2006, almost a month after this adversary proceeding was filed, the Debtors amended their Schedule B by adding to their property description under line item 19, "LAWSUIT AGAINST 1st EDUCATORS CREDIT UNION" and listed the value of the lawsuit at $4,905.00. They also amended their description of exemptions on Schedule C by substituting "LAWSUIT AGAINST 1st EDUCATORS CREDIT UNION" for the original description of "POTENTIAL CLAIMS V LISTED CREDITORS." The value attributed to the claimed exemption remained at $4,905.00.
On September 13, 2006, eight days after entry of the Confirmation Order, the Debtors filed their complaint against FECU alleging that when FECU made them the Loan, FECU violated various provisions of TILA and Regulation Z,4 as promulgated by the Board of Governors of the Federal Reserve System to implement TILA. Specifically, the Debtors' complaint states that FECU failed to comply with the requirements of Regulation Z § 226.4(d) for the exclusion of credit insurance charges from the Finance Charge and that FECU failed to disclose it was retaining a portion of credit insurance premiums which should have been included in the Finance Charge and calculation of the APR. In response to the complaint, FECU filed a Motion to Dismiss in which it asserted the adversary proceeding should be dismissed because the Debtors' claims were barred due to the expiration of TILA's one-year statute of limitations and under the doctrine of claim preclusion. Although not raised in the Motion to Dismiss, in its brief, FECU also argues the adversary proceeding should be dismissed under the doctrine of judicial estoppel.5
STATUTE OF LIMITATIONS:
According to the Debtors' complaint, the Loan from FECU was made on or about September 8, 2004, over 22 months before the Chapter 13 petition was filed and over two years before this adversary proceeding was commenced. Subsection 1640(e) of Title 15 requires that claims for TILA violations must be commenced "within one year from the date of the occurrence of the violation." In this case, any violation would have occurred on the date the credit transaction between the Debtors and FECU was consummated, i.e. September 8, 2004, when the Loan was made by FECU to the Debtors for their purchase of the Mustang. Smith v. Am. Fin. Sys., Inc. (In re Smith), 737 F.2d 1549, 1552 (11th Cir. 1984). However in 1980, subsection 1640(e) was amended to take effect October 1, 1982.6 The amendment provided, "This subsection does not bar a person from asserting a violation of this subchapter in an action to collect the debt which was brought more than one year from the date of the occurrence of the violation as a matter of defense by recoupment or set-off in such action, except as otherwise provided by State law." [emphasis added] 15 U.S.C. § 1640(e). In its brief filed in support of its Motion to Dismiss, FECU states the Debtors' TILA claims are still barred by the one-year statute of limitations because the claims were not asserted defensively. FECU emphasizes the Debtors are seeking actual money damages, rather than a reduction of FECU's secured claim based on theories of recoupment or set-off.
Are the Debtors pursuing their TILA claims against FECU offensively, or are they asserted defensively as a recoupment or set-off? The answer to this question is determinative because if the Debtors can be accurately described as the plaintiffs and FECU as the defendant, then 15 U.S.C. § 1640(e) will bar the TILA claims. On the other hand, if FECU is the plaintiff and the Debtors are the defendants, then §...
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