In re Martin

• Decision Date: 06 November 2007
• Docket Number: Adversary No. 07-6004.,Bankruptcy No. 06-60637.
• Citation: 387 B.R. 307
• Parties: In the matter of Jack M. MARTIN, Debtor. Jack M. Martin, Plaintiff v. CitiFinancial, Inc., Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Georgia

Page 307

387 B.R. 307

In the matter of Jack M. MARTIN, Debtor.

Jack M. Martin, Plaintiff v. CitiFinancial, Inc., Defendant.

Bankruptcy No. 06-60637.

Adversary No. 07-6004.

United States Bankruptcy Court, S.D. Georgia, Statesboro Division.

November 6, 2007.

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Angela McElroy-Magruder, Claeys McElroy-Magruder, Augusta, GA, for Plaintiff.

Erich Durlacher, John O'Shea Sullivan, Burr & Forman LLP, Atlanta, GA, Hugh Peterson, III, McNatt, Greene & Peterson, Vidalia, GA, for Defendant.

MEMORANDUM AND ORDER ON MOTION TO COMPEL ARBITRATION AND DISMISS OR STAY PROCEEDINGS

LAMAR W. DAVIS, JR., Bankruptcy Judge.

Debtor's Chapter 13 was filed on December 27, 2006. Debtor filed this Adversary Proceeding against creditor CitiFinancial Services, Inc. ("CitiFinancial") on April 2, 2007. In response to the Adversary Proceeding, CitiFinancial filed a Motion to Compel Arbitration of Debtor's claims and to dismiss or stay proceedings pending the arbitration. After a hearing and consideration of briefs and applicable law, I conclude that CitiFinancial's motion to compel arbitration of some of the claims will be granted: intentionally misrepresenting to Debtor that it had a security interest; forcing Debtor into bankruptcy; defamation; and infliction of emotional distress. The motion to compel arbitration of Debtor's two causes of action concerning the validity of CitiFinancial's lien will be denied. I also conclude that CitiFinancial's motion to stay this adversary proceeding pending the completion of the arbitration process will be granted as to Debtor's arbitrable claims and denied as to Debtor's two non-arbitrable causes of action concerning the validity of CitiFinancial's lien.

FINDINGS OF FACT

Debtor obtained a loan from Associates Financial Services of America, Inc., n/k/a Associates First Capital Corporation ("Associates") by virtue of a Loan Agreement dated December 21, 1995. Complaint, Dckt.No. 1, Ex.C.(April 2, 2007). In connection with this loan, Debtor signed an arbitration agreement agreeing that any and all claims and disputes that related in any way to the Loan Agreement would be resolved in arbitration. Affidavit of Teresa M. Boer, Dckt.No. 13, p. 7-8 (June 29, 2007).

This loan was transferred several times before it reached CitiFinancial. The loan was transferred from Associates to Associates Financial Services Company, Inc. ("AFSCI") on October 1, 2001. On this same day, AFSCI transferred the loan to AFSC, LLC, a Delaware limited liability company ("AFSC, LLC"). On October 2, 2001, AFSC, LLC transferred the loan to CitiFinancial Credit Corporation ("CCC"), On that same day, CCC transferred the loan to CitiFinancial Services Inc. 311 LLC ("311 LLC"). As a result of a merger effective September 1, 2003, the loan was finally transferred from 311 LLC to CitiFinanical. Affidavit of Teresa M. Boer, Dckt.No. 13, p. 2.

A Deed to Secure Debt was filed ("DSD 1"), pledging Debtor's residence and three tracts of land to secure the loan. Complaint, Dckt.No. 1, Ex. D (April 2, 2007). The loan was refinanced on May 9, 1996 and March 14, 1997. Complaint, Dckt.No. 1. ¶ 9 and ¶ 10 (April 2, 2007). CitiFinancial filed another Deed to Secure Debt on March 19, 1997 ("DSD 2"). Id., Ex. E (April 2, 2007). After the debt was refinanced again on March 24, 1999, another Deed to Secure Debt was filed on April 7, 1999 ("DSD 3"). Id. Ex. H (April 2, 2007). DSD 3 contains a signature of the notary as an official witness but contains no official notary seal. Additionally, DSD 3 has a separately attached legal description, but the body of DSD 3 does not reference the attached legal description nor is the legal description separately signed. Id.

On December 27, 2006, Debtor filed Chapter 13 because CitiFinancial was threatening to foreclose on his residence. Case No. 06-60637; Complaint, Dckt.No. 1, ¶ 17 (April 2, 2007). CitiFinanical was listed as a creditor and filed a secured claim in the amount of $89,714.57. Case No. 06-60637, Claim No. 3. There are only two claims in this bankruptcy: the secured claim of CitiFinancial and an unsecured claim by Portfolio Recovery Associates, LLC for $1983.33. Case No. 06-60637, Claim No. 1. Thus the dispute over the CitiFinancial claim amounts to over 95% of all claims in this case.

Debtor's complaint asserts four causes of action. First, Debtor argues that CitiFinancial's claim is unsecured because DSD 3 contains no notary seal, the legal description attached to DSD 3 is not referenced in the deed itself, and the description is not separately signed. Second, because of those defects, Debtor claims CitiFinancial intentionally, knowingly and fraudulently misrepresented to Debtor that it held a security interest. Debtor argues that as a result of this fraudulent misrepresentation, CitiFinancial caused him damages by forcing him to file bankruptcy. Third, Debtor claims that CitiFinancial is liable for knowingly publishing false facts and causing embarrassment and emotional distress by publishing in a newspaper a foreclosure asserting a security interest in Debtor's property. Fourth, Debtor asks that CitiFinancial be held accountable for filing a fraudulent proof of claim and subjected to damages and fines pursuant to 18 U.S.C. §§ 152 and 3571.

In response CitiFinancial "moves for this Court to (I) compel [Debtor] to resolve any and all claims against CitiFinancial, as well as CitiFinancial's claims against [Debtor], in binding arbitration in accordance with the arbitration agreement and (ii) either dismiss this unnecessary action, or at least stay all proceedings pending completion of arbitration." Motion to Compel Arbitration and Dismiss or Stay Proceedings, Dckt.No. 11, p. 2 (June 29, 2007).

For the reasons that follow, I conclude that there is no private civil right of action arising under 18 U.S.C. § 152, thus this Court lacks jurisdiction to preside over that specific cause of action. Second, CitiFinancial did not waive its right to arbitration by filing a proof of claim in the underlying bankruptcy case. Third, one cause of action is a Code-based, creditor claim: Debtor's cause of action to declare Citifinancial's lien unsecured because of the lack of notary seal. Thus, I hold that this cause of action is non-arbitrable and should be decided by this Court. Fourth, I find the remainder of Debtor's causes of actions are debtor-derived and their arbitrability must be analyzed under the McMahon test.

CONCLUSIONS OF LAW

Debtor asks CitiFinancial be held accountable for filing a fraudulent proof of claim and be subjected to damages and fines pursuant to 18 U.S.C. §§ 152 and 3571.1 I conclude that there is no private civil right of action arising under § 152, and this Court lacks jurisdiction to preside over this cause of action.

Section 152(4) states that "a person who ... knowingly and fraudulently presents any false claim for proof against the estate of a debtor, or uses any such claim in any case under title 11, in a personal capacity or as or through an agent, proxy, or attorney; ... shall be fined under this title, imprisoned not more than 5 years, or both." This is a criminal statute. It does not explicitly provide for a private right of suit for civil damages or injunctive relief. Furthermore, there are no cases suggesting that a private right to sue should be implied under this section. Clayton v. Raleigh Federal Sav. Bank., 194 B.R. 793, 795 (M.D.N.C.1996); see also In re Terio, 158 B.R. 907, 911-12 (S.D.N.Y. 1993), aff'd 23 F.3d 397 (2d Cir.1994) (district court rejected the contention that a private cause of action could arise under 18 U.S.C. § 152). To hold otherwise would be inconsistent with the "overall legislative scheme with respect to bankruptcy proceedings." Heavrin v. Boeing Capital Corp., 246 F.Supp.2d 728, 731 (W.D.Ky.2003). As the district court in Heavrin stated:

[T]he Bankruptcy Code is a highly intricate and reticulated statutory scheme that does not easily lend itself to the creation of new rights and remedies on the part of private parties. The Code creates extensive rights readily available to litigants, and there is no reason to believe that additional rights should be created where none are expressed or clearly implied.

Id.

Therefore, I conclude that this Court does not have the jurisdiction to preside over this cause of action and hold that Count F will be dismissed.

Debtor also claims that CitiFinancial has waived its right to arbitration by filing a proof of claim in the underlying bankruptcy case. I conclude that CitiFinancial has not waived its right to arbitration for the following reasons.

The Eleventh Circuit has held "that, despite the strong policy in favor of arbitration, a party may, by its conduct, waive its right to arbitration." S & H Contractors, Inc. v. A. J. Toft Coal Co., 906 F.2d 1507, 1514 (11th Cir.1990) (citations omitted). In determining whether a party has waived its right to arbitrate, the Eleventh Circuit established a two-part test. "First, we decide if, `under the totality of circumstances,' the party `has acted inconsistently with the arbitration right,' and, second, we look to see whether, by doing so, that party `has in some way prejudiced the other party.'" Ivax Cor. v. B. Brawn of America, Inc., 286 F.3d 1309, 1315-16 (11th Cir.2002) (quoting S & H Contractors, Inc., 906 F.2d at 1514). "When determining whether the other party has been prejudiced, [this Court] may consider the length of delay in demanding arbitration and the expense incurred by that party from participating in the litigation process." S & H Contractors, Inc., 906 F.2d at 1514.

In this case, the Complaint was filed on April, 2, 2007. Complaint Dckt. No. 1. On May 30, 2007, Debtor asked this Court to reissue a new Summons and Notice of Conference to CitiFinancial after the first summons was not shown to have been accepted. Request to Reissue Summons, ...