In re Price

• Decision Date: 20 March 2009
• Docket Number: Adversary No. 3:07-ap-01184.,Bankruptcy No. 3:06-BK-15813.
• Citation: 403 B.R. 775
• Parties: In re Gary and Pamela PRICE, Debtors. Gary L. Price and Pamela J. Price, Plaintiffs, v. America's Servicing Company, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Arkansas

Page 775

403 B.R. 775

In re Gary and Pamela PRICE, Debtors Gary L. Price and Pamela J. Price, Plaintiffs, v. America's Servicing Company, Defendant.

Bankruptcy No. 3:06-BK-15813.

Adversary No. 3:07-ap-01184.

United States Bankruptcy Court, E.D. Arkansas, Jonesboro Division.

March 20, 2009.

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Joel G. Hargis, Crawley & DeLoache, PLLC, Jonesboro, AR, for Plaintiffs.

Frederick S. Wetzel, Frederick S. Wetzel, P.A., Little Rock, AR, Hilary B. Bonial, Joe Manuel Lozano, Brice Legal Group, P.C., Dallas, TX, for Defendant.

ORDER GRANTING MOTION FOR DEFAULT JUDGMENT IN PART, AND SETTING HEARING ON DAMAGES

AUDREY R. EVANS, Bankruptcy Judge.

Now before the Court is the Motion for Default Judgment filed by the Plaintiffs on July 13, 2007. The Court entered default against Defendant America's Servicing Company ("ASC") on October 23, 2007, and subsequently denied ASC's Motion to Set Aside Default on May 23, 2008. The Court has reviewed Plaintiff's Complaint to determine if sufficient facts have been pled to justify the entry of default judgment in favor of Plaintiffs.¹ The Court finds that on some counts, sufficient facts were pled to allow the Court to enter default judgment; however, other counts fail to state a claim, and default judgment is denied on those claims. Finally, the Court will schedule a hearing on damages in accordance with FED. R. CIV. P. 55(b)(2)(C), made applicable to bankruptcy proceedings by FED. R. BANKR.P. 7055.

JURISDICTION

Pursuant to 28 U.S.C. § 1334, federal district courts² have original and exclusive jurisdiction over all cases under title 11 (i.e., the Bankruptcy Code), and original but not exclusive jurisdiction over all civil proceedings "arising under title 11, or arising in or related to cases under title 11." Plaintiffs in this adversary proceeding allege causes of action arising under the Bankruptcy Code (i.e., § 506(b), § 362, and Federal Rule of Bankruptcy Procedure 2016), under Federal law (i.e., Fair Debt Collection Practices Act and Real Estate Settlement Procedure Act), and under State law (i.e., breach of contract, including breach of duty of good faith and fair dealing and wrongful foreclosure). The § 506(b), § 362, and Rule 2016 causes of action arise under title 11, and accordingly, the Court undoubtedly has jurisdiction over those claims. Further, while none of the Federal or State law causes of action were created by or based on a provision of the Bankruptcy Code, thereby "arising under" title 11, and none of those causes of action are dependent on the bankruptcy case's existence, thereby "arising in" a case under title 11, the Court has at the very least "related to" jurisdiction over the causes of action alleged in the Complaint because the outcome of the Plaintiffs' causes of action could conceivably affect the administration of the Debtors' chapter 13 bankruptcy estate in that any monetary recovery by Debtors before their case is closed, dismissed or converted may constitute property of their bankruptcy estate pursuant to 11 U.S.C. § 1306(a)(1). See In re Grubbs Const. Co., 305 B.R. 476, 480 (Bankr.W.D.Ark.2003); Dogpatch Properties, Inc. v. Dogpatch U.S.A., Inc. (In re Dogpatch U.S.A., Inc.), 810 F.2d 782, 786 (8th Cir.1987) (quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.1984) (emphasis in original)); see also Specialty Mills, Inc. v. Citizens State Bank, 51 F.3d 770, 773-774 (8th Cir.1995).³

Once the Court's jurisdiction is established, the Court determines whether a civil proceeding is categorized as either a core proceeding or a non-core proceeding.

In all cases under Title 11 and all core proceedings arising under Title 11, the bankruptcy court may enter appropriate orders and judgments, subject to district court review. 28 U.S.C. § 157(b)(1). Bankruptcy judges may also hear noncore proceedings otherwise related to a case under Title 11, but in such cases the district court shall enter any final order or judgment unless all parties to the proceeding consent to the case's reference to a bankruptcy judge for determination and entry of appropriate orders and judgments.

Rosen-Novak Auto Co. v. Honz, 783 F.2d 739, 742 (8th Cir.1986). See also 28 U.S.C. § 157(c); Local Rule 83.1(b) of the United States District Court for the Eastern District of Arkansas. Core proceedings "arise under" or "arise in" a bankruptcy case; non-core proceedings are merely "related to" the bankruptcy case. 28 U.S.C. § 157(b)-(c). See also Specialty Mills, Inc., 51 F.3d at 773-774. The Plaintiffs' causes of action under § 506(b), Rule 2016, and § 362 all arise under the Bankruptcy Code and are therefore core matters in which this Court may enter final orders. Further, it is not necessary to analyze whether the Plaintiff's Federal and State law causes of action would be considered core proceedings⁴ because ASC, in its post-default conduct, has given its implied consent to this Court exercising core jurisdiction over the Federal and State law causes of action. In the Answer that ASC attempted to belatedly file, ASC admitted Plaintiffs' assertion that the matter was primarily a core proceeding, and raised no objection to the Court's entry of a final order if the case were determined to be a non-core proceeding. Further, in ASC's Motion to Set Aside Default, ASC did not raise any challenge to the Court's jurisdiction or to its making a final determination in the case. Based on ASC's failure to challenge Plaintiffs' assertion that its lawsuit is a core proceeding, the Court finds that ASC has by implication consented to have this Court enter a final judgment in this matter. See In re OCA, Inc., 551 F.3d 359, 368 (5th Cir.2008) ("Failure to object in the bankruptcy court may constitute implied consent.... When [Defendant] sought to set aside the default judgment in the bankruptcy court, he never once raised the core/non-core issue, and even filed an answer admitting to the complaint's allegation that `[t]his matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2).'") (internal citations omitted).⁵

SUMMARY OF FACTS

The Prices' home, valued at $110,000, is encumbered with a mortgage serviced by ASC. The Prices allege that in their mortgage documents, they elected not to have an escrow account, and instead, to pay the hazard insurance and taxes themselves. The Prices aver that despite this election, ASC diverted their pre-petition monthly mortgage payments to an escrow account and paid the hazard insurance on the Prices' mortgage. Additionally, in April 2006, the interest rate on the Prices' mortgage increased from 7.6% to 10.6%, but the Prices allege that they received no notice regarding the interest rate change or change in their payment amount despite a provision in their Note requiring such notice. The Prices allege they made every mortgage payment in full prior to September 2006, but were informed that their home was in foreclosure in October 2006.

On December 18, 2006, the Prices filed a chapter 13 bankruptcy petition and their initial Chapter 13 plan⁶ which provided for a regular monthly mortgage payment to ASC in the amount of $977.07, and a monthly payment of $97.71 to cure an arrearage of $5,862.42.⁷ ASC filed a proof of claim on January 31, 2007, and the Prices contend that the proof of claim includes questionable and improper fees and costs, and fails to credit some of the mortgage payments they in fact made. On February 2, 2007, ASC filed an Objection to Confirmation of Plan asserting a pre-petition arrearage of $10,411.02, and monthly payments due of $1,210.71. The Prices filed a response and then an amended response on February 22, 2007, and the matter was set for hearing. The Prices' schedules filed on March 21, 2007, listed the debt owed to ASC as $101,000 on Schedule A, and $97,000 on Schedule D, secured by their residence valued at $110,000.

In February 2007, the Prices sent a Qualified Written Request ("QWR") to ASC. The Prices requested ASC's mortgage pooling and servicing agreement, and all servicing, master servicing, sub-servicing, contingency servicing, special servicing, or back-up servicing agreements for the Prices mortgage. ASC allegedly responded with a statement that any documents not provided were privileged information.

The Prices filed this adversary proceeding June 12, 2007. At that time, the scheduled hearing on ASC's objection to confirmation was continued until an indefinite date to be held with the trial in this adversary proceeding. ASC did not timely answer, and the Prices moved for entry of a default judgment. The Court held a hearing on the Prices' motion on July 15, 2007, and took the matter under advisement. ASC then filed a belated Answer which the Prices moved to strike. The Court entered default against ASC on October 23, 2007. ASC moved to set aside the Court's entry of default, and following a hearing held on December 6, 2007, the Court denied ASC's motion to set aside the default in a Memorandum Opinion entered on May 23, 2008.

In the Prices' case-in-chief, the Trustee has an Objection to Confirmation pending, which was filed December 22, 2008, raising an objection based on the means test and the payment to general unsecured creditors, and also asserting that the plan will not be sufficiently funded. On December 16, 2008, the Prices filed a Motion to Stay Proceedings Pending Final Adjudication ("Motion to Stay") in which they seek to stay all proceedings in their bankruptcy case pending the Court's decision regarding default judgment in this adversary proceeding. In support, the Prices allege that the Court's final determination of this adversary proceeding may have an affect on the administration and/or feasibility of their bankruptcy case. No objections to the Motion to Stay were filed, and an Order granting the Motion to Stay was entered February 10, 2009. Accordingly, the objections to confirmation have not been resolved, and the Prices' plan remains...