In re Residential Capital, LLC

• Citation: 536 B.R. 566
• Decision Date: 04 September 2015
• Docket Number: Case No. 12-12020 MG Jointly Administered
• Parties: In re: Residential Capital, LLC, et al., Debtors.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

536 B.R. 566

In re: Residential Capital, LLC, et al., Debtors.

Case No. 12-12020 MG Jointly Administered

United States Bankruptcy Court, S.D. New York.

Signed September 4, 2015

MORRISON & FOERSTER LLP, Attorneys for ResCap Borrower Claims Trust, 250 West 55th Street, New York, New York 10019, By: Norman S. Rosenbaum, Esq., Jordan A. Wishnew, Esq., Jessica J. Arett, Esq.

BRADLEY ARANT BOULT CUMMINGS LLP, Attorneys for ResCap Liquidating Trust, 100 N. Tryon Street, Suite 2690, Charlotte, North Carolina 28202, By: Christian W. Hancock, Esq., Avery A. Simmons, Esq.

ERICKSON, THORPE & SWAINSTON, LTD., Attorneys for Pamela D. Longoni, Lacey, Longoni, and Jean M. Gagnon, 99 W. Arroyo Street, P.O. Box 3559, Reno, Nevada 89505, By: Thomas P. Beko, Esq.

AMENDED MEMORANDUM OPINION AND ORDER UPHOLDING BANKRUPTCY COURT AUTHORITY TO TRY THE INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS CAUSE OF ACTION ASSERTED IN CLAIMS FILED BY PAMELA D. LONGONI AND JEAN GAGNON

MARTIN GLENN, UNITED STATES BANKRUPTCY JUDGE

The Court must decide whether it can hear and determine (i.e., enter final judgment) the emotional distress claim included among the remaining claims in this contested matter. If the emotional distress claim is a “personal injury tort” under section 157(b)(5) of title 28 of the United States Code, absent consent (which has been withheld), only a district court may try the claim and enter final judgment. There is no controlling law in this Circuit on what is a personal injury tort. Lower courts have used different approaches to resolving the question. As explained below, the Court concludes that the emotional distress claim in this matter is not a personal injury tort; therefore, this Court can finally resolve the claim.

I. BACKGROUND

A. Prior Proceedings

An earlier memorandum opinion and order (the “Prior Opinion,” ECF Doc. # 8825) sustained in part and overruled in part the ResCap Borrower Claims Trust's (the “Trust”) objection (the “Objection,” ECF Doc. # 8530) to Claim Numbers 2291, 2294, 2295, and 2357 (the “Claims”) filed by Pamela D. Longoni (“Longoni”), individually and as guardian ad litem for Lacey Longoni, and Jean M. Gagnon (“Gagnon,” and together with Longoni and Lacey Longoni, the “Claimants”).¹ The Prior Opinion overruled the Trust's Objection to causes of action for fraud, negligence (to the extent the original cause of action asserted negligent misrepresentation and negligent infliction of emotional distress),² intentional infliction of emotional distress (“IIED”), and promissory estoppel.

After issuing the Prior Opinion, the Court raised the issue whether section 157(b)(5) of title 28 of the United States Code, which entitles a party to a personal injury tort or wrongful death claim to demand a trial of such claim in a district court, applies to the Claimants' emotional distress claim. If applicable, the emotional distress claim may not be tried in this Court unless the parties consent. This Court directed the Claimants and the Trust to advise whether they consent; if any party to the claim did not consent, the parties were directed to brief whether section 157(b)(5) applies to the emotional distress claim. (See Case Management and Scheduling Order (the “CMSO”), ECF Doc. # 8903 ¶ 4 (requiring the parties to brief the issue whether this Court can finally adjudicate the Claimants' surviving intentional infliction of emotional distress claim (the “IIED Claim”)).) The parties did not mutually consent and therefore they briefed the issue. (See “Trust's Brief” or “Trust Br.,” ECF Doc. # 9014; “Claimants' Brief” or “Cl. Br.,” ECF Doc. # 9016.)

B. The Claims

In April 2010, the Claimants filed a complaint in Nevada state court against Debtors GMAC Mortgage, LLC (“GMACM”), Executive Trustee Services, LLC (“ETS”), Residential Funding Corporation (“RFC”), and Residential Asset Mortgage Products, Inc. (“RAMP”), as well as against other non-debtor individuals and entities (the “Nevada Action”). (Obj.¶ 5.) The defendants removed the case to the United States District Court for the District of Nevada (the “Nevada District Court”). (Id. ) The lawsuit alleged that GMACM wrongfully foreclosed on the Claimants' home after agreeing to approve a permanent loan modification and to halt the foreclosure while the parties discussed the proposed modification. The foreclosure was completed despite the alleged agreement. The original complaint included the following causes of action: (1) violation of Nevada Revised Statutes sections 107.080, 107.085, 107.086, 107.087, and 107.090 ; (2) violation of Nevada Revised Statutes section 205.372 ; (3) fraud and misrepresentation; (4) negligence and negligent misrepresentation; (5) breach of contract; (6) tortious breach of the implied covenant of good faith and fair dealing; (7) breach of the covenant of quiet title; (8) IIED; (9) promissory estoppel; and (10) concert of actions. (Id. ) The Nevada District Court granted in part and denied in part the defendants' motion to dismiss. See Longoni v. GMAC Mortg., LLC, No. 3:10–CV–0297–LRH–VPC, 2010 WL 5186091, at *2 (D.Nev. Dec. 14, 2010). The court dismissed the breach of the covenant of quiet title and tortious breach of the implied covenant of good faith and fair dealing causes of action; the other eight causes of action survived. See generally id. The Debtors' bankruptcy stayed the Nevada Action; the case was ultimately administratively closed. (Obj.¶ 5.)

The Claims filed here incorporate the causes of action asserted in the Nevada Action. (See Obj. Ex. 1.) The Prior Opinion disallowed and expunged some of these causes of action, but the fraud, negligence (negligent misrepresentation and negligent infliction of emotional distress), IIED, and promissory estoppel claims remain.

C. The IIED Claim

The IIED Claim stems from the allegedly wrongful foreclosure. The operative complaint in the Nevada Action included the following allegations: “foreclosure and wrongful ousting of the plaintiffs from the family home was an invasion of property owners' rights which occurred under circumstances of malice, willfulness, wantonness, and inhumanity”; the “defendants' ... wrongful acts and foreclosure were a willful use of power with the expectation to humiliate and distress the mortgagors and plaintiffs”; and “the defendants engaged in conduct that they knew, or should have known and expected, would cause the plaintiffs to suffer and which did, in fact, cause the plaintiffs to suffer severe and mental and emotional pain, grief, sorrow, anger, worry, and anxiety.” (Obj. Ex. 4 ¶¶ 173–176.) The complaint requested at least $10,000 in general damages, at least $10,000 in exemplary and punitive damages, and costs and attorneys' fees. (Id. ¶¶ 175–177.)

The Claimants supported their Opposition to the Objection to the IIED Claim with Pamela Longoni's affidavit that addresses the physical manifestations of the emotional distress to herself and her daughter. (Opp.¶ 68.) The affidavit states:

38. I expressed to all GMACM representatives that losing my home was such an emotional and life changing event. My children grew up in that home. I had improved that home greatly, and I was comfortable in my neighborhood. My daughter, Lacey, who was 13 at the time this foreclosure took place, suffered tremendously. She was forced out of her neighborhood and left the kids she grew up with. She was forced to ride a new school bus from our new rental house, and did not know any kids on the bus. She didn't have anyone to walk home with as there were no kids in our new neighborhood.

39. We relied tremendously on the neighbors across the street on Twin Creeks. She was a stay at home mom, and me, being a single mom, relied greatly on her to assist with Lacey after school. Our daughters were very close friends. Their friendship involved sleepovers, holiday events, and extracurricular activities together. We often attended summertime BBQ's and holiday events together. We shared activities as families and helped each other with transportation for our kids.

40. It was devastating to lose my house. It caused a great deal of emotional distress. I had never planned on living anywhere else. However, since this time, I have lived in 4 other places, which has caused a lot of financial and continued emotional distress, as nothing has felt quite like “home.”

41. After I learned of the foreclosure, I lost 13 pounds in a less than two weeks. I was forced to take prescription medications just to stop the emotional breakdowns. I was embarrassed and humiliated that this had taken place. I had a hard time concentrating at work. I cried all the time. I felt so guilty for my daughter, Lacey, who had been displaced from her childhood home. I remember, while attempting to pack all of 15 years of belongings, and I was just exhausted, and I was wrapping up the day of packing. I had left several belongings in my driveway and after sheer exhaustion from the day, I covered those items with a tarp and believed they would be safe, as I knew my neighbors and neighborhood.

42. The following morning, I went out to get my things and continue packing. I realized that sometime during the night, my belongings had been picked through, and several items were missing. I ran to the side of the house, and vomited.

(Id. Ex. 9 ¶¶ 38–42.)

The Prior Opinion overruled the Trust's Objection to the IIED Claim; the Nevada District Court had previously denied the defendants' motion to dismiss that claim. (Prior Opinion at 34–35 & n.15 (citing Opp. ¶¶ 67–68 (citing id. Ex. 9 ¶¶ 38–42)).) The Court also overruled the Trust's argument about the requirement for physical manifestations of emotional distress—at this stage of the pleadings, the Court concluded, Claimants provided sufficient allegations of physical manifestations. (Id. ) The Court overruled the Objection to the negligence claim insofar as it asserted a negligent infliction of emotional distress claim because the Trust did not address the cause of action in its Objection, thereby failing to meet its...