In re Rice-Etherly, Bankruptcy No. 01-60533.

• Decision Date: 24 January 2006
• Docket Number: Bankruptcy No. 01-60533.,Adversary No. 05-5729.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Michigan
• Parties: In re Electra D. RICE-ETHERLY, Debtor. Electra D. Rice-Etherly, Plaintiff, v. Bank One, National Association, as Trustee; Homecomings Financial Network; Trott & Trott, P.C., Defendants.

336 B.R. 308

In re Electra D. RICE-ETHERLY, Debtor.

Electra D. Rice-Etherly, Plaintiff, v. Bank One, National Association, as Trustee; Homecomings Financial Network; Trott & Trott, P.C., Defendants.

Bankruptcy No. 01-60533.

Adversary No. 05-5729.

United States Bankruptcy Court, E.D. Michigan, Southern Division.

January 24, 2006.

COPYRIGHT MATERIAL OMITTED

Kevin W. Kevelighan, Bingham Farms, MI, for Debtor.

OPINION GRANTING DEFENDANT TROTT & TROTT P.C.'S MOTION TO DISMISS

MARCI B. McIVOR, Bankruptcy Judge.

This matter came before the Court on defendant Trott & Trott, P.C.'s Motion to Dismiss Plaintiff's First Amended Complaint. The Complaint seeks damages for alleged violations of the Fair Debt Collection Practices Act (15 U.S.C. § 1692 et. seq.). Defendant Trott & Trott seeks to have the Complaint dismissed under Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief can be granted. A hearing on the Motion was held on December 13, 2005 and the matter was taken under advisement. Having reviewed the record, the briefs, and the relevant law, the Court finds that Plaintiff's claims for money damages under the FDCPA are premised on conduct remedied or governed by the Bankruptcy Code. Defendant Trott's Motion to Dismiss is granted and Plaintiff's Complaint against Trott & Trott is dismissed.

I. Background

On December 14, 1999, plaintiff/debtor Electra Rice-Etherly granted a mortgage on her residence at 8918 Robson Street, Detroit, Michigan to Franklin Mortgage Funding, Inc. The mortgage was subsequently assigned to defendant Bank One.

Plaintiff defaulted on the mortgage, and in September, 2001, Bank One initiated foreclosure. On October 23, 2001, one day before the scheduled Sheriff's sale, Plaintiff filed a voluntary Chapter 13 bankruptcy petition. On February 28, 2002, Bank One through its attorney Trott & Trott, filed a proof of claim in the bankruptcy. According to the claim, the total debt was $71,345.11, the arrearage was $5,361.59, and the monthly payment was $558.51. The claim included pre-petition foreclosure fees and costs (including attorney fees) and a charge for insurance. No objection to the proof of claim was filed, and an Order Confirming a Chapter 13 plan was entered on January 25, 2002.

On July 14, 2005, Bank One, through its attorney Trott & Trott, filed a Motion for Relief from Stay as to Debtor's residence. According to the Motion, payments on the loan are 10 months past due, the property is worth $49,500, and the total debt owed is $77,764.21, which includes $800 of attorney fees. Debtor filed a Response to the Motion denying that payments are past due and disputing the amount owed.

After filing the Response, Debtor filed an adversary complaint. The Complaint alleges that Trott violated the Fair Debt Collection Practices Act (15 U.S.C. § 1692 et. seq., hereinafter "FDCPA") in two ways: (1) the Proof of Claim filed by Trott on behalf of Bank One includes attorney fees and costs related to the foreclosure in an amount in excess of the amount permitted under Michigan law (MCL 600.2431)), and (2) the Motion for Relief from Stay filed by Trott on behalf of Bank One improperly seeks $800.00 in attorney fees (for filing the Motion) which should be sought (and Plaintiff believes, denied) pursuant to an application for fees under Fed. R. Bankr.P. 2016. The Complaint seeks a full accounting for all payments made to defendant creditors—an accounting Plaintiff believes will show that there is no past due amount owed on the mortgage. Plaintiff also seeks: (1) $1,000 in statutory damages from each Defendant for each of the alleged violations of the FDCPA, (2) actual damages for violations of the FDCPA, (3) denial of any attorney fees (if sought by Trott pursuant to Fed. R. Bankr. P. 2016) for the filing of the Motion for Relief from Stay, (4) an award of Debtor's attorney's fees and costs under the FDCPA, and (5) an award of Debtor's attorney's fees and costs for prosecution of the adversary proceeding.

II. Standard for Dismissal under Fed. R. 12 (b)(6)

A motion to dismiss a complaint under Fed.R.Civ.P. 12(b)(6) tests the legal sufficiency of the complaint rather than the merits of the case. See 10 Wright, Miller and Kane, Federal Practice and Procedure: Civil 2d § 2713 at 2221 (West 1998). In determining a motion to dismiss under Federal Rule 12(b)(6), the court must accept all factual allegations as true and construe all inferences from those allegations "in a light most favorable for the plaintiff." Mayer v. Mylod, 988 F.2d 635, 638 (6th Cir. 1993). "However, the court need not accept as true a legal conclusion couched as a factual allegation." Soli-Tech, Inc. v. Halliburton Co., 1993 U.S. Dist. LEXIS 19602, No. 91-CV-10232-BC, 1993 WL 315358 at 3 (E.D. Mich. Jan. 26, 1993). "[A] complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Mayer, 988 F.2d at 638, quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957).

Motions to dismiss for failure to state a claim are not favored, and will be granted only where "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). In deciding the motion, the Court must construe the complaint in the light most favorable to the plaintiff and must accept all factual allegations in the complaint as true. Allard v. Weitzman (In re DeLorean Motor Co.), 991 F.2d 1236, 1240 (6th Cir.1993).

III. Analysis

A. Plaintiff's FDCPA claims are barred because they are premised on conduct remedied or governed by the Bankruptcy Code.

1. The FDCPA does not apply to the Proof of Claim

Plaintiff claims that Trott violated the FDCPA when it filed Bank One's Proof of Claim and included attorney fees, costs, and advances which Plaintiff asserts are not allowed by agreement or by law. Thus, this Court must determine whether a debtor can file an FDCPA claim premised on the filing of a proof of claim in a Chapter 13 case. While there is no Sixth Circuit case law directly on point, courts in other jurisdictions which have addressed the issue on similar facts have held such claims to be precluded by the Bankruptcy Code.

In Baldwin v. McCalla, Raymer, Padrick, Cobb, Nichols & Clark, L.L.C., 1999 U.S. Dist. LEXIS 6933, 1999 WL 284788 (N.D.Ill.1999), the plaintiff, a Chapter 13 debtor, sought recovery under the FDCPA for the defendant law firm's practice of filing Chapter 13 claims that demanded payment of interest not authorized by law.

In granting the defendant's motion to dismiss, the court first noted that the case raised a potential conflict between two federal statutes because the plaintiff's

complaint [sought] to produce an external challenge to alleged wrongdoing that occurred during bankruptcy proceedings, which were governed by `the complex detailed and comprehensive provisions of the lengthy Bankruptcy Code,' which `create a whole system under federal control which is designed to bring together and adjust all of the rights and duties of creditors and embarassed debtors alike.'

Baldwin, 1999 WL 284788, at *2 (quoting MSR Exploration, Ltd. v. Meridian Oil, Inc., 74 F.3d 910, 913 (9th Cir.1996)). In reconciling the conflict, the Baldwin court found that the FDCPA was designed to help consumers avoid bankruptcy and was applicable only before a bankruptcy petition was filed. Once a bankruptcy is filed, its provisions are not applicable and a debtor's remedies are limited to those provided in the Bankruptcy Code.

The Baldwin court's analysis was guided by the U.S. Supreme Court's decision in Kokoszka v. Belford, 417 U.S. 642, 94 S.Ct. 2431, 41 L.Ed.2d 374 (1974). In that case, the Supreme Court held that the wage garnishment limitation provisions of the Consumer Credit Protection Act (15 U.S.C. § 1601 et. seq.) did not limit a bankruptcy trustee's authority to treat a bankrupt debtor's income tax refund as property of the debtor's estate. Id. at 650-52. In analyzing the relationship between the Consumer Credit Protection Act and the Bankruptcy Code, the Supreme Court specifically found that "the Consumer Credit Protection Act sought to prevent consumers from entering bankruptcy in the first place. However, if despite its protection, bankruptcy did occur, the debtor's protection and remedy remained under the Bankruptcy Act." Id. at 650, 94 S.Ct. 2431.

Beyond the reasoning of Kokoszka, the Baldwin court cited several other problems arising from the application of the FDCPA in bankruptcy. The court noted that applying the FDCPA to bankruptcy proofs of claim could discourage creditors from filing claims ("thus, defeating the point of bringing all claims together in one proceeding") and encourage debtors "to ignore the procedural safeguards within the Bankruptcy Code, such as the right to object to proofs of claim and to seek sanctions against creditors who violate provisions within the Bankruptcy Code, in favor of the FDCPA." Baldwin, at *5.

Indeed, it appears that that is precisely what occurred in this case, for the record in the Bankruptcy Court shows that the debtor and his attorney were well aware of the alleged flaws in Defendant's proof of claim but chose not to object to the claim in favor of filing the present case. The practice of debtors deliberately bypassing the Bankruptcy Code's objection process in favor or alternative litigation would undermine the entire bankruptcy system.

Id. The logic of the Baldwin case has been followed by several other courts faced with the prospect of a FDCPA in the context of a bankruptcy proceeding. See e.g. Degrosiellier v. Solomon & Solomon, P.C., 2001 WL 1217181 (N.D.N.Y.2001); Diamante v. Solomon & Solomon P.C., 2001 WL 1217226 (N.D.N.Y.2001); Cooper v. Litton Loan Servicing (In re Cooper), 253 B.R. 286 (Bank...