In re Rushing

• Decision Date: 06 October 2010
• Docket Number: Adversary No. 10–6010.,Bankruptcy No. 04–62036.
• Parties: In re Ira Glen RUSHING, XXX–XX–XXXX, 11310 CR 3292–D, Garrison, TX 75946, Debtor.Ira Glen Rushing and Jacqueline Y. Berry, Plaintiffsv.Green Tree Servicing, LLC and John Patrick Herr, Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of Texas

443 B.R. 85

In re Ira Glen RUSHING, XXX–XX–XXXX, 11310 CR 3292–D, Garrison, TX 75946, Debtor.Ira Glen Rushing and Jacqueline Y. Berry, Plaintiffs

v.Green Tree Servicing, LLC and John Patrick Herr, Defendants.

Bankruptcy No. 04–62036.

Adversary No. 10–6010.

United States Bankruptcy Court, E.D. Texas, Tyler Division.

Oct. 6, 2010.

Charles Anthony Newton, Charles Newton & Associates, The Woodlands, TX, for Plaintiffs, Ira Rushing and Jacqueline Y. Berry.Richard A. McKinney, Higier, Allen & Lautin, P.C., Addison, TX, Charles E. Lauffer, Jr., Ritcheson, Lauffer & Vincent, P.C., Tyler, TX, for Defendants, Green Tree Servicing, LLC.

MEMORANDUM OF DECISION

BILL PARKER, Bankruptcy Judge.

Before the Court for consideration is a “Motion to Dismiss the Plaintiff's (sic) First Amended Complaint Pursuant to Bankruptcy Rule 7012(b), Federal Rules of Civil Procedure 12(b)(1), 12(b)(6), 28 U.S.C. § 1334(b), or Alternatively, Abstention in Favor of Arbitration Pursuant to 28 U.S.C. § 1334(c)(1) or Alternatively, Stay Pending Arbitration Pursuant to 9 U.S.C. Sections 1–3” filed by one of the two Defendants, Green Tree Servicing, LLC, on June 30, 2010, and an identically-titled motion to dismiss filed on September 10, 2010, by the other Defendant in this action, John Patrick Herr. The Plaintiff–Debtor, Ira Glen Rushing (the “Debtor”), and his non-debtor spouse ¹, Jacqueline Y. Berry, objected to each particular motion and the parties submitted written briefing on the issues raised therein. Each motion seeks dismissal on the same grounds as to each particular Plaintiff. This memorandum of decision disposes of all issues pending before the Court.²

Factual And Procedural Background

The basic facts set forth in the Plaintiffs' First Amended Complaint are as follows:

1. On or about March 19, 2000, Mr. Rushing purchased a 1999 Palm Harbor model 3000E mobile home from Palm Harbor Village. A Retail Installment Contract was executed by the parties.

2. One of the provisions of that contract read as follows ³:

15. ARBITRATION: All disputes, claims, or controversies arising from or relating to this agreement or the relationships which result from this Agreement, or the validity of this arbitration clause or the entire Agreement, shall be resolved by binding arbitration by one arbitrator selected by you with my consent. This arbitration agreement is made pursuant to a transaction involving interstate commerce, and shall be governed by the Federal Arbitration Act, Title 9 of the United States Code. Judgment upon the award rendered may be entered in any court having jurisdiction. The parties agree and understand that they choose arbitration instead of litigation to resolve disputes. The parties understand that they have a right or opportunity to litigate disputes in court, but that they prefer to resolve their disputes through arbitration, except as provided herein. THE PARTIES VOLUNTARILY AND KNOWINGLY WAIVE ANY RIGHT THEY HAVE TO A JURY TRIAL, EITHER PURSUANT TO ARBITRATION UNDER THIS CLAUSE OR PURSUANT TO A COURT ACTION BY YOU (AS PROVIDED HEREIN). The parties agree and understand that all disputes arising under case law, statutory law, and all other laws including, but not limited to, all contract, tort, and property disputes, will be subject to binding arbitration in accord with this agreement. I agree that I shall not have the right to participate as a representative or a member of any class of claimants pertaining to any claim arising from or relating to this Agreement. The parties agree and understand that the arbitrator shall have all powers provided by law and the Agreement. These powers shall include all legal and equitable remedies, including, but not limited to, money damages, declaratory relief, and injunctive relief. Notwithstanding anything hereunto the contrary, you retain an option to use judicial or non-judicial relief to enforce a security agreement relating to the collateral secured in a transaction underlying this arbitration agreement, to enforce the monetary obligation or to foreclose on the collateral. Such judicial relief would take the form of a lawsuit. The institution and maintenance of an action for judicial relief in a court to foreclose upon any collateral, to obtain a monetary judgment or to enforce the security agreement, shall not constitute a waiver of the right of any party to compel arbitration in this Agreement, including the filing of a counterclaim in a suit brought by you pursuant to this provision.

3. After the execution of the contract, Palm Harbor Village immediately assigned its interest in the contract and its lien upon the home, without recourse, to Conseco Finance Servicing Corporation. Conseco was later renamed Green Tree Servicing, LLP and that entity assumed responsibility for the servicing of the Debtor's promissory note.

4. In 2004, after the Debtor became delinquent on his monthly payments to Green Tree, he filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code on September 27, 2004, with Gordon Mosley serving as the Debtor's attorney.

5. The original mailing matrix of creditors filed in the case included Green Tree and the Debtor properly scheduled Green Tree as a secured creditor in his schedules that were filed on the petition date.

6. One day later, a member of Mr. Mosley's office received a phone call from a Joyce Nelson, who identified herself as a representative of Green Tree. Ms. Nelson called to inquire about the payment owed to Green Tree on Mr. Rushing's home.

7. During that September 28 phone conversation, Mosley's staff advised the Green Tree representative of the Debtor's Chapter 13 bankruptcy filing, and provided the case number, the filing date, and all contact information for Mosley.

8. After the bankruptcy case was commenced, Green Tree, acting through state court counsel, Mr. Richard McKinney, filed a lawsuit against the Debtor and Ms. Berry in the 114th Judicial District Court of Smith County, Texas on September 28, 2004, to collect its unpaid indebtedness.

9. Within three days, on October 1, 2004, Green Tree filed a proof of claim with this Court in the Debtor's case. Such proof of claim was dated September 28, 2004, the same date that Joyce Nelson from Green Tree had contacted Mr. Mosley's office and was informed of the bankruptcy filing.

10. The proof of claim identifies Green Tree as a creditor and provided an address to which payments and notices could be sent. It documents the existence of a pre-petition claim.

11. It is apparent that, while Green Tree had received notice of the bankruptcy and had filed a proof of claim in the case, it failed to notify its state court counsel of the Debtor's bankruptcy filing or that prosecution of the state court lawsuit should be halted.

12. On October 4, 2004, Mr. McKinney, acting on behalf of and for the benefit of Green Tree, obtained an order authorizing service of the state court petition and summons.

13. When the Debtor notified his attorney, Mosley, that he had been served with a state court petition signed by Mr. McKinney on behalf of Green Tree, Mosley's office contacted McKinney's office by telephone and spoke with an assistant who identified herself as “Cheryl.” Cheryl was given all of the pertinent bankruptcy case information and she was informed that the state court lawsuit was served upon Mr. Rushing in violation of the automatic stay. Cheryl stated that she would personally provide this information to McKinney.

14. On October 27, 2004, the Citation Return of Service was returned to the state court.

15. On November 22, 2004, McKinney, on behalf of Green Tree, filed a Motion for Default Judgment in the state court action.

16. On November 23, 2004, a default judgment was entered by the state court against the Debtor and Ms. Berry. On that same date, a notification letter was sent to the judgment defendants informing them of the entry of the default judgment.

17. On November 29, 2004, Mosley's office contacted McKinney's office regarding the entry of the default judgment. A representative identifying himself as Jesse Cardenas stated that Cheryl was currently out sick and he would need to review the matter.

18. On or about December 2, 2004, McKinney filed a motion to withdraw the default judgment. The state court granted that withdrawal on December 15, 2004, but the state court lawsuit itself would not be formally dismissed until February 19, 2007.

19. On January 12, 2005, acting through a different attorney, Green Tree filed an objection to the confirmation of the Debtor's proposed Chapter 13 plan.

20. On April 14, 2005, the Court confirmed the Debtor's Chapter 13 plan in which the pre-petition arrearage was to be paid to Green Tree pursuant to its claim, with the Debtor continuing to make post-petition monthly payments directly to Green Tree.

21. On November 9, 2005, Green Tree filed a Motion for Relief from Automatic Stay, alleging that the Debtor was delinquent in his post-petition direct payments.

22. The stay motion was resolved by agreement via the entry of an Agreed Order on January 11, 2006 that required the Debtor to: (1) remain current beginning with the February 1, 2006 payment; (2) modify his plan within 30 days to add a $6,126.18 post-petition delinquency to Green Tree; (3) stay current with ongoing payments to the Trustee; and (4) maintain insurance on the home. In the event Mr. Rushing defaulted on any of these provisions, the Agreed Order provided for the termination of the automatic stay as to the home only.

23. On or about April 7, 2008, Green Tree mailed (but did not file) a Notice of Default to the Debtor, alleging that the stay had terminated pursuant to the Agreed Order because the March 2008 and April 2008 payments had not been tendered.

24. On May 6, 2008, Mosley contacted Green Tree's bankruptcy attorney regarding the purported default and sent proof to such attorney that the purported missing payment had, in fact, been paid. Later that day, ...