In re Sanchez, Case No. 01-042230-BKC-AJC (Bankr. S.D.Fla. 10/2/2008)
| Decision Date | 02 October 2008 |
| Docket Number | Adv. No. 08-1176-BKC-AJC-A.,Case No. 01-042230-BKC-AJC. |
| Parties | In re JOSE SANCHEZ and FANNY SANCHEZ, Chapter 13, Debtors. DONALD F. WALTON United States Trustee, Plaintiff, v. COUNTRYWIDE HOME LOANS, INC., Defendant. |
| Court | U.S. Bankruptcy Court — Southern District of Florida |
COUNTRYWIDE HOME LOANS, INC.'S MOTION TO DISMISS
THIS MATTER came before the Court at 2:30 p.m. on July 28, 2008, upon the hearing on Defendant, Countrywide Home Loans, Inc.'s ("Countrywide") Motion to Dismiss Adversary Proceeding (DE 24). The Court having reviewed the file and the parties' submissions and heard argument of counsel, and being otherwise fully advised in the premises, for the reasons set forth in detail below, Orders that the Motion to Dismiss is GRANTED.
Donald F. Walton, the United States Trustee for Region 21 ("UST"), filed this adversary proceeding against Countrywide Home Loans, Inc. ("Countrywide") on March 1, 2008. The UST alleges that Countrywide engaged in bad faith conduct which abused the judicial process in connection with the Chapter 13 bankruptcy case of Jose and Fanny Sanchez. The conduct of which the UST complains arises from two allegedly inaccurate motions for relief from stay filed by Countrywide in the Sanchezes' bankruptcy case on November 13, 2003, and January 9, 2004, respectively. The Court denied the first Motion for Relief from Stay on December 4, 2003, and Countrywide voluntarily withdrew the second motion on January 28, 2004. The UST also alleges that Countrywide initiated a foreclosure action on June 15, 2007, in violation of the Sanchezes' Chapter 13 plan and the Bankruptcy Court's December 13, 2006 discharge order. The Sanchezes' Chapter 13 case was closed on July 10, 2007, and reopened on August 10, 2007, to address the June 15, 2007 foreclosure action. Countrywide voluntarily dismissed its foreclosure complaint on October 29, 2007. After Countrywide dismissed the foreclosure action, the Sanchezes withdrew without prejudice a contempt motion they had filed with respect to the foreclosure action. The Sanchezes are not parties to this adversary proceeding.
Predicated on the motions for relief from stay and the foreclosure action, the UST requests "appropriate monetary sanctions" against Countrywide and an injunction "enjoining and restraining Countrywide from engaging in bad faith and abusive practices in connection with: (i) its preparation, verification, filing and prosecution of pleadings and proofs of claim in bankruptcy cases; and (ii) its preparation, verification, filing and prosecution of state court foreclosure actions to the extent such actions involve debtors, claims or liens that have previously been subject to bankruptcy court orders."1
On May 28, 2008, Countrywide filed a Motion to Dismiss the UST's Complaint alleging as grounds that this Court lacks subject matter jurisdiction, that the case is moot, that the UST lacks standing, and that the UST has failed to state a claim upon which relief may be granted.
The Court finds that it has jurisdiction over this controversy pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157. To the extent Countrywide's Motion to Dismiss is predicated on the grounds that the controversy is moot and that the Court lacks subject matter jurisdiction it is denied. Moreover, the Court believes that the UST has standing, and Countrywide's Motion to Dismiss on that ground is denied as well. The Court now turns to Countrywide's argument that the UST has failed to state a claim upon which relief may be granted.
Federal Rule of Civil Procedure 12(b)(6) — made applicable to this adversary proceeding by Rule 7012(b) of the Federal Rules of Bankruptcy Procedure — allows a defendant to test the legal sufficiency of a complaint. Bell Atlantic Corp. v. Twombly, ___ U.S. ___, 127 S. Ct. 1955, 1964-65 (2007) (). To avoid dismissal, a plaintiff must allege sufficient facts to support the allegations in the complaint and state a plausible claim. Twombly, 127 S.Ct. at 1965. Even under the liberal pleading standard in federal courts, conclusory statements standing alone will not withstand a motion to dismiss. Oxford Asset Mgmt. v. Jaharis, 297 F.3d 1182, 1188 (11th Cir. 2002) (). The UST's causes of action cannot withstand Countrywide's Motion to Dismiss under Rule 12(b)(6), and must be dismissed.
The UST pleads two forms of relief for Countrywide's alleged conduct. First, the UST seeks "appropriate monetary sanctions" against Countrywide under either 11 U.S.C. § 105 or under the Court's inherent powers. See Chambers v. NASCO, Inc., 501 U.S. 32 (1991). Second, the UST seeks injunctive relief. Neither form of relief states a viable cause of action, and both fail for the reasons outlined below.
The UST's claim for sanctions is predicated on § 105 of the Bankruptcy Code and the Court's inherent powers.2 Section 105 permits the Court to ". . . issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title", and to take "... any action or [make] any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process." 11 U.S.C. § 105(a); cf. Marrama v. Citizens Bank of Mass., ___ U.S. ___, 127 S. Ct. 1105, 1112 (2007) (). While this Court has the power to impose civil sanctions to prevent an abuse of process and abusive litigation practices, the issue presented to the Court is whether the UST has stated a claim for an award of monetary sanctions against Countrywide. The Court concludes that he has not.
Sanctions may be sought to compensate or to punish. Int'l Union, United Mine Workers of Am. v. Bagwell, 512 U.S. 812, 827 (1994). Compensatory sanctions must be sought" between the original parties, and are instituted and tried as part of the main cause." Gompers v. Buck's Stove & Range Co., 221 U.S. 418, 444-445 (1911). Punitive sanctions seek relief on behalf of the public. Id. at 445. See also Young v. U.S. ex rel. Vuitton et Fils S.A., 481 U.S. 787, 804 (1987); United States v. Straub, 508 F.3d 1003, 1009 (11th Cir. 2007); United States v. Hochschild, 977 F.2d 208, 213 (6th Cir. 1992); In re Hipp, Inc., 895 F.2d 1503, 1510 (5th Cir. 1990).
The UST's claim for "appropriate monetary sanctions" fails as it does not seek to compensate. If anyone has been harmed by Countrywide's alleged conduct, it would be the Sanchezes, the "original parties", who were required to respond to the motions for relief from stay and the foreclosure action. The Sanchezes, therefore, would be the proper parties to pursue compensatory civil sanctions, and the Sanchezes are not participating in this proceeding, having withdrawn their own claim for sanctions. See Gompers, 221 U.S. at 444-45. The UST has failed to cite any statutory or common law basis for pursuing civil sanctions against Countrywide in this case.
Furthermore, the claim for "appropriate monetary sanctions" fails because the UST is not authorized to pursue punitive sanctions on behalf of the public by way of an adversary proceeding. The UST has a broad mandate, which ranges from monitoring creditor's committees, to reviewing applications for compensation and reimbursement, to objecting to discharges and requesting conversion or dismissal of cases, see, e.g., 11 U.S.C. §§ 330, 727, 1102, 1307 and 28 U.S.C. § 586(a)(3)(A)-(E); however, these statutes do not allow the UST to initiate adversary proceedings for civil sanctions on behalf of the public. While the Court agrees with the UST that it is the representative of the public interest in bankruptcy cases, and that the UST may "raise and may appear and be heard on any issue in any case or proceeding under this title" pursuant to 11 U.S.C. § 307, Congress has not granted the UST broad powers to file lawsuits seeking monetary sanctions. See H.R. Rep. No. 95-595, at 88 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6049 (). The UST may be authorized to investigate wrongdoing, conduct discovery relative to an investigation and even conduct the first meeting of creditors under 11 U.S.C. § 341, but the results of any such investigation, discovery or meetings, if actionable, may not be pursued by him in an adversary proceeding against the alleged wrongdoer. Rather, it is the United States Attorney who is charged with bringing legal action to punish any violations of the bankruptcy laws.
In opposition to Countrywide's Motion to Dismiss, the UST relies primarily on two cases in which adversary proceedings instituted by a United States Trustee were addressed. Both cases are distinguishable. In LWD Trucking, Inc. v. LWD, Inc. (In re LWD, Inc.), 342 B.R. 514 (Bankr. W.D. Ky. 2006), the United States Trustee asserted claims against principals of a debtor for, among other things, equitable subordination, "equitable postponement", and unjust enrichment. In rejecting the defendants' motions to dismiss for lack of standing, the bankruptcy court assumed as true the United States Trustee's allegations that the United States government was a creditor:
Plaintiff [the United States Trustee] has alleged that Defendants' actions...
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