In re Smith
| Decision Date | 22 February 2013 |
| Docket Number | case # 12-10142 |
| Court | U.S. Bankruptcy Court — District of Vermont |
| Parties | David Walter Smith and Rose Marie Smith, Debtors. |
Appearances: Joan Adler, Esq.
Brattleboro, VT
For the Debtors
Jan M. Sensenich, Esq.
Norwich, VT
Chapter 13 Trustee
Jeffrey P. White, Esq.
Rutland, VT
Local Counsel for the Creditor
After confirmation of the Debtors' chapter 13 plan of reorganization, SN Servicing Corporation, the servicer for the secured creditor holding a secured claim on the Debtors' residence, filed a proof of claim asserting a debt due that was over two times larger than the amount the Debtors had allocated to this debt in their plan, and that included over $40,000 for a "forbearance amount." The Debtors, joined by the Chapter 13 trustee, filed an objection to SN Servicing Corporation's proof of claim, focused on whether the creditor was entitled to collect the forbearance amount portion of the claim and also contesting the attorneys fees listed on the proof of claim. For the reasons set forth below, the Court finds the creditor has met its burden of proof, overrules the objection to claim, and allows the SN Servicing a secured claim in the amount of $83,523.39, including the $42,665.79 forbearance amount and $1,000.00 for attorneys fees.
On April 3, 2012, the Court held a confirmation hearing on the Debtors chapter 13 plan and the plan was confirmed. On May 4, 2012, SN Servicing Corporation for SNMLT 2002-2 ("SN Servicing") filed a proof of claim (claim # 16-1).1 On May 14, 2012, Jan M. Sensenich, the Chapter 13 trustee (the "Trustee"), and Joan Adler, attorney for Mr. and Mrs. Smith (the "Debtors"), filed an objection to SN Servicing's proof of claim (doc. # 17) (the "Objection"). SN Servicing filed a response to the Objection(doc. # 22), and subsequently filed an amended proof of claim (claim # 16-2). Following entry of a scheduling order (doc. # 25), the Debtors and Trustee filed a supplement to the Objection (doc. # 33). Thereafter, the Court held a hearing on the matter and entered a second scheduling order (doc. # 35). Pursuant to that order, SN Servicing filed two affidavits and other documents in further support of its proof of claim (doc. ## 36, 38), the Debtors and Trustee filed a memorandum of law in response to SN Servicing's filings (doc. # 39), and SN Servicing filed a reply memorandum of law (doc. # 40). The matter is fully submitted.
This Court has jurisdiction over the Objection pursuant to 28 U.S.C. §§ 157 and 1334 and declares it to be a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B). Since this is an objection to claim proceeding, this Court has constitutional authority to enter a final order on the merits, Stern v. Marshall, 131 S. Ct. 2594, 2616-2617, 180 L. Ed. 2d. 475 (2011), as more fully explained below.
This contested matter presents three questions: First, under Stern and subsequent jurisprudence construing the post-Stern jurisdiction of bankruptcy courts, does this Court have constitutional authority to enter a final judgment determining whether and to what extent SN Servicing's claim is properly allowed? Second, under United Student Aid Funds, Inc. v. Espinosa, 130 S. Ct. 1367 (2010), is SN Servicing precluded from seeking allowance of a claim in excess of the amount provided for in the plan, based upon its failure to object to the plan? Third, if Stern and Espinosa do not prevent this Court from adjudicating the Objection, has SN Servicing met its burden of proof and established that the Debtor must pay the full amount of that claim, including attorneys' fees and the forbearance amount?
on the Allowance and Amount of this Claim
In supplemental briefing on the Objection, SN Servicing cited Stern and argued that "the ability of the bankruptcy court to resolve state law disputes in connection with the claims allowance process [is] limited." (doc. # 40, pg. 6). Since Stern, the question of bankruptcy courts' jurisdiction to resolve certain claims has been unsettled, especially when those claims raise issues of state law. Vermont's District Court recently issued a decision construing the scope of Stern. See GMAC Mortg. LLC v. Orcutt, No. 5:12-cv-96, 2012 WL 6552914, 2012 U.S. Dist. LEXIS 177903 (D. Vt. December 13, 2012). This opinion provides a road map for identifying the boundaries of this Court's authority to enter a final judgment on the issues raised in this contested matter.
In Orcutt, the District Court scrutinized the statutory and constitutional basis supporting this Court's determination that it had jurisdiction to rule upon the debtors' complaint seeking a declaratoryjudgment as to the validity of the subject mortgage. Orcutt, 2012 WL 6552914, at *3, 2012 U.S. Dist. LEXIS 177903, at *8-10. The District Court focused on this Court's finding that the debtors were not requesting relief under 11 U.S.C. §§ 522 or 544,2 but were instead seeking a determination regarding the extent and validity of a lien under 28 U.S.C. § 157(b)(2)(K). It observed that, under Stern, there are some instances when "§ 157(b) statutorily permits a bankruptcy court to enter final judgment, but Article III of the Constitution does not." Id., at *7, 2012 U.S. Dist. LEXIS 177903, at *20-21 (citing Stern, at 2608). Turning to the facts and procedural posture of Orcutt, the District Court stated that because the bankruptcy court "appears to have adjudicated the adversary proceeding entirely under state law [27 V.S.A. § 141] and entered a final declaratory judgment solely on that basis," the bankruptcy court did not demonstrate constitutional authority to enter a final judgment. Id., at *8, *11, 2012 U.S. Dist. LEXIS 177903, at *23, *29-30. As a result, the District Court vacated and remanded this court's declaratory judgment and directed this court to "clarify the statutory and constitutional basis under which it is proceeding and adjudicate the issues raised by the parties consistent with that statutory and constitutional authority." Id. at *12, 2012 U.S. Dist. LEXIS 177903, at *35-36.
In dicta in Orcutt, the District Court addressed two circuit court opinions, DiVittorio v. HSBC Bank USA, N.A., 670 F.3d 273 (1st Cir. 2012), Waldman v. Stone, 698 F.3d 910 (6th Cir. 2012), as well as Stern, in a discussion regarding the scope of bankruptcy court jurisdiction. Id. at *9-12, 2012 U.S. Dist. LEXIS 177903, at *24-36. That discussion provides relevant guidance to this court in addressing SN Servicing's Stern argument. SN Servicing argues that prior to this court's potential disallowance of its proof of claim by issuance of a ruling on the Objection, (doc. # 40, p. 6). SN Servicing's position is unpersuasive and inconsistent with the holdings of Stern, Orcutt, and other relevant case law.
Both Stern and Orcutt articulate unequivocally that Stern does not to deprive bankruptcy courts of all subject matter jurisdiction. In Orcutt, where the debtors requested a declaratory judgment under Vermont state law regarding the validity of a mortgage, the District Court remanded the proceeding to this court because, as written, that decision neither relied on substantive rights created by federal bankruptcy law, nor described the legal issue as one that, "'by [its] nature, could only arise in the context of a bankruptcy case.'" Id. at *7, 2012 U.S. Dist. LEXIS 177903, at *20 (quoting MBNA Am. Bank, N.A. v. Hill, 436 F.3d 104, 108-09 (2d Cir. 2006)). By contrast, the instant matter is a pure, garden variety objection to a bankruptcy claim, seeking a determination under §§ 502 and 506, and Fed. R. Bankr. P.3002 and 3007. This puts it squarely within the scope of a bankruptcy court's constitutional authority. As the District Court stated:
Under Stern and Waldman as applied to this case, the Bankruptcy Court lacked the constitutional authority to issue a declaratory judgment under Vermont law in order to adjudicate a purely state law claim involving private rights. It, however, possessed the constitutional authority to determine the validity of the [creditor's mortgage] as part of the claims allowance process, or as an integral part of another proceeding under the Bankruptcy Code. In re Sundale, Ltd., 2012 WL 5974125, at *4 (11th Cir. Nov. 29, 2012) (); DiVittorio, 670 F.3d at 282 n. 4; In re Pulaski, 475 B.R. 681 (W.D. Wis. 2012) ().
Orcutt, at *11, 2012 U.S. Dist. LEXIS 177903, at *29-30 (emphasis added) (internal footnote omitted); see also Waldman, 698 F.3d at 920-21. As another bankruptcy court observed following the Stern decision:
An objection to claim is clearly a "core" proceeding within the meaning of 28 U.S.C. § 157(b)(2)(B), and the Supreme Court's recent decision in Stern v. Marshall, --- U.S. ---, 131 S. Ct. 2594, 180 L. Ed. 2d 475 (2011), does not undermine this court's authority to enter a final order. Indeed by citing Katchen v. Landy, 382 U.S. 323, 86 S. Ct. 467, 15 L. Ed. 2d 391 (1966) and Langenkamp v. Culp, 498 U.S. 42, 44, 111 S. Ct. 330, 112 L....
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