In re Wilborn

• Decision Date: 17 February 2009
• Docket Number: Adversary No. 07-3481.,Bankruptcy No. 03-48263-H4-13.
• Citation: 401 B.R. 848
• Parties: In re Judy WILBORN, Debtor. Judy Wilborn, Karlton Flournoy, Monica Flournoy, and Judith Martin, on behalf of themselves and those similarly situated, Plaintiffs v. Wells Fargo Bank, N.A., f/k/a Wells Fargo Home Mortgage, Inc., Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Texas

401 B.R. 848

In re Judy WILBORN, Debtor.

Judy Wilborn, Karlton Flournoy, Monica Flournoy, and Judith Martin, on behalf of themselves and those similarly situated, Plaintiffs v. Wells Fargo Bank, N.A., f/k/a Wells Fargo Home Mortgage, Inc., Defendant.

Bankruptcy No. 03-48263-H4-13.

Adversary No. 07-3481.

United States Bankruptcy Court, S.D. Texas, Houston Division.

February 17, 2009.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Johnie J. Patterson, II, Michael Glen Walker, Miriam Trubek Goott, Walker & Patterson, P.C., Houston, TX, for Plaintiffs.

Elizabeth Carol Freeman, Thomas A. Connop, W. Steven Bryant, Locke Lord Bissell & Liddell LLP, Houston, TX, for Defendant.

MEMORANDUM OPINION ON WELLS FARGO HOME MORTGAGE'S MOTION FOR RECUSAL

[Docket No. 73]

JEFF BOHM, Bankruptcy Judge.

I. INTRODUCTION

Judy Wilborn, the Debtor in this Chapter 13 case, along with Karlton Flournoy, Monica Flournoy, and Judith Martin (collectively, the Plaintiffs) initiated this adversary proceeding complaining that Wells Fargo Home Mortgage, Inc. (Wells Fargo), a division of Wells Fargo Bank, N.A., improperly assessed post-petition fees and charges against them and a class of other similarly situated debtors in violation of 11 U.S.C. § 506(b) and Federal Rule of Bankruptcy Procedure 2016 (Bankruptcy Rule 2016).

On October 30, 2008, Wells Fargo filed Wells Fargo Home Mortgage's Motion for Recusal and Brief in Support (the Motion). [Docket No. 73.] The Motion alleges that the undersigned judge should be recused based on his oral and written statements during two Continuing Legal Education (CLE) presentations—one held in Dallas, Texas and the other held in Baton Rouge, Louisiana at the LSU law school.

A motion to recuse is committed to the discretion of the targeted judge. United States v. Bremers, 195 F.3d 221, 226 (5th Cir.1999). Accordingly, it is proper for this Court to adjudicate the Motion. Additionally, the undersigned judge has broad discretion in determining whether disqualification is appropriate. See, e.g., United States v. Mizell, 88 F.3d 288, 299 (5th Cir. 1996) (citing Matter of Hipp, Inc., 5 F.3d 109, 116 (5th Cir.1993)). For the reasons set forth below, the undersigned judge believes he has an affirmative duty not to recuse himself in this suit and that the Motion should be denied.

II. BRIEF OVERVIEW OF THE RECORD RELATING TO THE MOTION

Wells Fargo asserts that oral and written statements which the undersigned judge made at two CLE presentations reflect a general ill will towards creditors such that disqualification should be required. The evidence that Wells Fargo introduced in support of the Motion was the transcript of the undersigned judge's speech at the Dallas Seminar and the pages from a PowerPoint presentation made at the LSU Seminar. After listening to a video tape of the undersigned judge's presentation at the Dallas Seminar, the Court discovered a number of minor errors and inaccuracies in the transcript attached to the Motion. The Court requested the court reporter who transcribed the speech to make corrections and additions to the transcript, and both parties have stipulated to the accuracy of the revised transcript. The corrected transcript, which is attached to this Memorandum Opinion, is an accurate record of the speech given by the undersigned judge at the Dallas Seminar.¹ However, the undersigned judge disagrees that he gave any speech in conjunction with the pages comprising the PowerPoint presentation made at the LSU Seminar. It was the Honorable Elizabeth Wall Magner, United States Bankruptcy Judge for the Eastern District of Louisiana, who prepared and presented the PowerPoint slides, which are attached to this Memorandum Opinion. The undersigned judge sat next to Judge Magner at the podium when she gave this presentation; Judge Magner and the undersigned judge, as part of the LSU seminar, each gave separate speeches under the rubric of "The Home Mortgage and Chapter 13— The Hot Area." The undersigned judge gave his speech after Judge Magner made her PowerPoint presentation.²

III. FACTUAL BACKGROUND

A. The Dallas Seminar

Wells Fargo takes issue with the undersigned judge's presentation entitled "Rule 2016: Creditor Fee Applications," given at the State Bar of Texas's 24th Annual Advanced Consumer Bankruptcy Course, in Dallas, Texas on September 18, 2008 (the Dallas Seminar).³ The undersigned judge's presentation at the Dallas Seminar addressed four legal arguments commonly advanced by creditors with respect to Bankruptcy Rule 2016 that certain bankruptcy courts have rejected: (1) that Bankruptcy Rule 2016 does not apply to secured lenders; (2) that the right to fees in loan documents may not be modified by the courts through Bankruptcy Rule 2016; (3) that there is no private right of action to enforce Bankruptcy Rule 2016; and (4) that bankruptcy courts lack subject matter jurisdiction when a debtor challenges fees that have been charged post-confirmation. In his Dallas speech, the undersigned judge began by reciting the language of Bankruptcy Rule 2016 and then directed the audience to the following cases: Padilla v. Wells Fargo Home Mortgage, Inc. (In re Padilla), 379 B.R. 643 (Bankr.S.D.Tex. 2007); Sanchez v. Ameriquest Mortgage Co. (In re Sanchez), 372 B.R. 289 (Bankr S.D.Tex.2007); Jones v. Wells Fargo Home Mortgage (In re Jones), 366 B.R. 584 (Bankr.E.D.La.2007); Wells Fargo Bank, N.A. v. Jones, 391 B.R. 577 (E.D.La.2008); and Rodriguez v. Countrywide Home Loans, Inc. (In re Rodriguez), 396 B.R. 436 (Bankr.S.D.Tex.2008). The undersigned judge then addressed each argument in turn, pointing out the weaknesses in each, and explaining why this Court and other bankruptcy judges in the Fifth Circuit have rejected these legal arguments in the above-cited opinions.

With respect to the first legal argument—that Bankruptcy Rule 2016 does not apply to secured lenders—the undersigned judge made the following statements:

Now, let's deal with this argument that 2016 only applies to 503(b)(3) and (b)(4) creditors. It doesn't apply to creditors who are seeking fees and expenses solely to protect themselves. Well, let's do a textualist argument. Let's go to the rule.

The rule says, An entity seeking compensation for services or reimbursement of expenses from the estate shall file an application setting forth a detailed statement of the services rendered, time expended, expenses incurred. The phrase "from the estate" means what it says, says what it means. Chapter 13, The debtor's earnings are property of the estate. And if the creditor is getting paid from those earnings, which it assuredly is because those earnings are going to the trustee who's turning around and paying the creditor, or in some perverse, jurisdictions, those earnings are going directly to the creditor because they're not paying the trustee, which I think is dead wrong, but it happens in many jurisdictions.

That's property of the estate. QED as my Latin teacher would say, "quod est demonstrandum."⁴ From the estate, earnings from the estate, Rule 2016 applies. Not a bad argument. It certainly convinces me, and I stand to be corrected by the Fifth Circuit. I have no doubt that at some point the Fifth Circuit is going to deal with this issue, so maybe they'll tell me I'm wrong, but I—I think 2016 does apply to secured creditors, not just to 503(b)(3) and (b)(4) Claimants because of that language.

With respect to the second legal argument—that the right to fees in loan documents may not be modified by the courts through Bankruptcy Rule 2016—the undersigned judge made the following statements:

Let's go to the second argument, 1322(b)(2). The loan documents say we get the fees and expenses. You can't change the deal. Well, 1322(b)(2) doesn't immunize lenders from a review of fees and expenses just because the loan documents say they get their fees and expenses. Why? Well, both federal law and state law say that a lender gets its reasonable fees and expenses. The impliedly—the argument from the lenders is: We can charge unreasonable fees and expenses. No one gets to look at— the loan documents say we get it. Go away, court. Go away, debtor. Go away, other creditors.

Well, state law doesn't allow it. No lender I know can go into state court and say we get unreasonable fees and expenses. Why should you be able to do so in federal bankruptcy court or federal district court or the Fifth Circuit? And there's a good reason. You want to be able to award reasonable fees and expenses, but not unreasonable fees and expenses.

Why? You're not only looking out for the debtor. You're looking out for other creditors. For every dollar—unreasonable dollar that goes into the pocket of a secured creditor is a dollar that could reasonably go to pay unsecured claims or maybe debtor's attorney's fees for getting a plan confirmed so that that lender gets paid its principal, interest, and reasonable attorney's fees and expenses. That's why they should be subject to scrutiny.

With respect to the third legal argument—that there is no private right of action to enforce Bankruptcy Rule 2016—the undersigned judge made the following statements:

Argument No. 3, There's no private right of action. Well, it seems to me that that's where Marrama—and that's what I know Debbie Langehennig and Berry Spears were talking about this morning—steps in.⁵ It's where 105 comes in. It's certainly reviewed in the case law that was cited. And if creditors, or debtors, are going to violate the statute and violate the rules and not comply with them, then assuredly the bankruptcy courts under 105 and under the Supreme Court's direction in Marra—Marrama, which is: Hey, if you see bad conduct going on, do something about it. Exercise your 105 powers. Exercise your inherent powers and put a stop to it.

So to say that there's no private right of action, it seems to me, is a—you know, I—I will paraphrase Abe Lincoln since I'm reading a book on him. Lawyer Lincoln once...