In re Wilborn

• Decision Date: 18 February 2009
• Docket Number: Bankruptcy No. 03-48263-H4-13.,Adversary No. 07-3481.
• Citation: 401 B.R. 872
• 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. 872

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 18, 2009.

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

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

MEMORANDUM OPINION ON WELLS FARGO HOME MORTGAGE'S MOTION TO DISMISS ADVERSARY PROCEEDING FOR LACK OF SUBJECT MATTER JURISDICTION

[Docket No. 23]¹

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 or the Debtors) 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. The Plaintiffs seek the following relief: (1) a declaratory judgment that Wells Fargo's actions violate 11 U.S.C. § 506(b) and Federal Rule of Bankruptcy Procedure 2016 (Bankruptcy Rule 2016); (2) an order permanently enjoining Wells Fargo from assessing such fees in the future; and (3) disgorgement of any such fees that Wells Fargo has already collected. Wells Fargo argues that this Court lacks subject matter jurisdiction to adjudicate the Plaintiffs' claims and has moved to dismiss this adversary proceeding pursuant to Federal Rule of Civil Procedure 12(b)(1), as made applicable through Federal Rule of Bankruptcy Procedure 7012(b)(1). For the reasons set forth below, the Court concludes that it does indeed have subject matter jurisdiction to adjudicate this dispute and that Wells Fargo's motion to dismiss should be denied.

II. FINDINGS OF FACT

1. On November 16, 2007, the Plaintiffs, on behalf of themselves and others similarly situated, filed a class action lawsuit against Wells Fargo, initiating this adversary proceeding.

2. In the Plaintiffs' Complaint—Class Action (the Complaint), the Plaintiffs allege that Wells Fargo charged and collected, or attempted to collect, attorneys' fees and costs in the course of Plaintiffs' respective Chapter 13 bankruptcy cases without court approval and therefore disregarded the requirements of 11 U.S.C. § 506(b) and Bankruptcy Rule 2016.² [Docket No. 1, ¶ 2.]

3. Plaintiffs seek to represent a similarly situated class defined as:

All individuals who filed for bankruptcy under chapter 13 in the Southern District Of Texas and owed Wells Fargo, as servicer or holder, on a mortgage debt secured by real property, and upon whom Wells Fargo charged or assessed professional fees and costs during the pendency of the bankruptcy proceeding which were never disclosed to the bankruptcy court, the debtor or other parties-in-interest nor approved by the court by written order entered in the particular bankruptcy case.

4. In the Complaint, Plaintiffs seek the following relief:

a. A declaration that undisclosed fees and costs are per se unreasonable, awarding Plaintiffs and class members equitable disgorgement of any unreasonable fees and costs actually collected;

b. Awarding Plaintiffs and class members a permanent injunction which enjoins Wells Fargo from charging and/or assessing individual mortgage accounts for professional fees and/or costs which are incurred or which accrue during the time a bankruptcy case is pending without first seeking approval from the Bankruptcy Court;

c. Awarding Plaintiffs and class members pre-judgment and post-judgment interest, as well as reasonable attorneys' fees, expert witness fees, disbursement and accounting fees, class costs and other costs of litigation;

d. Sanctions for Wells Fargo's intentional disregard of the Bankruptcy Code and Rules and for its pattern and practice of violating the Bankruptcy Code and Rules for self-gain; and

e. Such other relief, at law or in equity, to which the Plaintiffs and class members may show themselves justly entitled.

5. On April 15, 2008, Wells Fargo filed Wells Fargo Home Mortgage's Motion to Dismiss Adversary Proceeding for Lack of Subject Matter Jurisdiction (the Motion), [Docket No. 23], and a brief in support thereof. [Docket No. 24.]

6. On May 7, 2008, the Plaintiffs filed a response opposing the Motion. [Docket No. 27.]

7. On May 38, 2008, Wells Fargo filed a reply to the Plaintiffs' response to the Motion. [Docket No. 37.]

III. CONCLUSIONS OF LAW

A. Standard for Ruling on a Motion to Dismiss Under Fed.R.Civ.P. 12(b)(1)

When considering a motion to dismiss for lack of subject matter jurisdiction under Fed.R.Civ.P. 12(b)(1), the Court may consider "(1) the complaint alone, (2) the complaint supplemented by undisputed facts evidenced in the record, or (3) the complaint supplemented by undisputed facts plus the court's resolution of disputed facts." Den Norske Stats Oljeselskap As v. HeereMac Vof, 241 F.3d 420, 424 (5th Cir.2001) (citing Barrera-Montenegro v. United States, 74 F.3d 657, 659 (5th Cir. 1996)). The party asserting jurisdiction bears the burden of proof. Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001). Additionally, when deciding whether to grant a 12(b)(1) motion, the Court "must accept all factual allegations in the plaintiffs complaint as true." Id. (citing Williamson v. Tucker, 645 F.2d 404, 412 (5th Cir.1981)).

B. Subject Matter Jurisdiction Under 28 U.S.C. § 1334(b)

Wells Fargo asserts that this adversary proceeding should be dismissed because this Court lacks subject matter jurisdiction over the Plaintiffs' claims and the claims of the purported class members. Specifically, Wells Fargo argues that this Court lacks subject matter jurisdiction for any one of the following reasons: (1) the Plaintiffs' claims and those of the purported class members have no effect on their respective bankruptcy estates because the claims concern homestead property that is exempt; (2) the claims of the purported class members do not impact the named Plaintiffs' individual bankruptcy estates; (3) the Plaintiffs' claims are not the proper subject of an adversary proceeding because 11 U.S.C. § 506(b) and Bankruptcy Rule 2016 do not provide a private right of action; (4) 11 U.S.C. § 506(b) and Bankruptcy Rule 2016 do not apply with respect to the Plaintiffs and purported class members whose plans have been confirmed; and (5) the Complaint is essentially a claim for breach of contract which may not be adjudicated by a bankruptcy court.

28 U.S.C. § 1334 grants the federal district courts jurisdiction over bankruptcy matters. The district courts, pursuant to 28 U.S.C. § 157(a), "may provide that any or all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11 shall be referred to the bankruptcy judges for that district." Pursuant to this authority, the United States District Court for the Southern District of Texas has issued a general order of reference, automatically referring bankruptcy cases to the bankruptcy judges for this District. In re Referrals to Bankruptcy Judges, General Order 2005-6 (S.D.Tex. Mar. 10, 2005). Therefore, this Court's jurisdiction over this adversary proceeding is confined to the scope of the District Court's jurisdiction over bankruptcy cases under § 1334.

28 U.S.C. § 1334(b) vests the district courts with subject matter jurisdiction over all "civil proceedings arising under title 11, or arising in or related to cases under title 11." Because Congress employed conjunctive language in this statute, the Fifth Circuit has determined that § 1334(b) provides the district courts (and, by extension, the bankruptcy courts) with three distinct categories of jurisdiction over proceedings: (1) "arising under" the Bankruptcy Code, (2) "arising in" bankruptcy cases, or (3) "related to" bankruptcy cases. Wood v. Wood (In re Wood), 825 F.2d 90, 93 (5th Cir.1987). The Fifth Circuit has also articulated the differences between each of § 1334(b)'s three jurisdictional categories: Proceedings "arise under" the Bankruptcy Code where they "invoke a substantive right provided by title 11." Id. at 97. Proceedings "arise in" bankruptcy cases where they "could only arise in the context of a bankruptcy case." Id. And proceedings are "related to" bankruptcy cases where "the outcome of [the] proceeding could conceivably have any effect on the estate being administered in bankruptcy." Id. at 93 (emphasis in original).

Because § 1334(b) contains disjunctive language, and because the third category of jurisdiction is the broadest, the Fifth Circuit has determined that a matter need only be "related to" a bankruptcy case for a bankruptcy court to have jurisdiction pursuant to § 1334(b). Bass v. Denney (In re Bass), 171 F.3d 1016, 1022 (5th Cir.1999) (citing Walker v. Cadle Co. (In re Walker), 51 F.3d 562, 569 (5th Cir. 1995)). However, although "related to" jurisdiction is considered the broadest category of a bankruptcy court's jurisdiction, it is not the only category. A bankruptcy court also has jurisdiction over matters that "arise under" or "arise in cases under" title 11. These last two categories of bankruptcy court jurisdiction are referred to as the court's "core jurisdiction" because they encompass matters that constitute "core proceedings" under 28 U.S.C. § 157(b).³ Southmark Corp. v. Coopers &amp Lybrand (In re Southmark Corp.), 163 F.3d 925, 930 (5th Cir.1999).

Here, the Plaintiffs seek a declaratory judgment that Wells Fargo's alleged practice of assessing and charging post-petition fees in...