In re William, Bankruptcy No. 07-14899 SR (Bankr. E.D. Pa. 4/16/2009), Bankruptcy No. 07-14899 SR.
| Decision Date | 16 April 2009 |
| Docket Number | Bankruptcy No. 07-14899 SR.,Adv. No. 09-00011 SR. |
| Parties | IN RE: WILLIAM J. and DENISE M. STOUT, Chapter 7, DEBTORS. DENISE M. STOUT, PLAINTIFF, v. AURORA LOAN SERVICES AND LEHMAN BROTHERS BANK, DEFENDANTS. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
STEPHEN GREG DOHERTY, Bennett and Doherty, P.C. Doylestown, PA, Counsel for Plaintiff/Debtor.
Peter J. Mulcahy, Esquire, Phelan Hallinan & Schmieg, Philadelphia PA, George Conway, Esquire, Office of the United States Trustee Philadelphia PA, Counsel for Defendant.
The debtors, William J. and Denise M. Stout (collectively referred to as the "Debtors"), received a Chapter 7 discharge in December of 2007. In late January of 2008, their bankruptcy case was closed. Less than six months later, Denise M. Stout ("Plaintiff") commenced an action against defendants, Aurora Loan Services ("Aurora"), and Lehman Brothers Bank (Aurora and Lehman Brothers Bank are collectively referred to as "Defendants"), in the district court for violating the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq. The district court concluded that Plaintiff's action should proceed in the bankruptcy court and, consequently, granted the Plaintiff leave to file a motion to reopen the Debtors' bankruptcy case so her action could proceed therein. After Debtor's bankruptcy case was re-opened, Plaintiff commenced this adversary proceeding. In her complaint ("Complaint"), Plaintiff asserts that the Defendants violated TILA and that she is entitled to rescind her mortgage loan and recover an award of damages, fees and costs.
Aurora moves to dismiss the Complaint contending that Plaintiff's action is barred as a matter of law. It contends that Plaintiff is barred by the doctrine of judicial estoppel from pursuing her action because Debtors failed to disclose Plaintiff's TILA claim in their Chapter 7 bankruptcy case.
A hearing on Aurora's motion was held. At the hearing, the parties presented oral argument but no evidence was introduced. At the close of the hearing, the Court took the matter under advisement. Upon consideration, Aurora's motion shall be denied without prejudice.
On August 8, 2007, Debtors filed a Voluntary Petition under Chapter 7 of the Bankruptcy Code. On their "Chapter 7 Individual Debtor's Statement of Intent," Debtors indicated that they intended to retain their home and continue making their regular mortgage payments to Aurora. See Docket Entry No. 1, Chapter 7 Individual Debtor's Statement of Intention. On Schedule B, Debtors stated that they had no "contingent and unliquidated claims of [any] nature, including tax refunds, counterclaims of the debtor, and rights to setoff claims." Docket Entry No. 1, Schedule B. Following the meeting of creditors on October 17, 2007, the Chapter 7 Trustee filed a report of no distribution, stating that "there are no assets to administer for the benefit of creditors of this estate." Docket Entry dated 10/17/2007.
On November 8, 2007, Aurora filed a motion for relief from the stay ("Motion for Relief") which was granted on November 28, 2007. See Docket Entry Nos. 14 & 19. In the Motion for Relief, Aurora alleged that Debtors were "in default of [their] mortgage from August 1, 2007[.]" See Motion of Aurora Loan Services, LLC., as Servicer for the Mortgagee of Record for Relief from Automatic Stay Under §362 Pursuant to Bankruptcy Procedure Rule 4001 at ¶ 6. Based on this allegation, Debtors were either current on their mortgage or only one month in arrears (meaning they had missed their August payment) when they commenced their bankruptcy case.
On December 18, 2007, the Debtors were granted a discharge under 11 U.S.C. §727. Their bankruptcy case was closed on January 31, 2008.
On February 29, 2008, Defendants filed an action for mortgage foreclosure in the state court. See Amended Motion to Dismiss Complaint Seeking Damages in Core Adversary Proceeding ("Amended Motion") ¶14; Plaintiff/Debtor's Response to Amended Motion to Dismiss Filed by Defendant Aurora Loan Services, LLC ("Plaintiff's Response") ¶14.
On July 3, 2008, Plaintiff commenced her action for rescission in the United States District Court in the Eastern District of Pennsylvania. See Amended Motion ¶15; Plaintiff's Response ¶15. See also Stout v. Aurora Loan Service and Lehman Brothers Bank, Civil Action No. 2:08-cv-3194. Thereafter, Defendants filed a motion to dismiss. However, rather than ruling on the motion, the District Court concluded that "Plaintiff's claims ... would be best resolved in the context of Plaintiff's recent bankruptcy action in order to ensure fairness to all of Plaintiff's creditors" and directed Plaintiff to file a motion to reopen Debtors' bankruptcy case. See District Court Docket, Civil Case No. 2:08-cv-3194, Entry No. 8 (District Court Order, dated Nov. 13, 2008).
Plaintiff complied with the District Court's Order and filed a motion to re-open the bankruptcy case. Following a hearing on the motion on January 8, 2009,1 this Court granted Plaintiff's request. Plaintiff subsequently filed this adversary proceeding seeking rescission of her mortgage loan and recovery of damages (both statutory and actual) under TILA.2 In her Complaint, Plaintiff alleges that: (i) the finance charge that was disclosed at the closing on her mortgage loan was $5,476.98 whereas it should have been $5,756.11; and (ii) based on 15 U.S.C. §1635(i), the difference between these two amounts, namely $279.13, is above the tolerance level which applies after a foreclosure proceeding has been instituted.
Aurora contends that Plaintiff's Complaint should be dismissed as a matter of law based on the doctrine of judicial estoppel because Debtors willfully and consciously failed to disclose Plaintiff's contemplated TILA claim in their bankruptcy schedules and to the Chapter 7 Trustee at the meeting of creditors. See Amended Motion ¶¶ 18, 20-21. Plaintiff opposes the motion to dismiss, arguing that when Debtors filed their bankruptcy case, she could not have known of her TILA claim because it did not yet exist. See Plaintiff's Response ¶18. Plaintiff points out that she filed her TILA action under 15 U.S.C. §1635(i) and that, based on the plain language of that provision, her action did not arise until after Defendants filed their foreclosure complaint in state court. See id. ¶¶18, 20-23.
When deciding a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), the court may consider the allegations contained in the pleading, exhibits attached thereto and matters of public record. Pension Benefit Guaranty Corporation v. White Consolidated Industries, Inc., 998 F.2d 1192, 1196 (3d Cir. 1993). The court must accept the factual allegations in the pleading as true, Erickson v. Pardus, 551 U.S. 89, ___, 127 S. Ct. 2197, 2200 (2007), and view all reasonable factual inferences in the light most favorable to the non-moving party, Angelastro v. Purdential-Bache Securities, Inc., 764 F.2d 939, 944 (3d Cir. 1985). "Federal Rule of Civil Procedure 8(a)(2) requires only `a short and plain statement of the claim showing that the pleader is entitled to relief.' " Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1964, 167 L.Ed.2d 929 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). Nevertheless, "dismissal is warranted if the allegations" of a pleading "are not `enough to raise a right to relief above the speculative level ... on the assumption that all [of] the allegations in the [pleadings] are true (even if doubtful in fact).'" Access Insurance Holdings, Inc. v. Lincoln General Insurance Company, 2008 WL 859222, at *1 (E.D. Pa. March 28, 2008) (quoting Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1965 (2007) (citations omitted)).
The doctrine of judicial estoppel is used to prevent parties from "asserting inconsistent claims in different legal proceedings." Mintze v. American General Financial Services, Inc., 434 F.3d 222, 232 (3d Cir. 2006). The decision of whether to apply the doctrine is within a court's discretion. Id. The doctrine is not "intended to eliminate any slight or inadvertent inconsistency in a litigant's position; instead[,] it is to be reserved for only the most egregious cases to prevent a party from deliberately `playing fast and loose with the courts.'" Ortlieb v. Hudson Bank, 312 F. Supp.2d 705, 710 (E.D. Pa. 2004) (quoting Krystal Cadillac-Oldsmobile GMC Truck, Inc. v. Gen. Motors Corp., 337 F.3d 314, 319 (3d Cir. 2003) (quoting Scarano v. Cent. R.R. Co. of New Jersey, 203 F.2d 510, 513 (3d Cir. 1953))). See also Ryan Operations G.P. v. Santiam-Midwest Lumber Co., 81 F.3d 355, 362 (3d Cir. 1996) (quoting Scarano v. Cent. R.R. of New Jersey, 203 F.2d at 513) (Asserting inconsistent positions does not trigger the application of judicial estoppel unless "intentional self-contradiction is ... used as a means of obtaining unfair advantage."). Courts have utilized the doctrine to bar claims brought by litigants who, in bad faith, failed to disclose those claims during their prior bankruptcy cases. See Ortlieb, 312 F. Supp.2d at 710. In determining whether to apply judicial estoppel, courts consider the following factors: "(1) whether the party to be estopped has taken two positions that are `irreconcilably inconsistent'; (2) whether the change of position was in `bad faith' or was coupled with the intent of playing `fast and loose' with the court; and (3) whether application of the doctrine is `tailored to address the harm identified' and `no lesser sanction would adequately remedy the damage done by the litigant's misconduct.'" Id. at 711.
Plaintiff asserts that she did not disclose her TILA claim during the Debtors' bankruptcy case because it did not exist at that time. In...
To continue reading
Request your trial