In Re William D. Shirk, Bankruptcy No. 09-35487.

• Decision Date: 30 September 2010
• Docket Number: Bankruptcy No. 09-35487.,Adversary No. 09-3346.
• Citation: 437 B.R. 592
• Parties: In re William D. SHIRK, Vicki L. Shirk, Debtors. William D. Shirk, Vicki L. Shirk, Plaintiffs v. JPMorgan Chase Bank, N.A., Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

437 B.R. 592

In re William D. SHIRK, Vicki L. Shirk, Debtors.William D. Shirk, Vicki L. Shirk, Plaintiffs

v.JPMorgan Chase Bank, N.A., Defendant.

Bankruptcy No. 09-35487.

Adversary No. 09-3346.

United States Bankruptcy Court,S.D. Ohio,Western Division,

Sept. 30, 2010.

COPYRIGHT MATERIAL OMITTED.

Gene E. Schaefer, Combs & Schaefer Law Firm, Middletown, OH, for Plaintiffs.

Justin W. Ristau, Bricker & Eckler LLP, Rachel Ary Mulchaey, Columbus, OH, for Defendant.

Jamie Dimon, New York, NY, pro se.

CT Corporation System, Plantation, FL, pro se.

Decision Granting JP Morgan Chase Bank, N.A.'s Motion to Dismiss

GUY R. HUMPHREY, Bankruptcy Judge.

I. Introduction

This matter is before the court on the Motion of JP Morgan Chase Bank, N.A. as Acquirer of Certain Assets And Liabilities of Washington Mutual Bank From The Federal Deposit Insurance Corporation Acting as Receiver to Dismiss Amended Complaint (the “Motion”) (Adv. Doc. 32) filed in this adversary proceeding initiated by the Debtors, William D. Shirk and Vicki L. Shirk. Based upon WAMU's and its agent's alleged wrongdoing, Mr. and Mrs. Shirk seek alternative relief-either rescission of a mortgage on their personal residence they granted to Washington Mutual Bank (“WAMU”), JP Morgan Chase Bank's (“Chase”) predecessor in interest, or a modification of that mortgage. Mr. and Mrs. Shirk also seek redress for certain alleged violations by Chase of asserted obligations under the Troubled Asset Relief Program of the United States (“TARP”) and the National Housing Act (“NHA”) and ask the court to find WAMU's alleged agent “guilty of common law fraud and misrepresentation of income.”

For the reasons set forth below, the court grants the Motion as to all claims set forth in the Amended Complaint (Doc. 26) (the “Complaint”).

II. Statement of Facts, Procedural Background, and Positions of the PartiesA. Statement of Facts

The facts set forth in this decision are based upon the Complaint and, for purposes of this decision, are accepted as true. See Jones v. City of Cincinnati, 521 F.3d 555, 559 (6th Cir.2008).

On September 7, 2007 William D. Shirk and Vicki L. Shirk (the “Shirks”), induced by the promise of a lower interest rate from Scott Simpson, a mortgage broker employed by Eagle Mortgage, obtained a loan from WAMU in the original principal amount of $201,175 secured by a mortgage (the “Mortgage”) on their residence located at 8742 Compton Road, Waynesville, Ohio (the “Property” and the “Transaction”). This loan paid and replaced an existing mortgage loan on their residence and thus was a “refinancing” transaction. The WAMU loan also included an additional $25,854 to be used to build an outbuilding on the Property. Complaint, ¶ ¶ 1 & 4.

The Shirks were provided by Eagle Mortgage, an agent of WAMU, with a blank loan application and “everything was done by phone and debtors were informed by Scott Simpson that he had secured a loan commitment.” Complaint, ¶ 5. The loan application overstated the Shirks' income. Id. The Shirks were not apprised of certain costs and fees and until the closing of the Transaction, “did not receive two copies of the notice to rescind,” and did not obtain a lower interest rate, which was to be arranged with WAMU “at a later date.” Complaint, ¶ ¶ 9, 10 & 11.

On September 25, 2008 the United States Office of Thrift Supervision closed WAMU and appointed the Federal Insurance Deposit Corporation (“FDIC”) as receiver for WAMU. ¹ On that same day, the FDIC and Chase executed a Purchase and Assumption Agreement pursuant to which Chase acquired certain assets and assumed certain liabilities of WAMU, including the Shirks' loan. See Motion to Dismiss, Exhibits A & B.

B. Procedural Background

On September 1, 2009 the Shirks filed a voluntary petition for relief under Chapter 13 of Title 11 of the United States Code ² and listed WAMU on Schedule D (Creditors Holding Secured Claims) as the holder of the Mortgage on the Property. Also on September 1, 2009 the Shirks filed their Chapter 13 plan in which they proposed to cramdown Chase's secured claim on the Mortgage to the appraised value of the Property and lower the interest rate from 8.9% to 5%. (Doc. 2, pp. 8 & 9). On October 6, 2009 the Shirks filed an amended plan, the provisions of which did not affect Chase's rights relating to the WAMU loan (Doc. 22) (the plan (Doc. 2), as amended (Doc. 22), will be referred to as the “Plan”).

On October 5, 2009 Chase filed a proof of claim evidencing a secured claim in the amount of $249,299.67 (Claim No. 5) and on October 14, 2009 filed an Objection to Confirmation of Plan ( Docket Number 22 & 2 )(Doc. 23) arguing essentially that § 1322(b)(2) and legal precedent prohibited the Shirks from modifying Chase's rights as a mortgagee holding a claim secured only by a security interest in a debtor's primary residence. The Shirks filed a response to Chase's confirmation objection on November 4, 2009 indicating that they intended to file an adversary proceeding to determine the validity of the Mortgage (Doc. 28).

The Shirks filed their initial complaint initiating this adversary proceeding on November 5, 2009 (Doc. 29; Adv. Doc. 1) and filed the Complaint on April 5, 2010 (Adv. Doc. 26). The Complaint asserts the following claims against Chase: violation of due process (Complaint, ¶ 7), declaratory judgment that § 1322(b) does not apply to the Mortgage (Complaint, ¶ 8), misrepresentation (Complaint, ¶ ¶ 9 & 10), violations of the Truth in Lending Act (“TILA”) (Complaint, ¶ ¶ 11-17), violation of TARP (Complaint, ¶ 18), negligence (Complaint, ¶ ¶ 19 & 20), and violation of the National Housing Act (“NHA”) (Complaint, ¶ 21). The due process, TARP, and NHA claims are based upon Chase's direct alleged conduct or omissions and the remaining claims are based upon Chase's liability as a successor in interest to WAMU on account of WAMU's or its agents' conduct or omissions at the time of the Transaction or leading up to the Transaction.

On November 25, 2009 the court entered an agreed order approved by the Shirks, Chase, and the Chapter 13 Trustee agreeing to conditionally confirm the Plan pending the resolution of this adversary proceeding (Doc. 34). The Plan was confirmed on January 5, 2010 (Doc. 49).

This adversary proceeding pursued a rather tumultuous path peppered with various motions followed by responses on each side, which culminated in Chase's filing of its motion to dismiss the Complaint (the “Motion to Dismiss”) (Adv. Doc. 32), the Shirks' response to the Motion to Dismiss (the “Response”) (Adv. Doc. 33), and Chase's reply to the Shirks' Response (the “Reply”) (Adv. Doc. 34). ³

C. Positions of the Parties

In its Motion to Dismiss and Reply, Chase moves to dismiss the Complaint based on Federal Rules of Civil Procedure 12(b)(1) and (6) made applicable through Bankruptcy Rule 7012(b). ⁴ Chase argues that because it purchased WAMU's assets from the FDIC, the resolution of the Shirks' claims against it as successor to WAMU are governed by the administrative claims resolution process set forth in the Financial Institutions Reform Recovery and Enforcement Act of 1989, Pub. L. No. 101-73, 103 Stat. 183 (“FIRREA”) and this court lacks jurisdiction to determine such claims. Chase argues that the direct claims against it should be dismissed because they each fail to state a claim for which relief can be granted by this court.

In their response, the Shirks candidly declare that “[i]t's true that much of what [Chase] state[s] is the law. However we feel that the Constitution allows this Court more flexibility.” Response, p. 1. The Shirks then make several arguments which the court can best describe as “public policy” arguments to justify the relief which they are seeking, some of which seems inconsistent with certain of their allegations in the Complaint. In particular, while the Shirks acknowledge receipt of the notice required under FIRREA, as will be more fully discussed below (a fact they had denied in the Complaint), they seem to question the constitutionality of that notice: “... neither debtor were ( sic ) really informed of the transfer to Chase except a publication notice under FIRREA requirements 1821(d)(3)(B)-(C). Not real notice, probably laws written by the banks not understood by legislators even it they read it which is doubtful. No due process.” Response, p. 2. They also assert without any legal support that § 1322(b)(2) is inapplicable when the mortgage loan is held by a financial institution which purchased the assets of another bank and that recipients of TARP funds are required to assist property owners in distress. Id. Finally, they raise for the first time an argument that the Mortgage should be equitably subordinated. Id. at p. 3. ⁵

III. Legal AnalysisA. Jurisdiction

This court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 157(a) and 1334 and General Order No. 05-02 of the United States District Court for the Southern District of Ohio referring all bankruptcy cases, matters, and proceedings to the bankruptcy court. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(K) and (O).

B. Standard For A Motion to Dismiss Under FRCP 12(b)(1)

A motion to dismiss under FRCP 12(b)(1) challenges the court's subject matter jurisdiction. “A Rule 12(b)(1) motion can either attack the claim of jurisdiction on its face, in which case all allegations of the plaintiff must be considered as true, or it can attack the factual basis for jurisdiction, in which case the trial court must weigh the evidence and the plaintiff bears the burden of proving that jurisdiction exits.” DLX, Inc. v. Kentucky, 381 F.3d 511, 516 (6th Cir.2004), citing, RMI Titanium Co. v. Westinghouse Elec. Corp., 78 F.3d 1125, 1133-35 (6th Cir.1996); United States v. Ritchie, 15 F.3d 592, 598 (6th Cir.1994); Ohio Nat'l Life Ins. Co. v. United States, 922 F.2d 320, 325 (6th Cir.1990). In this proceeding, Chase attacks the factual basis for...