In re Woolaghan
| Citation | 140 BR 377 |
| Decision Date | 22 May 1992 |
| Docket Number | Motion No. 91-5467M.,Bankruptcy No. 90-3780 JLC |
| Parties | In re Raymond WOOLAGHAN and Mary Ann Woolaghan, Debtors. Raymond WOOLAGHAN and Mary Ann Woolaghan, Plaintiffs, v. UNITED MORTGAGE SERVICES, INC., Defendant. |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Western District of Pennsylvania |
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Daniel L. Haller, Neighborhood Legal Services, Pittsburgh, Pa., for debtors.
Susan M. McMarlin, Davis Reilly, P.C., Pittsburgh, Pa., for United Mortg. Services, Inc.
Gary J. Gaertner, Pittsburgh, Pa., Trustee.
The matter before the court concerns an objection filed by Raymond and Mary Ann Woolaghan against United Mortgage Services, Inc., and their motion for summary judgment. For the reasons stated below, the motion for summary judgment is denied and judgment is in favor of United Mortgage Services, Inc. for the full amount of its secured claim consistent with this Memorandum Opinion.
On or about April 30, 1979, Raymond and Mary Ann Woolaghan (hereinafter "Debtors") entered into a consumer credit transaction whereby they borrowed money from Homemakers Loan and Consumer Discount Company d/b/a G.E.C.C. Consumer Discount Company ("G.E.C.C."), the predecessor of United Mortgage Services, Inc. (hereinafter "UMS" or "Claimant"). As security for the nonsale loan, the Debtors granted G.E.C.C. a mortgage on their residence located at 3711 Trautman Street, Munhall, Pennsylvania, in addition to a security interest in their personal property.
The Debtors defaulted on their loan after Mr. Woolaghan lost his job in the steel industry. Mr. Woolaghan subsequently found work which enabled the Debtors to file and finance the instant Chapter 13 petition.
After the Debtors' defaulted on their loan, UMS obtained a judgment in mortgage foreclosure in state court. A Sheriff's sale of the mortgaged premises was scheduled to take place on December 3, 1990. The Debtors filed for relief under Chapter 13 of the Bankruptcy Code on November 30, 1990. On February 4, 1991, the 11 U.S.C. § 341 meeting of creditors was held. UMS filed a proof of claim on February 11, 1991, in the amount of $7,186.78. The Chapter 13 Plan was confirmed two (2) days later on February 13, 1991.
On July 26, 1991, the Debtors filed the subject objection to claim, alleging that UMS violated the Federal Reserve Regulation Z, 12 C.F.R. § 226.8(b)(5) (pre-1982 version) (hereinafter "Reg. Z") and the Federal Truth-in-Lending Act, 15 U.S.C. § 1601 et seq. (pre-1982 version) (hereinafter "TILA").1 On November 8, 1991, the Debtors filed a motion for summary judgment. A hearing was held on November 20, 1991, where it was agreed by the parties that the Debtors' objection to claim and motion for summary judgment would be decided on briefs.
The Debtors object to UMS's claim of $7,186.78 on the grounds that UMS (and its predecessor, G.E.C.C.) violated the TILA and Reg. Z by failing to disclose certain information in the loan documents. The Debtors further allege that because of UMS's failure to disclose such information, the Debtors are entitled to have UMS's claim reduced by way of recoupment.
UMS contends that the Debtors are barred from raising a claim objection because the Chapter 13 plan has been confirmed. Specifically, UMS avers that although Bankruptcy Rule 3007 does not contain a time limitation for filing claim objections, case law suggests that all claim objections should be raised prior to confirmation of the plan. Claimant's Brief at 2 (doc. no. 34). For this proposition, UMS relies on In re Simmons, 765 F.2d 547 (CA5 Miss 1985), which held that a secured claim which was not objected to prior to confirmation of a Chapter 13 plan should be allowed.
Despite the apparent breadth of the holding in Simmons, this court does not believe that it is appropriate to fix confirmation as a deadline for claim objections in a Chapter 13 case. The facts in Simmons are distinguishable, for they involved a misclassified claim in the plan, and the debtor sought to bind the claimant to treatment inconsistent with a filed proof of claim. This court believes that "when confirmation of a plan does not purport to treat a specific creditor in a way such that its rights are determined and when determination of allowed claims is not necessary to a determination of whether the plan meets the standards of confirmation, confirmation is not an appropriate deadline for objection" to a claim. 8 Colliers, § 3007.03 (15th Ed).
The Third Circuit Court of Appeals addressed this issue in the case of In re Lewis, 875 F.2d 53 (CA3 Pa 1989). In In re Lewis, the debtor's residence was encumbered by several liens, one of which was held by Philadelphia Neighborhood Housing Services ("PNHS"). The debtor's plan specifically stated in ¶ 8 that confirmation of the plan constituted a finding that PNHS held a claim secured in personal property and real property and that its rights could be modified in accordance with 11 U.S.C. § 1322(b)(2). After the debtor's plan was confirmed, the debtor filed a motion under 11 U.S.C. § 506(a), seeking a determination of the value of PNHS's interests in his residence. In re Lewis, 875 F.2d at 55.
The Third Circuit held that the debtor did not waive his rights to object to PNHS's claim under § 506 because ¶ 8 clearly indicated that a § 506 modification of the PNHS claim was contemplated by the plan. The court's conclusions focused on the particular language of ¶ 8 when read together with the other provisions of the plan so as to determine what the debtor actually intended. In re Lewis, 875 F.2d at 57. In addition, the court of appeals held that although the claim objection was filed seven (7) months after the debtor's Chapter 13 plan was confirmed, it was not untimely because neither the Bankruptcy Rules nor the Code dictate a time limitation and the objection did not prejudice the claimant in any way. Id.
In the case at bar, the Debtors' confirmed Chapter 13 plan contains a handwritten notation which states:
Note: Mgt with United Mgt Services has been reduced to a judgment of $5,882.47. Lender purported to have taken a security interest in Debtors\' consumer goods as well. Debtors believe United Mortgage claim is subject to Truth In Lending recoupment.
According to In re Lewis, this court must consider this notation which clearly reveals the Debtors' contemplated objection to UMS's claim. Moreover, in regard to the issue of timing, the Debtors' claim objection does not prejudice UMS so as to persuade this court to reject the claim objection as untimely. Therefore, this court finds that the Debtor's objection to UMS's claim was both proper and timely.
UMS argues that the Debtors are barred from asserting TILA violations in bankruptcy court because they are barred from asserting the claim in state court. Claimant's Brief at 3 (doc. no. 34). UMS believes that the Debtors are attempting to pursue a defense in bankruptcy court that they would otherwise be precluded from pursuing in state court. In New York Guardian Mortg. Corp. v. Dietzel, 362 Pa.Super. 426, 524 A.2d 951 (1987), the court determined that a TILA violation may not be asserted as a counterclaim in a mortgage foreclosure action because such an action is strictly an in rem or quasi in rem proceeding whose sole purpose is to affect a judicial sale of mortgaged property to collect a debt. In contrast, "a bankruptcy action, unlike a mortgage foreclosure, is inherently an in personam proceeding because it resolves the personal obligations of the debtor." Jones v. Progressive-Home Federal Savings and Loan Assoc., 122 B.R. 246, 250 (W.D.Pa.1990) (citations omitted) (district court held that In re Dietzel does not bar a TILA claim in a bankruptcy action.) Therefore, the Debtors in this case are not barred from raising TILA violations in bankruptcy court.
UMS's argues alternatively that the doctrine of res judicata bars the Debtors from recovery in the instant action because the Debtors' did not attempt to raise TILA violations in state court prior to the entry of the judgment in mortgage foreclosure. Claimant's Brief at 3 (doc. no. 34). This argument is without merit. As discussed above, state law prohibits the assertion of such a claim as a defense to a mortgage foreclosure action. In re Jones, 122 B.R. 246, 251 n. 4 (W.D.Pa.1990). See also, Smith v. Wells Fargo Credit Corp., 713 F.Supp. 354 (D.Ariz.1989); In re Marshall, 121 B.R. 814 (Bkrtcy.C.D.Ill.1990). Consequently, the issues could not be actually litigated and res judicata cannot apply. Miller v. Miller, 186 A.2d 93, 123 Vt. 221 (1962); Donnelly v. United Fruit Co., 183 A.2d 415, 75 N.J.Super. 383, affirmed 190 A.2d 825, 40 N.J. 61 (1962); Oravec v. Unemployment Compensation Bd. of Review, 90 A.2d 269, 171 Pa.Super. 491 (1952).
Finally and substantively, the court must consider the issue of whether UMS violated TILA disclosure requirements so as to allow the Debtors to recoup $2,000.00.2 The Debtors' objection to UMS's secured claim of $7,186.78 is based on the allegation that UMS (and its predecessor, G.E.C.C.) violated the TILA and Reg. Z in the following aspects:
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...and the debt are products of the same transaction, 2) the claim is asserted as a defense, and 3) the main action is timely. In re Woolaghan, 140 BR 377, 383 (1992). Debtors cannot avoid the statute of limitations by merely calling the requested statutory damages "recoupment." Id. In this ma......