In The Matter Of: Judy C. Wilborn v. Bank
| Decision Date | 18 June 2010 |
| Docket Number | No. 09-20415.,09-20415. |
| Citation | 609 F.3d 748 |
| Parties | In the Matter of: Judy C. WILBORN, Debtor.Judy C. Wilborn; Karlton E. Flournoy; Monica E. Flournoy; Judith A. Martin, Appellees,v.Wells Fargo Bank, N.A., Appellant. |
| Court | U.S. Court of Appeals — Fifth Circuit |
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Casey Dalton Ebert, Ebert Law Offices, P.C., Hurst, TX, for Amicus Curiae, Nat. Ass'n of Consumer Bankruptcy Attys.
Johnie Patterson (argued), Miriam Trubeck Goott, Walker & Patterson, Houston, TX, for Appellees.
Thomas A. Connop (argued), William Scott Hastings, Robert Thompson Mowrey, Locke, Lord, Bissell & Liddell, L.L.P., Dallas, TX, for Appellant.
Appeal from the United States Bankruptcy Court for the Southern District of Texas.
Before REAVLEY, PRADO and OWEN, Circuit Judges.
This is an interlocutory appeal from the bankruptcy court's certification of a class action in an adversary proceeding. The Plaintiffs-Appellees sought to represent a class of debtors who had filed Chapter 13 petitions in the United States Bankruptcy Court for the Southern District of Texas and who had home mortgages held or serviced by Defendant-Appellant Wells Fargo Bank, N.A. The questions at issue are whether a bankruptcy judge may certify a class action comprised of debtor-plaintiffs, and if so, whether the class certification in this case was proper. We conclude that a bankruptcy judge may certify a class of debtors under appropriate circumstances but that the proposed class in this case does not satisfy the requirements of Federal Rule of Civil Procedure 23 and Federal Bankruptcy Rule of Procedure 7023. We therefore VACATE the court's class certification order.
The individual named plaintiffs in this case are Judy Wilborn, Karlton and Monica Flournoy, and Judy Martin. The Plaintiffs filed separate Chapter 13 bankruptcy petitions in the Southern District of Texas, and each has a home mortgage held or serviced by Wells Fargo. Plaintiffs alleged in an adversary proceeding that Wells Fargo charged, or charged and collected, unreasonable and unapproved post-petition professional fees and costs during the pendency of their bankruptcies. They alleged that Wells Fargo's pattern and practice of charging such fees avoided court oversight of the charges and is contrary to the United States Bankruptcy Code, 11 U.S.C. § 506(b), and Federal Bankruptcy Rule of Procedure 2016.
The fees and costs at issue are permitted by the Plaintiffs' individual loan documents and include such things as bankruptcy attorneys' fees, recording fees, notification fees, title search fees, document fees, and property inspection fees. Plaintiffs' theory is that Wells Fargo's failure to disclose these fees to the bankruptcy court interferes with their ability to complete their Chapter 13 reorganization plans and emerge from bankruptcy having cured all arrearages. Plaintiffs complain because, even though Wells Fargo receives distributions from the Chapter 13 Trustee in accord with the plan, the undisclosed fees accumulate during the pendency of the bankruptcy. At the conclusion of the plan, debtors find they are still in default due to the fees and may face foreclosure when they are unable to meet payment demands.
According to the complaint and the parties' exhibits, Wells Fargo charged the named plaintiffs fees incurred both before and after confirmation. The fee amounts ranged from over $1200 to more than $4000. In some instances, a portion of the fees were previously approved by the court. For example, approximately $600 in fees were approved in the Flournoys' case out of more than $3000 charged by Wells Fargo, and $450 in fees were approved in one of Martin's two bankruptcy cases. In Wilborn's case, no fees were approved by the bankruptcy court.
Plaintiffs sought as relief a declaratory judgment that undisclosed fees and costs are per se unreasonable. They also sought disgorgement of any fees and costs actually collected; an injunction barring Wells Fargo from charging and/or assessing the mortgage accounts of debtors for fees and costs without first seeking approval from the bankruptcy court; and sanctions against Wells Fargo pursuant to 11 U.S.C. § 105. Plaintiffs further moved for class certification.
The bankruptcy court granted the Plaintiffs' motion and certified a class defined as follows:
All individuals who filed for bankruptcy under Chapter 13 in the Southern District of Texas between November 16, 2002 through November 16, 2007 who owed Wells Fargo, as servicer or holder, on a mortgage debt secured by real property, and upon whom Wells Fargo either charged, or both charged and collected, professional fees and costs during the pendency of each of their respective bankruptcy cases which were never disclosed to this Court, the debtors, or other parties-in-interest nor approved by this Court by written order entered on the docket in their respective bankruptcy cases.
The court defined “this Court” in the class definition to be the United States Bankruptcy Court for the Southern District of Texas regardless of the particular judge presiding over the case. The court determined that the above class had approximately 1,236 members.
The bankruptcy court certified its class certification order for direct appeal to this court. Wells Fargo also filed a timely petition for permission to appeal, which a panel of this court granted.
We have direct appellate jurisdiction over this interlocutory matter from the bankruptcy court because of that court's certification that an appeal may be taken, and our agreement to hear the appeal. See 28 U.S.C. § 158(d)(2); In re OCA, Inc.1 We treat certified questions under § 158(d)(2) like questions certified under 28 U.S.C. § 1292(b) from the district court. OCA, 552 F.3d at 418. The issue certified to us for appeal is the propriety of the bankruptcy court's class certification order.
Wells Fargo challenges the bankruptcy court's certification order on both jurisdictional and procedural grounds. We review the bankruptcy court's determination that it had jurisdiction de novo. In re Seven Seas Petroleum, Inc.2 We review a decision to certify a class action for abuse of discretion, but the legal standards employed by the court below are reviewed de novo. Archdiocese of Milwaukee Supporting Fund, Inc. v. Halliburton Co.3
A bankruptcy court's jurisdiction is limited. It derives from the statutory scheme vesting original but not exclusive jurisdiction in the district courts over “all civil proceedings arising under title 11 [the Bankruptcy Code], or arising in or related to cases under title 11.” 28 U.S.C. § 1334(b). Bankruptcy jurisdiction thus exists in three types of proceedings: those “arising under” Title 11, those “arising in” a case under Title 11, and those that are “related to” bankruptcy cases. See In re Wood.4 Under the statutory scheme, the district courts are permitted to refer matters to the bankruptcy courts within their districts. See 28 U.S.C. § 157(a) ().
Once federal jurisdiction is found in the district court under § 1334(b), which is construed broadly, the extent to which a bankruptcy court may adjudicate a referred matter depends on whether the proceeding is considered to be “core” or “non-core.” In re Majestic Energy Corp.5 “Core” proceedings are those that “arise under” Title 11 insofar as they involve a cause of action created by a statutory provision therein, and those that “arise in” cases under Title 11, which by their nature can only arise in bankruptcy cases; the district court may refer such core matters to the bankruptcy court for full adjudication. See Wood, 825 F.2d at 97; 28 U.S.C. § 157(b). For matters that “relate to” bankruptcy cases, however, the bankruptcy court may only issue proposed findings and conclusions to the district court. See In re Southmark Corp.6
The Plaintiffs' complaint is based on the claim that for each named plaintiff and each unnamed class member Wells Fargo impermissibly charged post-petition fees and costs without obtaining approval from the bankruptcy court, as purportedly required by Title 11 and the Federal Rules of Bankruptcy Procedure. Under 11 U.S.C. § 506(b), an over-secured creditor is permitted to recover certain reasonable, pre-confirmation charges that are incurred in connection with the bankruptcy and that are allowed under its contract with the debtor.7 Rule 2016 provides that a creditor seeking compensation from a debtor's estate must first file with the bankruptcy court an application setting forth the services rendered and the amount requested. 8 The Plaintiffs read these provisions together to require Wells Fargo to seek prior approval of all contractually-allowed, post-petition fees and charges, whether incurred before or after confirmation, and to disgorge all fees not previously approved.
Wells Fargo conceded at oral argument that the claims of the named Plaintiffs arise during each plaintiff's individual bankruptcy case. There is therefore federal bankruptcy jurisdiction in this matter under § 1334(b). Wells Fargo contends, however, that because the individual bankruptcy cases of the named plaintiffs and the putative class members are before different bankruptcy judges within the Southern District of Texas, the bankruptcy court here lacked jurisdiction to certify the class. It argues that one bankruptcy judge may not exercise jurisdiction over claims that arise in other cases administered by other judges. Under this view, a bankruptcy court would never be able to certify a class action of debtors unless the individual bankruptcy cases of all debtors happened to be before a single bankruptcy judge. We are unable to agree.
Section 157(a) permits district courts to refer to bankruptcy courts “any or all cas...
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