Lewis v. Money Source, Inc. (In re Lewis)

• Decision Date: 28 October 2020
• Docket Number: Adversary No.: 5-19-ap-00116 RNO,Case No.: 5-19-bk-01873 RNO
• Parties: IN RE: Clarence W. LEWIS, Jr. Debtor 1 Clarence W. Lewis, Jr. Plaintiff(s) v. The Money Source, Inc. Defendant(s)
• Court: United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Middle District of Pennsylvania

621 B.R. 626

IN RE: Clarence W. LEWIS, Jr. Debtor 1

Clarence W. Lewis, Jr. Plaintiff(s)

v.The Money Source, Inc. Defendant(s)

Case No.: 5-19-bk-01873 RNO

Adversary No.: 5-19-ap-00116 RNO

United States Bankruptcy Court, M.D. Pennsylvania.

October 28, 2020

Brett Freeman, Carlo Sabatini, Sabatini Freeman, LLC, Dunmore, PA, for Plaintiff

Matthew Myers Haar, Saul Ewing LLP, Harrisburg, PA, Mario John Hanyon, Phelan Hallinan & Schmieg, Philadelphia, PA, Francis X. Riley, III, Saul Ewing Arnstein & Lehr LLP, Princeton, NJ, for Defendant

OPINION ¹

A Motion to Dismiss the Debtor/Plaintiff's Second Amended Complaint was filed. Count 1 of the Second Amended Complaint alleges that the Defendant violated the Real Estate Settlement Procedures Act. Count 2 alleges it violated the Truth-in-Lending Act. The Motion to Dismiss will be granted in part and denied in part.

I. JURISDICTION

The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 157 and 1334. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (O).

II. FACTS AND PROCEDURAL HISTORY

Clarence William Lewis, Jr. filed a Chapter 13 Petition on April 30, 2019. The First Amended Plan ("Plan") was confirmed on July 24, 2019. 5-19-bk-01873 RNO, Order Confirming Plan, ECF No. 38. The Plan provides that all post-petition assets will vest in the Debtor upon the entry of a Chapter 13 discharge. 5-19-bk-01873 RNO, Plan, ECF No. 34. This Adversary Proceeding was commenced on November 26, 2019. 5-19-ap-00116 RNO, ECF No. 1.

The original Complaint filed by Clarence William Lewis, Jr. ("Debtor") contains forty numbered paragraphs. It contains two counts and names a single Defendant, The Money Source, Inc. ("Defendant"). Count 1 of the original Complaint alleges the Defendant violated the Real Estate Settlement Procedures Act ("RESPA"). Count 2 alleges the Defendant violated the Truth in-Lending Act ("TILA").

A First Amended Complaint was filed on January 23, 2020. 5-19-ap-00116 RNO, ECF No. 9. Thereafter, on May 20, 2020, on Motion, an Order was entered granting the Debtor leave to file a Second Amended Complaint. 5-19-ap-00116 RNO, ECF No. 41.

The Second Amended Complaint ("Complaint") was filed on May 20, 2020. On June 3, 2020, the Defendant filed a Motion to Dismiss ("Motion"). 5-19-ap-00116 RNO, ECF No. 44. The Motion has been briefed and oral argument was heard on August 27, 2020.

III. DISCUSSION

A. Federal Rule of Bankruptcy Procedure 7012(b)(6) Standard of Review

Federal Rule of Bankruptcy Procedure 7012(b) ("F.R.B.P.") makes Federal Rule of Civil Procedure 12(b)-(i) ("F.R.C.P.") applicable to bankruptcy adversary proceedings. F.R.C.P. 12(b)(6) requires dismissal of a complaint which fails to state a claim upon which relief can be granted. Generally, a complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." F.R.C.P. 8(a)(2). However, the Supreme Court heightened this pleading standard by holding that for a complaint to withstand a motion to dismiss, a claim must be more than possible, it must be plausible.

Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S. Ct. 1955, 1973, 167 L.Ed.2d 929 (2007). Additionally, Twombly advises that while detailed factual allegations are not required in a complaint, "a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. at 555, 127 S. Ct. 1955, 1973.

Two years later, the Supreme Court gave further guidance as to the meaning of "facial plausibility." A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S. Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (internal citations and quotations omitted). The plausibility standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully. Id. Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief. Id.

At the motion to dismiss stage, only well pled facts are viewed in the light most favorable to the non-moving party, in this case, the Debtor. Jablonski v. Pan. Am. World Airways, Inc. , 863 F.2d 289, 291 (3d Cir. 1988). Alternatively, legal conclusions are not assumed to be correct at the motion to dismiss stage. In Iqbal , Justice Kennedy wrote:

While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations. When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.

Iqbal , 556 U.S. at 679, 129 S.Ct. 1937.

The Third Circuit has also provided guidance on the differing standards regarding a complaint's alleged facts and legal conclusions at the motion to dismiss stage:

The District Court must accept all of the complaint's well-pleaded facts as true, but may disregard any legal conclusions. Second, a District Court must then determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a plausible claim for relief. In other words, a complaint must do more than allege the plaintiff's entitlement to relief. A complaint has to show such entitlement with its facts.

Fowler v. UPMC Shadyside , 578 F.3d 203, 210–11 (3d Cir. 2009) (internal citations and quotations omitted).

When deciding a motion to dismiss, the court may consider the complaint as well as attached exhibits and matters of public record. Pension Benefit Guar. Corp. v. White Consol. Indus., Inc. , 998 F.2d 1192, 1196 (3d Cir. 1993). Additionally, the court may consider an indisputably authentic document which a defendant attaches as an exhibit to a motion to dismiss, if the plaintiff's claims are based on the document. Levins v. Healthcare Revenue Recovery Group LLC , 902 F.3d 274, 279 (3d Cir. 2018) ; Miller v. Clinton Cty. , 544 F.3d 542, 550 (3d Cir. 2008).

The Federal Rules of Evidence ("F.R.E.") apply to proceedings before United States Bankruptcy Judges. F.R.E. 1101(a) ; In re Barnes , 266 B.R. 397, 403 (8th Cir. BAP 2001). F.R.E. 201 allows a federal court to take judicial notice of facts that are not subject to reasonable dispute. A bankruptcy court may take judicial notice of the docket events in a case, contents of the bankruptcy schedules to determine the timing and status of case events, as well as other facts not reasonably in dispute.

In re Harmony Holdings, LLC , 393 B.R. 409, 413 (Bankr. D.S.C. 2008) ; In re Paolino , 1991 WL 284107, at *12 n. 19 (Bankr. E.D. Pa., Jan. 11, 1991).

B. Count 1 and the Real Estate Settlement Procedures Act

1. Request for information

The Real Estate Settlement Procedures Act ("RESPA") is codified at 12 U.S.C. § 2601 et seq. RESPA prohibits the provision or acceptance of any fee or kickback for referrals related to settlement of a federally related mortgage loan. 12 U.S.C. § 2607(a). RESPA also prohibits fee splitting in connection with a federally related mortgage loan, other than for services actually performed. 12 U.S.C. § 2607(b). This subsection was intended to prohibit the receipt of value for the referral of covered real estate settlement business. Welch v. Centex Home Equity Co., LLC , 262 F.Supp.2d 1263, 1269 (D. Kan. 2003). A "federally related mortgage loan" is defined by the terms of RESPA. 12 U.S.C. § 2602(1) ; In re Knowles , 442 B.R. 150, 157-58 (1st Cir. BAP 2011).

RESPA was also enacted to allow home buyers more access to information concerning their mortgages in order to protect them from fraudulent or deceptive practices by loan servicers. Tichy v. Reinhart , 2020 WL 3547518 at *4 (M.D. Pa., June 30, 2020) ; Wotanis v. PNC Bank, N.A. , 2019 WL 4054880 at *3 (M.D. Pa., Aug. 28, 2019).

The Complaint alleges that the Defendant, in 2014, originated a residential mortgage loan to the Debtor. 5-19-ap-00116 RNO, ECF No. 42, ¶ 6. The Complaint also alleges that the loan is "a federally related mortgage loan". 5-19-ap-00116 RNO, ECF No. 42, ¶ 32.

Central to both counts of the Complaint are two letters dated August 6, 2019 ("August 6 Letter") and September 27, 2019 ("September 27 Letter") (collectively, the "Letters"). The Letters were addressed to the Defendant by Debtor's attorney. The Complaint alleges that each letter constituted a "qualified written request" ("QWR") under RESPA. 5-19-ap-00116 RNO, ECF No. 42, ¶ 36. It is further alleged that each of the Letters constituted a "request for information" ("RFI") under Regulation X, the implementing regulations for RESPA. In re Coppola , 596 B.R. 140, 151-52 (Bankr. D.N.J. 2018).

Copies of the Letters are attached as Exhibit A to the Complaint. The August 6 Letter refers to a July 3, 2019, Notice of Postpetition Mortgage Fees, Expenses and Charges ("3002.1 Notice"). Judicial notice is taken that the 3002.1 Notice was filed to the Chapter 13 case claim register. The 3002.1 Notice is docketed to the Defendant's Proof of Claim Number 7-1. It is also noted that the 3002.1 Notice was withdrawn on October 7, 2019. The August 6 Letter characterizes certain fees in the 3002.1 Notice as "unreasonably large". The August 6 Letter requested details concerning the charges, such as when the work was performed, the names of any professional who performed the work, and the amount of time expended. The text of the Letters is essentially identical; the August 6 Letter does indicate that it was sent via certified mail, return receipt requested. The September 27 Letter does not specify the manner in which it was sent. Generally, Count 1 of the Complaint alleges that the Defendant failed to timely respond to the Letters. 5-19-ap-00116 RNO, ECF No. 42, ¶ 44-45. Under RESPA, a servicer must, not later than...