Matter of Salem Mortg. Co.
| Decision Date | 16 January 1985 |
| Docket Number | 84-1068-G.,Adv. No. 84-1067,Bankruptcy No. 83-01607-G and 83-01610-G to 83-01612-G |
| Citation | 50 BR 34 |
| Parties | In the Matter of SALEM MORTGAGE COMPANY, Fidelity Fund, Inc., Fidelity Securities Corp., Nationwide Mortgage Co., Debtors. In the Matter of SALEM MORTGAGE COMPANY, Debtor. Kathie BAKER, individually and as representative of a class of persons similarly situated, Plaintiffs, v. John J. HIGHLAND, Elaine M. Highland, and Cheryl E. Highland, Jointly and Severally, both individually and as representatives of a class of persons similarly situated, Defendants. John J. HIGHLAND, Elaine M. Highland, and Cheryl E. Highland, Jointly and Severally, Third-Party Plaintiffs, v. SALEM MORTGAGE COMPANY, a Michigan corporation, Third-Party Defendants. In the Matter of SALEM MORTGAGE COMPANY, Debtor. Irene PUSTELAK and Virginia Pustelak, individually and as representatives of a class of persons similarly situated, Plaintiffs, v. Peter VANDENBERGHE and Ethel Vandenberghe, Jointly and Severally, both individually and as representatives of a class of persons similarly situated, Defendants. Peter VANDENBERGHE and Ethel Vandenberghe, Jointly and Severally, Third-Party Plaintiffs, v. SALEM MORTGAGE COMPANY, a Michigan corporation, Third-Party Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of Michigan |
COPYRIGHT MATERIAL OMITTED
Clark D. Cunningham, Detroit, Mich., for plaintiffs.
Martin W. Bordoley, Southfield, Mich., for defendants.
Kemp, Klein, Endelman & Beer, P.C., Birmingham, Mich., for trustee Francis C. Flood.
Thomas J. Barrow, Detroit, Mich., Trustee for Salem Mortg.
ORDER DENYING PLAINTIFFS' MOTION FOR DETERMINATION OF NON-CORE PROCEEDINGS, TO REMAND, AND DENYING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT
These proceedings come before the Court on separate motions by the Plaintiff to remand, and to determine these proceedings to be non-core proceedings pursuant to 28 U.S.C. § 157(b)(3); and on Defendant's motion for summary judgment. For reasons set forth below the Court finds these proceedings to be core proceedings; Plaintiff's motion to remand and Defendant's motion for summary judgment are Denied. Because of the similarity in facts, issues, and third-party defendants the following order has been consolidated.
On April 10, 1981, Salem Mortgage Company (Debtor) executed a loan to Kathie Baker (Plaintiff Baker) in the amount of $5,000. The loan was secured by a mortgage against her home. The mortgage and the mortgage note, however, were in the amount of $7,200 and identified Federation Mortgage Company (Federation) as the lender.
The Debtor also prepared two Truth-In-Lending disclosure statements containing materially different information.
Salem Federation
Disclosure Disclosure
Amount Paid to customer
or for his account or to
another on his behalf $5,500.00 $6,991.00
Amount Financed 5,709.00 7,200.00
Mortgage Brokerage Fee 1,491.00 left blank
Annual Percentage Rate 24% 16%
Finance Charge 7,098.36 5,607.36
On the same day, the Debtor mailed a letter notifying Plaintiff Baker that the mortgage had been assigned by Federation to Defendants John Highland, Elaine Highland, and Cheryl E. Highland (Defendants Highland).
Similarly, Irene Pustelak and Virginia Pustelak (Plaintiff Pustelak) borrowed approximately $4,000 from the Debtor by securing the loan with a mortgage against their home. The mortgage and mortgage note were in the amount of $5,200 and identified Roland A. Benge & Co., (Benge) as the lender. Here too, the Truth-In-Lending disclosure statements revealed materially different information:
Salem Federation
Disclosure Disclosure
Amount Paid to customer
of for his account or to
another on his behalf $4,000.00 $5,020.00
Amount Financed 4,180.00 5,200.00
Mortgage Brokerage Fee 1,020.00 left blank
Annual Percentage Rate 23.50% 15½%
Finance Charge 4,372.04 3,352.04
On May 28, 1980, Benge assigned the mortgage to Defendants Peter VanDenberghe and Ethel VanDenberghe (Defendants VanDenberghe). Unlike the assignment of the Plaintiff Baker's mortgage, the Pustelaks were unaware of the assignment to Benge and on July 1, 1980, began making payments on the mortgage to the Debtor.
On September 18, 1981, a class action was filed in the Circuit Court for the County of Genessee, State of Michigan, on behalf of all persons who entered into mortgages or mortgage brokering agreements with the Debtor. Rutter v. Mutual Mortgage1Company, et al., Case No. 82-65577-CP (Genessee County Circuit Court). The complaint alleged that the Debtor had violated the Truth-In-Lending Act (TILA), 15 U.S.C. § 1601 et seq., the Michigan Consumer Protection Act (MCPA), Mich.Com. Laws Ann. § 445.901 et seq. and that the mortgages arranged by the Debtor were usurious. On October 10, 1982, a motion to certify the plaintiff class was filed.
On February 22, 1983, the Attorney General acting under the authority of the MCPA filed a motion to intervene in Rutter as a Plaintiff-Class representative and filed a proposed intervening class-action complaint. On March 30, 1983, the Debtor filed a voluntary petition in bankruptcy under Chapter 11 of the Bankruptcy Code. The Attorney General, on April 11, 1983, then commenced an adversary proceeding against the Debtor in bankruptcy court using the proposed intervening Rutter complaint as a model. Plaintiffs Baker and Pustelak were members of the proposed class of Plaintiffs. Defendants Highland and VanDenberghe were members of the proposed class of investors named defendants. A stipulation and order certifying plaintiff and defendant classes was submitted to and approved by this Court on June 14, 1983, In re Salem Mortgage Company, 34 B.R. 902 (Bkrtcy.E.D.Mich.S.D. 1983).
On July 20, 1983, a temporary restraining order was issued by the Court enjoining proceedings to foreclose mortgages or recover possession of property used to secure loans executed by the Debtor where the borrower was a member of a temporary-certified class.
On June 22, 1984, the District Court for the Eastern District of Michigan, Southern Division, dismissed the Order of the bankruptcy court certifying plaintiff and defendant classes for "lack of subject matter jurisdiction over the investors" Kelly v. Salem Mortgage Company, 41 B.R. 420, 423 (E.D.Mich.S.D.1984). On July 5, 1984, (Plaintiff Baker) appeared before the 36th District Court to respond to a complaint filed by Defendant Highland to evict her from the premises. The complaint was later dismissed upon stipulation of the parties. On August 18, 1984, the Defendants Highland mailed Plaintiff Baker a notice to terminate demanding possession of the premises on September 27, 1984.
On September 28, 1984, Plaintiff Baker filed a complaint against Defendants Highland in Wayne County Circuit Court. The five-count complaint asserts the same violations listed in the complaint for the class action and sought to enjoin eviction, set aside the purported mortgage, and recovery damages.
On June 22, 1984, Plaintiffs Pustelak were current in payments on their mortgage. On July 6, 1984, Plaintiffs Pustelak issued a notice of recission to Defendants VanDenberghe pursuant to the TILA, 15 U.S.C. §§ 1601, 1635. They also withheld their July, August, and September mortgage payments while negotiating the settlement of their claims. As a result of the negotiations, Defendants Pustelak accepted liability for missing escrow funds paid to Salem on Defendants behalf, but refused acknowledgement of recission of the mortgage.
On October 18, 1984, Plaintiffs Pustelak forwarded the withheld mortgage payments to the Defendants but did not waive their claim that the mortgage had been rescinded. Whereupon Plaintiff, on October 19, 1984, commenced this action in Wayne County Circuit Court alleging federal and state law claims and to declare the mortgage rescinded, and enjoin enforcement of the mortgage and for damages. On October 30, 1984, Plaintiff Pustelak received notice that the Defendants VanDenberghe had commenced foreclosure by advertisement. The foreclosure sale was scheduled for December 4, 1984.
Each complaint alleged the Debtor to have conspired with or acted as agents for the Defendants. In response, Defendants Highland and VanDenberghe, pursuant to Michigan General Court Rule 204.1(1) filed an ex parte petition to add the Debtor as third-party Defendants. The Wayne County Circuit Court entered the order on October 30, 1984. The third-party complaint prays for a judgment of complete indemnification, or in the alternative, contribution from the Debtor for any and all sums that defendants and third-party plaintiffs may be required to pay in settlement for judgment. Shortly after entry of the order adding the Debtor as third-party defendants, Debtor pursuant to 28 U.S.C. § 1478(a) removed the proceeding to the bankruptcy court. Plaintiffs now move for a determination that these proceedings are non-core proceedings, and to remand these proceedings to the Wayne County Circuit Court. Defendants move for summary judgment.
A determination of the nature of these proceedings must be made against the backdrop of case law and congressional action since Northern Pipeline Construction Co. v. Marathon Pipeline Company, 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). Northern Pipeline found bankruptcy courts formed under the Bankruptcy Act of 1978 possessed "the essential attributes of Article III courts and constituted an unwarranted encroachment upon the judicial power of the United States." Id., ...
To continue reading
Request your trial