Meininger v. Wells Fargo Bank N.A. (In re Stay In My Home, P.A.), Case No.: 8:18-bk-08436-RCT
| Decision Date | 03 September 2019 |
| Docket Number | Case No.: 8:18-bk-08436-RCT,Adv. No.: 8:19-ap-00127-RCT |
| Parties | In re STAY IN MY HOME, P.A. fka STOPA LAW FIRM, P.A., Debtor. STEPHEN L. MEININGER, as Chapter 7 Trustee of the bankruptcy estate of STAY IN MY HOME, P.A. fka STOPA LAW FIRM, P.A., Plaintiff, v. WELLS FARGO BANK, N.A., et al., Defendants. |
| Court | U.S. Bankruptcy Court — Middle District of Florida |
Before the Court are Motions to Dismiss filed by Wells Fargo Bank N.A. ("Wells Fargo"),1 Wells Fargo Bank, N.A., on behalf of Registered Holders of Bear Stearns Asset Backed SecuritiesI Trust 2007-AC4, Asset-Backed Certificates, Series 2007-AC4 ("Wells Fargo Trustee"),2 U.S. Bank, N.A. National Association as Trustee for Merrill Lynch First Franklin Mortgage Loan Trust Mortgage Loan Asset Backed Certificates Series 2007-4 ("U.S. Bank"),3 Bank of America, N.A. ("BOA"),4 Bank of New York Mellon ("BNY Mellon"),5 Deutsche Bank National Trust Company ("Deutsche Bank"),6 Jason Hebert and Sarah Hebert (the "Heberts"),7 and Toshiaki and Cleosida Mizutani (the "Mizutanis")8 (Wells Fargo, Wells Fargo Trustee, U.S. Bank, BOA, BNY Mellon and Deutsche Bank hereinafter referred to collectively as the "Lenders"). The Trustee opposes each Motion to Dismiss (collectively, the "Motion").
Each Motion raises the following issues: (1) whether there is an actual controversy between the parties within the meaning of the Declaratory Judgment Act;9 (2) whether the controversy is within the bankruptcy court's original jurisdiction; (3) whether the Trustee's attorney's fee claim is property of the bankruptcy estate under 11 U.S.C. § 541(a) and thus subject to administration in the Debtor's chapter 7 case; (4) whether the Trustee's attorney's fee claim issubject to the automatic stay under 11 U.S.C. § 362; and (5) whether any Lender's conduct violated the automatic stay. But first, the story behind the Trustee's Complaint.10
On October 2, 2018 (the "Petition Date"), Stay In My Home, P.A. fka Stopa Law Firm, P.A. ("Debtor") filed a voluntary petition for relief11 under chapter 7 of the Bankruptcy Code.12 Stephen L. Meininger was appointed and currently serves as the Chapter 7 Trustee (the "Trustee").
Debtor was a law firm that specialized in defending individual homeowners (the "Former Clients") in residential mortgage foreclosure actions throughout the State of Florida.13 Debtor and its Former Clients had a unique billing arrangement that is described in the form client engagement letter attached to the Complaint (the "Engagement Letter").14 Debtor charged a modest annual fee of $2,500 for the representation.15 Debtor was also entitled to receive as additional compensation any amounts received from a foreclosing lender, whether in the form of a judgment, an award of attorneys' fees or a settlement.16 This additional compensation is described in paragraph 9 of the Engagement Letter as follows:
In the event we recover monies through the process of defending this lawsuit, be it via entry of a judgment for fees or any payment by the bank then such funds shall belong to the Firm. You agree that because the Firm charges such a low annual fee that any monies recovered shall belong to the firm. Furthermore, you agree that if we are in a position of obtaining fees, then that is likely because we have procured a good result for you (e.g. dismissal,) and that we should be rewarded for such result. Moreover, in the event a result is obtained that enables you to stay in your home, e.g. a loan modification or some other work-out arrangement with a third party, you shall pay the firm $2,500 for that result.
(the "Additional Compensation").17
On July 27, 2018, the Florida Supreme Court suspended Debtor's former principal, Mark Stopa ("Stopa"), from the practice of law.18 Three days later Stopa sold his 100% interest in Debtor to Richard Mockler, Esq. ("Mockler").19 Mockler, and other attorneys who worked for Debtor, thereafter continued to defend residential foreclosures until just before the Petition Date.20
On the Petition Date, the Trustee estimates that Debtor had roughly 3,600 clients in more than 4,000 active cases throughout the State of Florida.21 With some exceptions, Debtor withdrew or attempted to withdraw from these representations either on, shortly before or shortly after the Petition Date. After Debtor filed bankruptcy, some Former Clients continued to work with attorneys who had previously worked for Debtor.
On October 9, 2018, seven days after the filing, the Trustee moved for a broad and expansive extension of the automatic stay on an emergency basis.22 The Trustee claimed that he needed an extended stay to allow him to inventory the thousands of cases handled by Debtor, to coordinate with the Florida Bar, and to take any actions necessary to preserve assets of the bankruptcy estate. The Court granted the Trustee's motion pursuant to 11 U.S.C. § 105, but only for a brief period of time (the "105 Stay").23 The 105 Stay expired on November 6, 2018.24 The Court also entered an order making clear that once the 105 Stay expired, the automatic stay arising under 11 U.S.C. § 362 (the "362 Stay") remained in place, except to the extent that the Courtspecifically granted relief from the 362 Stay by separate order.25 Indeed, the Court has since entered dozens of orders permitting lenders to complete all aspects of foreclosure actions including sales, appeals, motions for rehearing, and motions to determine entitlement to fees and costs. But these orders generally include a reservation of rights to preserve whatever claims the bankruptcy estate may have for fees in the form of Additional Compensation.
On March 15, 2019, the Trustee filed a 16 count Complaint for declaratory and related relief against the Lenders and Former Clients.26 The Complaint alleges that based on the Engagement Letters, the Trustee's claims for Additional Compensation are property of Debtor's bankruptcy estate and therefore subject to the automatic stay. The counts of the Complaint relevant to the pending Motions are:
Count Relief Requested Defendant(s) Count I Declaratory Relief Wells Fargo and Prince Morrison Count II Declaratory Relief U.S. Bank and the Buckmasters Count X Declaratory Relief BOA and Cameron Foster
Count XI Declaratory Relief BNY Mellon and David Bowering Count XII Declaratory Relief Deutsche Bank and the Heberts
Defendants seek to dismiss Counts I, II, X, XI and XII of the Complaint pursuant to Fed. R. Civ. P. 12(b)(6), made applicable to this proceeding by Fed. R. Bankr. P. 7012. When ruling on a motion to dismiss, a court must "view the allegations of the complaint in the light most favorable to Plaintiff, consider the allegations of the complaint as true, and accept all reasonableinferences therefrom."27 Consideration also is limited to the pleadings and exhibits attached thereto.28
Although "a complaint attacked by a Rule 12(b)(6) motion ... does not need detailed factual allegations ... [it] should give the defendant fair notice of what the ... claim is and the grounds upon which it rests."29 Moreover, a plaintiff must allege "enough facts to state a claim to relief that is plausible on its face."30 "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."31
In Counts I, II, X, XI and XII of the Complaint, the Trustee seeks declaratory relief pursuant to the Declaratory Judgment Act (the "Act").32 Specifically, the Trustee asks for a declaration that any claims for Additional Compensation are property of Debtor's bankruptcy estate and therefore subject to the automatic stay. The Lenders move to dismiss on the ground that the facts, as pleaded, fail to show the existence of an actual controversy between Debtor and the respective Lender. Rather, the Lenders argue, the Trustee impermissibly seeks "an advisory opinion as to the bankruptcy estate's hypothetical rights, contingent on a set of facts that may or may not occur."33
The Act provides that a declaratory judgment may be issued only in the case of an "actual controversy."34 For this reason, Article III federal courts do not render advisory opinions.35 Theissue of whether an actual controversy is presented must be decided on a case-by-case basis.36 "[T]he question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment."37 The "party seeking a declaratory judgment bears the burden of establishing the existence of an actual case or controversy."38
The Act operates solely as a procedural vehicle, providing a form of relief generally unavailable in the federal courts.39 It is well established that the 40 The Act mandates that the plaintiff allege facts sufficient to show that the controversy is within the court's original jurisdiction.41 "If there is an underlying ground for federal court jurisdiction, the Declaratory Judgment Act 'allow[s] parties to precipitate suits that otherwise might need to wait for the declaratory relief defendant to bring a coercive action.'"42
The issues of whether the Trustee's claims for Additional Compensation are property of the estate and whether the automatic stay extends to the Lenders' acts in the foreclosure cases identified in the Complaint are actual controversies. The parties have been at war over these issues for months. The facts alleged in the Complaint are not hypothetical. They represent real and disputed claims that warrant the issuance of a declaratory judgment.
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