Patterson v. HOMECOMINGS FINANCIAL LLC

• Citation: 425 B.R. 499
• Decision Date: 24 March 2010
• Docket Number: No. 08-C-0889.,08-C-0889.
• Parties: Don E. PATTERSON, Diane M. Patterson, Plaintiffs, v. HOMECOMINGS FINANCIAL LLC, Defendant.
• Court: U.S. District Court — Eastern District of Wisconsin

425 B.R. 499

Don E. PATTERSON, Diane M. Patterson, Plaintiffs, v. HOMECOMINGS FINANCIAL LLC, Defendant.

No. 08-C-0889.

United States District Court, E.D. Wisconsin.

March 24, 2010.

Jordan M. Lewis, Siegel Brill Greupner Duffy & Foster PA, Minneapolis, MN, Michael J. Watton, Watton Law Group, Milwaukee, WI, for Plaintiffs.

Thomas J. Cunningham, J. Matthew Goodin, Locke Lord Bissell & Liddell LLP, Chicago, IL, for Defendant.

DECISION AND ORDER DENYING MOTION TO DISMISS (DOC. # 7) AND DENYING AS MOOT MOTION TO STAY PENDING RULING ON MOTION TO DISMISS (DOC. # 14)

C.N. CLEVERT, JR., Chief Judge.

Don and Diane Patterson, filed this case seeking declaratory and injunctive relief, compensatory damages and attorney fees for willful violation of the automatic stay of 11 U.S.C. § 362(a) by the defendant, Homecomings Financial, LLC, during the course of their Chapter 13 bankruptcy case. The defendant, Homecomings, LLC, seeks dismissal of the action under Fed. R.Civ.P. 12(b)(1) or 12(b)(6).

The Pattersons filed this case as a class action pursuant to Fed.R.Civ.P. 23(a), (b)(2) and (b)(3) on behalf of themselves and all Chapter 13 debtors in circumstances where Homecomings imposed pre-confirmation or post-confirmation charges without the prior approval of the presiding bankruptcy judge. Homecomings maintains that this court lacks subject matter jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1334(a) and that the complaint fails to state a claim upon which relief may be granted. After due consideration of the arguments and briefs the defendant's motion will be denied.

According to the complaint, the Pattersons filed a joint Chapter 13 petition on July 13, 2005, and showed in their schedules that the market value of their homestead was less than the amount due on their mortgage note. The trustee of the trust holding the mortgage on the Pattersons' homestead filed a proof of claim setting forth the arrearage on the mortgage note, including accumulated late charges and credits. This claim was approved by the bankruptcy judge and on September 30, 2005, the Pattersons' Chapter 13 plan was confirmed.

The Pattersons fell behind on their mortgage payments, and a second proof of claim was filed with the approval of the bankruptcy court. This proof of claim indicated that an additional $4,358.10 was owed on the note, including $143.08 in late charges and $800 in attorneys' fees and costs.

When the Pattersons refinanced their home in March 2007, they were required to pay off their creditors, including Homecomings, the third-party mortgage loan servicer. Their "Payoff Statement" included charges that exceeded the claims that were filed earlier by the mortgage holder and disclosed to the bankruptcy judge and the Chapter 13 trustee, in the amount of $956.24. The complaint adds that there is no record or other information that describes what these charges are for or why they should be paid. According to the complaint, Homecomings has imposed similar charges in other Chapter 13 cases in violation of the automatic stay of 11 U.S.C. § 362(a) and should be enjoined from engaging in such practices, required to account for improper charges, as well as pay damages and attorneys' fees.

In support of dismissal, Homecomings argues that the additional money taken by it was not property of the Chapter 13 estate or within the jurisdiction afforded by 28 U.S.C. § 1334. Also, it submits that the Pattersons have not pled any violation of the automatic stay because the amounts allegedly paid to Homecomings were not property of the Chapter 13 estate.

Whether the fees collected by Homecomings were part of the Pattersons' Chapter 13 estate is a question that focuses on the elements of the Pattersons' claim rather than a question that addresses whether the court can adjudicate the case. Thus, any dismissal should be based on Rule 12(b)(6) rather than Rule 12(b)(1). See Frey v. EPA, 270 F.3d 1129, 1132 (7th Cir.2001).

A standard rule in considering jurisdictional challenges is that when the court's jurisdiction and the claim for relief are predicated on the same federal statute but the basis for relief is subsequently found to be inapplicable, the district court should not dismiss the case under Rule 12(b)(1), but rather proceed as if jurisdiction exists and determine the merits of the claim under Rule 12(b)(6).

Id. (internal quotation marks omitted).

The Pattersons assert that Homecomings recovered more money than had been claimed in, disclosed to and approved by the bankruptcy court. Consequently, they contend that Homecomings' actions violated 11 U.S.C. § 362(a)(3) and (4).

Subsection (h) of § 362 (since renumbered as subsection 362(k))¹ expressly states that "an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys' fees, and, in appropriate circumstances, may recover punitive damages." The Seventh Circuit has held that this section creates a cause of action which may be enforced even after bankruptcy proceedings have terminated. Price v. Rochford, 947 F.2d 829, 830-31 (7th Cir.1991).

Sections 1334(a) and (b) of Title 28 state, respectively, that federal district courts "have original and exclusive jurisdiction of all cases under title 11" and "have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." Some district and bankruptcy courts within the Seventh Circuit have disagreed whether jurisdiction over § 362(h) cases fall under subsection (a) or (b). Compare Halas v. Platek, 239 B.R. 784, 792 (N.D.Ill.1999) ("This court concludes that a § 362(h) request for sanctions is within the exclusive jurisdiction of the bankruptcy court under § 1334(a)."), with Long Beach Acceptance Corp. v. City of Chicago (In re Madison), 249 B.R. 751, 755-56 (Bankr.N.D.Ill.2000) (stating that actions under § 362(h) are civil proceedings arising under Title 11 and fall under § 1334(b)). However, the Seventh Circuit suggested that § 362(h) cases are "cases under title 11" and § 1334(a) applies. See Price, 947 F.2d at 832 n. 1 ("None of the parties have questioned the propriety of bringing the case in the district court, however, and the defect is not jurisdictional. 28 U.S.C. § 1334(a) (1988) (district courts have original jurisdiction of all civil proceedings under the Bankruptcy Code)."); Martin-Trigona v. Champion Fed. Sav. & Loan Ass'n, 892 F.2d 575, 577 (7th Cir.1989) ("Section 1334(a) of the Judicial Code vests original and exclusive jurisdiction over cases arising under Title 11 (the Bankruptcy Code) in the federal district courts, and a case under section 362(h) is such a case. So, without more, it would be clear that a suit to enforce one's rights under section 362(h) could be brought in district court before a district judge, as Martin-Trigona has done."). But regardless of whether subsection (a) or (b) applies, subject matter jurisdiction exists under § 1334, so the Rule 12(b)(1) challenge must be rejected. Accord Radcliffe v. Int'l Painters & Allied Trades Indus. Pension Fund (In re Radcliffe), 372 B.R. 401, 405-06 (Bankr.N.D.Ind.2007) ("The complaint seeks relief pursuant to 11 U.S.C. § 362(h) ... and thus the Court's subject matter jurisdiction is provided by 28 U.S.C. § 1334(a) and (b)...."), aff'd 390 B.R. 881 (N.D.Ind.2008).

A motion to dismiss under Rule 12(b)(6) challenges the sufficiency of the complaint to state a claim upon which relief may be granted. See Fed.R.Civ.P. 12(b)(6). The complaint must contain a short and plain statement of the claim showing that the pleader is entitled to relief. Fed.R.Civ.P. 8(a)(2). Enough facts must be set forth to state a claim that is plausible on its face. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007); St. John's United Church of Christ v. City of Chicago, 502 F.3d 616, 625 (7th Cir.2007). The essence of a Rule 12(b)(6) motion is not that the plaintiff has pleaded insufficient facts, it is that even assuming all of her facts are accurate, she has no legal claim. Payton v. Rush-Presbyterian-St. Luke's Med. Ctr., 184 F.3d 623, 627 (7th Cir.1999). All factual allegations in the complaint are taken as true. Middleton v. City of Chicago, 578 F.3d 655, 657 (7th Cir.2009).

Upon the filing of a bankruptcy petition, § 362(a)(3) and (4) stay automatically "any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate" and "any act to ... enforce any lien against property of the estate." Subsection 362(a)(5) prohibits any act to collect, assess, or recover a claim against the debtor that arose before commencement of the bankruptcy case.

Section 362 is the central provision of the Bankruptcy Code. When a debtor files for bankruptcy, section 362 prevents creditors from taking further action against him except through the bankruptcy court. The stay protects debtors from harassment and also ensures that the debtor's assets can be distributed in an orderly fashion, thus preserving the interests of the creditors as a group.

Price, 947 F.2d at 831. The policy behind the statute

is to protect the bankrupt's estate from being eaten away by creditors' lawsuits and seizures of property before the trustee has had a chance to marshal the estate's assets and distribute them equitably among the creditors. The fundamental purpose of bankruptcy, from the creditors' standpoint, is to prevent creditors from trying to steal a march on each other, and the automatic stay is essential to accomplishing this purpose.

Martin-Trigona, 892 F.2d at 577.

The gist of Homecomings' argument for dismissal of this suit is that the Pattersons' refinancing proceeds were not property of the estate, and that its actions respecting those funds were not prohibited by the automatic stay. Title 11 U.S.C. § 541(a) includes as property of a bankruptcy estate all legal...