Putman v. Am Solutions, LLC (In re Putman)

• Decision Date: 05 September 2014
• Docket Number: Bankruptcy No. 13–14781–JDW.,Adversary No. 14–01035–JDW.
• Parties: In re Rickie D. PUTMAN and Lorraine A. Putman, Debtors. Rickie D. Putman and Lorraine A. Putman, Plaintiffs v. AM Solutions, LLC, Defendant.
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Northern District of Mississippi

519 B.R. 491

In re Rickie D. PUTMAN and Lorraine A. Putman, Debtors.
Rickie D. Putman and Lorraine A. Putman, Plaintiffs
v.
AM Solutions, LLC, Defendant.

Bankruptcy No. 13–14781–JDW.
Adversary No. 14–01035–JDW.

United States Bankruptcy Court,
N.D. Mississippi.

Filed Sept. 5, 2014.

[519 B.R. 492]

Kevin F. O'Brien, Southaven, MS, for Plaintiffs.

James C. Martin, Martin Law Office, LLC, Clinton, MS, for Defendant.

ORDER GRANTING DEFENDANT'S MOTION TO DISMISS
JASON D. WOODARD, Bankruptcy Judge.

This matter came before the Court for hearing on July 16, 2014, on the Motion to Dismiss Adversary Proceeding (the “Motion”) (A.P. Dkt. # 5) ¹ filed by AM Solutions, LLC (the “Defendant”) and the Response filed by plaintiffs Rickie D. Putman and Lorraine A. Putman (the “Debtors”)(A.P. Dkt. # 12). At the hearing on the Motion, James C. Martin appeared as attorney for the Defendant, and Kevin F. O'Brien appeared as attorney for the Debtors. The Court heard the arguments of counsel and, at the conclusion of the hearing, directed both parties to file a list

[519 B.R. 493]

of supporting authorities, which they filed on August 4, 2014 (Debtors, A.P. Dkt. # 14; Defendant, A.P. Dkt. # 15). For the reasons stated below, the Motion to Dismiss is due to be granted.

A. Jurisdiction

This Court has jurisdiction pursuant to 28 U.S.C. §§ 151, 157(a) and 1334(b) and the United States District Court for the Northern District of Mississippi's Order of Reference of Bankruptcy Cases and Proceedings Nunc Pro Tunc dated August 6, 1984. This is a core proceeding arising under Title 11 of the United States Code as defined in 28 U.S.C. § 157(b)(2)(A), (K), and (O).

B. Standard for Motion to Dismiss

Although the Motion to Dismiss does not set forth the rule under which the Defendant is seeking dismissal of this case, the Court will treat the Motion to Dismiss as being filed under Rule 12(b)(6) of the Federal Rules of Civil Procedure² for failure to state a claim upon which relief can be granted. As such, the Court must construe the Complaint liberally in favor of the plaintiff as the non-moving party and assume the truth of all well-pleaded facts. Oliver v. Scott, 276 F.3d 736, 740 (5th Cir.2002) (citing Brown v. Nationsbank Corp., 188 F.3d 579, 586 (5th Cir.1999)). In order to survive a motion to dismiss, a complaint may not rest on mere conclusions, but must assert specific facts, and the claim for relief must also be “plausible.” In re Oxford Expositions, LLC, 466 B.R. 814, 816 (Bankr.N.D.Miss.2011) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) and Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)). “A plaintiff's obligation to provide the ‘grounds' of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action's elements will not do.” Twombly, 550 U.S. at 555, 127 S.Ct. 1955 (citation omitted). Allegations that show only a “sheer possibility” of misconduct by the defendant are insufficient to withstand a motion to dismiss. Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. Generally, a court ruling on a motion to dismiss may rely only on the complaint and its proper attachments. Fin. Acquisition Partners LP v. Blackwell, 440 F.3d 278, 286 (5th Cir.2006). In addition, a court may also rely on “documents incorporated into the complaint by reference, and matters of which a court may take judicial notice.” Dorsey v. Portfolio Equities, Inc., 540 F.3d 333, 338 (5th Cir.2008) (citing Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007)).

C. Procedural History and the Issue before the Court

The Debtors filed their chapter 13 bankruptcy petition on November 13, 2013 (the “Petition Date”) (Bankr. Dkt. # 1).

Ocwen Loan Servicing, LLC (“Ocwen”) is the loan servicer and authorized agent for Deutsche Bank National Trust Company, as Trustee for Morgan Stanley Home Equity Loan Trust 2006–1, which holds the first deed of trust on the Debtors' home. The Defendant holds a second deed of trust on the Debtors' home. On March 27, 2014, Ocwen filed Proof of Claim No. 16–1 (the “Proof of Claim”) in the amount of $171,031.93. On May 27, 2014, Ocwen also filed a Notice of Postpetition Mortgage Fees, Expenses, and Charges, adding $150.00 for “Review of Plan and Notice of Appearance,” categorized as bankruptcy

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/proof of claim expenses (the “Notice of Postpetition Charges”)(Bankr.Dkt. # 38). No objections have been filed to either the Proof of Claim or the Notice of Postpetition Charges. The Defendant filed Proof of Claim No. 12–1 on February 12, 2014, in the amount of $63,340.62, secured by a second deed of trust on the Debtors' home.³

On April 17, 2014, the Debtors filed this adversary proceeding against the Defendant, alleging that the Defendants' second lien is wholly unsecured and should be stripped off pursuant to 11 U.S.C. §§ 506 and 1322(b)(2). ⁴ The Debtors contend that the Court should use the current amount of Ocwen's claim, including post-petition interest, fees, and charges, to determine whether there is any equity remaining to support the Defendant's second-position lien. The Defendant disagrees, arguing that the Court should use the claim amount as of the petition date under § 502(b). Determination of the correct date is a legal issue, and it controls the outcome of the Motion to Dismiss.

In this case, the parties agree that the collateral at issue is the Debtors' principal residence. For purposes of the Motion to Dismiss, the parties also agree that the value of the residence is $171,701.00.⁵ The parties disagree as to the value of Ocwen's secured claim, but only because they disagree about the proper date on which that claim should be valued. The only issue before the Court, then, and the one on which the resolution of the Motion to Dismiss depends, is the legal issue of determining the proper date for valuation of secured claims for the purpose of ascertaining whether the Defendant is wholly unsecured or simply undersecured. That determination controls whether or not the Debtors may strip off the Defendant's junior lien on their home. For the purposes of the Motion to Dismiss only, the parties agree that if the petition date is the appropriate date, then the Motion to Dismiss should be granted, because no relief can be granted if there is even a penny of equity to support the Defendant's second lien.⁶ The parties also agree that if some later date is the proper date for this equity determination, then the Motion to Dismiss is due to be denied because Ocwen's claim almost immediately increased above the value of the home.

D. The Amount of Ocwen's Secured Claim

In support of the Complaint, the Debtors attached a payoff statement they received from Ocwen as Exhibit A to the Complaint (the “Payoff Letter”). The Payoff Letter, dated December 12, 2013, reflects a payoff of $172,970.22 as of December 19, 2013 (a little over a month after the Petition Date), which includes the following breakdown:

Description
Amount Due

Principal	169, 862.43
Interest	2,407.79
Review of Plan/Notice of Appearance	150.00
Bankruptcy Fee	450.00
Bankruptcy Expense	100.00
Total Amount Due	$172,970.22

[519 B.R. 495]

The Payoff Letter specified that the interest set forth in the above figures included $1,031.91 in interest for October 9, 2014 to November 8, 2013, and $1,031.91 in interest for November 9, 2013 to December 8, 2013, with interest accruing at the rate of $34.39714200 per day. If the Court used this figure as the value of the first lien, the Motion to Dismiss would be due to be denied, because, for purposes of the Motion to Dismiss, Ocwen would be presumed undersecured by $1,938.29, leaving no equity to support the Defendant's second lien.⁷ However, neither the Debtors nor the Defendant contend that the Payoff Letter provides the appropriate valuation of Ocwen's claim, although this is the value addressed by the Defendant in the Motion to Dismiss.

Instead, the Debtors allege that $171,766.33 is the appropriate value of Ocwen's secured claim. To arrive at this figure, the Debtors performed the following calculations:

Description
Amount

Principal	169,862.43
Interest October 9, 2013–November 8, 2013	1,031.91
Interest November 9, 2013–November 12, 2013	171.99
Bankruptcy Fee	450.00
Bankruptcy Expense	100.00
Total Alleged Due by Debtors	$171,766.33

The difference between the Debtors' calculations and Ocwen's calculations on the Proof of Claim is that the Debtors included an extra day of per diem interest for the Petition Date itself, as well as the $450.00 Bankruptcy Fee and the $100.00 Bankruptcy Expense, neither of which were included in Ocwen's Proof of Claim or Notice of Postpetition Charges.⁸ Fees or expenses incurred as a result of the bankruptcy case are necessarily post-petition fees and expenses. If the Court uses the Debtors' figures, Ocwen would be deemed undersecured by $734.40 (and the Defendant wholly unsecured), and the Motion to Dismiss would again be due to be denied.

Each of the above scenarios, however, presumes that the date on which the Court should value Ocwen's secured claim of is some date later than the Petition Date. If the proper date to value Ocwen's secured claim for purposes of determining equity available to secure the Defendant's second lien is the Petition Date, then the Proof of Claim amount properly reflects Ocwen's

[519 B.R. 496]

secured claim of $171,031.93. Subtracting the amount of Ocwen's Proof of Claim from the agreed value of $171,701.00 would then yield $669.07 of...