Richardson v. JPMorgan Chase Bank, N.A. (In re Jordan)

• Decision Date: 07 January 2016
• Docket Number: Case No. 15–70132,Adversary No. 15–7033
• Citation: 543 B.R. 878
• Parties: In re Robert J. Jordan, Debtor. Jeffrey D. Richardson, Plaintiff, v. JPMorgan Chase Bank, N.A., Defendant.
• Court: U.S. Bankruptcy Court — Central District of Illinois

543 B.R. 878

In re Robert J. Jordan, Debtor.

Jeffrey D. Richardson, Plaintiff,
v.
JPMorgan Chase Bank, N.A., Defendant.

Case No. 15–70132
Adversary No. 15–7033

United States Bankruptcy Court, C.D. Illinois.

Signed January 7, 2016

543 B.R. 880

Andrew S. Erickson, Richardson & Erickson, Decatur, IL, for Plaintiff.

Jeffrey D. Richardson, Decatur, IL, pro se.

Sara Youn Choh, Burke, Warren, MacKay & Serritella, P.C., Edward J. Lesniak, Chicago, IL, for Defendant.

OPINION

Mary P. Gorman, United States Chief Bankruptcy Judge

The issue before the Court is whether a real estate mortgage obtained by an unlicensed lender is valid and enforceable under Illinois law. The Trustee has filed a complaint to avoid a mortgage held by JPMorgan Chase on the Debtor's residence, claiming that the original lender and mortgagee was unlicensed and therefore the mortgage is void. JPMorgan Chase has responded by filing a motion to dismiss asserting that under controlling Illinois law, even if the original lender was unlicensed, the mortgage remains valid and enforceable. Because JPMorgan is correct and current Illinois law specifically provides that violations of the licensing statute do not result in mortgages obtained by unlicensed lenders being void, the motion to dismiss will be granted.

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I. Factual and Procedural Background

Robert Jordan filed his voluntary petition under Chapter 7 on February 5, 2015. On his Schedule A—Real Property, he disclosed ownership of a residence on Wall Street in Moweaqua, Illinois. On his Schedule D—Creditors Holding Secured Claims, he listed Chase Mortgage as holding a mortgage on the Wall Street property.

JPMorgan Chase Bank ("JPMorgan") filed a motion for relief from stay claiming to be the holder of the mortgage on Mr. Jordan's residence. Attached to the motion were copies of a note and mortgage, both dated October 7, 2011, and identifying the original lender as MONEYWORK$. Also attached to the motion were assignments of the mortgage from MONEYWORK$ to the State Bank of Lincoln and from the State Bank of Lincoln to JPMorgan. After all parties in interest were given notice and an opportunity to be heard and no objection to the motion was filed, an order was entered on June 8, 2015, granting JPMorgan its requested relief.

On July 7, 2015, Jeffrey D. Richardson, the Chapter 7 Trustee ("Trustee"), filed his adversary complaint against JPMorgan asserting that the original lender, referred to in his complaint as MoneyWorks, was a sole proprietorship owned by an individual, Teresa K. Christman. He claimed that Ms. Christman was not licensed as a mortgage lender in Illinois when the loan to Mr. Jordan was made and that, due to that licensing violation, the mortgage obtained through the transaction was void.

JPMorgan filed its motion to dismiss asserting that Ms. Christman was properly licensed at the time of the transaction and that even if she was not, mortgages granted to unlicensed lenders in Illinois are not invalid. The motion to dismiss has been fully briefed and is ready for decision.

II. Jurisdiction

This Court has jurisdiction over the issues before it pursuant to 28 U.S.C. § 1334. All bankruptcy cases and proceedings filed in the Central District of Illinois have been referred to the bankruptcy judges. CDIL–LR 4.1 ; 28 U.S.C. § 157(a). Actions to determine the validity, extent, or priority of liens are core proceedings. 28 U.S.C. § 157(b)(2)(K).

The cause of action at issue here arises solely under Illinois law and not under title 11. The action does not specifically "arise in" this case because the Trustee will only prevail if he can establish that the Debtor had a valid cause of action under Illinois law to void his mortgage at the time he filed this case. In bringing this action, the Trustee is stepping into the Debtor's shoes rather than relying on his so-called strong-arm powers or his status as bona fide purchaser for value. 11 U.S.C. § 544(a). The matter is clearly related to the case as the resolution of the issues presented will impact the administration of the case and determine whether a distribution will be available for unsecured creditors. But "related to" jurisdiction is generally reserved for non-core matters. 28 U.S.C. § 157(c)(1). Here, the proceedings are core, and the existence of subject matter jurisdiction is not at issue. Rather, a question arises as to whether this Court has the constitutional authority to enter a final order in the case. See Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 2618, 180 L.Ed.2d 475 (2011).

Bankruptcy courts have exclusive in rem jurisdiction over property of the estate. 28 U.S.C. § 1334(e). An avoidance action may be undertaken to recover estate property and, when the avoidance action is against a creditor who has filed a claim in the case, the bankruptcy court has

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constitutional authority to enter a final order resolving the dispute. See Peterson v. Somers Dublin Ltd., 729 F.3d 741, 747 (7th Cir.2013). Here, however, JPMorgan has not filed a claim. And the full scope of what is or is not a Stern claim that a bankruptcy court lacks constitutional authority to fully and finally adjudicate has not been precisely defined. Thus, this Court is concerned that because of the unique nature of the avoidance action presented here, the cause of action resembles the type of state-law contract claim that has been held to be outside of a bankruptcy court's constitutional authority to finally adjudicate. See Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 56, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989).

The fix for questions regarding the constitutional authority of a bankruptcy court to adjudicate a pending matter is consent by both parties. Wellness Int'l Network, Ltd. v. Sharif, ––– U.S. ––––, 135 S.Ct. 1932, 1944–45, 191 L.Ed.2d 911 (2015). Consent to the entry of a final order where constitutional authority is not present or is questionable must be knowing and voluntary but need not be express; consent may be implied. Id. at 1948. Here, the Court finds that both the Trustee and JPMorgan have impliedly consented to this Court's entry of a final order. The Trustee filed his complaint raising no questions regarding the Court's constitutional authority to enter the final order he requested in the complaint. Likewise, JPMorgan's motion to dismiss asks the Court to enter a final order of dismissal. A final order will be entered based on the implied consent of both parties.

III. Legal Analysis

JPMorgan's motion to dismiss asserts that the Trustee has not stated a claim upon which relief can be granted and, therefore, the complaint should be dismissed. Fed.R.Civ.P. 12(b)(6) ; Fed. R. Bankr.P. 7012. In order to withstand a motion to dismiss, a complaint must allege enough facts to plausibly suggest a claim for relief. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A complaint must provide a defendant with fair notice of the claim being made and the grounds for the relief requested. Id. at 555, 127 S.Ct. 1955. And a complaint should plausibly suggest that the plaintiff has a right to relief by providing allegations that raise the right to relief above the speculative level. E.E.O.C. v. Concentra Health Services, Inc., 496 F.3d 773, 776 (7th Cir.2007). If a complaint includes only labels and conclusions or formulaic recitations of the elements of a cause of action, it is insufficient and may be dismissed. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). But regardless of the quantity of facts alleged, the cause of action that is being asserted must actually exist under applicable law. Where the alleged cause of action is not recognized, a complaint is properly dismissed. Teamsters Local Union No. 705 v. Burlington Northern Santa Fe, LLC, 741 F.3d 819, 826 (7th Cir.2014) ; Neil v. Kovitz Shirfrin Nesbit, 2014 WL 4897315, at *4 (N.D.Ill. Sept. 27, 2014) ; Guarantee Trust Life Ins. v. Insurers Administrative Corp., 2010 WL 3834026, at *3 (N.D.Ill. Sept. 24, 2010).

In his complaint, the Trustee identified his cause of action as being brought under the Illinois Residential Mortgage License Act ("RMLA"). 205 ILCS 635/1–1. The RMLA provides in part that "[n]o person, partnership, association, corporation or other entity shall engage in the business of brokering, funding, originating, servicing or purchasing residential mortgage loans without first obtaining a license[.]" 205 ILCS 635/1–3(a). In creating the RMLA,

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the Illinois legislature found that licensing of mortgage lenders was necessary "for the protection of the citizens" of Illinois and to create stability in the Illinois economy. 205 ILCS 635/1–2. Enforcement of the RMLA is generally undertaken by the Secretary of Financial and Professional Regulation with assistance from the Attorney General, and the failure to comply with the licensing requirements of the RMLA may result in an injunction compelling compliance and the imposition of fines in amounts up to $25,000. 205 ILCS 635/1–3(a), (c), (e). Although the original RMLA was silent as to the...