Simon v. Bank of Am. (In re Simon)
| Decision Date | 10 February 2023 |
| Docket Number | 11-02788,Adv. Pro. 21-90003 |
| Parties | In re: ANTONIO BATACAN SIMON and MARIETTA ALCON SIMON, Debtors. v. BANK OF AMERICA, N.A.; RICHARD J. HOEHN, Defendants. ANTONIO BATACAN SIMON and MARIETTA ALCON SIMON, Plaintiffs, |
| Court | U.S. Bankruptcy Court — District of Hawaii |
Chapter 7 (closed)
In this wrongful foreclosure case, defendant Bank of America, N.A ("BANA"), seeks summary judgment on two grounds. First, BANA contends it is not liable for the allegedly wrongful foreclosure because it had sold the loan to another party before the foreclosure. Second, BANA argues that plaintiffs have offered no evidence that they suffered any compensable damages.
The court held a hearing on the motion on January 13, 2023. Lisa Swartzfager and Patricia McHenry represented BANA and James Bickerton and Van-Alan Shima represented the plaintiffs.
I will grant the motion in part and deny it in part.
The following facts are undisputed (except as otherwise indicated).
In 2003, Antonio Batacan Simon and Marietta Alcon Simon bought a property in Lahaina, Hawai'i. They paid for the property with a cash down payment and the proceeds of a mortgage loan.
In December 2004, the Mr. and Mrs. Simon refinanced their property, borrowing a total of $510,000 from National City Mortgage Co. d/b/a Accubanc Mortgage ("Accubanc"). The loan was evidenced by two promissory notes in favor of Accubanc in the amounts of $410,000 and $100,000, secured by first and second mortgages on the property. I will refer to the $410,000 loan as the "First Mortgage Loan."
Most of the refinance proceeds went to repay the Simons' existing mortgage loan, but they also received $81,475.16 in cash which they used to renovate the property. Between 2006 and 2008, they spent at least $500,000 more to renovate the property.
Through a series of name charges and mergers, PNC Bank, National Association ("PNC") succeeded to the rights and obligations of Accubanc. For simplicity's sake, I will generally refer to both PNC and its predecessors in interest as "PNC."
PNC serviced the first mortgage at all relevant times.
On September 1, 2003, BANA and PNC executed a Master Seller's Warranties and Servicing Agreement ("Master Agreement"). Briefly summarized, the Master Agreement provided that BANA could from purchase groups of mortgage loans; that PNC would make certain representations and warranties to BANA about each such group of loans; and that PNC would service the loans. Pursuant to the Master Agreement, in February 2005, BANA purchased a group of mortgages which included the First Mortgage Loan. After the transfer, PNC continued to service the First Mortgage Loan on behalf of BANA.[1]
In June 2009, the Simons began missing payments on the First Mortgage Loan. PNC communicated with the Simons about their defaults. In November of that year, PNC (through attorneys at Routh Crabtree Olsen) executed a forbearance agreement with the Simons. The forbearance agreement said that PNC was acting as servicer for BANA. The agreement also identified Routh Crabtree Olsen ("RCO") as "Lender's Counsel."
In early 2010, BANA conducted an internal review and identified shortcomings in the underwriting of the First Mortgage Loan. BANA decided that these shortcomings were breaches of the representations and warranties that PNC made under the Master Agreement. BANA demanded that PNC repurchase the loan; PNC agreed with BANA and repurchased the loan. PNC became the owner of the First Mortgage Loan on April 1, 2010.
No one told the Simons that PNC had repurchased the First Mortgage Loan from BANA.
PNC eventually directed attorneys at Routh Crabtree Olsen ("RCO") to initiate foreclosure proceedings. Even though PNC had repurchased the First Mortgage Loan, the foreclosure proceeded under BANA's name.
During this period, PNC continued to service other loans for BANA, and BANA separately authorized RCO to foreclose other loans on its behalf.
The foreclosure auction occurred (after a postponement) on October 7, 2010. Richard Hoehn submitted the highest bid in the amount of $499,900.00. The limited warranty deed conveying the property to Mr. Hoehn described BANA as the Grantor.
After the foreclosure sale, the Simons continued to believe that BANA owned the First Mortgage Loan, and BANA's own communications to the Simons were consistent with their view. On January 19, 2011, the Simons wrote to RCO challenging the foreclosure and demanding certain information. The Simons wrote that the foreclosing creditor was BANA and that PNC was the servicer. (ECF 100-21 at 1.) In its response, a BANA representative in the "Office of the CEO and President" said that the First Mortgage Loan was held by a trust of which BANA was trustee, that PNC was the servicer, and that the Simons should contact the servicer, PNC. (ECF 100-24.)
The value of the property at the date of the foreclosure is a disputed issue of fact. BANA offers evidence that at the time of the foreclosure, the fair market value of the property was $550,000. The Simons offer a retroactive appraisal stating that the fair market value was at least $782,000.
Neither party has offered any evidence of the what the fair value of the property would have been in a properly conducted foreclosure sale.
At the time of the foreclosure, the amount outstanding on the First Mortgage Loan was $433,673.37. The Simons did not receive the sale proceeds in excess of the First Mortgage Loan (about $65,000) and there is no evidence showing what happened to that money.
The Simons filed a chapter 7 bankruptcy petition on October 21, 2011 (Bankruptcy Case No. 11-02788). Richard Yanagi was appointed as trustee. Mr. Yanagi filed a report that there were no assets available for distribution to creditors. On January 21, 2012, the court issued the Simons' discharge and closed the bankruptcy case.
The Simons did not list a possible wrongful foreclosure claim in their bankruptcy schedules. Therefore, the unscheduled claims remained part of the estate after the case closed.[2] On October 10, 2019, the Simons filed a motion to reopen their case to administer the wrongful foreclosure claim. The court granted the motion, reopened the case, and reappointed Mr. Yanagi to serve as trustee and administer the newly disclosed assets
On February 1, 2021, Trustee Yanagi filed the complaint that commenced this adversary proceeding.[3] In summary, the complaint alleges that BANA conducted the foreclosure in an improper manner that damaged the Simons, entitling the bankruptcy estate to recover damages.
Trustee Yanagi later determined that the claims in this case have little value to the estate. He therefore moved in the main bankruptcy case to abandon the claims. The court approved the abandonment on June 30, 2022. This transferred the claims to the Simons and the court granted the trustee's motion to substitute the Simons as plaintiffs in the place of the trustee.
The court directed the parties to be prepared to discuss whether the bankruptcy court retained subject matter jurisdiction after the trustee abandoned the claims to the Simons.
Counsel for the Simons have correctly argued that subject matter jurisdiction is assessed as of the filing of the complaint.[4] When the trustee commenced this adversary proceeding, there is no question that the proceeding was "related to" the Simons' bankruptcy case within the meaning of 28 U.S.C. § 1334. A proceeding is "related to" a case under the Bankruptcy Code if [5] The Ninth Circuit has recognized "[a] bankruptcy court's 'related to' jurisdiction is very broad, including nearly every matter directly or indirectly related to the bankruptcy."[6]
Because a recovery of the property or money damages would have brought assets into the estate for the benefit of creditors, the adversary proceeding was "related to" the bankruptcy case at the inception, and the bankruptcy court continued to have subject matter jurisdiction even after the ownership of the claims and plaintiffs changed.
Another line of cases holds that, after the termination of a bankruptcy case, the bankruptcy court may retain jurisdiction of related proceedings, after considering "economy, convenience, fairness, and comity.'"[7]
Retention of this adversary proceeding is justified under the Carraher factors. Considering that this case has been pending in federal court for some time and is set for a jury trial in a few months, it would be more economical, convenient, and fair to retain the case in federal court. Because there is no parallel proceeding in state court, comity does not play a significant role.
Summary judgment is appropriate when the movant "shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."[8] In considering a motion for summary judgment, the court must "draw all reasonable inferences from the evidence" in favor of the nonmovant.[9] The movant bears the initial responsibility of presenting the basis for its motion and identifying those portion of the record . . . that it believes demonstrate the absence of a genuine issue of material fact.[10] If the movant meets its initial responsibility, the burden...
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