Smith v. CitiMortgage, Inc. (In re Smith), BANKR. CASE NO. 04-50723
| Decision Date | 21 February 2012 |
| Docket Number | ADV. NO. 11-05136,BANKR. CASE NO. 04-50723 |
| Court | U.S. Bankruptcy Court — Western District of Texas |
| Parties | In re RICHARD C. SMITH & ANN M. SMITH Debtors RICHARD C. SMITH & ANN M. SMITH Plaintiffs, v. CITIMORTGAGE, INC., ARACELI GREGORY & BRYAN SCHREPEL Defendants. |
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LEIF M. CLARK
The Debtors in this case (the "Smiths") filed a Complaint against CitiMortgage and two of CitiMortgage's employees, Araceli Gregory and Bryan Schrepel (together, "CitiMortgage")on August 24, 2011. CitiMortgage filed a Motion to Dismiss on September 21, 2011 [Docket No. 7]. On November 15, 2011 the court granted the Smiths' Motion for Leave to File Amended Complaint [Docket No. 13], and on November 16, 2011, the Smiths filed their Amended Complaint [Docket No. 14]. CitiMortgage filed a Renewed Motion to Dismiss [Docket No. 17] on November 29, 2011, and on December 12, 2011, the Smiths filed an Objection to Citimortage's Renewed Motion to Dismiss [Docket No. 18]. The following discussion addresses the Smiths' Amended Complaint, CitiMortgage's Renewed Motion to Dismiss, and the Smiths' Objection to CitiMortgage's Renewed Motion to Dismiss.
The (summarized) facts as alleged in the parties' pleadings include the following:
The Smiths bought a home from Kaufman and Broad of Texas, Ltd. on February 10, 2000. The Smiths' mortgage was secured by a deed of trust in favor of Kaufman and Broad Mortgage Company ("Kaufman"), which secured two real estate lien notes in the amounts of $137,550 ("Note A") and $20,000 ("Note B"). Also on February 10, 2000, Kaufman transferred its interest in the Smiths' deed of trust to First Nationwide Mortgage Corporation. On March 7, 2000, Kaufman again transferred its interest in the deed of trust to First Nationwide with respect to both Note A and Note B. On May 22, 2000, First Nationwide assigned its interest in Note A to Veterans Land Board of Texas, but retained the servicing rights to Note A. The Smiths assert that it is unclear whether First Nationwide also transferred its interest in Note B to the Veterans Land Board. In any event, both Note A and Note B were ultimately acquired by CitiMortgage from the respective owners of those Notes. This assignment to CitiMortgage took place after defaults under both Notes had already occurred.
The Smiths filed for protection under Chapter 13 of the Bankruptcy Code on February 2, 2004. They were in default under both Notes at this time. The Smiths' Chapter 13 plan was confirmed on July 9, 2004, and an amended order confirming the plan was entered on July 29, 2004. The plan provided that the Smiths would cure the default on the Notes. During the course of their Chapter 13 plan, the Smiths allegedly paid Note B (the $20,000 Note) in full and satisfied the arrearage on Note A (the $137,550 Note). The Smiths allege that CitiMortgage failed to document and direct payment by the Smiths of Note B, despite court orders requiring it to do so.
The Smiths completed their plan and received a discharge on July 7, 2010. On September 17, 2010, the Smiths filed an adversary proceeding (the "First Adversary Proceeding") against CitiMortgage, Texas Veterans Land Board and Federal National Mortgage Association, Case No. 10-05104, wherein the Smiths alleged that the Defendants had repeatedly violated multiple court orders and failed to give them credit for home mortgage payments made including the payoff, years earlier, of one of the two notes held or serviced by the Defendants. The Smiths also alleged various statutory and common law claims and requested sanctions for contempt of court.
On December 17, 2010, CitiMortgage finally filed its release of lien on Note B (the $20,000 Note). After much discovery, the parties settled the remainder of the claims in the First Adversary Proceeding. Although the settlement agreement was confidential, the Smiths assert that it provided for CitiMortgage to release its liens, deliver the larger of the two notes (Note A) marked paid to the Smiths, and delete all tradelines referring to the Notes as in default. CitiMortgage further states that the settlement agreement includes the following release of the Smiths' claims against:
[CitiMortgage] ... and [its] current and former predecessors ... and all of the aforementioned's respective agents, employees, officers, directors, shareholders, attorneys, collection agencies, credit reporting agencies and vendors ... from all claims of any kind ... that [the Plaintiffs'] may have with respect to the [Previous Adversary], the [Plaintiffs' Bankruptcy], the Loans, or any other matters between [the Plaintiffs] and Releasees.
The court entered an order approving the parties' settlement agreement with respect to the First Adversary Proceeding on May 23, 2011.
On June 7, 2011, CitiMortgage filed its Satisfaction of Note and Release of Lien on Note A (the $137,550 Note) in the public records of Bexar County. This lien release was signed by Bryan J. Schrepel (a named Defendant in this adversary proceeding) on behalf of CitiMortgage. Mrs. Smiths' name was allegedly misspelled on the release documents, and the Smiths allege that this clouded the title to Mrs. Smith's homestead. The Smiths allege that despite repeated requests by the Smiths to CitiMortgage to correct this error, CitiMortgage refused to do so, in violation of their obligations under the settlement agreement and this court's order approving the settlement. The Smiths further allege that CitiMortgage and Mr. Schrepel failed to return the original Note A to the Smiths, also in violation of their obligations under the settlement and this court's order approving it.
The Smiths further allege that, following execution of the settlement agreement, CitiMortgage reinserted previously deleted tradelines, which were then submitted to credit bureaus, stating that the Smiths' Notes were in default. The Smiths state that despite repeated requests to CitiMortgage to correct this inaccurate reporting, CitiMortgage (although it acknowledged the dispute and promised to correct the reporting error) failed to do so, thus damaging the Smiths' credit and preventing Mr. Smith from obtaining two vehicle loans for which he had applied. The Smiths maintain that this inaccurate credit reporting took place during the months of June, July, August and September of 2011. Furthermore, in September, 2011, the Smiths assert that a CitiMortgage representative indicated to the Smiths that their loans remained in default, and that the mortgage had been forwarded to CitiMortgage's litigation department to commence foreclosure proceedings. Indeed, in August and September of 2011, the Smiths allege that CitiMortgage's collection department sent two demand letters to the Smiths, stating "This is an attempt to collect a debt, and any information obtained will be used for that purpose." Bothletters purportedly stated that Note A was in default, and that to cure the default, the Smiths would have to "pay the past due amount of $3,272.88, including $0.0 in late charges and $27.00 in delinquency related expenses." The Smiths further allege that each letter stated:
[F]ailure to cure the default by 09/09/11 will result in acceleration of the loan. This means the entire unpaid balance will become due. Also, your property may be sold in accordance with the terms of the deed of trust and applicable law. The deed of trust entitles us to collect all expenses incurred in pursuing our remedies... You have the right to bring a court action to assert the non-existence of a default or any other defense which you have to acceleration and the sale of the property.
As of August 14, 2011, the Smiths assert that CitiMortgage's web-based accounting system showed that the Smiths still owed CitiMortgage $111,260.00.
The Smiths maintain that CitiMortgage's post-settlement conduct—failing to delete tradelines regarding the Smiths' mortgage account as agreed in the settlement, reporting inaccurate information to credit bureaus months after the settlement was executed, failing to correct this inaccurate reporting to credit bureaus after the Smiths complained of it to both CitiMortgage and the credit bureaus, failing to return the original Note A to the Smiths as required by the settlement, attempting to collect a discharged and released debt from the Smiths, and improperly commencing foreclosure proceedings on a released, discharged debt—violated the parties' settlement agreement, the court order approving it, and the discharge injunction. The Smiths seek sanctions for contempt in this regard. The Smiths further assert that CitiMortgage's conduct violated that Fair Credit Reporting Act, the Fair Debt Collection Practices Act, and the Texas Debt Collection Act. Finally, the Smiths allege that CitiMortgage should be found liable for breach of contract, the common law tort of unreasonable collection efforts, and defamation. The Smiths request actual and exemplary damages, interest and attorneys' fees.
The Smiths' bankruptcy case was administratively closed on September 1, 2011.
Citimortage's Renewed Motion to Dismiss seeks dismissal of each claim contained in the Smiths' complaint for various reasons, including lack of subject matter jurisdiction pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure, and failure to state and claim under Rule 12(b)(6).
A complaint may be dismissed for failure to state claim under Rule 12(b)(6). The Supreme Court has recently elaborated on the standard to be applied for motions to dismiss for failure to state a claim. In Bell Atlantic Corp. v. Twombly, the Court stated that Rule 8(a)(2) ofthe Federal Rules of Civil Procedure "requires only a short and plain statement of the claim showing that the pleader is entitled to relief in order to give the defendant fair notice of what the claim is and the...
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