Stewart Title Guaranty Co. v. Kesler (In re Kesler)
| Decision Date | 21 February 2013 |
| Docket Number | Case No.: 12-12716 (MBK),Adversary No.: 12-1475,Adversary No.: 12-1474 |
| Parties | In re: DONALD KESLER and CORRINE KESLER, Debtors. STEWART TITLE GUARANTY COMPANY, Plaintiff, v. DONALD KESLER and CORRINE KESLER, Defendants/Debtors, v. JP MORGAN CHASE BANK, N.A. and FEDERAL HOME LOAN MORTGAGE CORPORATION, Third-Party Defendants, FIRST FINANCIAL FEDERAL CREDIT UNION f/k/a MON-OC FEDERAL CREDIT UNION, Plaintiff, v. DONALD KESLER and CORRINE KESLER, Defendants/Debtors v. JP MORGAN CHASE BANK, N.A., FEDERAL HOME LOAN MORTGAGE CORPORATION, and STEWART TITLE GUARANTY COMPANY Third-Party Defendants, |
| Court | U.S. Bankruptcy Court — District of New Jersey |
NOT FOR PUBLICATION
Joseph H. Lemkin, Esq.
Attorneys for Third Party Defendants, JP Morgan Chase Bank, N.A.
and Federal Home Loan Mortgage Corporation
William H. Oliver, Jr.
Law Offices of William H. Oliver, Jr.
Attorney for Debtors, Donald Kesler and Corrine Kesler
This matter is before the Court by way of Motions to Dismiss ("Motions") filed on behalf of the Third Party Defendants, JP Morgan Chase Bank, N.A. ("Chase") and Federal Home Loan Mortgage Corporation ("Freddie Mac") ("Third Party Defendants"). Through the Motions, the Third Party Defendants seek to dismiss the third party claims of the Debtors, Donald Kesler and Corrine Kesler ("Debtors") in each of the captioned actions. The Debtors oppose the Motion and contend that dismissal is inappropriate because they have sufficiently pleaded their claims. Hearings on the Motions were held on January 28, 2013. For the reasons set forth below, theMotions are GRANTED and the Debtors' third party claims against Chase and Freddie Mac, in each of the captioned proceedings, are dismissed.
The Court has jurisdiction over these proceedings under 28 U.S.C. §§ 1334(a) and 157(a) and the Standing Order of the United States District Court dated July 10, 1984, as amended September 18, 2012, referring all bankruptcy cases to the bankruptcy court. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(I) and (O). Venue is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409.
On February 22, 2006, the Debtors executed and delivered a mortgage to Chase in the amount of $276,000 (the "Mortgage"), which was later assigned to Freddie Mac. Stewart Title Guaranty Company ("Stewart") issued a title insurance policy that insured the first priority lien status of the Mortgage. A portion of the loan proceeds were to be used to satisfy First Financial Federal Credit Union's ("FFFCU") prior home equity line of credit (the "HELOC"). On February 3, 2012, the Debtors filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code.
On May 14, 2012, Stewart commenced one of the underlying adversary proceedings (12-1474). In its Complaint, Stewart alleges that the Debtors failed to terminate the HELOC upon closing their loan with Chase, and instead continued to draw upon the HELOC before the Mortgage was recorded. As a result, upon foreclosure of the property, Stewart was obligated under the issued title policy to remit $47,500.00 to satisfy the obligation. Through its Complaint, Stewart seeks a non-dischargeable judgment against the Debtors arising from, and related to, the steps taken and payments made to preserve Chase's first priority position. FFFCU filed the second of the two underlying adversary proceedings against the Debtors on the same day as thefirst (12-1475). FFFCU claims that the Debtors committed a fraud by taking additional advances when Debtors knew, or should have known, that they were required to terminate the HELOC as a condition of the Chase loan.
The Debtors include in their Answer to the first-filed adversary proceeding, a third-party Complaint against Chase and Freddie Mac asserting claims for breach of contract, violation of the New Jersey Consumer Fraud Act and negligence. Stewart v. Kesler, 12-1474, Docket Entry No. 6. In the second-filed adversary proceeding, the Debtors filed a third-party Complaint against Freddie Mac, Chase and Stewart on August 15, 2012 also alleging claims for breach of contract, violation of the New Jersey Consumer Fraud Act and negligence. FFFCU v. Kesler, 12-1475, Docket Entry No. 8 ().
The Motions to Dismiss were filed on November 12, 2012. Stewart v. Kesler, 12-1474, Docket Entry No. 15; FFCU v. Kesler, 12-1475, Docket Entry No. 18. On November 15, 2012, the Court administratively consolidated the two adversary proceedings. On December 3, 2012, Stewart filed a Cross-Motion seeking dismissal of the third-party Complaint. Oral argument on the Motions to Dismiss was heard on January 28, 2013. During the hearing, the Court granted Stewart's Cross-Motion to Dismiss but reserved judgment as to the remaining Motions filed by Chase and Freddie Mac.
The Court has reviewed thoroughly the submission of the parties. For the reasons set forth below, Chase's and Freddie Mac's Motions are GRANTED and the Third Party Actions are dismissed, with prejudice, in their entirety.
Third Party Defendants assert that the Debtors' claims are "virtually incomprehensible, but appear to sound in theories of breach of contract and/or negligence and also assert conclusory allegations under the New Jersey Consumer Fraud Act." Adversary Proceeding No. 12-1474, Docket Entry No. 15-1 at *7. The Third Party Defendants seek dismissal for failure to state a claim upon which relief can be granted, and likewise argue that the Debtors' claims fail as a matter of law because they rely entirely on conclusory allegations, without any factual support. Thus, Third Party Defendants posit that the Debtors' claims do not satisfy basic pleading requirements, let alone the heightened pleading requirements which are required for consumer fraud claims. Finally, the Third Party Defendants assert that the Debtors' claim for negligence is barred by the statute of limitations. In the alternative to dismissal under Fed.R.Bank.P. 7012(b)(6), Third Party Defendants ask for summary judgment rulings in their favor.
The Debtors oppose Third Party Defendants' Motions and elaborate on the factual underpinning of this case. The Debtors explain that, subsequent to obtaining the Mortgage from Chase, a fire occurred at the property which prohibited the Debtors from renting it for a period of time. As a result, the Debtors did not receive income from the property, fell into arrears on the Mortgage, giving rise to the initiation of a foreclosure proceeding by Freddie Mac. The Debtors submit that after repairing the property, they were able to rent it out and obtain income in order to make payments on the Mortgage. The Debtors contend that at some time after they re-rented the property, Chase agreed to "put a hold on the foreclosure proceedings" and allow the Debtors to resume making monthly payments. Debtors' Brief in Opposition, 12-1474, Docket Entry No. 21 at *2. The Debtors next assert that someone at Chase "forgot" to halt the foreclosureproceedings and, as a result, Freddie Mac obtained a judgment of foreclosure and the property was sold at Sherriff's Sale. Id.
In defense of their third-party claims, the Debtors argue (1) that they have satisfied all of the elements for their breach of contract claim; (2) that the cause of action for negligence is not barred by the statute of limitations because the Debtors were unaware of the Sherriff's sale until several months after it occurred; and (3) that they have sufficiently pleaded the requisite facts to establish the existence of a cause of action for violation of the New Jersey Consumer Fraud Act. Likewise, the Debtors contend that summary judgment is inappropriate at this stage because no discovery has taken place yet.1
Fed. R. Civ. P. 14(a)(1) (emphasis added). The claims presently pending against the Debtors in the adversary proceeding filed by Stewart and FFFCU relate to the Debtors continued draws on the HELOC after closing the Mortgage with Chase, notwithstanding alleged representations that they would cease. Specifically, Stewart asserts that the Debtors actions give rise to non-dischargeable obligations under 11 U.S.C. §523(a)(2)(A), 11 U.S.C. §523(a)(2)(B) and 11U.S.C. §523(a)(6). Similarly, the claims asserted against the Debtors in the adversary proceeding filed by FFFCU also relate to the allegation that the Debtors continued to take advances on the HELOC after they took the Mortgage from Chase, despite their knowledge that the collateral of the HELOC was compromised as a result of the foreclosure proceedings. FFFCU argues that the alleged debt is non-dischargeable under 11 U.S.C. §523(a)(2)(A).
The Debtors' Third Party Actions against Chase and Freddie Mac are for breach of contract, negligence and fraud. It is unclear from the record how these allegations, even if taken as true, would render Chase and Freddie Mac liable for the alleged fraud asserted against the Debtors by Stewart and FFFCU. Clearly, it is the cited improper post-closing withdrawal of funds under the HELOC that lies at the core of the adversary proceedings against the Debtors. Any breach of contract, negligence or fraud on the part of Chase or Freddie Mac would not excuse or indemnify the Debtors from the claimed fraudulent advances on the HELOC. Thus, Chase...
To continue reading
Request your trial