Trevino v. Select Porfolio Servicing, Inc. (In re Trevino)

• Decision Date: 07 March 2019
• Docket Number: ADVERSARY NO. 16-7024,CASE NO: 10-70594
• Citation: 599 B.R. 526
• Parties: IN RE: Jose Sr. TREVINO, et al, Debtors Jose Trevino, et al, Plaintiffs v. Select Porfolio Servicing, Inc., et al, Defendants
• Court: U.S. Bankruptcy Court — Southern District of Texas

599 B.R. 526

IN RE: Jose Sr. TREVINO, et al, Debtors

Jose Trevino, et al, Plaintiffs

v.Select Porfolio Servicing, Inc., et al, Defendants

CASE NO: 10-70594

ADVERSARY NO. 16-7024

United States Bankruptcy Court, S.D. Texas, McAllen Division.

Signed March 7, 2019

Catherine Stone Curtis, Pulman, Cappuccio & Pullen, LLP, McAllen, TX, Karen L. Kellett, Kellett & Bartholow PLLC, Caitlyn N. Wells, Dallas, TX, for Plaintiffs.

H. Gray Burks, IV, ShapiroSchwartz LLP, Houston, TX, Thomas A. Connop, Thomas George Yoxall, Locke Lord LLP, Dallas, TX, Stephen Jacob Humeniuk, Locke Lord LLP, Austin, TX, for Defendants.

FED. R. BANKR. P. MEMORANDUM OPINION DENYING PLAINTIFFS' MOTION TO RECONSIDER THE COURT'S ORDER AND OPINION OF NOVEMBER 14, 2018 STAYING THESE PROCEEDINGS AND COMPELLING THE PARTIES TO ARBITRATION PURSUANT TO 7054 AND FED. R. CIV. P. 54(b)

Resolving ECF No. 152

Eduardo V. Rodriguez, United States Bankruptcy Judge

I. INTRODUCTION

"When will mankind be convinced that and agree to settle their difficulties by arbitration?"¹ In this motion to reconsider, this Court decides whether compelling arbitration stands in inherent conflict with a case containing, inter alia, several claims entirely derived from the provisions of the Bankruptcy Code. The Fifth Circuit has stated that orders compelling arbitration are fact-driven and case-specific. Here, not only does this case reflect a two-party dispute over charges that represent a small percentage of the total assets of the administered estate, but the underlying bankruptcy case is already closed to begin with. That being said, it gives this Court great pause in considering sending matters derived exclusively from the Bankruptcy Code to arbitration. Nevertheless, in this particular case, the Court finds that compelling arbitration is appropriate.

II. FINDINGS OF FACT

Jose Trevino and Teresa Trevino ("Plaintiffs or Debtors ") filed their joint chapter 13 petition on August 25, 2010.² The case was completed on September 8, 2015; Debtors received their discharge on July 21, 2016; and this Court entered a final decree on April 25, 2018.³ After receiving their discharge, Plaintiffs filed the Adversary Proceeding against Select Portfolio Servicing, Inc. ("SPS ") and Wilmington Savings Fund Society, FSB, d/b/a Christiana Trust, as Indenture Trustee for CSMC 2015-RPL1 Trust, Mortgage-Backed Notes, Series 2015-RPL1 ("Wilmington ") (collectively "Defendants ") on September 26, 2016.⁴ Less than two months later, on November 18, 2016, Plaintiffs amended their complaint, alleging: (1) abuse of process; (2) violations of the Real Estate Settlement Procedures Act and Truth-in-Lending Act; (3) relief pursuant to FED. R. BANKR. P. 3002.1(i) ; (4) violations of the chapter 13 plan and the orders confirming the plan; (5) violations of the Fair Debt Collection Practices Act; (6) violations of the Texas Debt Collection Act; (7) breach of contract; (8) violation of the discharge injunction; and (9) willful violation of the automatic stay.⁵ Defendants responded on January 13, 2017, by filing "Defendants' Motion to Dismiss Each Cause of Action in the Amended Petition Pursuant to Rule 12(b)(6)" ("Motion to Dismiss "),⁶ which was supplemented by an amended motion to dismiss the next day, containing minor edits and corrections⁷

In the "Comprehensive Scheduling, Pre-Trial & Trial Order" entered on January 25, 2017, Plaintiffs consented to the entry of final orders on all non-core matters by this Court.⁸ On February 8, 2017, Defendants submitted their "Second Amended Motion to Dismiss Each Cause of Action in the Amended Complaint Pursuant to Rule 12(b)(6)" ("Second Amended Motion to Dismiss "), and consented "to this Court adjudicating, and hearing and determining the causes of action raised in Plaintiffs' Complaint."⁹ Plaintiffs filed their response and amended response to the Second Amended Motion to Dismiss on April 7 and April 14, 2017.¹⁰ On July 7, 2017, the Court abated the scheduling order pending ruling on the Second Amended Motion to Dismiss.¹¹ On February 23, 2018, this Court denied Defendants' Second Amended Motion to Dismiss and unabated the scheduling order.¹²

Defendants filed their answer and amended answer to the complaint on April 13, 2018, and May 3, 2018.¹³ On May 15, 2018, and again on June 19, 2018, a notice of appearance was entered with new counsel appearing on Defendants' behalf.¹⁴ Shortly thereafter, on June 21, 2018, Defendants introduced the issue of arbitration by filing "Defendants' Motion to Stay and to Compel Arbitration" ("Motion to Arbitrate ").¹⁵ Within their Motion to Arbitrate, Defendants point to a note and deed of trust executed by Plaintiffs.¹⁶ The deed of trust included an arbitration rider ("Arbitration Rider ") executed by Plaintiffs which expressly defined the security instrument to include "all Riders to this document."¹⁷ The Arbitration Rider provides that: "all disputes, claims or controversies arising from or related to the loan evidenced by the Note (the "Loan"), including statutory claims, shall be resolved by binding arbitration, and not by court action, except as provided under ‘Exclusions from Arbitration’ below."¹⁸ The Arbitration Rider further provides that the agreement to arbitrate "shall be governed by the Federal Arbitration Act."¹⁹

Plaintiffs filed their "Response in Opposition to Defendants' Motion to Compel Arbitration" ("Response to Motion to Compel") on July 24, 2018.²⁰ A hearing on the Motion to Arbitrate was held on August 31, 2018, with this Court taking the matter under advisement.²¹ On November 14, 2018, this Court issued its "Order Granting Defendants' Motion to Stay and to Compel Arbitration" ("Order Compelling Arbitration ").²² Fifteen days later, Plaintiffs filed their "Emergency Motion to Extend Deadline to File Notice of Appeal Regarding Order Compelling Arbitration (Docket No. 139)" ("Emergency Motion ").²³ Defendants responded to Plaintiffs' Emergency Motion on December 13, 2018.²⁴ On December 14, 2018, this Court denied Plaintiffs' Emergency Motion ("Order Denying Emergency Motion ").²⁵

The same day the Court issued its Order Denying Emergency Motion, Plaintiffs filed their "Motion to Reconsider the Court's Order and Opinion of November 14, 2018 Staying These Proceedings and Compelling the Parties to Arbitration Pursuant to FED. R. BANKR. P. 7054 and FED. R. CIV. P. 54(b)" ("Motion to Reconsider ").²⁶ Defendants filed their "Response to Plaintiffs' Motion to Reconsider the Court's Order and Opinion of November 14, 2018 Staying These Proceedings and Compelling the Parties to Arbitration Pursuant to FED. R. BANKR. P. 7054 and Fed. R. Civ. P. 54(b)" ("Response "),²⁷ on January 4, 2019, along with a supplemental memorandum on January 16, 2019.²⁸ Plaintiffs filed their reply to Defendants' Response and supplemental memorandum on January 28, 2019.²⁹ Based on the briefs presented, all evidence in the record, and relevant case law, this matter is ripe for consideration, and the Court now issues its Memorandum Opinion.

III. CONCLUSIONS OF LAW

A. Jurisdiction, Venue, and This Court's Constitutional Authority to Enter a Final Order

This Court holds jurisdiction pursuant to 28 U.S.C. § 1334 and now exercises its jurisdiction in accordance with Southern District of Texas General Order 2012-6.³⁰ Plaintiffs' claims are core matters under § 157(b)(2), and this Court holds the constitutional authority under Stern v. Marshall to issue a final order.³¹ To the extent that non-core matters exist, parties may consent to this Court's entry of final judgments regarding non-core matters.³² Here, Plaintiffs filed their notice of consent on January 25, 2017,³³ and Defendants filed their notice of consent on April 27, 2018.³⁴ Therefore, even if non-core matters exist, all parties have consented, and this Court holds the constitutional authority to enter a final order and judgment.³⁵ Venue is governed by 28 U.S.C. §§ 1408, 1409. Here, venue is proper because the Court presided over the underlying Bankruptcy Case.³⁶

B. Whether Plaintiffs' Motion to Reconsider is to be Considered Under FED. R. CIV. P. 54(b)

There is no specific provision for a motion to reconsider under the Federal Rules of Civil Procedure.³⁷ In the Fifth Circuit, a motion to reconsider may be brought under Rule 54(b) or Rule 59(e).³⁸ Whereas Rule 59(e) applies only to final judgments and does not permit consideration of arguments that could have been raised previously, Rule 54(b) applies to interlocutory judgments and permits a district court to reconsider and reverse its decision for any reason.³⁹ " Rule 54(b)'s approach to the interlocutory presentation of new arguments as the case evolves can be more flexible, reflecting the inherent power of the rendering district court to afford such relief from interlocutory judgments as justice requires."⁴⁰ In Austin , the Fifth Circuit held that when a district court applies the more stringent Rule 59(e) standard in denying a motion to reconsider an interlocutory order, it must be vacated and remanded for the district court to reconsider the motion for reconsideration under the more flexible Rule 54(b).⁴¹

An order compelling arbitration is interlocutory.⁴² This Court was asked to reconsider the Order Compelling Arbitration, not asked to reconsider a final judgment.⁴³ As such, this Court will only address the Motion to Reconsider under Rule 54(b), and not Rule 59(e), because if Plaintiffs' cannot meet the requirements of Rule 54(b), they will certainly not meet the more stringent requirements of Rule 59(e). Here, the Court finds no reason to reconsider its Order Compelling Arbitration. The Court, in its decision, went step-by-step in appraising the facts and the law. Within their Motion to Reconsider, Plaintiffs' cast heavy reliance on the recently issued opinion by the Fifth Circuit, In re Forby ,⁴⁴ claiming that Forby establishes that the filing and prosecuting of a motion to dismiss is enough to constitute a waiver of a party's right to compel...