Le v. Wells Fargo Bank, Na, Schiller &, Adam, P.A.

• Decision Date: 17 March 2014
• Docket Number: Civil No. 13-1920 SRN/JJK
• Parties: Nhut Le and Chai M. Le, Plaintiffs, v. Wells Fargo Bank, NA, Schiller &, Adam, P.A. James J. Pauly, Divine N. Difongwa, Sidney Jintara, Sarah J.B. Adam, and Rebecca Schiller, Defendants.
• Court: U.S. District Court — District of Minnesota

Nhut Le and Chai M. Le, Plaintiffs, v. Wells Fargo Bank, NA, Schiller &, Adam, P.A. James J. Pauly, Divine N. Difongwa, Sidney Jintara, Sarah J.B.

Adam, and Rebecca Schiller, Defendants.

Civil No. 13-1920 SRN/JJK

UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA

March 17, 2014

AMENDED REPORT AND RECOMMENDATION ON DEFENDANTS' MOTIONS TO DISMISS AND MOTIONS ON BANKRUPTCY REFERENCES

Nhut Le and Chai M. Le, 422 Eldridge Avenue East, Maplewood, MN 55117, pro se plaintiffs;

Ellen B. Silverman, Esq., Hinshaw & Culbertson LLP, and Jeffrey D. Klobucar, Esq., Schiller & Adam, P.A., for defendant Wells Fargo Bank, N.A.; and

Jeffrey D. Klobucar Esq., Schiller & Adam, P.A., for defendants Schiller & Adam, P.A., James J. Pauly, Divine N. Difongwa, Sidney Jintara, Sarah J.B. Adam, and Rebecca Schiller.

This action is before the Court, Magistrate Judge Jeffrey J. Keyes, on separate motions to dismiss by Defendants Wells Fargo Bank, N.A., and Wells Fargo & Company ("Wells Fargo") [Doc. No. 100], and Defendants Schiller & Adam, P.A., James J. Pauly, Divine N. Difongwa, Sidney Jintara, Sarah J.B. Adam, and Rebecca Schiller ("Schiller Defendants") [Doc. No. 106]. Defendants further move for procedural relief to facilitate consideration of certain issues by the appropriate court.¹ Hearing on the motions was held on February 27, 2014, at the United States Courthouse, 316 No. Robert St., St. Paul, Minnesota. The motions have been referred to the Magistrate Judge for report and recommendation under 28 U.S.C. §636(b)(1). It is the court's determination herein that the Defendants' motions as to Bankruptcy Court references should be granted; the separate motions to dismiss by Wells Fargo and the Schiller Defendants should be granted; and Plaintiffs' motion under Fed. R. Civ. P. 12(f) to strike Defendants' motion submissions should be denied.

I. Background

The claims in this case arise out of the foreclosure and sheriff's sale of Plaintiffs Nhut Le and Chai M. Le's residence located at 422 Eldridge Avenue East, Maplewood, Minnesota. A mortgage on the property was granted to Wells Fargo on October 7, 2011, as security for a promissory note in the amount of $155,944, also executed on October 7, 2011, in favor Wells Fargo as the lender. (Doc. No. 103; Aff. of Silverman, Attach. pp. 1-11.) There were no sales orassignments of the note or the mortgage. (Id., Attach. 69.) Foreclosure proceedings commenced in June 2012 (Id., Attach. 53), and the property was sold to Wells Fargo for the sum of $170,192.07 at a Sheriff's sale held on October 2, 2012. (Id.) The Plaintiffs were given notice that unless the mortgage was reinstated or the redemption period was altered, they were required to vacate the premises by April 2, 2012. (Id. Attach. 61.) The mortgage was not reinstated and the redemption period expired on April 2, 2013. (Id. Attach. 69-70.)

II. Procedural History and Claims

Despite having failed to make even a single payment on the mortgage,² Plaintiffs continued to occupy the residence. Defendant Schiller & Adam commenced an eviction proceeding in Ramsey County on April 23, 2013. (Case No. 62-HG-CV-13-1016) The matter was stayed by the Ramsey County Housing Court pending an anticipated bankruptcy filing. (Id.) Plaintiffs filed for bankruptcy on May 7, 2013. (Bky. Case No. 13-32274.)³

On May 17, 2013, Plaintiffs commenced an adversary proceeding in the bankruptcy action (Adv. No. 13-03108) ("3108") asserting many of the sameclaims alleged in the present case (13-1920).⁴ Defendants moved to dismiss the 3108 action in June 2013. On July 3, 2013, the Plaintiffs "removed" the eviction matter from Ramsey County Court to the Bankruptcy Court as a second adversary proceeding. (Adv. No. 13-03135) ("3135").⁵

This case (13-1920) was filed in District Court on July 17, 2013. (Doc. No. 1.) On July 31, 2013, Plaintiffs filed a "Notice of Removal" in their bankruptcy case, which essentially transferred the entire bankruptcy case to District Court as Civil File No. 13-2064 ("2064"). On that date, Wells Fargo also moved in Bankruptcy Court to remand the eviction matter to Ramsey County Court. Finally, on August 14, 2013, Plaintiff filed a Notice of Removal of the eviction matter within the 3135 adversary proceeding, which manifested itself in District Court as Civil File No. 13-2199.

On October 17, 2013, Judge Nelson issued a Consolidation Order consolidating the 1920, 2064 (core bankruptcy), 3108 (adversary), and 3135 (eviction) cases for all purposes in Case Number 13-1920. (Doc. No. 68.) TheOrder denied all pending motions without prejudice and ordered Plaintiffs to file an Amended Complaint. (Id.)

On November 19, 2013, Plaintiffs Nhut Le and Chai M. Le filed a 33-count Amended Complaint (Doc. 95) in which they allege violations of civil rights under 42 U.S.C. §§ 1981, 1982, 1983, 1985 and 1986 (Counts 1-5); bankruptcy fraud (Count 6); violation of the Fair Housing Act (Count 7); violations of the Fair Debt Collection Practices Act (Count 8); RICO violations (Count 9); violation of the Consumer Credit Protection Act (Count 10); violation of the Real Estate Settlement Procedures Act (Count 11); violation of the Home Owner Equity Procedures Act (Count 12); multiple violations of the Federal False Claims Act (Counts 13-17); securities fraud (Count 18); Minnesota False Claims Act violation (Count 19); quiet title (Count 20); U.S. Constitutional violations (Count 21); adverse possession (Count 22); cancellation of false liens and false interest on real property (Count 23); aiding and abetting (Count 24); civil conspiracy (Count 25); breach of contract (Count 26); tortuous interference with business contract (Count No. 27); unjust enrichment (Count 28); malicious prosecution (Count 29); breach of duty of good faith and fair dealing (Count 30); intentional infliction of emotional distress (Count 31); deceptive trade and unfair business practices (Count 32); and declaratory judgment (Count 33).

III. Bankruptcy References

A. Defendants' Motion to Withdraw the Reference as to the2050 Case. On December 6, 2013, Defendants' filed a Motion to Withdraw the Reference as to the 2050 Case, i.e. the 3108 adversary case,⁶ (Doc. No. 121), thereby allowing the matter to proceed in District Court. In their supporting memorandum, Defendants concede that mandatory withdrawal is not required. (Doc. No. 123 at 6-7.) Defendants argue, however, that discretionary withdrawal is appropriate because the issues presented are all non-core proceedings that need not be adjudicated in bankruptcy court. (Id. at 7-8.)

Under 28 U.S.C. § 157(d), the court may withdraw the reference "for cause shown." Although the statute does not describe what type of cause is sufficient to justify withdrawal of the reference, the Court "should consider the goals of promoting uniformity in bankruptcy administration, reducing forum shopping and confusion, fostering the economical use of the debtors' and creditors' resources, and expediting the bankruptcy process." Kelley v. JPMorgan Chase & Co., 464 B.R. 854, 861 (D. Minn. 2011). Other factors to consider include "whether the claim is core or non-core, whether withdrawal would promote the efficient use of judicial resources, whether a jury has been demanded and whether withdrawal would prevent delay." (Id.)

This court agrees with the Defendants that the reference should be withdrawn. The issues presented in the 3108 adversary case are non-core issues. Additionally, judicial economy favors keeping the 3108 case in the DistrictCourt with the 1920 case because the two contain similar allegations. Also, litigating the cases separately may result in conflicting holdings or potential issues of res judicata. Accordingly, Defendants' Motion to Withdraw the Reference as to the 2050 Case should be granted. The 2050 case claims are addressed in the context of the motions to dismiss under consideration in this Report and Recommendation.

B. Defendants' Motion to Sever the Bankruptcy Case. On December 6, 2013, Defendants filed a Motion to Sever the Bankruptcy Case. (Doc. No. 128.) In their supporting memorandum, Defendants' argue that the Bankruptcy Case should be severed and allowed to proceed in Bankruptcy Court. (Doc. No. 130.) Plaintiffs did not respond to this motion, but indicated in their earlier Motion to Withdraw the Reference that they wish to keep the Bankruptcy Case in Bankruptcy Court so that they may continue to pay into their Chapter 13 plan. (Doc. No. 76 at 4.)

Both Plaintiffs and Defendants want the core Bankruptcy Case to remain in Bankruptcy Court; neither side has filed a motion to withdraw the reference to Bankruptcy Court; and this Court does not have jurisdiction over the bankruptcy case issues unless the reference is withdrawn. There is no compelling reason to withdraw the reference or to continue the Bankruptcy Case in this Court. Accordingly, Defendants' Motion to Sever the Bankruptcy Case should be granted and the core bankruptcy case should be allowed to proceed inBankruptcy Court.

C. Defendants' Motion to Withdraw the Reference as to the Eviction Matter, Sever the Eviction Matter from the Consolidated Case, and Remand the Eviction Matter to State Court. On December 6, 2013, Defendants filed a Motion to Withdraw the Reference as to the Eviction Matter, Sever the Eviction Matter from the Consolidated Case, and Remand the Eviction Matter to State Court.⁷ (Doc. No. 114.)

1. Withdrawing the Reference as to the Eviction Matter

In their supporting memorandum, Defendants argue that discretionary withdrawal of the reference is appropriate in this case. (Doc. No. 116 at 8-9.) Defendants concede that this case does not require mandatory withdrawal, but instead argue that discretionary withdrawal is appropriate because all of the issues are non-core proceedings. (Id.)

In this case, the issues in the 3135 adversary case are non-core. Additionally, confusion of the issues in the eviction case would be reduced and judicial efficiency would be improved as to the...