Le v. Wells Fargo Bank, N.A. (In re Le)

• Citation: 537 B.R. 913
• Decision Date: 18 September 2015
• Docket Number: BKY 13–32274,ADV 15–3037
• Parties: In re: Chai Misty Le and Nhut Huy Le, Debtors. Chai Misty Le and Nhut Huy Le, Plaintiffs, v. Wells Fargo Bank, N.A., Wells Fargo Home Mortgage, Schiller & Adam, P.A., and Samuel R. Coleman, Defendants.
• Court: United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — District of Minnesota

537 B.R. 913

In re: Chai Misty Le and Nhut Huy Le, Debtors.

Chai Misty Le and Nhut Huy Le, Plaintiffs
v.
Wells Fargo Bank, N.A., Wells Fargo Home Mortgage, Schiller & Adam, P.A., and Samuel R. Coleman, Defendants.

BKY 13–32274
ADV 15–3037

United States Bankruptcy Court, D. Minnesota.

Signed September 18, 2015

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Chai Misty Le, pro se.

Nhut Huy Le, pro se.

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Ellen B. Silverman, Hinshaw & Culbertson LLP, Minneapolis, MN, Samuel R. Coleman, Schiller and Adam, P.A., St. Paul, MN, for Defendant.

ORDER DISMISSING ADVERSARY PROCEEDING FOR LACK OF JURISDICTION

GREGORY F. KISHEL, CHIEF UNITED STATES BANKRUPTCY JUDGE

The plaintiffs in this adversary proceeding are the debtors in the underlying Chapter 13 case.¹ The case has been pending since May 7, 2013. The Les' plan was confirmed on May 22, 2014. The Les have appeared pro se throughout the case and the several contested proceedings within it.

This adversary proceeding is the second one the Les have commenced on the same subject matter, against defendants that included Wells Fargo and Schiller & Adam, P.A.

The first, ADV 13–3108, eventually featured 33 pleaded causes of action. It was dismissed in its entirety by the district court on April 28, 2014.² Le v. Wells Fargo Bank, N.A., 13–cv–1920, Order [Dkt. No. 175] (D.Minn. April 28, 2014), adopting Amended Report and Recommendation on Defendants' Motions to Dismiss and Motions on Bankruptcy References, 13–cv–1920 [Dkt. No. 162] (D.Minn. March 17, 2014).³ The dismissal was affirmed by the Eighth Circuit. Le v. Wells Fargo Bank, N.A., 595 Fed.Appx. 661 (8th Cir.2015).

The Les commenced this adversary proceeding by filing a complaint in the bankruptcy court on March 11, 2015. This complaint reprises most of the factual allegations of the complaint in ADV 13–3108. This time the Les set out only four counts for separately-cast relief. However, they rely on the very same notion of wrongdoing on the part of the defendants: Wells Fargo “committed” “fraud ... against real property in Ramsey County,” Minnesota owned by the Les (the house in which the Les had lived), and “the defendants have conspired to defraud and steal property” from the Les. The nexus of the litigation is a recorded mortgage against that real estate, in favor of Wells Fargo.

In the complaint in ADV 13–3108, the Les seemed to characterize Wells Fargo's actions in foreclosing on the mortgage as fraudulent. Midway through that litigation (while the matter was pending in the district court), the Les introduced an alternate notion of fraud, that signatures under their names on the mortgage instrument had been forged. The district court declined to address that theory because the plaintiffs had not pled it in their complaint or presented it on Wells Fargo's motion to dismiss. District Court Dispositive Order, 6.

As noted earlier, the complaint at bar seems to feature four separately-pleaded legal theories. At least in part, the Les

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seem to rely on the discredited “show me the note” theory, conclusively rejected by the Minnesota Supreme Court and the Eighth Circuit Court of Appeals. See, e.g., Jackson v. Mortgage Electronic Registration Systems, Inc., 770 N.W.2d 487 (Minn.2009) ; Karnatcheva v. JPMorgan Chase Bank, N.A., 704 F.3d 545 (8th Cir.2013) ; Murphy v. Aurora Loan Servs., LLC, 699 F.3d 1027 (8th Cir.2012) ; Stein v. Chase Home Fin., LLC, 662 F.3d 976 (8th Cir.2011). In conclusory fashion, they brandish the words “fraudulent” and “bogus” in reference to “trustee deeds” and “legal instruments.”⁴ However, they never directly plead that they (the Les) did not sign the mortgage instrument and they never directly plead that Wells Fargo forged their signatures on the recorded mortgage.⁵

Under their prayer for relief in ADV 15–3037, the Les seek an award of damages against the defendants, in the amount of $15,250,000.00. At one point within the text they characterize Wells Fargo's “transfers and conveyances relative to the subject property” as “fraudulent transfers [that] may be declared unlawful and reversed by this court.” However, they never directly request that avoidance remedies be imposed on Wells Fargo toward voiding any mortgage ab initio . Nor do they articulate any theory under which they, as debtors in bankruptcy, would have standing to obtain such relief.⁶

In lieu of an answer, the Defendants made a joint motion for dismissal styled under Fed. R. Civ. P. 12(b)(6), as incorporated by Fed. R. Bankr. P. 7012(b). The briefing for the motion opens with boilerplate citations to recent Supreme Court jurisprudence under Rule 12(b)(6), Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) and Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). This suggested that the Defendants were taking the now-common opening tack for the defense of civil litigation in the federal courts, challenging the facial sufficiency of the Plaintiffs' fact-pleading to meet the “plausibility standard” imposed by those two opinions. However, further on the

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Defendants asserted claim preclusion (also known as res judicata ) as an alternate basis for dismissal—i.e., that the grant of judgment against the Plaintiffs on every count of their earlier adversary proceeding against Wells Fargo bars the Plaintiffs from maintaining their present lawsuit, given the common subject matter of both lawsuits (the mortgage against the Plaintiffs' home on which Wells Fargo had gone forward in foreclosure).⁷

A hearing was convened on the motion for dismissal and on other demands for relief that the Plaintiffs had filed.⁸ Ellen B. Silverman appeared for Defendant Wells Fargo Bank, N.A. Samuel R. Coleman appeared for himself and Schiller & Adam, P.A., as Defendants. Plaintiffs Nhut Le and Chai Misty Le appeared pro se.

After the parties presented argument as to dismissal on the merits, the court raised an issue that has hovered over this adversary proceeding since its commencement: does the bankruptcy jurisdiction of the federal courts even lie as to the Plaintiffs' request for substantive relief, given the posture of the underlying case?

The parties were directed to brief that issue as well as a refinement of the claim-preclusion issue raised by the Defendants.⁹ The briefing was submitted and the matter of jurisdiction is now addressed, on the court's own motion.¹⁰

28 U.S.C. §§ 1334(a) -(b) confer jurisdiction on the federal courts,¹¹ over bankruptcy cases (28 U.S.C. § 1334(a) ) and a variety of “proceedings” associated with bankruptcy cases (28 U.S.C. § 1334(b) ). Exclusive jurisdiction is granted over bankruptcy cases. 28 U.S.C. § 1334(a) ; In re Skyline Woods Country Club, 636 F.3d 467, 471 (8th Cir.2011).¹²

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Within the structure of a bankruptcy case, then, “original but not exclusive” federal jurisdiction is granted, as to “civil proceedings arising under [the Bankruptcy Code], or arising in or related to cases under [the Bankruptcy Code].” 28 U.S.C. § 1334(b). The component “civil proceedings” within a bankruptcy case under federal jurisdiction are divided into core proceedings, 28 U.S.C. §§ 157(b)(1)-(2), and proceedings that are “not a core proceeding but that [are] otherwise related to a case under” the Bankruptcy Code, 28 U.S.C. § 157(c)(1). Specialty Mills, Inc. v. Citizens State Bank, 51 F.3d 770, 773 (8th Cir.1995).

Core proceedings are statutorily enumerated in 28 U.S.C. § 157(b)(2). They all revolve around the two broad classes of relief accorded during the bankruptcy process, to debtors on the one hand and to creditors on the other. In re Barsness, 398 B.R. 655, 658 (Bankr.D.Minn.2008) (citing facial language of enumeration in 28 U.S.C. §§ 157(b)(2)(A)—(P) ).¹³ Debtors' remedies in bankruptcy revolve around discharge, or other relief from the burden of debt like reorganization under Chapters 11 and 12 and debt adjustment under Chapter 13. Creditors' remedies in bankruptcy mainly concern the realization on their claims—i.e. getting some satisfaction on the debtor's debt to them.¹⁴ In the bankruptcy process, the means for that realization is the administration of the estate that arises on every bankruptcy filing by operation of 11 U.S.C. § 541(a). Depending on the form of bankruptcy sought under the petition, the administration is performed through the recovery and liquidation of assets (Chapter 7) or the management of the estate's assets pending the confirmation of a plan through which creditors will receive payment from the debtor's future, post-confirmation resources (Chapters 11, 12, or 13).

The Eighth Circuit has cautioned against giving a broad scope to core-proceeding status, to avoid breaching Article III's structural limitations on the exercise of the judicial power of the United States, i.e. plenary federal judicial power. In re Cassidy Land and Cattle Co., Inc., 836 F.2d 1130, 1132 (8th Cir.1988). See also In re Marine Iron & Shipbuilding Co ., 104 B.R. at 982.

On the other hand, related-proceeding jurisdiction has long been described as “broad.” E.g., Cutcliff v. Reuter, 791 F.3d 875, 881–882 (8th Cir.2015) ; Buffets, Inc. v. Leischow, 732 F.3d...