Vessillo v. SunTrust Bank (In re Vessillo)
| Decision Date | 03 January 2022 |
| Docket Number | 14-16134-PDR,Adv. Case 20-01393-PDR |
| Court | U.S. Bankruptcy Court — Southern District of Florida |
| Parties | In re: Anthony J. Vessillo, Debtor. v. SunTrust Bank, Defendant. Anthony J. Vessillo, Plaintiff, |
David Langley, Esq.
ORDER DENYING MOTION FOR DEFAULT JUDGMENT AND SUA SPONTE DISMISSING CASE WITH PREJUDICE
Can a chapter 7 debtor seek relief under the avoiding powers of § 544? Does "has" in 11 U.S.C. § 506 mean presently "have" or "had as of the petition date"? And does the Court have subject matter jurisdiction to quiet title to property in which the estate has no interest? These are the questions presented by this adversary proceeding and the answers are fundamental to whether the Court has subject matter jurisdiction to strip a lien on the Debtor's homestead property many years after his Chapter 7 case was closed. The Court finds that it lacks subject matter jurisdiction and dismisses this case with prejudice.
The Debtor owns a Homestead in Fort Lauderdale Florida.[1] On March 17, 2014, the Debtor filed a voluntary Chapter 7 petition and claimed the Homestead exempt.[2] The Debtor was discharged on June 27 2014, and the Court issued its final decree and closed the case on June 11, 2015.[3] In 2019, the case was reopened to allow the Debtor to avoid certain liens against the Homestead under 11 U.S.C. § 522(f); the case was re-closed on February 27, 2020.[4]
On August 31, 2020, the Court, upon the Debtor's request reopened the case again so the Debtor could file an adversary to avoid a lien held by SunTrust Bank recorded against his Homestead.[5] In the Complaint, the Debtor alleges that SunTrust held a note and mortgage on the Homestead which were the subject of state court litigation in which SunTrust obtained a money judgment ("Final Judgment"), that the Final Judgment was discharged, and that the statute of limitations has run for SunTrust to enforce the Final Judgment through foreclosure on the Homestead. Count I seeks "to determine the extent, validity, and priority of SunTrust's Claim of Lien" and Count II seeks to quiet title.
The Debtor served SunTrust, but SunTrust did not respond to the Complaint. Consequently, the Debtor seeks entry of final default judgment.[6] However, the Court must first determine whether it has subject matter jurisdiction and ordered the Debtor to brief the issue.[7] The Debtor argues the Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334(b) through both "arising under" and "related to" jurisdiction.
Subject matter jurisdiction defines the limits of a court's power to hear cases and resolve disputes. Lightfoot v. Cendant Mortg. Corp., 17 S.Ct. 553, 560 (2017). Parties can neither waive nor consent to subject matter jurisdiction. Ashcroft v. Iqbal, 556 U.S. 662, 671 (2009). The limits of a court's jurisdiction are so vital to the integrity of the judiciary that, where the Court identifies a potential jurisdictional issue, it is independently obligated to inquire into its authority to proceed. See Hertz v Friend, 559 U.S. 77, 94 (2010). If the Court determines it lacks subject matter jurisdiction, it is "constitutionally obligated" to dismiss the case. Nat'l Loan Acquisitions Co. v. Pet Friendly, Inc., 743 Fed.Appx. 390, 392 (11th Cir. 2018).
This Court has subject matter jurisdiction to hear any matter arising under title 11 or arising in or related to cases under title 11. See 11 U.S.C. § 157(a); 28 U.S.C. § 1334(b). "Arising under" proceedings are matters invoking a substantive right created by the Bankruptcy Code, "arising in" proceedings are generally thought to involve administrative-type matters within bankruptcy cases, and "related to" jurisdiction refers to cases where the outcome of the proceeding could conceivably affect the estate. See Continental Nat'l Bank of Miami v. Sanchez (In re Toledo), 170 F.3d 1340, 1345 (11th Cir. 1999).
Count I seeks to value and determine the secured status of SunTrust's lien. Though the Debtor's complaint references § 544, none of the express language in the Complaint tracks with any portion of § 544. Rather, Count I's language directly mirrors § 506(a) and the Debtor's arguments in favor of the Court's exercise of jurisdiction focus solely on § 506(a), not § 544. However, for sake of completeness, the Court addresses both statutes.
Section 544 is not meant to provide a Chapter 7 debtor with an avenue to avoid liens. Rather, § 544 is a "strong arm clause" for the trustee "to cut off secret and undisclosed claims against the debtor's property as of the beginning of the bankruptcy case." See Smith v. Dynasty Grp., Inc. (In re Heritage Real Estate Inv., Inc.), No. 16-00040-NPO, 2017 WL 4693991, at *3 (Bankr. S.D.Miss. Oct. 17, 2017) (quoting Consolidated Partners Inv. Co. v. Lake, 152 B.R. 485, 490 (Bankr.N.D.Ohio 1993)); see, e.g., Welt v. Jacobson (In re Aqua Clear Tech., Inc.), 361 B.R. 567 (Bankr. S.D. Fla. 2007).
This is a Chapter 7 case. Though the Bankruptcy Code provides certain debtors, such as Chapter 11 debtors in possession, with the powers of a trustee, Chapter 7 debtors lack those powers. See, e.g., 11 U.S.C. § 1107(a) (). The Debtor has not provided, nor can the Court find, any basis for a Chapter 7 debtor to utilize § 544 for his own benefit. Therefore, to whatever extent the Debtor seeks relief under § 544 in Count I, the Court in unable to provide it.
Under 11 U.S.C. § 506(a), the Court can value and determine the secured status of "an allowed claim of a creditor secured by a lien on property in which the estate has an interest." The Debtor seeks to value and determine the secured status of SunTrust's lien, which is secured by the Homestead. The Homestead was claimed exempt from the Estate on the Petition Date.[8] See 11 U.S.C. § 522(b)(1); Taylor v. Freeland & Kronz, 503 U.S. 638, 643-44 (1992) (explaining that, once the expiration See 11 U.S.C. § 522(b)(1). Therefore, the Homestead is not now, nor has it ever been, property in which the Estate has an interest. Consequently, § 506(a)'s unambiguous language prevents the Court from valuing and determining the secured status of SunTrust's lien on the Homestead.
Bodensiek, 522 B.R. at 740. In other words, Bodensiek holds that if the estate had an interest in the property on the petition date, a debtor can use § 506(a) to value and determine the secured status of a lien on the property even when the estate no longer has an interest in it.[9] As the Court has already explained, the Estate never had an interest in the Homestead so even under Bodensiek, it would seem the Debtor is unable to access § 506(a). But in the interest of addressing the Debtor's central argument, the Court notes that even if the Estate had some fictitious interest in the Homestead on the Petition Date, it declines to apply Bodensiek's reasoning.
Neither Justice Scalia's Dewsnup dissent nor Bodensiek provide a substantive textual analysis to explain why in § 506(a) the phrase "in which the estate has an interest" must be synonymous with "in which the estate had an interest on the petition date." Rather, they rely on the suggestion that the application of the phrase's plain meaning would lead to absurd results.
The Court disagrees. The plain language of the phrase "in which the estate has an interest" is not analogous to the phrase "in which the estate had an interest on the petition date." The word "has" is the "third person singular present tense of have."[10] Has, American Heritage Dictionary of the English Language (5th ed. 2016).[11]The statute does not use the past tense had, although Congress could have easily done so. Therefore, § 506(a)'s use of the word "has" is present tense and means that the estate must have an interest when the court provides the relief.
This interpretation is further bolstered by the Bankruptcy Code's use of different language when it seeks to tie relief to something other than the estate's present interest in property. For example, lien avoidance under 11 U.S.C. § 522(f)(1) allows the debtor to avoid liens "on an interest of the debtor in property" - like the Homestead. Relief under § 522(f)(1) is, therefore, entirely independent from the estate's interest in the property, while § 506(a) relief is entirely dependent on it.[12] In addition, § 522(b)(3)(A) allows debtors to exempt assets from property of the estate to the extent the exemption is "applicable on the date of the filing of the petition." These are just two examples of the Bankruptcy Code's general clarity about...
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