White-Lett v. Bank of N.Y. Mellon, Corp. (In re Lett)

• Decision Date: 12 March 2021
• Docket Number: ADVERSARY PROCEEDING NO. 20-6278-BEM,CASE NO. 10-61451-BEM
• Parties: IN RE: Shirley Lett, Debtor. Shirley White-Lett, Plaintiff, v. The Bank of New York Mellon, Corp., BANK OF AMERICA, N.A., Federal National Mortgage Association a/k/a Fannie Mae, Federal Home Loan Mortgage Corp. a/k/a Freddie Mac, Mortgage Electronic Registration Systems Incorporated (MERS), RRA CP Opportunity Trust 1, Merscorp Holdings, Inc. d/b/a MERS, Shellpoint Mortgage Servicing, and The Bank of New York Mellon, Defendants.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

IN RE: Shirley Lett, Debtor.Shirley White-Lett, Plaintiff, v. The Bank of New York Mellon, Corp., BANK OF AMERICA, N.A.,Federal National Mortgage Association a/k/a Fannie Mae,Federal Home Loan Mortgage Corp. a/k/a Freddie Mac,Mortgage Electronic Registration Systems Incorporated (MERS),RRA CP Opportunity Trust 1, Merscorp Holdings, Inc. d/b/a MERS,Shellpoint Mortgage Servicing, and The Bank of New York Mellon, Defendants.

CASE NO. 10-61451-BEM

ADVERSARY PROCEEDING NO. 20-6278-BEM

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION

March 12, 2021

IT IS ORDERED as set forth below:

CHAPTER 7

REPORT AND RECOMMENDATION ON RRA CP OPPORTUNITY TRUST 1'S MOTION TO DISMISS

Plaintiff commenced the above-captioned adversary proceeding by filing a complaint against Defendants Bank of New York Mellon, Corp. ("BONYMC"), Bank of America, N.A. ("BOA"), Federal National Mortgage Association a/k/a Fannie Mae ("FNMA"), Federal Home Loan Mortgage Corp. a/k/a Freddie Mac ("Freddie Mac"), Mortgage Electronic Registration Systems Incorporated a/k/a MERS ("MERS"), and RRA CP Opportunity Trust 1 ("RRA") on December 14, 2020. [Doc. 1].¹

Plaintiff filed a certificate of service certifying that a summons and a copy of the first complaint were served on RRA on December 15, 2020. [Doc. 8].² On January 4, 2021, Plaintiff filed an amended complaint ("Complaint") [Doc. 9], adding defendants The Bank of New York Mellon ("BONY"), and Merscorp Holdings, Inc.³ [Doc. 9]. A certificate of service certifying that a copy of the Complaint was served on RRA on January 4, 2021 was attached to the Complaint. [Doc. 9 at 53].⁴

This matter comes before the Court on RRA's Motion to Dismiss (the "Motion to Dismiss") [Doc. 25], filed January 20, 2021⁵ and Plaintiff's Response thereto [Doc. 33], filedFebruary 1, 2021.⁶ The Complaint seeks a declaratory judgment to invalidate a second lien on Plaintiff's real property held by RRA as void. In the alternative, Plaintiff seeks avoidance of the lien as wholly unsecured. In response, RRA argues that Plaintiff lacks standing to make these claims, and that even if she had such standing, the assignment to RRA was valid and therefore the claims against RRA must be dismissed for failure to state a claim for which relief can be granted.

I. JURISDICTION

Pursuant to 28 U.S.C. § 1334(b) "the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." This provision creates jurisdiction in three categories of proceedings: those that "arise under title 11," those that "arise in cases under title 11," and those "related to cases under title 11." The jurisdiction of the bankruptcy court is derived from and dependent upon these three bases. Celotex Corp. v. Edwards, 514 U.S. 300, 307, 115 S. Ct. 1493, 1498 (1995).

Matters that "arise under" title 11 are matters which invoke a substantive right created by the Bankruptcy Code. Toledo v. Sanchez (In re Toledo), 170 F.3d 1340, 1345 (11th Cir. 1999). Matters that "arise in a case under" title 11 generally are administrative type matters or "matters that could arise only in bankruptcy." Id. (citing Wood v. Wood (In re Wood), 825 F.2d 90, 97 (5th Cir. 1987)). Matters that are "related to cases under" title 11 are matters where

the outcome of the proceeding could conceivably have an effect on the estate being administered in bankruptcy. The proceeding need not necessarily be against the debtor or the debtor's property. An action isrelated to bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate.

Id. (quoting Miller v. Kemira, Inc. (In re Lemco Gypsum, Inc.), 910 F.2d 784, 788 (11th Cir. 1990)).

Here, Plaintiff seeks an order of the Court declaring that an assignment to RRA of the deed to secure debt on her residence was not valid. By way of background the Court takes judicial notice of the proceedings in Plaintiff's bankruptcy case. Plaintiff filed a chapter 7 bankruptcy case on January 19, 2010. [Case No. 10-61451]. She received a discharge on February 25, 2011, the trustee filed a report of no distribution on June 11, 2012, and the bankruptcy case was closed on July 20, 2012. The bankruptcy case was subsequently reopened on March 10, 2020, at Plaintiff's request so she could file a separate adversary proceeding, Adv. Pro. No. 20-6031. After the case was reopened, a trustee was reappointed to determine whether any assets were available for administration, a claims bar date was set, and RRA filed a proof of claim.

The assignment at issue was executed in 2017 well after Plaintiff's chapter 7 case was closed and the estate's interest in Plaintiff's real property was abandoned to her under 11 U.S.C. § 544(c) such that this proceeding is not one that arises under Title 11. Additionally, an action for declaration of the rights of Plaintiff as it relates to an assignment of the deed to secure debt on her residence could be litigated in state court such that this proceeding is not one that arises in a case under Title 11. Further, based upon the chapter 7 Trustee's reports to the Court filed on the docket in the main case and the status conference held on March 4, 2021, it is apparent that only if RRA has a claim in the case will there be a basis for the Trustee to seek recovery of the asset he is investigating. This is so because the only other claim filed in the caseis the claim of the (alleged) first lien holder against Plaintiff's residence. Therefore, because this proceeding can conceivably affect administration of the estate, the Court has "related-to" jurisdiction to determine this matter.

Pursuant to 28 U.S.C. § 157(b)(1), the Court may enter final orders in core proceedings. In non-core proceedings, the Court may enter final orders with the consent of the parties. Id. § 157(c)(2). As described above, the Court has determined the claims against RRA are non-core or "related-to". Plaintiff alleges that this Court has jurisdiction but does not go so far as to argue it is core. [Doc. 9 at 4 ¶ 8] (stating that the Court has jurisdiction pursuant to 28 U.S.C. § 157, among other statutes, but not identifying a subsection thereof). RRA has not expressly consented to entry of a final order and does not refer to any jurisdictional statute in the Motion to Dismiss.

Some courts imply a plaintiff's consent to entry of a final order by the bankruptcy court when the plaintiff alleges the proceeding is a core proceeding and the opposing party admits the allegation. See Philadelphia Newspapers, LLC v. Review Pub'g, LP (In re Philadelphia Newspapers, LLC), No. 09-11204, AP No. 09-264, 2009 WL 5178333, at *5 (Bankr. E.D. Pa. Dec. 17, 2009) (collecting cases). Even if the Court were inclined to apply a rule of implied consent to Plaintiff, RRA has not consented to the entry of a final order by this Court. Therefore, the Court submits the following proposed findings of fact and conclusions of law to the District Court for de novo review pursuant to 28 U.S.C. § 157(c)(1) and Federal Rule of Bankruptcy Procedure 9033.

II. STANDARD

Fed. R. Civ. P. 8(a)(2), made applicable in adversary proceedings by Fed. R. Bankr. P. 7008, requires the Complaint to contain a "short and plain statement of the claimshowing that the pleader is entitled to relief[.]" When deciding a motion to dismiss under Fed. R. Civ. P. 12(b)(6), made applicable in adversary proceedings by Fed. R. Bank. P. 7012(b), the Court "must take the factual allegations of the complaint as true and make all reasonable inferences from those facts to determine whether the complaint states a claim that is plausible on its face." Cline v. Tolliver, 434 F. App'x 823, 825 (11th Cir. 2011) (citing Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 1949 (2009)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678, 129 S. Ct. at 1949 (citations omitted). Although the Complaint "does not need detailed factual allegations" to survive a motion to dismiss, it "requires more than labels and conclusions[;] a formulaic recitation of the elements of a cause of action will not do[.]" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 1964-65 (2007). "Factual allegations must be enough to raise a right to relief above the speculative level[.]" Id., 127 S. Ct. at 1965.

III. PROPOSED FINDINGS OF FACT

The facts in the Complaint which concern the claims against RRA, eliminating any legal conclusions and general statements of the law, are as follows:

The underlying chapter 7 bankruptcy case ("Chapter 7 Case") was originally categorized by the chapter 7 trustee ("Trustee") as a no asset case. [Doc. 9 at 3 ¶ 2]. The Trustee has since been conducting an investigation to determine the potential availability of assets for distribution. [Id.] Following his investigation, the Trustee has since filed a document noting that there appear to be funds available for distribution in the Chapter 7 Case. [Id.] The funds at issue were received by Plaintiff in a settlement of certain litigation that the Trustee argues should have been part of the bankruptcy estate, but which Plaintiff failed to schedule. [Doc. 9 at 3 ¶ 3].

A deadline for filing proofs of claim in the Chapter 7 Case was set for January 13, 2021. [Doc. 9 at 3 ¶ 4]. On November 17, 2020, a proof of claim (the "BONY Claim") was filed on behalf of a purported secured creditor, "THE BANK OF NEW YORK MELLON FKA THE BANK OF NEW YORK, AS TRUSTEE FOR THE CERTIFICATEHOLDERS OF CWALT, INC. ALTERNATIVE LOAN TRUST 2005-27, MORTGAGE PASS-THROUGH CERTIFICATES SERIES 2005-27" in the amount of $886,240.81. [Doc. 9 at 3 ¶ 5]. The BONY Claim states that it is secured by a lien on...