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

• Decision Date: 13 February 2020
• Docket Number: Adversary Proceeding No. 19-10027,Case No. 19-00504
• Parties: In re ZENOBIA DENELLE WILSON, Debtor. ZENOBIA DENELLE WILSON, Plaintiff, v. WELLS FARGO BANK, N.A., Defendant.
• Court: United States Bankruptcy Courts. District of Columbia Circuit

In re ZENOBIA DENELLE WILSON, Debtor.ZENOBIA DENELLE WILSON, Plaintiff, v. WELLS FARGO BANK, N.A., Defendant.

Case No. 19-00504

Adversary Proceeding No. 19-10027

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF COLUMBIA

Filed: February 14, 2020

February 13, 2020

(Chapter 7)

Not for publication in West's Bankruptcy Reporter.

MEMORANDUM DECISION RE MOTION TO DISMISS

The debtor, Zenobia Denelle Wilson, has filed an Amended Complaint (Dkt. No. 2) against the defendant, Wells Fargo Bank, N.A., seeking to avoid alleged transfers to Wells Fargo as preferences under 11 U.S.C. § 547, to recover the alleged preferential transfers under 11 U.S.C. § 550, and upon entry of such a judgment, to disallow any claim of Wells Fargo under 11 U.S.C. § 502(d) unless Wells Fargo disgorges the allegedly preferential transfers. The Amended Complaint also appears to seek to revisit issues pertinent to Wells Fargo's foreclosure sale action against her in the Superior Court of the District of Columbia, Case No. 2017 CA 006164 R(RP), regarding her real property at 2651 Myrtle Avenue, N.E., Washington, D.C. (the "Property"). The defendant, Wells Fargo, has filed a Motion to Dismiss Adversary Proceeding (Dkt. No. 5). For the reasons that follow, the motion must be granted and the Amended Complaint must be dismissed.

ILACK OF STANDING

Wilson commenced this adversary proceeding on September 3, 2019, as a debtor in a case that she filed under chapter 13 of the Bankruptcy Code (11 U.S.C.) on July 25, 2019. She converted that case to one under chapter 7 of the Bankruptcy Code on October 18, 2019.

The Amended Complaint points to the powers of a trustee under 11 U.S.C. § 547 to avoid a preferential transfer and under 11 U.S.C. § 550 to recover such a transfer. However, with an exception in 11 U.S.C. § 522(h), a debtor in a case under chapter 7 or 13 holds no authority to invoke § 547. See In re Johnson, No. 19-ap-10015, 2019 WL 4877577 (Bankr. D.D.C. Sept. 20, 2019), at *4 (citing Dawson v. Thomas (In re Dawson), 411 B.R. 1, 24-25 (Bankr. D.D.C. 2008)); Hansen v. Green Tree Servicing, LLC (In re Hansen), 332 B.R. 8, 13 (B.A.P. 10th Cir. 2005).

Wilson has not pled facts establishing that the exception in § 522(h) applies. Wilson has not identified how her § 547 preference claim entails a transfer of property that she could have exempted under 11 U.S.C. § 522 had the transfer not been made. Section 522(h)(1) requires that such a transfer be avoidable by the trustee. As I discuss in Part II, Wilson alleges no transfer eligible to be avoided by the trustee. Therefore, Wilson has not pled facts showing that she had a basis in the chapter 13 case to invoke the power of a trustee under § 547. The same holds true in the chapter 7 case.¹ See In re Yelverton, No. 09-ap-10048, 2012 WL 1229752, at *1, *4 (Bankr. D.D.C. Apr. 12, 2012) (first quoting In re Chase, 37 B.R. 345, 347 (Bankr. D. Vt. 1983), and then quoting and extending In re Dawson, 411 B.R. at 24).

In addition, to the extent that Wilson seeks to challenge rulings in Wells Fargo's foreclosure action in the Superior Court of the District of Columbia, the chapter 7 trustee is therepresentative of the bankruptcy estate and is the entity with standing to protect the estate's interests in that foreclosure action. See Evans v. First Mount Vernon, ILA, 786 F. Supp. 2d 347, 353-54 (D.D.C. 2011); In re Bailey, 306 B.R. 391, 392-93 (Bankr. D.D.C. 2004). While Wilson held such standing during the pendency of her bankruptcy case under chapter 13 of the Bankruptcy Code, see Evans, 786 F. Supp. 2d at 353-54, she lost standing to maintain the interests of the estate, such as with respect to the validity of the foreclosure action, when the case was converted from one under chapter 13 of the Bankruptcy Code to one under chapter 7. See Bailey, 306 B.R. at 392-93. The chapter 7 trustee has intervened in the foreclosure action to assert the estate's interest in surplus proceeds resulting from the foreclosure sale,² and is the proper representative of the estate to assert that claim.

IIFAILURE TO PLEAD FACTS ESTABLISHING A PREFERENCE

Even if Wilson could establish standing to seek to avoid a preference, Wilson has failed to plead facts establishing a preference. To state a claim upon which relief may be granted, a complaint must allege non-conclusory facts, not just "a formulaicrecitation of the elements of a cause of action," showing that a claim exists. Bell Atlantic v. Twombly, 550 U.S. 544, 555 (2007); see also Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).

Although a pro se complaint "must be held to less stringent standards than formal pleadings drafted by lawyers," Erickson, 551 U.S. at 94, 127 S. Ct. 2197 (internal quotation marks and citation omitted), it still "must plead 'factual matter' that permits the court to infer 'more than the mere possibility of [defendant's] misconduct,' " Atherton v. District of Columbia Office of the Mayor, 567 F.3d 672, 681-82 (D.C. Cir. 2009) (quoting Iqbal, 556 U.S. at 678-79, 129 S. Ct. 1937); see, e.g., Budik v. Dartmouth-Hitchcock Med. Ctr., 937 F. Supp. 2d 5, 11 (D.D.C. 2013) ("However, even though a pro se complaint must be construed liberally, the complaint must still 'present a claim on which the Court can grant relief.' "), aff'd, No. 13-5121, 2013 WL 6222951 (D.C. Cir. Nov. 19, 2013).

Owens v. Bank of America, 2018 WL 4387572, at *4 (D.D.C. Sept. 14, 2018).

Whether an avoidable preference exists is controlled by 11 U.S.C. § 547(b), which provides that:

Except as provided in subsection (c), the trustee may avoid any transfer of an interest of the debtor in property—

(1) to or for the benefit of the creditor;

(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;

(3) made while the debtor was insolvent;

(4) made—

(A) on or within 90 days before the date of the filing of the petition; or

(B) between 90 days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and

(5) that enables the creditor to receive morethan such creditor would receive if—

(A) the case were a case under chapter 7 of this title;

(B) the transfer had not been made; and

(C) such creditor received payment of such debt to the extent provided by the provisions of this title.

To state a claim upon which relief can be granted regarding a payment constituting an alleged preference, Wilson was required to identify a transfer of an interest she had in property that was made to or for the benefit of a creditor; that was made while she was insolvent and for or on account of an identified antecedent debt; that occurred, in the case of a non-insider creditor, within 90 days of the petition date;³ and that enabled the creditor to receive more than it would receive in a chapter 7 case had the transfer not occurred. See OHC Liquidation Trust v. Credit Suisse First Boston (In re Oakwood Homes Corp.), 340 B.R. 510, 521-22 (Bankr. D. Del. 2006).

For the most part, Wilson's Amended Complaint consists of a variety of vague and ambiguous allegations, most of them asserting nonsensical theories. The allegations are almost entirely unrelated to Plaintiff's preference claim. Wilson's sole factual allegation that relates to her preference claim is in paragraph 9 of the Amended Complaint, where she states thatshe ". . . made one or more payments to the Defendant in the amount of $[349,536.50] pro rata accounting in the manner and amounts set forth in Exhibit 3 attached hereto." Exhibit 3 (which is found on page 278 of Dkt. No. 2) contains no information other than a statement that "[t]he amount of payments made to date based on pro rata accounting is $349,536.50." Wilson has thus failed to state a claim upon which relief can be granted regarding an alleged preference.

To elaborate, Wilson has not pled any facts establishing that Wells Fargo was an insider and, accordingly, no preference would exist as to any transfer that occurred more than 90 days before Wilson filed the voluntary petition commencing the bankruptcy case. Wilson has not identified any transfer occurring within 90 days preceding the date of the filing of the petition commencing the underlying bankruptcy case on July 25, 2019. Indeed, Wilson has not identified any transfer that occurred, but it can be inferred that any transfer she has in mind involves the foreclosure sale of the Property.

The current Amended Complaint attaches a docket sheet from the foreclosure action brought by Wells Fargo in the SuperiorCourt of the District of Columbia.⁴ A filing in that action made on April 4, 2019, reveals that: a foreclosure sale auction of the Property was held on October 17, 2018, nine months before Wilson filed her bankruptcy petition; Daria Karimian was the successful bidder; and a contract of sale was executed on that date. The Superior Court ratified the sale to Daria Karimian on May 16, 2019. The Superior Court filings reveal that Karimian eventually performed on the sale contract by paying the purchase price after Wilson commenced her bankruptcy case.⁵

Karimian's completion of the contract of purchase was not barred by the intervention of Wilson's bankruptcy case. Wilson no longer had an equitable interest in the Property once the foreclosure sale was held. Under the doctrine of equitable conversion, Karimian obtained equitable title to the Property pursuant to the enforceable contract of purchase arising from the foreclosure sale of October 17, 2018 (unless the sale were notratified by the Superior Court). See Ward v. Wells Fargo Bank, N.A., 89 A.3d 115, 122 (D.C. 2014). The Superior Court ratified the foreclosure sale on May 16, 2019. Consequently, when Wilson filed her bankruptcy petition, her interest in the Property was limited to bare legal title,⁶ an interest subject to divestment by the completion of the foreclosure sale contract and the purchaser's recording a deed reflecting the completed purchase. See Foskey v. Plus Properties, LLC, 437 B.R. 1, 10-11 (D.D.C. 2010...