Witt v. Partners for Payment Relief De II LLC (In re Witt)
| Decision Date | 15 August 2018 |
| Docket Number | Case No.: 10-37910,Adv. Pro. No. 18-3023 |
| Parties | In Re: Randy E. Witt and Sherry E. Witt, Debtors. Randy E. Witt, et al., Plaintiffs, v. Partners for Payment Relief DE II LLC, Defendant. |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Northern District of Ohio |
The court incorporates by reference in this paragraph and adopts as the findings and orders of this court the document set forth below. This document has been entered electronically in the record of the United States Bankruptcy Court for the Northern District of Ohio.
Hon. Mary Ann Whipple
MEMORANDUM OF DECISION AND ORDER GRANTING MOTION TO DISMISSPlaintiffs, through their attorney, commenced this adversary proceeding by filing a document [Doc. # 1] captioned "Motion to Void Lien and Determine the Dischargeability of Debt," which the court is treating as an adversary complaint ("Complaint"). [See Doc. # 11 (Adversary Proceeding Scheduling Order entered April 13, 2018)]. Defendant's response [Doc. # 3] to the Complaint is captioned a memorandum in opposition to the document the court is treating as a Complaint. The court construes Defendant's response as a motion to dismiss the Complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure, which applies in bankruptcy adversary proceedings under Rule 7012(b) of the Federal Rules of Bankruptcy Procedure. [See id.]. Plaintiffs have filed their response to the motion [Doc. # 16] and Defendant has filed a reply [Doc. # 17].
Notwithstanding the caption of the Complaint, Plaintiffs do not seek a dischargeability determination of any debt, nor do they seek to avoid a lien. The introductory paragraph of the Complaint states that Plaintiffs are seeking injunctive relief against Defendant for violation of 11 U.S.C. § 524(a)(2). [Doc. # 1, Complaint, p. 1]. While the introductory paragraph also states that "Plaintiffs are contending that the Real Estate in question after a Section 506(d) valuation lacks sufficient equity to deem Defendant's mortgage as secured," [Id.], as discussed below, that is simply the basis for their claim that Defendant has violated the discharge injunction. The relief sought in the Complaint does not include avoidance of the mortgage. Nor would such a request be procedurally proper.1 Plaintiffs were debtors in underlying Chapter 7 Case Number 10-37910, which was administratively closed on April 4, 2011,2 and have not sought to reopen the case.3 See 11 U.S.C. §350(b). While other issues are raised in Defendant's motion, Plaintiffs' Complaint raises and the court addresses only a claim for violation of the discharge injunction.
The district court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §1334(b) as a civil proceeding arising in or related to a case under Title 11. This proceeding has been referred to this court by the district court under its general order of reference. 28 U.S.C. § 157(a); General Order 2012-7 of the United States District Court for the Northern District of Ohio. Proceedings to enforce the discharge injunction are core proceedings that this court may hear and decide. 28 U.S.C. § 157(b)(1) and (b)(2)(O). For the reasons that follow, Defendant's Motion will be granted.
As stated above, the court construes Defendant's response to the Complaint as a motion to dismissunder Rule 12(b)(6) for failure to state a claim upon which relief can be granted. Federal Rule of Civil Procedure 8(a)(2) provides that a claim for relief must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." In deciding a Rule 12(b)(6) motion to dismiss, "the court must construe the complaint in the light most favorable to the plaintiff, accept all factual allegations as true, and determine whether the complaint 'contains enough facts to state a claim to relief that is plausible on its face.'" United States v. Ford Motor Co., 532 F.3d 496, 502 (6th Cir. 2008) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). While Rule 8(a)(2) does not require a complaint to set out detailed factual allegations, "a plaintiff's obligation to provide the 'grounds' of his entitlement to relief 'requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.'" Rondigo, LLC v. Township of Richmond, 641 F.3d 673, 680 (6th Cir. 2011) (quoting Twombly, 550 U.S. at 555). Rather, "to survive a motion to dismiss, the complaint must contain either direct or inferential allegations respecting all material elements to sustain a recovery under some viable legal theory." Bishop v. Lucent Technologies, Inc., 520 F.3d 516, 519 (6th Cir. 2008). Conclusory allegations or legal conclusions masquerading as factual allegations will not suffice. Bishop v. Lucent Technologies, Inc. 520 F.3d 516, 519 (6th Cir. 2008).
In their Complaint, Plaintiffs allege as follows:
1. Plaintiffs filed for relief under Chapter 7 of the Bankruptcy Code, Case Number 10-37910, on November 29, 2010, and included in that filing a debt owed to GMAC, Defendant's predecessor, that was not reaffirmed. [Complaint, ¶ 1].
2. Plaintiffs received discharges under 11 U.S.C. § 727(b). [Complaint, introductory paragraph].
3. Plaintiffs' principal residence located at 3027 S. Mabel Lane, Port Clinton, ("the Property") was among the assets owned by them at the commencement of that case. [Id. at ¶ 3].
4. Plaintiffs "are informed and believe" that the fair market value of the Property is $62,140.00 or less. [Id. at ¶ 4].
5. "[O]n the day the petition was filed," the obligation to the holder of a first mortgage on the Property had a principal balance of $85,930.44. [Id. at ¶ 5].
6. "[O]n the day the petition was filed," the obligation to GMAC/M & I Bank, which held a second mortgage on the Property, had a principal balance of $20,000.00, not including fees and charges. [Id. at ¶ 6].
7. "There is therefore no equity in the Property in that the balance to Nation Star (the First Mortgage) exceeds the value of the Property." [Id. at 7].
8. "Defendant therefore is attempting to force a foreclosure that will have the effect of taking a discharged debt from the Chapter 7 and force a collection action against the Plaintiff [sic] in direct violation of 11 U.S.C. § 524." [Id. at ¶ 8].
The foreclosure referenced by Plaintiffs in their Complaint was commenced by Defendant on September 14, 2017, in the Court of Common Pleas, Ottawa County, Ohio. [See Doc. # 3, Motion to Dismiss, Ex. 1]; Greenberg v. Life Ins. Co. of Va., 177 F.3d 507, 514 (6th Cir. 1999) (). The Foreclosure Complaint states that [Doc. # 3, Ex. 1, ¶ 8].
Once an order granting a discharge is entered, § 524(a) of the Bankruptcy Code gives rise to an injunction against "the commencement or continuation of an action, the employment of process, or any act, to collect, recover or offset any [discharged] debt as a personal liability of the debtor. . . ." 11 U.S.C. § 524(a)(2). A bankruptcy discharge, however, "does not terminate a secured creditor's in rem rights unless the creditor's lien was avoided during the bankruptcy." In re Jackson, 554 B.R. 156 (B.A.P. 6th Cir. 2016), aff'd 2017 WL 8160941 (6th Cir. Oct. 18, 2017); see Johnson v. Home State Bank, 501 U.S. 78, 83 (1991)("[A] creditor's right to foreclose on [a] mortgage survives or passes through bankruptcy," thus "a foreclosure action in which the mortgagee does not seek a deficiency judgment may be brought without violating the terms of the debtor's discharge").
There is no private right of action under § 524(a)(2) for violation of the discharge injunction. Pertuso v. Ford Motor Credit Co., 233 F.3d 417, 421 (6th Cir. 2000). Rather creditors who willfully violate the discharge injunction of § 524(a) are in contempt of the court that issued the discharge order. Lohmeyer v. Alvin's Jewelers (In re Lohmeyer), 365 B.R. 746, 749 (Bankr. N.D. Ohio 2007). A debtor may therefore enforce the discharge injunction through contempt proceedings. Pertuso, 233 F.3d at 421("[T]he traditional remedy for violation of an injunction lies in contempt proceedings...."). As another judge in this district observed, "courts routinely hear contempt actions brought as adversary proceedings, notwithstanding the fact that the traditional method of bringing such matters before the court is by motion" since an adversary proceeding provides the defendant with more, not less, procedural protections than in a Rule 9014 contested matter brought by motion. Motichko v. Premium Asset Recovery Corp. (In re Motichko), 395 B.R. 25, 32-33(Bankr. N.D. Ohio 2008) (citing cases). But see In re Reedy, Case No. 13-62960, Adv. No. 14-6044, 2014 WL 6461815 *1(Bankr. N.D. Ohio Nov. 14, 2014)(failure to bring contempt action as a motion instead of in an adversary complaint is procedurally fatal). Notably, Bankruptcy Rule 7012 and thus Rule 12(b)(6) do not automatically apply to a motion that is a contested matter under Bankruptcy Rule 9014, which a motion for an order of contempt is under Bankruptcy Rule 9020. See Fed. R. Bankr. P. 9014(a). In choosing to proceed through an adversary complaint, Plaintiffs have exposed this proceeding to Defendant's Rule 12(b)(6) motion.
The Sixth Circuit has not specifically addressed the elements of a contempt proceeding for violation of the discharge injunction. Cf. In re Taggart, 888 F.3d 438, 443 (9th Cir. 2018); Bates v. CitiMortgage, Inc., 844 F.3d 300, 304 (1st Cir. 2016)(includes objective coercion or harassment standard as an element)....
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