DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA FOURTH DISTRICT
SUZANNE PEOPLES a/k/a SUZANNE M. PEOPLES,
Appellant,
v.
SAMI II TRUST 2006-AR6, BANK OF NEW YORK AS SUCCESSOR IN INTEREST TO JP MORGAN CHASE BANK, N.A., AS TRUSTEE,
Appellee.
No. 4D14-2757
[October 14, 2015]
Appeal from the Circuit Court for the Seventeenth Judicial Circuit, Broward County; John B. Bowman, Judge; L.T. Case No. 07-022704(11).
Geoffrey E. Sherman, Jacquelyn Trask, Roy D. Oppenheim, and Yanina Zilberman of Oppenheim & Pilelsky, Weston and Donna Greenspan Solomon of Solomon Appeals, Mediation & Arbitration, Fort Lauderdale, for appellant.
No appearance filed on behalf of appellee.
MAY, J.
The first lesson in “Foreclosures 101”: a lender must prove it had standing before the complaint is filed to foreclose on a mortgage. The borrower appeals a final judgment of foreclosure after a non-jury trial. She argues, among other issues, that the bank failed the first lesson—it failed to prove standing. We agree and reverse.
The borrower executed a note and mortgage in favor of America’s Wholesale Lender (“AWL”). When the borrower defaulted, SAMI II Trust (“Trust”) filed a complaint to foreclose on the mortgage in September 2007. Attached to the complaint was a copy of the note and mortgage. The copy of the note did not contain an endorsement; the lender was listed as AWL.
In January 2008, the Trust filed another copy of the note, which contained an undated blank endorsement from Countrywide Home Loans, Inc., a New York Corporation Doing Business as AWL. In April 2008, the Trust filed an amended complaint and attached a copy of the unendorsed note. The amended complaint, like the original, alleged that the Trust was the owner and holder of the note and mortgage.
The borrower filed an answer and asserted seven affirmative defenses, including that the Trust was not the owner and holder of the note and lacked standing. In August 2009, the Trust filed the original note, with an undated blank endorsement, and the original mortgage.1
After the Trust presented its case, the borrower moved for involuntary dismissal based on lack of standing and other reasons. The trial court denied the motion, and later entered a final judgment of foreclosure. The trial court denied the borrower’s motion for new trial. From this order and the final judgment, the borrower now appeals.
The borrower maintains the Trust did not prove standing because the copy of the note attached to the complaint was unendorsed and the original note relied upon by the Trust at trial contained an undated blank endorsement. Thus, the Trust failed to prove it had standing when the complaint was filed. The Trust did not respond.
We have de novo review. Dixon v. Express Equity Lending Grp., LLLP, 125 So. 3d 965, 967 (Fla. 4th DCA 2013).
“A crucial element in any mortgage foreclosure proceeding is that the party seeking foreclosure must demonstrate that it has standing to foreclose” when the complaint is filed. McLean v. JP Morgan Chase Bank Nat’l Ass’n, 79 So. 3d 170, 173 (Fla. 4th DCA 2012). “[S]tanding may be established from the plaintiff’s status as the note holder, regardless of any assignments.” Id. (citation omitted). “If the note does not name the plaintiff as the payee, the note must bear a special endorsement in favor of the plaintiff or a blank endorsement.” Id.
“A plaintiff alleging standing as a holder must prove it is a holder of the note and mortgage both as of the time of trial and also that [it] had standing as of the time the foreclosure complaint was filed.” Kiefert v. Nationstar Mortg., LLC, 153 So. 3d 351, 352–54 (Fla. 1st DCA 2014) (holding the plaintiff failed to prove standing where it attached an unendorsed copy of the note payable to a different party to the original complaint, then later introduced the original note with an undated blank endorsement, and witness testimony did not establish the endorsement date).
Here, the Trust alleged standing as owner and holder of the note and mortgage in both the original and amended complaint. Because it was not the original named payee, it had to prove possession of the original note endorsed in its favor or in blank before the filing of the original complaint. When the Trust filed the original complaint, it attached a copy of an unendorsed note payable to AWL. Although it later filed an original note and a copy of the original note, both of which had a blank endorsement, neither was dated. And, the Trust’s witness did not know when the endorsement was placed on the note.
“A plaintiff’s lack of standing at the inception of the case is not a defect that may be cured by the acquisition of standing after the case is filed and cannot be established retroactively by acquiring standing to file a lawsuit after the fact.” LaFrance v. U.S. Bank Nat’l Ass’n, 141 So. 3d 754, 756 (Fla. 4th DCA 2014) (citation omitted) (internal quotation marks omitted).
From the sequence of these events, it is clear that the Trust did not have standing when it filed the complaint in September 2007. Wright v. Deutsche Bank Nat’l Trust Co., 152 So. 3d 1289 (Fla. 4th DCA 2015). The trial court erred in entering a final judgment of foreclosure in favor of the Trust.
Reversed and remanded for entry of judgment for the borrower.
CIKLIN, C.J., and FORST, J., concur.
* * *
Not final until disposition of timely filed motion for rehearing.
footnote:
1 The record contains an assignment of the mortgage and note from “Mortgage Electronic Registration Systems, Inc., acting solely as a nominee for America’s Wholesale Lender” to the Trust, dated May 23, 2008, subsequent to the filing of the complaint. Although it has a relation back date of August 9, 2007, the signature date is the effective date. Matthews v. Fed. Nat’l Mortg. Ass’n, 160 So. 3d 131, 133 (Fla. 4th DCA 2015) (“[T]he backdated assignment, standing alone, [does not] establish standing.”). The assignment was not admitted into evidence.
DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA FOURTH DISTRICT
MARIO A. RODRIGUEZ and LENDY RODRIGUEZ,
Appellants,
v.
WELLS FARGO BANK, N.A., d/b/a AMERICA’S SERVICING COMPANY,
Appellee.
No. 4D14-100
[October 14, 2015]
Appeal from the Circuit Court for the Fifteenth Judicial Circuit, Palm Beach County; Howard Harrison, Senior Judge; L.T. Case No. 502010CA001392XXXXMB.
Brian Korte of Korte and Wortman, P.A., West Palm Beach, for appellants.
Dean A. Morande and Michael K. Winston of Carlton Fields Jorden Burt, P.A., West Palm Beach, for appellee.
CIKLIN, C.J.
Mario and Lendy Rodriguez (“the homeowners”) appeal a final judgment of foreclosure entered in favor of Wells Fargo Bank, N.A. d/b/a America’s Servicing Company (“the bank”), contending that the bank failed to establish standing to foreclose. We agree and reverse.
The bank brought a foreclosure action against the homeowners in 2010 alleging it was “the holder of the Mortgage Note and Mortgage and/or is entitled to enforce the Mortgage Note and Mortgage.” The copy of the note attached to the complaint was not indorsed.
Prior to trial, the bank filed the original note in the court registry, which contained an indorsement in blank. At trial, the testimony of the bank’s witness established that the bank was the servicer of the note and that the bank had possessed the original note since 2007. The trial court denied the homeowners’ motion for involuntary dismissal of the action based on the bank’s lack of standing and entered final judgment for the bank.
On appeal, the homeowners argue that standing to foreclose was not demonstrated because the bank failed to prove that it had authority to pursue the action as the servicer of the note. The bank counters that it demonstrated standing to foreclose through evidence that it possessed the note prior to the filing of the complaint.
‘“We review the sufficiency of the evidence to prove standing to bring a foreclosure action de novo.’” Tremblay v. U.S. Bank, N.A., 164 So. 3d 85, 86 (Fla. 4th DCA 2015) (quoting Lacombe v. Deutsche Bank Nat’l Trust Co., 149 So. 3d 152, 153 (Fla. 1st DCA 2014)).
“A crucial element of any mortgage foreclosure proceeding is that the party seeking foreclosure must demonstrate that it has standing to foreclose” at the time the complaint is filed. McLean v. JP Morgan Chase Bank Nat’l Ass’n, 79 So. 3d 170, 173 (Fla. 4th DCA 2012). ‘“[T]he person having standing to foreclose a note secured by a mortgage may be either the holder of the note or a nonholder in possession of the note who has the rights of a holder.’” Wells Fargo Bank, N.A. v. Morcom, 125 So. 3d 320, 321 (Fla. 5th DCA 2013) (quoting Deutsche Bank Nat’l Trust Co. v. Lippi, 78 So. 3d 81, 84 (Fla. 5th DCA 2012)).
‘“The Florida real party in interest rule, Fla. R. Civ. P. 1.210(a), permits an action to be prosecuted in the name of someone other than, but acting for, the real party in interest.’” Elston/Leetsdale, LLC v. CWCapital Asset Mgmt. LLC, 87 So. 3d 14, 17 (Fla. 4th DCA 2012) (quoting Mortg. Elec. Registration Sys., Inc. v. Azize, 965 So. 2d 151, 153 (Fla. 2d DCA 2007)). A servicer that is not the holder of the note may have standing to commence a foreclosure action on behalf of the real party in interest, but it must present evidence, such as an affidavit or a pooling and servicing agreement, demonstrating that the real party in interest granted the servicer authority to enforce the note. See id. (“[A] servicer may be considered a party in interest to commence legal action as long as the trustee joins or ratifies its action.”) (emphasis omitted); see also Russell v. Aurora Loan Servs., LLC, 163 So. 3d 639, 643 (Fla. 2d DCA 2015) (reversing final judgment of foreclosure where servicer failed to adduce evidence of predecessor’s authority to bring suit).
Because the bank was the servicer of the note and it brought the action in its own name, it was required to prove that it had authority to commence the foreclosure action. Although the bank established that it possessed the note at the time the complaint was filed and it filed the original note indorsed in blank, the record does not demonstrate when the blank indorsement was placed on the note. The bank therefore failed to prove that it had standing as the holder of the note when it commenced the action. Further, the bank failed to prove that it was a nonholder in possession of the note with the rights of a holder. The bank introduced no power of attorney, pooling and servicing agreement, or other evidence to show that the real party in interest authorized it to bring the action. Consequently, the bank failed to prove it had standing to enforce the note.
Pursuant to Florida Rule of Civil Procedure 1.420(b), “[a]fter a party seeking affirmative relief in an action tried by the court without a jury has completed the presentation of evidence, any other party may move for a dismissal on the ground that on the facts and the law the party seeking affirmative relief has shown no right to relief.” Accordingly, the homeowners are entitled to an involuntary dismissal of the action, and we reverse and remand for the trial court to enter such an order.
In light of our reversal, the remaining issue raised by the homeowners is moot.
Reversed and remanded with instructions.
In HSBC Bank USA v. Rowe, 2015 IL App (3d) 140553, the Third District appellate court recently affirmed a grant of summary judgment in favor of a lender despite some discrepancies between the copy of the note attached to the complaint and the note submitted into evidence. The Rowe decision presents some valuable practical considerations for lenders and legal practitioners who are engaging in foreclosure work.
In Rowe, following the borrowers’ failure to make mortgage payments, the bank filed a foreclosure action. The trial court subsequently granted the bank’s motion for summary judgment and entered a judgment for foreclosure and sale. The borrowers appealed on numerous grounds, however, the argument of legal import pertained to alleged discrepancies between the note attached to the complaint, and the note actually presented at summary judgment as evidence.
The copy of the note attached to the bank’s complaint was signed by one of the borrowers and the first page of the copy of the note contained the bank’s stamp, certifying that it was a “true and correct copy of the original.” The copy of the note attached to the bank’s subsequent motion to strike the borrowers’ affirmative defense, however, did not contain such certification stamp, but included an indorsement in blank below the borrower’s signature…
Texas Property Owners Suffer Because of MERS Court Ruling
AUSTIN, TX (October 6, 2015) — FOR IMMEDIATE RELEASE
Travis County Clerk Dana DeBeauvoir, joined by the Travis County Commissioners’ Court, issues the following statement regarding the recent ruling by the United States Court of Appeals for the Fifth Circuit in Harris County v. MERSCorp Incorporated:
Most people will never notice that the public paperwork you typically expect to be recorded with the County Clerk whenever you buy a house, get a new lender, or refinance your mortgage isn’t being filed at all. A group of residential lenders created MERSCorp (Mortgage Electronic Recording System) several years ago for its own purposes and for bypassing the public record. This group has succeeded in creating its own private registry. The Travis County Commissioners Court, supported by the Travis County Clerk, joined a federal lawsuit in Nueces County to put a stop to this secret, substitute recording system.
Unfortunately, on June 26th of this year, in a different case, Harris County v. MERSCorp Incorporated, the U.S. Court of Appeals for the Fifth Circuit issued an opinion that allows MERS to continue its private document registry and dodge the public record. Further, the Court found that MERS is not responsible for major gaps in the chain of title and public deed records that misrepresent ownership records in every county in Texas. By the manner in which the opinion was written, the Fifth Circuit made this ruling apply to the Nueces case without ever hearing one word in court from Travis County.
If you are one of the owners of property financed by a MERS member, and you want to know who owns your deed of trust—the lien on your house—you can’t find it in the Clerk’s record because every time they resold your mortgage to another lender, MERS kept the records secret. MERS never filed the documents in the county deed records. Now, the Court has ruled the County Clerk, who is the keeper of real property records, is not required to be informed about the subsequent sales of the lien on your house. MERS tried to claim they were the owners of the deed of trust because they named themselves a beneficiary in the document. MERS also asserted, at the same time, that they had none of the rights or responsibilities of a beneficiary. The Fifth Circuit agreed and declared that this tortured logic did not constitute fraudulent behavior. Further, the Court ruled that the County Clerk, has no right to compel MERS to file future ownership documents as expected nor bring the public record up to date. Unbelievably, the Court ruled that the County Clerk had no right to even file the lawsuit to preserve the integrity of the important real estate records that the Clerk is sworn to protect.
Travis County does not have a ruling in the Nueces County case, and we have not been allowed our day in court. However, to continue theNueces case would be viewed legally as frivolous because the Fifth Circuit has ruled in a similar case and set new law. The rulings in theHarris County v. MERS case mean that Travis County must stop our legal efforts to protect the permanent library of deed records from the damages inflicted by the members of MERSCorp. The Travis County Commissioners Court has instructed the County Attorney to stop pursuing the MERS case.
We understand that this action is necessary to protect Travis County taxpayers from the liability of various attorneys’ fees and/or possible sanctions. Travis County Clerk DeBeauvoir and the Commissioners’ Court commend the Travis County Attorney for their thorough analysis of the documents that prove MERS direct assault on transparent business dealings.
DeBeauvoir said, “For years, MERS violated existing practices in the State of Texas. It breaks my heart that we are unable to stop MERS, stop the damage to the records, and stop the mistreatment of human beings and their assets. Because of the ruling of the Fifth Circuit, we must surrender to what big corporations prefer, not what’s dependable for our citizens and their ownership rights now and into the future.”
Argued and Submitted October 7, 2014 — Seattle, Washington.
Filed October 1, 2015.
Christopher M. Alston (argued) and W. Adam Coady, Foster Pepper PLLC, Seattle, Washington, for Appellant/Cross-Appellee.
Taryn M. Darling Hill (argued) and David F. Betz, Impact Law Group, Seattle, Washington, for Appellees/Cross-Appellants.
Before: Richard A. Paez, Jay S. Bybee, and Consuelo M. Callahan, Circuit Judges.
OPINION
BYBEE, Circuit Judge.
Robert and Darlene Blendheim are colloquially known as “Chapter 20” debtors. Like many others who sought bankruptcy relief during the housing crisis, they took advantage of the bankruptcy tools available under Chapter 7 and then filed for Chapter 13 relief. One of the tools available in a Chapter 13 reorganization is lien voidance, or “lien stripping.” Ordinarily, the Bankruptcy Code permits Chapter 13 debtors to void or modify certain creditor liens on the debtor’s property, permanently barring the creditor from foreclosing on that property. However, a 2005 amendment to the Bankruptcy Code bars Chapter 20 debtors from receiving a discharge at the conclusion of their Chapter 13 reorganization if they received a Chapter 7 discharge within four years of filing for Chapter 13 relief. 11 U.S.C. § 1328(f).
In this case, we are tasked with deciding whether by making Chapter 20 debtors like the Blendheims ineligible for a discharge, Congress also rendered them ineligible for Chapter 13’s lien-voidance mechanism. This question has divided bankruptcy courts in our circuit and divided bankruptcy courts, bankruptcy appellate panels, district courts, and courts of appeals throughout the country. The bankruptcy court below concluded that HSBC’s lien on the Blendheims’ home would be void upon the successful completion of their Chapter 13 plan, and the district court affirmed. We agree with the district court’s conclusion that discharge ineligibility does not prohibit the Blendheims from taking advantage of the lien-voidance tools available in a typical Chapter 13 proceeding, and therefore affirm.
I. BANKRUPTCY PROCEEDINGS
A. Claim Disallowance and Lien Voidance
In 2007, Robert and Darlene Blendheim filed for bankruptcy under Chapter 7 of the Bankruptcy Code. The Blendheims eventually received a discharge of their unsecured debts in 2009. The day after receiving the discharge in their Chapter 7 case, the Blendheims filed a second bankruptcy petition under Chapter 13 to restructure debts relating to their primary residence, a condominium in West Seattle. In their schedule, the Blendheims listed their condo at a value of $450,000, subject to two liens: a firstposition lien securing a debt of $347,900 owed to HSBC Bank USA, N.A., and a second-position lien securing a debt of $90,474 owed to HSBC Mortgage Services. The firstposition lien is the only interest at issue in this appeal.
The first-position lien holder (“HSBC”), represented in bankruptcy proceedings by its servicing agent, filed a proof of claim in the Chapter 13 proceeding seeking allowance of its claim, which authorizes a creditor to participate in the bankruptcy process and receive distribution payments from the estate. The Blendheims filed an objection to the claim on the basis that, although HSBC properly attached a copy of the relevant deed of trust to its proof of claim, HSBC failed to attach a copy of the promissory note.[1] The Blendheims also alleged that a copy of the promissory note they had previously received appeared to bear a forged signature. For reasons unknown, HSBC never responded to the Blendheims’ objection to its proof of claim. The deadline for responding passed, and in November 2009, hearing no objection from HSBC, the bankruptcy judge entered an order disallowing HSBC’s claim. Even after the Blendheims served HSBC and its counsel with a copy of the disallowance order, HSBC took no action in response. Instead, it withdrew its pending motion and requested no future electronic notifications from the court.
In April 2010, the Blendheims filed an adversary proceeding complaint seeking, among other things, to void HSBC’s first-position lien pursuant to 11 U.S.C. § 506(d), which states that “[t]o the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void.” The Blendheims contended that because HSBC’s claim had been disallowed, its lien secured a claim that is “not an allowed secured claim” and thus the lien could be voided. The bankruptcy court held a hearing the following month, specifically advising HSBC to take action to address the disallowance order. Voidance of the lien posed a more drastic consequence than simple disallowance of HSBC’s claim in the bankruptcy proceeding: voiding the lien would eliminate HSBC’s state-law right of foreclosure.
Even though the threat of voidance loomed, a year passed, and still HSBC took no action to set aside the order. Once more, the court advised HSBC to file a motion to set aside the disallowance order. This time, almost a year and a half after the disallowance order was entered, HSBC responded. In April 2011, HSBC filed a motion for reconsideration of the disallowance order, alleging grounds of mistake, inadvertence, surprise, excusable neglect, due process violations, and inadequate service. Following a hearing, the bankruptcy court denied the motion. The court explained that HSBC presented “no argument or evidence as to why its failure to respond was due to mistake, inadvertence, surprise, or excusable neglect,” and “[HSBC] has not provided any rationale for waiting nearly 18 months after entry of the [disallowance] order to request reconsideration.” It therefore declined to set aside the disallowance order.
The Blendheims subsequently moved for summary judgment, once again seeking lien voidance. HSBC filed a response, arguing that it would be improper and inequitable to void the lien after the claim was disallowed for mere failure to respond. In support of its argument, HSBC pointed to a Seventh Circuit case called In re Tarnow, 749 F.2d 464 (7th Cir. 1984), which had similarly dealt with the voidance of liens under § 506(d). As HSBC explained, there, the Seventh Circuit declined to permit a court to void a lien under § 506(d) where the creditor’s claim had been disallowed for untimely filing. The court concluded that because a secured creditor is not required to file a proof of claim at all, and may instead look to its lien for satisfaction of the debt, destruction of a lien under § 506(d) is a “disproportionately severe sanction” for an untimely filed claim. HSBC argued that destruction is equally inappropriate in the case of simple default.
The bankruptcy court held a hearing and offered an oral ruling at the conclusion of argument. The bankruptcy court acknowledged that voiding HSBC’s lien under § 506(d) “based on a default gives the Court pause.” However, the court explained, the text of § 506(d) seemed clearly to contradict HSBC’s contentions: “[T]he trouble with the lender’s arguments here [is] they would just blue pencil 506(d) right out of the equation. 506(d) very clearly says if the secured debt . . . is purporting to secure a disallowed claim, then the lien can be avoided.” The court acknowledged that “there’s plenty of case law that says, even in a [Chapter] 13 . . . the secured creditor can just take a pass on the whole proceeding” without imperiling his lien. But it distinguished Tarnow, explaining that while that case involved a late-filed claim, here HSBC had filed a timely claim in the bankruptcy proceeding:
The claim [in Tarnow] was only disallowed because it was late in a situation where they didn’t need to file a claim at all. . . . So it’s as if the secured creditor in Tarnow didn’t file the claim at all.
That’s substantially different than what we have here where the claim was filed. There was a[n] objection to it that went to the substance, did not have anything to do with the form of the claim or the lateness of the claim.
And regardless of arguments now as to whether that would have been a meritorious objection if it had been responded to, [HSBC] just slept on its rights. . . .
Because HSBC’s claim had been disallowed and the court had found no legitimate basis for setting aside the disallowance, the disallowance was “clearly a predicate under 506(d) for disallowance of the lien . . . and therefore the lien should be set aside.” The court ordered that “upon Debtors’ completion of a Bankruptcy, this order shall be self-executing and the subject Deed of Trust . . . is void pursuant to 11 U.S.C. § 506(d), and hereby cancelled.”
B. Plan Confirmation and Permanent Lien-Voidance
The parties then proceeded to the plan confirmation process. The bankruptcy court rejected several proposed plans, ultimately confirming the Blendheims’ eleventh amended plan. The bankruptcy court’s discussion of its reasons for rejecting the Blendheims’ ninth amended plan, however, is relevant here.
After the Blendheims filed their proposed ninth amended plan, HSBC objected on two grounds. First, HSBC argued that the Blendheims “improperly seek to cancel and void [HSBC’s] lien upon completion of the . . . Plan.” According to HSBC, even if a lien is properly voided under § 506(d), that lien must be reinstated upon the completion of a Chapter 13 plan. This is because the Blendheims could only obtain permanent voidance of the lien through a discharge, and the Blendheims were statutorily ineligible for such a discharge because they had already received a Chapter 7 discharge within the previous four years. See 11 U.S.C. § 1328(f) (“[T]he court shall not grant a discharge of all debts provided for in the plan or disallowed under section 502, if the debtor has received a discharge in a case filed under Chapter 7 . . . during the 4-year period preceding the date of the order for relief. . . .”). Second, HSBC objected that the plan was not filed in good faith.
The bankruptcy court rejected HSBC’s argument that a lien may not be voided upon plan completion. Recognizing a split of authority among lower courts, the court observed that a Chapter 13 debtor’s ability to void a lien does not depend on the debtor’s eligibility for a discharge. It concluded that “it is not per se prohibited for Debtors to propose a Chapter 13 plan stripping the First or Second Position Lien on their Residence, notwithstanding their lack of eligibility for a Chapter 13 discharge.” The court went on to address good faith. It concluded that the Chapter 13 petition had been filed in good faith, as the Blendheims had valid reorganization goals and did not appear to be “serial repeat filers” who were “systematically and regularly abusing the bankruptcy system.” However, the court ultimately concluded that the plan had not been proposed in good faith; the plan would authorize the Blendheims to void both the first- and second-position liens, even though the secondposition lien would become fully secured (and thus legally enforceable) at the moment HSBC’s first-position lien was deemed void. Accordingly, the court rejected the ninth amended plan, but permitted the Blendheims to amend.
In April 2012, the bankruptcy court confirmed the Blendheims’ eleventh amended Chapter 13 plan. This plan reinstated the second-position lien, the voidance of which had caused the previous plan to fail. The court concluded that the reinstatement of the second-position lien “cure[s] what [the court] found was in bad faith before,” and thus confirmed the plan. Importantly, the confirmed plan replicated the ninth amended plan in permitting the Blendheims to permanently void HSBC’s first-position lien upon the completion of the plan. The court subsequently issued an order implementing the plan.
II. APPELLATE PROCEEDINGS
A. District Court Proceedings
HSBC appealed to the U.S. District Court for the Western District of Washington. The district court concluded that it lacked jurisdiction over the disallowance order and order denying reconsideration because HSBC failed to timely file notice of appeal with respect to those orders. The district court affirmed the remaining bankruptcy court orders in their entirety.
First, the court considered whether the bankruptcy court had properly voided HSBC’s lien. The court assumed that the initial voidance of the lien under § 506(d) was proper, turning directly to the question whether the Blendheims could make the voidance “permanent” in the absence of a discharge. The court rejected HSBC’s argument that a debtor must be eligible for a discharge in order to accomplish “lien stripping,” or permanent voidance of the lien. Observing an “emerging consensus in this Circuit” that lien stripping can be accomplished through plan completion, the court concluded that the Bankruptcy Code permitted the Blendheims permanently to void HSBC’s lien whether or not they were entitled to a discharge. The court reasoned that it “should not impose a discharge requirement on the debtor’s ability to strip a lien when none is required by statute.” Concluding otherwise, the court stated, “creates an extremely harsh result: a debtor who successfully completed a Chapter 13 plan, obeying all the requirements approved by the court, would see many of his debts spring back to life.”
The district court next rejected HSBC’s argument that it was denied due process. The court explained that the lien was voided in an adversary proceeding, which granted HSBC a “full and fair opportunity to litigate the issue.” The district court then went on to reject HSBC’s argument that the Blendheims’ Chapter 13 case was not filed in good faith, explaining that the bankruptcy court’s findings that the Blendheims had valid reorganization goals other than lien stripping, did not file in order to defeat state court litigation, and did not exhibit any egregious behavior, were not clearly erroneous. Finally, the district court rejected the Blendheims’ request for attorneys fees.
B. Ninth Circuit Proceedings
HSBC timely appealed the district court’s affirmance of the bankruptcy court’s orders permanently voiding HSBC’s lien. The Blendheims cross-appealed, seeking a determination that the district court erred in its denial of attorneys fees. Several months after the appeal was docketed, the Blendheims successfully completed their plan payments, meaning that they were poised to permanently void HSBC’s lien upon the closure of their case in the bankruptcy court. We granted HSBC’s motion for an emergency stay of the bankruptcy court’s order closing the case, pending the outcome of its appeal to this court.
III. STATUTORY FRAMEWORK
There are several Bankruptcy Code provisions at issue in this case. To assist the reader, we begin by walking through the relevant chapters and sections.
A. The Life of a Bankruptcy Case
A bankruptcy case begins with the filing of a petition and the creation of an estate, which comprises the debtors’ legal and equitable interests in property. 11 U.S.C. § 541; Fed. R. Bankr. P. 1002(a). The filing of the petition triggers an automatic stay, prohibiting all entities from making collection efforts against the debtor or the property of the debtor’s estate. 11 U.S.C. § 362. To collect on a debt, a creditor must hold a “claim,” or a right to payment, id. § 101(5), which has been “allowed” by the bankruptcy court, id. § 502. Every claim must go through the allowance process set forth in 11 U.S.C. § 502 before the claim holder is entitled to participate in the distribution of estate assets. The bankruptcy court may decline to allow — or “disallow” — a claim for a variety of reasons. See, e.g., id. § 502(b)(1) (disallowing claims “unenforceable against the debtor”); id. § 502(b)(9) (disallowing tardily filed proof of claim). But importantly, for creditors holding liens secured by property, filing a proof of claim and participating in the allowance process — indeed, participating in the bankruptcy process as a whole — is completely voluntary. A creditor with a lien on a debtor’s property may generally ignore the bankruptcy proceedings and decline to file a claim without imperiling his lien, secure in the in rem right that the lien guarantees him under nonbankruptcy law: the right of foreclosure. See U.S. Nat’l Bank in Johnstown v. Chase Nat’l Bank of N.Y.C., 331 U.S. 28, 33 (1947) (a secured creditor “may disregard the bankruptcy proceeding, decline to file a claim and rely solely upon his security if that security is properly and solely in his possession”).
The Bankruptcy Code contains two chapters designed to give relief exclusively to individual debtors: Chapters 7 and 13. To decide which chapter to file under, a debtor must compare his means and goals against the purposes of each chapter. In a Chapter 7 bankruptcy proceeding, also called a “liquidation,” a bankruptcy trustee immediately gathers up and sells all of a debtor’s nonexempt assets in the estate, using the proceeds to repay creditors in the order of the priority of their claims. 11 U.S.C. §§ 704(a)(1), 726. The bankruptcy estate does not, however, include any wages or assets that a debtor acquires after the bankruptcy filing. Id. § 541(a)(1). Provided the debtor meets all the requirements, the court may then grant the debtor a discharge, which releases a debtor from personal liability on certain debts. Id. § 727. Thus, Chapter 7 offers debtors the chance to “make a `fresh start,'” and “a clean break from his financial past, but at a steep price: prompt liquidation of the debtor’s assets.” Harris v. Viegelahn, 135 S. Ct. 1829, 1835 (2015).
By contrast, a Chapter 13 proceeding, often called a “reorganization,” is designed to encourage financially overextended debtors to use current and future income to repay creditors in part, or in whole, over the course of a threeto five-year period. See Harris, 135 S. Ct. at 1835. Only debtors with a “regular income,” which is “sufficiently stable and regular” to enable them to make payments under a plan, are eligible for Chapter 13 reorganization. 11 U.S.C. §§ 101(30), 109(e). Unlike Chapter 7 proceedings, where a debtor’s nonexempt assets are sold to pay creditors, Chapter 13 permits debtors to keep assets such as their home and car so long as they make the required payments and otherwise comply with their obligations under their confirmed plan of reorganization.
A Chapter 13 debtor formulating a proposed plan of reorganization must include certain mandatory provisions, but also has at his disposal various discretionary provisions — the “tools” in the reorganization toolbox. See In re Cain, 513 B.R. 316, 322 (B.A.P. 6th Cir. 2014). Mandatory provisions, which all Chapter 13 plans must contain in order to qualify for confirmation, are set forth in §§ 1322(a) and 1325 of the Bankruptcy Code. Among other things, these sections require a plan to be “proposed in good faith,” 11 U.S.C. § 1325(a)(3); satisfy the “best interests of creditors” test, which requires that the value distributed to holders of allowed, unsecured claims be no less than the amount that would have been paid if the estate were liquidated under Chapter 7, id. § 1325(a)(4); and provide for the submission of all or a portion of the debtor’s future earnings “as is necessary for the execution of the plan,” id. § 1322(a)(1). Discretionary provisions that a debtor may incorporate in his plan are set forth in § 1322(b). These tools include the curing or waiving of a default, id. § 1322(b)(3); the “assumption, rejection, or assignment of any executory contract or unexpired lease,” id. § 1322(b)(7); and the “modif[ication of] the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence, or of holders of unsecured claims,” id. § 1322(b)(2). The last provision, providing for the modification of creditors’ rights, is one of the most advantageous tools available to Chapter 13 debtors. For example, we have interpreted § 1322(b)(2) to permit debtors to void liens on their homes to the extent that the lien is wholly unsecured by the value of the home. In re Zimmer, 313 F.3d 1220, 1221 (9th Cir. 2002) (evaluating modification of “unsecured claim[s],” as defined under § 506(a)).[2] Modification is a powerful tool; voidance — or “avoidance” — of a lien permits debtors to nullify a creditor’s in rem rights by effectively removing from a creditor his right to foreclose on a property.
Another useful tool in a Chapter 13 reorganization, which is also available in Chapter 7, is the discharge. 11 U.S.C. §§ 727, 1328. A Chapter 13 debtor seeking a discharge typically proposes a plan in which the discharge is granted at the end of the proceeding, after the debtor completes all required payments under the plan. Id. § 1328(a); cf. id. § 1328(b) (permitting the court to grant a discharge to a debtor who has not completed all payments under the plan under certain limited circumstances). A discharge releases debtors from personal liability on claims and enjoins creditors from taking any action against the debtor in the debtor’s personal capacity. Id. § 524(a). The Bankruptcy Code authorizes debtors to receive a discharge of unsecured debt (such as credit card debt) or secured debt (such as a mortgage on a home). Ordinarily, in case of debtor default on a mortgage, a creditor is not limited to a right of foreclosure on the property; a creditor may also sue the debtor personally for any deficiency on the debt that remains after foreclosure. See Johnson v. Home State Bank, 501 U.S. 78, 82 (1991). The discharge eliminates the creditor’s ability to proceed in personam against the debtor whether the debt is secured or unsecured; in the case of a secured debt, the creditor retains the ability to foreclose on the property but can no longer proceed against the debtor personally. Id.; see also 4 Collier on Bankruptcy ¶ 524.02[2][a].
If a debtor’s proposed plan conforms with the mandatory requirements described above and all voluntary provisions similarly satisfy the “good faith” and “best interests of creditors” tests, then the bankruptcy court will confirm the Chapter 13 plan. The Bankruptcy Code provides that the “provisions of a confirmed plan bind the debtor and each creditor,” 11 U.S.C. § 1327, such that any issue decided under a plan is entitled to res judicata effect. Bullard v. Blue Hills Bank, 135 S. Ct. 1686, 1692 (2015) (“Confirmation has preclusive effect, foreclosing relitigation of any issue actually litigated by the parties and any issue necessarily determined by the confirmation order.” (internal quotation marks omitted)). If the debtor complies with his obligations under the confirmed plan and makes all the required payments, the court will grant the debtor a discharge — if appropriate — and close the case. 11 U.S.C. § 350(a).
Many debtors, however, fail to complete a Chapter 13 plan successfully, often because they cannot make payments on time. Recognizing this, the Bankruptcy Code permits debtors who fail to complete their plans to convert their Chapter 13 case to a case under a different chapter, or dismiss their case entirely. Id. § 1307(a)-(b). But importantly, upon dismissal or conversion of a case, a debtor loses any benefits promised in exchange for the successful completion of the plan — whether in personam, such as discharge, or in rem, such as lien voidance. The Code treats any lien voided under a Chapter 13 plan as reinstated upon dismissal or conversion, restoring to creditors their state law rights of foreclosure on the debtor’s property. See id. §§ 348(f)(1)(C)(i); 349(b)(1)(C). Section 348 of the Bankruptcy Code governs conversion of a Chapter 13 case to a case under a different chapter. It provides that a creditor holding a security interest “as of the date of the filing of the [Chapter 13] petition”[3] shall “continue to be secured,” meaning that a creditor’s lien will be restored to him upon conversion. Id. § 348(f)(1)(C)(i). Dismissal of a Chapter 13 case has a similar effect — § 349 provides that any lien stripped under § 506(d) will be reinstated upon dismissal of the case, unless a court orders otherwise. Id. § 349(b)(1)(C). In effect, conversion or dismissal returns to the creditor all the property rights he held at the commencement of the Chapter 13 proceeding and renders him free to exercise any nonbankruptcy collection remedies available to him. See 3 Collier on Bankruptcy ¶ 349.01[2].
B. BAPCPA
In 2005, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), Pub. L. No. 109-8, 119 Stat. 23 (2005), to make several significant changes to the Bankruptcy Code. One of Congress’s purposes in enacting BAPCPA was “to correct perceived abuses of the bankruptcy system.” Milavetz, Gallop & Milavetz, P.A. v. United States, 559 U.S. 229, 231-32 (2010); see also H.R. Rep. 109-31 (I), at 2 (2005) (explaining that the enactment also sought to “ensure that the system is fair for both debtors and creditors”). Included among the provisions “intended to provide greater protections for creditors,” according to the House Report, are reforms “prohibiting abusive serial filings and extending the period between successive discharges.” H.R. Rep. No. 109-31(I), at 16 (2005). One of BAPCPA’s new provisions extending the period between successive discharges appears in Chapter 13, § 1328(f): “the court shall not grant a discharge of all debts provided for in the plan . . . if the debtor has received a discharge in a case filed under chapter 7, 11, or 12 of this title during the 4-year period preceding the date of the order for relief under this chapter.” 11 U.S.C. § 1328(f)(1). As relevant here, this provision bars a Chapter 13 debtor from obtaining a discharge if he has received a Chapter 7 discharge within the past four years. Debtors who have sought sequential relief under Chapters 7 and 13, and are thus subject to § 1328(f)’s prohibition on successive discharges, are termed “Chapter 20” debtors.
Significantly, § 1328(f) does not prohibit a debtor from filing a Chapter 13 petition after receiving a Chapter 7 discharge, and so nothing prevents a debtor from taking advantage of the other Chapter 13 tools available to him, apart from discharge. See 8 Collier on Bankruptcy ¶ 1328.06[1]. For example, a discharge-ineligible debtor may use Chapter 13 to cure a default or “seek protection of the bankruptcy court and the automatic stay while paying debts in an orderly fashion through a plan.” Id. Thus, Chapter 20 debtors are permitted to take advantage of many of Chapter 13’s restructuring tools, notwithstanding BAPCPA’s amendments. The question presented in this case is whether the Chapter 20 debtor’s ineligibility for a discharge also renders him ineligible to void a lien permanently upon the completion of his Chapter 13 plan. We turn to this difficult question.
IV. DISCUSSION
As the bankruptcy court below aptly summarized, this case presents “unique issues stemming from the almost bizarre lack of diligence by [HSBC] early on in the case.” HSBC’s inexplicable failure to respond to the bankruptcy court’s order disallowing its claim in the bankruptcy proceeding has generated a litany of issues, including several questions of first impression. In Part A, we first address whether the bankruptcy court properly voided HSBC’s lien under § 506(d) of the Bankruptcy Code. Next, we consider in Part B whether the voiding of that lien is permanent such that the lien will not be resurrected upon the completion of the Blendheims’ Chapter 13 plan. This is the novel “Chapter 20” question. In Part C, we determine whether the voiding of the lien comports with due process. Finally, in Part D, we address whether the bankruptcy court clearly erred in concluding that the Blendheims’ Chapter 13 petition was filed in good faith.
Before proceeding with our discussion of these questions, we briefly examine the justiciability of HSBC’s claims. Because HSBC failed timely to appeal the order disallowing its claim and order denying reconsideration to the district court, we, like the district court, lack jurisdiction over these orders. See In re Mouradick, 13 F.3d 326, 327 (9th Cir. 1994) (“[T]he untimely filing of a notice of appeal deprives the appellate court of jurisdiction to review the bankruptcy court’s order.”). But HSBC’s failure to timely appeal these orders does not, as the Blendheims have suggested, render HSBC’s appeal of the bankruptcy court’s other orders moot. The Blendheims are correct that the unappealed orders preclude this Court from offering HSBC any remedy in bankruptcy, but their argument misses the mark: HSBC is not seeking a remedy in bankruptcy. Rather, as we address in greater detail below, HSBC asks us to determine whether, now that the Blendheims have successfully completed their Chapter 13 plan, HSBC maintains a lien on the property such that it may pursue its non-bankruptcy, state-law remedy — foreclosure — against the Blendheims. Deciding this question requires us to examine the validity of the bankruptcy court’s lien-voidance order, plan confirmation order, and implementation order, which together permanently extinguish HSBC’s lien and right to foreclose. HSBC timely appealed these orders, and reversal on appeal would grant effective relief to HSBC by restoring its lien on the Blendheims’ home. See Pub. Utils. Comm’n v. F.E.R.C., 100 F.3d 1451, 1458 (9th Cir. 1996) (“The court must be able to grant effective relief, or it lacks jurisdiction and must dismiss the appeal.”). Accordingly, this appeal is not moot.
A. § 506(d) Permits Voidance of HSBC’s Lien
First, we consider whether the bankruptcy court properly voided HSBC’s lien pursuant to § 506(d). We requested supplemental briefing from the parties on this question of first impression. We review de novo the district court’s decisions on an appeal from a bankruptcy court. In re AFI Holding, Inc., 525 F.3d 700, 702 (9th Cir. 2008). A bankruptcy court’s conclusions of law, including its interpretation of the Bankruptcy Code, are reviewed de novo. Blausey v. U.S. Trustee, 552 F.3d 1124, 1132 (9th Cir. 2009) (per curiam).
The provision at issue here, § 506(d), states in full:
To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void, unless —
(1) such claim was disallowed only under section 502(b)(5) or 502(e) of this title; or
(2) such claim is not an allowed secured claim due only to the failure of any entity to file a proof of such claim under section 501 of this title.
11 U.S.C. § 506(d). Both parties agree that neither of the exceptions under § 506(d)(1)-(2) applies. Looking at the main text of the provision, § 506(d) authorizes the voiding of liens securing claims that have been deemed “not an allowed secured claim.” The most straightforward reading of the text suggests that if a creditor’s claim has not been “allowed” in the bankruptcy proceeding, then “such lien is void.” “Void” means “[o]f no legal effect” or “null.” Black’s Law Dictionary (10th ed. 2014). Accordingly, Congress’s language appears unequivocal: § 506(d)’s clear and manifest purpose is to nullify a creditor’s legal rights in a debtor’s property if the creditor’s claim is “not allowed,” or disallowed.
The Supreme Court’s decision in Dewsnup v. Timm, 502 U.S. 410 (1992), confirms this interpretation. There, a Chapter 7 debtor sought to use § 506(d) to void a creditor’s lien on his property, arguing that the creditors’ claim was not an “allowed secured claim” because it was undersecured — in other words, the value of the property supporting the creditor’s lien was less than the value of the claim. Id. at 413. Dewsnup rejected the debtor’s argument, holding that § 506(d) did not void the lien on his property because the creditor’s claim had been fully “allowed.” Id. at 417. The Court reasoned that its reading “gives the provision the simple and sensible function of voiding a lien whenever a claim secured by the lien itself has not been allowed” and “ensures that the Code’s determination not to allow the underlying claim against the debtor personally is given full effect by preventing its assertion against the debtor’s property.” Id. at 415-16. Dewsnup‘s holding clarifies that § 506(d)’s voidance mechanism turns on claim allowance. See Bank of America, N.A. v. Caulkett, 135 S. Ct. 1995, 1999 (2015) (affirming Dewsnup‘s interpretation of § 506(d) in the context of wholly underwater liens; “Because the Bank’s claims here are both secured by liens and allowed under § 502, they cannot be voided under the definition given to the term `allowed secured claim’ by Dewsnup“); see also 4 Collier on Bankruptcy ¶ 506.06[1][a] (“[Dewsnup] determined that section 506(d) does not void liens on the basis of whether they are secured under section 506(a), but on the basis of whether the underlying claim is allowed or disallowed. . . .”).
Here, it is undisputed that HSBC’s claim was not allowed. Although HSBC filed a proof of claim, the bankruptcy court expressly disallowed the claim after the Blendheims objected and HSBC failed to respond. See 11 U.S.C. § 502(a) (“A claim or interest . . . is deemed allowed, unless a party in interest . . . objects.”); id. § 502(b) (“[I]f such objection to a claim is made, the court, after notice and a hearing, shall determine the amount of such claim. . . .”). The Blendheims argue, and the bankruptcy court concluded in its hearing on the Blendheims’ motion for summary judgment, that if a claim is disallowed, then under § 506(d) and consistent with Dewsnup, the claim’s associated lien is void. We agree. Although voiding HSBC’s lien upon disallowance may seem a harsh consequence, we find that Congress directed such an outcome under § 506(d). Because HSBC’s claim was disallowed, § 506(d) leaves HSBC with “a claim against the debtor that is not an allowed secured claim,” and therefore its lien is void.
Congress codified the principle that liens may pass through bankruptcy in § 506(d)(2) (a lien securing a claim that is “not an allowed secured claim” is void unless “such claim is not an allowed secured claim due only to the failure of any entity to file a proof of claim”). This provision, an exception to § 506(d)’s voiding mechanism, means that “the failure of the secured creditor to file a proof of claim is not a basis for []voiding the lien of a secured creditor.” Tarnow, 749 F.2d at 467 (quoting S. Rep. No. 98-65, at 79 (1983)). Our sister circuits concluded that a claim filed late is tantamount to not filing a claim at all, and that therefore, under pre-Code principles and the rationale of § 506(d)(2), an untimely claim could not justify voiding the lien securing it. Hamlett, 322 F.3d at 349 (“[W]e conclude, following the reasoning set forth in Tarnow, that the failure to file a timely claim, like the failure to file a claim at all, does not constitute sufficient grounds for extinguishing a perfectly valid lien.”); Shelton, 735 F.3d at 750 (same); Tarnow, 749 F.2d at 467.
These decisions are distinguishable from this case, where HSBC timely filed its proof of claim. Because this case does not concern a late-filed or non-filed claim, § 506(d)(2)’s exception does not apply. Moreover, the equitable concerns animating the decisions of our sister circuits do not apply with the same degree of force to the case before us. A creditor who files an untimely claim has little choice but to accept the disallowance of his claim because under the Bankruptcy Code, untimeliness is itself a basis for disallowance. See 11 U.S.C. § 502(b)(9). Interpreting § 506(d) to void such a claim would automatically transform a timing mistake into a death knell for the lien securing the claim. Thus, our sister circuits concluded, such a lienholder should forfeit the right to participate in the bankruptcy proceeding — and lose the opportunity “to stand in line as an unsecured creditor for that portion of debt that is not adequately secured,” Shelton, 735 F.3d at 749; see Tarnow, 749 F.2d at 465 — but should not lose its lien. Rather, those courts concluded that the lienholder ought to retain whatever rights it has under state law to enforce the lien.
Where a claim is timely filed and objected to, on the other hand, disallowance is not automatic. This case is a good example: HSBC timely filed its proof of claim, received service of the Blendheims’ objection, and then had a full and fair opportunity to contest the disallowance of its claim — it simply chose not to. Thus, while voiding a lien securing an untimely filed claim might be considered a “disproportionately severe sanction” for untimeliness, In re Tarnow, 749 F.2d at 465, voidance is not so severe a sanction in a case like this one, where the bankruptcy court disallowed the claim because, as the bankruptcy court put it, HSBC “just slept on its rights” and refused to defend its claim. HSBC refused to defend its lien after it was challenged by the Blendheims for failure of proof and because their copy allegedly bore a forged signature. In these circumstances, HSBC’s failure to respond is more akin to a concession of error than a failure to file a timely claim. HSBC simply forfeited its claim.
We therefore affirm the bankruptcy court’s conclusion that § 506(d) authorized the voidance of HSBC’s lien. These facts present a straightforward application of § 506(d)’s textual command. Though we may one day confront the question whether an untimely filed claim justifies voiding its associated lien, that is not the issue presented in this case, and accordingly, we decline to decide it here.
B. Chapter 20 Debtors May Permanently Void Liens
Voiding a lien under § 506(d) might simply end the story in a different case, but not so here. As we discussed at Part III above, the Bankruptcy Code contains several provisions that reinstate a previously voided lien at the conclusion of a Chapter 13 proceeding, effectively bringing that lien back to life. HSBC argues that the only way for a debtor to avert these lien-reinstating provisions is to obtain a discharge. If correct, this would create an insurmountable obstacle for “Chapter 20” debtors, like the Blendheims, who are statutorily ineligible to obtain a discharge, having filed for Chapter 13 reorganization within four years of obtaining a discharge under Chapter 7. See 11 U.S.C. § 1328(f). Accordingly, HSBC argues, liens will come back to life, and lien voidance cannot be made “permanent” after the completion of a Chapter 13 plan, in circumstances where, as here, the debtors are ineligible for a discharge.
1. A discharge is not necessary to close a Chapter 13 case or permanently void a lien
HSBC argues that a discharge is necessary to obtain the benefits of lien voidance because, apart from conversion or dismissal, discharge is the only mechanism available to bring a Chapter 13 case to close in a manner that makes lien voidance “permanent.” As authority for that proposition, HSBC points to our decision in In re Leavitt, 171 F.3d 1219 (9th Cir. 1999). There, we considered the “appropriate standard of bad faith as `cause’ to dismiss a Chapter 13 bankruptcy petition with prejudice.” Id. at 1220 (footnote omitted). In the course of affirming the Bankruptcy Appellate Panel’s dismissal of an action with prejudice upon findings of bad faith concealment of assets and inflation of expenses, we stated, “[a] Chapter 13 case concludes in one of three ways: discharge pursuant to § 1328, conversion to a Chapter 7 case pursuant to § 1307(c) or dismissal of a Chapter 13 case `for cause’ under § 1307(c).” Id. at 1223 (footnote omitted). As we explained above, dismissal and conversion reinstate a previously voided lien. See 11 U.S.C. §§ 348, 349. Lower courts have therefore interpreted this language in Leavitt as making clear the “legal fact” that “the only way to make a lien strip `permanent’ is by discharge because conversion or dismissal reinstates the avoided lien.” Victorio, 454 B.R. at 778; see also Casey, 428 B.R. at 522 (“In the case of a `Chapter 20,’ there can be no discharge, and conversion is not an option. Dismissal is the necessary result, without discharge, when a debtor performs a plan that leaves one or more debts wholly or partially unpaid.”). HSBC characterizes this as the “Leavitt rule” and argues that the only way for a Chapter 20 debtor to permanently void a creditor’s lien is through a discharge. Under HSBC’s theory, the Blendheims’ ineligibility for a discharge means that their Chapter 13 case must end in conversion or dismissal, either of which would restore the lien previously voided under § 506(d).
HSBC’s theory rests upon a fatal flaw: our decision in Leavitt imposed no “rule” that a Chapter 13 case must end in conversion, dismissal, or discharge, and the Bankruptcy Code is devoid of any such requirement. In Leavitt, we were not tasked with deciding all the ways in which a Chapter 13 case can end. Rather, we were called upon to determine whether the bankruptcy court below had properly dismissed a bad faith Chapter 13 petition with prejudice. Our statement that a Chapter 13 case “concludes in one of three ways” was not necessary to our holding, and is therefore dictum. That much should be clear from the context in which the statement was made; in fact, we made clear in the sentence immediately following that “[h]ere, we are only concerned with dismissal.” Leavitt, 171 F.3d at 1223. Our statement in Leavitt should not be read to describe an exhaustive list of ways in which a Chapter 13 case may conclude.
Nor has HSBC cited any provision in the Bankruptcy Code stating that a Chapter 13 plan may end only in conversion, dismissal, or discharge. Indeed, contrary to the so-called “Leavitt rule,” the Code contemplates closure of a case pursuant to § 350(a), which provides that “[a]fter an estate is fully administered and the court has discharged the trustee, the court shall close the case.” With closure, no conversion, dismissal, or discharge is necessary. See Davis, 716 F.3d at 337-38 (adopting the debtor’s argument that “[i]n a successful Chapter 20 case . . . the plan is completed, and the case is closed administratively without dismissal or conversion”); see also Scantling, 754 F.3d at 1330 (concluding that because the creditor’s claim is not secured, thus making § 1325(a)(5) inapplicable, “the debtor’s ineligibility for a discharge is irrelevant to a strip off in a Chapter 20 case”); see also Okosisi, 451 B.R. at 99 (“The court finds that in this situation the proper result is for the court to close the case without discharge. 11 U.S.C. § 350(a).”).
Fundamentally, a discharge is neither effective nor necessary to void a lien or otherwise impair a creditor’s statelaw right of foreclosure. As defined under the Bankruptcy Code, a “discharge” operates as an injunction against a creditor’s ability to proceed against a debtor personally. See 11 U.S.C. § 524(a)(2) (a discharge “operates as an injunction against . . . an action . . . to collect, recover or offset any such debt as a personal liability of the debtor” (emphasis added)). Discharges leave unimpaired a creditor’s right to proceed in rem against the debtor’s property. See Johnson, 501 U.S. at 84 (“[A] bankruptcy discharge extinguishes only one mode of enforcing a claim — namely, an action against the debtor in personam — while leaving intact another — namely, an action against the debtor in rem.“); 4 Collier on Bankruptcy ¶ 524.02 (“[T]he provisions [of § 524] apply only to the personal liability of the debtor, so they do not affect an otherwise valid prepetition lien on property.”). It follows logically that there is no reason to make the Bankruptcy Code’s in rem modification or voidance provisions contingent upon a debtor’s eligibility for a discharge, when discharges do not affect in rem rights. See Fisette, 455 B.R. at 186-87 & n.9 (explaining that the strip off of a lien “is not the equivalent of receiving a discharge” because “a discharge releases a debtor’s in personam liability, but it does not affect the lien”); Hill, 440 B.R. at 182 (“Since the . . . debt was already discharged, or changed to non-recourse status in the Chapter 7 case, a second discharge for the Debtors in this Chapter 13 case would be redundant.”).
We acknowledge that there has been considerable confusion on this point. In Victorio, the bankruptcy court rejected the notion that closure pursuant to § 350(a) constituted a “fourth option” for ending a Chapter 13 case, reasoning in part that “prior to BAPCPA, the only way a lien strip became permanent in any Chapter 13 case was through discharge.” 454 B.R. at 775. The court observed that “the Bankruptcy Code should not be read to abandon past bankruptcy practice absent a clear indication that Congress intended to do so,” id. at 776 (quoting In re Bonner Mall P’ship, 2 F.3d 899, 912 (9th Cir. 1993)), and therefore found that discharge was a necessary predicate for lien voidance. However, because bankruptcy discharge, by definition, affects only in personam liability, it has never served as the historical means for ensuring that the Bankruptcy Code’s various mechanisms for modifying or voiding a creditor’s in rem rights remained in place at the conclusion of a plan. See, e.g., 11 U.S.C. § 506(d) (discussed above); id. § 1322(b)(2) (permitting modification of the rights of holders of certain secured claims and holders of unsecured claims); id. § 522(f) (permitting debtors to void liens impairing exemptions on certain assets). No discharge is, or ever has been, necessary to accomplish the outcome that the Blendheims seek.[6]
Victorio cited various cases for the proposition that modifications to creditors’ rights are effective only to the extent that they can be “discharged,” Victorio, 454 B.R. at 777-78, but this conclusion does not follow from the cases. Each of the cited cases concerns certain non-dischargeable debts for which the debtor remains personally liable after the completion of his Chapter 13 plan. See, e.g., Bruning v. United States, 376 U.S. 358 (1964) (nondischargeable postpetition interest on unpaid tax debt remains a personal liability of the debtor); In re Foster, 319 F.3d 495 (9th Cir. 2003) (non-dischargeable post-petition interest on child support obligation may be collected personally against the debtor); In re Ransom, 336 B.R. 790 (B.A.P. 9th Cir. 2005) (non-dischargeable student loan interest is recoverable by creditor), rev’d on other grounds sub nom. Espinosa v. United Student Aid Funds, Inc., 553 F.3d 1193 (9th Cir. 2008); In re Pardee, 218 B.R. 916 (B.A.P. 9th Cir. 1998) (nondischargeable pre-petition interest on student loan debt remains personal liability of the debtor). These cases stand for nothing more than the uncontroversial proposition that the Bankruptcy Code renders certain debts non-dischargeable; if the debt is non-dischargeable, then a debtor remains personally liable for that debt. To conclude based on these cases that “the only way to make a lien strip `permanent’ is by discharge,” is to ignore the Bankruptcy Code’s unequivocal distinction between in personam and in rem liability. See 11 U.S.C. § 524 (defining a “discharge” as an injunction against actions to recover debt “as a personal liability of the debtor” (emphasis added)). These cases cannot be read for the proposition that a discharge is necessary to permanently eliminate in rem liability.
2. Lien voidance does not subvert Congress’s intent in enacting BAPCPA
HSBC contends that even if discharge is not the sole route to permanent lien-voidance, permitting Chapter 20 debtors to achieve permanent lien-voidance circumvents Congress’s purpose in enacting § 1328(f)’s limitation on successive discharges. The bankruptcy court in Victorio reasoned that permitting debtors to achieve “de facto discharge of liability” through the closure mechanism effects an “end run” around BAPCPA’s “clear mandate.” 454 B.R. at 780; see also Cain, 513 B.R. at 320-21 (collecting cases subscribing to the “de facto discharge” argument). The Victorio court also suggested that Congress did not intend to allow dischargeineligible debtors to void liens upon case closure, while similarly situated, discharge-eligible debtors must complete all the requirements of a Chapter 13 plan in order to permanently void a lien. 454 B.R. at 780. Thus, HSBC argues, allowing the Blendheims to permanently avoid liability on the lien subverts Congress’s purpose in enacting BAPCPA and should not be permitted irrespective of whether there are alternative routes besides a discharge for closing a Chapter 13 case.
We disagree that permitting the Blendheims to void HSBC’s lien subverts Congress’s intent in prohibiting successive discharges. We take Congress at its word when it said in § 1328(f) that Chapter 20 debtors are ineligible for a discharge, and only a discharge. Had Congress wished to prevent Chapter 7 debtors from having a second bite at the bankruptcy apple, then it could have prohibited Chapter 7 debtors from filing for Chapter 13 bankruptcy entirely. See, e.g., 11 U.S.C. § 109(g) (“[N]o individual or family farmer may be a debtor under this title who has been a debtor in a case pending under this title at any time in the preceding 180 days. . . .”); see also Johnson, 501 U.S. at 87 (citing express prohibitions on serial filings and explaining that “[t]he absence of a like prohibition on serial filings of Chapter 7 and Chapter 13 petitions . . . convinces us that Congress did not intend categorically to foreclose the benefit of Chapter 13 reorganization to a debtor who previously has filed for Chapter 7 relief”). Nothing in the Code conditions Chapter 13’s other benefits or remedies on discharge eligibility. See Cain, 513 B.R. at 322 (“Lien-stripping is an important tool in the Chapter 13 toolbox, and it is not conditioned on being eligible for a discharge.”); Fisette, 455 B.R. at 186 (“We see no merit in the argument . . . that allowing a strip off in a `no discharge’ Chapter 20 case amounts to allowing the debtor a `de facto’ discharge.”). And, for the reasons we have discussed, we think that if Congress had meant to prohibit Chapter 20 debtors from voiding or modifying creditors’ in rem rights, it would not have done so by restricting the availability of a mechanism that by definition only affects in personam liability.
Our interpretation gives full effect to Congress’s intent to prevent abusive serial filings and successive discharges through BAPCPA. Prohibiting successive discharges helps curb abuse of the bankruptcy system by ensuring that a debtor once granted a discharge of debt is not granted yet a second discharge just a few years later. A debtor who has racked up significant credit card debt and received a Chapter 7 discharge, for example, will not obtain a second clean slate upon the filing of a Chapter 13 petition. Further, we agree with the district court that reaching the contrary conclusion would create “an extremely harsh result” that is inconsistent with the Bankruptcy Code’s text and purpose. Congress created the Chapter 13 mechanism to permit eligible debtors, who are capable of diligently meeting their obligations under plans, to reorganize their financial affairs and pay a greater amount on debts than they would have otherwise done under a Chapter 7 liquidation. Section 1328(f) does not purport to interfere with the important lien-stripping “tool in the Chapter 13 toolbox.” Cain, 513 B.R. at 322; see Davis, 716 F.3d at 338 (positing that “Congress intended to leave intact the normal Chapter 13 lien-stripping regime where a debtor could otherwise satisfy the requirements for filing a Chapter 20 case”).
Interpreting the Bankruptcy Code to permit lien modification through case closure does not, as Victorio warned, place discharge-ineligible debtors like the Blendheims in a better position than discharge-eligible debtors. Victorio posited that discharge-eligible debtors who fail to complete their plans will see their previously voided liens reinstated under § 349’s dismissal provision, whereas discharge-ineligible Chapter 20 debtors “can just have the case closed and thereby make the lien []voidance `permanent.'” 454 B.R. at 780. We respectfully disagree. Nothing in the Code compels a bankruptcy court to close, rather than dismiss, a Chapter 13 case when a debtor fails to complete his plan. In addition, the availability of case closure does not eliminate a bankruptcy court’s duty to ensure that a debtor complies with the Bankruptcy Code’s “best interests of creditors” test, 11 U.S.C. § 1325(a)(4), and the good faith requirement for confirming a Chapter 13 plan, id. § 1325(a)(3). Rather, the bankruptcy court here properly conditioned permanent lien-voidance upon the successful completion of the Chapter 13 plan payments. If the debtor fails to complete the plan as promised, the bankruptcy court should either dismiss the case or, to the extent permitted under the Code, allow the debtor to convert to another chapter.
* * *
In sum, we do not interpret BAPCPA to limit a debtor’s access to Chapter 13 lien-modification provisions by virtue of § 1328(f)’s limitation on successive discharges, and we conclude that a debtor’s ineligibility for a discharge has no bearing on his ability to permanently void a lien. We join the Fourth and Eleventh Circuits in concluding that Chapter 20 debtors may permanently void liens upon the successful completion of their confirmed Chapter 13 plan irrespective of their eligibility to obtain a discharge. Scantling, 754 F.3d at 1329-30; Davis, 716 F.3d at 338. Therefore, we hold that the Blendheims’ ineligibility for a discharge does not prohibit them from permanently voiding HSBC’s lien.
C. Voidance of the Lien Satisfied Due Process
Next, we turn to HSBC’s claim that the bankruptcy court failed to afford HSBC due process before voiding its lien. Whether adequate notice has been given for the purposes of due process is a mixed question of law and fact that we review de novo. In re Brawders, 503 F.3d 856, 866 (9th Cir. 2007).
HSBC raises two related arguments in support of its due process claim, both of which essentially claim a lack of adequate notice. First, HSBC argues that the validity of its lien was not “effectively” determined under the procedural requirements set forth under the Bankruptcy Rules. Federal Rule of Bankruptcy Procedure 7001(2) requires actions determining the “validity, priority, or extent of a lien” to be brought in an adversary proceeding, which imposes certain notice requirements on plaintiffs. See Fed. R. Bankr. P. 7004 (requiring service of adversary summons and complaint in compliance with Federal Rule of Civil Procedure 4). Although HSBC acknowledges that the Blendheims initiated an adversary proceeding to bring their motion for summary judgment seeking lien voidance, and thus the lien was “technically voided in the Adversary Proceeding,” HSBC contends that the lien was substantively voided by the disallowance order because the disallowance of its claim rendered voidance a “fait accompli.” Accordingly, HSBC argues, the validity of its lien was actually decided outside of an adversary proceeding. Second, HSBC argues that the bankruptcy court “allowed [HSBC]’s lien to be avoided `by ambush,'” because the Blendheims never mentioned their intent to void HSBC’s lien in their 2009 objection to the proof of claim. According to HSBC, not only did the Blendheims fail to give notice of their intent to seek voidance of the lien, but they affirmatively represented in several court filings that the lien was valid — suggesting that they would not seek to void the lien.
Both of HSBC’s arguments fail under the Supreme Court’s decision in United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010). In that case, the debtor filed a Chapter 13 petition and proposed a plan providing for repayment of the principal and discharge of the accrued interest on student loans he owed to United Student Aid Funds, Inc. (“United”). Id. at 264. After being served with notice of the plan, United filed a proof of claim reflecting both the principal and the accrued interest on the loan. Id. at 265. United did not, however, object to the plan’s proposed discharge of interest or Espinosa’s failure to initiate an adversary proceeding to determine the dischargeability of that debt. The bankruptcy court eventually confirmed the plan, and the Chapter 13 Trustee mailed United a notice of the plan confirmation, which advised United of its right to object within 30 days. Id. United did not object, and after Espinosa successfully completed the plan, the court granted him a discharge of the student loan interest. Id. at 265-66.
It was not until three years later, when United attempted to collect on the unpaid interest and Espinosa moved for an order holding United in contempt for violating the discharge injunction, that United raised an objection to the discharge order. Id. at 266. United complained that the Bankruptcy Code requires student loans to be discharged in an adversary proceeding, and because Espinosa did not initiate any such proceeding or serve United with an adversary complaint, United was deprived of its due process rights. Id. The Court rejected United’s argument, explaining that the standard for constitutionally adequate notice is “notice `reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.'” Id. at 272 (quoting Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950)). Because United received actual notice of the filing and contents of Espinosa’s plan, which United acknowledged by filing a proof of claim, the Court concluded, “[t]his more than satisfied United’s due process rights.” Id. (emphasis added). Accordingly, the Court held that there was no due process violation. Id.
Espinosa indicates that regardless of whether HSBC’s lien was technically voided in the adversary proceeding or upon entry of the default order, due process was satisfied when HSBC received notice that the Blendheims filed their objection to its proof of claim. Once HSBC received notice of that filing, it was deemed to have notice that its claim might be affected and it ignored the ensuing proceedings to its peril. See In re Gregory, 705 F.2d 1118, 1123 (9th Cir. 1983) (holding that for due process purposes, when the holder of a claim receives notice that the debtor has initiated bankruptcy proceedings, “it is under constructive or inquiry notice that its claim may be affected, and it ignores the proceedings to which the notice refers at its peril”). It bears emphasis that all that is constitutionally required for adequate notice is information sufficient to alert a creditor that its rights may be affected. See id. Due process does not demand the degree of specificity of notice to which HSBC claims entitlement. It is neither the court’s nor the debtor’s responsibility to ensure that a creditor fully understands and appreciates the consequences of the bankruptcy proceeding. Rather, it is HSBC’s responsibility, once apprised of the bankruptcy proceeding, to investigate the potential consequences in store for its lien. HSBC did not have to file a claim to preserve its lien; but once it chose to do so, it subjected itself to the jurisdiction of the bankruptcy court and its rules. And once the Blendheims objected to HSBC’s claim pursuant to § 502(a), there can be no doubt that HSBC was on notice that there might be consequences.
Indeed, the record shows that HSBC’s inexplicable failure to assert its rights, and not any defect in process, led to its predicament here. After HSBC filed a proof of claim in the Blendheims’ Chapter 13 bankruptcy, the Blendheims objected to the proof of claim and served HSBC’s servicing agent with a copy of the objection. HSBC failed to respond. Then, the bankruptcy court entered the default order disallowing HSBC’s claim, and again, HSBC was served with a copy of the order. Once again, HSBC failed to respond, taking no action to undo the disallowance order. The Blendheims then initiated adversary proceedings declaring their intent to void the lien and the bankruptcy court advised HSBC to move to set the disallowance order aside. Still, HSBC did nothing. HSBC waited over a year and a half after the default order was entered before it finally moved to set aside the disallowance order. Predictably, the court found no excusable neglect present on these facts and declined to grant HSBC’s request. Surely, the process given was sufficient to put HSBC on notice that its lien might be affected.
Far from revealing a due process violation, the record shows that HSBC’s rights were honored at every turn. HSBC’s own failure to assert its rights, which resulted in the entry of the lien-voidance order, does not make the lienvoidance order constitutionally defective. Accordingly, we affirm the district court’s determination that the bankruptcy court afforded HSBC due process.
D. The Chapter 13 Petition was Filed in Good Faith
A Chapter 13 petition may be dismissed “for cause,” pursuant to § 1307(c) of the Bankruptcy Code, if it was filed in bad faith. In re Eisen, 14 F.3d 469, 470 (9th Cir. 1994) (per curiam). We review for clear error a bankruptcy court’s determination whether or not a plan was filed in bad faith. Id. In determining whether a debtor acted in bad faith, a bankruptcy judge must review the “totality of the circumstances,” and consider the following factors:
(1) whether the debtor misrepresented facts in his petition or plan, unfairly manipulated the Bankruptcy Code, or otherwise filed his Chapter 13 petition or plan in an inequitable manner;
(2) the debtor’s history of filings and dismissals;
(3) whether the debtor only intended to defeat state court litigation; and
(4) whether egregious behavior is present.
Leavitt, 171 F.3d at 1224 (internal quotation marks, citations, and alterations omitted). “[B]ankruptcy courts should determine a debtor’s good faith on a case-by-case basis, taking into account the particular features of each Chapter 13 plan.” In re Goeb, 675 F.2d 1386, 1390 (9th Cir. 1982).
HSBC argues that the Blendheims’ Chapter 13 petition was filed in bad faith for two reasons. First, the Blendheims maintained two simultaneous bankruptcy proceedings at once because they filed the Chapter 13 proceeding while the Chapter 7 was technically still open. Second, the Blendheims filed the Chapter 13 proceeding to “re-invoke the automatic stay and stop [HSBC]’s foreclosure after allowing the stay to be lifted” following the Chapter 7 case.
Although we have held that successive filings do not constitute bad faith per se, In re Metz, 820 F.2d 1495, 1497 (9th Cir. 1987), we have never addressed whether simultaneous filings should be treated differently. Two of our sister circuits have addressed whether a debtor is permitted to maintain simultaneous bankruptcy cases as a matter of law, reaching different conclusions: In re Sidebottom, 430 F.3d 893 (7th Cir. 2005) (concluding that simultaneous proceedings are impermissible per se), and In re Saylors, 869 F.2d 1434 (11th Cir. 1989) (rejecting a per se prohibition on simultaneous filings). In Sidebottom, the Seventh Circuit rejected the rule, adopted by some courts, that a debtor can maintain simultaneous bankruptcies relating to the same debt. 430 F.3d at 898; see also In re Jackson, 108 B.R. 251, 252 (Bankr. E.D. Cal. 1989) (“The weight of authority holds that once a bankruptcy case is filed, a second case which affects the same debt cannot be maintained.”). Reasoning that “the Code is designed to resolve a debtor’s financial affairs by administration of a debtor’s property as a single estate under a single chapter within the code,” the court instead sided with other courts that have adopted a per se prohibition on simultaneous bankruptcy proceedings. Sidebottom, 430 F.3d at 898 (internal quotation marks omitted). The Seventh Circuit therefore concluded that the debtors in that case could not proceed with their Chapter 13 case because the petition was filed while the Chapter 7 case remained open. Id. at 899.
The Eleventh Circuit, by contrast, has rejected any per se rule against filing a Chapter 13 petition during the pendency of a Chapter 7 case. Saylors, 869 F.2d at 1437. In Saylors, the Eleventh Circuit observed that Congress enacted Chapter 13 to “create[] an equitable and feasible way for the honest and conscientious debtor to pay off his debts rather than having them discharged in bankruptcy.” Id. at 1436 (quoting H.R. Rep. No. 86-193, at 2 (1959)). It reasoned that Chapter 13 reorganizations remain accessible to debtors who have already received a Chapter 7 discharge, and thus barring debtors from Chapter 13 reorganization “would prevent deserving debtors from utilizing the plans.” Id. at 1438. “As a practical matter,” the court also noted, “considerable time” often elapses after a Chapter 7 debtor receives a discharge but before a trustee can close the case. Id. It thus concluded that a per se rule against filing a Chapter 13 proceeding while a Chapter 7 case remained open (although the discharge had been issued) “would conflict with the purpose of Congress in adopting and designing chapter 13 plans.” Id. at 1437. Rather than prohibiting such filings across the board, the court concluded that the Bankruptcy Code’s good faith requirement “is sufficient to prevent undeserving debtors from using this procedure, yet does not also prevent deserving debtors from using the procedure.” Id. at 1436. After reviewing the bankruptcy court’s findings regarding the debtor’s good faith and finding no clear error, the court affirmed the bankruptcy court’s conclusion that the confirmed plan was proposed in good faith. Id. at 1438-39.
We have already acknowledged the host of benefits that Chapter 13 reorganizations offers to debtors and have found no indication that Congress intended to deny such benefits to Chapter 20 debtors — who, by definition, file their Chapter 13 cases hard on the heels of a Chapter 7 discharge. Our conclusion here follows almost as a matter of course. We agree with the Eleventh Circuit’s reasoning and reject a per se rule prohibiting a debtor from filing for Chapter 13 reorganization during the post-discharge period when the Chapter 7 case remains open and pending. Because nothing in the Bankruptcy Code prohibits debtors from seeking the benefits of Chapter 13 reorganization in the wake of a Chapter 7 discharge, we see no reason to force debtors to wait until the Chapter 7 case has administratively closed before filing for relief under Chapter 13. We also agree with the Eleventh Circuit that the fact-sensitive good faith inquiry, in which courts may examine an individual debtor’s purpose in filing for Chapter 13 relief and take into account the unique circumstances of each case, is a better tool for sorting out which cases may proceed than the blunt instrument of a flat prohibition.
This conclusion also better comports with our decision in In re Metz. In Metz, we concluded that it did not constitute bad faith per se for a Chapter 13 debtor to include a mortgage claim in his plan of reorganization, even if his personal liability on the mortgage was discharged in a prior Chapter 7 proceeding.[7]820 F.2d at 1497-98. We declined to prohibit successive filings across the board, instead applying our established “totality of the circumstances” test to determine whether the debtor filed his successive petition in good faith. Id. at 1498. We upheld the bankruptcy court’s good faith determination as not clearly erroneous, observing that the debtor had recently received an increase in salary and explaining that “[s]uch a bona fide change in circumstances” is precisely the kind of evidence that a bankruptcy judge should examine to determine whether a successive filing is proper. Id. at 1498-99.
Examining the facts presented here, and considering the totality of the circumstances, the bankruptcy court did not err in finding that the petition and plan were filed in good faith. The Blendheims received their Chapter 7 discharge in January 2009 and filed their Chapter 13 petition the following day; their Chapter 7 case was not closed until November 2010. Contrary to HSBC’s contention that the Blendheims sought Chapter 13 relief solely to avert foreclosure, the bankruptcy court found that the Blendheims sought Chapter 13 protection for additional, valid reasons. The Blendheims filed their Chapter 13 case to deal with fraud claims and other issues surrounding the first-position lien, to repay secured debt owed to their homeowners association, and to clarify how post-petition debts would be paid. According to the court, the Blendheims “do not appear to be serial `repeat filers’ [who are] systematically and regularly abusing the bankruptcy system.” And with respect to the automatic stay, the court stated: “Although the Chapter 13 filing appears to be motivated by Debtors’ wish to avoid the foreclosure sale of their Residence, the Court does not find that filing for Chapter 13 bankruptcy under those circumstances necessarily constitutes bad faith.” It explained, “[m]any Chapter 13 debtors file for bankruptcy on the eve of foreclosure sale as a last resort.” The bankruptcy court did not clearly err in concluding that the Blendheims filed their Chapter 13 petition in good faith on these facts.
V. CONCLUSION
We conclude that the bankruptcy court properly voided HSBC’s lien under § 506(d), confirmed the Blendheims’ Chapter 13 plan offering permanent voidance of HSBC’s lien upon successful plan completion, and found no due process violation or bad faith purpose in filing the Chapter 13 petition. Accordingly, we affirm the bankruptcy court’s lienvoidance order, plan confirmation order, and plan implementation order.
With respect to the Blendheims’ cross-appeal for attorneys’ fees, we conclude that the district court lacked jurisdiction to determine whether the Blendheims were entitled to attorneys’ fees because this issue was not addressed, in the first instance, by the bankruptcy court. See In re Vylene Enters., Inc., 968 F.2d 887, 895 (9th Cir. 1992) (“[W]e do not have jurisdiction to review cases in which the district court affirms an order of the bankruptcy court that is not final.”). Accordingly, we vacate the district court’s denial of fees and instruct the district court to remand to the bankruptcy court for a determination of the Blendheims’ entitlement to attorneys’ fees in the first instance.
The judgment of the district court is
AFFIRMED in part, VACATED in part, and REMANDED. Costs on appeal are awarded to Appellees.
[1] The Blendheims objected pursuant to Rule 3001 of the Federal Rules of Bankruptcy Procedure, which requires that “[w]hen a claim, or an interest in property of the debtor securing the claim, is based on a writing, a copy of the writing shall be filed with the proof of claim.” Fed. R. Bankr. P. 3001(c)(1).
[2] We express no view on whether the Supreme Court’s recent decision in Bank of America, N.A. v. Caulkett, 135 S. Ct. 1995 (2015), which interpreted § 506(d) not to permit a Chapter 7 debtor to strip a wholly underwater lien, affects our precedent in this area. As we note infra at Part IV.A, Caulkett does not undermine — and, in fact, supports — our conclusion in this case.
[3] Section 348(f)(1)(C)(i) indicates that conversion preserves the security of any creditor who held a security “as of the date of the filing of the petition.” The Supreme Court recently clarified that the same phrase — “as of the date of filing of the petition” — in the context of § 348(f)(1)(A), refers to the Chapter 13 petition filing date. Harris, 135 S. Ct. at 1837. There is no reason to interpret the phrase differently in the context of § 348(f)(1)(C)(i).
[4]In re Okosisi, authored by Bankruptcy Judge Bruce Markell, and In re Victorio, authored by Chief Bankruptcy Judge Peter Bowie, offer strong articulations of the respective sides of the debate and so we draw from these opinions in our discussion below.
[5] We note that all of the cases in the split over the permanent lienvoidance question involve attempts by a debtor to declare a totally valueless — or “underwater” — lien “unsecured” pursuant to § 506(a). That section states that an “allowed claim of a creditor secured by a lien on property . . . is an unsecured claim to the extent that the value of such creditor’s interest or the amount so subject to setoff is less than the amount of such allowed claim.” See, e.g., Davis, 716 F.3d at 335. Once declared unsecured, the majority of courts hold that a debtor may void such a lien using § 1322(b)(2), which expressly authorizes the modification of the rights of unsecured creditors. See id. “The end result is that section 506(a), which classifies valueless liens as unsecured claims, operates with section 1322(b)(2) to permit a bankruptcy court, in a Chapter 13 case, to strip off a lien against a primary residence with no value.” Id.; see also Zimmer, 313 F.3d at 1226-27 (joining the majority of courts in holding that § 1322(b)(2) allows a Chapter 13 debtor to void wholly unsecured liens). We are not concerned here with the propriety of this form of lienstripping.
Here, the bankruptcy court voided HSBC’s secured claim under § 506(d) because it was disallowed, not because the claim was unsecured as defined under § 506(a). For our present purposes, the particular statutory section under which the lien is originally modified or voided is neither here nor there; we cite the foregoing cases not for their analysis of § 506(a) and § 1322(b)(2), but rather with respect to their discussion of the permanent lien-voidance question. Whether a lien is voided under § 506(d), as here, or under § 1322(b)(2), as in the mine-run of cases, the essential question remains the same: can a lien voided during a Chapter 13 proceeding remain permanently voided in a case where the debtor is barred from receiving a discharge?
[6] Several lower court decisions have articulated the following view: “Under the Bankruptcy Code, there are two ways to make an enforceable debt go away permanently. One is to pay it, in full. The other is to obtain a discharge of any remaining obligation.” Victorio, 454 B.R. at 777 (quoting Casey, 428 B.R. at 522). Section 1325 of the Bankruptcy Code, which sets forth requirements for confirming a Chapter 13 plan, requires that holders of “allowed secured claims” “retain the lien securing such claim” under a proposed plan “until the earlier of the payment of the underlying debt determined under nonbankruptcy law; or discharge under section 1328.” 11 U.S.C. § 1325(a)(5)(B)(i). It is significant that § 1325 applies only to “allowed secured claims”; the provision is silent with respect to secured claims that were not filed or liens securing disallowed claims, like the one at issue here. This case does not involve an allowed but wholly unsecured claim.
[7] Four years after our decision in Metz, the Supreme Court expressly approved of successive filings of Chapter 7 and Chapter 13 cases in Johnson v. Home State Bank. 501 U.S. at 80. While the Court did not reach the issue of good faith, it determined that nothing in the Bankruptcy Code prohibits successive filings and noted that Chapter 13 contains various provisions protecting creditors, strongly implying that a successive filing does not itself constitute abuse of the bankruptcy system. See id. at 88 (“[G]iven the availability of [Chapter 13’s creditor-protective] provisions, . . . we do not believe that Congress intended the bankruptcy court to use the Code’s definition of `claim’ to police the Chapter 13 process for abuse.”).
More and more loan servicers are stretching a borrower’s budget by filing foreclosure complaints and then withdrawing them once they discover a defect needing, for instance, the manufacturing of a missing allonge or a new mortgage assignment once learning that the borrower has a rarely knowledgeable foreclosure defense counsel.
LOTTIE TAGUPA, Petitioner/Plaintiff-Appellant, v. VIPDESK, Respondent/Defendant-Appellee.
Robert D. Triantos and Edmund W.K. Haitsuka, for respondent.
RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, AND WILSON JJ.
OPINION OF THE COURT BY POLLACK, J.
At issue in this case is the authority of a trial court to condition the voluntary dismissal of a complaint upon the plaintiff’s payment of the defendant’s attorney’s fees and costs. We hold that such authority exists under the Hawaif`i District Rules of Civil Procedure (HDCRCP) Rule 41(a)(2) (1996), but it is subject to certain procedural requirements. Additionally, the exercise of this authority must comport with equitable factors to accord substantial justice to the parties.
I. BACKGROUND
1. District Court Complaint
On October 26, 2012, Lettie Tagupa, pro se, filed a standard form one-page complaint (Complaint) against VIPDesk in the District Court of the Third Circuit (district court). The Complaint asserted that “[o]n or about Jun 2010-Sep 2011, Defendant(s) owed money to Plaintiff(s) as follows: For time spent taking photos, creating, researching and writing blogs on travel recommendations and travel information for the sole purpose of supporting VIPdesk’s marketing efforts.” The Complaint stated that the district court “ha[d] jurisdiction over this matter and venue [was] proper.”
In the Complaint, Tagupa initially indicated that the amount claimed was $35,000 and asked for judgment in that amount, but a handwritten amendment to her Complaint reduced the amount to $25,000.
2. Tagupa’s Motion to Dismiss for Lack of Subject Matter Jurisdiction
On May 8, 2013, Tagupa, with newly acquired legal representation,[1] filed a motion to dismiss the case for lack of subject matter jurisdiction (motion to dismiss) pursuant to Hawai`i Rules of Civil Procedure (HRCP) Rules 7, 9, and 12(b)(1).[2] Tagupa asserted that the district court did not have jurisdiction “over the subject matter of th[e] case” because her claims “derive from violations of federal law—the Fair Labor Standards Act of 1938 [FLSA], 29 USC 201 et. seq.” Tagupa acknowledged that she filed the case, pro se, in the wrong court, and attached a “draft lawsuit for the correct court,” i.e., the United States District Court for the District of Hawai`i, to her motion to dismiss.
VIPdesk filed a memorandum in opposition to Tagupa’s motion to dismiss in which it argued that the district court had jurisdiction over Tagupa’s claims. VIPdesk maintained that Tagupa’s Complaint alleged claims that could arise solely out of Hawai`i state law and that even if Tagupa intended to pursue a FLSA claim, the district court had subject matter jurisdiction over such a claim. Alternatively, VIPdesk requested, pursuant to the HDCRCP Rule 41(a)(2),[3] that if the Court granted Tagupa’s motion to dismiss, the dismissal should be with prejudice and conditioned upon Tagupa’s payment of the attorney’s fees and costs incurred by VIPdesk in the case.
3. District Court’s Orders and Judgment
At a hearing on May 23, 2013, the district court granted Tagupa’s motion to dismiss without prejudice, basing its decision not on lack of subject matter jurisdiction, but, rather, “on [Tagupa] wanting to file [the] case in federal court instead of state court.”[4]
At the hearing, Tagupa’s counsel requested that no attorney’s fees and costs be awarded to VIPdesk in light of Tagupa’s pro se status at the time that she filed the Complaint. The district court found that Tagupa “admittedly filed [the case] in the wrong court” and expressed concern that “if pro se plaintiffs file complaints [and] the defendant hires an attorney to defend and spends a lot of time on the case [and] then plaintiff decides to get counsel [and] . . . then states that they would like to file this claim in federal court, the defendant has incurred the expense of hiring an attorney to prepare it’s [sic] defense.” The court concluded, “Defendant should not have to bear the expense because [Tagupa] filed in the wrong court.”
At the conclusion of the hearing, the district court awarded VIPdesk attorney’s fees and costs pursuant to HDCRCP Rule 41(a)(2). The district court subsequently filed its order granting Tagupa’s motion to dismiss on June 4, 2013. The order stated that VIPdesk “is to be awarded reasonable attorney’s fees and costs incurred in defending this case in this Court” and instructed VIPdesk to file a declaration with its attorney’s fees incurred by June 3, 2013, and for Tagupa to file a response or objection within ten days of receipt of VIPdesk’s declaration. The order stated that the court would “decide the issue of [VIPdesk’s] attorney fees and costs to be awarded via non-hearing motion.”
On June 5, 2013, VIPdesk filed its motion for attorney’s fees (attorney’s fees motion) in which it maintained that it “incurred a total of $16,800.41 in attorney’s fees (inclusive of general excise taxes) and $288.87 in costs defending this case in this Court.” Tagupa filed her memorandum in opposition on June 12, 2014. In her memorandum, Tagupa argued that VIPdesk should not be awarded attorney’s fees as VIPdesk had not prevailed in the action, and there “ha[d] been no determination by this Court that [Tagupa’s] legal claims are unreasonable, frivolous, meritless or vexatious.” Tagupa contended that the “work performed by [VIPdesk] will be used by [VIPdesk] in the furtherance of this case in Federal Court,” VIPdesk “will use the same discovery in the Federal Court case,” and VIPdesk was not prejudiced by the dismissal.
On June 17, 2013, the district court issued an Order Awarding Attorney’s Fees, in which it granted VIPDesk’s nonhearing attorney’s fees motion and awarded VIPdesk the entire amount requested in the amount of $16,800.41 “as reaasonable attorney’s fees” and $288.87 in costs, for a total amount of $17,089.28. The district court handwrote on the Order Awarding Attorney’s Fees that “pursuant to HDCRCP 41(a)(2) and [Hawai`i Revised Statutes (HRS)] § 607-14.5[, the] Court finds that the Plaintiff’s claim for jurisdiction amount was frivolous under Section 607-14.5(b).”[5] On July 18, 2013, Tagupa filed a notice of appeal to the ICA from the Judgment filed on June 17, 2013.
II. Appellate Proceedings
A. Briefs
In her Opening Brief, Tagupa argued that the district court erred in its Order Awarding Attorney’s Fees. Tagupa contended that the district court granted VIPdesk’s attorney’s fees and costs prematurely, before the merits of the case had been decided and before a prevailing party was properly identified.
Tagupa noted that the district court awarded attorney’s fees pursuant to HDCRCP 41(a)(2) and HRS § 607-14.5 (Supp. 2013) even though VIPdesk “cited only rules 7(b) and 41(a)(2) [of the HDCRCP] as the basis for granting attorney’s fees.” Tagupa argued that to award attorney’s fees under HRS § 607-14.5, the court must find, in writing, that all or a portion of the claims or defenses made by the party were frivolous and not reasonably supported by the facts and the law in the civil action. Tagupa contended that despite the district court’s authority to award attorney’s fees and costs, the fact that she revised her Complaint prior to filing “does not, in and of itself, demonstrate that [her] claim against [VIPdesk] was `manifestly and palpably without merit.'”
Tagupa stated that her Complaint had been refiled in the federal district court as a FLSA class action and that it was, at that time, pending trial. Tagupa argued that based on the pending nature of the claim in federal court, the district court had no basis to make a determination as to whether her claim was frivolous, and, therefore, the district court abused its discretion in granting attorney’s fees pursuant to HRS § 607-14.5.
Tagupa further claimed that the district court was “simply penalizing [Tagupa], a pro se party, for filing her complaint in the wrong court” and that this was not a proper purpose for an award of attorney’s fees. Lastly, Tagupa argued that, as a general rule, each party is responsible for paying his or her own litigation expenses.
VIPdesk filed its Answering Brief, which requested that the Order Awarding Attorney’s Fees and Judgment be upheld and affirmed on appeal.[6] VIPdesk argued that the district court did not err in awarding VIPdesk’s attorney’s fees and costs under HDCRCP Rule 41(a)(2). VIPdesk maintained that in considering a dismissal under HDCRCP Rule 41(a)(2), a trial court should consider the totality of the circumstances, including equitable factors such as prejudice to the parties. VIPdesk contended that courts typically impose costs and attorney’s fees upon the plaintiff in such cases. Thus, VIPdesk argued that the district court was well within its discretion to award VIPdesk’s attorney’s fees and costs under HDCRCP Rule 41(a)(2), based on the record and its findings that VIPdesk should not have to bear the expense of preparing its defense because Tagupa filed in the wrong court.
VIPdesk next argued that the district court did not err in awarding VIPdesk’s attorney’s fees and costs under HRS § 607-14.5. VIPdesk noted that the district court satisfied the requirements of HRS § 607-14.5 by making a specific finding that Tagupa’s claim regarding the jurisdiction amount in her Complaint was frivolous under HRS § 607-14.5(b), and VIPdesk asserted that this finding was sufficiently supported by the record because Tagupa admitted that she intentionally reduced the amount of her claim to fall within the jurisdiction of the district court.
VIPdesk also argued that the pendency of Tagupa’s federal court claim had no bearing on the issue of attorney’s fees because the Order Awarding Attorney’s Fees “was not based on the merits of [Tagupa’s] FLSA claim but on the `jurisdictional amount’ of the claims that she brought in the [district court].” Lastly, VIPdesk contended that even if the district court erred by awarding VIPdesk attorney’s fees and costs under HRS § 607-14.5(b), such error was harmless and did not warrant setting aside the Order Awarding Attorney’s Fees because the district court was within its discretion to award VIPdesk’s attorney’s fees and costs under HDCRCP Rule 41(a)(2).
B. ICA Summary Disposition Order
The ICA issued its Summary Disposition Order (SDO) on August 12, 2014, which affirmed the Judgment and the Order Awarding Attorney’s Fees.
The ICA found that Tagupa’s appeal lacked merit, specifically because the district court was expressly authorized under HDCRCP Rule 41(a)(2) to condition dismissal of the Complaint “upon such terms and conditions as the court deem[ed] proper.” The ICA noted that Tagupa provided no argument against the district court’s award of attorney’s fees and costs pursuant to HDCRCP Rule 41(a)(2).
The ICA held that “in imposing conditions under HRCP Rule 41(a)(2),[7] the court should endeavor to insure that substantial justice was accorded to both parties.” In determining whether a plaintiff’s motion for voluntary dismissal is proper under HRCP Rule 41(a)(2), the ICA stated that a trial court “will consider the expense and inconvenience to the defendant and will deny the motion if the defendant will be prejudiced seriously by a dismissal.” (Quoting Moniz v. Freitas, 79 Hawai`i 495, 500-01, 904 P.2d 509, 514-15 (1995)) (internal quotation mark deleted). The ICA explained that a court may additionally examine whether “any harm to the defendant may be avoided by imposing terms and conditions on the dismissal.” (Quoting id.) (internal quotation mark deleted). The ICA concluded that the district court acted within its discretion in awarding VIPdesk’s attorney’s fees and costs in order to alleviate any prejudice resulting from the dismissal.
Finally, based on its conclusion that there was no abuse of discretion in the award of attorney’s fees pursuant to HDCRCP Rule 41(a)(2), the ICA found that it need not reach Tagupa’s argument that the district court erred by awarding VIPdesk’s attorney’s fees and costs under HRS § 607-14.5 because any alleged error in the district court’s application of HRS § 607-14.5 would be harmless based on HDCRCP Rule 61.[8] The ICA’s Judgment on Appeal affirmed the Order Awarding Attorney’s Fees.
C. Application for Writ of Certiorari
On October 30, 2014, Tagupa filed her Application seeking review of the ICA’s SDO. Tagupa argues that there is no supporting authority under Hawai`i law providing that HDCRCP Rule 41(a)(2) constitutes authorization for an award of attorneys’ fees and costs and that the rule only “applies to a `voluntary dismissal’ initiated by a plaintiff.” Tagupa contends that VIPdesk, rather than Tagupa, invoked HDCRCP Rule 41(a)(2) in this case and that the court sua sponte converted her motion to dismiss the case for lack of subject matter jurisdiction under HDCRCP Rule 12(b)(1) to a motion for dismissal under Rule 41(a)(2). Tagupa argues that, in awarding attorney’s fees under Rule 41(a)(2), the district court appeared “to confuse or conflate the issue of `prejudice’ to VIP[d]esk with that concerning its request for litigation expenses already incurred.”
Tagupa further argues that, contrary to HDCRCP Rule 78,[9] the district court “reserved the question of the amount of attorney’s fees to a non-hearing motion after appropriate submissions by the parties on the issue only.” Tagupa contends that had the district court conducted an “in-person hearing on the amount of attorney’s fees and costs,” it would have had “the opportunity to withdraw [its] converted `voluntary’ dismissal motion or otherwise have the Order set aside on the grounds that the amount of the fees and costs imposed would be too onerous.” Tagupa also asserts that the district court erred by ruling that her downward adjustment of her monetary claim was frivolous.[10]
VIPdesk filed a Response to Tagupa’s Application, asking that Tagupa’s Application be denied. VIPdesk argues that the ICA did not err in affirming the district court’s award of attorney’s fees and costs under HDCRCP 41(a)(2). VIPdesk maintains that while there are not any Hawai`i cases that discuss an award of attorney’s fees and costs under HDCRCP 41(a)(2), there is ample authority for a court’s ability to impose conditions on a plaintiff’s voluntary dismissal of her case. VIPdesk argues that federal courts applying FRCP Rule 41(a)(2), which is virtually identical to HDCRCP Rule 41(a)(2), have held that the rule affords courts broad discretion in imposing appropriate conditions in the dismissal of a case, including the payment of attorney’s fees and costs.
III. DISCUSSION
Tagupa’s motion to dismiss for lack of subject matter jurisdiction was converted by the district court into a voluntary dismissal by order of the court pursuant to HDCRCP Rule 41(a)(2).[11] The district court granted the motion upon the condition that Tagupa pay VIPdesk’s attorney’s fees. In imposing this condition, the district court relied upon HDCRCP Rule 41(a)(2) and HRS § 607-14.5.
Three issues are presented to this court: (1) whether the district court, after converting Tagupa’s motion to a request for a voluntary dismissal under HDCRCP Rule 41(a)(2), possessed the authority to impose payment of attorney’s fees as a condition of the dismissal; (2) whether Tagupa was improperly deprived of the opportunity to withdraw her motion to dismiss or otherwise have the Order set aside on the grounds that the amount of the fees and costs imposed would be too onerous; and (3) whether the Complaint was frivolous under HRS § 607-14.5, which triggered a separate basis for the award of attorney’s fees and costs.
A. Payment of Attorney’s Fees as a Condition for Voluntary Dismissal under HDCRCP Rule 41(a)(2)
HDCRCP Rule 41(a)(2),[12] in relevant part, provides that “an action shall not be dismissed at the plaintiff’s instance save upon order of the court and upon such terms and conditions as the court deems proper.” Dismissal under HDCRCP Rule 41(a)(2) is without prejudice “[u]nless otherwise specified in the order.” Generally, in evaluating a motion for voluntary dismissal under Rule 41(a)(2), the court “will consider the expense and inconvenience to the defendant and will deny the motion if the defendant will be prejudiced seriously by a dismissal.” Moniz, 79 Hawai`i at 500, 904 P.2d at 514 (quoting 9 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2364 (2d ed. 1994) [hereinafter Federal Practice 2d]). Alternatively, if the court finds that the defendant will be prejudiced by dismissal, in lieu of denying the motion to dismiss, “[t]he court will examine the possibility that any harm to the defendant may be avoided by imposing terms and conditions on the dismissal.” Id. The trial court has discretion to impose “such terms and conditions as the court deems proper,” considering the totality of the circumstances “to insure that substantial justice is accorded to both parties.” Id. (emphasis added); HDCRCP Rule 41(a)(2).
While this court has not previously addressed whether attorney’s fees may be imposed as a term or condition of voluntary dismissal under HDCRCP Rule 41(a)(2), there is abundant authority interpreting comparable provisions of the Federal Rules of Civil Procedure (FRCP),[13] and, to a lesser extent, the Hawai`i Rules of Civil Procedure (HRCP),[14] which addresses this issue.
Since HDCRCP Rule 41(a)(2) is identical to HRCP Rule 41(a)(2) (2012) and essentially identical to FRCP Rule 41(a)(2) (2010), cases interpreting and applying HRCP Rule 41(a)(2) and FRCP Rule 41(a)(2) may be consulted for guidance in interpreting HDCRCP Rule 41(a)(2). See Kawamata Farms, Inc. v. United Agri Prods., 86 Hawai`i 214, 252, 948 P.2d 1055, 1093 (1997) (holding that authorities interpreting a federal rule of civil procedure are highly persuasive in interpreting an essentially identical Hawai`i rule of civil procedure where there is an absence of case law interpreting the latter); accord State v. Shannon, 118 Hawai`i 15, 40, 185 P.3d 200, 225 (2008).
Although the two Hawai`i cases that address the imposition of terms and conditions under HRCP Rule 41(a)(2) did not consider whether attorney’s fees may be imposed as a condition of voluntary dismissal, both support the conclusion that attorney’s fees may be properly imposed as a condition of dismissal under HRCP Rule 41(a)(2). See Sapp v. Wong, 3 Haw. App. 509, 654 P.2d 883 (1982); Moniz, 79 Hawai`i 495, 904 P.2d 509 (1995).
In Sapp, the plaintiffs filed a motion for voluntary dismissal under HRCP Rule 41(a)(2) and noted in a supporting memorandum that they intended to pursue their claims in federal court rather than in state court. Id. at 511, 654 P.2d at 885. Although the plaintiffs submitted a proposed order to dismiss the case without prejudice, the trial court ultimately ordered that the case be dismissed with prejudice. Id. at 512-13, 654 P.2d at 885-86. In ordering this disposition, the trial court considered the circumstances of the case and found that the defendant would be unduly prejudiced if the plaintiffs were permitted to refile the case in state court. Id. The plaintiffs appealed, arguing that the trial court erred by imposing a “with prejudice” condition on their voluntary dismissal. Id. The ICA concluded that the trial court was permitted to order, as a condition under HRCP Rule 41(a)(2), the case to be dismissed with prejudice; however, the ICA remanded the case to the trial court to allow the plaintiffs the opportunity to withdraw their motion.[15] Id. at 514, 654 P.2d at 887.
In Moniz, this court considered whether the trial court had the authority to reinstate an arbitration award as a condition of voluntary dismissal under HRCP Rule 41(a)(2). Moniz, 79 Hawai`i at 500-01, 904 P.2d at 514-15. The court noted that “when imposing such conditions, a trial court should consider the totality of the circumstances consistent with substantial justice, taking into account equitable factors such as prejudice to either party.” Id. Under the facts of that case, we held that the trial court had discretion to reinstate an arbitration award as a condition of dismissal under HRCP Rule 41(a)(2). Id.
In light of the conditions imposed under Sapp and Moniz, including dismissal with prejudice, which is the harshest of sanctions,[16] we hold that it is within the discretion of the trial court to require the payment of attorney’s fees as a condition of dismissal under HRCP Rule 41(a)(2). This conclusion is consistent with federal courts that have held that attorney’s fees may be properly awarded as a term of voluntary dismissal under FRCP Rule 41(a)(2). See 9 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2366, at 522-49 (3d ed. 2008 & Supp. 2014) [hereinafter Federal Practice 3d]).[17]
While a trial court has discretion to impose terms and conditions when granting a motion for voluntary dismissal under Rule 41(a)(2), courts of Hawai`i and other jurisdictions provide the plaintiff with an opportunity to withdraw the motion to dismiss in light of the conditions imposed “to insure that substantial justice is accorded to both parties.” Moniz, 79 Hawai`i at 500, 904 P.2d at 514 (quoting 9 Wright & Miller, Federal Practice 2d § 2364) (emphasis added).
When a plaintiff requests voluntary dismissal but does not mention conditions, the trial court can specify conditions on which it will allow dismissal, and “[i]f the conditions are too onerous, the plaintiff need not accept the dismissal on those terms.” Id. Not affording the plaintiff an opportunity to withdraw the motion for voluntary dismissal is tantamount to an abuse of discretion. See Sapp, 3 Haw. App. 509, 654 P.2d 883. In Sapp, discussed supra, the plaintiffs had identical actions pending in both state and federal courts for nearly a decade. Sapp, 3 Haw. App. at 512-13, 654 P.2d at 885-86. In the state action, the plaintiffs lost at trial and appealed. Id. On appeal, the judgment was vacated and the case was remanded for a new trial. Id. On remand, the plaintiffs opposed the defendants’ motion to set a trial date and subsequently filed a motion to dismiss the action without prejudice under HRCP Rule 41(a)(2). Id. The trial court granted the plaintiffs’ Rule 41(a)(2) motion but conditioned the dismissal as being with prejudice. Id. The plaintiffs appealed, arguing that the trial court erred by imposing a “with prejudice” condition on the dismissal. Id.
The ICA found that the “defendants ha[d] undoubtedly been put to great expense in this matter” and “that [the] circumstances [of the case] amount to a quantum of prejudice to the defendant.” Id. Thus, the ICA concluded that the trial court was permitted to order, as a condition under HRCP Rule 41(a)(2), that the case be dismissed with prejudice. Id. However, the ICA found that the “conditions imposed were not requested by [the] plaintiffs and they were not given the opportunity to choose between accepting the condition or proceeding with the case.” Id. at 514, 654 P.2d at 887. The ICA “deem[ed] this omission to be an abuse of discretion” and remanded the case “to allow [the] plaintiffs to withdraw their [Rule 41(a)(2)] motion if they [felt] the condition [was] too onerous.”[18] Id.
The legal principle enunciated by the Sapp court—that plaintiffs should be given notice of the conditions that the court intends to impose upon dismissal, if any, and the opportunity to withdraw the request for dismissal if a plaintiff finds the conditions to be unacceptable—is broadly supported by cases from other jurisdictions. See Lau v. Glendora Unified Sch. Dist., 792 F.2d 929, 930 (9th Cir. 1986) (remanding the case “to allow the plaintiff a reasonable time within which to withdraw her motion for a voluntary dismissal and proceed to trial or consent to the dismissal despite the attachment of conditions”); Mortg. Guar. Ins. Corp. v. Richard Carlyon Co., 904 F.2d 298, 301 (5th Cir. 1990) (“Ordinarily, the plaintiff has the option to refuse a Rule 41(a)(2) voluntary dismissal and to proceed with its case if the conditions imposed by the court are too onerous”; however, the plaintiff must timely move to withdraw its motion to dismiss); United States v. One Tract of Real Prop. Together With all Bldgs., Improvements, Appurtenances & Fixtures, 95 F.3d 422, 426 (6th Cir. 1996) (concluding that the district court abused its discretion by not giving plaintiff an opportunity to withdraw its motion to dismiss once conditions were imposed).[19]
Accordingly, we hold that although a trial court has discretion to impose terms and conditions, including attorney’s fees and costs, when granting a motion for voluntary dismissal under Rule 41(a)(2), the court, in order “to ensure that substantial justice [is] accorded to both parties,” also must provide the plaintiff with the opportunity to either (1) withdraw the request for dismissal if the plaintiff finds the conditions to be unacceptable or (2) accept the terms and conditions of the dismissal. See Moniz, 79 Hawai`i at 500, 904 P.2d at 514; Sapp, 3 Haw. App. at 514, 654 P.2d at 8879; 9 Wright & Miller, Federal Practice 3d § 2366, at 522-23.[20]
In this case, during the hearing on Tagupa’s motion to dismiss, the court inquired as to Tagupa’s position on VIPdesk’s motion for attorney’s fees should the court grant the motion to dismiss. Tagupa requested that she not be required to pay VIPdesk’s attorney’s fees because she inadvertently commenced her action in the wrong court. Tagupa’s attorney represented to the district court that the action would be reinstituted in federal court once it was dismissed by the district court. The district court granted the motion to dismiss and awarded VIPdesk reasonable attorney’s fees and costs pursuant to Rule 41.
After the hearing, the court filed its order granting Tagupa’s motion to dismiss, in which the court noted, inter alia, that VIPdesk “is to be awarded reasonable attorney’s fees and costs incurred in defending this case in this court.” Thereafter, VIPdesk indicated that it incurred a total of $16,800.41 in attorney’s fees (inclusive of general excise taxes) and $288.87 in costs defending the case in the district court. Tagupa filed an opposition pleading, and the court awarded the full amount of VIPdesk’s requested fees and costs.
As Tagupa argued in her Application, because the court did not conduct a hearing on the amount of attorney’s fees and costs it imposed upon dismissal of the case, Tagupa did not have “the opportunity to withdraw her converted `voluntary’ dismissal motion or [to] have the Order set aside on the grounds that the amount of the fees and costs would be too onerous.” Thus, the district court abused its discretion in the manner of its dispostion of the motion to dismiss, and this case must be remanded to provide Tagupa with the opportunity to reject the terms and conditions of the dismissal order, withdraw the motion, and continue litigating the case at the district court, or accept the terms and conditions that may be imposed upon remand and have the case dismissed without prejudice. See Sapp, 3 Haw. App. at 514, 654 P.2d at 887; Lau, 792 F.2d at 930; Mortg. Guar. Ins. Corp., 904 F.2d at 301.
C. Attorney’s Fees for Frivolous Claims under HRS § 607-14.5
As an additional ground for awarding attorney’s fees in this case, the judge hand-wrote on the Order Awarding Attorney’s Fees that the fees were awarded “pursuant to HDCRCP 41(a)(2) and §§ 607-14.5 HRS” and that the “court finds that the Plaintiff [sic] claim for jurisdiction amount was frivolous under Section 607-14.5.”[21]
Pursuant to HRS § 607-14.5(a) and (b), to award attorney’s fees for a frivolous claim, the court must make “a specific finding” in writing “that all or a portion of the claims . . . made by the party are frivolous and are not reasonably supported by the facts and law in the civil action.”
Here, other than the court’s handwritten one-sentence notation on its order finding Tagupa’s “jurisdiction amount” to be frivolous, the court made no other finding, written or otherwise, that Tagupa’s claim was frivolous. Additionally, prior to the court’s ruling on this ground, VIPdesk had never claimed that Tagupa’s claim was frivolous; in fact, VIPdesk itself asserted that the claim could be brought in either the district court or federal court.
When Tagupa filed her Complaint, pro se, she reduced the amount in controversy from $35,000 to $25,000 to bring her claim within the district court’s jurisdiction. Although there is authority intimating that an excessive and unreasonable amount of damages may be an “indication of the frivolous and bad faith nature” of an action, Bright v. Superior Court, 780 F.2d 766, 722 n.8 (9th Cir. 1986), VIPdesk cites no authority to suggest that choosing—for reasons of strategy, expense, or otherwise—to claim a lesser amount of damages than Tagupa may otherwise be entitled indicates frivolousness or bad faith.
There is simply no evidence in the record that Tagupa filed her complaint and pursued her case in bad faith or that the amount of her claim was otherwise frivolous. Inasmuch as the record does not support the district court’s conclusion that Tagupa’s claim was frivolous so as to indicate bad faith on the pleader’s part such that argument to the court was not required, the district court abused its discretion in granting attorney’s fees pursuant to HRS § 607-14.5.
D. Remand to the District Court and Guidance in Determining Fees and Costs
The district court erred in failing to provide Tagupa with the opportunity to withdraw her motion to dismiss. Accordingly, we vacate the district court’s Judgment and the ICA Judgment on Appeal. Upon remand, the district court must determine the amount of attorney’s fees and costs, if any, that is justified by the relevant equities in this case so as to accomplish substantial justice. See Moniz, 79 Hawai`i at 500, 904 P.2d at 514; McCants v. Ford Motor Co., 781 F.2d 855, 857 (11th Cir. 1986). Upon being informed of the conditions of a dismissal, if any, including the amount of attorney’s fees and costs that she must pay VIPdesk, Tagupa will have the opportunity to withdraw the motion to dismiss if she finds the conditions unacceptable. See Moniz, 79 Hawai`i at 500, 904 P.2d at 514; Sapp, 3 Haw. App. at 514, 654 P.2d at 8879; 9 Wright & Miller, Federal Practice 3d § 2366, at 522-23.
Because we vacate the judgment of the district court and remand this case to that court in order to provide Tagupa with the opportunity to withdraw the motion to dismiss, to provide guidance on remand, we briefly discuss the approach that should guide a trial court in setting the amount of attorney’s fees and costs when they are made a condition of voluntary dismissal. See, e.g., Gap v. Puna Geothermal Venture, 106 Hawai`i 325, 341-43, 104 P.3d 912, 928-30 (2004) (offering guidance to circuit court on remand as to setting appropriate sanction); Nelson v. Univ. of Haw., 97 Hawai`i 376, 385 n.6, 38 P.3d 95, 104 n.6 (2001) (addressing evidentiary issues to provide guidance to the court on remand).
Payment of attorney’s fees and costs to a defendant is merely a species of the various terms and conditions that a trial court may impose upon a plaintiff’s motion for voluntary dismissal. See 9 Wright & Miller, Federal Practice 3d § 2366, at 540 (stating that, aside from the “payment of money,” conditions may include a requirement “that the plaintiff produce documents or agree to allow any discovery in the dismissed action to be used in any subsequent action or otherwise reduce the inconvenience to the defendant caused by the dismissed case”); see, e.g., Moniz, 79 Hawai`i at 500-01, 904 P.2d at 514-15 (conditioning voluntary dismissal on the reinstatement of an arbitration award); In re Wellbutrin XL, 268 F.R.D. 539, 544 (E.D. Pa. 2010) (conditioning voluntary dismissal on the plaintiff’s compliance with a previous court-ordered discovery). Before imposing attorney’s fees and costs (as is the case when imposing any other condition), a court should strive “to insure that substantial justice is accorded to both parties.” Moniz, 79 Hawai`i at 500, 904 P.2d at 514 (emphasis added) (quoting 9 Wright & Miller, Federal Practice 2d § 2364); HDCRCP Rule 41(a)(2).
Because the substantial justice standard is not susceptible to exact exposition, its application necessarily will produce different results depending on, and tailored to, the particular circumstances present in a case. The trial court should balance all of the “relevant equities” so as to “do justice between the parties in each case,” and if attorney’s fees and costs are to be imposed, they should be reasonable and “deemed appropriate.” McCants, 781 F.2d at 857.
For example, there might be instances where substantial justice is most effectively realized if the amount of attorney’s fees and costs awarded excludes “expenses for items that will be useful in another action.” 9 Wright & Miller, Federal Practice 3d § 2366, at 532; see Westlands Water Dist., 100 F.3d at 97-98 (holding that “the defendants should only be awarded attorney fees for work which cannot be used in any future litigation of these claims”); McLaughlin v. Cheshire, 676 F.2d 855, 856-57 (D.C. Cir. 1982) (“[W]here a plaintiff seeks voluntary dismissal in one forum to pursue pending litigation against the defendant in another forum, the defendant is not entitled to reimbursement for expenses incurred in preparing work product that has been or will be useful in the continuing litigation.”); Davis v. USX Corp., 819 F.2d 1270, 1276 (4th Cir. 1987) (holding that there is no reason to award attorneys’ fees for work and resources that “will be easily carried over to litigation of the plaintiff’s cause of action” in another jurisdiction); Thoubboron v. Ford Motor Co., 809 A.2d 1204, 1211 (D.C. 2002) (“Attorney’s fees and costs are limited to the amount expended for work that cannot be applied to the subsequent lawsuit concerning the same claims. . . .”).[22]
The justification for excluding expenses for items that will be useful in another action is grounded in the twofold purpose of awarding attorney’s fees and costs as a term or condition of voluntary dismissal: “to compensate the defendant for the unnecessary expense that the litigation has caused,” Cauley v. Wilson, 754 F.2d 769, 772 (7th Cir. 1985), “and to deter vexatious litigation,” Bishop v. W. Am. Ins. Co., 95 F.R.D. 494, 495 (N.D. Ga. 1982) (citing 5 J. Moore, J. Lucas & J. Wicker, Moore’s Federal Practice §§ 41.05[1], 41.06 (2d ed. 1982)). Where the plaintiff is voluntarily dismissing an action in order to commence the same action in a different forum or jurisdiction, the defendant faces the risk of incurring duplicative litigation costs. See Cauley, 754 F.2d at 772; Taragan v. Eli Lilly & Co., 838 F.2d 1337, 1340 (D.C. Cir. 1988). At the same time, because the defendant inevitably will have to defend against the same action, it would generally be inequitable to allow the defendant to recoup all attorney’s fees and costs because some of them were expended for work and materials that can be carried over to, and utilized in, the subsequent litigation.[23]
We therefore hold that in applying the substantial justice standard to the amount of attorney’s fees and cost imposed as a condition to voluntary dismissal, the court should consider such factors as (1) the reasonableness of the amount of attorney’s fees and costs; (2) whether another cause of action concerning the same subject matter is contemplated by the plaintiff against the defendant; (3) whether some work or materials produced for the case subject to dismissal could be utilized in the litigation of the later-filed case; and (4) the prejudicial effect of dismissal to the defendant beyond the prospect of subsequent litigation.
In its motion for attorney’s fees, VIPDesk submitted a summary of its fees and expenses incurred in defending against Tagupa’s claims, totaling $16,800.41 in attorney’s fees and $288.87 in costs. The court granted the full amount of VIPdesk’s requested fees and costs, and it appears that the court simply accepted VIPdesk’s accounting of fees and costs and did not engage in the requisite weighing of the relevant equities to arrive at its award to VIPdesk. See McCants, 781 F.2d at 857. The district court’s order reflects no finding that the amount of attorney’s fees and costs were calculated to accomplish substantial justice in light of the facts and circumstances of this case.[24] Hence, upon remand, the district court should also consider the foregoing approach in setting the amount of attorney’s fees and costs if the court, in its discretion, decides to impose such a condition for voluntary dismissal.
IV. CONCLUSION
Although we find that the trial court has discretion to impose attorney’s fees as a term or condition of voluntary dismissal under HDCRCP Rule 41(a)(2), in this case the district court abused its discretion by not providing Tagupa with an opportunity to choose between accepting this condition or withdrawing her motion to dismiss. Finally, we find that the district court abused its discretion by failing to evaluate, and make findings on, whether the award and amount of attorney’s fees and costs accords substantial justice to both parties. Accordingly, we vacate the judgment of the ICA and the district court’s June 17, 2013 Judgment and June 17, 2013 Order Granting Defendant’s Motion for Award of Attorney’s Fees and Costs and remand the case to the district court for proceedings consistent with this opinion.
[1] A Notice of Appearance of Venetia K. Carpenter-Asui for Tagupa was filed on May 8, 2013.
[2] HRCP Rule 7 (2000) pertains to the form of motions, and HRCP Rule 9 (2000) pertains to pleading special matters. HRCP Rule 12(b) (2000) provides in relevant part:
Every defense, in law or fact, to a claim for relief in any pleading, whether a claim, counterclaim, cross-claim, or third-party claim, shall be asserted in the responsive pleading thereto if one is required, except that the following defenses may at the option of the pleader be made by motion: (1) lack of jurisdiction over the subject matter. . . .
Except as provided in paragraph (1) of this subdivision of this rule, an action shall not be dismissed at the plaintiff’s instance save upon order of the court and upon such terms and conditions as the court deems proper. If a counterclaim has been pleaded by a defendant prior to the service upon that defendant of the plaintiff’s motion to dismiss, the action shall not be dismissed against the defendant’s objection unless the counterclaim can remain pending for independent adjudication by the court. Unless otherwise specified in the order, a dismissal under this paragraph is without prejudice.
[4] The record in this case does not contain any transcripts. References to statements made by the court or the parties during the hearing are not direct quotes from the parties, but, rather, quotes from the court clerk’s minutes, which are part of the record on appeal pursuant to Hawai`i Court Record Rules Rule 4(f) (2012).
[5] HRS § 607-14.5(b) (Supp. 1999) provides, in relevant part:
(b) In determining the award of attorneys’ fees and costs and the amounts to be awarded, the court must find in writing that all or a portion of the claims or defenses made by the party are frivolous and are not reasonably supported by the facts and the law in the civil action. In determining whether claims or defenses are frivolous, the court may consider whether the party alleging that the claims or defenses are frivolous had submitted to the party asserting the claims or defenses a request for their withdrawal as provided in subsection (c). If the court determines that only a portion of the claims or defenses made by the party are frivolous, the court shall determine a reasonable sum for attorneys’ fees and costs in relation to the frivolous claims or defenses.
[6] Tagupa identified the district court’s Order Awarding Attorney’s Fees as the alleged error in this case. Attorney’s fees had previously been awarded by the district court’s June 4, 2013 order granting Tagupa’s motion to dismiss, although no amount had been specified. VIPdesk presented a counterstatement of Tagupa’s point of error: “Whether the [district court] erred in awarding [VIPdesk’s] attorney’s fees and costs.”
[7] The ICA noted that HRCP Rule 41(a)(2) contains text identical to that of HDCRCP Rule 41(a)(2) and that, therefore, case law interpreting HRCP Rule 41 informed the court in its application of HDCRCP Rule 41 to this case.
No error in either the admission or the exclusion of evidence and no error or defect in any ruling or order or in anything done or omitted by the court or by any of the parties is ground for granting a new trial or for vacating, modifying, or otherwise disturbing a judgment or order, unless refusal to take such action appears to the court inconsistent with substantial justice. The court at every stage of the proceeding must disregard any error or defect in the proceeding which does not affect the substantial rights of the parties.
Unless local conditions make it impracticable, each district court shall establish regular times and places, at intervals sufficiently frequent for the prompt dispatch of business, at which motions requiring notice and hearing may be heard and disposed of; but the judge at any time or place and on such notice, if any, as the judge considers reasonable may make orders for the advancement, conduct, and hearing of actions.
To expedite its business, the court may make provisions by rule or order for the submission and determination of motions without oral hearing upon brief written statements of reasons in support and opposition.
[10] Tagupa also contends that permitting attorney’s fees for non-movants in voluntary dismissal actions without any specific limitation on the amount awarded is contrary to public policy. Tagupa maintains that no limitation will discourage otherwise meritorious voluntary dismissals by plaintiffs, resulting in an unnecessary cluttering of the district court docket. We do not address this contention because it was not raised at the district court or the ICA, as Tagupa acknowledges in her Application, and, therefore, was waived. See Kemp v. State of Haw. Child Support Enforcement Agency, 111 Hawai`i 367, 391, 141 P.3d 1014, 1038 (2006) (holding that an argument not raised at the trial court “will be deemed to have been waived on appeal”); Enoka v. AIG Haw. Ins. Co., 109 Hawai`i 537, 546, 128 P.3d 850, 859 (2006) (accord).
[11] Initially, Tagupa moved, “pursuant to rules 7, 9, [and] 12(b)(1)” of the HRCP, to dismiss the case for lack of subject matter jurisdiction. However, Rule 12, under both the HRCP and the HDCRCP, governs defenses that may be asserted in pleadings responsive to a complaint and does not provide relief for a plaintiff seeking to dismiss one’s own claim. In any event, as VIPdesk argued, the district court did have jurisdiction over Tagupa’s claim because the Complaint did not allege any federal causes of action, and the district court had subject matter jurisdiction over Tagupa’s state law causes of action. See, e.g., HRS § 387-12(c) (Supp. 1999) (wage and hour claims “may be maintained in any court of competent jurisdiction by any one or more employees”). Even if Tagupa had alleged a claim under the FLSA, as she argued in her motion to dismiss, FLSA claims may be pursued in both federal and state courts and, thus, the district court would maintain subject matter jurisdiction over her purported FLSA claim. See 29 U.S.C. § 216(b) (2012) (a FLSA action may be “maintained against any employer . . . in any Federal or State Court of competent jurisdiction”). Thus, Tagupa’s motion to dismiss for lack of subject matter jurisdiction could have been denied on the merits.
[12] HDCRCP Rule 41(a) (1996) provides the following:
(a) Voluntary dismissal: Effect thereof.
(1) By plaintiff; by stipulation. An action may be dismissed by the plaintiff without order of court (i) by filing a notice of dismissal at any time before the return date as provided in Rule 12(a) or service by the adverse party of an answer or of a motion for summary judgment, or (ii) by filing a stipulation of dismissal signed by all parties who have appeared in the action. Unless otherwise stated in the notice of dismissal or stipulation, the dismissal is without prejudice, except that a notice of dismissal operates as an adjudication upon the merits when filed by a plaintiff who has once dismissed in any court of the United States, or of any state, territory or insular possession of the United States an action based on or including the same claim.
(2) By order of court. Except as provided in paragraph (1) of this subdivision of this rule, an action shall not be dismissed at the plaintiff’s instance save upon order of the court and upon such terms and conditions as the court deems proper. If a counterclaim has been pleaded by a defendant prior to the service upon that defendant of the plaintiff’s motion to dismiss, the action shall not be dismissed against the defendant’s objection unless the counterclaim can remain pending for independent adjudication by the court. Unless otherwise specified in the order, a dismissal under this paragraph is without prejudice.
[13] FRCP Rule 41(a)(2) states, in relevant part, “Except as provided in Rule 41(a)(1), an action may be dismissed at the plaintiff’s request only by court order, on terms that the court considers proper.” (Emphasis added).
[14] HRCP Rule 41(a)(2) and HDCRCP Rule 41(a)(2) are identical and state, in relevant part, “Except as provided in paragraph (1) of this subdivision of this rule, an action shall not be dismissed at the plaintiff’s instance save upon order of the court and upon such terms and conditions as the court deems proper.” HDCRCP Rule 41(a)(2), HRCP Rule 41(a)(2) (emphasis added).
[15] In finding that dismissal with prejudice was warranted by the circumstances of the case, the ICA noted the following facts:
[P]laintiffs had identical actions pending in federal and state courts since 1973 and 1974, respectively. . . . Lis pendens were filed by plaintiffs in 1974 and since then have encumbered 44 parcels of real property owned by defendants. The matter was tried once below and plaintiffs lost. After reversal and remand, defendants were prepared to go to trial again when plaintiffs made their [Rule 41(a)(2)] motion. Defendants have undoubtedly been put to great expense in this matter alone. We find that these circumstances amount to a quantum of prejudice to the defendant that supports the action of the court below.
[18] Although the ICA noted that “[i]t is a better practice when imposing conditions under Rule 41(a)(2), HCRP, to allow [the] plaintiff the option not to dismiss if he feels that the conditions are too onerous,” Sapp, 3 Haw. App. at 514, 654 P.2d at 887, the ICA determined that it was an abuse of discretion not to have allowed the plaintiff an opportunity to withdraw the motion to dismiss.
[19] See also Mother & Father v. Cassidy, 338 F.3d 704, 713 (7th Cir. 2003) (stating that FRCP 41(a)(2) “grants plaintiff the option of withdrawing his motion if the district court’s conditions are too onerous, and proceeding instead to trial on the merits” (quoting Marlow, 19 F.3d at 304) (internal quotation mark omitted)); Gravatt v. Columbia Univ., 845 F.2d 54, 56 (2d Cir. 1988) (holding “that fundamental fairness requires interpreting Rule 41(a)(2) to afford the plaintiff an opportunity to withdraw his motion and proceed with the litigation in the event that a district judge proposes to convert a voluntary dismissal to one with prejudice” (citing Andes v. Versant Corp., 788 F.2d at 1037)); GAF Corp. v. Transamerica Ins. Co., 665 F.2d 364, 367-68 (D.C. Cir. 1981) (concluding that “a plaintiff has the choice between accepting the conditions and obtaining dismissal and, if he feels that the conditions are too burdensome, withdrawing his dismissal motion and proceeding with the case on the merits”).
[21] HRS section 607-14.5 states, in relevant part:
Attorneys’ fees and costs in civil actions.
(a) In any civil action in this State where a party seeks money damages or injunctive relief, or both, against another party, and the case is subsequently decided, the court may, as it deems just, assess against either party, whether or not the party was a prevailing party, and enter as part of its order, for which execution may issue, a reasonable sum for attorneys’ fees and costs, in an amount to be determined by the court upon a specific finding that all or a portion of the party’s claim or defense was frivolous as provided in subsection (b).
(a) In determining the award of attorneys’ fees and costs and the amounts to be awarded, the court must find in writing that all or a portion of the claims or defenses made by the party are frivolous and are not reasonably supported by the facts and the law in the civil action.
(Emphases added).
[22] Some courts have allowed the defendant to recoup all litigation-related expenses from the plaintiff even if some of the work and materials could be used in a subsequent litigation of the same case. See, e.g., LeBlang Motors, Ltd. v. Subaru of Am., Inc., 148 F.3d 680, 685-86 (7th Cir. 1998) (allowing defendant to recoup all trial-preparation expenses because plaintiff moved for voluntary dismissal at the eve of trial, court informed plaintiff that it would consider granting the motion only if plaintiff agrees to the condition, and plaintiff expressly agreed); Am. Cyanamid Co. v. McGhee, 317 F.2d 295, 297-98 (5th Cir. 1963) (condition requiring plaintiff to pay defendant’s costs and reasonable attorney’s fees, without limiting the award to only those that had been rendered useless by the voluntary dismissal, was not an abuse of discretion because trial court considered “elements[] traditionally called upon to underpin our concepts of reasonableness and fairness”).
[23] In such a case, recoupment of all attorney’s fees and costs not only would compensate the defendant for the prejudice that the voluntary dismissal would cause, which is fair and proper, see Cauley, 754 F.2d at 772, but would also provide the defendant with a potentially unjust windfall, see GAF Corp., 665 F.2d at 369-70 (holding that payment for “expenses incurred in preparing work product that will be useful in the ongoing litigation in” another jurisdiction “would amount to a windfall to” the defendant).
[24] Further, the district court could not have conducted an in-court balancing of the factors in this case because no hearing was ever held.
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF OHIO EASTERN DIVISION
CASE NO. 2:12-CV-498
09-23-2015
RICK A. SLORP, PLAINTIFF,
V.
LERNER, SAMPSON & ROTHFUSS, ET AL. DEFENDANTS.
CHIEF JUDGE EDMUND A. SARGUS, JR.
CHIEF JUDGE EDMUND A. SARGUS, JR.MAGISTRATE JUDGE NORAH MCCANN KING
OPINION AND ORDER
This matter is before the Court on Defendants Bank of America, N.A. (“BANA”) and Mortgage Electronic Systems, Inc.’s (“MERS”) Motions to Dismiss (ECF No. 43) and Defendants Lerner, Sampson & Rothfuss (“LSR”) and Shellie Hill’s Motion to Dismiss (ECF No. 44) Plaintiffs’ Second Amended Complaint (ECF No. 26) for failure to state a claim upon which relief can be granted under Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons set forth below, the Court DENIES Defendants’ motions.1
1.
Plaintiff also moves for reconsideration (ECF No. 56) of the Order of the Magistrate Judge staying further discovery pending this Court’s decision on Defendants’ Motions to Dismiss (ECF No. 55). This Court DENIES the Plaintiff’s motion as moot in light of this opinion.——–
I.
Rule 12(b)(6) requires the Court to construe the complaint in Plaintiffs’ favor, accepting the factual allegations of the complaint as true, and then determining whether the factual allegations present any plausible claim upon which relief can be granted. See Bell Atlantic Corp. v. Twombley,550 U.S. 544, 570, 127 S.Ct. 1955 (2007). In his Opposition to Defendants’ Motions to Dismiss, Plaintiff contends that he has adequately pled sufficient facts to state a claim for relief under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § § 1961-68. (ECF No. 47). *22The posture of this case is different than at first blush, in that it is before this Court on remand from the Sixth Circuit. The facts of this case are discussed in detail in the Sixth Circuit’s unpublished opinion, Slorp v. Lerner, Sampson & Rothfuss, 2014 U.S. App. LEXIS 18816 (6th Cir. Sept. 29, 2014) (ECF No. 36, Page ID 373).
Briefly, Plaintiff signed a Note payable to Countrywide Bank FSB (“Countrywide”) on December 14, 2007, and executed a mortgage providing a security interest in his home in Dublin, Ohio. This case relates to alleged misconduct in a state-court foreclosure action. LSR filed a foreclosure action on behalf of its client, BANA, on July 21, 2010. At issue was the question of whether a purported assignment of Plaintiff’s mortgage from Countrywide to BANA was valid. The state court awarded judgment to BANA. Plaintiff retained counsel, who questioned the assignment’s validity, and he sought to depose the LSR employee who had executed the assignment. BANA “promptly dismissed the foreclosure action, and the state court vacated its judgment.” Id., (ECF 36, Page ID 374).
Plaintiff then filed this lawsuit against the Defendants to recover the attorney’s fees he spent contesting the foreclosure action. Defendants moved to dismiss the complaint, and Plaintiff sought leave to amend the complaint to add a civil claim under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § § 1961-68. This Court granted the Defendants’ motions to dismiss and denied Plaintiff’s motion for leave to amend the complaint to add the RICO claim, finding that such an amendment would be futile because the Court found that Plaintiff had not alleged “any cognizable injury.” (ECF No. 31, Page ID 349, 365). Plaintiff appealed to the Sixth Circuit.
II.
The Sixth Circuit affirmed the dismissal of the original complaint, but remanded the case to this Court with “instructions to permit Slorp to amend his complaint to add a RICO claim.” Id., (ECF No. 36, Page ID 375). In doing so, the Sixth Circuit explained that
*33
“[t]he denial of a motion to amend the complaint ordinarily is reviewed for abuse of discretion. Dubuc v. Green Oak Twp., 312 F.3d 736, 743 (6th Cir. 2002). When denial is on the basis of futility, however, the decision is reviewed de novo.” Id.
Id., (ECF No. 36, Page ID 392).
On de novo review, the Sixth Circuit set forth an analysis of the allegations required to successfully plead a sufficient RICO complaint in this instance, stating
“[t]he germane provision of RICO makes it unlawful for a person employed by or associated with an enterprise that affects interstate commerce to conduct or participate in the conduct of the enterprise’s affairs through a pattern of racketeering activity. 18 U.S.C. § 1962(c).”
Id., (ECF No. 36, Page ID 392).
The Court then applied the requirements to the facts alleged in count five (RICO) of the proposed amended complaint and provided a detailed analysis of each element, and the facts that supported each element of Plaintiff’s claim. (ECF No. 31, Page ID 392-401). The Court also addressed in turn each one of the Defendants’ arguments in support of their position that amendment of the complaint would be futile:
“(1) Slorp cannot recover RICO damages because his injuries are attributable to his own default rather than to the defendants’ initiation of foreclosure proceedings; (2) Slorp’s proposed amended complaint does not identify a pattern of racketeering activity because it does not allege a plausible scheme or artifice to defraud; and (3) Slorp does not allege sufficient facts to support the existence of an enterprise.”
Id. (ECF No. 36, Page ID 393).
The Sixth Circuit considered the Defendants’ arguments in view of the factual allegations in the complaint:
“The defendants argue that ‘it was his mortgage default . . . which caused Slorp to have to defend the foreclosure action, not anything contained within the Assignment.’ But the factual premise of this argument contradicts the factual allegations in Slorp’s complaint and overlooks our obligation to assume the veracity of those allegations. Slorp alleges that the assignment was fraudulent and that the defendants had no right to foreclose on his house. If the defendants were not authorized to initiate the foreclosure proceedings, Slorp’s injuries were caused by their fraud rather than his own alleged default.” *44“According to the complaint, Hill was an authorized agent of neither MERS nor Countrywide, and she therefore lacked the authority to assign the mortgage to Bank of America. Assuming that to be true, as we must, Bank of America wrongfully initiated foreclosure proceedings against Slorp, and his damages were proximately caused by the defendants’ institution of fraudulent foreclosure proceeding that led Slorp to incur attorney’s fees. The allegedly fraudulent assignment allowed the defendants to perpetrate and conceal the fraud by precluding the state court from ascertaining whether the defendants were the proper parties to initiate the foreclosure proceedings. On those facts it was the defendants’ alleged misrepresentations rather than Slorp’s default that led to his injuries. Had the proper mortgagee, whoever that is, elected to initiate its own foreclosure proceedings against Slorp, he would have faced double liability, and the defendants’ fraudulent assignment would have led to the anomalous and unlawful result of two separate mortgages – one real and one fraudulent – foreclosing on Slorp’s house. The fact that the legitimate mortgagee has not initiated foreclosure proceedings only reinforces the conclusion that the defendants’ allegedly fraudulent foreclosure led to Slorp’s injuries.””To be sure, Slorp’s injuries will vanish if the defendants prove that Bank of America was the legitimate mortgagee. But this case came to the district court on a motion to dismiss, and in that posture the court was required to accept the veracity of Slorp’s factual allegation. Slorp alleges injuries to his property that were proximately caused by the defendants’ allegedly baseless initiation of foreclosure proceedings and the fraudulent assignment of his mortgage. He is thus entitled to recover damages for those injuries unless he fails to satisfy his evidentiary burden, either on summary judgment or at trial.”
Id., (ECF No. 396-397).
III.
The Sixth Circuit has long held that, when a case has been remanded by an appellate court, the trial court is bound to “proceed in accordance with the mandate and law of the case as established by the appellate court.” Petition of U.S. Steel Corp., 479 F.2d 489, 493 (6th Cir.), cert.denied, 414 U.S. 859 (1973). The “law of the case” doctrine precludes a court from “reconsideration of identical issues.” Id. “Issues decided at an early stage of the litigation, either explicitly or by necessary inference from the disposition, constitute the law of the case.” Coal Resources, Inc. v. Gulf & Western Ind., 865 F.2d, 761,766, opinion amended on denial of reh’g, 877 F.2d 5 (6th Cir. 1989) (citations omitted). Furthermore, the trial court is required to “implement both the letter and the spirit” of the appellate court’s mandate, “taking into account the appellate court’s opinion and the circumstances it embraces.” *55Brunet v. City of Columbus, 58 F.3d 251, 254 (6th Cir. 1995). In this case, the Sixth Circuit provided a thorough analysis of the allegations in the proposed amended complaint, and on de novo review found that “the allegations in Slorp’s complaint are sufficient to survive a motion to dismiss.” Slorp v. Lerner,Sampson & Rothfuss, 2014 U.S. App. LEXIS 18816 (6th Cir. Sept. 29, 2014) (ECF No. 36, Page ID 400).
IV.
Accordingly, the Court DENIES Defendants Bank of America, N.A. and Mortgage Electronic Registration Systems, Inc.’s Motions to Dismiss (ECF No. 43) and DENIES Defendants Lerner, Sampson & Rothfull and Shellie Hill’s Motion to Dismiss (ECF No. 44).
Banking Committee member Sherrod Brown wants to know whether banks changed any behavior after penalties
WSJ-
A powerful Democratic senator has launched an inquiry into bank misconduct, asking top financial institutions to turn over information about the settlements they have entered into with federal agencies over the past decade.
Sherrod Brown of Ohio, the top Democrat on the Senate Banking Committee, asked banks in a letter dated Sept. 30 to to provide details of any “legally enforceable judgment, agreement, settlement, decree or order dated January 1, 2005 to the present,” involving 15 federal agencies including the Department of Justice, the Federal Reserve, the Securities and Exchange Commission, and several Treasury Department units.
The inquiry could add fuel to growing criticism by lawmakers and others that such settlements have failed to deter repeated bank misbehavior.
IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT
Keith Davidson, Plaintiff-Appellant,
v.
Capital One Bank (USA), N.A., Defendant-Appellee,
On Appeal from the United States District Court For the Northern District of Georgia
No. 1:13-cv-2307
Hon. William S. Duffy, Jr.
Amicus Brief of the Federal Trade Commission
Supporting Rehearing En Banc
______________________________________________
JONATHAN E. NUECHTERLEIN
General Counsel
JOEL MARCUS
Director of Litigation
THEODORE (JACK) METZLER
Attorney
Federal Trade Commission
600 Pennsylvania Ave. N.W.
Washington, D.C. 20580
(202) 326-3502
(202) 326-2477 (fax)
STATEMENT OF ISSUE MERITING EN BANC CONSIDERATION
Whether the panel correctly held, in conflict with every other court of appeals
that has considered the issue, that a person who regularly acquires debts that are in
default and attempts to collect on them does not qualify as a “debt collector” within
the meaning of the Fair Debt Collection Practices Act.
[…]
STATEMENT OF THE CASE
This case concerns who qualifies as a “debt collector” subject to FDCPA
requirements vital to protecting consumers from abuse. If a person collecting a debt
is not a “debt collector,” he is not subject to the statute. The panel held that a company
that buys debts that are already in default is not a debt collector. That decision
squarely conflicts with (and does not acknowledge) the decisions of four other courts
of appeals—the Third, Fifth, Sixth, and Seventh Circuits—that have directly addressed
the same question. No court of appeals before now has reached the panel’s
conclusion.
The panel misinterpreted the statute, resulting in a construction of the FDCPA
that is both under- and overinclusive. It created an irrational loophole in the FDCPA
that enables unscrupulous debt collectors to avoid its requirements. And it removed
an important exception to the statute, which ironically extends the FDCPA’s strictures
to companies that Congress did not intend the statute to cover.
A consumer watchdog is one step closer to finally preventing big banks, payday lenders and other financial services from blocking class action lawsuits filed by disgruntled consumers. In a statement Wednesday, the Consumer Financial Protection Bureau proposed rules that would prohibit some financial services companies from including a clause in customer agreements that forces class action legal claims to be handled in arbitration.
Arbitration is a way for corporations to make sure consumers keep their claims out of court and away from the public eye. As a consumer, it’s difficult to avoid agreeing to these clauses because they’re used by the majority of financial products and services — from checking accounts and prepaid debit cards to payday loans and student loan debt — and even if they aren’t, companies can add them to our contracts at any time.
Things appear to be shifting into second gear with the latest urging (via letter) from Congressman Alan Grayson to United States Attorney General Loretta Lynch:
In the meantime, a second investigation has been launched into the Osceola County, Florida county land records involving an upcoming motion to dismiss a foreclosure for lack of prosecution, slated to be heard on December 15, 2015 (Case No. 2012CA5519 MF). I examined the original complaint, which contained the following Assignment, which I deem suspect for fraud and misrepresentation:
This is the kind of stuff that could get MERS into trouble (criminal state and federal RICO) because it appears that someone from the law firm (who appears to be a non-lawyer) drafted an assignment that was executed by two known Bank of America robosigners, Ely Harless (who has been attached by Kings County, NY Judge Arthur Schack in at least one case as being a robosigner) and Renee Hertzler, both claiming to be Vice Presidents for MERS, as nominee for … (fill in the blank here) …, as the Assignor. Talk about empty promises! This appears misrepresentative of the truth, Florida Criminal Code § 817.535, inter alia. The fact this document is being relied on in a currently open case should be considered here…
TRUTH IN LENDING ACT’S
RIGHT TO RESCIND A MORTGAGE LOAN
Alexandra P. Everhart Sickler August 15, 2014
* Abstract: (This was the FORTHCOMING “Pre-Article”)
The Supreme Court is entertaining a divide among the federal circuits over whether the federal Truth in Lending Act (TILA) requires a consumer borrower to file a lawsuit in order to exercise her statutory right to rescind, or cancel, certain types of mortgage loans where the lender fails to disclose information mandated by the statute. Many have commented on the appropriate interpretation of the statute and its implementing regulation, but there is a gap in the academic literature addressing the circuit divide. This article goes beyond interpretation of the relevant statute and regulation to explore and consider unarticulated explanations for the majority-held view. That view holds that TILA implicitly requires a consumer borrower to file a lawsuit to exercise her right to rescind even though the statute expressly provides that written notice is sufficient. Five circuits have imposed this requirement even though Congress did not, explaining that they are constrained by Supreme Court precedent. That precedent is clearly inapposite, because the Supreme Court is reviewing an Eighth Circuit ruling on this issue. This article posits that some evolving trend, beyond stare decisis, underlies the majority circuits’ rulings. Among the possibilities the article explores are: (1) the federal judiciary’s interest in regulating consumer litigation behavior; (2) a paradigm shift in agency deference doctrine, including the reconsideration of Seminole Rock/Auer deference; and (3) disagreement with Congress’s liberalization of common law rescission by statute.
by Neil Garfield Alexandra P. Everhart Sickler associate Professor of Law at North Dakota School of Law, has done an excellent job in analyzing the legal precedent, the statutory provisions, the agency rules, and the general attitude of the Courts that seek to restrict the effect of TILA Rescission. Published by Rutgers Journal of Law and Public Policy, this is the best of what I have read thus far. I see many parts that could be quoted in briefs and memorandums of law.
Summary
Five years into the Troubled Asset Relief Program’s (“TARP”) second largest foreclosure prevention program known as the Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (“Hardest Hit Fund” or “HHF”), HHF in Florida has helped only 22,400, far less than expected at the beginning of the program. HHF Florida has drawn down only about half the $1 billion in TARP funds available.
What SIGTARP Found
SIGTARP found that Treasury abandoned its announced intent to bring strict accountability by measuring Hardest Hit Fund program effectiveness, and as a result, Treasury has allowed the Hardest Hit Fund in Florida to underperform compared to other HHF states, consistently. The Administration and Treasury announced that the Hardest Hit Fund combined flexibility for states with strict accountability by Treasury, and that program effectiveness would be measured, with effective oversight. Treasury told all 19 participating state housing finance agencies that they were required to have a tracking system to measure progress against goals. Former Treasury Home Preservation Office Chief Phyllis Caldwell told SIGTARP in 2011, that Treasury could evaluate success in HHF in ways such as, “are we reaching the right number of people, are we reaching them in a sustainable way.”
Treasury has no goals or targets to measure program effectiveness due to fear of impacting the “dynamic nature” of this TARP program, which has led to a lack of accountability and effectiveness of both Treasury and Florida’s HFA. Treasury could have set specific goals/targets tailored to HHF Florida, but did not do so. SIGTARP found that as a result, HHF Florida has not been as effective in reaching homeowners as other states. HHF Florida has the lowest homeowner admission rate of any HHF state, one of the highest withdrawn application rates, and has consistently denied homeowners at higher rates than the national average.
Treasury has no goal for the right number of people to be helped by HHF Florida, and as a result, Treasury has allowed Florida’s HFA to reduce its estimate of the number of people to be helped by HHF by 63% from 106,000 to 39,000, despite the fact that Florida had the nation’s highest foreclosure rate at 2.3% in 2014.
Treasury has no targeted homeowner admission rate for HHF Florida, and as a result, only 20% (22,400 of 109,774) of homeowners who applied for help received assistance. This is the lowest of any HHF state, and is far below the other 18 states’ average of providing assistance to about half (48%) of homeowners who apply. HHF has consistently had a low homeowner admission rate over five years (ranging from 18-23%).
Treasury has no targeted homeowner denial rate for HHF Florida, and as a result, HHF Florida has consistently denied a higher percentage of homeowners for assistance (27-45%) than the national average. This rate improved this year, but is still slightly above the national average of 26%. Treasury provides no transparency on why HHF Florida denied homeowners.
Treasury has no targeted number of homeowner applications withdrawn by Florida’s HFA, and as a result, as of March 2015, nearly 40% of all homeowners who applied to HHF Florida either withdrew their application or had their application withdrawn by Florida’s HFA. This rate has escalated from 35% in 2012, and was far higher than the other 18 states’ average of 24%, as of March 2015.
Treasury has no target for how long HHF Florida should process homeowner applications, and as a result, it takes a median of nearly 6 months (167 days) for a homeowner to get assistance.
SIGTARP found several factors contributed to HHF Florida’s slowness in getting assistance to homeowners and lack of effectiveness during the height of the crisis …
COMING TO YOU LIVE DIRECTLY FROM THE DUBIN LAW OFFICES AT HARBOR COURT, DOWNTOWN HONOLULU, HAWAII
LISTEN TO KHVH-AM (830 ON THE AM RADIO DIAL)
ALSO AVAILABLE ON KHVH-AM ON THE iHEART APP ON THE INTERNET
.
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Sunday October 11, 1215
Exclusive Surprise Report —
Federal and State Criminal Statutes of Limitations Mr. Bernanke Have NOT Expired For Prosecuting Bank Executives for Mortgage Fraud: Featuring For the First Time Together a Joint Interview With Both Dave Krieger and Marie McDonnell Highlighting Potential Criminal Law Violations Discovered in Their Respective Recent Osceola, Florida, and Seattle, Washington Separate Historic Recording Office Mortgage Fraud Investigations
The Law Offices of Daniel C. Consuegra PL in Tampa will lay off approximately 154 workers and permanently close its title company unit, Consuegra Title LLC.
The permanent layoffs are expected to happen in late November. The firm notified the state of Florida of the layoffs this week through a Worker Adjustment and Retraining Notification, or WARN letter.
The title company will close entirely, according to the letter, and 28 employees there will be affected beginning Nov. 30. Consuegra Title was incorporated in 2012, according to the Florida Department of State Division of Corporations.
The ownership of the promissory note by a subsidiary corporation of the Plaintiff cannot alone establish standing to foreclose. In HSBC Bank USA, N.A. v. Ryan Kahan, et al., the Court granted the borrowers’ motion for involuntary dismissal or directed verdict due to (1) Plaintiff’s failure to establish standing at the commencement of the action; and (2) Plaintiff’s inability to establish a prima facie case of foreclosure due to its failure to provide any testimony as to Plaintiff’s damages.
On October 8, 2012, Plaintiff HSBC Bank USA, N.A. (“HSBC Bank”) commenced this residential foreclosure action. In its complaint, HSBC Bank alleged that it was the owner and holder of the subject promissory note. Attached to the complaint was a copy of an unendorsed promissory note payable to HSBC Mortgage Corp. USA (“HSBC Mortgage”). The borrowers asserted several affirmative defenses, including HSBC Bank’s lack of standing.
During the bench trial, HSBC Bank’s only witness (an employee of its mortgage servicer) testified that HSBC Bank had standing because it was the owner of all outstanding and issued stock of HSBC Mortgage. The witness testified that HSBC Mortgage was therefore a wholly-owned subsidiary of HSBC Bank. In order to establish HSBC Bank’s standing, a composite exhibit was entered into evidence that contained various corporate documents establishing the relationship between HSBC Bank and HSBC Mortgage. HSBC Bank’s witness had no personal knowledge of the corporate documents or the corporate structure of either HSBC Bank or HSBC Mortgage. HSBC Bank argued it had standing by virtue of its alleged status as the parent company of a wholly-owned subsidiary.
We are considering three motions for summary judgment. This matter relates to a two-count complaint in which Plaintiff Jaynie L. Beard alleges that Defendants violated various sections of the Fair Debt Collection Practices Act (FDCPA). (Doc. 1). On June 1, 2015, Defendants moved for summary judgment. Cathy Moore and Udren Law Offices filed a joint motion, while Ocwen Loan Servicing filed separately. (Doc. 30; Doc. 32). The following day Plaintiff filed a cross motion, asking that we grant her summary judgment as to liability. (Doc. 34). For the reasons discussed below, we will deny Defendants’ motions, and we will grant Plaintiff’s motion.
II. Background
Plaintiff owns real property located at 3515 Schoolhouse Lane, Harrisburg, Pennsylvania. (Doc. 30-2 at 1; Doc. 32 at 1; Doc. 34-2 at 1). She purchased the property with a loan from Columbia National, Inc. (Doc. 30-8). In connection with the loan, Plaintiff executed a promissory note and a mortgage. (Id. at 3). Relevant to this case, paragraph fourteen of the mortgage states that the “Lender may charge Borrower fees for services performed in connection with Borrower’s default . . . including, but not limited to, attorneys’ fees . . . .” (Id. at 12). Paragraph fourteen goes on to limit this authority, however, by stating, “Lender may not charge fees that are expressly prohibited by this Security Instrument or by Applicable Law.” (Id.).
In 2010, Plaintiff defaulted on the promissory note. (Doc. 32 at 5; Doc. 44-2 at 3). At the time, her mortgage was serviced by American Home Mortgage Servicing, Inc. (Id.). To avoid continued default, Plaintiff and American entered into a loan modification agreement. (Id.). In 2012, Plaintiff defaulted on the modified agreement. (Id.). At the time of the second default, Homeward Residential, Inc. was the servicer of the mortgage. (Id.). Homeward offered to enter into a second loan modification agreement with Plaintiff on the condition that she completed a trial payment plan. (Doc. 30-2 at 11; Doc. 45-2 at 3). Plaintiff commenced the trial plan, after which Defendant Ocwen Loan Servicing became the servicer of Plaintiff’s mortgage. (Doc. 32 at 5; Doc. 44-2 at 3-4). Upon successful completion of the plan, Ocwen offered her a second loan modification agreement. (Id.). Finding the terms unpalatable, Plaintiff declined the second agreement and retained counsel. (Doc. 32 at 6; Doc. 44-2 at 4).
In late August or early September 2013, Plaintiff contacted Ocwen and requested a reinstatement quote — the amount necessary to bring her note out of default. (Id.). She requested that Ocwen fax the quote to her attorney, Bernard Rubb. (Id.). Ocwen provided its foreclosure counsel, Defendant Udren Law Offices, with the reinstatement figures. (Id.). Defendant Cathy Moore, a legal assistant at Udren, prepared the reinstatement quote. (Doc. 30-2 at 4; Doc. 45-2 at 4-5). On September 11, 2013, as requested by Plaintiff, Moore faxed the quote to Rubb’s office. (Id.). The fax coversheet and reinstatement quote were addressed to Plaintiff. (Doc. 37-4).
The reinstatement quote contained three pages. (Id.). The first page read as follows:
Dear Sir or Madame:
As requested, enclosed please find our reinstatement form indicating the sum needed to reinstate the referenced loan.
Please note the following:
1. PAYMENT MUST BE SENT TO OUR NEW JERSEY OFFICE and received by us no later than Two (2) days prior to the “Reinstatement Amount Anticipated Good Through Date” indicated on the payoff form attached. Thereafter, the Reinstatement amount may change and your check may be returned to you.
2. The enclosed payoff amount must be in the form of Cashier’s Check, Certified Check, Cash or Money Order payable to UDREN LAW OFFICES, P.C. Any other form of payment will be returned to you.
. . . .
(Id. at 2). On the second page, under the heading “REINSTATEMENT AMOUNT GOOD THROUGH September 9, 2013,” was an itemized list of payments and charges that Plaintiff owed as of September 9, 2013. (Id. at 3). On the last page, the quote stated the following:
REINSTATEMENT AMOUNT ANTICIPATED GOOD
THROUGH 9/20/2013
Amount Due as of 9/09/13 $6,418.87
Clerk of Court — Complaint Filing Cost $162.00
Service of Process Cost $400.00
Clerk of Court — Discontinue Action Cost $13.00
Overnight Charges/Wire Cost $25.00
Attorney Foreclosure Fee $1,105.00
Grand Total $8,123.00
(Id. at 4). At the time Moore faxed the reinstatement quote, Udren had not actually incurred the fees or costs listed on the last page. (Doc. 34-2 at 4; Doc. 42-2 at 2-3).
On June 17, 2014, Plaintiff filed her complaint, alleging that Defendants’ inclusion of fees and costs on the last page of the reinstatement quote violated 15 U.S.C. §§ 1692e(2)(A)-(B), (10), and 1692f(1). (Doc. 1). In their respective motions for summary judgment, each party asserts that they are entitled to summary judgment pursuant to Federal Rule of Civil Procedure 56. (Doc. 30; Doc. 32; Doc. 34).
III. Discussion
A. Standard of Review
Pursuant to Federal Rule of Civil Procedure 56, summary judgment will only be granted if there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(a); Lawrence v. City of Phila., 527 F.3d 299, 310 (3d Cir. 2008). “Material facts are those `that could affect the outcome’ of the proceeding, and `a dispute about a material fact is genuine if the evidence is sufficient to permit a reasonable jury to return a verdict for the nonmoving party.'” Roth v. Norfalco, 651 F.3d 367, 373 (3d Cir. 2011) (quoting Lamont v. New Jersey, 637 F.3d 177, 181 (3d Cir. 2011)). In determining whether a genuine issue of material fact exists, we “must view all evidence and draw all inferences in the light most favorable to the non-moving party.” Lawrence, 527 F.3d at 310. With this standard in mind, we turn to the merits of the motions.
B. Ocwen’s Threshold Arguments
To avoid any potential liability, Ocwen makes two threshold arguments. First, it argues that it cannot be held liable under the FDCPA because it is not a “debt collector.” (Doc. 35 at 7-9). Second, it argues that it cannot be held vicariously liable for the acts of Udren and Moore. (Doc. 35 at 16-17). Although made separately, these two arguments collapse into one. Pursuant to Third Circuit precedent, if a defendant and the defendant’s attorney are both “debt collectors,” the defendant can be held vicariously liable for the acts of the attorney. Pollice v. Nat’l Tax Funding, L.P., 225 F.3d 379, 404-05 (3d Cir. 2000). Because Udren admits it is a debt collector (Doc. 34-2 at 1; Doc. 42-2 at 1), both of Ocwen’s arguments present a single issue: whether Ocwen is considered a debt collector.
The FDCPA only governs the actions of “debt collectors.” Pollice, 225 F.3d at 403. Creditors, mortgagors, and mortgage servicing companies, like Ocwen, are generally not debt collectors and are therefore statutorily exempt. Id. at 403; Scott v. Wells Fargo Home Mortg., Inc., 326 F. Supp. 2d 709, 718 (E.D. Va. 2003). If, however, an ordinarily-exempt entity acquires a debt obligation by assignment after the debt was already in default, the entity “may be deemed a debt collector.”[1]Pollice, 225 F.3d at 403. The same is not true if the entity assumed the obligation due to a merger. When an entity assumes the debt obligation by way of a merger, courts hold that the debt was not “acquired” after the default. Sprague v. Neil, No. 1:05-CV-1605, 2007 WL 3085604 at * 3 (M.D. Pa. Oct. 19, 2007). The courts reason that in a merger, as opposed to an assignment, a successor corporation stands in the shoes of the disappearing corporation in every aspect and assumes all the debts and liabilities of the disappearing corporation as if it incurred those liabilities itself. Id. Thus, the successor corporation actually “acquired” the debt before default. Here, the parties agree that Ocwen started servicing Plaintiff’s mortgage after she defaulted. They only dispute whether Ocwen acquired the mortgage via an assignment or assumed it through a merger.
Ocwen argues that it assumed Plaintiff’s mortgage as the result of a merger. According to Ocwen, after Plaintiff defaulted, her mortgage servicer, American Home Mortgage, changed its name to Homeward Residential, Inc. (Doc. 35 at 6). Thereafter, Homeward’s parent company merged with a subsidiary of Ocwen, resulting in Ocwen assuming thousands of mortgages in Homeward’s portfolio, including Plaintiff’s. (Id.). To support this argument, Ocwen provides one source of evidence — an affidavit from one of its employees. (Doc. 32-2).
Conversely, Plaintiff argues that Ocwen obtained her mortgage by assignment. (Doc. 44 at 11). She claims that American Home Mortgage assigned her mortgage to Homeward, and Homeward assigned the mortgage to Ocwen. (Id.). To support her arguments, Plaintiff points to two sources of evidence. First, she provides a copy of a verified foreclosure complaint that Ocwen filed against her in the Pennsylvania Court of Common Pleas of Dauphin County. (Doc. 44-5 at 8). In the very first paragraph, Ocwen is given the choice to identify itself as the current mortgagee of record, the legal holder of the mortgage by virtue of being successor in interest to the current mortgagee of record, or the legal holder of the mortgage by virtue of assignment of the mortgage. (Id.). Given this option, Ocwen identifies itself as legal holder by assignment. (Id.). The complaint states that American Home Mortgage assigned the mortgage to Homeward on March 12, 2003, and Homeward assigned it to Ocwen on December 4, 2013. (Id.). Plaintiff’s second source of evidentiary support is a copy of a mortgage assignment recorded with the Dauphin County Recorder of Deeds. It, too, states that Homeward assigned the mortgage to Ocwen. (Doc. 44-6 at 1). Plaintiff argues that Ocwen’s single affidavit cannot overcome this evidence.
Not only do we agree with Plaintiff that the affidavit does not justify summary judgment in Ocwen’s favor, but we also find that the affidavit is insufficient to create an issue for trial. The Third Circuit has held that conclusory, self-serving affidavits are insufficient to create a genuine issue of fact. Kirleis v. Dickie, McCamey & Chilcote, P.C., 560 F.3d 156, 161 (3d Cir. 2009). “[T]he affiant must ordinarily set forth facts, rather than opinions or conclusion. An affidavit that is essentially conclusory and lacking in specific facts is inadequate to satisfy the movant or non-movant’s burden.” Blair v. Scott Specialty Gases, 283 F.3d 595, 608 (3d Cir. 2002) (indicating that affidavit was insufficient to create genuine issue because it was conclusory and unsupported by documentary evidence).
Here, Ocwen provides a single affidavit from a senior loan analyst. (Doc. 32-2). The affiant merely declares that American changed its name to Homeward, and Homeward subsequently merged with Ocwen. (Id.). He gives no indication as to how he knows this self-serving conclusion to be true, and he provides no specific facts or documentary evidence to support it. As a party to the purported merger, Ocwen should easily be able to produce documents establishing that a merger was consummated. It did not. Instead, the only documentary evidence is that which Plaintiff produced: publicly recorded documents showing that Ocwen, when given the choice between merger and assignment, chose to identify itself as the legal holder of Plaintiff’s mortgage by virtue of assignment. Accordingly, we find that no reasonable juror could conclude that Ocwen assumed Plaintiff’s mortgage by way of merger.
Because Ocwen acquired Plaintiff’s defaulted mortgage by assignment, Ocwen is a “debt collector” subject to the provisions of the FDCPA, and it can be held vicariously liable for the actions of Udren.
C. Plaintiff’s § 1692e Claims.
Plaintiff first alleges that Defendants violated 15 U.S.C. § 1692e(2) and (10). Those sections provide as follows:
A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:
. . .
(2) The false representation of —
(A) the character, amount, or legal status of any debt; or
(B) any services rendered or compensation which may be lawfully received by any debt collector for the collection of a debt.
. . .
(10) The use of any false representation or deceptive means to collect or attempt to collect any debt or obtain information concerning a consumer.
. . . . 15 U.S.C. § 1692e(2)(A)-(B), (10). According to Plaintiff, by including unincurred fees and costs in the reinstatement quote, Defendants made false representations of the amount of the debt and the services rendered, violations of § 1692e(2)(A) and (B), and used a false representation to collect a debt in violation of § 1692e(10).
When determining if a communication violates the proscriptions of § 1692e, courts view the communication from the perspective of the least sophisticated consumer. Brown v. Card Serv. Ctr., 464 F.3d 450, 454 (3d Cir. 2006). The least sophisticated consumer standard is a low standard, intended “to ensure that the FDCPA protects all consumers, the gullible as well as the shrewd.” Id. at 453 (internal quotation marks omitted). Although a low standard, it “prevents liability for bizarre or idiosyncratic interpretations of collection notices by preserving a quotient of reasonableness and presuming a basic level of understanding and willingness to read with care.” Wilson v. Quadramed Corp., 225 F.3d 350, 354-55 (3d Cir. 2000). “Even the least sophisticated debtor is bound to read collection notices in their entirety.” Campuzano-Burgos v. Midland Credit Mgmt., Inc., 550 F.3d 294, 299 (3d Cir. 2008). The least sophisticated consumer standard is also an objective standard, “meaning that the specific plaintiff need not prove that she was actually confused or misled, only that the objective least sophisticated debtor would be.” Jensen v. Pressler & Pressler, 791 F.3d 413, 419 (3d Cir. 2015).
Defendants assert that they are entitled to summary judgment on Plaintiff’s § 1692e claims because the reinstatement quote was not false, misleading, or deceptive. To support this position they first argue that we should change the perspective from which we view the quote. According to Defendants, since the quote was faxed to Plaintiff’s counsel, and was never sent directly to Plaintiff, we should apply a “competent attorney standard.” (Doc. 31 at 14; Doc. 35 at 12). They claim that the least sophisticated consumer standard is inappropriate because “lawyers who represent consumers in debt collection cases are familiar with debt collection law and therefore unlikely to be deceived.” (Id.) (citing Simon v. FIA Card Servs. N.A., No. 12-518, 2015 WL 1969411 (D.N.J. April 30, 2015); Fratz v. Goldman & Warshaw, P.C., No. 11-CV-02577, 2012 WL 4931469 at *3 (E.D. Pa. Oct. 16, 2012)).
We find that the least sophisticated consumer standard is the appropriate standard in this case. Recently, the Third Circuit held that when a consumer is the intended recipient of a conveyance of information, such a conveyance is a “communication to a consumer,” even if the communication was transmitted through the consumer’s attorney. Kaymark v. Bank of Am., 783 F.3d 168 (3d Cir. 2015); see also Allen ex rel. Martin v. LaSalle Bank, N.A., 629 F.3d 364 (3d Cir. 2011). Because such a conveyance is a “communication to a consumer,” it must be analyzed using the standard applicable to consumers. See, e.g., Kaymark, 783 F.3d at 174-75 (using the least sophisticated consumer standard to analyze foreclosure complaint consumer received through her attorney). That is, if the consumer is the intended recipient of a communication sent by a debt collector, we must apply the least sophisticated consumer standard, even if the debt collector sent the communication to the consumer through the consumer’s attorney. Id.
Here, Plaintiff was undoubtedly the intended recipient of the reinstatement quote. First, Plaintiff contacted Ocwen directly and requested the quote. (Doc. 37-4). Second, in response to her specific request, the quote was faxed to her attorney’s office. (Doc. 30-2 at 3; Doc. 32 at 6). Third, the fax coversheet was addressed to Plaintiff. (Doc. 37-4). Fourth, the reinstatement quote itself was addressed to Plaintiff. (Id.). And fifth, no document was addressed to Plaintiff’s counsel or anyone else. (Id.). Plaintiff’s counsel simply served as the medium through which the quote was conveyed to Plaintiff. Kaymark, 783 F.3d at 174-75.
Because Plaintiff was the intended recipient of the reinstatement quote, the quote was a “communication to a consumer,” requiring that we apply the least sophisticated consumer standard.[2] Id.
In their second argument, Defendants assert that the reinstatement quote was not false, misleading, or deceptive, even when viewed from the perspective of the least sophisticated consumer. They argue that the least sophisticated consumer, had he fulfilled his obligation to read the quote in its entirety, would have understood that the fees had not yet been incurred. (Doc. 31 at 12-14; Doc. 35 at 10-12). Defendants claim this is so because the fees were clearly and conspicuously delineated as “anticipated.” (Id.). In support, they cite our opinion in Stuart v. Udren Law Offices P.C., wherein we held that a payoff statement was not misleading since unincurred fees were marked as “anticipated.” Stuart v. Udren Law Offices P.C., 25 F. Supp. 3d 504 (M.D. Pa. 2014) (Brann, J.). Conversely, in Plaintiff’s motion for summary judgment, she argues that despite the use of the word “anticipated,” the least sophisticated consumer would understand that the fees had already been incurred, and therefore the quote was false, misleading, and deceptive.
We agree with Plaintiff that the least sophisticated consumer would read the reinstatement quote as saying that the fees had already been incurred.[3] Contrary to Defendants’ argument, their use of the word anticipated simply does not put the least sophisticated consumer on notice that the fees were estimates. Our rationale is twofold.
First, “anticipated” appears only one time on the page where the fees are listed, and that single instance is buried in a difficult-to-decipher heading — “REINSTATMENT AMOUNT ANTICIPATED GOOD THROUGH 9/20/2013.” This use of “anticipated” is quite distinguishable from the use in Stuart. In Stuart, the word anticipated was written in parentheses next to each and every unincurred fee — six times in total. (Doc. 44-13 at 2). Additionally, the payoff statement included an explanatory paragraph, advising the consumer that “any item marked `anticipated’ is not yet due, but may become due during the time period set forth . . . .” (Id.). Because “anticipated” appears once in Plaintiff’s reinstatement quote, and that appearance is in a heading that is difficult to comprehend, we find that unlike in Stuart Defendants’ use of “anticipated” falls far short of being clear and conspicuous to the reader.
Second, as the parties point out, to determine what the least sophisticated consumer would understand, the communication in question must be read and viewed in its entirety. See Campuzano-Burgos, 550 F.3d at 299. Here, when the reinstatement quote is read as a whole, it is clear to us that Defendants’ one use of “anticipated” speaks to the date that payment was due, not the amount of the fees. On page one, the quote refers to the heading at issue. It tells Plaintiff that “PAYMENT MUST BE SENT . . . and received by us no later than Two (2) days prior to the `REINSTATEMENT AMOUNT ANTICIPATED GOOD THROUGH DATE’ indicated on the payoff form attached. Thereafter, the Reinstatement amount may change and your check may be returned to you.” (Doc. 37-4 at 2). By referring to the entire heading in quotation marks to identify the date that payment was due, Defendants indicate to the reader that the heading, as a whole, relates to the due date. Because the heading speaks to the due date, the reader would understand the reinstatement quote as saying that the amounts of the listed fees were exact, but those amounts were only anticipated to be accurate until September 20, 2013.[4]
In addition to the first paragraph on page one, we find three other sources of support for this interpretation. The first two sources also appear on page one. The very first line of page one tells Plaintiff that enclosed in the quote is a “reinstatement form indicating the sum needed to reinstate the referenced loan.” (Id.) (emphasis added). Likewise, in paragraph two, Defendants instruct Plaintiff that “[t]he enclosed payoff amount must be in the form of [check or money order].” (Id.) (emphasis added). With this use of language, Defendants speak of the payoff amount in no uncertain terms and indicate that the amount listed has already been incurred and is due. The final source of support is Defendants’ own moving papers. In arguing the impact of their use of the word “anticipated,” Defendants make the following self-defeating argument: “anticipated amounts include items that conceivably could be incurred by the anticipated good through due date. . . .” (Doc. 46 at 6; Doc. 30-2 at 5) (second emphasis added). Without realizing it, Defendants themselves attach “anticipated” to the due date. If Defendants interpret their own reinstatement quote as attaching “anticipated” to the due date, it is implausible to expect the least sophisticated consumer to attach it to the amount of the fees.
Because Defendants’ use of the word anticipated is not clear and conspicuous, and because it refers to the due date, not the amount of the fees, we find that the least sophisticated consumer would read the reinstatement quote as saying the fees were already incurred.[5] Since the fees had in fact not been incurred, this was a false representation of the amount of the debt in violation of § 1692e(2)(A). It was a false representation of the services rendered in violation of § 1692e(2)(B). And, it was the use of a deceptive means to collect a debt in violation of § 1692e(10). Accordingly, we will grant Plaintiff’s motion for summary judgment on her § 1692e claims.
D. Plaintiff’s § 1692f(1) Claim
In Plaintiff’s second claim, she asserts that Defendants violated § 1692f(1). It states the following:
A debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:
(1) The collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.. . . .
15 U.S.C. § 1692f(1). Plaintiff asserts that pursuant to paragraph fourteen of the mortgage, Defendants were only expressly authorized to collect fees that were (1) actually incurred and (2) permitted by applicable law. Therefore, according to Plaintiff, Defendants violated § 1692f(1) because the fees in the reinstatement quote were unincurred and the attorneys’ fees were prohibited under Pennsylvania law.
In their motions for summary judgment, Defendants do not dispute that the fees in the reinstatement quote had not yet been incurred. (Doc. 34-2 at 4; Doc. 42-2 at 3-4). Nor do they dispute that the collection of unincurred fees was not expressly authorized by the mortgage agreement. (Doc. 30-8 at 12) (stating that “Lender may charge Borrower fees for services performed”). Rather, as they did with Plaintiff’s § 1692e claims, Defendants rely on their use of the word anticipated. Although Defendants do not frame the argument this way, as we read their briefs, they argue that because the fees were delineated as anticipated, there was no attempt to collect fees that had not been incurred. (Doc. 31 at 9-12; Doc. 35 at 14-16).
As our discussion above reveals, however, the reinstatement quote did not delineate the fees as “anticipated” and did not put the least sophisticated consumer on notice that the fees were unincurred.[6] Thus, by including the fees in the reinstatement quote, Defendants did attempt to collect fees that had not been incurred — fees not expressly authorized by the mortgage agreement. (Doc. 30-8 at 12). Therefore, we find that Defendants violated § 1692f(1).[7] See Kaymark, 783 F.3d at 175 (indicating attempt to collect unincurred fees when mortgage only allowed fees for services actually performed was a basis for a § 1692f(1) claim). Accordingly, we will grant Plaintiff summary judgment.
IV. Conclusion
For the reasons addressed above, we will grant Plaintiff’s motion for summary judgment as to liability. We will deny Defendants’ motions. Because no evidence or briefing was submitted as to damages and attorneys’ fees, this case will remain on the December 2015 trial list to resolve the issue of damages. We will issue an appropriate order.
[1] Ocwen argues that not only does the obligation have to be acquired by assignment after it was already in default, but it must be obtained for the sole purpose of collecting the debt. It relies on the FDCPA’s definition of creditor: “any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he received an assignment or transfer of a debt in default solely for the purpose of facilitating collection . . . for another.” 15 U.S.C. § 1692a(4) (emphasis added). Thus, according to Ocwen, only when the entity acquires a defaulted debt solely for collection purposes can it be excluded from the definition of creditor and classified as a debt collector. We disagree. The FDCPA defines “debt collector” as: “any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed . . . another. § 1692a(6) (emphasis added). Reconciling these two definitions, the Third Circuit has held that an entity is a debt collector if (1) it is assigned a defaulted debt, and (2) its principal business purpose is the collection of debts, or it regularly engages in debt collection. See Pollice, 225 F.3d at 403; Oppong v. First Union Mortg. Corp., 215 F. App’x 114 (3d Cir. 2007).
[2] Assuming that the competent attorney standard is ever to be applied, we find that it would be appropriate only when the attorney was the ultimate and sole intended recipient, not simply an intermediary through which the communication was conveyed to her client. See, e.g., Fratz, 2012 WL 4931469 at * 1 (indicating that the communication in question was a credit card user agreement that was sent by the defendant’s attorney to the plaintiff’s attorney as part of a disclosure of evidence that defendant’s counsel intended to admit during an arbitration hearing). Although this court has previously applied the competent attorney standard, see Villegas v. Weinstein & Riley, P.S., 723 F. Supp. 2d 755 (M.D. Pa. 2010) (Conaboy, J.), the Third Circuit’s subsequent holdings in Kaymark and Allen render that application obsolete.
[3] Whether a communication is false or misleading under the FDCPA is a question of law. Lesher v. Law Office of Mitchell N. Kay, P.C., 724 F. Supp. 2d 503, 506 (M.D. Pa. 2010). Because none of the parties argue that there is a genuine issue of material fact concerning the contents of the reinstatement quote, the issue of whether the quote violates § 1692e is properly resolved on summary judgment. Id.
[4] Defendants also argue that the least sophisticated consumer would know the fees were unincurred because they appear on a separate page than those already incurred. We think not. Having two separate pages of fees is consistent with two different due dates. The second page was the specific amount that was due before September 9, 2013. Thereafter, the fees went up. Those increased fees were listed on the third page, and it was anticipated that amount was valid up to September 20, 2013, after which the fees would increase again.
[5] Even if the consumer would understand that the fees and charges were anticipated, we would likely find that the reinstatement quote was false. The whole purpose of the reinstatement quote, as we understand it, is to allow the debtor to become current on her payments and prevent the filing of a foreclosure complaint. Thus, pursuant to the deadline in Plaintiff’s reinstatement quote, Defendants gave Plaintiff eight days to make her payment and avoid the filing of a foreclosure complaint. As such, it is unclear to us how Defendants could have anticipated incurring expenses for filing the foreclosure complaint, service of process, and overnight wire charges in that same eight day period.
[6] Defendants argue that “`the only inquiry under § 1692f(1) is whether the amount collected was expressly authorized by the agreement creating the debt or permitted by law’ and does not involve the sophistication of the consumer.” (Doc. 31 at 10) (quoting Allen, 629 F.3d at 368). We find that this rule has been superseded by the Third Circuit’s recent opinion in Kaymark. In Kaymark, the court did in fact apply the least sophisticated consumer standard in the context of § 1692f(1). Kaymark, 783 F.3d at 175 (applying standard to determine if unincurred fees were permitted by mortgage). The least sophisticated consumer standard is used to determine what the defendant was attempting to collect. Only then can it be determined whether that expense was expressly authorized by the agreement.
[7] Because we find that Defendants attempted to collect unincurred fees, we need not examine whether their attempt to collect $1,105 of attorneys’ fees was permitted by Pennsylvania law. We note, however, that the Superior Court of Pennsylvania has ruled that the state law Plaintiff invokes — 41 PA. STAT. ANN. § 406 — does not apply to debt collectors. Glover v. Udren Law Offices, P.C., 92 A.3d 24 (Pa. Super. Ct. 2014). Although we find Plaintiff’s arguments persuasive, and although the Supreme Court of Pennsylvania has granted a petition for allowance of appeal to address the issue, see 3 WAP 2015, “[a]n intermediate state court in declaring and applying state law is acting as an organ of the State and its determination, in the absence of more convincing evidence of what state law is, should be followed by a federal court in deciding a state question.” Fid. Union Trust Co. v. Field, 311 U.S. 169, 178 (1940).
Court of Appeals of California, Fourth District, Division One.
Filed September 28, 2015.
Ghods Law Firm, Lex Opus, Mohammed K. Ghods, Erick M. Schiffer and William A. Stahr for Plaintiffs and Appellants.
Parker Ibrahim & Berg, John M. Sorich and Jenny L. Merris for Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
McINTYRE, J.
Jan Kalicki and Rosalind Jones Kalicki (together the Kalickis) appeal from an order sustaining the demurrer of E*Trade Bank (E*Trade) without leave to amend. The Kalickis contend the trial court erred because they pleaded legally sufficient claims for declaratory relief, quiet title, slander of title, fraud, wrongful foreclosure, trespass and violation of the Unfair Competition Law (UCL) set forth in West’s annotated Business and Professions Code section 17200 et seq. We agree as to the claims for wrongful foreclosure, trespass and violation of the UCL and reverse the judgment.
The Kalickis own a home in San Marcos, California (the property). In August 1998, they obtained a residential loan in the amount of $375,000.00 (the loan) from Headlands Mortgage Company (Headlands) secured by a promissory note (the note) and deed of trust (the deed). The loan was then assigned to others, including JPMorgan Chase Bank, N.A. (Chase). E*Trade currently claims it is the assignee of the note and deed. At other times, however, E*Trade has denied owning the loan and claimed it had no information about the loan.
In 2008, the property was wrongfully sold at a foreclosure sale, but the sale was later rescinded by the foreclosure trustee. In September 2009, the Kalickis filed a prior action on the loan entitled Kalicki et al. v. Washington Mutual Bank et al., San Diego County Superior Court Case No. 37-2009-00059032 (the prior action). They claim they are entitled to a declaration that any judicial action on the loan is barred by the applicable statute of limitations and California’s one-action rule. Even assuming any rights on the loan currently exist, at the deposition of an E*Trade representative, E*Trade failed to produce any evidence showing it is the current owner or beneficiary of the loan. The Kalickis claim E*Trade is fraudulently holding itself out to be the owner of the loan.
To the extent any rights on the loan currently exist, the Kalickis contend these rights are not held by E*Trade. They also claim they are entitled to a declaration quieting title to the property and are ready, willing and able to tender the amounts due under the loan to its rightful owner. In the alternative, if E*Trade should somehow prove it is the owner of the loan, they allege E*Trade is legally responsible for damages caused by the slander of Kalickis’ title committed by E*Trade’s agents, such as Chase, as well as other torts, such as wrongful foreclosure and trespass.
Declaratory relief is available to resolve an “actual controversy” about a party’s rights and obligations under a deed or contract. (Code Civ. Proc., § 1060.) “Unlike coercive relief (such as damages, specific performance, or an injunction) in which a party is ordered by the court to do or to refrain from doing something, a declaratory judgment merely declares the legal relationship between the parties. Under the provisions of the [Declaratory Judgment] Act, a declaratory judgment action may be brought to establish rights once a conflict has arisen, or a party may request declaratory relief as a prophylactic measure before a breach occurs.” (Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 898.) A demurrer is the proper manner in which to challenge a claim for declaratory relief. (General of America Ins. Co. v. Lilly (1968) 258 Cal.App.2d 465, 471.)
The Kalickis’ declaratory relief claim alleges a dispute exists regarding whether E*Trade is the assignee of the note and deed, and thus whether E*Trade is entitled to pursue any judicial or nonjudicial remedies regarding the loan. The Kalickis claim they are entitled to a judicial determination (1) regarding the rights, duties and obligations of the parties with respect to the loan and (2) that any action on the loan is barred by California’s one-action rule.
The trial court concluded that Glaski v. Bank of America (2013) 218 Cal.App.4th 1079 (Glaski) does not compel overruling the demurrer and was persuaded that Jenkins v. JPMorgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497 (Jenkins) applied. Following Jenkins, the trial court concluded the claim for declaratory relief and all other causes of action alleged by the Kalickis were fatally defective. Accordingly, the parties debate whether Glaski or Jenkins applies. Briefly, appellate courts are divided about whether a borrower has standing to challenge a foreclosure when the borrower is not the party aggrieved by the lender’s improper assignment or securitization of a deed of trust. (Compare Jenkins, supra, at pp. 514-515 [borrower lacks standing to challenge lender’s transfer of note because borrower is not aggrieved by the lender’s subsequent ineffective assignment] with Glaski, supra, at pp. 1094-1096 [if assignment of note and deed of trust is void at inception, borrower has standing to assert wrongful foreclosure claim based on trustee’s failure to adhere to statutory requirements for foreclosure sale].) The Supreme Court will be deciding whether, in an action for wrongful foreclosure on a deed of trust securing a home loan, a borrower has standing to challenge an assignment of the note and deed of trust on the basis of defects allegedly making the assignment void. (See Yvanova v. New Century Mortgage Corp. (2014) 226 Cal.App.4th 495, review granted Aug. 27, 2014, S218973; Keshtgar v. U.S. Bank, N.A. (2014) 226 Cal.App.4th 1201, review granted Oct. 1, 2014, S220012 [grant and hold for Yvanova]; Mendoza v. JPMorgan Chase, N.A. (2014) 228 Cal.App.4th 1020, review granted Nov. 12, 2014, S220675 [same].) As we shall explain, the rule as stated in Jenkins is better reasoned.
A comprehensive statutory framework exists for the regulation of a nonjudicial foreclosure sale pursuant to a power of sale contained in a deed of trust. (Moeller v. Lien (1994) 25 Cal.App.4th 822, 830.) The nonjudicial foreclosure scheme authorizes the “trustee, mortgagee, or beneficiary, or any of their authorized agents” to record a notice of default and election to sell upon the trustor-debtors default on the secured debt. (Civ. Code, § 2924, subd. (a)(1), italics added.) Nothing in the nonjudicial foreclosure scheme precludes foreclosure when the foreclosing party does not possess the original promissory note. (Debrunner v. Deutsche Bank National Trust Co. (2012) 204 Cal.App.4th 433, 440.) Generally, “California courts have refused to delay the nonjudicial foreclosure process by allowing trustor-debtors to pursue preemptive judicial actions to challenge the right, power, and authority of a foreclosing `beneficiary’ or beneficiary’s `agent’ to initiate and pursue foreclosure.” (Jenkins, supra, 216 Cal.App.4th at p. 511.)
In a nutshell, the Kalickis claim they require a judicial declaration as to the holder of their note in order to pay off the note and obtain clear title. Not so. A note is a negotiable instrument that can be transferred without notice to the borrower and upon such a transfer, the borrower’s obligations under the note do not change. (Herrera v. Federal National Mortgage Assn. (2012) 205 Cal.App.4th 1495, 1507.) The Kalickis’ deed specifically provides that the note may be transferred at any time without providing notice of the transfer to the Kalickis. The deed also provides that the loan servicer is authorized to collect monthly payments under the loan. The Kalickis conceded in the prior action and during oral argument that Chase is the servicer of the loan. Accordingly, whether E*Trade presently holds their note is irrelevant to their obligations under the note and deed.
Moreover, when an obligation secured by a deed of trust has been satisfied, the Kalickis, as the trustors, are entitled to a full reconveyance of the property. (Civ. Code, § 2941, subd. (b); Huckell v. Matranga (1979) 99 Cal.App.3d 471, 476.) If the original promissory note has been lost, means exist to address this contingency. (See Huckell v. Matranga, supra, at pp. 479-480.) Additionally, a procedure exists by which a borrower may obtain reconveyance of a deed of trust when the obligation secured by the deed of trust has been paid and the lender cannot be located or refuses to request the trustee to reconvey. (Civ. Code, § 2941.7.) Finally, a beneficiary or trustee, or assignee thereof, who violates the statute requiring execution and recordation of reconveyance of property covered by a deed of trust is liable to the trustor or mortgagor, or the owner of the land, or that person’s grantees or heirs, for all damages which that person may sustain by reason of the violation. In addition, the violator must forfeit to that person a specified sum of money. (Civ. Code, § 2941, subd. (d).) Accordingly, that part of the declaratory relief claim seeking to know the holder of the note lacks merit as the Kalickis cannot show the existence of an actual, present controversy between themselves and E*Trade.
The Kalickis also seek a declaration that E*Trade is barred by the operation of Code of Civil Procedure section 726 (section 726) from exercising any judicial remedies based on the prior action on the loan. The section 726 “one-action rule” provides there can only be one action for the recovery of debt or enforcement of a right secured by a mortgage on a real property or estate. The one-action rule protects debtors from multiple collection actions by providing a secured creditor can bring only one lawsuit to enforce its security interest and collect its debt. (Kinsmith Financial Corp. v. Gilroy (2003) 105 Cal.App.4th 447, 453-454.) A trustee sale is not an action within the meaning of section 726. (See Bernhardt et al., Cal. Mortgages, Deeds of Trust, and Foreclosure Litigation (Cont.Ed.Bar 4th ed. 2015) § 4.17, p. 4-12.)
Here, the Kalickis filed the prior action, not the purported creditor. Because the prior action was not for the recovery of any debt or the enforcement of any right secured by the deed, the one-action rule does not apply. Thus, that part of the declaratory relief claim seeking a declaration that E*Trade is barred by the operation of section 726 from exercising any judicial remedies based on the prior action on the loan does not state an actual controversy for which declaratory relief is available. Because the Kalickis did not allege a valid claim for declaratory relief as a matter of law, the trial court properly sustained the demurrer.
B. Quiet Title
The Kalickis alleged that E*Trade does not own the loan and they are entitled to a declaration quieting title to the property against all adverse claims of E*Trade. The Kalickis assert they are “ready, willing, and able to tender the amounts due under the Loan to its rightful [o]wner.” This claim stands or falls with the declaratory relief claim as it is another means of obtaining a declaration regarding the true owner of the loan. (Caira v. Offner (2005) 126 Cal.App.4th 12, 24 [“An action to quiet title is akin to an action for declaratory relief in that the plaintiff seeks a judgment declaring his rights in relation to a piece of property.”].)
Here, the Kalickis know who to pay to clear their debt—the loan servicer. The trial court properly sustained the demurrer to the quiet title claim because the Kalickis provided no justification for failing to cure their default before invoking the court’s equitable jurisdiction to quiet title. Should the Kalickis discharge their debt, they may seek leave of court to amend their complaint to allege a quiet title claim.
C. Slander of Title
The Kalickis allege that if E*Trade should prove it is the owner of the loan, then E*Trade is legally responsible for the slander of their title by its agents for recording a number of false documents which disparaged their title. E*Trade asserts the trial court properly sustained its demurrer because this claim is (1) time-barred, (2) the documents were removed from title before the underlying action was filed, and (3) the recording of the documents was privileged. We agree with the latter argument.
To state a cause of action for slander of title, a plaintiff must allege: “(1) a publication, (2) which is without privilege or justification, (3) which is false, and (4) which causes direct and immediate pecuniary loss.” (Manhattan Loft, LLC v. Mercury Liquors, Inc. (2009) 173 Cal.App.4th 1040, 1051.) The “mailing, publication, and delivery of notices” required as part of the nonjudicial foreclosure process is protected by the qualified privilege set forth in Civil Code section 47, subdivision (c)(1). (Civ. Code, § 2924, subd. (d)(1).) To overcome this privilege, a plaintiff must allege facts showing the recording was done with malice, motivated by hatred or ill will, or without reasonable grounds for belief in the truth of the publication. (Kachlon v. Markowitz (2008) 168 Cal.App.4th 316, 336.) While a privilege is generally pleaded as an affirmative defense in the answer, where the complaint discloses the existence of a qualified privilege, it must allege malice to state a cause of action. (Cameron v. Wernick (1967) 251 Cal.App.2d 890, 894-895.) “Mere allegations of malice are not sufficient [citations]; actual facts must be alleged, unless they are apparent from the statement itself.” (Tschirky v. Superior Court (1981) 124 Cal.App.3d 534, 538-539.)
The Kalickis based their slander of title claim on the preparation and recording of an allegedly false notice of default, notice of sale, trustee’s deed upon sale and assignment of deed. Assuming E*Trade was involved in the recording process, the Kalickis have not alleged any facts to overcome the privilege. Accordingly, their slander of title claim fails.
Finally, counsel for the Kalickis represented during oral argument that the slander of title claim was based on E*Trade’s allegedly false declaration that it owned the loan. This allegation is not contained in the complaint and we deem the statement to be an offer as to how the complaint could be amended to state a valid claim for slander of title. (Cansino v. Bank of America (2014) 224 Cal.App.4th 1462, 1468 [appellant bears the burden of showing there is a reasonable possibility pleading defects may be cured by amendment and may meet this burden on appeal].)
To be actionable, the disparaging statement must be relied upon by a third party. (Appel v. Burman (1984) 159 Cal.App.3d 1209, 1214.) Counsel’s statements did not show a third party relied on the declaration claiming ownership of the loan. In any event, even assuming the falsity of the declaration and third party reliance, the declaration created no new encumbrance on the property as the Kalickis’ own allegations show they owe someone under the note and deed. This is not a situation where multiple parties claim ownership of the loan. The fact E*Trade, rather than another entity owns the loan does not cast doubt on the Kalickis interest in the property. (See Jenkins, supra, 216 Cal.App.4th at p. 515.) Accordingly, the Kalickis have failed to show how the complaint might be amended to state a valid claim for slander of title.
D. Fraud
“The essential allegations of a cause of action for deceit are representation, falsity, knowledge of falsity, intent to deceive, and reliance and resulting damage (causation).” (Hamilton v. Greenwich Investors XXVI, LLC (2011) 195 Cal.App.4th 1602, 1614.) Fraud must be pled with particularity, meaning pleading facts showing how, when, where, to whom, and by what means the representations were tendered. (Ibid.) Where a fraud claim is made against a corporate employer, the plaintiff must also allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written. (Ibid.) Every element of a fraud cause of action must be specifically pleaded. (Service by Medallion, Inc. v. Clorox Co. (1996) 44 Cal.App.4th 1807, 1816.) The purpose of the specificity requirement is to (1) give defendant sufficient notice of the charges and (2) permit a court to weed out meritless fraud claims. (West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 793.)
Here, the Kalickis alleged that on June 21, 2012, E*Trade’s managing agent, Benton, falsely represented to them that E*Trade was the owner of the loan. They further allege E*Trade was aware of the falsity of its statement and made the misrepresentation with the intent to defraud or with reckless disregard for the truth. At a deposition on July 30, 2013, E*Trade was requested to, but failed to produce any documents establishing it is the current owner and beneficiary of the loan, and despite repeated requests for evidence of ownership, E*Trade continues to assert its ownership without justification.
The Kalickis have alleged facts showing how, when, where and to whom the alleged false representation was made. Although the Kalickis did not allege by what means the representations were tendered, E*Trade resolved this issue by requesting judicial notice of a copy of Benton’s June 21, 2012 declaration, showing she made the representation in writing.
E*Trade asserts fraud is not sufficiently pled as there are no factual allegations demonstrating Benton made any statement with the intent to defraud the Kalickis, the Kalickis detrimentally relied on these specific statements or the detriment suffered. We agree.
Although the Kalickis alleged Benton made the representation intending to defraud them, they alleged no facts supporting this conclusion. The Kalickis’ allegation that Benton acted with reckless disregard for the truth is insufficient to state the required intent to defraud. (Compare Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 173-174 [negligent misrepresentation does not require intent to defraud but only the assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true].)
The Kalickis’ allegations of reliance and how this reliance caused their damages are also deficient. Merely asserting reliance is insufficient; rather, the plaintiff must allege the specifics of the reliance on the misrepresentation to state a bona fide claim of actual reliance. (Cadlo v. Owens-Illinois, Inc. (2004) 125 Cal.App.4th 513, 519.) Additionally, damages must be distinctly alleged and a causal connection with the reliance on the representations must be shown. (Moncada v. West Coast Quartz Corp. (2013) 221 Cal.App.4th 768, 800.) Here, the Kalickis alleged that in reliance on E*Trade’s claim of ownership, they contacted E*Trade for loan payoff information and loan status and were forced to communicate with and comply with demands made by Chase and E*Trade, such as providing proof of insurance. The Kalickis failed to explain how these alleged acts of reliance caused their alleged damages. Thus, the trial court properly sustained the demurrer to the fraud cause of action.
We are unable to conclude that the trial court abused its discretion in sustaining the demurrer to the fraud cause of action without giving the Kalickis another opportunity to amend this claim. Additionally, the Kalickis have failed to show how the complaint might be amended to state a valid fraud cause of action. Accordingly, they failed to show the trial court abused its discretion in denying leave to amend this claim.
E. Wrongful Foreclosure
To maintain a wrongful foreclosure claim, a plaintiff “must allege that (1) the defendants caused an illegal, fraudulent, or willfully oppressive sale of the property pursuant to a power of sale in a mortgage or deed of trust; (2) the plaintiff suffered prejudice or harm; and (3) the plaintiff tendered the amount of the secured indebtedness or was excused from tendering.” (Chavez v. Indymac Mortgage Services (2013) 219 Cal.App.4th 1052, 1062.)
As an alternative claim, the Kalickis allege, to the extent E*Trade establishes it is the actual owner of the loan, E*Trade is legally responsible for the misconduct against them committed by E*Trade’s agents. Namely, E*Trade’s agents wrongfully foreclosed on their home without a valid notice of default or notice of sale having been properly issued, served or recorded, during a period when an applicable bankruptcy stay was in effect and promises had been made to them that their home would not be foreclosed upon. The foreclosure trustee later rescinded the notice of default and the trustee’s deed upon sale. These acts allegedly disrupted the Kalickis’ lives and agricultural operations on the property, destroyed their peace of mind, and caused them to suffer annoyance, emotional distress, and mental anguish, as well as other economic and noneconomic damages. The Kalickis also alleged they are ready, willing and able to tender the amounts due under the loan to its rightful owner. These allegations are sufficient to state a valid claim for wrongful foreclosure.
E*Trade contends the Kalickis’ wrongful foreclosure claim fails as a matter of law because the foreclosure sale was rescinded; thus, the Kalickis are in the same position as they were prior to the recordation of the trustee’s deed upon sale and they are attempting to remedy an alleged wrong that has already been remedied and any wrongful foreclosure sale is not yet ripe and premature. In support of this assertion, E*Trade cites Schell v. Southern Cal. Edison Co. (1988) 204 Cal.App.3d 1039, 1047; Spencer v. Crocker First Nat. Bank (1948) 86 Cal.App.2d 397, 402-403; Industrial Indemnity Co. v. Mazon (1984) 158 Cal.App.3d 862, 866. While these cases generally address the ripeness of claims, they do not address the situation alleged by the Kalickis. E*Trade cited no authority convincing us that the Kalickis’ alternative claim for wrongful foreclosure is improperly pled. Accordingly, the trial court erred in sustaining the demurrer to this claim.
F. Trespass
Trespass is the unauthorized entry onto the land of another. (Civic Western Corp. v. Zila Industries, Inc. (1977) 66 Cal.App.3d 1, 16.) The elements are: (1) the plaintiff’s lawful possession or right of possession of the property; (2) the defendant’s wrongful act of trespass on the property; and (3) damage to the plaintiff proximately caused by the defendant. (5 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 631, p. 65.)
As an alternative claim, the Kalickis allege, to the extent E*Trade establishes it is the actual owner of the loan, E*Trade is legally responsible for the misconduct against them committed by its agents, that E*Trade, through its agents, trespassed onto and within the boundaries of their home and purported to take over the home in violation of the law and their rights, which caused them damage.
E*Trade argues the Kalickis failed to allege that any employee or agent of E*Trade trespassed onto the property. Not so. The Kalickis alleged that E*Trade, through its agents, committed the trespass. E*Trade also contends the Kalickis failed to set forth any facts demonstrating how the entry on the property, postforeclosure, proximately caused them any damages, that they were in fact evicted from the property or that they sustained any injury personally or to the property as a result of the alleged trespass. E*Trade, however, failed to present any authority to support their contention that such facts must be specifically alleged to state a valid claim for trespass and we reject this unsupported assertion. Whether the Kalickis can prevail on this cause of action cannot be resolved on demurrer.
G. Unfair Competition
The Kalickis’ seventh cause of action alleged a violation of the UCL. They generally alleged that all of E*Trade’s actions were fraudulent, unlawful, or unfair within the meaning of the UCL. The Kalickis claimed that should the trial court determine that E*Trade does not own the loan, E*Trade should be enjoined from asserting such a position in the future. Alternatively, should E*Trade be found to own the loan, it should be enjoined from initiating foreclosure proceedings or recording any notices regarding the property.
E*Trade demurred to the Kalickis’ claim for unfair competition on the ground the Kalickis lacked standing to pursue such a claim as they failed to allege facts as to the money or property they allegedly lost as a result of the purported violation. A private person has standing to sue for a violation of the UCL if the person “has suffered injury in fact and has lost money or property as a result of the unfair competition.” (Bus. & Prof. Code, § 17204.) Here, the Kalickis alleged they were damaged by E*Trade’s alleged violation of the UCL. At the pleading stage, nothing more is required. (Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 327.)
Assuming the Kalickis can properly plead standing, E*Trade next asserts they still failed to set forth any facts establishing E*Trade violated the unfair competition law. To state a claim for a violation of the UCL, a plaintiff must allege the defendant committed a business act or practice that is “fraudulent, unlawful, or unfair.” (Levine v. Blue Shield of California (2010) 189 Cal.App.4th 1117, 1136.) Here, the Kalickis’ UCL claim is based upon the underlying claims asserted in the balance of their complaint. The Kalickis’ right to recover on these underlying claims cannot be resolved on demurrer; accordingly, we cannot find their derivative UCL claim fails as a matter of law. (Price v. Starbucks Corp. (2011) 192 Cal.App.4th 1136, 1147.)
DISPOSITION
The judgment of dismissal is reversed. The trial court is directed to vacate its order sustaining E*Trade’s demurrer to the Kalickis’ second amended complaint without leave to amend and to enter a new order (1) sustaining the demurrer to the declaratory relief, slander of title and fraud causes of action without leave to amend; (2) sustaining the demurrer to the quiet title cause of action without prejudice to a future motion seeking leave of court to amend their complaint to add this claim; (3) overruling the balance of the demurrer; and (4) ordering E*Trade to answer the second amended complaint. The Kalickis are entitled to recover their costs of appeal.
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Service Members’ Compensation for Unlawful Foreclosures Under the Servicemembers Civil Relief Act Rises to $311 Million
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The Justice Department announced today that an additional 1,461 service members and their co-borrowers are eligible to receive over $186 million for home foreclosures under the department’s settlements with five of the nation’s largest mortgage servicers. Those settlements implement the protections of the Servicemembers Civil Relief Act (SCRA). Together with other foreclosure-related compensation announced by the department in February, a total of 2,413 service members and their co-borrowers are eligible to receive over $311 million. The five mortgage servicers are JP Morgan Chase Bank N.A. (JP Morgan Chase); Wells Fargo Bank N.A. and Wells Fargo & Co. (Wells Fargo); Citi Residential Lending Inc., Citibank, NA and CitiMortgage Inc. (Citi); GMAC Mortgage LLC, Ally Financial Inc. and Residential Capital LLC (GMAC Mortgage); and Bank of America N.A., Countrywide Home Loans Inc., Countrywide Financial Corp., Countrywide Home Loans Servicing L.P. and BAC Home Loans Servicing L.P. (Bank of America).
The compensation results from the SCRA portion of the 2012 settlement known as the National Mortgage Settlement (NMS) and an earlier settlement with Bank of America, for foreclosures that took place between Jan. 1, 2006, and Apr. 4, 2012, where the servicer obtained a foreclosure without a judicial proceeding or where the servicer obtained a default foreclosure judgment without filing a proper affidavit with the court stating that the service member was in military service.
“While this compensation will provide some financial relief to more than 2,400 service members and their families, the fact is no one serving our country in the Armed Forces should ever have to worry about losing their home to an illegal foreclosure,” said Acting Associate Attorney General Stuart F. Delery. “Through the Servicemembers and Veterans Initiative, the Department of Justice will continue to use every tool at our disposal to protect service members and their families from such unjust actions.”
“We are very pleased that the men and women of the armed forces who were subjected to unlawful foreclosure judgments while they were serving our country are now receiving compensation,” said Principal Deputy Assistant Attorney General Vanita Gupta, head of the Civil Rights Division. “We look forward, in the coming months, to facilitating the compensation of additional service members who were subjected to excess interest charges on their mortgages. We appreciate that JP Morgan Chase, Wells Fargo, Citi, GMAC Mortgage and Bank of America have been working cooperatively with the Justice Department to compensate the service members whose rights were violated.”
Section 533 of the SCRA prohibits non-judicial foreclosures against service members who are in military service or within the applicable post-service period, as long as they originated their mortgages before their period of military service began. Even in states that normally allow mortgage foreclosures to proceed non-judicially, the SCRA prohibits servicers from doing so against protected service members during their military service and applicable post-military service coverage period. Section 521 of the SCRA prohibits mortgage servicers from obtaining default judgments against service members unless they file an affidavit with the court stating whether the defendant is in military service. If the affidavit shows that the person is in military service, the court must appoint an attorney to represent the service member and may delay or “stay” the foreclosure proceeding for a minimum of 90 days.
Under the NMS, for mortgages serviced by Bank of America, Wells Fargo, Citi and GMAC Mortgage, the identified service members will each receive $125,000, plus any lost equity in the property and interest on that equity. Eligible co-borrowers will also be compensated for their share of any lost equity in the property. To ensure consistency with an earlier private settlement, JP Morgan Chase will provide any identified service member either the property free and clear of any debt or the cash equivalent of the full value of the home at the time of sale, and the opportunity to submit a claim for compensation for any additional harm suffered, which will be determined by a special consultant, retired U.S. District Court Judge Edward N. Cahn. Payment amounts have been reduced for those service members or co-borrowers who have previously received compensation directly from the servicer or through a prior settlement, such as the independent foreclosure review conducted by the Office of the Comptroller of the Currency and the Federal Reserve Board.
The NMS process for identifying service members eligible for foreclosure-related relief is now complete. The department expects that additional service members will be identified in the coming months based upon ongoing reviews of Bank of America’s non-judicial foreclosures pursuant to the earlier settlement.
The NMS also provides compensation for service members who gave proper notice to the servicer, but were denied the full benefit of the SCRA’s 6 percent interest rate cap on pre-service mortgages. The service members entitled to compensation under this provision will be identified in the upcoming months.
The following chart shows the number of service members who will be compensated by each of the servicers for both non-judicial and judicial foreclosures:
Non-Judicial Judicial
Amount of Money to be Distributed
# of Servicemembers Eligible for Compensation
Amount of Money to be Distributed
# of Servicemembers Eligible for Compensation
Bank of America
$35,369,756
286
$63,686,567
490
Citi
$14,880,578
126
$24,146,544
197
GMAC Mortgage
$13,720,588
113
$11,516,002
89
JP Morgan Chase
$32,488,293
188
$27,424,558
204
Wells Fargo
$28,290,790
239
$59,484,334
481
TOTALS
$124,750,005
952
$186,258,005
1,461
Today the parties filed a joint motion with the federal district court in Washington, D.C., to extend the term of the SCRA compensation provisions in the National Mortgage Settlement, which would allow additional time to reach all the service members entitled to foreclosure relief, as well as to complete the interest-rate reviews, which are ongoing.
Borrowers should use the following contact information for questions about SCRA payments under the National Mortgage Settlement:
Bank of America borrowers should call Rust Consulting Inc., the settlement administrator, toll-free at 1-855-793-1370 or write to BAC Home Loans Servicing Settlement Administrator, c/o Rust Consulting Inc., P.O. Box 1948, Faribault, MN 55021-6091.
Citi borrowers should call Citi toll-free at 1-888-326-1166.
GMAC Mortgage borrowers should call Rust Consulting Inc., the settlement administrator, toll-free at 1-866-708-0915 or write to P.O. Box 3061, Faribault, Minnesota 55021-2661.
JPMorgan Chase borrowers should call Chase toll-free at 1-877-469-0110 or write to P.O. Box 183224, OH-7160/DOJ, Columbus, Ohio 43219-6009.
Wells Fargo borrowers should call the Wells Fargo Home Mortgage Military Customer Service Center toll free at 1-877-839-2359.
Service members and their dependents who believe that their SCRA rights have been violated should contact an Armed Forces Legal Assistance office. To find the closest office, consult the military legal assistance office locator at http://legalassistance.law.af.mil and click on the Legal Services Locator. Additional information about the Justice Department’s enforcement of the SCRA and the other laws protecting service members is available at www.servicemembers.gov.
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