Dunlap et al v. Caliber Home Loans, Inc.

MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM

E.D. Pa.November 17, 2016

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA GERALD D. DUNLAP, JR., et al. ) ) Plaintiffs, ) ) Case No. 2:16-CV-05679 v. ) ) Judge C. Darnell Jones II CALIBER HOME LOANS, INC. ) ) Defendant. ) DEFENDANT’S MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM UPON WHICH RELIEF CAN BE GRANTED Defendant Caliber Home Loans, Inc. (“Caliber”) by and through undersigned counsel, moves to dismiss Plaintiff’s complaint for failure to state a claim upon which relief can be granted, under Fed. R. Civ. P. 12(b)(6). Plaintiff’s claims—for the alleged willful violation of a discharge injunction and for an alleged violation of the FDCPA—both stem from the same set of facts. In such circumstances, courts have held that both claims are pre-empted by the Bankruptcy Code and that Plaintiffs must seek relief through a contempt proceeding in bankruptcy court. For these reasons, and those fully outlined in the attached Memorandum in Support and incorporated herein, Caliber respectfully requests that this Court dismiss Plaintiff’s claims. Respectfully submitted, /s/ Robert C. Folland Robert C. Folland (PA No. 320318) Barnes & Thornburg LLP 41 S. High Street, Suite 3300 Columbus, OH 43215 Phone: 614-628-1429 Fax: 614-628-1433 rob.folland@btlaw.com Counsel for Defendant Caliber Home Loans, Inc. Dated: November 17, 2016 Case 2:16-cv-05679-CDJ Document 3 Filed 11/17/16 Page 1 of 9 2 MEMORANDUM IN SUPPORT I. Background Plaintiffs are borrowers with a mortgage loan that was previously serviced by Wells Fargo. Complaint, ¶5. Plaintiffs allege that they filed bankruptcy and that Wells Fargo filed a proof of claim for the amounts owed under the mortgage loan. Id. at ¶¶ 6-7. Plaintiffs claim that Caliber began servicing the mortgage loan account in June 2016, while Plaintiffs received a chapter 13 discharge in August 2016. Id. at ¶¶ 8, 10. Plaintiffs allege that, after receiving that discharge, Caliber mailed them a mortgage statement and called Plaintiffs in an attempt to collect amounts that Plaintiffs claim were not owed. Id. at ¶¶ 11-23. Plaintiffs allege that these actions violated the FDCPA. Id. at ¶¶ 29-31. Plaintiffs allege that these same actions also violate the Bankruptcy Court’s discharge injunction. Id. at ¶ 33. II. Law and Argument A. Motion to Dismiss Standard A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the legal sufficiency of a complaint, not the merits. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974). The court accepts all well-pleaded factual allegations of the complaint as true and draws all reasonable inferences from those allegations in the Plaintiffs’ favor. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice,” nor are legal conclusions assumed true. Id. Thus, “[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Id. (quoting Twombly, 550 U.S. at 570). Plausibility requires “more than a sheer possibility that a defendant has acted unlawfully,” but it is not a “probability requirement.” Case 2:16-cv-05679-CDJ Document 3 Filed 11/17/16 Page 2 of 9 3 Id. (quoting Twombly, 550 U.S. at 556). A claim crosses from conceivable to plausible when it contains factual allegations that, if proved, would “allow [ ] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. The Third Circuit has set forth a three-part inquiry in reviewing a motion to dismiss under Rule 12(b)(6). The three steps are: “(1) identifying the elements of the claim, (2) reviewing the complaint to strike conclusory allegations, and then (3) looking at the well-pleaded components of the complaint and evaluating whether all of the elements identified in part one of the inquiry are sufficiently alleged.” Malleus v. George, 641 F.3d 560, 563 (3d Cir. 2011). B. There is No Private Right of Action for a Violation of the Discharge Injunction 11 USC § 524(a)(2) creates a discharge injunction in the bankruptcy court issuing the discharge, not a cause of action. See 11 USC § 524(a)(2). Accordingly, alleged violations of this section are properly addressed through contempt proceedings in bankruptcy court. See In re Hyman, 498 B.R. 48, 52 (Bankr. E.D. Pa. 2013). In contrast, Plaintiff brings a separate action against Caliber for Caliber’s alleged violation of the discharge injunction. Complaint, ¶ 33. In such a situation, courts routinely hold that such a claim is pre-empted by the Bankruptcy Code. The Third Circuit first considered this issue in In re Joubert, 411 F.3d 452, 456 (3 rd Cir. 2005) (“This Court has not addressed whether § 524 implies a private right of action […] but the weight of circuit authority is that it does not.”). Joubert cited with approval authority that held that “a contempt action in the bankruptcy court that issued the discharge is the only relief available to remedy alleged § 524 violations.” Id. (internal citation omitted). Ultimately, the Joubert court, deciding a case under 11 USC § 506(b), held that there was “no reason why the rule should be different for actions asserted under § 506(b) rather than § 524.” Id. Following Joubert, courts have clearly ruled that litigants cannot directly assert a claim under § 524 in a Case 2:16-cv-05679-CDJ Document 3 Filed 11/17/16 Page 3 of 9 4 District Court. See Townsend v. M&T Mortgage Corp., 2010 WL 2573825, at *3 (M.D. Pa. Jun. 23, 2010)(internal citation omitted)(“[P]laintiff cannot bring a claim in this court based on a violation of the discharge injunction.”). Beyond that, courts have held that 11 USC § 105(a) “also does not permit an action in district court seeking enforcement of the bankruptcy court’s orders.” Id. This is consistent with the holding of Joubert. See Joubert, 411 F.3d at 456 (holding that “the decisions holding that § 105(a) does not authorize separate lawsuits as a remedy for bankruptcy violations, though established in the § 524 context, are equally applicable when the underlying complaint is grounded in § 506(b).”). There is no support for the notion that § 105 would permit recovery when § 524 would not. Yet this is precisely the basis on which Plaintiffs seek to recover. See Complaint, ¶ 35. The Court should follow established authority and hold that there is no basis for a private right of action in this Court for an alleged violation of a discharge injunction under either § 524 or § 105. Confronted with this authority, plaintiffs have attempted to seek civil contempt for the alleged violation of the discharge injunction in the District Court. Warren v. Wells Fargo Bank, N.A., 2015 WL 6393111, at *5 (Oct. 21, 2015). However, this too is improper, as “only the court which issues an injunction has the authority to enforce it.” In re Beck, 283 B.R. 163, 166 (Bankr. E.D. Pa. 2002). In the case of a discharge injunction, issued by a bankruptcy court, it is the bankruptcy court alone which can enforce it. Plaintiff has no private right of action in this Court, and this Court cannot enforce the injunction. The Court should dismiss Plaintiff’s claim for an alleged violation of the discharge injunction. C. Plaintiff’s FDCPA Claim is Also Pre-Empted by the Bankruptcy Code Courts have also recognized that FDCPA actions, premised on the same underlying facts as an alleged violation of the discharge injunction, are pre-empted by the Bankruptcy Code. The Case 2:16-cv-05679-CDJ Document 3 Filed 11/17/16 Page 4 of 9 5 Third Circuit has not yet ruled on whether FDCPA claims premised on allegations of post- discharge communications are precluded by the contempt proceedings for alleged violations of the discharge injunction contemplated under the Bankruptcy Code. See Townsend, 2010 WL 2573825, at *5 (internal citation omitted). Courts within the Third Circuit have found that FDCPA claims which attempt to obtain damages for violations of a discharge injunction are an improper “attempt to enforce section 524(a)(2) outside of the bankruptcy court.” Id. at *4. To allow such an FDCPA claim to proceed “would allow through the back door what [plaintiff] cannot accomplish through the front door—a private right of action.” Id. at *5 (citing Walls v. West Fargo Bank, N.A., 276 F.3d 502 (9 th Cir. 2002)). This Court has embraced this same reasoning. Jones v. Wolpoff & Abramson, LLP, 2006 WL 266102, at *3 (E.D. Pa. Jan. 31, 2006) (“we see no reason to allow an FDCPA claim access to this Court ‘through the back door’ where Walls would not.”). Townsend involved an action for an alleged violation of the discharge injunction and an alleged violation of the FDCPA. Specifically, the plaintiffs alleged violations of the FDCPA for communicating with a represented borrower, collecting unauthorized amounts, and failing to provide information on the borrower’s account. Townsend, 2010 WL 2573825, at *4. Crucially, “[a]ll of these complaints flow from defendants’ alleged attempt to collect a debt that had been discharged through plaintiffs’ bankruptcy.” Id. In short, plaintiffs argued that the same actions violated the FDCPA and the discharge injunction. Faced with such facts, courts have consistently held that contempt is the “sole remedy” for such a violation. See Zehnder v. FDS Bank, No. 3:09 cv 1865, at 9 (M.D. Pa., Mar. 18, 2010) (attached hereto as Exhibit 1). The cases in which FDCPA claims have been found not to be pre-empted by the Bankruptcy Code are distinguishable from this case. One case involved a payoff statement which Case 2:16-cv-05679-CDJ Document 3 Filed 11/17/16 Page 5 of 9 6 included a “recoverable corporate advance,” at least part of which was attorney fees. Dougherty v. Wells Fargo Home Loans, Inc., 425 F.Supp.2d 599, 601 (E.D. Pa. 2006). However, the collections actions complained of in Dougherty occurred “before the discharge of her bankruptcy” which was central to the holding that her FDCPA claim was not preempted by the Bankruptcy Code. See Townsend, 2010 WL 2573825, at *5 (citing Dougherty, 425 F.Supp.2d at 604). It was for that reason that the Dougherty court did not follow the “holdings of courts in other circuits” that FDCPA claims alleging post-discharge violations of the FDCPA are preempted by the Bankruptcy Code. Id. Similarly, the Third Circuit has clarified that, when “FDCPA claims arise from communications a debt collector sends a bankruptcy debtor in a pending bankruptcy proceeding […] there is no categorical preclusion of the FDCPA claims.” Simon v. FIA Card Services, N.A., 732 F.3d 259, 274 (3d Cir. 2013) (emphasis added). In examining Simon, courts have found that, with respect to alleged violations of the FDCPA and alleged violations of the discharge injunction, “the Bankruptcy Code and the FDCPA are in conflict because each statute requires a different standard of proof and carries a different scienter requirement, and each provides a different remedy.” Lovegrove v. Ocwen Loan Servicing, LLC, 2015 WL 5042913, at *7 (W.D. Va. Aug. 26, 2015). Thus, an FDCPA claim premised on communications during the pending bankruptcy case could be actionable, but Plaintiff fails to state such a claim. Plaintiff alleges only one pre-discharge collection activity by Caliber, and the allegation is insufficient to support recovery under the FDCPA. Plaintiff alleges that he received his bankruptcy discharge on August 25, 2016. Complaint, ¶ 10. Plaintiff alleges that Caliber engaged in a series of purported collections actions in September 2016 and October 2016 which Plaintiff asserts violate the FDCPA. Id. at ¶ 11-23. However, these are all post-discharge activities, which Case 2:16-cv-05679-CDJ Document 3 Filed 11/17/16 Page 6 of 9 7 under the combined guidance of Dougherty and Townsend, do not support a private right of action, outside of bankruptcy court, for such a violation. The only factual allegation against Caliber concerning pre-discharge actions is that Caliber “on or about June 2016” sent a letter claiming that $8,743.76 of accrued interest was due on the account. Complaint, ¶ 8. Plaintiff does not attach this document, but because it is referenced in, and relied upon by, the motion to dismiss the Court is allowed to consider it in ruling upon a motion to dismiss. In re Rockefeller Center Properties, Inc. Securities Litigation, 184 F.3d 280, 287 (3d Cir. 1999) (internal citations omitted) (courts may consider documents “integral to or explicitly relied upon in the complaint” in ruling on a motion to dismiss). The letter at issue here, which is explicitly relied on in the complaint, is a debt validation letter that is required under the FDCPA. See 6/17/16 letter, attached as Exhibit 2 (providing notice of right to dispute validity of debt); 15 USC § 1692g (requiring notice of right to dispute validity of debt). A letter required by the FDCPA cannot support liability for a violation of the FDCPA. Plaintiff has not alleged any pre-discharge activities by Caliber which allegedly violate the FDCPA and thus Plaintiff’s FDCPA claim, premised solely on alleged post-discharge conduct by Caliber is pre-empted by the Bankruptcy Code’s discharge injunction provisions and must be dismissed. III. Conclusion Plaintiffs’ factual allegations center on Caliber’s purported post-discharge debt collection activities. Plaintiffs claim that these actions violate the bankruptcy court’s discharge injunction, but such an allegation may only be asserted through a contempt proceeding in the bankruptcy court. Similarly, Plaintiffs’ FDCPA claim, which is premised on the same allegations of post- discharge communications is also pre-empted by the Bankruptcy Code. Any contrary holding would allow Plaintiffs to impermissibly create a “back door” private right of action where one Case 2:16-cv-05679-CDJ Document 3 Filed 11/17/16 Page 7 of 9 8 does not exist for allegations that Caliber violated the bankruptcy court’s discharge injunction. Caliber respectfully requests this Court dismiss Plaintiff’s claims against Caliber for failing to state a cause of action upon which relief can be granted. Respectfully submitted, /s/ Robert C. Folland Robert C. Folland (PA No. 320318) Barnes & Thornburg LLP 41 S. High Street, Suite 3300 Columbus, OH 43215 Phone: 614-628-1429 Fax: 614-628-1433 rob.folland@btlaw.com Counsel for Defendant Caliber Home Loans, Inc. Case 2:16-cv-05679-CDJ Document 3 Filed 11/17/16 Page 8 of 9 9 CERTIFICATE OF SERVICE I hereby certify that on the 17th day of November, 2016 a copy of the foregoing was filed with the Court and served upon all parties of record via the Court’s CM/ECF system. /s/ Robert C. Folland_________ Robert C. Folland Case 2:16-cv-05679-CDJ Document 3 Filed 11/17/16 Page 9 of 9 UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA GERALD D. DUNLAP, JR., et al. ) ) Plaintiffs, ) ) Case No. 2:16-CV-05679 v. ) ) Judge C. Darnell Jones II CALIBER HOME LOANS, INC. ) ) Defendant. ) ORDER GRANTING DEFENDANT’S MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM UPON WHICH RELIEF CAN BE GRANTED This matter is before the Court upon Defendant’s Motion to Dismiss for Failure to State a Claim Upon Which Relief Can be Granted (“Motion to Dismiss”). The Court, having reviewed the Motion to Dismiss, finds that the Motion to Dismiss should be and hereby is GRANTED. IT IS THEREFORE ORDERED that this matter is dismissed. Dated: ____________ _________________ JUDGE Case 2:16-cv-05679-CDJ Document 3-1 Filed 11/17/16 Page 1 of 1 Case 2:16-cv-05679-CDJ Document 3-2 Filed 11/17/16 Page 1 of 16 Case 2:16-cv-05679-CDJ Document 3-2 Filed 11/17/16 Page 2 of 16 Case 2:16-cv-05679-CDJ Document 3-2 Filed 11/17/16 Page 3 of 16 Case 2:16-cv-05679-CDJ Document 3-2 Filed 11/17/16 Page 4 of 16 Case 2:16-cv-05679-CDJ Document 3-2 Filed 11/17/16 Page 5 of 16 Case 2:16-cv-05679-CDJ Document 3-2 Filed 11/17/16 Page 6 of 16 Case 2:16-cv-05679-CDJ Document 3-2 Filed 11/17/16 Page 7 of 16 Case 2:16-cv-05679-CDJ Document 3-2 Filed 11/17/16 Page 8 of 16 Case 2:16-cv-05679-CDJ Document 3-2 Filed 11/17/16 Page 9 of 16 Case 2:16-cv-05679-CDJ Document 3-2 Filed 11/17/16 Page 10 of 16 Case 2:16-cv-05679-CDJ Document 3-2 Filed 11/17/16 Page 11 of 16 Case 2:16-cv-05679-CDJ Document 3-2 Filed 11/17/16 Page 12 of 16 Case 2:16-cv-05679-CDJ Document 3-2 Filed 11/17/16 Page 13 of 16 Case 2:16-cv-05679-CDJ Document 3-2 Filed 11/17/16 Page 14 of 16 Case 2:16-cv-05679-CDJ Document 3-2 Filed 11/17/16 Page 15 of 16 Case 2:16-cv-05679-CDJ Document 3-2 Filed 11/17/16 Page 16 of 16