Casamatta v. Resurgent Capital Servs., L.P. (In re Freeman-Clay)

578 B.R. 423

IN RE: Diana Elaine FREEMAN–CLAY, Debtor.

Daniel J. Casamatta, Acting United States Trustee for Region 13, Plaintiff,

v.Resurgent Capital Services, L.P.; LVNV Funding, LLC ; HSS Systems, LLC, d/b/a Parallon Business Solutions; and Midwest Division—RMC, LLC, d/b/a Research Medical Center, Defendants.

In re: Keith Roy Davis, Sr. and Leanne Elizabeth Davis, Debtor.

Daniel J. Casamatta, Acting United States Trustee for Region 13, Plaintiff,

v.Resurgent Capital Services, L.P.; LVNV Funding, LLC ; and Merrick Bank, Defendants.

Case No. 14–41871–drd13

Adversary No. 16–4102

Case No. 14–20400–drd13

Adversary No. 16–2018

United States Bankruptcy Court, W.D. Missouri.

Signed September 1, 2017

Adam E. Miller, Office of the United States Trustee, Kansas City, MO, for Plaintiff.

Lisa A. Epps, Spencer Fane LLP, Kansas City, MO, Craig T. Goldblatt, Wilmer, Cutler, Pickering, Hale and Dorr, Washington D.C., Defendant.

MEMORANDUM OPINION ON MOTION TO DISMISS

Honorable Dennis R. Dow, United States Bankruptcy Court

Pending before the Court is the motion to dismiss brought under Fed. R. Bankr. P. 7012(b) and Fed. R. Civ. P. 12(b)(6) by defendants LVNV Funding, LLC, HSS Systems, LLC d/b/a Parallon Business Performance Group, Midwest Division–RMC, LLC d/b/a Research Medical Center, Merrick Bank and Resurgent Capital Services, L.P. ("Resurgent") (collectively "Defendants"). In his multi-count Amended Complaint ("Complaint"),¹ the United States Trustee ("Plaintiff" or "UST") alleges sanctions of various kinds should be imposed on Defendants for what he characterizes as violations of numerous provisions of the Bankruptcy Code and Rules and, in some instances, this Court's local rules.

Those alleged violations arise in the context of Resurgent's practices and procedures with regard to the processing and filing of proofs of claim. Specifically, the UST challenges Resurgent's process regarding signature and attestation of claim forms, the filing of claims barred by the statute of limitations and the failure to attach documents or provide information required by Fed. R. Bankr. P. 3001(c). The UST alleges these violations are systematic and intentional and characterizes the behavior as abuses of process which he asks this Court to remedy using § 105 of the Code or its inherent power to sanction. If the allegations are true, the Court finds some aspects of Resurgent's behavior disturbing. However, for the reasons discussed at length below, it grants the motion to dismiss in substantial part because the UST has failed to establish that Resurgent's conduct violates applicable provisions of the Bankruptcy Code and Rules, that it rises to a level making the imposition of sanctions appropriate or that the specific remedies requested are available.

This juxtaposition of the UST's vigorous allegations and the Court's assessment of the applicable law is vaguely reminiscent of a scene from Robert Bolt's play A Man for All Seasons , about the life of Sir Thomas More and his struggles with Henry VIII. More is confronted by his family and soon-to-be son-in-law, William Roper, about a servant who is thought to be giving information to his adversaries. Urged to have the man arrested, More declines noting that he has done nothing to violate the law and should remain free until he does so and would, even if he were the Devil himself. The following discussion ensues:

Roper: So, now you give the Devil the benefit of law!

Sir Thomas More: Yes! What would you do? Cut a great road through the law to get after the Devil?

William Roper: Yes, I would cut down every law in England to do that!

Sir Thomas More: Oh? And when the last law was down, and the Devil turned round on you, where would you hide, Roper, the laws all being flat? This country is planted thick with laws, from coast to coast, Man's laws, not God's! And if you cut them down, and you are just the man to do it, do you really think you could stand upright in the winds that would blow then? Yes, I'd give the Devil benefit of law, for my own safety's sake!

The point is that persons who are or whose behavior has been unsavory or worse may not be subject to adverse legal consequences unless their conduct has violated the law. To do otherwise jeopardizes the very concept of the rule of law.²

I. Procedural Background and Applicable Law

A. Summary of Claims

In Count I, Plaintiff alleges that Resurgent has affixed, to thousands of proofs of claim filed in this jurisdiction and others, the name of an individual employee, although she had not personally reviewed the claims or participated in the process of preparing them and thus improperly certified that she had personal knowledge from which to form a belief that the information contained in the claims was true and correct. This practice is alleged to contravene Fed. R. Bankr. P. 3001(b) and this Court's local rule 5005–1.(B). He requests an injunction, unspecified forms of monetary relief, revocation or suspension of Defendants' ECF credentials and the appointment of an independent monitor to insure compliance with the terms of any judgment the Court might render on the Complaint. In Count II, he describes Resurgent's practice of knowingly filing claims barred by the applicable statute of limitations which he characterizes as an abuse of the bankruptcy process. He requests sanctions based on Fed. R. Bankr. P. 9011, § 105 of the Bankruptcy Code and this Court's inherent power to sanction. Specifically, he asks for unspecified monetary relief, an injunction prohibiting the Defendants from filing claims when they have no good faith meritorious response to the statute of limitations defense or to impose a requirement that they submit a separate certification with each proof of claim filed and the appointment of an independent monitor to insure compliance with this Court's Order. In Count III, he notes that Resurgent has filed numerous claims which fail to comply with the requirements of Fed. R. Bankr. P. 3001(c) which imposes specific requirements for the attachment of a writing, if the claim is based on one, and for the provision of specified pieces of information in connection with claims based on open-end credit accounts. He requests this Court sanction Resurgent for knowingly filing claims not in compliance with the rule. Once again, the requested remedies are unspecified monetary relief, an injunction and the appointment of an independent monitor. In Counts IV and V, he seeks disallowance of specific proofs of claim filed by Resurgent on behalf of one or more of the other Defendants in the two underlying bankruptcy cases. Disallowance of the claims is sought on the basis of improper attestation, failure to supply appropriate documentation, other indicia in the record that the claims may be invalid or filed in incorrect amounts and that they are barred by the applicable statute of limitations. In both counts, he seeks an order barring Resurgent from presenting evidence in any proceeding with respect to the validity of the claims, awarding reasonable attorneys' fees caused by Resurgent's failure to comply with Rule 3001(c) and unspecified monetary relief. In the ultimate count of the Complaint, he seeks relief on some of the various allegations contained in the previous counts under this Court's inherent power to sanction litigants.

The Court has jurisdiction over the claims asserted in the Complaint and the motion to dismiss pursuant to 28 U.S.C. § 1334(a) and (b). These matters are core matters, both statutorily and constitutionally, pursuant to 28 U.S.C. § 157(b)(1) and (2)(A), (B) and (O) which this Court may hear and determine and as to which it may issue final orders. A more detailed description of the claims, Resurgent's responses, and this Court's reasons for disposing of them as it does are set forth below in the specific sections of the opinion dealing with the individual claims and issues raised by the Amended Complaint and the motion to dismiss.

B. Applicable Standard on Motions to Dismiss

A motion to dismiss under Fed. R. Civ. P. 12(b)(6) tests the legal sufficiency of a complaint assuming all the factual allegations in the complaint are true. Mobley v. McCormick , 40 F.3d 337, 340 (10th Cir. 1994). A plaintiff's obligation to provide the grounds of his or her entitlement to relief requires more than labels and conclusions. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). To withstand a motion under Rule 12(b)(6), a complaint must plead sufficient facts to "state a claim to relief that is plausible on its face." Bell Atl. Corp., 550 U.S. at 577, 127 S.Ct. 1955 ; see also, Alexander v. Hedback , 718 F.3d 762 (8th Cir. 2013) ; M.M. Silta, Inc. v. Cleveland Cliffs, Inc. , 616 F.3d 872 (8th Cir. 2010). To defeat a motion to dismiss for failure to state a claim, the plaintiffs need not provide specific facts in support of their allegations, but they must include sufficient factual information to provide the grounds on which the claim rests, and to raise a right to relief above a speculative level. See Schaaf v. Residential Funding Corp. , 517 F.3d 544 (8th Cir. 2008). When considering a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), the court should limit its review to the four corners of the complaint. Porous Media Corp. v. Pall Corp. , 186 F.3d 1077, 1079 (8th Cir. 1999). The court must view the facts alleged in the light most favorable to the plaintiff.

In re Glossip , 331 B.R. 871 (Bankr. W.D. Mo. 2005) (citing Burkhalter v. Lindquist & Trudeau, Inc., 2005 WL 1983809 (E.D. Mo. Aug. 16, 2005) ).

II. Resurgent's Proof of Claim Filing Practices—Signature and Attestation

The parties do not dispute that Resurgent filed thousands of proofs of claim that contained Ms. Gaines' electronic signature and were filed using her electronic case filing ("ECF") credentials, but that Ms. Gaines did not personally review. The UST asserts that this practice not only violates the Rules of Bankruptcy Procedure and local rules, but...