Elam v. Nationstar Mortg. (In re Elam)

1

In re: Linda S. Elam, Debtor.

Linda S. Elam, Plaintiff-Appellant, v. Nationstar Mortgage, LLC, Defendant-Appellee.

No. 22-8012

United States Court of Appeals, Sixth Circuit

August 29, 2023

NOT RECOMMENDED FOR PUBLICATION

Appeal from the United States Bankruptcy Court for the Western District of Tennessee at Memphis. Nos. 2:11-bk-21571; 2:21-ap-00098-Ruthie Hagan, Bankruptcy Judge.

ON BRIEF:

Joel Giddens, WILSON &ASSOCIATES, PLLC, Little Rock, Arkansas for Appellee.

Linda Elam, Collierville, Tennessee, pro se.

Before: BAUKNIGHT, DALES and GUSTAFSON, Bankruptcy Appellate Panel Judges.

OPINION

JOHN P. GUSTAFSON, Bankruptcy Appellate Panel Judge.

This appeal reviews a bankruptcy court's determination that it did not have jurisdiction to consider the claims raised in an adversary proceeding brought several years after Linda Elam (the "Debtor") received a discharge and her case was closed. The Panel finds that the complaint only seeks declaratory judgment as to the validity and/or enforceability of the mortgage lien against the property itself and does not raise issues concerning Debtor's personal liability. Accordingly, the bankruptcy court lacks jurisdiction because whatever property interest the Debtor had that became property of the estate was abandoned at the conclusion of the bankruptcy case and is no longer property of the estate. For the reasons stated below, the bankruptcy court's order dismissing the case is AFFIRMED.

ISSUE ON APPEAL

The sole issue on appeal is whether the bankruptcy court erred by dismissing the adversary proceeding for lack of jurisdiction.

JURISDICTION AND STANDARD OF REVIEW

Because the United States District Court for the Western District of Tennessee has authorized appeals to the Panel and no party has timely filed to have this appeal heard by the district court, the Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide this appeal. 28 U.S.C. § 158(b)(6), (c)(1). A final order of the bankruptcy court may be appealed as of right pursuant to 28 U.S.C. § 158(a)(1). "Orders in bankruptcy cases qualify as 'final' when they definitively dispose of discrete disputes within the overarching bankruptcy case." Ritzen Grp., Inc. v. Jackson Masonry, LLC, 140 S.Ct 582, 586 (2020) (citing Bullard v. Blue Hills Bank, 575 U.S. 496, 501, 135 S.Ct. 1686, 1692 (2015)).

An order dismissing an adversary proceeding is a final order and the trial court's legal rationale is reviewed de novo. Giese v. Lexington Coal Co. (In re HNRC Dissolution Co.), 585 B.R. 837, 841 (B.A.P. 6th Cir. 2018) ("The Panel reviews the Bankruptcy Court's order of dismissal de novo." (citing Hughes v. Sanders, 469 F.3d 475, 477 (6th Cir. 2006)), aff'd, 761 Fed.Appx. 553 (6th Cir. 2019). "Jurisdictional questions are reviewed de novo." Schwab v. Oscar (In re SII Liquidation Co.), 517 B.R. 72, 74 (B.A.P. 6th Cir. 2014) (citing Kahn v. Regions Bank (In re Khan), 544 Fed.Appx. 617, 619 (6th Cir. 2013), cert. denied, 572 U.S. 1016 (2014)). "When conducting a de novo review, the Panel decides the issues independent of and without deference to the Bankruptcy Court's conclusions." In re HNRC Dissolution Co., 585 B.R. at 840 (citing Menninger v. Accredited Home Lenders (In re Morgeson), 371 B.R. 798, 800 (B.A.P. 6th Cir. 2007)).

FACTS

The bankruptcy court adopted the pertinent facts as set forth in the Sixth Circuit's order entered August 9 2019.^[1] As background, those facts are as follows:

On December 2, 2002, Linda Elam acquired title by warranty deed to real property located on Brierwood Circle in Piperton, Tennessee ("the Property"). The Elams subsequently created the "L &F Irrevocable Trust dated December 12, 2002" ("the Trust"), naming Frederick Elam as the trustee. Linda Elam then conveyed the Property, owned by her individually, to the Trust by quitclaim deed. On December 23, 2002, Frederick Elam, in his capacity as trustee, executed a deed of trust pledging the Property as collateral to secure a construction loan from Merchants &Farmers Bank in the amount of $386,669.63.

In March 2004, the Elams, in their individual capacities, received a loan from Realty Mortgage Corporation in the amount of $540,000. The Elams, purportedly in their individual capacities, secured the loan by executing a deed of trust pledging the Property as collateral. The Elams used the $540,000 loan to repay their loan to Merchants &Farmers Bank, as well as to make improvements to the house situated on the Property. Aurora Loan Services, LLC ("Aurora") eventually obtained ownership of the Elams' note and loan held by Realty Mortgage Corporation. In December 2007, the Elams executed a "Workout Agreement" with Aurora regarding late payments on the $540,000 loan. In May 2008, the Elams executed a "Loan Modification Agreement" with Aurora, also regarding their ability to repay the loan. In the years following these agreements, the Elams filed several bankruptcy actions, which helped them avoid multiple foreclosure attempts on the Property.^[2]

In April 2012, Aurora filed suit in the Chancery Court for Fayette County (Tennessee) against the Elams, the Trust, and several other defendants for notice purposes, in which it sought a declaratory judgment that the December 12, 2002, deed conveying the Property from Linda Elam to the Trust was void. Aurora alternatively sought to "assume the priority position of the Merchants &Farmers Bank mortgage." Aurora additionally asked the chancery court to find that the Property was pledged as collateral for the $540,000 loan, or, in the alternative, that it held an equitable lien on the Property. FirstBank, one of the defendants named for notice purposes, filed a cross-claim against the Elams, also seeking a declaratory judgment that the quitclaim deed conveying the Property from Linda Elam to the Trust was void.

During that state court proceeding, Nationstar Mortgage, LLC ("Nationstar") became the servicer of the Elams' loan and, on May 16, 2013, the chancery court entered a consent order substituting Nationstar for Aurora as the plaintiff. Nationstar thereafter filed a motion for summary judgment, in which it asked the chancery court to declare that the Elams had pledged the Property as collateral to secure the $540,000 loan from Realty Mortgage Corporation. Nationstar alternatively sought a declaration that it held either a priority position "of the Merchants &Farmers Bank mortgage" or a "first priority equitable lien" on the Property. In May 2015, the chancery court granted Nationstar's motion for summary judgment. In doing so, it found that the Elams, the Trust, and Realty Mortgage Corporation intended that the Property would be collateral for the loan. The chancery court thus ordered that the March 2004 deed of trust securing the Property as collateral for the $540,000 loan "be reformed to reflect that the interest of the [L &F Irrevocable Trust] was effectively conveyed in said deed of trust through its Trustee, Fred Elam." Frederick Elam appealed the chancery court's judgment, but the Tennessee Court of Appeals dismissed the attempted appeal for lack of jurisdiction. Aurora Loan Servs. LLC v. Elam, No. W2015-01097-COA-R3-CV, 2016 WL 659821, at *3-4 (Tenn. Ct. App. Feb. 18, 2016), perm. app. denied (Tenn. June 24, 2016) (per curiam).

In March 2017, the Elams filed this federal lawsuit against the following defendants: Aurora; Aurora Commercial Corporation; HSBC Bank, N.A.; Lehman Brothers; FirstBank; Nationstar; Mortgage Electronic Registration Services ("MERS"); and others. The Elams alleged that the defendants violated the Truth in Lending Act ("TILA"), see 15 U.S.C. §§ 1601-1667f, unlawfully attempted to foreclose on the Property, and attempted to collect on "an illegal judgment." They sought monetary damages and the removal of all liens and mortgages.

FirstBank, Nationstar, Aurora Commercial Corporation, Aurora, MERS, and HSBC Bank moved to dismiss the Elams' claims under Rule 12(b)(6), arguing, in part, that they were either time-barred or barred by the doctrine of res judicata. The Elams opposed the defendants' motions to dismiss and moved for leave to amend their complaint. The Elams' proposed amended complaint clarified the nature of their TILA claims, argued that the defendants' alleged TILA violations amounted to fraudulent concealment, introduced a Racketeer Influenced and Corrupt Organizations ("RICO") claim, see 18 U.S.C. § 1961, et seq., and sought remedies beyond what they requested in their initial complaint. The defendants argued in opposition that any amendment to the Elams' complaint would be futile.

The magistrate judge agreed with the defendants, determining that: (1) the Elams failed to assert a plausible TILA claim; (2) the TILA, RICO, fraudulent concealment, and illegal foreclosure claims were barred by the doctrine of res judicata; (3) the TILA and RICO claims were barred by the applicable statutes of limitations; (4) the Elams' proposed amended complaint contained insufficient factual allegations to support a civil RICO cause of action; and (5) the Elams' allegation that FirstBank possessed an "illegal judgment" was conclusory and failed to make the requisite showing of entitlement to relief. The magistrate judge therefore recommended that the district court deny the Elams' motion for leave to amend their complaint and grant the defendants' motions to dismiss. The district court adopted the magistrate judge's report and recommendation over the Elams' objections, denied the Elams' motion for leave to amend their complaint, and granted the defendants' Rule 12(b)(6) motions. The district court further denied the Elams' subsequent motion for reconsideration.

Elam v. Aurora Loan Servs., LLC, No. 18-5743, 2019 WL 7603379, at *1-2 (6th Cir. Aug. 9, 2019) (emphasis...