Gaitor v. U.S. Bank (In re Gaitor)

IN RE: BRADLEY DAVID GAITOR, DEBTOR.

BRADLEY DAVID GAITOR, PLAINTIFF, v. U.S. BANK, NATIONAL ASSOCIATION, DEFENDANT.

Case No. 13-80530

Adv. Pro. No. 14-09059

UNITED STATES BANKRUPTCY COURT MIDDLE DISTRICT OF NORTH CAROLINA DURHAM DIVISION

July 31, 2015

Chapter 7

ORDER AND OPINION GRANTING THE DEFENDANT'S MOTION TO DISMISS PLAINTIFF'S SECOND, THIRD, AND FOURTH CLAIMS FOR RELIEF

This matter came before the Court on May 5, 2015, for a hearing on the Motion to Dismiss the First Amended Complaint filed by U.S. Bank, National Association ("U.S. Bank"). At the hearing, Michelle M. Walker appeared on behalf of Bradley David Gaitor (the "Plaintiff"), and Julie B. Pape appeared on behalf of U.S. Bank.

FACTUAL BACKGROUND

The Plaintiff filed a voluntary petition under Chapter 7 on April 19, 2013. In his petition, the Plaintiff listed a mortgage debt to U.S. Bank, secured by the Plaintiff's previous residence located at 5 Seaforth Road, Troy, New York. The Plaintiff indicated in his Statement of Intention that he intended to surrender the property, which was the subject of foreclosure proceedings. U.S. Bank received notice of the Plaintiff's bankruptcy filing. The Plaintiff received a bankruptcy discharge on September 6, 2013, and his case was closed.

On September 17, 2014, the Plaintiff filed a motion to reopen his case in order to file an adversary proceeding against U.S. Bank for alleged unlawful collection activities in connection with his former residence. The Court granted the motion to reopen, and the Plaintiff filed the present adversary proceeding against U.S. Bank on November 20, 2014. U.S. Bank filed an initial motion to dismiss the adversary proceeding on February 3, 2015. On February 27, 2015, the Plaintiff filed an Amended Complaint. The Plaintiff alleges in the Amended Complaint that, after he received his Chapter 7 discharge, U.S. Bank continued to send him statements indicating that he was in default on his mortgage payments. According to the complaint, the Plaintiff continued receiving these statements after his attorney contacted U.S. Bank to demand that collection activity on the account stop immediately. The Plaintiff alleges that he received a total of eleven mortgage statements from U.S. Bank post-discharge. Based on these alleged facts, the Plaintiff asserts in his Amended Complaint the following claims for relief:

1. First Claim for Relief: Civil Contempt for Willful Violations of the Permanent Discharge Injunction;2. Second Claim for Relief: Unfair Debt Collection under N.C. Gen. Stat. Chapter 75, including:

a) N.C.G.S. 75-54(2), which prohibits "[f]ailing to disclose in all communications attempting to collect a debt that the purpose of such communication is to collect a debt";

b) N.C.G.S. 75-54(4), which prohibits "[f]alsely representing the character, extent, or amount of a debt against a consumer or of its status in any legal proceeding; . . . or falsely representing the creditor's rights or intentions";

c) N.C.G.S. 75-54(6), which prohibits "[f]alsely representing that an existing obligation of the consumer may be increased by the addition of attorney's fees, investigation fees, service fees, or any other fees or charges";

d) N.C.G.S. 75-55(2), which prohibits "[c]ollecting or attempting to collect from the consumer all or any part of the debt collector's fee or charge for services rendered, collecting or attempting to collect any interest or other charge, fee or expense incidental to the principal debt unless legally entitled to such a fee or charge"; and

e) N.C.G.S. 75-55(3), which prohibits "[c]ommunicating with a consumer (other than a statement of account used in the normal course of business) whenever the debt collector has been notified by the consumer's attorney that he represents said consumer."

3. Third Claim for Relief: Unfair and Deceptive Trade Practices under N.C. Gen. Stat. Chapter 75; and

4. Fourth Claim for Relief: Breach of the Duty of Good Faith and Fair Dealing.

U.S. Bank filed its Motion to Dismiss the Amended Complaint on March 23, 2015, seeking dismissal of all four of the Plaintiff's claims for relief. U.S. Bank argued in part that the Plaintiff's state law claims—the Second, Third, and Fourth Claims for Relief—were preempted by the Bankruptcy Code. The Plaintiff filed a Response to the Motion to Dismiss on April 9, 2015, arguing that the claims were not preempted.

This Court held a hearing on the Motion to Dismiss on May 5, 2015. At the hearing, U.S. Bank stated that it was no longer seeking dismissal as to the Plaintiff's claim for violation of the discharge injunction under 11 U.S.C. § 524 (the First Claim for Relief). Thus, the arguments at the hearing focused on the issue of preemption. The Court also asked the parties to submit supplemental briefs on the issue of the bankruptcy court's subject matter jurisdiction to hear any of the state law claims that were found not to be preempted by the Bankruptcy Code.

STANDARD FOR DISMISSAL

"To 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.' " Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). When considering a motion to dismiss, the court must take all factual allegations as true: "When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Id. at 679. However, a plaintiff's legal conclusions are not entitled to the same presumption of truth. See id. at 678-79.

ANALYSIS

A. The Plaintiff's Second, Third, and Fourth Claims for Relief are Preempted by the Bankruptcy Code.

Preemption is grounded in the Supremacy Clause of the U.S. Constitution, which provides that the Constitution and federal laws enacted under it "shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding." U.S. Const. Art. VI, § 2. Federal courts, including the Fourth Circuit Court of Appeals, have identified two basic types of preemption: field preemption and conflict preemption. See, e.g., Worm v. American Cyanamid Co., 970 F.2d 1301, 1304 (4th Cir. 1992). Field preemption "turns on discovering the intent of Congress." Id. Even if Congress does not expressly state its intent to "supplant[] state authority in a particular field[,] . . . its intent to do so may be inferred from its regulating so pervasively in the field as not to leave sufficient vacancy within which any state can act." Id. Conflict preemption occurs where a state law actually conflicts with federal law. Id.

In the bankruptcy context, a court determining whether a non-bankruptcy state law is preempted by the Bankruptcy Code should ask:

(1) whether the state law is expressly preempted by Congress; (2) whether Congress intended to occupy the entire field so as to preempt state laws that might be applicable in that area; (3) whether the state law conflicts with the federal statutes such that the state law cannot be given effect; or (4) whether the state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.

Johnston v. Telecheck Servs., Inc. (In re Johnston), 362 B.R. 730, 735 (Bankr. N.D. W. Va. 2007) (citations omitted) (examining preemption of state laws by the Bankruptcy Code).

When it comes to enforcement of federal laws, the Supreme Court has made clear that "private rights of action to enforce federal law must be created by Congress." Alexander v. Sandoval, 532 U.S. 275, 286 (2001) (citing Touche Ross & Co. v. Redington, 442 U.S. 560, 578 (1979)); see also id. at 286-87 ("Without [congressional intent to create a private remedy], acause of action does not exist and courts may not create one, no matter how desirable that might be as a policy matter, or how compatible with the statute."). Accordingly, where debtors call upon state and federal non-bankruptcy laws to supplement their remedies against creditors for violations of the Bankruptcy Code, many courts have found such non-bankruptcy remedies to be preempted by the Code's own enforcement provisions. For example, the First Circuit held that "the broad enforcement power under the Bankruptcy Code preempts virtually all alternative mechanisms for remedying violations of the Code." Bessette v. Avco Fin. Servs., 230 F.3d 439, 447 (1st Cir. 2000). The Second Circuit similarly found "no need to protect debtors who are already under the protection of the bankruptcy court" or to supplement the remedies provided under the Bankruptcy Code. Simmons v. Roundup Funding, LLC, 622 F.3d 93, 96 (2d Cir. 2010). The Bankruptcy Court for the Western District of North Carolina likewise found that "[t]he superimposition of state remedies by the Plaintiffs . . . undercuts the constitutional concern with uniform bankruptcy case administration." Tate v. NationsBanc Mortgage Corp. (In re Tate), 253 B.R. 653, 671 (Bankr. W.D.N.C. 2000) (citing U.S. Const. Art. I, § 8). See also Kokoszka v. Belford, 417 U.S. 642, 651 (1974) ("In short, the Consumer Credit Protection Act sought to prevent consumers from entering bankruptcy in the first place. However, if, despite its protection, bankruptcy did occur, the debtor's protection and remedy remained under the Bankruptcy Act."); Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 510 (9th Cir. 2002) (" '[A] mere browse through the complex, detailed, and comprehensive provisions of the lengthy Bankruptcy Code . . . demonstrates Congress's intent to create a whole system under federal control which is designed to bring together and adjust all of the rights and duties of creditors and . . . debtors alike.' " (quoting MSR Exploration, Ltd. v. Meridian Oil, Inc., 74 F.3d 910, 914 (9th Cir. 1996)); Johnston, 362 B.R. at 739 (Congress "has the exclusive right under the Constitutionto establish uniform...