Gordon v. Wells Fargo Bank, N.A. (In re Banks)

IN THE MATTER OF: LATIRA SHAYONICA BANKS Debtor.

NEIL C. GORDON, Chapter 7 Trustee for

the Estate of Latira Shayonica Banks, Plaintiff, v. WELLS FARGO BANK, N.A., and UNITED STATES DEPARTMENT OF

HOUSING AND URBAN DEVELOPMENT, Defendants.

BANKRUPTCY CASE 13-77274-LRC

ADVERSARY PROCEEDING NO. 19-05172-LRC

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION

March 31, 2020

IT IS ORDERED as set forth below:

IN PROCEEDINGS UNDER CHAPTER 7 OF THE BANKRUPTCY CODE

ORDER

Before the Court is a Motion to Dismiss Complaint and Memorandum of Law in Support (Doc. 13) (the "Motion") filed by Wells Fargo Bank, N.A. ("Wells Fargo"). The Motion arises in connection with a complaint (Doc. 1) filed by Neil C. Gordon (the "Plaintiff"), the Chapter 7 Trustee for the Estate of Latira Shayonica Banks for avoidance of a post-petition transfer, damages arising from a violation of the automatic stay, and damages arising from Georgia's RICO statute (the "Complaint"). The Court has subject matter jurisdiction over the claims at issue in this proceeding. See 28 U.S.C. § 1334(b).¹

I. Procedural History

Plaintiff initiated this adversary proceeding against Wells Fargo and the United States Department of Housing and Urban Development ("HUD") by filing the Complaint on April 8, 2019. On June 10, 2019, Wells Fargo filed the Motion seeking dismissal of the Complaint. On July 24, 2019, Plaintiff filed a Response to the Motion (Doc. 18) (the "Response"). On August 7, 2019, Wells Fargo filed a Reply to Plaintiff's Response (Doc. 20) (the "Reply"). On August 20, 2019, Plaintiff filed a Motion for Leave to File Sur-Reply Brief (Doc. 22). Attached as Exhibit A to the Motion for Leave to File Sur-ReplyBrief was a proposed Sur-Reply in Response to Wells Fargo's Reply (the "Sur-Reply"). On September 3, 2019, Wells Fargo filed a Response in Opposition to Plaintiff's Motion for Leave to File Sur-Reply Brief (Doc. 23). On January 10, 2020, the Court entered an Order granting the Motion for Leave to File Sur-Reply brief and deeming the Sur-Reply filed.

II. Introduction and Background

Latria Shayonica Banks (the "Debtor") filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code (Doc. 1, Case No. 13-77274-LRC) on December 20, 2013 (the "Petition Date"). In her Bankruptcy Schedules, the Debtor listed a sole ownership interest in real property located at 456 Crested View Drive, Loganville, Georgia 30052 (the "Property"). The Debtor indicated that Wells Fargo held a first priority lien on the Property in the amount of $85,873. Additionally, through an amendment to her Schedules, the Debtor claimed a homestead exemption in the Property of $13,727 pursuant to O.C.G.A. § 44-13-100(a)(1).

After the Petition Date, the Debtor and Wells Fargo entered into a Loan Modification Agreement (Security Deed) (the "Loan Modification"). This Loan Modification, dated December 23, 2013, was executed on January 26, 2014, but was not recorded until August 18, 2014. Through the Loan Modification, the Debtor's pre-petition arrears on the mortgage owed to Wells Fargo were made subject to a junior Security Deedof Trust (the "Junior Security Deed") in favor of HUD. This Junior Security Deed, also dated December 23, 2013, and executed on January 26, 2014, was recorded on June 3, 2014.

Based on his initial investigations, Plaintiff determined that the Property was worth $129,000. Further, an initial title report confirmed that Wells Fargo was the only lienholder on the Property, and the payoff statements from Wells Fargo indicated there was equity in the Property.² Accordingly, Plaintiff began efforts to sell the Property. This prompted a series of litigation between the Debtor and Plaintiff, which caused the bankruptcy estate to incur in excess of $30,000 in professional fees. After the resolution of this litigation with the Debtor, Plaintiff obtained an updated title report for the Property in April of 2018. Through this second title report, Plaintiff discovered the existence of the Loan Modification and Junior Security Deed (collectively referred to as the "Post-Petition Transactions"). After discovering the Post-Petition Transactions, Plaintiff realized that there was almost $15,000 less equity in the Property than he initially anticipated, due to Wells Fargo's pre-petition arrears being reallocated to HUD's junior note and deed. Had Wells Fargo disclosed its pre-petition arrears or the existence of the Post-Petition Transactions, Plaintiff would not have expended attorney's fees and other professionalfees in an attempt to sell the Property.

Plaintiff contends that the execution and recordation of the Loan Modification Agreement and Junior Security Deed violated the automatic stay of 11 U.S.C. § 362(a)³ and O.C.G.A. § 16-14-4(a) ("Georgia's RICO Statute"). Through the Complaint, Plaintiff alleges that these violations of the automatic stay and Georgia's RICO Statute caused the bankruptcy estate to incur the $30,000 in professional fees. Accordingly, the Complaint seeks recovery of actual damages and punitive damages, pursuant to § 362(k) and O.C.G.A. § 16-14-6(c). The Complaint also seeks avoidance of the Post-Petition Transactions pursuant to § 549, recovery of the Post-Petition Transactions pursuant to § 550, and preservation of the avoided Post-Petition Transactions pursuant to § 551.

Through the Motion, Wells Fargo seeks dismissal of Plaintiff's claim for violation of the automatic stay because Plaintiff (1) is not an "individual" entitled to recover damages under § 362(k); and (2) has failed to plead any facts that show any injury to the bankruptcy estate as a result of the Post-Petition Transactions. Additionally, Wells Fargo seeks dismissal of Plaintiff's claim for violation of Georgia's RICO Statute because (1) the claim arose post-petition and is therefore not property of the bankruptcy estate; (2) Plaintiff has failed to allege any acts of racketeering activity because the Complaint contains no facts to establish that Wells Fargo (a) received any property from the Debtor,or (b) had the requisite intent to defeat the provisions of the Bankruptcy Code; and (3) Plaintiff has failed to plead facts showing that any injuries were proximately caused by Wells Fargo's alleged violation of Georgia's RICO Statute.⁴ Finally, Wells Fargo seeks dismissal of Plaintiff's claims for avoidance, preservation, and recovery of the Post-Petition Transactions because (1) Plaintiff's claim for avoidance under § 549 is time-barred; and (2) any avoidance of the Post-Petition Transactions would be futile, as it would return Wells Fargo to its secured status as of the Petition Date, which would include the pre-petition arrears that were reallocated to the Junior Security Deed.

III. Motion to Dismiss Standard

Wells Fargo seeks dismissal of the Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, made applicable to this adversary proceeding by Rule 7012(b) of the Federal Rules of Bankruptcy Procedure, for "failure to state a claim upon which relief can be granted." See FED. R. CIV. P. 12(b)(6). When considering whether to dismiss a complaint for failure to state a claim upon which relief can be granted, the Court must accept as true all factual allegations set forth in the complaint and, on the basis of those facts, determine whether the plaintiff is entitled to the relief requested. The Courtmust draw all reasonable inferences in the light most favorable to the non-moving party. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 554-56 (2007); Daewoo Motor America Inc. v. General Motors Corp., 459 F.3d 1249, 1271 (11th Cir. 2007); Hill v. White, 321 F.3d 1334, 1335 (11th Cir. 2003); Grossman v. Nationsbank, Nat'l Ass's, 225 F.3d 1228, 1231 (11th Cir. 2000); Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1273, n.1 (11th Cir. 1999).

IV. Discussion

A. Plaintiff's Claim for Violation of the Automatic Stay

Wells Fargo contends that Plaintiff's claim for damages under § 362(k) must be dismissed because Plaintiff is not an "individual." Section 362(k) states that: "an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys' fees, and, in appropriate circumstances, may recover punitive damages." While the term "individual" is not defined in the Bankruptcy Code, many courts have held that § 362(k) remedies are not available to Chapter 7 trustees in their capacities as trustees of a debtor's bankruptcy estate. See Gordon v. Taylor (In re Taylor), 430 B.R. 305, 314-15 (Bankr. N.D. Ga. 2010) ("In addition to [the Chapter 7] Trustee's lack of injury, recovery under § 362(h) [which is now located in § 362(k)] is limited to individuals... [w]hile a trustee can be an 'individual' if the trustee is a natural person (as opposed to, e.g., a corporate entity), theindividual's status as trustee precludes any finding that the trustee suffered any damages as an individual, because any harm suffered in the form of costs and attorney's fees is actually incurred by a thing, viz., the bankruptcy estate, and not by the trustee as a natural person." (quoting Havelock v. Taxel (In re Pace), 67 F.3d 187, 192 (9th Cir. 1995)); Gordon v. White (In re Morgenstern), 542 B.R. 650, 659 (Bankr. D.N.H. 2015) ("The Court agrees with the cases that apply the more narrow definition of individual, because a trustee represents the bankruptcy estate, not herself as an individual. Accordingly, the Court finds that the Trustee may not seek relief under § 362(k)."). Additionally, the Eleventh Circuit Court of Appeals, in agreeing with the narrow interpretation of the term "individual," has held that a corporate debtor "is not an 'individual' entitled to relief under 11 U.S.C. § 362(h) [now § 362(k)]." Jove Eng'g Inc. v. IRS, 92 F.3d 1539, 2560 (11th Cir. 1996).

In response, Plaintiff contends that he is entitled to recover damages for violations of the automatic stay under § 105(a), which states, in relevant...