In re Ditech Holding Corp.

In re: Ditech Holding Corporation, et al., Debtors.¹

Case No. 19-10412 (JLG)

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

May 12, 2021

NOT FOR PUBLICATION

Chapter 11

(Jointly Administered)

MEMORANDUM DECISION AND ORDER SUSTAINING THE FORTY-THIRD OMNIBUS OBJECTION (NO BASIS CONSUMER CREDITOR CLAIMS) WITH RESPECT TO CLAIMS OF SONYA DAVIS

APPEARANCES:

JENNER & BLOCK LLP

Attorneys for the Consumer Claims Representative

919 Third Avenue

New York, NY 10022

By: Richard Levin, Esq.

Ms. Sonya Davis

Appearing Pro Se

926 W. 174^th Street

Hazel Crest, IL 60429

HON. JAMES L. GARRITY, JR. U.S. BANKRUPTCY JUDGE

Introduction²

Sonya Davis (the "Claimant") filed five Proofs of Claim (Claim Nos. 155, 874, 1028, 1207 and 2526) in these Chapter 11 Cases against Green Tree Financial Corporation a/k/a Ditech Financial LLC ("Ditech"), and on behalf of a purported class of plaintiffs (the "Davis Claims"). Four of the Claims (Claim Nos. 155, 874, 1028 and 1207) (the "Davis Unsecured Claims") are unsecured claims seeking damages in either "undetermined" amounts or in the sum of $700,000. The fifth claim (Claim No. 2526) (the "Davis Administrative Expense Claim") is styled as "First Interim Application for Allowance of Compensation and Reimbursement of Expenses by Class Members Representative," in which the Claimant seeks payment of $3,550 for research and travel expenses that she has incurred in preparing various filings in these Chapter 11 Cases.

In their Forty-Third Omnibus Claims Objection (the "Objection"),³ the Plan Administrator and the Consumer Claims Representative (collectively, the "Estate Representatives") seek to disallow and expunge the Davis Claims. The Claimant is acting pro se in this matter. She responded to the Objection (the "Response")⁴ and the Estate Representativessubmitted a joint reply to the Response (the "Reply"),⁵ together with a Request for Judicial Notice (the "Request") in support of the Reply.⁶

The Estate Representatives contend that the Court should disallow and expunge the Davis Claims because they fail to state claims for relief against Ditech. In accordance with the Court's Claims Procedures Order,⁷ the Court conducted a Sufficiency Hearing on the Davis Claims. The legal standard of review at a Sufficiency Hearing is equivalent to the standard applied to a motion to dismiss for failure to state a claim upon which relief may be granted under Rule 12(b)(6) of the Federal Rules of Civil Procedure ("Rule 12(b)(6)").⁸ See Claims Procedures Order ¶ 3(iv)(a).

As explained below, the Davis Administrative Expense Claim fails to state a claim for relief against Ditech because, as a matter of law, it does not qualify as an administrative expense under section 503 of the Bankruptcy Code. As to the Davis Unsecured Claims, it is settled that under Rule 12(b)(6), dismissal of a claim on res judicata grounds is appropriate when the elements of res judicata are apparent on the face of the claim. It is also settled that pro se claimants are subject to application of the principles of res judicata and claim preclusion. In the Davis Unsecured Claims, the Claimant seeks relief from Ditech that is identical to the relief that the Claimant and her co-plaintiffs (collectively, the "Illinois Plaintiffs") unsuccessfully soughtagainst Ditech, and others, (the "Illinois Defendants") in two pre-petition lawsuits brought against the defendants in the United States District Court for the Northern District of Illinois. The Illinois District Court dismissed both lawsuits, the second with prejudice. The Illinois Plaintiffs did not appeal dismissal of the first action. However, they appealed the dismissal of the second action, and the Seventh Circuit Court of Appeals affirmed the Illinois District Court's judgment. The Illinois Plaintiffs filed a petition for a writ of certiorari to the United States Supreme Court, which was denied. The order dismissing the second action is final. As explained below, the Davis Unsecured Claims essentially restate the claims/matters at issue in the Illinois District Court litigation. Accordingly, construing the Davis Unsecured Claims in the light most favorable to the pro se Claimant, and drawing all inferences in her favor, it is plain from the face of the Davis Unsecured Claims that application of the doctrine of res judicata bars the Claimant from recovery on those claims.

Accordingly, for those reasons, and as discussed below, the Court sustains the Objection and disallows and expunges the Davis Claims.

Jurisdiction

The Court has jurisdiction to consider this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the Amended Standing Order of Referral of Cases to Bankruptcy Judges of the United States District Court for the Southern District of New York, dated January 31, 2012 (Preska, C.J.). This is a core proceeding pursuant to 28 U.S.C. § 157(b).

Background⁹

On June 8, 2016, the Illinois Plaintiffs commenced an action in the Illinois District Court against eighteen mortgage loan originators and loan servicers, including Ditech.¹⁰ In the Third Amended Complaint filed therein, Plaintiffs asserted six different causes of action under various legal theories and statutes: the Stored Communications Act ("SCA"); the Gramm-Leach-Bliley Act; the Fair Credit Reporting Act; the Declaratory Judgment Act ("DJA"); the Real Estate Settlement Procedures Act ("RESPA"); and for unjust enrichment.¹¹ In support of those claims, the Illinois Plaintiffs alleged that Ditech and the other Illinois Defendants improperly disseminated their private and confidential information, which they allegedly obtained while servicing the plaintiffs' mortgages.¹² The Illinois Plaintiffs, including the Claimant, abandonedthe claims under SCA, RESPA, and DJA. On September 25, 2017, the Illinois District Court granted the defendants' motion to dismiss the remaining claims in the Third Amended Complaint on the grounds that the Illinois Plaintiffs failed to state claims upon which relief could be granted.¹³ The Illinois District Court entered a judgment in favor of defendants. No party appealed the Davis I Dismissal Order, although the Claimant filed a motion for reconsideration which the Illinois District Court denied after a hearing.¹⁴ Thereafter, the case was closed.

On October 25, 2017, the Claimant and most of the other Illinois Plaintiffs in Davis I sued most of Illinois Defendants (including Ditech) in the Illinois District Court in Davis II.¹⁵ On November 20, 2017, Ditech was served with the Davis II complaint.¹⁶ On December 5, 2017, before the time could expire for Ditech to file an answer as set forth in the Federal Rules of Civil Procedure, the Illinois District Court conducted a status conference in Davis II. At that conference, the Claimant conceded that the relief sought in the Davis II complaint was similar to the relief sought by the Illinois Plaintiffs in the Davis I complaint, and that Davis II was based on the original facts in Davis I.¹⁷ After hearing from the parties and admonishing the plaintiffs for "filing the same thing over and over again,"¹⁸ the Illinois District Court sua sponte dismissed the Davis II complaint, with prejudice.¹⁹

On December 27, 2017, Claimant, acting pro se filed a Notice of Appeal on behalf of herself and the Illinois Plaintiffs party to Davis II.²⁰ On June 25, 2018, the Seventh Circuit Court of Appeals dismissed the case holding that Claimant, a non-lawyer, could not litigate on behalf of the Illinois Plaintiffs in federal court.²¹ As to Claimant's own appeal, the circuit court found that the "appellate submissions do not contain any coherent argument for our review."²² On July 17, 2018, the circuit denied the Claimant's motion for rehearing on Davis III.²³ On August 8, 2018, Claimant and eighteen of her co-plaintiffs again appealed the Davis III dismissal.²⁴ On March 5, 2019, the Seventh Circuit dismissed the appeal as untimely.²⁵ On March 14, 2019, the Seventh Circuit denied a subsequent motion for rehearing.²⁶ On June 10, 2019, the Claimant and others filed a petition for writ of certiorari at the United States Supreme Court.²⁷ On November 18, 2019, certiorari was denied.²⁸ On January 13, 2020, a subsequent motion for rehearing on the denial was also denied.²⁹

Debtors Bankruptcy Cases

On February 11, 2019, Ditech Holding Corporation (f/k/a Walter Investment Management Corp.) and certain of its affiliates ("Debtors") filed petitions for relief under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code") in this Court. The Debtors remained in possession of their business and assets as debtors and debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. On February 22, 2019, the Court entered an order fixing April 1, 2019 at 5:00 p.m. (prevailing Eastern Time) as the deadline for each person or entity, not including governmental units (as defined in section 101(27) of the Bankruptcy Code) to file a proof of claim in the Chapter 11 Cases (the "General Bar Date").³⁰ Thereafter, the Court extended the General Bar Date for consumer borrowers, twice, and ultimately to June 3, 2019 at 5:00 p.m. (prevailing Eastern Time).³¹

On September 26, 2019, the Debtors confirmed their Third Amended Plan,³² and on September 30, 2019, that plan became effective.³³ The Plan Administrator is a fiduciary appointed under the Third Amended Plan who is charged with the duty of winding down, dissolving and liquidating the Wind Down Estates.³⁴ The Consumer Claims Representative is a fiduciary appointed under the Third Amended Plan who is responsible for the reconciliation andresolution of Consumer Creditor Claims and distribution of funds to holders of Allowed Consumer Creditor Claims in accordance with the Third Amended Plan.³⁵

Pursuant to the Confirmation Order, the Court set the deadline for asserting Administrative Expense Claims to thirty-five (35) days from the date of service of the Confirmation Order. Under the Third Amended Plan, the Plan Administrator, on behalf of each...