In re Ditech Holding Corp.

1

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

No. 19-10412 (JLG)

United States Bankruptcy Court, S.D. New York

June 1, 2023

NOT FOR PUBLICATION

JENNER & BLOCK, LLP Attorneys for the Consumer Claims Trustee 1155 Avenue of the Americas New York, New York 10022 By Richard Levin.

Carlos R. Caso, PA Attorney for Creditors Carlos R. Caso and Oscar D. Rivera 2525 Ponce de Leon Blvd. Suite 300 Coral Gables Florida 33134 By: Carlos R. Caso.

MEMORANDUM DECISION AND ORDER SUSTAINING THE CONSUMER CLAIMS TRUSTEE'S FIFTY-THIRD OMNIBUS OBJECTION TO PROOFS OF CLAIM OF OSCAR RIVERA AND CARLOS CASO

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

Introduction^[2]

On April 24, 2019, Oscar D. Rivera filed Proof of Claim No 21138 ("Claim 21138") as an unsecured claim for $0.00 against Ditech Financial LLC ("Ditech"). Claim 21138 at 1-2. That same day, Carlos R. Caso (together with Mr. Rivera, the "Claimants") filed Proof of Claim No. 21141 ("Claim 21141," and together with Claim 21138, the "Claims") as an unsecured claim for $0.00 against Ditech. Claim 21141 at 1-2.^[3] The Claims are nearly identical and arise out of the foreclosure of the Claimants' jointly owned Property. Each claim consists of two "Official Form 410, Proof of Claim,"^[4] and each annexes a Statement in Support of Proof of Claim of Oscar D. Rivera and Carlos R. Caso (the "Joint Statement")^[5] and the Amended Complaint for Damages (the "Amended Complaint" or "Am Complt.")^[6] filed by the Claimants in their now-discontinued State Court Action. In substance, in support of the Claims, the Claimants assert that in foreclosing on the Property, Ditech (i) failed to comply with Pennsylvania's Act 6 notice requirements; (ii) violated Pennsylvania's Unfair Trade Practices and Consumer Protection Law ("UTPCPL"); (iii) committed fraud; and (iv) breached the Mortgage contract.

On June 1, 2019, the Claimants commenced an adversary proceeding in these Chapter 11 Cases against Ditech (the "Adversary Proceeding")^[7] by filing a complaint against the Debtors seeking a determination of the dischargeability of their claims against Ditech under section 523 of the Bankruptcy Code (the "Bankruptcy Complaint").^[8] On October 7, 2019, the Claimants voluntarily dismissed the Adversary Proceeding.^[9]

In her Fifty-Third Omnibus Claims Objection (the "Objection"),^[10] the Consumer Claims Trustee asserts that the Claims (i) fail to state claims against Ditech for which relief can be granted; (ii) are based on litigation related to a foreclosure action filed in 2011 against the Property by GMAC Mortgage, LLC ("GMAC"), the predecessor servicer; and (iii) do not set forth a liquidated damages amount. Objection, Ex. A (List of Claims) at 1. On March 18, 2022, the Claimants filed a joint response (the "Response")^[11] to the Objection. On May 15, 2023, the Consumer Claims Trustee filed her reply (the "Reply")^[12] to the Response. On May 23, 2023, the Claimants filed a joint sur-reply (the "Sur-Reply").^[13] Pursuant to the Claims Procedures Order,^[14] the filing of the Response caused an adjournment of the Objection so that the Court could conduct a Sufficiency Hearing on the Claims. Under that order, 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.^[15] See Claims Procedures Order ¶ 3(iv)(a). On May 25, 2023, the Court conducted a telephonic Sufficiency Hearing on the Claims. The Consumer Claims Trustee appeared at the hearing through counsel. Mr. Caso, an attorney, appeared at the hearing representing himself and Mr. Rivera. The Court heard argument on the Objection.

The Court has reviewed the Claims, Objection, Response, Reply, and Sur-Reply, including all documents submitted in support thereof and has considered the arguments made by the parties in support of their respective positions. As explained below, accepting all the well-pleaded factual allegations asserted by the Claimants in support of the Claims as true, drawing all reasonable inferences in the Claimants' favor, and liberally construing the Claims, Response, and Sur-Reply to raise the strongest arguments that they suggest, the Claims fail to state plausible claims for relief against Ditech. Accordingly, the Court sustains the Objection and disallows and expunges the 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 (M-431), dated January 31, 2012 (Preska, C.J.). This is a core proceeding pursuant to 28 U.S.C. § 157(b).

Background The Mortgage Loan

The Claimants are residents of the State of Florida. Bankruptcy Complaint ¶¶ 8-9. On or about June 2, 2005, the Claimants purchased real property located at 424 South Prince Street, Lancaster, PA 17603 (the "Property"). Claim 21141 at 9 (Am. Complt. ¶¶ 1, 3). In connection with the purchase, Mr. Rivera executed a promissory note (the "Note"),^[16] and both Claimants executed a mortgage in the amount of $31,200 (the "Mortgage").^[17] Id. (Am. Complt. ¶ 3). The Mortgage appointed Mortgage Electronic Registration Systems, Inc. ("MERS") as the Nominee for Arlington Capital Mortgage Corp. Mortgage at 1; see also Claim 21141 at 9 (Am. Complt. ¶¶ 4-5).

On or about September 21, 2011, MERS assigned the Mortgage to GMAC.^[18] See Claim 21141 at 9 (Am. Complt. ¶ 6). On June 23, 2013, GMAC assigned the Mortgage to Green Tree Servicing, LLC ("Green Tree"), which later became Ditech.^[19]

On May 1, 2011, Mr. Rivera stopped making the Mortgage payments called for under the Note. Id. (Am. Complt. ¶ 7). By letter dated August 29, 2011, GMAC sent the Claimants an Act 6 notice (the "Act 6 Notice") informing them that the Mortgage was past due and that they had thirty days to cure the default by paying $1,473.32^[20] plus any charges due during the thirty-day period. Id. at 10 (Am. Complt. ¶ 8); id. at 16 (Am. Complt., Ex. A. at 1). On September 21, 2011, the Claimants sent a payment in the form of a cashier's check in the amount of $1,841.93 by priority mail to GMAC with an expected delivery date of September 23, 2011. Id. at 19-20 (Am. Complt., Ex. A at 4-5). The amount tendered included "$1473.32 due through August 29, 2011, as stated in the Act 6 Notice; plus $348.61 for the September 2011 payment and $20.00 for possible late fee." Id. at 10 (Am. Complt. ¶ 10).

By a letter to Mr. Rivera dated October 5, 2011 (the "October 5 Letter"), GMAC rejected the tendered funds and advised that it would not apply the payment because it was for less than the amount due. Claim 21141 at 10 (Am. Complt. ¶¶ 11-12); id. at 22 (Am. Complt., Ex. B at 1). The letter instructed the Claimants to contact GMAC's law firm to confirm the amount required to cure the default and provided the name, address, and telephone number of the law firm. Id. at 22 (Am. Complt., Ex. B at 1). Nothing in the record suggests that the Claimants reached out to GMAC's counsel or cured their default by subsequently remitting the correct amount of funds to GMAC.

The Litigation

State Foreclosure Action

On November 18, 2011, GMAC initiated a foreclosure action against the Claimants and the Property (the "State Foreclosure Action")^[21] by filing a foreclosure complaint in the Court of Common Pleas, County of Lancaster, Pennsylvania (the "State Court"). On January 18, 2012, the Claimants filed a motion to dismiss the State Foreclosure Action. State Foreclosure Docket at 4. On July 17, 2012, the State Court denied the Claimants' motion to dismiss the foreclosure complaint. Id. On September 7, 2012, the Claimants filed an answer to the foreclosure complaint and counterclaims. Id. On April 30, 2013, the State Court struck the Claimants' counterclaims for failing to relate to the origination of the Mortgage, but the State Court declined to strike the Claimants' New Matter defenses related to Act 6 and their alleged payment made in response to the Act 6 Notice. Id. at 3.

Claimant Rivera's Chapter 13 Case

On September 30, 2013, Mr. Rivera filed a voluntary petition for relief under chapter 13 of the Bankruptcy Code (the "Chapter 13 Petition")^[22] in the United States Bankruptcy Court for the Southern District of Florida.^[23] The petition identifies the Property as an estate asset-but not Mr. Rivera's residence-and Mr. Caso as a co-debtor. Chapter 13 Petition at 8. On October 11, 2013, Green Tree filed a proof of claim in the chapter 13 case in the amount of $40,728.52 (the "Green Tree Claim").^[24] The claim did not include a request for attorney's fees for September 2011. Green Tree Claim at 4. On April 23, 2014, the bankruptcy court entered an order (the "Agreed Order")^[25] that granted Green Tree a secured claim of $30,000.00 under the Mortgage. Agreed Order at 3. On June 18, 2014, the bankruptcy court entered an order confirming Mr. Rivera's plan.^[26] The plan excluded the Property, and the Property was released from the bankruptcy estate. On June 10, 2015, the bankruptcy court granted Green Tree's motion for relief from the automatic stay as to Mr. Caso,^[27] and it allowed Green Tree to proceed with foreclosure of the Mortgage.

Claimants' State Court Action

On January 26, 2016, the Claimants filed an action against Green Tree in the State Court (the "State Court Action").^[28] On March 18, 2016, the Claimants filed the Amended Complaint in that action to include claims for (1) violations of Pennsylvania Act 6; (2) violations of the UTPCPL; (3) fraud; and (4) breach of contract.

On April 7, 2016, Green Tree filed preliminary...