In Re Sharon Diane Hill, 01-22574 JAD.

437 B.R. 503

In re Sharon Diane HILL, Debtor.Roberta A. DeAngelis, Acting United States Trustee for Region 3, Movant,

v.Countrywide Home Loans, Inc., Goldbeck, McCafferty and McKeever, and Attorney Leslie Puida, Respondents.

No. 01-22574 JAD.

United States Bankruptcy Court,W.D. Pennsylvania.

Oct. 5, 2010.

COPYRIGHT MATERIAL OMITTED.

COPYRIGHT MATERIAL OMITTED.

Patrick S. Layng, Esq., Chicago, IL, United States Trustee.

Lisa D. Tingue, Esq., Norma Hildenbrand, Esq., for United States Trustee.

Thomas A. Connop, Esq., Dallas, TX, Dorothy A. Davis, Esq., Pittsburgh, PA, for Countrywide Home Loans, Inc.

Francis Manning, Esq., for Goldbeck, McCafferty and McKeever/Atty. Leslie Puida.

MEMORANDUM OPINION AND ORDER

THOMAS P. AGRESTI, Chief Judge.

Presently under consideration by the Court is a Rule to Show Cause Order (“Rule”) issued by the Court on July 29, 2009, at Document No. 465, by which the Respondents were directed to establish cause as to why they should not be subject to “public censure, monetary sanctions, restrictions on the right to appear before this Court or any combination thereof” for seven, specifically identified areas of potentially sanctionable conduct. ¹

The Rule arises from the allegation by the UST in her Amended Motion for Rule to Show Cause, Document No. 236, that the Respondents engaged in sanctionable conduct with respect to post-discharge collection efforts on a mortgage loan obligation of Sharon Hill, the Chapter 13 Debtor. There is a dense factual background that must be considered by the Court in reaching a decision on whether sanctions should be imposed. Before turning to a detailed review of the facts, however, it may be beneficial to provide a thumbnail sketch of the event that more than anything else caused a seemingly routine post-discharge dispute to snowball into an involved proceeding that has been ongoing for several years in this Court.

The event in question occurred on December 20, 2007, during a hearing on a Motion to Enforce Discharge, Document No. 59 (“Motion to Enforce”), which the Debtor had filed against her mortgage servicer, Respondent Countrywide Home Loans, Inc. (“Countrywide”), on June 25, 2007. The Motion to Enforce alleged that the Debtor's mortgage to Countrywide had been brought current during the course of her 60-month Chapter 13 plan, as evidenced by a March 9, 2007 Order, Document No. 46, (“Cure Order”) issued after the completion of the plan. The Motion to Enforce further alleged that as soon as the Chapter 13 Trustee completed making payments in the case, the Debtor herself seamlessly began making regular monthly payments due under the mortgage to Countrywide to keep it current. Despite that, shortly after the discharge, Countrywide began attempting to collect on the mortgage and asserted that the Debtor was more than $4700 in arrears on the mortgage.

At the time the Motion to Enforce was filed, the Hill case was assigned to the Honorable Jeffery A. Deller and he held several hearings on the Motion to Enforce, continuing the matter in each instance at the request of the Parties. On November 19, 2007, responsibility for deciding the Motion was transferred to the Undersigned as part of an overall consolidation and assignment of some matters involving Countrywide and its practices in a number of cases within this District. See Document Nos. 86, 88, 90, 94 and 96. See also Misc. Nos. 07-00203-TPA and 07-00204-TPA. Following this reassignment, the December 20, 2007 hearing was the Undersigned's first opportunity to consider the Motion to Enforce.

Prior to the hearing the Court reviewed the relevant pleadings and it quickly became apparent that the Motion to Enforce might become far more involved than could have been reasonably anticipated based solely on a cold reading of the documents. The first person to speak, Debtor's Counsel Julie Steidl (“Ms. Steidl”) ² , made a rather startling announcement. In reviewing the file in preparation for the hearing she had discovered that a photocopy of a payment change letter that had been produced by Countrywide in discovery (one of three such letters) that appeared on its face to be a letter dated September 22, 2003 from Countrywide to the Debtor, with a copy shown going to the Chapter 13 Trustee and to Debtor's counsel, indicated an address for Counsel's office at “Suite 2830 Gulf Tower, 707 Grant Street,” Pittsburgh, PA. That was puzzling to counsel-and the Court as well-because Ms. Steidl reported that on September 22, 2003 the office was still located at 210 Grant Street; Counsel's office did not move to the present “707 Grant Street” address until October 27, 2003. Countrywide's counsel, Leslie Puida (“Puida”), one of the Respondents here, replied that the Payment Change Letters had not been held out as genuine, but were merely a convenient vehicle to show payment changes that had occurred in the mortgage over the years. Nevertheless, there were enough questions raised by the Letters and Counsel's explanation of them that the Court permitted discovery, and ultimately issued the Rule which was the subject of the trial. ³

This Opinion will begin with findings of fact and then move into a legal discussion, wherein any further factual amplification will be made as necessary. For the reasons that follow, the Rule will be vacated with respect to the first three of the “counts” directed against Countrywide, but sanctions will be imposed as to the fourth count. As to Goldbeck, McCafferty and McKeever (“GMM”) and Puida, the Court finds that the Rule should be vacated with respect to the first count directed against them, but that sufficient evidence exists which require the imposition of sanctions the remaining two counts of the Rule. Therefore, a further hearing will be scheduled as to those Respondents limited to the issue of an appropriate sanction.

FACTS

Roberta A. DeAngelis is the acting United States Trustee for Region 3 (“UST”). Countrywide is incorporated under the laws of the State of New York and maintains its principal place of business in California. At all relevant times Countrywide was a servicer of consumer mortgages in the United States. GMM was, and is, a law firm with a business address of Suite 5000 Mellon Independence Center, 701 Market Street, Philadelphia, Pennsylvania. Puida is an attorney licensed to practice law in the Commonwealth of Pennsylvania. She is employed by GMM and is admitted to practice before the United States District Court for the Western District of Pennsylvania. GMM is primarily owned by two partners, attorney Michael McKeever and attorney Gary McCafferty, with each owning 47% of the firm, and the rest owned by others, including Puida, who owns 1%. As explained further below, GMM and Puida represented Countrywide at all relevant times herein in connection with the matters involving the Debtor.

On March 19, 2001, the Debtor, appearing pro se, filed a voluntary Chapter 13 Petition in the United States Bankruptcy Court for the Western District of Pennsylvania. On or about April 16, 2001, National City Mortgage Company (“National City”) filed a proof of claim asserting a $7,210.89 arrearage on the Debtor's home mortgage. The mortgage and note was a fixed rate loan, so principal and interest never changed. At some time around June, 2001 the Debtor retained attorney Kenneth Steidl (“Mr. Steidl”) to represent her. On June 15, 2001, Mr. Steidl filed an Amended Plan on behalf of the Debtor (Doc. No. 12). Under the terms of the Amended Plan, the Debtor proposed to pay National City, an estimated amount of $7,930 over 45 months to cure her pre-petition mortgage arrearage, together with her post-petition mortgage payments. National City did not object to the Amended Plan.

An Order Confirming Plan as Modified (“Confirmation Order”) was entered on July 3, 2001 (Doc. No. 14), which provided, inter alia, that “[a]ny creditor whose payment changes due to variable interest rates, change in escrow, or change in monthly payment shall notify Trustee and the Debtor at least 20 days prior to the change taking effect.” This language is consistent with this Court's Chapter 13 Procedure # 9, which became effective July 1, 2004, and states:

All notices of postpetition monthly payment changes must be served on the debtor, debtor's counsel and the Trustee. This applies not only to the mortgage changes but to any monthly payment currently being paid by the

Trustee. Service of such a notice shall not be construed as a violation of the automatic stay.

Thereafter, the Debtor made her regular plan payments to the Chapter 13 Trustee. The Trustee then disbursed plan payments in accordance with the Amended Plan including the required payments to National City.

On June 23, 2003, a Notice of Transfer of Claim was filed with the Court, stating that the Debtor's loan was being transferred from National City to Countrywide effective July 1, 2003. On June 25, 2003, a few days prior to Countrywide acquiring the Debtor's loan, the Chapter 13 Trustee made a payment, check # 0374360, in the amount of $971.74 to National City. This payment was not credited to the Debtor by National City prior to the transfer of the loan to Countrywide on July 1, 2003. Upon transfer of the Hill loan, Countrywide failed to account for all of the Amended Plan payments previously made to National City by the Trustee. Countrywide's loan history only reflected that Debtor's post-petition mortgage payments were paid through March 2003 (due for April 2003), rather than June 2003 (due for July 2003). Upon acquisition of the loan Countrywide was therefore wrong in the paid-through date by three months.

Under Countrywide's internal procedures, when a loan is in bankruptcy, it is the responsibility of a case technician in Countrywide's Bankruptcy Department to order an escrow analysis on an annual basis. The escrow analysis is completed by the Escrow Department and a report is sent to an assistant manager and manager in the ...