Junk v. CitiMortgage, Inc. (In re Junk)

512 B.R. 584

In re Daniel L. JUNK and Christine H. Junk, Debtors.Daniel L. Junk, et al., Plaintiffs,

v.CitiMortgage, Inc., et al., Defendants.

Bankruptcy No. 13–55139.

Adversary No. 13–2390.

United States Bankruptcy Court,

S.D. Ohio,

Eastern Division.

Signed July 2, 2014.

Kristin Radwanick, Columbus, OH, for Debtors.

MEMORANDUM OPINION AND ORDER ON (A) MOTION OF CITIMORTGAGE, INC. FOR RELIEF FROM THE AUTOMATIC STAY AND (B) MOTIONS FOR DISMISSAL OF, OR ABSTENTION FROM, ADVERSARY PROCEEDING

JOHN E. HOFFMAN, JR., Bankruptcy Judge.

I. Introduction

For several years, Daniel and Christine Junk have been engaged in foreclosure litigation that began after they stopped making payments on their mortgage note and then attempted to quiet title to their South Carolina home in themselves. While the litigation was pending in South Carolina's state court system, the Junks moved to Ohio, where they commenced a Chapter 11 bankruptcy case and an adversary proceeding in which they contend, as they have in state court, that the plaintiff in the foreclosure action is not entitled to enforce the note and has no enforceable mortgage on their real property. The foreclosure plaintiff, CitiMortgage, Inc., requests that the Court grant it relief from the automatic stay and abstain from hearing the adversary proceeding. The Junks oppose both requests.

For the reasons explained below, the Court grants CitiMortgage relief from stay in order to pursue a judgment regarding the property and abstains from hearing the adversary proceeding as to the issues to be decided by the state court. State law issues predominate over bankruptcy issues, the disputed property is located in South Carolina, and the courts of that state already have invested significant resources in the litigation between CitiMortgage and the Junks. Granting relief from stay and abstaining from deciding the issues to be decided by the state court will promote judicial economy, and litigating those issues in South Carolina should impose relatively few costs on creditors while not hindering the efficient administration of the estate. Finally, this appears to be a classic case of forum shopping by the Junks, who, after receiving one adverse ruling after another in the state court, are rehashing in this adversary proceeding the very same arguments they have made in South Carolina.

II. Jurisdiction

The Court has jurisdiction to hear and determine the motions pending before it pursuant to 28 U.S.C. §§ 157 and 1334 and the general order of reference entered in this district. This is a core proceeding. See28 U.S.C. § 157(b)(2)(A), (G) and (O).

III. Procedural Background

Before the Court are two motions filed by CitiMortgage, one for relief from the automatic stay under § 362(d) of the Bankruptcy Code (“Stay Relief Motion”) (Doc. 77),¹ and another requesting that the Court dismiss this adversary proceeding or, in the alternative, abstain from hearing it (“Dismissal/Abstention Motion”) (Adv. Doc. 214).² The Junks filed an opposition to the Stay Relief Motion (Doc. 87, supplemented by Doc. 89) and an opposition to the Dismissal/Abstention Motion (Adv. Doc. 261). In their opposition to the Stay Relief Motion (“Opp'n to Stay Relief”), the Junks stated that they “have filed an extensive Objection to [CitiMortgage's motion to dismiss or convert the Junks' bankruptcy case] and incorporate herein all of the arguments raised in that Objection.” Opp'n to Stay Relief at 1 n. 1. The Junks' objection to CitiMortgage's motion to dismiss or convert (“Objection to Dismissal or Conversion”) is located at Doc. 86.

CitiMortgage filed a reply in support of the Stay Relief Motion (Doc. 90), a reply in support of the Dismissal/Abstention Motion (Adv. Doc. 276) and a pre-hearing memorandum in support of both (Doc. 98).

The Court held a telephonic preliminary hearing on the Stay Relief Motion on March 20, 2014. The Court then held a final hearing on the Stay Relief Motion and a hearing on the Dismissal/Abstention Motion on May 14, 2014. By the order setting that hearing (Doc. 93 and Adv. Doc. 291), the Court limited the scope of the hearing to: (a) oral argument and the presentation of evidence relevant to the factors that courts analyze in determining whether “cause” for relief from the automatic stay exists under § 362(d)(1) to permit a creditor to pursue litigation pending outside the bankruptcy court; and (b) oral argument on the Dismissal/Abstention Motion.

The Court also afforded all parties who had filed motions for dismissal or abstention in the adversary proceeding the opportunity to be heard on their motions. In addition, the parties agreed and the Court ordered that the automatic stay would remain in effect until the date on which the Court issued a ruling on the Stay Relief Motion and the Dismissal/Abstention Motion. The Court also stayed all discovery in the bankruptcy case and in the adversary proceeding pending the Court's decision on those motions.

The transcript of the May 14, 2014 hearing (“Tr.”) is located at Adv. Doc. 305. During the hearing, the Court heard the testimony of Mr. Junk. Counsel for the Junks requested that testimony provided on the Stay Relief Motion also be applicable to the Dismissal/Abstention Motion, and the Court agreed that this would be appropriate given the overlap. Tr. at 144. Joint Exhibit (“J.E.”) 1 through Joint Exhibit 48 were admitted into evidence without objection, and Exhibits 2 through 5 offered by the Junks likewise were admitted into evidence without objection. Rick Brunner, Susan Rhiel and Kaitlin Madigan appeared for the Junks. Michael Debbeler,Nathan Blaske and Jeffrey Rosenstiel appeared for CitiMortgage and the other entities that filed the Dismissal/Abstention Motion.

Numerous other attorneys appeared at the hearing, a circumstance explained by the approach to the litigation that the Junks have taken here and in the state court. As explained in more detail below, the Junks asserted claims in the state court foreclosure litigation against numerous persons and other entities that were in any way involved in their loan transaction. This included Danielle Sterling, the person who appears to have signed—on behalf of the payee of the note—an indorsement to CitiMortgage and an indorsement in blank. ³ During the hearing in this Court, Mr. Junk stated that he had alleged that Ms. Sterling was liable with the Junks on their $1.2 million mortgage note based on her having signed the indorsements, and that she had settled with the Junks—stating that, although she had the authority to sign the indorsements, she was not the one who signed them.

The state court ruled that the persons and other entities named by the Junks as third-party defendants did not need to be joined as parties in order for CitiMortgage and the Junks to obtain the relief they were seeking in the foreclosure action on their claims and counterclaims. Despite this ruling, with the notable exception of Ms. Sterling, the Junks have named as defendants in this adversary proceeding nearly every person and other entity that had any involvement—no matter how attenuated—with the loan transaction. The defendants appearing through counsel, together with their role in the loan transaction and the documents they have filed, are listed below:

• Lawyers Title Insurance Company (“Lawyers Title”), which issued a lender's policy of title insurance on the mortgage loan and has filed a motion to dismiss (Adv. Doc. 160);

• Mayer Brown LLP, which the Junks contend acted as counsel to HSBC Bank in creating a trust (“HALO Trust”) into which the note executed by the Junks allegedly was placed; the law firm has filed a motion to dismiss (Adv. Doc. 166);

• Nexsen Pruet, LLC, Andrea Easler, Edward Hughes and Colonial Coast Title Agency, Inc. (“Colonial Coast”), a law firm and attorneys who represented the Junks in connection with the loan closing and a company that issued a title policy; they have filed a motion to dismiss (Adv. Doc. 203);

• Nelson Mullins Riley & Scarborough LLP, Rush Smith, III, Brian Crotty and Michael Anzelmo, a law firm and attorneys who represented CitiMortgage and other parties in the foreclosure action; they have filed a motion to dismiss (Adv. Doc. 213);

• Riley Pope & Laney, LLC, Heidi Carey, Roy Laney and Lowndes Pope (“Riley Pope Defendants”), a law firm and attorneys that represented a servicer of the mortgage loan; they have filed a motion to dismiss or abstain (Adv. Doc. 230);

• Deutsche Bank National Trust Company as Trustee of HS1 Asset Loan Obligation Trust 2007–AR1, which the Junks allege was the trustee of the HALO Trust, Wells Fargo Bank, N.A., which the Junks contend was the custodian of the HALO Trust, and American Home Mortgage Servicing, Inc, fka AHM Mortgage Acquisition Co., Inc., nka Homeward Residential, Inc., which the Junks allege was the owner of the bank account where the loan funds were to be sent to pay off their prior loan; they have filed a motion for judgment on the pleadings (Adv. Doc. 234);

• Bayview Loan Servicing, Inc. (“Bayview”), an entity that serviced the mortgage loan and commenced the foreclosure action, and Robert Hall, one of its employees; they have filed a motion to dismiss or abstain (Adv. Doc. 238);

• HALO 2007–AR1, HSBC Bank USA, N.A., HSBC Securities, Inc. and HSI Asset Securitization Corporation; they have filed an answer to the complaint (Adv. Doc. 256).

Following the hearing, the Junks filed a document entitled “Bench Memoranda on SC Code § 36–3–308” (Adv. Doc. 301).

IV. Factual Background

A. Background Summary

In November 2006, the Junks issued a $1.2 million, 30–year mortgage note to American Home Mortgage. After making payments on the note for just a little over two years, the Junks stopped paying and took steps to be relieved of their mortgage obligation. The Junks first sent a written request for documents and information stating that the failure to respond would provide the Junks a power of attorney to act for American Home...