Kelley v. JPMorgan Chase Bank, N.A., Case No. 16–CV–01141–LHK

564 B.R. 406

James Madison KELLEY, Plaintiff,

v.JPMORGAN CHASE BANK, N.A., Defendant.

Case No. 16–CV–01141–LHK

United States District Court, N.D. California, San Jose Division.

Signed March 1, 2017

James Madison Kelley, Saratoga, CA, pro se.

Heather Elizabeth Stern, John M. Sorich, Sheri Kanesaka, Parker Ibrahim & Berg LLC, Rafael Ramon Garcia–Salgado, Costa Mesa, CA, for Defendant.

ORDER AFFIRMING BANKRUPTCY COURT'S ENTRY OF JUDGMENT IN FAVOR OF APPELLEE JP MORGAN CHASE BANK, N.A.

LUCY H. KOH, United States District Judge

Appellant James Madison Kelley ("Kelley"), proceeding pro se , appeals the Bankruptcy Court's entry of judgment in favor of Appellee JPMorgan Chase Bank, N.A. ("Chase"). The Bankruptcy Court held that it lacked subject matter jurisdiction over Kelley's claims because Kelley's claims against Chase were barred by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"). Alternatively, the Bankruptcy Court held that, even assuming that FIRREA did not bar Kelley's claims, Chase was entitled to summary judgment because Kelley's claims were non-meritorious. For the reasons stated below, the Court AFFIRMS the Bankruptcy Court's entry of judgment in favor of Chase.

I. BACKGROUND

The background of this litigation involves overlapping events over multiple years. In addressing the relevant background, the Court first discusses the factual background of Kelley's loans with Washington Mutual Bank, F.A. ("WaMu"), Kelley's state court lawsuit against WaMu, and the closing of WaMu in 2008. Then, the Court discusses the procedural history of the instant appeal, which includes Kelley's Chapter 11 bankruptcy, Kelley's adversary proceeding against Chase in the Bankruptcy Court, and the Bankruptcy Court's entry of judgment in favor of Chase.

A. Factual Background

In 2005, Kelley took out two loans encumbering property at 14390 Douglass Lane in Saratoga, California ("the Property"). See Appellee Appendix ("Appellee App.") at 1393–1414. In 2007, Kelley obtained two refinance loans from WaMu, and these two refinance loans are the subject of the instant appeal.

1. Kelley's 2007 Loans and Kelley's Default on the Loans

On July 26, 2007, Kelley executed an adjustable rate note in favor of WaMu in the principal amount of $2,992,265.00 ("First Loan"). See Appellee App. at 1192, 1196–1201. On that same day, Kelley executed a "Truth in Lending Disclosure Statement" and a "Notice of Right to Cancel" with respect to the First Loan. See id. at 1192, 1229–31. The First Loan is secured by a deed of trust that was recorded against the Property on July 31, 2007. Id. at 1205–20.

On or about September 17, 2007, Kelley obtained a home equity line of credit from WaMu in the maximum amount of $250,000.00 ("Second Loan" and, collectively with the First Loan, the "Loans"). Id. at 1192. The Second Loan is secured by a deed of trust that was recorded against the Property on October 3, 2007. Id. at 1192, 1243–46. Kelley executed an "Important Terms of Our WaMu Equity Plus" with respect to the Second Loan, as well as a "Notice of Right to Cancel Secured Line of Credit." Id. at 1252–55, 1257–58.

On June 30, 2007, after Kelley defaulted on the Loans, WaMu recorded a notice of default and election to sell with respect to the First Loan. See id. at 1356; 1433–34.

2. Kelley's Lawsuit against WaMu in California State Court and WaMu's Closing

On July 28, 2008, Kelley brought suit against WaMu and Louis Helmonds ("Helmonds"), an alleged employee and agent of WaMu, in California state court. See id. at 1522. Kelley alleged that WaMu and Helmonds failed to make full disclosures to Kelley at the time that Kelley took out the Loans with WaMu, and that WaMu made deliberate misrepresentations to Kelley to induce Kelley to enter into the Loans. Id. at 1522–32. Kelley sued WaMu and Helmonds for fraud; negligent misrepresentation; and violation of California Business and Professional Code § 17200. Id.

On September 19, 2008, Kelley filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the Northern District of California. See id. at 1–13. Kelley's bankruptcy proceedings are discussed more fully, infra , in the procedural history of this case.

On September 25, 2008, the Office of Thrift Supervision closed WaMu and appointed the Federal Deposit Insurance Corporation ("FDIC") as Receiver. Id. at 1193. On that same date, Chase entered into a Purchase and Assumption Agreement ("P & A Agreement") with the FDIC. Id. Pursuant to Chase's P & A Agreement with the FDIC, Chase acquired WaMu's assets. Id .

On October 1, 2008, the FDIC published in the Wall Street Journal a notice to creditors and depositors of WaMu. Id. at 1558. The notice explained the FDIC's receivership and the mandatory procedure for submitting to the FDIC a claim against WaMu. Id. at 1558.

On February 19, 2009, the FDIC mailed a written notice to Kelley and explained to Kelley the closing of WaMu and the mandatory procedure for submitting to the FDIC a claim against WaMu. Id. at 1560. This written notice advised Kelley that "[a]lthough the Claims Bar Date has passed, under federal law the Receiver may consider claims filed after the Claims Bar Date" under certain circumstances. Id. The FDIC explained that, in order for the Receiver to consider Kelley's claims against WaMu, Kelley must complete and sign a "Proof of Claim Form" and submit supporting documentation to the FDIC on or before May 20, 2009. Id. According to the FDIC, "Kelley did not file an administrative claim with the FDIC as Receiver by the Late Claim Bar Date or any other date."Id. at 1547.

On March 22, 2010, the FDIC as Receiver for WaMu moved in Kelley's state court proceeding for summary judgment against Kelley. Id. at 1541. The FDIC argued that, because Kelley had failed to exhaust his administrative remedies with the FDIC as required by FIRREA, FIRREA's jurisdictional bar for unexhausted claims deprived the state court of jurisdiction over Kelley's claims. Id. at 1542.

On July 19, 2010, the Superior Court for the County of Santa Clara dismissed Kelley's claims with prejudice. The state court agreed with the FDIC that the state court lacked subject matter jurisdiction over Kelley's claims because Kelley did not exhaust his administrative remedies with the FDIC. Id. at 1565–66.

B. Procedural Background

1. Kelley's Chapter 11 Bankruptcy Proceedings

As stated above, Kelley filed for Chapter 11 bankruptcy on September 19, 2008. On September 25, 2008, WaMu was closed, and Chase acquired WaMu's assets pursuant to the P & A Agreement, including the Loans at issue. On October 17, 2008, Chase filed in Kelley's Chapter 11 proceedings a proof of claim for the First Loan. Id. at 37. Chase filed a proof of claim for the Second Loan on December 2, 2008. Id. at 107.

On January 5, 2009, Kelley filed a Chapter 11 plan of reorganization, which proposed selling the Property. See id. at 118. The Bankruptcy Court never confirmed Kelley's Chapter 11 plan of reorganization.

On July 15, 2010, Kelley initiated an adversary proceeding against Chase in the Bankruptcy Court. See id. at 125. As relevant here, the operative complaint is Kelley's Third Amended Complaint ("TAC"), which was filed on May 30, 2014. Id. at 208.

Kelley alleged in his TAC that Helmonds met with Kelley on July 6, 2007 and prepared an application for the First Loan. Id. at 212. According to Kelley, WaMu "formally changed the First Loan from a 40–year loan to a 30–year loan" on July 10, 2007, and Kelley "was not informed of the changes." Id. at 213. Kelley further alleged that, with regards to both Loans, "Helmonds made affirmative misrepresentations, inaccurate disclosures, did not disclose at the proper time, and concealed critical information that would have alerted [Kelley] to the enormously increased risk of the default in the refinance." Id. at 231. Kelley also asserted that "Washington Mutual Bank, F.A." was a " ‘straw man’ lender name" and that "Washington Mutual Bank, F.A." did not exist. Id. at 215.

Kelley's TAC requested that the Bankruptcy Court (1) declare the Loans contractually invalid, (2) declare the Loans rescinded under the Truth in Lending Act ("TILA"), and (3) declare that Chase did not validly hold claim to the Loans because Chase did not receive the Loans after WaMu's receivership. Id. at 230–34.

2. The Parties' Summary Judgment Motions and the Bankruptcy Court's Grant of Summary Judgment in Favor of Chase

On June 19, 2016, Kelley moved in the Bankruptcy Court for summary judgment against Chase. Id. at 435.¹ Kelley argued that the Loans were invalid because "Washington Mutual Bank, F.A." merged with "Washington Mutual Bank" in April 2005, and therefore "Washington Mutual Bank, FA" became "no longer a separate operating entity." Id. at 443. According to Kelley, "the Note and Deed of Trust reflect the name Washington Mutual Bank, F.A. who was not capable of contracting." Id. Moreover, Kelley asserted that WaMu made misrepresentations to Kelley at the time that Kelley entered the Loans, including that Kelley "was required to agree to a prepayment penalty," that Kelley "was not notified of [an] interest rate change," and that "[t]he Notices of Right to Cancel were withheld" from Kelley. Id. at 444. According to Kelley, these deficiencies made the Loan contracts void as a matter of law. See id. at 445–46. Further, Kelley asserted that, pursuant to Kelley's right to rescind under TILA, Kelley rescinded the First Loan on August 24, 2009, and Kelley rescinded the Second Loan on June 24, 2010. Id. at 446–49. Finally, Kelley argued that Chase did not have ownership of the Loans because it was not possible for the Loans to be owned by "Washington Mutual Bank, F.A. at the time of its failure" and "the FDIC/Chase transaction did not transfer ownership to Chase." Id. at 451. Kelley also argued that the note respecting the First Loan was falsely endorsed "in blank by Cynthia Riley, Vice President of Washington Mutual Bank, F.A." See id. at 450–53.

On July 22, 2015,...