Lewis v. The Money Source, Inc. (In re Lewis)

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In re: Clarence William Lewis, Jr., Debtor.

Clarence Lewis, Jr., Plaintiff, v. The Money Source, Inc., Defendant.

No. 5:19-01873-MJC

Adversary Proceeding No. 5:23-00007-MJC

United States Bankruptcy Court, M.D. Pennsylvania

February 22, 2024

Chapter 13

OPINION

Mark J. Conway, Bankruptcy Judge

I. INTRODUCTION

This is Plaintiff's second adversary action brought against his mortgage lender relating to certain fees and costs allegedly incurred during the course of Plaintiff's bankruptcy case. Plaintiff alleges that Defendant violated Federal Rule of Bankruptcy Procedure 3002.1(c) and seeks sanctions including attorney's fees and punitive damages.^[1] Defendant moved to dismiss the Amended Complaint. For the reasons set forth below, the motion to dismiss will be granted in part and denied in part.

II. JURISDICTION

This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§157 and 1334 and the Standing Order of Reference of the United States District Court for the Middle District of Pennsylvania dated March 11, 2016. The claim asserted in the Amended Complaint is a core proceeding pursuant to 28 U.S.C. §157(b)(2)(B). Venue is proper pursuant to 28 U.S.C. §1409(a).

III. BACKGROUND AND PROCEDURAL HISTORY

A. The Debtor/Plaintiff's Bankruptcy Case

Clarence William Lewis, Jr. ("Debtor" or "Plaintiff") filed a Petition under Chapter 13 of the Bankruptcy Code^[2] on April 30, 2019. BK Dkt. # 1.^[3] Debtor's Schedules list a jointly owned home having a value of $80,000.00 and a secured claim by The Money Source, Inc. ("Defendant") in the amount of $143,551.34. Id.

On June 14, 2019, Defendant filed a Proof of Claim (# 7-1) in Debtor's bankruptcy case ("Claim"). The Claim indicated an amount due of $145,792.60 with arrears of $12,336.88 as of the petition date. According to the loan documents attached to the Claim, on May 23, 2014, Debtor and his mother, borrowed the original sum of $127,492.00 from Defendant ("Loan") and a mortgage lien was recorded against the real property known as 312 Church Street, Taylor, Pennsylvania ("Property").^[4] On July 3, 2019, Defendant filed to the claims register a Notice of Postpetition Mortgage, Fees Expenses, and Charges ("Fee Notice"). Defendant itemized $900.00 in charges and fees incurred post-petition for review of Debtor's Plan and preparation and filing of its Claim. Defendant subsequently withdrew the Fee Notice on October 7, 2019. BK Dkt. # 41.

Debtor's First Amended Plan ("Plan") was confirmed on July 24, 2019. BK Dkt. # 38. The Plan provided for monthly payments being paid to the Chapter 13 Trustee through October 2023 totaling $19,320.00. Debtor's Plan listed a pre-petition mortgage arrearage owed to Defendant of $13,344.05. Per the Plan, Debtor was to make monthly mortgage payments to Defendant directly.

i. Plaintiff's First Adversary Proceeding

On November 26, 2019, Debtor commenced an adversary proceeding against Defendant by filing a Complaint at 5:19-00116-MJC ("First Adversary Action"). After considerable motion practice, Debtor filed a Third Amended Complaint on November 4, 2020. The Third Amended Complaint asserted claims against Defendant under the Real Estate Settlement Procedures Act ("RESPA") and the Truth-in-Lending Act ("TILA"). Debtor alleged, inter alia, that Defendant failed to timely respond to letters requesting loan information which violated RESPA and TILA. Plaintiff's claim for injuries alleged that Defendant's failure to respond caused him to incur costs and attorney's fees. Defendant denied any liability.

On March 25, 2022, the parties filed a Joint Report indicating that Plaintiff accepted a Rule 68 Offer of Judgment from Defendant in the amount of $6,000.00. The only issue remaining in the First Adversary Action is the amount of any award of Plaintiff's attorney fees and costs. On December 8, 2022, Plaintiff filed a Petition seeking attorney fees and costs of $66,678.68.^[5] The parties attempted to negotiate the amount of the fees but were unsuccessful. A Court appointed mediator had also unsuccessfully attempted to resolve the attorney fees issue. Plaintiff's claim for attorney fees has now been briefed, argued, and is pending before the Court.

ii. The Second Adversary Proceeding

While the First Adversary Action was pending, Plaintiff filed another complaint ("Complaint") against Defendant on January 27, 2023 ("Second Adversary Action"). The plaintiffs were Debtor and his partner, Amanda Scanlon. Plaintiffs alleged that Defendant attempted to collect certain post-petition fees and costs totaling $1,987.80, which was in violation of Fed.R.Bankr.P. 3002.1(c) because no Notice had been filed. Opening the mail and seeing these inflated charges allegedly caused Ms. Scanlon to suffer from "substantial anxiety, stress and frustration" and stress to Debtor. Compl. at ¶¶ 25-26.

Defendant moved to dismiss the Complaint asserting, inter alia, that Ms. Scanlon did not have standing. See Dkt. # 8. Plaintiff did not respond to the motion but, instead, filed an amended complaint ("Amended Complaint") on April 18, 2023 omitting Ms. Scanlon as a plaintiff. See Dkt. # 13. Plaintiff alleges that as a result of Defendant sending collection notices for post-petition fees and costs that were not disclosed under Rule 3002.1(c), he suffered actual damages of postage, emotional distress, attorney's fees and seeks punitive damages. Id. at ¶¶ 55-56.

More specifically, the Amended Complaint asserts that Plaintiff sent requests to Defendant seeking certain information, including a payoff statement on the Loan. Defendant responded with a payoff statement which appeared to include the $900 of fees from the Fee Notice that had been allegedly withdrawn, as well as the $1,087.80 of other post-petition charges. On February 8, 2023 (after commencing this action), Plaintiff's counsel sent a "Notice of Error" letter requesting that Defendant remove the $1,987.80 of fees and charges as they were being collected in violation of Rule 3002.1. See Am. Compl. at ¶¶ 35-36. Plaintiff further alleges that within two days of receipt of the Notice of Error letter, Defendant determined that Defendant's Counsel's representation to the Court at a January 31, 2023 hearing in the First Adversary Action regarding the $900 in charges was inaccurate and subsequently sent a letter confirming the inaccuracy. Id. at ¶¶ 37-42. However, Plaintiff contends that Defendant did not inform this Court of its misrepresentation until March 28, 2023. Id. at ¶ 45.

In response to the Amended Complaint, Defendant filed its motion to dismiss ("Motion to Dismiss") on May 8, 2023. Dkt. # 15. To its Brief in support of the Motion to Dismiss, Dkt. # 18, Defendant attached a letter dated March 22, 2023, sent in response to Plaintiff's Notice of Error letter, confirming that it had corrected its error and the most recent monthly statement reflects only charges from its June 14, 2019 Proof of Claim that are not in dispute.

This matter has been fully briefed, oral argument was held on July 11, 2023, and the matter is now ripe for decision.

IV. LEGAL STANDARD

In the First Adversary Action, my predecessor Judge Robert N. Opel set forth the standards for reviewing a motion to dismiss:

Federal Rule of Bankruptcy Procedure 7012(b) ("F.R.B.P.") makes Federal Rule of Civil Procedure 12(b)-(i) ("F.R.C.P.") applicable to bankruptcy adversary proceedings. F.R.C.P. 12(b)(6) requires dismissal of a complaint which fails to state a claim upon which relief can be granted. Generally, a complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." F.R.C.P. 8(a)(2). However, the Supreme Court heightened this pleading standard by holding that for a complaint to withstand a motion to dismiss, a claim must be more than possible, it must be plausible. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 1973, 167 L.Ed.2d 929 (2007).

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Two years later, the Supreme Court gave further guidance as to the meaning of "facial plausibility." A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (internal citations and quotations omitted). The plausibility standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully. Id. Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief. Id.

At the motion to dismiss stage, only well pled facts are viewed in the light most favorable to the non-moving party, in this case, the Debtor. Jablonski v. Pan. Am. World Airways, Inc., 863 F.2d 289, 291 (3d Cir. 1988). Alternatively, legal conclusions are not assumed to be correct at the motion to dismiss stage.

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The Third Circuit has also provided guidance on the differing standards regarding a complaint's alleged facts and legal conclusions at the motion to dismiss stage:

The District Court must accept all of the complaint's well-pleaded facts as true, but may disregard any legal conclusions. Second, a District Court must then determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a plausible claim for relief. In other words, a complaint must do more than allege the plaintiff's entitlement to relief. A complaint has to show such entitlement with its facts. Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009) (internal citations and quotations omitted).

Lewis v. The Money Source, Inc. (In re Lewis), 621 B.R. 626, 628-29 (Bankr....