Rothman v. Friedman Vartolo, LLP (In re Rothman)

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In Re: MICHELE D. ROTHMAN, Debtor.

MICHELE D. ROTHMAN, Plaintiff, v. FRIEDMAN VARTOLO, LLP, SN SERVICING CORPORATION AS SERVICER FOR U.S. BANK TRUST NATIONAL ASSOCIATION AS TRUSTEE OF THE CABANA SERIES IV TRUST, JASON SCHWARTZ, ESQ., AND FRIEDMAN DEFENDANTS, Defendants.

No. 23-15073-ABA

Adv. Proc. No. 23-01298-ABA

United States Bankruptcy Court, D. New Jersey

February 20, 2024

NOT FOR PUBLICATION

Chapter 7

MEMORANDUM DECISION

Andrew B. Altenburg, Jr., United States Bankruptcy Judge

The matter before the court is the motion of Jason Schwartz Esq.; Friedman Vartolo, LLP; Friedman Defendants; and SN Servicing Corporation as Servicer for U.S. Bank Trust National Association as Trustee of the Cabana Series IV Trust (collectively, the "Defendants") to dismiss the adversary proceeding, due to a lack of standing under Fed.R.Civ.P. 12(b)(1) and under Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted or in the alternative, that the court permissively abstain from hearing the adversary proceeding pursuant to 28 U.S.C. § 1334(c) (the "Motion"). Michele D. Rothman (the "Plaintiff") opposes the Motion. For the reasons that follow, the court will grant the Motion in its entirety.

JURISDICTION AND VENUE

This matter before the court is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(G), (K) and (O), and the court has jurisdiction pursuant to 28 U.S.C. § 1334, 28 U.S.C § 157(a) and the Standing Order of Reference issued by the United States District Court for the District of New Jersey on July 23, 1984, as amended on September 18, 2012, referring all bankruptcy cases to the bankruptcy court. The following constitutes this court's findings of fact and conclusions of law as required by Federal Rule of Bankruptcy Procedure 7052.

RELEVANT FACTS/PROCEDURAL HISTORY

Inasmuch as the Plaintiff has specifically sought relief associated with matters or actions in her main bankruptcy case, Bankr Case No. 23-15073-ABA (the "Main Case"), some background is necessary.

This adversary proceeding is the latest chapter in an ongoing, multi-year litigation by the Plaintiff and her family against the Defendants and their predecessors in interest. The crux of this dispute concerns real property located at 2823 Schooner Lane in Hammonton, N.J. 08037 (the "Property"), and an allegedly invalid Notice of Settlement.

The Main Case was initially filed as a chapter 13 case. On her schedules, the Plaintiff claimed to have a legal or equitable interest in the Property-invoking 11 U.S.C. §§ 541 and 362 and purportedly making it property of the estate protected by the automatic stay. Main Case, Doc. No. 19 at 2. Shortly after filing, the Plaintiff voluntarily converted her case to a chapter 7 case. Main Case, Doc. No. 56.

Prior to the initiation of this adversary proceeding, Defendant SN Servicing Corporation as servicer for U.S. Bank Trust N.A. as Trustee of the Cabana Series IV Trust (hereinafter, "SN Servicing") sought stay relief in the Main Case, citing the fact that the Plaintiff did not own the Property and that neither the Plaintiff, nor anyone else, had made any post-petition payments for the obligation secured by the Property during the pendency of the case. Main Case, Doc. No. 77. The Plaintiff responded, not by producing documentation evincing an interest in the Property or that post-petition payments were made, but by arguing that SN Servicing's motion was frivolous and that it lacked legal standing to bring its motion. Main Case, Doc. No. 83. The Plaintiff also made serious, but entirely unsubstantiated, allegations of ethical violations and wrongdoing. Id.

After a hearing on the matter which both parties attended, the court issued an opinion granting the motion for stay relief. Main Case, Doc. No. 86 ("Main Case Opinion"). The court addressed the Plaintiff's argument that SN Servicing lacked standing, explaining:

In bankruptcy, a party may establish standing to seek relief from stay by demonstrating that it is a "party in interest" in the case. In re Genrette, 797 Fed.Appx. 739, 740 n.3 (3d Cir. 2020). Unquestionably, a servicer is a proper party in interest. In re Lau, 684 Fed.Appx. 235, 238 (3d Cir. 2017) (citing Greer v. O'Dell, 305 F.3d 1297, 1302 (11th Cir. 2002) ("A servicer is a party in interest in proceedings involving loans which it services")); Bankers Tr. (Del.) v. 236 Beltway Inv., 865 F.Supp. 1186, 1191 (E.D. Va. 1994) (holding that either the lender or its servicer had standing to sue on mortgagor's default even though the servicer was not the holder of the mortgage); In re Alcide, 450 B.R. 526, 538 (Bankr. E.D. Pa. 2011) (a servicer may establish its authority to initiate legal proceedings, including motions for relief from the automatic stay in bankruptcy court); In re Tainan, 48 B.R. 250, 252 (Bankr. E.D. Pa. 1985) (determining that mortgage servicer was a party in interest for purposes of a relief from stay proceeding). Under New Jersey law, it is likewise recognized that "loan servicers also address delinquent payments with a borrower and initiate foreclosure actions." Prop. Asset Mgmt., Inc. v. Momanyi, No. A-2713-09T2, 2011 WL 4056076, at *2 ( N.J.Super.Ct.App.Div. Sept. 14, 2011).

"In the context of a motion for relief from the automatic stay to enforce a creditor's rights under a mortgage, courts have recognized that to have the 'legally protected interest' that makes a party a 'party in interest,' the movant must be the party that has authority to enforce the mortgage under applicable nonbankruptcy law." In re Alcide, 450 B.R. at 536. In New Jersey, either possession of the note or an assignment of the mortgage confers standing. Bank of New York Mellon v. Johnson, No. A-2915-21, 2023 WL 4614618, at *2 (N.J.Super.Ct.App.Div. July 19, 2023). Here, the Secured Creditor has both.

As to the note, it is well established in New Jersey that possession of the note confers standing on a party. Grant-Covert v. Wells Fargo Bank, N.A., No. 15-6018 (NLH), 2016 WL 901081, at *3 (D.N.J. Mar. 9, 2016), aff'd (3rd Cir. 16-1880 Oct. 6, 2016); see also Deutsche Bank Tr. Co. Americas v. Angeles, 428 N.J.Super. 315, 318, 53 A.3d 673, 675 (App. Div. 2012); Deutsche Bank Nat. Tr. Co. v. Mitchell, 422 N.J.Super. 214, 223, 27 A.3d 1229, 1235 (App. Div. 2011). In this case, the original note was executed in favor of Superior Mortgage Corp. Doc. No. 77-3, p.1. The note was then endorsed by Superior Mortgage Corp to Wells Fargo Bank, N.A. Doc. No. 77-3, p.3. In turn, Wells Fargo endorsed the note in blank. Id. The Secured Creditor includes the original endorsed note. Therefore, it has standing to prosecute this Motion.

As to the mortgage, it is likewise well established in New Jersey that an assignment of a mortgage confers standing on a party. Grant-Covert v. Wells Fargo Bank, N.A., 2016 WL 901081 at *3; see also Sterling Nat'l Bank v. Ruccio, No. A-3307-17T4, 2019 WL 149697 ( N.J.Super.Ct.App.Div. Jan. 9, 2019). In this case, Superior Mortgage Corp is also the original mortgagee. Doc. No. 77-4, p.1. The mortgage was assigned by MERS, as nominee for Superior Mortgage Corp to Wells Fargo Bank, NA. Doc. No. 77-5, p. 5. In turn, Wells Fargo assigned the mortgage to U.S. Bank National Association as Trustee of the Igloo Series IV Trust. Id., p. 9. Then, U.S. Bank Trust National Association as Trustee of the Igloo Series IV Trust assigned the mortgage to U.S. Bank Trust National Association as Trustee of the Cabana Series IV Trust. Id., p. 12. Thus, as servicer to U.S. Bank Trust National Association as Trustee of the Cabana Series IV Trust, the Secured Creditor has standing to prosecute this Motion.

Main Case Opinion at 3-4.^[1] Thus, the court has already clearly found, contrary to the Plaintiff's assertion in her opposition to the current Motion, Doc. No. 7, p. 2, that SN Servicing has standing and is entitled to file pleadings with the court.^[2]

Having found that SN Servicing had standing, the court next addressed whether grounds existed for stay relief. The court noted that the credible evidence presented indicated that the Property was owned not by the Plaintiff, but by her brother, Bernard Rothman; that the Plaintiff was not obligated on the mortgage or note; and that the Plaintiff had not demonstrated either an interest in the Property or an interest that would allow her to claim an interest in equity in the Property. Id. at 4. The court also noted that the dispute as to the debt related to the Property was subject to pending state court litigation, where summary judgment has already been entered. Id.

Notwithstanding the foregoing, before the court issued its opinion granting stay relief, the Plaintiff filed this adversary complaint. Doc. No. 1 (the "Complaint"). Her Complaint very closely resembles her opposition to the motion for relief from stay.^[3] While she directly admits that SN Servicing has obtained summary judgment in the state court foreclosure action, Complaint, ¶4, she continues to attack the legal standing of the Defendants, repeating the same arguments which this court ultimately rejected in its Main Case Opinion. She still raises vague, unsubstantiated allegations of misconduct against Mr. Schwartz and the Friedman Vartolo firm as drafters of the motion for stay relief, accuses them of criminal conduct for submitting fraudulent documents before the court, and demands that the Defendants be removed from this bankruptcy case.

The court scheduled a Pre-Trial conference for January 23, 2024 at 2:00 p.m. Doc. No. 2-1 at 1. The Defendants filed their Motion to be returnable on the same day as the Pre-Trial conference. In their Motion, the Defendants sought dismissal of the adversary proceeding under Federal Rule of Civil Procedure 12(b), or in the alternative, that the court...