Valdellon v. Wells Fargo Bank, N.A. (In re Valdellon)

659 B.R. 377

IN RE: Melanio L. VALDELLON and Ellen C. Valdellon, Debtor(s).

Melanio L. Valdellon and Ellen C. Valdellon, Plaintiff(s), v. Wells Fargo Bank, N.A.; PHH; IMPAC CMB Trust Series 2005-6;

Wells Fargo Bank, N.A.,

as Trustee of the Impac CMB Trust Series 2005-6, Defendant(s).

Case No. 14-22555-B-13

Adversary No. 21-2008

DC No. PHH-3

United States Bankruptcy Court, E.D. California

Signed May 17, 2024

Mark A. Wolff, Wolff & Wolff, Elk Grove, CA, for plaintiffs.

Robert W. Norman, Jr., Neil J. Cooper, Houser LLP, Irvine, CA, for defendants.

ORDER ON RECONSIDERATION AND AMENDED OPINION

ORDER ON RECONSIDERATION

Christopher D. Jaime, United States Bankruptcy Court Judge

After the court issued its opinion, a dismissal order, and a judgment on April 30, 2024, Plaintiffs Melanio L. Valdellon and Ellen C. Valdellon ("Plaintiffs") filed a motion for reconsideration on May 14, 2024. Adv. Docket 141. Filed within fourteen days after entry of the opinion, dismissal order, and judgment Plaintiffs' motion for reconsideration is governed by Federal Rule of Civil Procedure 59(e) applicable by Federal Rule of Bankruptcy Procedure 9023. First Avenue West Building, LLC v. James (In re Onecast Media, Inc.), 439 F.3d 558, 561-62 (9th Cir. 2006). No response is necessary. See Perez-Reyes v. National Distribution Centers, LLC, 2018 WL 7077183 (C.D. Cal. Feb. 8, 2018) (granting ex parte application under Rule 59(e)).

As a result of Plaintiffs' timely Rule 59(e) motion, the opinion, dismissal order, and judgment of April 30, 2024, are not yet final. In re Sundquist, 570 B.R. 92, 95 (Bankr. E.D. Cal. 2017). The procedural consequence of Plaintiffs' timely motion is to suspend the time for appeal until fourteen days after entry of the order disposing of the motion for reconsideration. Fed. R. Bankr. P. 8002(b)(1)(B). Until the motion for reconsideration is decided, this court continues to have jurisdiction over the entire dispute. Sundquist, 570 B.R. at 95. Indeed, as the United States Supreme Court explained in Banister v. Davis, 590 U.S. 504, 516, 140 S.Ct. 1698, 207 L.Ed.2d 58 (2020): "A Rule 59(e) motion briefly suspends finality to enable a district court to fix any mistakes and thereby perfect its judgment before a possible appeal."

There are four grounds on which a Rule 59(e) motion may be granted: (1) to correct manifest errors of law or fact upon which the judgment rests; (2) to present newly discovered or previously unavailable evidence; (3) to prevent manifest injustice; or (4) if amendment is justified by an intervening change in controlling law. Allstate Insurance Company v. Herron, 634 F.3d 1101, 1111 (9th Cir. 2011). Plaintiffs' motion relies exclusively on the first ground.

Plaintiffs' motion for reconsideration is ORDERED GRANTED IN PART and the opinion of April 30, 2024, is AMENDED as follows: (1) to clarify that Plaintiffs' claim for emotional distress damages is dismissed with prejudice to the extent it is based on a violation of 11 U.S.C. § 524(i)-which treats a violation of its terms as a violation of the discharge injunction in 11 U.S.C. § 524(a)(2)-and dismissed without prejudice to the extent it is based on facts or conduct that do not constitute a violation of §§ 524(i) and/or 524(a)(2); and (2) to correct and amend the factual predicate for dismissal of Plaintiffs' § 524(i) claim but not change the with prejudice dismissal of the claim. All other relief requested in the motion is ORDERED DENIED.

An amended dismissal order and an amended judgment will issue.

FURTHER ORDERED that Plaintiffs have fourteen days from the entry of this order and amended opinion, the amended dismissal order, and the amended judgment to file any appropriate appeal.

AMENDED OPINION

I.Introduction

A bankruptcy discharge operates as an injunction against the collection of a discharged debt as a personal liability of the debtor. See 11 U.S.C. § 524(a)(2).¹ A violation of the discharge injunction is an act of civil contempt for which the bankruptcy court may award compensatory damages as are necessary or appropriate to enforce the discharge injunction or remedy its violation. See 11 U.S.C. § 105(a).² This opinion holds that the compensatory damages a bankruptcy court may award to enforce the discharge injunction or remedy its violation-either directly or under 11 U.S.C. § 524(i) which treats a violation of its terms as a violation of the discharge injunction-do not include emotional distress damages.³ Taggart v. Lorenzen, 587 U.S. 554, 139 S. Ct. 1795, 204 L.Ed.2d 129 (2019), in which the United States Supreme Court stated that the "old soil" of injunction enforcement and the "traditional principles" of civil contempt apply "straightforwardly" to the discharge injunction compels this result.

The remainder of this opinion explains why a claim alleged under § 524(i) fails as a matter of law and as implausible. And the opinion explains why, without a § 524 claim, this court lacks jurisdiction over remaining non-core state law claims under 28 U.S.C. § 1334 or, even if jurisdiction exists or is ever found to exist, the court would abstain under 28 U.S.C. § 1334(c)(1).⁴

II.Background

Defendants Wells Fargo Bank, N.A., as Indenture Trustee Under the Indenture Relating to the IMPAC CMB Trust Series 2005-6, and PHH Mortgage Corporation (collectively, "Defendants"), move to dismiss Plaintiffs' Second Amended Complaint for 1. Violations of 11 U.S.C. 524(i) [sic]; 2. Intentional Infliction of Emotional Distress; 3. Contract Actions or Declaratory Relief; and 4. Unlawful Fraudulent and Unfair Business Acts and Practices (California Business and Professions Code 17200 et seq, 17203 [sic]) ("SAC" or "second amended complaint"). For the reasons explained below, Defendants' motion will be granted. The § 524(i) claim in Count 1 will be dismissed with prejudice. The intentional infliction of emotional distress claim in Count 2 will be dismissed with prejudice to the extent it is based on a violation of § 524(i)-which treats a violation of its terms as a violation of the discharge injunction in § 524(a)(2)-and dismissed without prejudice to the extent not based on facts or conduct which violate §§ 524(i) and/or 524(a)(2). The remaining state law claims in Counts 3 and 4 will be dismissed without prejudice.

A. The Loan and the Property

The subject of this adversary proceeding is a loan that Mr. Valdellon obtained in 2005 secured by real property located in Roseville, California.⁵ SAC ¶¶ 3, 9-13; Valdellon v. Wells Fargo Bank, N.A., et al. (In re Valdellon), 2024 WL 404404, at *1 (E.D. Cal. Feb. 2, 2024). Defendant PHH has been the servicer of the loan since 2019. SAC ¶¶ 10, 39; Bankr. Docket 135. Defendant Wells Fargo Bank, N.A., as Indenture Trustee, is the owner of the loan. SAC ¶¶ 11-12.

B. Plaintiffs' Chapter 13 Bankruptcy Case and This Adversary Proceeding

Plaintiffs were debtors in the parent chapter 13 case. They filed a chapter 13 petition and an initial sixty-month chapter 13 plan on March 13, 2014. SAC ¶¶ 16, 18, 19; Bankr. Dockets 1, 7. The first plan payment was due "not later than the 25th day of each month beginning the month after the order for relief under chapter 13." Bankr. Dockets 7 at § 1.01, 105 at § 2.01.

Plaintiffs filed a first amended plan on April 24, 2014. SAC ¶ 20; Bankr. Dockets 31-36. The first amended plan was confirmed on August 1, 2014. SAC ¶ 21; Bankr. Docket 49.

To adjust payments for certain tax debts, Plaintiffs filed a first modified plan and a motion to confirm it on July 21, 2015. SAC ¶ 24; Bankr. Dockets 61-66. The first modified plan was confirmed on December 10, 2015. SAC ¶ 25; Bankr. Dkt. 68.

Plaintiffs defaulted on payments required by the first modified plan because, on November 29, 2017, the chapter 13 trustee ("Trustee") filed a Notice of Default and Application to Dismiss which stated as follows:

Debtor has failed to make all payments due under the plan. As of November 28, 2017, payments are delinquent in the amount of $4,574.00. In order to discharge this Notice of Default, you must cure this delinquency AND make all subsequent payments that are due within the next 30 days. Because your next payment of $2,798.00 will become due on December 25, 2017, the TOTAL amount you must pay by December 29, 2017 is $7,372.00.

Bankr. Docket 70 (emphasis in original).

The Trustee also filed a motion to dismiss Plaintiffs' chapter 13 case on May 11, 2018. Bankr. Docket 92. Although Plaintiffs opposed the Trustee's motion on June 4, 2018, they nevertheless agreed with the Trustee and proposed to file a second modified plan before the motion to dismiss was heard. Bankr. Docket 98.

Plaintiffs filed a second modified plan on June 15, 2018. SAC ¶ 26; Bankr. Dockets 101-106. The second modified plan was confirmed on August 24, 2018. SAC ¶ 27; Bankr. Docket 110. The second modified plan is Plaintiffs' operative confirmed chapter 13 plan for purposes of this adversary proceeding. Valdellon, 2024 WL 404404 at *1.

All of Plaintiffs' confirmed chapter 13 plans provided for payment of Defendants' claim as a Class 1 secured claim over a sixty-month period, i.e., prepetition arrears and ongoing postpetition mortgage payments were paid through the Trustee according to § 1322(b)(5).⁶ SAC ¶¶ 28, 29, 146-148. The amount of arrears to be paid under the second modified plan (and all plans prior) was $19,140.48, as stated in a July 10, 2015, proof of claim. SAC ¶¶ 162-163; Bankr. Claims Register, Claim 9-1.

Following confirmation of the second modified plan, Plaintiffs again defaulted so, on September 9, 2019, the Trustee moved to dismiss Plaintiffs' chapter 13 case. Bankr. Dockets 117-121. The motion to dismiss cited two grounds as cause for dismissal: (1) "[t]he debtors [were] delinquent to the trustee in the amount of $10,246.37 which represent[ed] approximately 3 plan payments," Bankr. Docket 117 at ¶ 1; and (2) the "commitment period exceed[ed] the permissible limit imposed by 11 U.S.C. Section 1325(b)(4). The Debtor [sic] is currently in month 66...