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

660 B.R. 707

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

United States Bankruptcy Court, E.D. California

Signed April 30, 2024

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

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

OPINION

CHRISTOPHER D. JAIME, Bankruptcy Judge:

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 the 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") filed by Plaintiffs Melanio L. Valdellon, III, and Ellen C. Valdellon (collectively, "Plaintiffs"). For the reasons explained below, Defendants' motion will be granted. The § 524(i) claim in Count 1 and the intentional infliction of emotional distress claim in Count 2 will be dismissed with prejudice. 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 of a 60 month plan." Id. at ¶ 2.

The Trustee's motion to dismiss was set for hearing on September 24, 2019. Bankr. Docket 118. However, Plaintiffs apparently cured the payment default sometime after the motion was filed and before it was heard because the motion was withdrawn on the record on September 24, 2019. Bankr. Docket 128.

Three days later, on September 27, 2019, the Trustee filed a Notice to Debtor of Completed Plan Payments and Obligation to File Documents which stated "the Chapter 13 Trustee has determined that the Debtor has completed the payments required by the confirmed plan." SAC ¶ 42; Bankr. Docket 130. On that same date, September 27, 2019, the Trustee also filed a Notice of Final Cure Payment which stated that "the amount required to cure the default in [Claim 9] has been paid in full." SAC ¶ 43; Bankr. Docket 125.

Defendants apparently agreed with the Trustee's final cure notice because on October 18, 2019, they filed a Response to Notice of Final Cure in which they stated, under penalty of perjury, "[c]reditor agrees that the debtors have paid in full the amount required to cure the prepetition default on the creditor's claim" and "[c]reditor states that the debtor(s) are current with all postpetition payments consistent with § 1322(b)(5) of the Bankruptcy Code including all fees, charges, expenses, escrow, and costs. The next postpetition payment from the debtor(s) is due on: 11/1/2019[.]" SAC ¶ 45-47; Claims Register, Claim 9-1.

With plan payments completed, and with Defendants apparently in agreement that with the completion of plan payments all prepetition arrears were cured and postpetition payments were current, the Trustee filed a final report and account on February 21, 2020. Bankr. Dockets 138, 139. The final report and account was approved, and the Trustee was relieved of further obligations in Plaintiffs' chapter 13 case, on May 12, 2020. Bankr. Dockets 145, 146. Plaintiffs' discharge was entered on June 1, 2020. SAC ¶ 48; Bankr. Docket 149. Plaintiffs' chapter 13, case was closed on June 15, 2020. Bankr. Docket 151.

Facing a foreclosure, SAC ¶¶ 96, 107, 113, 125, 234, 206, Plaintiffs reopened their chapter 13 case on January 20, 2021, Bankr. Docket 154, and filed the initial complaint in this adversary proceeding on January 21, 2021. Adv. Docket 1. Defendants were served with a copy of the initial complaint and a reissued summons on January 27, 2021. Adv. Docket 9. Defendants filed an answer on March 24, 2021, Adv. Docket 19, and an amended answer on April 9, 2021. Adv. Docket 23.

Because the court was unable to comprehend the initial, complaint which it characterized as a "shotgun pleading," on June 28, 2021, the court ordered Plaintiffs to file an amended complaint that separately identified each claim, Adv. Docket-47, which they filed on July 13, 2021, Adv. Docket 59, and which Defendants promptly moved to dismiss on July 26, 2021. Adv. Docket 62. Following an opposition from Plaintiffs and a reply from Defendants, on August 20, 2021, the court issued an order granting Defendants' motion to dismiss. Plaintiffs' claims under §§ 524(a) and (i) and an emotional distress claim based on the § 524 claims were dismissed with prejudice, and all remaining state law claims were dismissed without prejudice. Adv. Docket 68. A corresponding judgment was...