Saturday, March 3, 2012

Bankruptcy/Foreclosure Cases from the First Circuit, January 2012, Part One

Debtor can waive right to rescind under TILA or MCCCDA; in any event, rescission untimely:

(IN RE: ANGELO DIVITTORIO) DIVITTORIO v. HSBC BANK USA, NA as Trustee on behalf of ACE Securities Corp. Home Equity Loan Trust and for registered holders of ACE Securities Corp. Home Equity Loan Trust, Series 2006-SD1, Asset-Backed-Pass Through Certificates, OCWEN LOAN SERVICING, LLC; INDYMAC FEDERAL BANK, 2012 U.S. App. LEXIS 248 (1st Cir. 1/6/2012)(Before Justices Lipez, Ripple* and Howard, Circuit Judges [* Of the Seventh Circuit, sitting by designation]Opinion by Ripple).
PROCEDURAL POSTURE: Debtor filed an adversary proceeding asserting a right to rescind a loan agreement because the disclosures made at closing did not comply with the Massachusetts Consumer Credit Cost Disclosure Act (MCCCDA). The bankruptcy court held that debtor had failed to state a claim for relief or, alternatively, had waived his right to rescind. The United States District Court for the District of Massachusetts affirmed. Debtor appealed.
OVERVIEW: The modification included a waiver clause. Debtor alleged that the bank violated the MCCCDA, specifically
Mass. Gen. Laws ch. 140D, § 10, because the annual percentage rate set forth on the Truth in Lending disclosure was not calculated in conformity with regulations and that the disclosure significantly underestimated the finance charge for the loan and failed to specify the timing of the installment payments. Inter alia, the appellate court held that debtor waived any rights under the MCCCDA when he failed to seek to rescind the modification within four years as required by Mass. Gen. Laws ch. 140D § 10(f). Alternatively, because debtor's "right" to rescission by recoupment was not created by the MCCCDA, the requirements for waiver of unconditional rescission rights under those statutes simply did not apply to the waiver. Furthermore, given the guidance of counsel, the time for reflection, the reduction in interest rate obtained and the specific approval of the court, the policy concerns of the legislation were not frustrated by the waiver provision in the modification. Moreover, as a matter of law, debtor's waiver was knowing and voluntary.
The Federal Reserve Board has determined that [the MCCCDA] establishes requirements "substantially similar" to TILA's and thus has exempted credit transactions within Massachusetts from chapters two and four of the TILA; contained in those chapters is the statute of limitations for actions for damages and rescission. Therefore, Mr. DiVittorio's claim technically is brought under the MCCCDA. Nevertheless, the MCCCDA was "closely modeled" after the TILA and, in most respects, "mirrors its federal counterpart." Thus, "the MCCCDA should be construed in accordance with the TILA.  We do not believe that the Supreme Court's recent decision in Stern v. Marshall, 131 S. Ct. 2594, 180 L. Ed. 2d 475 (2011), affects the jurisdiction of the bankruptcy court to render a decision in this matter. Here, however, it first was necessary to resolve the validity of Mr. DiVittorio's claim under the MCCCDA to determine whether HSBC was entitled to relief from the automatic stay. 

On appeal, Mr. DiVittorio first argues that the district court erred in dismissing his complaint.

With respect to the summary judgment determination, Mr. DiVittorio submits that the bankruptcy court erred in holding that, by way of the Modification, he waived his rights to rescission. Alternatively, Mr. DiVittorio contends that, even if he waived his right to rescission, this court still must recognize the rescission of his brother and co-mortgagor. HSBC disagrees. It argues that Mr. DiVittorio executed a valid waiver of any rights to rescission that he may have had and, furthermore, that the actions of Mr. DiVittorio's brother are irrelevant to the issues before the court.
Mr. DiVittorio contends that, by signing the Modification, he did not waive his rights to rescind the transaction. First, he claims that, because the TILA and the MCCCDA are consumer protection statutes, the rights to rescission provided in those laws only can be waived under very limited circumstances, which are not satisfied in the present case. Alternatively, he submits that the policies of the TILA and the MCCCDA would be thwarted by allowing waiver of rescission in these circumstances, especially where, as here, the waiver was not entered knowingly or voluntarily. Finally, Mr. DiVittorio argues that, even if he waived his right to rescission, we still must recognize the rescission of his brother and co-mortgagor.
Turning to Mr. DiVittorio's first contention, he maintains that the TILA and the MCCCDA allow for waiver of the right to rescission only under very limited circumstances. Mr. DiVittorio further argues that, because he did not waive his right under the circumstances provided for in the statute, and in the manner described in Regulation Z, the waiver incorporated into the Modification did not constitute a valid waiver of his rescission rights.
§ 1635(d) authorizes the Board to "prescribe regulations authorizing the modification or waiver of any rights created under this section." 15 U.S.C. § 1635(d) (emphasis added). The same is true with the Massachusetts analogue. However, the right to rescind created by § 1635(a) expires after three years. The MCCCDA, which employs the same operative language as the federal statute, see Mass. Gen. Laws ch. 140D § 10(f), and "should be construed in accordance with the TILA," Mr. DiVittorio, however, attempted to rescind the transaction more than six years after the consummation of the transaction.

Mr. DiVittorio next argues that recognizing his waiver would thwart the policies undergirding the TILA and the MCCCDA. The waiver of rights under the circumstances presented here does not "thwart the legislative policy which [the TILA] was designed to effectuate. TILA was designed to promote a uniform system of disclosures to allow consumers to make informed credit decisions. Here, the Modification, which included the waiver provision, was the product of lengthy negotiations. Furthermore, in exchange for his release, Mr. DiVittorio received a significant reduction in the interest rate over the term of the loan and avoided foreclosure of his property. Finally, the bankruptcy court approved the waiver. We believe that, given the guidance of counsel, the time for reflection, the reduction in interest rate obtained and the specific approval of the court, the policy concerns of TILA were not frustrated by the waiver provision in the Modification. Based on the totality of circumstances, we also agree with the bankruptcy court that, as a matter of law, Mr. DiVittorio's waiver was knowing and voluntary.
Third, both the motion to modify filed in the bankruptcy court and the Modification itself explicitly addressed issues related to loan documentation and origination. In the motion to modify, Mr. DiVittorio represented that he had "engaged in extensive negotiations regarding the subject original loan documentation including the original note and mortgage." Moreover, in the Modification, Mr. DiVittorio explicitly waived any claims "in connection with the making, closing, administration, collection or the enforcement by Ocwen of the loan documents, this modification or any other related agreements."

Finally, Mr. DiVittorio argues that, even if he waived his right to rescission in the Modification, the bankruptcy court was required to take notice of his brother's rescission. The bankruptcy court concluded that, because Joseph was not a plaintiff in the adversary proceeding, it need not consider the effect of his separate claim of rescission. We regularly have considered such perfunctory arguments to be waived. "It is not enough merely to mention a possible argument in the most skeletal way, leaving the court to do counsel's work, create the ossature for the argument, and put flesh on its bones."
Even if Mr. DiVittorio had not waived his rescission rights when he agreed to the Modification, however, we would conclude that Mr. DiVittorio has failed to state a claim for relief under the TILA or the MCCCDA.
Regulation Z requires that "[t]he creditor shall make the disclosures required by this subpart clearly and conspicuously in writing, in a form that the consumer may keep." 12 C.F.R. § 226.17(a)(1). Among the disclosures that must be made are the APR, see 12 C.F.R. § 226.18(e), the finance charge, see id. § 226.18(d), and the payment period, see 15 U.S.C. § 1638(a)(6); 12 C.F.R. § 226.18(g). Mr. DiVittorio believes that IndyMac's disclosures were deficient with respect to each of these requirements.
We conclude that Mr. DiVittorio waived any rights he had under the MCCCDA when he signed the Modification.  Alternatively, we believe that Mr. DiVittorio has failed to state a claim for relief under the MCCDA. The judgment is therefore affirmed.

Mortgage not avoided or subordinated as it was properly assigned;
Still waiting for Mass. Supreme Court to rule in Eaton as to whether the foreclosing party must also hold the note:

PROCEDURAL POSTURE: Defendants filed a motion to dismiss plaintiff Chapter 7 trustee's complaint, which sought avoidance or subordination of (i) a first mortgage originally given by the co-debtor to one of the defendants, the nominee for defendant mortgage company, (ii) a confirmatory mortgage from both debtors to defendant indenture trustee, as nominee for the mortgage company, and a second mortgage given by the co-debtor to the nominee.
OVERVIEW: The co-debtor executed two notes payable to the mortgage company in connection with the purchase of property. To secure her obligation, she granted the nominee a first and second mortgage. At the time of the mortgage transactions, title to the property stood in the names of both debtors as tenants by the entirety. The nominee later assigned the first mortgage to the indenture trustee. After the co-debtor defaulted, the indenture trustee obtained a state court judgment enforcing a settlement in which the debtors agreed to execute a confirmatory mortgage. After the debtors refused to sign, the attorney for the indenture trustee signed the confirmatory mortgage. The Chapter 7 trustee argued that the first mortgage and confirmatory mortgage were invalid because the mortgage company was not named as the grantee and never accepted them. The court held that the first mortgage absolutely identified a grantee, the nominee, and it was the nominee, not the mortgage company, which, if acceptance was necessary, would have been charged with that responsibility.
OUTCOME: The court granted defendants' motion.

Court ordered over-secured creditor to file an application for post-petition fees and expenses before ruling on them as actual and reasonable as part of the creditor’s proof of claim in the Chapter 13 case:

(IN RE: ROSA M. MELENDEZ TORRES), 2012 Bankr. LEXIS 121 (Bankr. D.P.R. 1/9/12)(ENRIQUE S. LAMOUTTE, United States Bankruptcy Judge).                 
PROCEDURAL POSTURE: A Chapter 13 debtor filed an amended objection to an amended proof of claim filed by a creditor following a remand from the United States Bankruptcy Appellate Panel for the First Circuit (BAP). 
OVERVIEW: Following a pretrial hearing, three issues remained in dispute: whether an oversecured creditor could claim post-petition fees and expenses in the proof of claim filed for amounts owed prepetition; whether attorney's fees and expenses incurred by the creditor in prosecuting an appeal were an administrative expense that could be claimed when the BAP did not award costs and expenses  to the prevailing party; and, assuming that the creditor could claim the administrative expenses, if the same were actual and reasonable. The creditor argued that the terms of a contract entitled it to the fees and expenses requested. The court disagreed, noting that in a Chapter 13 case, there was a distinction between claiming prepetition fees and expenses and post-petition fees and expenses. While prepetition fees and expenses were determined solely in accordance with the underlying agreement and applicable non-bankruptcy law and were not subject to the reasonableness standard required by the bankruptcy law, a request for post-petition fees and expenses had to comply with
11 U.S.C.S. § 506(b) and Fed. R. Bankr. P. 2016. The post-petition fees and expenses were subject to the actual and reasonable standard.

OUTCOME: The court ordered the creditor to file an application for post-petition fees and expenses pursuant to
11 U.S.C.S. § 506(b) and Fed. R. Bankr. P. 2016 within 14 days. The debtor and the Chapter 13 trustee were ordered to file an opposition within 21 days from its filing.

Debtor entitled to cost/fees where creditor filed complaint attacking her discharge without any discovery in advance of doing so, and did not comply with Rule 9 re “specificity”, nor did creditor attend 341(a) meeting;
Creditor made no “substantial” settlement offer to dispose of the matter:

(In re KIMBERLY A. CONANT)FIA CARD SERVICES, N.A., v. CONANT,  2012 Bankr. LEXIS 286 (Bankr. D. Mass. 1/23/12)(Joan N. Feeney, United States Bankruptcy Judge).
PROCEDURAL POSTURE: Counsel for defendant debtor filed an application for compensation pursuant to 11 U.S.C.S. § 523(d), requesting compensation for services in the sum of $10,683.75 and reimbursement of expenses in the sum of $45.98.
OVERVIEW: Plaintiff creditor alleged that debt owed it was non-dischargeable pursuant to
§ 523(a)(2)(A). The creditor later offered to dismiss the action for return of the $250 filing fee. The debtor filed a motion for summary judgment. In its objection to the motion, the creditor did not challenge the debtor's assertions that it did not conduct any discovery before filing its complaint or amended complaint, relying instead only on inferences from its internal records and the debtor's bankruptcy schedules. The court granted the debtor's motion. The court held that the creditor did not make a substantial settlement offer because, at the time the creditor proffered its offer, the debtor had incurred fees of $2,241.25 and would have had to advance an additional $250, in addition to reimbursing her counsel for the expenses it had incurred. The court concluded that the creditor's amended complaint was substantially unjustified and awarded most of the amount requested, slightly reducing the amount as requested because the time entries lacked specificity in a number of instances and the number of hours expended in preparing the summary judgment motion appeared to be somewhat excessive.
OUTCOME: The court approved attorneys' fees in the sum of $9,583.75 and costs in the sum of $45.98.
DISCUSSION:  According to the court in Sculler v. Rosen (In re Rosen), 151 B.R. 648, 655 (Bankr. E.D.N.Y. 1993), "There are three goals satisfied by Fed.R.Civ.P. 9(b): '(1) providing a defendant fair notice of plaintiff's claim, to enable preparation of a defense; (2) protecting a defendant from harm to his reputation or goodwill; and (3) reducing the number of strike suits.'" (citation omitted).  In her Motion for Summary Judgment, the Debtor stated: The Plaintiff failed to conduct a 2004 examination prior to the commencement of litigation, and declined to serve any discovery on Ms. Conant after the filing of the first Complaint up until the filing date [of] this motion. The discovery deadline expired on August 11, 2011. Since fraud claims involve the Defendant's state of mind, the Plaintiff should have conducted a minimal amount of discovery so that it may support its allegations of fraudulent intent or representations. This inaction by the Plaintiff is further evidence that this litigation is nothing other than a strike suit.
The Debtor also stated that the Plaintiff did not attend the section 341 meeting of creditors.

District Court can grant/condition dismissal of appeal:

RUTH E. RODRIGUEZ-BORGES on behalf of her minor daughter A.G.D.R., Appellant,
v. MANUEL A. DOMENECH RODRIGUEZ, et al, Appellee, 2012 U.S. Dist. LEXIS 3828 (D.P.R. 1/11/12)(Jay A. Garcia-Gregory, District Judge).

Appellant-Plaintiff Ruth Rodriguez-Borges ("Rodriguez-Borges") comes to us on appeal from an
opinion and order issued by the Bankruptcy Court on March 29, 2011. The lower court dismissed the case before its consideration pursuant to 11 U.S.C. § 305 and 28 U.S.C. § 1334 (c)(1), because the "controversy at hand [was] actually being litigated in the State Court." Before this appeal was fully briefed, however, Appellee-Defendant (the "Trustee"), 1 petitioned the Court to disqualify Luis Melendez-Albizu as counsel for Rodriguez-Borges. After a flurry of motions, Rodriguez-Borges countered with a Motion for Sanctions against the Trustee and its Attorneys, on grounds that their petition did not show there was any conflict of interest present.

The day after filing her motion for sanctions, Rodriguez-Borges moved for voluntary dismissal without prejudice. According to Rodriguez-Borges's account, much of the instant appeal had been rendered moot by a state court resolution in the proceedings running parallel to the bankruptcy case. This statement was hotly disputed by the Trustee; supposedly, the state court resolution that rendered moot this appeal was issued by the state court more than a year ago, on October 8, 2010. Thus, the Trustee saw fit to petition this Court for sanctions against Rodriguez-Borges, for violations of Bankruptcy Rule 9011.

: Before the Court then are the motions for sanctions and Rodriguez-Borges's Motion for Voluntary Dismissal. For the reasons stated below, the motions for sanctions are hereby DENIED,  and the motion for voluntary dismissal is GRANTED.

The Federal Rules of Bankruptcy Procedure govern the present petition for voluntary dismissal. Specifically, when an appeal is docketed before the district court, an appellant may move to dismiss the appeal by either a stipulation between the parties, or "on motion of the appellant on terms and conditions fixed by the district court."
Fed. R. Bankr. P. 8001(c)(2). Here, Appellant Rodriguez-Borges has moved for voluntary dismissal without prejudice (Docket No. 34), and the Appellee has opposed, asking that the Court render the judgment with prejudice.  We note that the docket has been fattened not by arguments and motions on the merits, but rather by squabbles between the attorneys in this case. Rather than using its scarce resources to study the instant appeal, the Court has been forced to deal with the aforementioned disputes. Rarely should a court dismiss a case with prejudice when it has not had an opportunity to pass judgment on the underlying merits of a case. Pursuant to Bankruptcy Rule 8001, this Court has discretion to set the terms and conditions of Rodriguez-Borges's petition. In the sound exercise of its discretion, the Court finds that it is not proper to enter judgment on this appeal with prejudice.
Relief from judgment denied:

(IN RE: WILLIAM M. DANIELS) WARREN E. AGIN, CHAPTER 7 TRUSTEE, PLAINTIFF, v. WILLIAM M. DANIELS, 462 B.R. 356; 2012 Bankr. LEXIS 45 (Bankr. D. Mass. 1/5/12)( William C. Hillman, Bankruptcy Judge).
PROCEDURAL POSTURE: Before the court was defendant debtor's Motion for Relief from Judgment, based upon excusable neglect and newly discovered evidence, through which he sought relief from a judgment ordering him to turnover his interest in a profit sharing plan and two individual retirement accounts to plaintiff, the Chapter 7 trustee.
OVERVIEW: Debtor apparently sought relief from a portion of the decision wherein the court found that he "actively misrepresented material facts" and engaged in "a pattern of bad faith concealment." Debtor cited case law that when a party was blameless, his attorney's negligence qualified as a "mistake" or as "excusable neglect" under
Fed. R. Civ. P. 60(b)(1). Despite being timely, debtor's Motion was riddled with problems that prevented it from getting off the ground. Before debtor could assert that a certain attorney's purported negligence constituted "excusable neglect" under Fed. R. Civ. P. 60(b)(1), he had to first address why a second attorney did not raise that argument in opposition to summary judgment. Second, debtor's claim of excusable neglect fell flat. Third, debtor's claim of "newly discovered evidence" was a nonstarter. Fourth, even assuming, arguendo, that the evidence debtor pointed to was actually "newly discovered," the knife cut both ways--it proved that debtor was aware that his schedules were inaccurate and filed them anyway.
: The Motion was denied.

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