Defendants CitiFinancial and Carrington Mortgage Services, two former holders/servicers of the Plaintiffs' mortgage, requested dismissal of the complaint under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted, for three separate causes of action. The Plaintiffs alleged that the two Defendants violated § 524(i) with misapplication of payments and an inflated account payoff balance. The Court determined that the Plaintiffs' allegations that CitiFinancial and Carrington both transferred Plaintiffs' mortgage account with an inflated balance due to misapplied payments is sufficient to constitute an act to collect for the purposes of withdtanding a motion to dismiss under Rule 12(b)(6).  Also, the Court found that the Plaintiffs plausibly pleaded the elements required under § 362(k) for violation of the automatic stay. The Plaintiffs' alleged violation of the FDCPA against Carrington is not related to the bankruptcy case and the Court lacks subject matter jurisdiction over that count of the complaint.

The Court granted the Defendant/Debtor's motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim for relief that is plausible on its face, and granted the Plaintiffs leave to amend the complaint. The Plaintiffs alleged nondischargeability of a debt pursuant to 11 U.S.C. § 523(a)(6) based on unliquidated state-law causes of action: tortious interference with prospective economic advantage, tortious interference with contract, libel, conspiracy, and violation of California's Unfair Competition Law. The claim for violation of California's Unfair Competition Law was dismissed with prejudice as that cause of action is limited to equitable,injunctive relief, and may not be the basis of a § 523(a)(6) dischargeability complaint.
The basis for the complaint was a series of allegedly defamatory emails sent by the Defendant/Debtor, who was a former member of the board of directors and a current shareholder of the corporate Plaintiff, to other investors and board members. The counts in the complaint related to torious interference with contract and tortious interference with prospective economic advantage were determined by the Court to lack elements necessary to constitute an injury under California law, and therefore did not result in a debt that could be subject to nondischargeability under § 523(a)(6). The counts of the complaint that were plausible under California law, libel, unlawful or unfair business practices, and conspiracy, were analyzed to determine if they constituted claims for willful and malicious injury under the § 523(a)(6) dischargeability exception. The Plaintiffs' allegations that Hunter made his statements "recklessly" and "in knowing disregard for their truth" may be sufficient to obtain a judgment for defamation under California law, but that mental state does not plausibly allege an intent to injure sufficient to render that judgment nondischargeable under § 523(a)(6). As Plaintiffs did not plead a willful and malicious injury for the tort of defamation, their pleading for conspiracy suffers from the same deficiency and is not alleged to be a willful and malicious injury subject to nondischargeability under § 523(a)(6).

The Debtor filed a motion to convert his case from Chapter 7 to Chapter 11 pursuant to section 706(a) of the Bankruptcy Code. Under section 706(d) the case may not be converted unless the debtor may be a debtor under such chapter. The court denied the Debtor's motion to convert his case from Chapter 7 to Chapter 11. The court determined that the objecting parties met their burden of proof by a preponderance of the evidence that the conversion should be denied, based upon cause under section 1112(b) of the Bankruptcy Code, including a substantial or continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation under 1112(b)(4)(A) and a lack of good faith.

Pro se creditor filed an objection to confirmation of debtors' proposed plan prior to the claims bar date, describing his claim against the debtors in that document  After the claims deadline he filed a proof of claim in the amount of $3,210.00, requesting priority status. The debtors filed an objection to claim 11 of the creditor as untimely filed. The Fourth Circuit recognizes informal proof of claim where a creditor has taken some action that gives sufficient notice that the creditor has a claim against the estate. Davis v. Columbia Constr. Co., Inc. (In re Davis), 936 F.2d 771, 776 (4th Cir. 1991). The debtors' objection to claim as untimely filed is overruled and their objection to the claim as a priority claim is sustained. Creditor's claim is allowed as a general unsecured claim.